Monday, October 22, 2007

Sick

A reader sent me this:
"Roger guesses the house is worth 10 percent less than it cost to build--and he's worried its fall has just begun. "I have personal angst," Elliott says. "Yes, I built this fantastic house. My wife loves it. Everybody in the neighborhood thinks it's great." But it was a house built for appreciation. Now that prices are falling, he wishes he'd built something far more modest."

story: http://www.newsweek.com/id/52608/

And, check out this journalist following her house price like a stock:

This summer New York Times columnist Michelle Slatalla described how she had begun checking the value of her Bay Area home (using sites like Zillow and Cyberhome) every few hours. In a recent two-month period, the Web suggested her home had lost $92,248 in value. "I really, really need every tiny bit of information I can get about managing my biggest investment,"
Sick. Just sick. Houses are places to live and raise a family, not investments, not to be treated like stocks, or at least they shouldn't be. I know I am naive. But I feel terrible for all the people who just wanted a decent place to call home, a place to raise the kids, and yet who have been priced out and/or over-extended with crushing debt due to the aggregate behavior of these sick, greedy specuvestors. This is why investment in houses should be curtailed in my naive point of view.

21 Comments:

Blogger Lisa said...

Sick indeed. And just think of all the money spent remodeling and adding on to existing homes. Do you really think someone would have spent $100K on that chef's kitchen if they knew it would never even remotely pay out?

Oct 23, 2007, 5:36:00 PM  
Blogger Tyrone said...

I don't think you're naive.

She said, "I really, really need every tiny bit of information I can get about managing my biggest investment,"

What an idiot. And a double idiot for believing Zillow. People totally bought into this garbage--your home is an "investment". Rubbish. If you make money on a sale, great! Otherwise, enjoy it for what it is.

Oct 23, 2007, 7:55:00 PM  
Blogger Risa said...

I could not agree more - a house is a home not an investment.

Oct 23, 2007, 8:00:00 PM  
Blogger Holland said...

According to Bloomberg, Jim Rogers is bailing all his assets out of the dollar. The following is his comments:

``I'm in the process of -- I hope in the next few months -- getting all of my assets out of U.S. dollars,'' said Rogers, 65, who correctly predicted the commodities rally in 1999. ``I'm that pessimistic about what's happening in the U.S.''

Another renowned Japanese economist recently also said that the sub prime problems in the US just started. We will see a much bigger disaster to happen next year.

Oct 23, 2007, 10:34:00 PM  
Blogger mountainwatcher said...

Once again, I'm looking at the Zillow estimates for my neighborhood in Marin.

The prices seem very high, considering the current market.

Is Zillow just another arm of the RE propaganda machine?
How do they create these estimates?

Oct 24, 2007, 12:42:00 AM  
Blogger Marinmaven said...

Back in the days of the Internet Bubble, there was a desktop program that can visually track your stocks in realtime (ie. 20 sec delay). I was working for a company that just went IPO and loaded this program on my desktop. Soon everyone at the company had this on their desktop while the stock went over 100 bucks a share.
Paperworth fantasies danced like sugarplums in our heads -- it was hard to resist the notion that this wasn't real money.

After the higher muckimucks were able to cash in their stocks -- the price fell and the rest of us watched as the price went down to 30ish region before we could vest. Fortunately, I treated that paperwealth like money i never had and understood that this was a racket and left happy.

I assume this is the case with this bubble. People saw real estate wealth as real wealth.

One of the biggest mistakes people make is that they make improvements that increase the worth far beyond what the neighborhood will or should bear.

Investing 35k, 50k, 100k in your kitchen or home is okay if:
1. You can really afford it.
2. You are planning to live in your home till you die and keep it in the family.
3. You are actually going to use it and it will make you more productive.
4. You are making improvements that will make your home more energy efficient in the long term.
5. You look at it as supporting the local economy and technologies you want to support.

If you are making improvements so you can get more when you sell the home you might as well go to Vegas and gamble, because you are gambling that people will really spend more than the neighborhood is worth and that people will be able to finance the figure you want to get. While you can get away with it in a bubble, it is disasterous when it busts.

Oct 24, 2007, 9:46:00 AM  
Blogger marinite2 said...

Thanks for coming back Marinmaven.

If you are making improvements so you can get more when you sell the home you might as well go to Vegas and gamble, because you are gambling that people will really spend more than the neighborhood is worth

Not to mention that one person's upgrade is another person's remodel. In other words, not everyone likes granite countertops, etc., or any of the other trendy upgrades that we are "supposed" to all lust after.

Oct 24, 2007, 9:58:00 AM  
Blogger marinite2 said...

The prices [Zestimates] seem very high, considering the current market.

They are. There is a ton of stuff on the net regarding the bogus nature of the Zestimates.

Basically, as I understand it, the Zestimates are based primarily on the appraisal plus some weighting factor which is biased in the direction of the current market trend (but with some lag time). So the Zestimates are only as good as the last appraisal*.

Zillow claims their Zestimates fall within about +/-10-15% of the actual sale price 60-70% (depending on region) of the time. That is horrible and nearly useless on a statistical basis.

The Zestimates are what they are. People will use them to bolster their wishful thinking if they can. And once the Zestimates start adjusting for the current down trend, then people will be dismissive of them once the Zestimates fail to bolster their wishful thinking.

*and we know how bogus most appraisals are and how corrupt many in the appraisal business are. And if you think Marin appraisers are any different then I think you are probably fooling yourself.

Oct 24, 2007, 10:09:00 AM  
Blogger marin_explorer said...

...he wishes he'd built something far more modest

I suspect he knew all along he was being extravagant, where the amenities would only "pencil in" with sustained appreciation. And, certainly a contractor should be aware of the resale value (or liability) of expensive additions. For every contractor who should know, I bet there are 1000 homeowners without a clue, flushing money down their solid-gold toilets, so to speak.

Oct 24, 2007, 3:40:00 PM  
Blogger Lindsay said...

Yes, said columnist is not wise for using Zillow as a way to track the worth of her home. Zillow is off quite often. But don't discriminate against people without 2 kids, 1 golden retreiver and a 10 year loving marriage. It's not "sick" to consider a home an investment, especially when it takes a significant portion of one's net worth to obtain.

Oct 24, 2007, 5:34:00 PM  
Blogger SEE YOU said...

Does anybody else think that the So-Cal fires might be arson due to mortgage defaults? Just a thought... JEWISH LIGHTNING! ANYONE?

Oct 24, 2007, 8:23:00 PM  
Blogger sf jack said...

Ah, yes.

Speaking of big freaking FIRES, and just for the record, I will state that I'm still in favor of the City of San Rafael (though admittedly I'm not a resident) subsidizing a portion of the fire chief's house purchase in said community.

Oct 24, 2007, 11:14:00 PM  
Blogger sf jack said...

Should be said that "Ah, yes." was in reference simply to the subject of fires.

As for the particular type of lightning described in an earlier comment [Oct 24, 2007 8:23:00 PM] - who knows?

Oct 24, 2007, 11:19:00 PM  
Blogger Lisa said...

From today's Marin IJ, an article about home owners having their property taxes reassessed...

"Any change in property tax would likely come for homes bought during recent years. The base property tax is set by the purchase price. If the slip in home sales has sent prices plummeting below that purchase price, a homeowner might benefit from a review.

Thayer said likely candidates could be those homes purchased in the past year or two.

"They would have to be very recent buyers and they would have to be in areas where homes are declining," she said.

The county recently reduced the tax value of a home in Novato's Atherton Ranch neighborhood that sold in 2006 for $1,159,900. Recent sales have been for less, and the county lowered its tax value to $1,065,000."

The article then went on to say how fortunate we are in Marin that it's faring better than other areas, blah, blah, blah.

Yep, tell that to all the schmucks who bought over the past 2 - 3 years. I'm sure they'll go home and kiss their mortgage statements.

Besides, we're all so lucky to live here. That alone makes that albatross worthwhile.

Oct 25, 2007, 12:44:00 PM  
Blogger marinite2 said...

Lisa,

What disgusted me about that IJ article is how it was so quick to say that "prices are flat" here and yes, how "fortunatet" we are. If prices are flat, then why are people getting their tax base re-assessed? If prices are flat then their tax could only go up.

The real question I have is why are Marinites so unable to accept that we are as subject to economics as any other place?

Oct 25, 2007, 1:37:00 PM  
Blogger Lisa said...

"The real question I have is why are Marinites so unable to accept that we are as subject to economics as any other place?"

Think of the huge bets people have made on housing here. If you bought even a starter house for $700K, by the time you factor in interest payments, you're on the hook for around $1.4MM. If that "investment" goes south, those are numbers most people won't recover from. Talk about throwing money away!

And let's not forget how the house ATM helped finance that new BMW in the driveway and the stone pizza oven in the back yard and private school for the kids.

The fact that the Marin Heat Index is still stuck in the mid 30's says it all. We are not special.

And remember that prices will be set at the margin, by people who HAVE to sell, for one reason or another.

Oct 25, 2007, 2:00:00 PM  
Blogger greebs said...

Agree with almost all of your postings, and since I'm in the midst of negotiating to buy my first home (which will be in Marin if it goes through), it's always interesting.

But to state that a home shouldn't be an investment, it should be a place to live...is (with respect) a pretty silly statement. It would be nice if one could live where they wanted, and then if they needed a bigger place, simply have the money for it. But for most of us, it will be the largest investment we'll ever make.

Now, there's a difference between a flipper and someone who thinks that, in ten years or so, they should expect their home to be worth X percent more than they originally paid. The first type are gamblers, the second are...everyone else.

Oct 25, 2007, 2:02:00 PM  
Blogger Holland said...

That is why I think buyers of Marin real estate are facing higher risks than other low median prices areas such as Sacramento. There is a lot room for prices to drop. During the NASDAQ crash in 2000, the high fliers were the ones got punished the most.

The economy is cooling off and recession is around the corner. If companies start to lay off people, there will be fewer people able to afford paying high monthly mortgage payments. We are seeing financial sector is starting to lay off people. How will S. Marin fare from this debacle? Have you noticed there are a lot for sale signs along the Sir Francis Drake Road lately?

Oct 25, 2007, 2:44:00 PM  
Blogger Marinmaven said...

Of course, as always, I could be wrong, but...

Yes, of course there is a difference between a flipper and a regular consumer in the degree of risky behavior. The real estate flipper is sort of like the guys who quit their jobs in the late nineties to be day traders, while the majority thought you can't go wrong front loading your 40k with mostly tech stocks. Many intelligent adults laughed at me when I chose to diversify my retirement fund in lieu of going with the tech boom.

I really question to what degree one can control whether or not they will get x from "investing" or "buying" a home, because there are so many external factors at play. X is what people are willing or able to pay and if one has to sell in an economic downturn and/or glut in the market, x will not equal their expectations.

The addition of speculators makes real estate riskier, because it forces prices up to a level where people take on too much risk to keep up. The creation of bigger homes and "luxury" details drive up prices of homes as well.

If you can sell in an economic boom, you will probably be okay. This is the case in the stock market. You can control your fate if you know when to buy or sell. If you get in too late or leave too late, you will get screwed. Such is the life in the world of booms and busts. In my opinion, the market is broken. Markets work if people behave rationally, but people do act irrationally based on various emotional appeals.

People made profits off real estate because there was a perfect storm of people taking their money from the stock market to the real estate market after 9/11 and Enron and very lax and irresponsible lending practices.

Buying a home is a huge expenditure and committment. Most of us if we live within our means will not live in our "dream" home (mine is a modular eco-home with solar, rainwater and grey water collection), but the home we can afford. That is okay.

Our consumerist society pushes the idea that we can own that home of our dreams if only we take out that larger or riskier loan.

We live in a 1285 sq ft home -- in the 1950-60s a family with 5 kids lived here (they eventually needed a bigger place as the kids grew). Our parents and grandparents lived in smaller homes -- lightening didn't strike.

1955 tract homes in our neighborhood in North Marin went for 14k-17k in 1955, and 35k-40k in 1970s, regardless of inflation there is now way these homes are worth 700-800k. This insanity is not sustainable, but it is the result of each homeowner expecting x more than they paid for the property.

Maybe I am just old fashioned. Investment in a home is more an investment in being able not to be at the whim of a landlord, having a secure place for your kids to grow up, having a place for you to live in retirement, having a place that you can make your own, and having something to give your adult children after you die.

Of course, you want to be able in an emergency be able to get enough money from the sale of your home if you need to move. I don't know how reasonable it is to expect a profit or be able to move into a bigger home.

Oct 25, 2007, 7:25:00 PM  
Blogger Marinmaven said...

Btw...the eco-home is my DREAM home, not my real home, which is NOT my dream home, but it is home.

Oct 25, 2007, 7:28:00 PM  
Blogger Homes said...

This comment has been removed by a blog administrator.

Oct 25, 2007, 7:30:00 PM  

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