Yep Folks- He caught us. Jonathan Dalton, a realtor from northwest Phoenix has an article on his new blog entitled "Popping the Bubble." In this blog Jonathan exposes the "bubble myth" and how this myth is perpetrated by those with a "personal agenda." John and I and the rest of the Bubbleheads made it up because… what was our reason again John?
Here’s an excerpt for those seeking enlightenment- and hat tip to D.C. Housing Bubble Blues for this find:
The bubble is a myth. It is a myth fueled by people either with only the slightest understanding of the underpinnings of the real estate market, those who for whatever reason wanted to buy before the run-up and didn’t, and kept alive by a national media reporting facts and figures without the slightest desire (or ability) to provide perspective to the statistics.
Some have discussed the progenitors of the real estate bubble has civic-minded citizens looking out for their fellow man. While noble, this broad brush ignores the truth behind the so-called bubble …
Bubble myths are fueled by individuals’ private agendas. Much like the woebegone criminals that appeared on the Electric Company in our youth (the guy smashing tomato sauce cans because his frog was canned as a child was my favorite), many who espouse the existence of a real-estate bubble harbor agendas that are relevant primarily to themselves but pass them off as a public good.Maybe they bought in the midst of the hysteria. Maybe they wanted to buy but lost in a bidding war on a property. Or maybe they couldn’t gather the courage to actually purchase, believing as always the market would come down even before it ran up, and now not even a drop in prices will allow them to enter the market. Or perhaps these folks are looking for the 15 minutes of Warholian fame to which everyone believes they are entitled. Blogging, like calling into talk radio, turns anyone with a keyboard (or phone) into an authority on the subject.
Bubble myths are fueled by false hope. Many choose to believe the bubble hype rather than face the reality of markets where prices, even if they have declined, are not declining at a rate anywhere close to the increase. Yet some will read the blogs and listen to the news and fully believe that if only they wait a little longer, the home they want will fall 30% in value within months and land in their lap.
Of course, the major problem with such a notion and with the entire bubble concept is real estate is not the stock market. Stocks can and do drop to zero. Entire investments – every last cent – can be lost (and more, for those engaging in truly speculative plays.) Not so real estate. There is intrinsic value in land. Always has been. Always will be. To deny that fact is to base theory purely on mythology. Land may not always appreciate. Land may not always be located in areas where people want to purchase it (ask my sister in Houston, for example.) But land will always have an intrinsic value.
Bubble myths are fueled by a media machine with little idea what they report. As I’ve said many times, having been a reporter for a living, the vast majority of reporters are knowledgeable in many areas and expert in none. The job doesn’t require expertise and, frankly, when you are on a tight deadline it’s not necessary to know every nuance of the topics you are covering. You need to know enough to write a story that presumably will inform the public. You need to know enough to make sure what you’re reporting is truthful. And that will suffice.But as Jeff Brown has pointed out in the past, truth doesn’t necessarily make a story accurate.
You are right about your last point Jonathan, if not about much else. True statements may not make a story accurate- but they do a better job than false ones. It’s too bad that so many people in your industry don’t understand that- it reflects badly on everyone else. Most folks don’t read the bubble blogs- they read the stuff written by "professionals" and reported in the media. When buyers see industry people denying obvious trends, they get nervous and move to the sidelines. There are opportunities in any market, but people want a clear picture of the situation. The real estate industry and it’s spokespeople have been their own worst enemies. Heck, with guys like Lereah doing such a great job of shooting themselves in the foot- bubble bloggers may not be needed at all.
What shall we do John, now that this treatise has put the Bubble to rest? Big Foot or the Loch Ness monster?
” Stocks can and do drop to zero. Entire investments – every last cent – can be lost (and more, for those engaging in truly speculative plays.) Not so real estate. There is intrinsic value in land.”
This guy is such an expert that the he believes you cant lose money in real estate. Maybe he should talk to all those people going through foreclosure or sellers coming to the closing tables and writing a check to get out from under a house. While not the normal course in a normal market, using rational metrics and financing, with normal employment and demographics. Such is not the case in many areas of the country. I’d love Jonathan to explain the following link from my hood in 1995:
California Homes Being Sold at a Loss
“Loss sales accounted for a steadily increasing portion of the market from early 1991 until a peak of 42.7 percent was reached in September 1993.
…
The median loss was $23,500 on a house sold for $203,000, originally purchased for $226,500.”
Got this comment from Jonathan (The Asshat in Phoenix with the cute dog) this morning:
Hm. Business must be slow if Jonathan has time to Google himself or trace his readers this quickly.
twist -
As a veteran of the struggle to make sure Y2K didn’t cause the world to collapse (we spent millions assuring the C3I for Canada’s Navy stayed up, and that was just a tiny part of the world-wide IT effort to avert a problem that was all too real) I am gratified that commenter John Hildahl completely obliterated realtor Dalton’s bogus myth-by-comparison argument.
His land-always-has-value assertion is an obvious and transparent lie. Leaving aside Janet Yellen’s New Ghost Towns, there is the Love Canal, Chernobyl, CAN-NS’ own Syndey Tar Ponds, and thousands of acres of the Everglades sold to Florida speculators in the 1920s. Land always has intrinsic value except when it doesn’t. Caveat emptor!
Oh well, it turns out Dalton is an avid reader of Doom.
He has promised to publish some Phoenix stats, including his analysis. Let’s see if he can support his viewpoint with numbers.
Dalton’s not just a solo-flying Good Time Charlie, either. Following the links to his fellow realtor-commenters’ sites (the first features a link to “Find It, Fix It, Flip It!: Make Millions in Real Estate–One House at a Time” by Michael Corbett (Jan 2006). It appears these guys are running in packs.
Well, Dalton sure got me going. I haven’t even gone through today’s Jan-Martin picks yet! I recommend Doom readers go through his post at least twice. The weakness and bogosity of his arguments become largely transparent on a second reading. He needs Doom’s Old Mike to keep him honest! (By the way: thanks readers for pointing out the weaknesses in my efforts.)
I find it interesting that Jonathan compared it to leasing a car. The IO loans and payment option loans in effect, like leasing a house. Thanks for the car comparison here is where it is similar if the price of the commodity (house or car) never goes up you are in effect gaining no ground. When the resets hit (on the house, effectively the end of your lease term) you are giving it back to the financier.
Leases were gimmicks to get people to buy cars. IO, PO ARM and ARM and what ever nontraditional loans offered are effectively the same thing.
So Jonathan, in your words.
“If every major purchase was viewed in this light, no one ever would purchase a car since the moment you sit in the car the value tumbles. Everyone would settle for the lease option … yet just about anyone I’ve ever seen who has leased an automobile will tell you not to do it again.”
And maybe this will be the lesson of this bubble. Lax oversight of lending practices, including people lying to get into loans (ala Casey Serin). Loan officers getting incentives to push for exotic loans, as people chase prices higher.
The fundamental don’t match, especially if you look to average loan rates over the past couple of decades. Does everyone think current interest rates will remain this low, with current fiscal and trade deficits. Somethings got to give and I see interest rates going up to prop up the dollar so as not to drive the world into recession because our dollar is so devalued.
Twist, I took a look at his guy’s site (love the dog) and he is certainly better than some of the realtors in this big, traffic clogged valley. He acknowledges that, for example, the PMI study placed (2 months ago I believe)a 35% chance of a 10% decline on the Phoenix market, which he suggests is not too bad. Lets see, 10% transaction costs,add a one out of three chance of a 10% decline in 24 months,… nice hole…here is your shiny new shovel as an incentive. That may not be a bet he was willing to take but it looks like the long odds have already come in just from watching new home “incentives”, listing prices that have slid far more than 10% since August, and seeing the recent closings with a growing gap between actual and asked. Unfortunately for his readers he does not stress the Nat. City study from June showing Phoenix smsa 42.9% overvalued(implying up to a 30% downward correction) or the various Moody’s studies showing his particular commission hunting ground as one of the riskiest in the nation. The authors of these studies like Moodys do not make their living contingent on transactions occuring so their opinions may be a little more reliable, plus the people working on them have more than an 8-10 week real estate sales course as qualifciations. Do you believe the car salesman about the value of a car your looking at or the value of your trade-in, even if he/she has been selling cars for 20 years? He does make one good point we should keep in mind. The bottom is not anywhere near zero, and if buyers are waiting for 1960s prices they better have a time machine and 1960 dollars to spend. Thus, some of the more extreme “doom stuff” (like CH Smith whose qualifications have yet to be explained by any of his advocates on this site) makes this and other similar sites easy targets at a time when credibility really matters to the average consumer looking to buy or sell a home. Keep up the good work.
Sorry forgot to add,
And maybe this will be the lesson of this bubble. Lax oversight of lending practices, including people lying to get into loans (ala Casey Serin). Loan officers getting incentives to push for exotic loans, as people chase prices higher. That these practices will be forbidden in the future. Especially stated loans like Casey. The lesson is as Jonathan said (paraphrased)
“yet just about anyone I’ve ever seen who has (leased an automobile)replace with (took out an exotic loan on their house) will tell you not to do it again.”
John, interesting point. In fact, if you want to learn how much and how rapidly you can lose money buying “inherently valuable” real estate, buy a super-fund site right before its listed! Talk about less than zero. Perhaps this boys points deserves further consideration, and not with extreme examples. Now explain why scrub desert is worth over $500k per acre? Is it the lovely view of electric transmission towers? Why is the stick and mud built structure (even with granite and upgraded carpet) on it worth an additional $250 Sq. Ft? If this boy wants to talk fundamentals lets have him pony up a little replacement cost analysis and also discount back to present value a stream of likily rental payments over the next 20 years. But do not worry John, its not an “investment”. Its like a car purchase…no thats not right….its “special” and always valuable (like that 1984 buick in his driveway?)…Wait everybody wants to move here…but they just got to sell their house in Ohio first and then live off the pension…oops.. Aw Shucks, just buy something, will you guys. Or we could just take his opinion on such things I guess. Apparently some home buyers really do.
It sounds Dalton like does not understand the terms “appreciation” and “depreciation.” In case he stops by Doom again, I’ll explain how we determine that:
The way to determine appreciation vs. depreciation is to compare last year’s median price with this year’s median price. (David Lereah recommends looking at YOY as opposed to MOM, and as much as I hate to admit the man is right about anything, he is right about this- MOM has too much seasonal variation, you have to use YOY.)
The way the comparison is generally done is to take last year’s number and compare it to this year’s number. If last year’s number was smaller, we say that home prices have “appreciated.” If last year’s number was larger, we say home price’s have “depreciated.” It doesn’t matter whether last year’s appreciation went to the moon- if this year’s number is smaller, the market is “depreciating.”
While I could, and probably should adjust for inflation, I don’t. (People might accuse me of trying to paint a “doomsday” scenario by using inflation adjusted numbers.) I try to always make note of that in the post though, for the folks that are smart enough to know the difference. I do also like to point out that there are factors in median appreciation that mask same house appreciation, but that’s a lesson for another day.
As a trained researcher with an M.S. (I have a few qualifications beyond a keyboard and a modem, as Mr. Dalton suggests of bloggers on his site) I am capable of more sophisticated analysis that you generally see on Doom. Watching appreciation, listings, and sales go down is fairly straight forward stuff for me though- and I like to keep things simple.
On your site, of your experience you said, As I’ve said many times, having been a reporter for a living, the vast majority of reporters are knowledgeable in many areas and expert in none. The job doesn’t require expertise and, frankly, when you are on a tight deadline it’s not necessary to know every nuance of the topics you are covering.
What other experience do you have besides reporting and selling real estate that qualifies you in statistical analysis?
This is however, an open forum. Bring your numbers on- we’ll all be happy to take a look.
Twist. I note a shift in message among the commission mongers. DeBeers wanted us to know that a “diamond is forever”. Now the realty “professionals” tell us its not an investment, “its a place to raise your kids” (insert tear, soft nod of the head, up tempo music). While we all know the use of a house to raise a family, most also look forward to having sufficient appreciation to borrow funds against that “non-investment” after 10 or 15 years of payments to help fund higher education, in hopes the little dears can become more in life than mere commission mongers. That has been the implicit understanding since WWII ended and it has gotten messed up in the last few years in no small measure by the commission mongers’ irresponsibile cant of “be smart, buy now”(when they said it WAS an investment) In the midst of the much needed downward correction, the commission mongers now hope the very important financial decision of buying a home will become completely emotional…for the kids sake. This guy is selling just another six foot man-eating chicken. Lets do what intelligent consumers do, ignore him, no links to his site, no “hit count” on his propaganda. At least the dog got its 15 minutes.
Today’s post is actually in response to a reader request, otherwise I would probably just had a good chuckle and moved on.
I decided that it was worthwhile to discuss though, because the fight for honesty in the industry goes on. Those of us that have gotten used to strapping on our Bubbleheads every morning before picking up the morning newspaper, forget that a bunch of people still think this kind of talk makes sense. A recent Gallup Poll says that 84% of homeowners expect their property values to go up or stay the same.
http://calculatedrisk.blogspot.com/
When even Lereah admits that housing has cooled (although it’s about to go right back up!) you would think the “no bubble” crowd would have gone the way of the dinosaur, but they are still out there peddling their tale- so I guess John and I will keep grabbing our rusty lances and heading full tilt for the windmills!
Twist,
You avoided using the highest scoring scrabble word, 365 points for quixotry. Nice imagery Man and Woman of La Maricopa.
http://dictionary.reference.com/browse/quixotry
Twist as I mentioned on CR’s blog, I think the Gallup Poll is a lagging indicator. It also is indicative of how prices will at first stay sticky as sellers find (are now finding) no one is buying at the inflated prices.
Metroplexual-
What can I say, other than “If the armor fits…” : )
As is frequently the case, I agree with Metroplexual. Not only is such a poll generally a laggard, I thought the change in one year was dramatic, especially on something so close to “home” for most Americans, a normally optimistic lot. I would be interested in seeing a similar poll of the predictions from active market participants over the last year, and I guess we already have the “poll” results from the new home builders. My guess is that with the MSM pretty much on board now, there would be a further shift in opinion over the last month.
It isn’t even optimism. The average length of ownership for any single owner/property is 7-8 years. Start back in 1995 or so and probably 3/4ths of all present owners are covered. During that time they’ve rolled a die with 40 sides reading from +20% to -20% and they’ve always rolled between +3% and +20%. It has happened a dozen times in a row and tens of millions of times. Oh, and I didn’t mention that they have no reason to believe the -1% to -20% sides even exist. Certainly even if they have some understanding of probability or trend or even reversion to mean the last few years deserve undue weight and taken together the worst that their guess can track is a modest increse in value.
Metro is right but honestly the only answer you can get from these surveys is “more of the same, maybe a little more, maybe a little less.”
Dalton’s article was pretty shocking. However, some good stuff comes out of the REIC, not least because lots of decent people are involved. I just put what could be an important piece on the sidebar: “Cracks widen in MLS dominance”, by Jim Duncan a central VA realtor.
It’s no wonder NAR is defensive. Not only has the housing bubble burst on them, but their information dominance is evaporating at the same time (and Doom is part of that second process). Careful observation of spokepeople like Dalton thrashing around should be instructive. We just need to keep from getting whacked by his tail!
Techscan, I don’t remember the 40 sided die from D&D. Or is this a gotcha nerd moment.
As I said on CR, I used to poll for Gallup, it is a snapshot in time.
Personally, I think Bigfoot and Loch Ness both have jumped the shark with the recent ad campaigns using both. Though my 9-year-old loves the one where Nessie spits out the truck.
For those interested in such matters, I’ve posted the Phoenix area market stats dating back to 2001. I’ve skipped the commentary – y’all can do with them whatever you choose.
Quick responses then I’m off to work on some other items:
1) In the lists including Chernobyl, Love Canal and the Everglades, you also neglected to include Greenland, most of the Northwest Territories, Antarctica and the Sahara Desert. I think caveat emptor applies to some of these more extreme examples.
2) I don’t remember a 40-sided die either. I thought 20 was the max.
3) For those who have dug a little deeper in my blog, you’ll notice I’m not a huge believer in the all-powerful MLS either. Damn, I used bigfoot myself. For that matter, I don’t agree with everything NAR does. Not all of us do. But I like having MLS access to aide my clients and the board owns the local MLS. Simple concept, really.
4) My thanks to the Housing Doom folks for removing the comment where I was referred to solely with a profanity. The class shown was very much appreciated.
5) Lastly, thanks for all the compliments about the dog, Tobey. My wife has no issue with you deep-frying her husband, as long as the dog is left out of the debate.
Adieu, folks.
Metro, this is Robert Coté. I”m having trouble fixing the attribution. No hiding, sorry about any misrepresentation.
Some used to joke about really high die but honestly anything above dodecahedral (12 equal pentagrams) was considered a degenerate solid and unusable. Clearly before computers.
Gallup isn’t so much a snapshot as recording history in the making. I don’t have even the slightest support for the following as it predates even Nexis and such but I recall my profs telling us about JFK. Seems that during his troubled Presidency something like 40% of voters [according to Gallup] said they had voted for him. After his assassination something nearer 70% said the same thing.
We are seeing the same phenomena. Plus, there will be some pretty substantial “survivors bias.” Length of ownership will increase. The most recent, most vunerable will be culled, etc. My primary residence probaly hit $1.4m at the peak. $1.2m anywhere near the top easy. Still $1.0m priced for a quick sale. I wasn’t asked and even if I were the 20% y-o-y box wasn’t on the list and the 7% every year thereafeter wasn’t either.
My point is that while Gallup may be asking questions that have statistically valid answeres they cannot predict either extreme or inflection conditions. They try too hard to detect their derivatives.
A few years back, my local school was looking at extending the school year. One of the questions was, “Do you believe this change will increase the air conditioning bill?”
The proponents of the change were claiming that since most people felt the AC bill wouldn’t go up, there was no concern about additional costs. Somehow, if we all agree, it’s true.
The polls aren’t important because they reflect reality, but because they show what people’s perceptions are- and people will act (irrationally or not) on their perceptions.
Jonathan -
Thanks for dropping in. Hopefully Igor didn’t have you for too long (sometimes we have to rescue a post from the spam queue, especially if it has a link or two). For the record, here’s the permalink version of your Phoenix area sales statistics” (Phoenix Arizona Real Estate Blog, Jonathan Dalton, posted Nov 14, 2006).
Everyone’s first question will be “what about the inventory?”, which I see you have already addressed here. We’ll be waiting to see what you find. I think Twist has worked on the inventory question in Phoenix area and might have an opinion.
OK John, thought I’d never have to say this, but thanks for being a voice of moderation and reason. There are good people in the “realty profession”. I’ve a few good friends in the business, and I did not mean to imply they are all commission mongers or rapid weasels. The most succesful residential agent I know, highest sales 15 years running in a major SMSA, said last month to me:”Gawd, wot an awful time to have to buy or sell your home, I just hope I can make it easier for the ones who have to”. Just the opposite of the NAR pitch. And I know she says that to all her clients. I’m not new to the process, but people like her seem increasingly rare out there now, especially in the Phoenix area. Sunday was the final straw. It sould have been funny, the realtor, my age, too much makeup, too much jewlry, a dress, well think cheap sausage trying to escape the casing..tells me what a great deal this house in Scottsdale is and that prices “just keep going up.” She forgot that she told me exactly the same thing about a house down the street in August that has since lowered its asking price $200 K and still sits vacant. When I ask her about it she merely says “Honey, I don’t know what you mean”. I used to think it might be that many of these people just were at the wrong end of the old Bell curve, or misinformed back in the early months of the correction. Now I’ve just had too many agents, even those who were in theory acting solely as my (buyers) agent(thus no obligation to a seller) forget to mention that property taxes just doubled when we crossed the Pinal county line, or tell me this house is “well priced” and “below market” only to have it lowered 10% the next week. And I know people got to eat, but “just doing my job” is beginning to sound alot like “just following orders.” You tend to blame large organizations(poor WaMu) I tend to blame the individuals who every day make choices in those organizations. But thanks again for bringing me back down…after all it was your turn;-)
Igor treated me gently, at least more gently than our friend in DC chose to do. And, to be honest, he proved one of my points perfectly.
If Twist has the inventory numbers I’ll be happy to look at them. I’ve got one other place where the numbers may be accessible, but I have to see what can be pulled and from how far back.
All in all, though, I’m not expecting to see anything other than high inventory for the reasons I previously mentioned. I’ll even concede the point early and save everyone some time and effort.
Where we differ is in our view of what the high inventory portends for the future.
I’m all for the debate … I truly enjoy the debate. Not so much when it gets personal and when I’m accused of not having stats by those not providing stats, but still.
I believe the debate’s healthy, especially given the volume of readers on both sides of the debate. Despite the modest statement at the top about the number of people who read bubble blogs, the Everest-like spike in viewers that I experienced the last two days indicates quite a few do.
Thanks again.
Old Mike -
Thanks for the kind words. In fact we depend critically on REIC players who are trying (with more or less success) to do the right thing. This includes public posters here and on the other bubble blogs, a few private e-mailers, and folks with the courage of their (sometimes astounding) convictions who blog or publish in REIC organs and the MSM.
I’ve already learned a lot from today’s festivities, but now I’ve really got to get through Jan-Martin’s Crack of Doom contributions!
Metro is right but honestly the only answer you can get from these surveys is “more of the same, maybe a little more, maybe a little less.”
Human Psychology explains the Gallup Poll quite well. People, even educated people who should know better, tend to believe that whatever was happening will continue to happen.
It takes an extended period for them to adjust their denial into acceptance. The Gallup polls next year will show very different results.
Hey, Old Mike …
For whatever it’s worth. I sell the way I buy. I don’t respond to pushy. I don’t go door-to-door because I’d likely greet a real-estate agent on my doorstep with a shotgun (unloaded, of course.)
I’ve NEVER told a client real estate only can go up. I sure as heck haven’t told anyone the last year or so that everything’s going up, up, up. First, it’s a lie. Second, I would sound like a complete imbecile.
One thing you mentioned, though – just because the price drops a week later doesn’t mean that the house wasn’t already below market. It can be below market averages and still not sell if there are other factors involved. Take it from someone who had a courtyard home listed. With street frontage it would have sold at our first price. On a courtyard it sat. And sat. And then it finally sold.
There are bad apples in every bushel, to borrow a rather tired phrase. But it’s been a long day and I’m rather tired.
Mr. Dalton, I am afraid from my experience in the Phoenix area its not just a few apples. More to your point, how is it again that a house can be priced “below market” but be worth even less than that price which is already below your market proxies because of obvious difference in physical location? In both theory and practice that just means you mispriced the house in the first instance. Gee, a house on a deep water canal with no fixed bridges to the ocean might be a bad market proxy for the same house on a dry lot right house across the steet, you think?(Difference in S. Florda approximately $800K up). If you mean “below market” to be the same thing as below what you folks call neighborhood or area “comps”, thats the same as saying the now infamous “below recent appraisal”, any real valuation expert would fall over laughing at your misuse of the term “market price”. I guess thats the difference. I don’t believe most real estate agents have anything approaching enough qualifications to determine either value or estimated market price, but they all seem to have strong opinions they assert as fact, which almost always suggest a home should be bought or sold and a commisssion recieved. Few, if any have any formal training in real market analysis, they are just sales clerks, period. The tansaction based compensation system then combines bias with ignorance and you have a predicable result. Indeed if all the “below market” real estate that is advertised by realtors exists, I wonder why you sharp, successful people even worry about commissions, if its really “below market”, buy it, it a no brainer. By the way, I asked in an earlier post whether you share with your clients, especially on the buy side, the June 2006, Global Insight/National City study. Pay particular attention to Appendix C, the “self proving” portion testing the methodology with actual historical data. As a “good apple” I expect to see it prominantly mentioned in you Blog tomorrow.
Robert,
I could go on about methdology and accuracy of polling (and the way that poll takers can skew them) which I am sure you are quite familiar with. BTW I seem to remember that same JFK phenomenon.
Sorry, Mike … I seem to be missing Phoenix on Appendix C. And given this is the market in which I have lived and worked the past 30 years, it’s the one about which I’m comfortable commenting.
Also, is there anything more up-to-date? My thought would be we should see the percentage by which Phoenix is overvalued dropping because of the high inventories and general decline in the market.
Lastly, when I say market value I do mean the average of recent sales for similar homes preferably in the same subdivision. From what I’ve read, you’re smart enough to understand some sellers are far more motivated than others and price accordingly.
And please stop with painting every agent with a broad brush simply because we get paid on a commission basis. Not all agents are the same, just as all bubble proponents are not the same.
That point was posted again and again yet there there seems to be no hesitation in lumping all 50,000 agents in the Valley (or the million or so nationally) together.
Mr. Dalton:
I appreciate some your coming here to comment. Alas, in the end, for all the words exchanged, the numbers will tell the truth, one way or the other.
BTW please keep in mind that the popping of the real-estate bubble doesn’t have to mean that there will be sudden violent sharp declines in prices (although there might continue be).
Something as seemingly harmless as a total halt in price movement – for several years – is all the market needs for us to see a “regression to the mean”. This would be equally as effective as a sudden short-term drop in prices.
>>Stocks can and do drop to zero. Entire >>investments – every last cent – can be >>lost … Not so real estate.
I’m sorry, but can you see how you lose a lot of readers’ trust with those statements of yours? Can you honestly say that a real estate investment cannot lose somebody all their money? And can you say that *especially* when you know that many real estate investment properties are using small down payments to leverage huge purchases?
Tell me, if I buy an investment property using “all my investment money” for a 5% down payment, and a couple of years later I have to sell at a loss of 10% on the original price… Tell me, haven’t I just lost all my money, AND MORE? (I’ve even left out the taxes, real estate fees, interest payments, etc, etc, to keep it simple).
>>And please stop with painting every agent >>with a broad brush simply because we get >>paid on a commission basis. Not all agents >>are the same
Agreed that there are bound to be some great, honest real estate agents out there. (Perhaps you are one of them!)
By the same token, there are bound to be some great used car salespeople out there. Thing is, I’ve met enough used car salesmen to know that when I am ever looking for a used car, I trust nothing that comes out of any of their mouths. Period. (If it makes you feel any better, though, I’m sure a great many of used car salesmen *and* real estate agents are great people off the job).
Also, when the NAR takes out whole-page advertisements in national papers cheering now as “A great time to buy *OR* sell real estate”, when now is curently a time of declining prices, this does not help the image of the real estate industry in general, nor the image of real estate agents.
Jonathan- It was nice of you to admit now that all bubble proponents aren’t the same. On your site, you accused us all of having a personal agenda, or of seeking our 15 minutes of fame
I can’t speak to the motivation of other bloggers- but I’m not here for my 15 minutes of fame. I never really meant to get into this at all- I was researching the market in Gilbert for my own home purchase, and dragging all my research to the dinner table. My son is the one that convinced me that other people might be interested in my research- he bought the domain and set up the website- then he told me to write, so I did
I’m actually a rather private person- I had no intention of using my real name when I started. I had to make a decision though, when the Arizona Republic contacted me and asked to do a story on Doom.
I almost turned them down, but my mission had changed by that point. I had dropped my search for a home for myself and started worrying about how the market affected neighbors, friends, and the economy. I could stay anonymous and skip the Republic, or I could “come out” and try and make a difference. I’ve had a lot more public exposure than I ever expected- but while it’s an easy Google search to find my name, I still prefer the more anonymous “twist.”
You stated on your site that There is no opportunity for debate because it is not debate they seek. And if you try to discuss the topic rationally, you quickly become the victim of ad hominem attacks.
That’s a curious comment to make about bloggers. Please read the above thread- we love to debate issues. I am curious to know what your post was, if not an ad hominem attack? Where was your supporting evidence to demonstrate your claims about our motives, or to show that the bubble is a myth? It appeared that the defense of your position lay in trying to discredit the motives of your opposition, rather than in providing supporting data.
Speaking of data, thank you for the data that you provided on your site today. The AZ MLS is rather parsimonious with its numbers to the public, and your tables are much appreciated. About your comment though:
I’m skipping commentary on the following statistics to allow readers to draw their own conclusions, whether they prefer year-over-year or month-over-month comparisons, and also because I’d hate to be accused of spinning the statistics.
Here are the dictionary definitions of “statistics” and “data”:
Statistics- The science which has to do with the collection, classification, and analysis of facts of a numerical nature regarding any topic.
Data- A collection of facts from which conclusions may be drawn; “statistical data”
You added the following comment to your post the day before:
the post on Housingdoom with the graph supposedly illustrating the trend in market appreciation. Wait, so you’re telling me that year-over-year appreciation is negative when positive appreciation was unprecedented the year before? The following year’s appreciate may suffer in comparison to the records? To quote Colonel Jack, “You think so, Doctor?” The obvious is being stated without the slightest nod to context. It’s not research. Its sensationalism.
Statistical analysis isn’t “spin.” For example, Jay Butler of the Arizona Real Estate Center and I have different points we try and make. (Granted, everyone likes to think they are “emphasizing,” the other guy is “spinning.”) Butler might choose his headline to point out that inventory levels may be moderating, I might choose mine to emphasize a price decline. At the end of the day though- our charts of the MLS data will look the same if we do our work right. (I haven’t seen his, but I can’t imagine he has some funky way of distorting graphs.)
What you have posted on your site is “data,” the raw stuff of which statistics are composed. It won’t show anything without statistical analysis- I find telling people to do it themselves a cop-out, quite frankly. If you like, I’d be happy to email you an Excel spreadsheet with the YOY appreciation formula already in it- you can enter the data yourself. I can also give you the instructions on generating a bar graph, if you are not familiar with the process. You too will find yourself producing the same “sensationalist” stuff that I do.
The reason you will come up with the same thing is because the trend is headed down- that’s a fact, not “sensationalism”. In spite of our strong economy, our low unemployment, our warm climate, or any other factor you care to name- builders built more homes than could be absorbed by non-speculators. Their excess inventory, as well as the flipper inventory, is playing havoc with the current market. Speculation drove up the prices- and the lack of those players is bringing it down.
I’m fortunate I can bend the rules here- this comment is way over our usual limit. Posts like yours though, continue to concern me. There are still people who believe the things you are writing- to their detriment. As long as that continues to happen, I’ll be up late pounding out long comments like this.
Great job Twist. As I suspectedit all just flim flam. In response to Nat. City he just asks for something more recent andhe apparently doesnt understand Section C at all. Zero response to his undermarket price explaination, and o,
Good job twist. I’ll stick with my earlier conclusion of “not worthy of attention”. If he doesn’t post Nat. City because its “old” he is just another agent out there trying to lubricate transactions. AND now so offended by the fact that I believe, I admit quite broadly, that most agent/client relationships are adversely affected by the commssion sales structure. I am shocked to find gambling in this establishment! Kind of odd how he believes his 30 years of “living” in Phoenix conveys expertise in valuation. I’ve lived over 50 years in the space age and still can not build a rocket. I’ve lived with dogs for 40 years and I’m still not a vet. Did you catch his credentials or did I miss them earlier on? But we just have keyboards and bad attitudes I guess. Could you understand how “he” determines “market value” and then treats seller willingness to sell(“motivation”, maybe he was a psyc. major) as some extraneous force, making the transaction “above” or “below” market price. What an odd little world. Lets have strong licensing and meaningful testing for this profession on the agenda soon. After all, they are either selling very expensive leveraged investments to a broad group of the public or selling something vitally important to our kids happiness and welfare. Either way they should be required to spend more than a few hundred bucks a year on licensing and a few weeks in real estate camp learning selling techniques before they are unleashed…and you know how much I like government regulation.
The commenter Tucson Lender at Jonathan’s asserts the following is an excerpt from a recent letter-to-the-editor. Any Doomesters recognize where it came from?
John-
It was on our sidebar a couple of days ago- things come so fast at us any more, they scroll of quickly:
http://www.reviewjournal.com/lvrj_home/2006/Nov-12-Sun-2006/opinion/10738659.html
I actually sent Neil Schwartz a fan letter for that one- it was remarkably candid.
Twist – you’re local? Feel free to call me and I’ll spring for the beverage, though somewhere between Gilbert and Glendale would be great. I think we’d have a pretty decent conversation.
We can, however, skip the lesson on bar charts or year-over-year appreciation. I can calculate them both easily enough. But what I’ve found, backed by many of the comments above and on my own blog, is everything an agent says will be taken with a grain of salt. I could say the sky is blue and some will point out data proving the sky really is red. Or maybe I’d say blue and get an argument that it’s electric blue.
As I read Mike’s comments (and I’ll address in the third-person as he’s chosen to revert to in my case) … what stuns me is he was out with an agent. Why? It’s clear he doesn’t believe there is value in what we do and that we are all lying to him. So why waste your time with one?
I’ve got no issue with the idea of increased standards for licensing but I have to chuckle when I see these calls coming from people who haven’t even devoted the time to meet the minimum standards. Step up. Everyone else in the Valley has.
For the record, Mike, I understand Section C quite well. And I absolutely guarantee you that I have devoted a far more substantial portion of my time to studying real estate than you.
>There are still people who believe what you are writing – to their detriment.
Amazingly enough, I can say the same thing.
Anyway, I’ve spent too much time over here the last two days. As I said, feel free to make the call and the beer’s on me. Like I said, move away from the keyboard and we’d probably have a decent conversation … and you might be rather surprised to learn what I really think of the market.
Checked in this morning and apparently he’s still looking for a similar pair of rent and purchase houses to show how it is cheaper to buy than rent. I can’t wait so here:
Buy $415,000:
Phoenix, AZ 85045 – MLS ID#: 2614605 ( http://tinyurl.com/yyaubj )
Rent $1700:
Phoenix, AZ 85045 – MLS ID#: 2288150 ( http://tinyurl.com/u7wy2 ) [anchor links added, jm]
The math for buying doesn’t work does it?
Twist. Did I just see correctly. If you meet him you will be “rather surprised to learn what (he) really think(s) of the market”? Why would that differ from what he says on his site? Well I guess I just lack the qualifications, education and experience to understand a man with a realtor’s licence. His “absolute guarantee” is however, interesting, want to broker that deal when you meet?
Jonathan-
I will let Mike speak for himself. However, I’ve bought and sold several properties over the years, and the agents I’ve delt with have ranged from “fantastic” to “I really should have sued.” Consequently, I deal with agents with a lot more caution anymore- as in any industry, the bad ones tend to color our view of the rest of them.
I’ve got boatloads of stories (in fact, just go to Craiglist) of people who didn’t believe there was a housing bubble. I’d love to hear your stories of people who listened to warnings of a bubble to their detriment. While there are people who could have possibly sold later for more (I probably could have done better last year selling a couple of months later- I had a nice profit though, so I’m not complaining) but other than they could have squeezed a little more out of a deal if they had waited (a risk in any market) who has been detrimentally affected by being warned of the current market conditions?
Techscan-
Sorry Igor got ahold of your post- he tends to send posts with multiple links to spam jail. (including mine)
That’s okay. Anyone who posts multiple urls deserves close scrutiny. Thanks to jm for the anchor links.
Has anyone done the numbers yet? The two are AFAICT nearly identical down to year of construction and backyard views. Roughly it looks like with $50k down the buyer would be looking at a $3300 “nut” and $800 in tax benefits.
Buyer; $50k @0%, $2500/mo expenses.
Renter: $3k @0%, $1700/mo expenses.
(Assume ultilities wash.)
Renter has $47k @5.5% throwing off $160/mo after taxes.
Renter has $700/mo compounding at the same 5.5%.
4 years later the renter has ~$100k. The buyer has $50k plus/minus appreciation/depreciation. That seems to be approx where the two normal curves cross. It all boils down to whether appreciation can cover the difference. Anything less than about 3% every year 2006-2010 favors the renter. Any significant decline in prices the first few years and no amount of recovery justifies buying.
Techscan, cool numbers crunching, great effort. The tough part for me always is the tax effects. Given the various tax subsidies now available how did you calculate your $800 in tax benefits? ( fed.interest expense/property deduction?) I assume prop. tax + approx.insurance cost diff. is in “the nut”, right?; tax effects of the $700 per month compounding( I think its in there but cannot tell) or did you assume favorable retirement savings tax deferral options?; and, the eventual sheltered cap gain in primary residence if appreciation occurs AT 3%. Again, great effort, I like it alot and am not in the least being critical. Being spread sheet shy (and envious), my pencil keeps breaking and I get headaches when I try such projects.
Old Mike [call me Robert], you’ll think it weird but I did that 90% in my head. I popped up the OS X Calculator app for a compound or two but I can just “do” math. My old boss could do dynamic computatiuonal fluid dynamics in his head so my parlor tricks are nothing.
Taxes are easy in the early years. It’s all interest and AMT puts a floor and market type places a ceiling. Call it 30% of the mortgage and 20% of the gross taxes and pretend you are a genius.
I made no special investment assumptions, just CDs as regular taxable income. I was also very conservative in the compounding. By stuffing $700/mo into a defined contribution program and compounding all year pre-tax only paying up on April 15th you could do a lot better. SEP-IRAs or 401k or if you got kids 529s and the numbers can explode.
3 years ago owning in Phoenix made sense. at these nosebleed levels you’d need all the stars to align just to stay even. Besides, if you are renting go down a notch and rent for $1200. I also was very generous for the amount of downpayment and such. Mor did I subtract out the transactional costs 7-8% for a round trip buy/sell for the would be buyer.
The parallels to the 1928 stock market excesses are frightening. Buying on margin is a dangerous investment technique. We don’t allow it for stocks and we did it grudgingly for houses because of social pressures and outmoded notions of illiquidity.
Pencils is good. I still sketch with the pencils I first used a quarter century ago.
Techscan, thanks. Sounds tight, especially for older guys who will have no tax advantaged mortgage interest. Problem is I don’t want it to be true..guess I’ll cope.
Can’t we all just forget about market statistics, speculation, computations, appreciation, depreciation, YOY, MOM, etc, etc, blah, blah, blah and just realize one thing that is constant across all lines. That is – it’s only worth what someone is willing to pay. This whole argument can be solved with something so simple it must make your head spin – we did this to ourselves – we are the ones who decided to pay a buttload of money for property that wasn’t worth that much and the cycle continued for a number of years and now we are the ones who are pissing and moaning about the market softening. You know what I say…