If you are waiting What are you waiting for?

[optimusprime_IHB]

The house I would like to own, I cannot afford it yet. The house I can afford now, isn't a good investment.

Finally someone has the guts to speak the truth. I think what you said sums it up. This is the problem with america and why we have a credit crisis, even poor people have a sense of entitlement. I deserve a nice house.

Talk about a lack of reading comprehension skills.

How did you come up with that conclusion?

In layman's terms....20%down basically can't afford what he really wants, but doesn't want to overpay for something he can buy now.

LOL

 

[skek_IHB]

.

 

[WestparkRenter_IHB]

I'm not waiting to save over renting -- I don't mind paying a premium to own, I personally see value in it (and I currently own). But I do want to see rollbacks to 2003 or earlier prices, which to me represents a fair approximation of where prices should be if you remove the effects of the bubble. The neighborhoods we are interested in aren't there yet. Frankly, they aren't even close. Like Ipop, we'll eventually reach a drop dead date where we have to move no matter what. All bets are off if we get to that point.

I pretty much agree with that. 2002 or less would be even better. That said, if the financial markets calm down (ha!) and we see something we both really, really like and it is within our budget, the we would pull the trigger. In the meantime, we have upgraded our place a bit with some items we wanted to make it easier to sit for a bit.

No kidding. I've been surprised how much the turmoil in the markets has affected my own feelings about buying. About a month ago, we evaluated the real estate market and concluded that we really weren't likely to buy anything in 2008 -- prices just needed to come down too far. I was disappointed. Now, after the market crash, I don't want to spend that kind of money, even if the price was right. I know this kind of erosion in consumer confidence occurs on a macro level, but it is weird to be experiencing it personally.

Same here. Jobs were abundant in my company 3-4 years ago. Now they are starting to lay off people. Who knows what's going to happen?

 

[25inIrvine_IHB]

A little off topic but everytime I see the topic title all I can think of is Arnold's line from Kindergarten Cop:

"Who is your daddy and what does he do?"

Arnold Soundboard

I have been thinking about this for about the past week everytime I went to this board and saw the title, so thought I'd share

 

[momopi_IHB]

Usually, the home that you live in doesn't generate income, and is negative cash-flow. I'd suggest buying a home that you can comfortably afford, and only if the property makes you "feel good". If you don't feel good about living there, don't buy (trust your gut instincts) and look elsewhere.

An investment would be an income property that you buy to let (rent/lease) and (preferably) generate positive cash flow. Ideally, the rental income should cover all expenses, and allow you to ride out RE cycles to build equity over time. Real estate investments allow you to leverage your wealth and eventually make substantial passive income.

 

[profette_IHB]

 

[acpme_IHB]

skek, you're not alone. i was looking at treasury yields today and noticed 10-yr TIPS have fallen off a cliff lately. the TIPS spread implies long-term (key word) inflation under 1%! sort of counterintuitive to inflation expectations in the near and medium-term given the money presses are working overtime.

one interpretation of the odd spread is investors don't expect all this infusion of money to do squat. in a mild recession like the last one where consumers weren't that hard hit, the fed printed money and people actually spent it. money supply shoots up as expected. in deep recessions of the past, the fed printed money and everyone stuck it in their mattresses. we seem to be seeing more of the latter than the former happening. the velocity of the money supply is tempered by the lack of consumer confidence. this will just continue to wreak havoc on asset prices... including real estate.

the same thing happened in japan after the late 80s. they dropped int rates to nothing but the japanese, already big savers to begin with, simply ignored it and continued to stick their money into their mattr- err... tatami mats? anyway, effectively ZERO % int rates and yet they had DEflation. americans are different but i'm definitely hearing a diff tune from folks this time around. people are less optimistic about the future, much more fearful, and holding off on those purchases when after the tech burst and 9/11 they would have said, "screw it. lets go to vegas for the wkend!"

 

[25w100k+_IHB]

in deep recessions of the past, the fed printed money and everyone stuck it in their mattresses. we seem to be seeing more of the latter than the former happening.

Forgive my ignorance, but this time around, why is that bad? Isn't it banks who are short on capital, which in turn is tightening credit? If a bunch of people dump money into CDs, Money Market accounts, and savings, isn't that what we need?

 

[ipoplaya_IHB]

in deep recessions of the past, the fed printed money and everyone stuck it in their mattresses. we seem to be seeing more of the latter than the former happening.

Forgive my ignorance, but this time around, why is that bad? Isn't it banks who are short on capital, which in turn is tightening credit? If a bunch of people dump money into CDs, Money Market accounts, and savings, isn't that what we need?

Because you and me and acpme and skek, well not skek, might lose our jobs...

 

[CalGal_IHB]

Because you and me and acpme and skek, well not skek, might lose our jobs…

. . . and CalGal, and Mr. CalGal. It's a daily worry.

 

[acpme_IHB]

Forgive my ignorance, but this time around, why is that bad? Isn't it banks who are short on capital, which in turn is tightening credit? If a bunch of people dump money into CDs, Money Market accounts, and savings, isn't that what we need?

i remem a professor once put it this way -- people think banks give loans to help those who need to borrow money. in reality, banks give loans to people who already have money, but just looking for some more. if we don't spend, businesses stay stagnant. the two main sources of financing (aside from the US treasury just giving you money ) are selling shares in the equity mkts or borrowing debt from banks -- and both places have gotten so badly burned that neither are interested in investing anymore. and so the economy just continues to sit there.

an interesting example is the gardenwalk shopping ctr that just opened near disneyland. it's basically a concrete ghost town. disney (in this case, think of them as the bank) had originally planned to build two new hotels in the mall but are now balking because the plaza is underperforming expectations. disney has their own problems but they still have the resources available to go fwd with the project if they wanted. retailers like h&m have dropped plans to open stores because disney's presence is a vital sign of confidence and a disney-branded hotel attached to the ctr is a built-in source of foot traffic. so the mall is in a bind -- they need disney's committment to draw retailers and retailers won't committ without disney. and what's missing? consumers! visitors coming to anaheim and spending their money!

 

[freedomCM_IHB]

Profette--

I actually hate the right hand chart!!!

It makes it appear that the size of the 91 bubble and the size of the 2006 bubble were the same. But in fact, the latter was 3x the size of the former. It stands to reason that the 2006 and on drop is going to be both steeper and deeper, no?

 

[vicstah_IHB]

The tech bubble was caused by the incredible evaluation given to dot-com companies that had no viable business model, but instead focused on getting awareness and market share (most of the time at a loss). However, a start up seeking funding still needed to figure out a business model, identify target audience, build a team, AND present their ideas to many Venture Capitalists before someone would be willing to provide money. This qualification process at least limited the amount of financial damages to certain regions of US. The current financial downturn, however, has affected everyone. Consumer and business spendings are both down, and global markets have declined significantly across the board. Like Skek, I'm astonished at the 'erosion of consumer confidence'. Personally, I am shocked at the lack of lending standards given by the mortgage companies, banks, and builders that allowed anyone and everyone to purchase a house. In the end, we, as tax payers, have to somehow pay for these companies' "oversight". Like many on IHB, I have worked hard, saved, and spent many hours researching and learning about the industry. What am I waiting for? I'm waiting for this mess to clear up, and to buy a house that matches my criteria (good location, convenience, and fits our lifestyle). I think all of us would prefer to own, but are waiting for the market to get closer to the norm. Only time will tell whether the home prices get back to 2002 (or even 2001 level). Until then, the best we can do is stay patient.

 

[tenmagnet_IHB]

i remem a professor once put it this way -- people think banks give loans to help those who need to borrow money. in reality, banks give loans to people who already have money, but just looking for some more. if we don't spend, businesses stay stagnant. the two main sources of financing (aside from the US treasury just giving you money ) are selling shares in the equity mkts or borrowing debt from banks -- and both places have gotten so badly burned that neither are interested in investing anymore. and so the economy just continues to sit there.

an interesting example is the gardenwalk shopping ctr that just opened near disneyland. it's basically a concrete ghost town. disney (in this case, think of them as the bank) had originally planned to build two new hotels in the mall but are now balking because the plaza is underperforming expectations. disney has their own problems but they still have the resources available to go fwd with the project if they wanted. retailers like h&m have dropped plans to open stores because disney's presence is a vital sign of confidence and a disney-branded hotel attached to the ctr is a built-in source of foot traffic. so the mall is in a bind -- they need disney's committment to draw retailers and retailers won't committ without disney. and what's missing? consumers! visitors coming to anaheim and spending their money!

Although, I haven’t been to Gardenwalk, you bring up a very good point.

Retailers across the board are playing defense right now

I’m no expert but from what you’re saying it seems that people/consumers are not spending right now and are playing defense as well.

 

[FairEconomist_IHB]

in deep recessions of the past, the fed printed money and everyone stuck it in their mattresses. we seem to be seeing more of the latter than the former happening.

Forgive my ignorance, but this time around, why is that bad? Isn't it banks who are short on capital, which in turn is tightening credit? If a bunch of people dump money into CDs, Money Market accounts, and savings, isn't that what we need?

Two issues: first is that people may literally put it in their mattresses, i.e. hoard physical cash, not put it in CDs etc. Money in the bank can be used for loans; money in a mattress can't; so when people hoard cash like that they force banks to withdraw loans, even good profitable, justified ones. This can cause a whopper of a crash. What's happening right now smells kind of like that, although it's probably more banks hoarding cash than consumers (which produces a similar effect).

Alternatively, money saved (even in a bank) rather than spent tends to go to investment (capital equipment, buildings, infrastructure etc.) rather than consumption. The economy has to reorient to the resulting changes in what's made, and many companies go out of business. This is probably a good thing in the long run, but in the short run the reorientation can be very painful.

 

[SoCal78_IHB]

an interesting example is the gardenwalk shopping ctr that just opened near disneyland. it's basically a concrete ghost town.

Not sure about Gardenwalk, but I was at Downtown Disney last Saturday and that place was packed! It was a 3-hour wait at most of the restaurants I checked and the place was crowded. I figured with the downturn, maybe not so much, so I was surprised.

 

[Anonymous_IHB]

Disneyland itself seems way more packed this year than last year. Lines worse this year.

Dunno why, maybe it's American's going back to the cheaper 70's style vacation? (ex. vacation somewhere you can drive to, rather than somewhere you have to fly to?)

 

[WestparkRenter_IHB]

in deep recessions of the past, the fed printed money and everyone stuck it in their mattresses. we seem to be seeing more of the latter than the former happening.

Forgive my ignorance, but this time around, why is that bad? Isn't it banks who are short on capital, which in turn is tightening credit? If a bunch of people dump money into CDs, Money Market accounts, and savings, isn't that what we need?

Two issues: first is that people may literally put it in their mattresses, i.e. hoard physical cash, not put it in CDs etc. Money in the bank can be used for loans; money in a mattress can't; so when people hoard cash like that they force banks to withdraw loans, even good profitable, justified ones. This can cause a whopper of a crash. What's happening right now smells kind of like that, although it's probably more banks hoarding cash than consumers (which produces a similar effect).

Alternatively, money saved (even in a bank) rather than spent tends to go to investment (capital equipment, buildings, infrastructure etc.) rather than consumption. The economy has to reorient to the resulting changes in what's made, and many companies go out of business. This is probably a good thing in the long run, but in the short run the reorientation can be very painful.

Bank hoarding cash because of Oct 21, see link below

http://www.bloggingstocks.com/2008/10/15/will-lehman-bankruptcy-drop-400-billion-shoe-on-october-21st/

 

[EvaLSeraphim_IHB]

I'm not waiting to save over renting -- I don't mind paying a premium to own, I personally see value in it (and I currently own). But I do want to see rollbacks to 2003 or earlier prices, which to me represents a fair approximation of where prices should be if you remove the effects of the bubble. The neighborhoods we are interested in aren't there yet. Frankly, they aren't even close. Like Ipop, we'll eventually reach a drop dead date where we have to move no matter what. All bets are off if we get to that point.

I pretty much agree with that. 2002 or less would be even better. That said, if the financial markets calm down (ha!) and we see something we both really, really like and it is within our budget, the we would pull the trigger. In the meantime, we have upgraded our place a bit with some items we wanted to make it easier to sit for a bit.

No kidding. I've been surprised how much the turmoil in the markets has affected my own feelings about buying. About a month ago, we evaluated the real estate market and concluded that we really weren't likely to buy anything in 2008 -- prices just needed to come down too far. I was disappointed. Now, after the market crash, I don't want to spend that kind of money, even if the price was right. I know this kind of erosion in consumer confidence occurs on a macro level, but it is weird to be experiencing it personally.

You have no idea. We got reasonably close to getting a house this summer, but it never quite worked out. Boy am I ever glad that I can look at Quicken and see several years' worth of expenses sitting in CDs.

What you are describing is one of the factors some economists believe made the Great Depression "Great."

And the Fed remembered the theory - put forward by, among others, Lawrence Summers and myself - that what made the Depression Great was that businesses began to expect deflation. The expectation of falling prices made every business postpone its investment spending - better to wait a year and build your plant and equipment then when prices were cheaper - and so private investment collapsed.

So maybe Phil Gramm had it right and it really is all in our heads. ;-)

From Plan A to Plan Gis a good read, and seems to explain why the Fed and Treasury have done what they have so far.

 

[SoCal78_IHB]

Disneyland itself seems way more packed this year than last year. Lines worse this year.

Dunno why, maybe it's American's going back to the cheaper 70's style vacation? (ex. vacation somewhere you can drive to, rather than somewhere you have to fly to?)

I think you've got that exactly right. There is a trend these days of people taking what they call a "staycation".