Housing Bubble Correction Update: Here comes the jobs crash (Part I)

[The Outback Oracle]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

I'm still fascinated by the idea that you can run an economy without savings. Deflation has a feed-back loop? Well so does inflation (I know i am not saying anything you don't know in saying that). Inflation, and the coincident negative interest rates lead to zero saving, increased indebtedness, high CAD's. In my thinking you might inflate your way out of one lot of debt but only by creating a whole new higher more fragile debt structure and economy.
Frankly the solutions proffered in this "we gotta inflate" scenario are exactly what brought us to this point in the first place.

[jtabeb]

Re: Housing Bubble Correction Update: Here IS the jobs crash (Part I)

I'd like to point out a potential misunderstanding of Ka-Poom Theory.

Either way, whether prices are inflated a little or a lot, or if we are completely wrong and we get modest deflation, it's all the same thing: we are all poorer. We will have less purchasing power either way because in any case the purchasing power of income is falling.

The advantage of inflation under conditions of indebtedness is that it allows past debt to be paid down more quickly out of income and also means that more money can go to other uses than paying down debt. For this reason there is less unemployment if a debt deflation is managed down with modest inflation as part of the program.

In modest inflation home prices will continue to decline–asset price deflation vs commodity price inflation–but interest rates will rise. In terms of your purchasing power it's all the same.

If we are right about inflation then you should be able to exchange inflation hedges for inflated goods prices, but there is no net gain, only an avoidance of losses that might otherwise be experienced if deflating assets are held instead.

Growing up in an era of continuous real estate price inflation, the hardest thing for us to get our heads around is that there will be no money to be made in property for ten or twenty years. In the wake of the housing bubble residential real estate is dead as an asset class.

FRED,

I think there are alot of folks in MB's shoes (myself included). The problem is we don't own a house where we want to live. Question is if I control my wants and find the best time to buy, "when is going to be the time to buy the house I want to live in and raise my kids in and stay in till I'm 65?"

I'm thinking it is somewhere between the q3 of 09 to mid 2010 based on CS projections.
Just want to know what your thoughts are for this SPECIFIC purpose. (owning my own house where I want to live for shelter)

Thanks

JT

[touchring]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

maybe you should examine the mongol empire that lasted about one hundred years.

it runs on a deficit and prints paper money backed by nothing. it is the biggest empire in the world covering most of Asia, the middle east, and one third of Europe.

I'm still fascinated by the idea that you can run an economy without savings. Deflation has a feed-back loop? Well so does inflation (I know i am not saying anything you don't know in saying that). Inflation, and the coincident negative interest rates lead to zero saving, increased indebtedness, high CAD's. In my thinking you might inflate your way out of one lot of debt but only by creating a whole new higher more fragile debt structure and economy.
Frankly the solutions proffered in this "we gotta inflate" scenario are exactly what brought us to this point in the first place.

[FRED]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

I'm still fascinated by the idea that you can run an economy without savings. Deflation has a feed-back loop? Well so does inflation (I know i am not saying anything you don't know in saying that). Inflation, and the coincident negative interest rates lead to zero saving, increased indebtedness, high CAD's. In my thinking you might inflate your way out of one lot of debt but only by creating a whole new higher more fragile debt structure and economy.
Frankly the solutions proffered in this "we gotta inflate" scenario are exactly what brought us to this point in the first place.

Hope no one gets the impression that we approve of our government's policies. We seek to understand what our government is thinking and forecast what it is likely to do, given its institutional antecedents, past behavior, and so on.

In a perfect world the FIRE Economy would have never existed in the first place and we'd now not be in this predicament.

[mercerbear]

Re: Housing Bubble Correction Update: Here IS the jobs crash (Part I)

Thank you for the replies. I do not think I made myself clear initially. I am not a housing speculator. I know that game is dead and I was too young to play it myself.

My situation is this:

I have enough cash saved to buy an average house in which I will personally reside in TN. I know two things.

(1) Housing prices and the prices of materials required to build houses are currently falling. I assume this has something to do with Ka. This bodes well for my ability to afford a home with my dollars that are accruing 3.3% in an etrade savings account.

(2) At some point Poom will occur and it will change the ballgame. At this point, housing prices and the cost of materials required to build a house will begin climbing as the dollars in my etrade account devalue in an inflationary situation, be it modest or hyper. At this point, I am able to afford less house for my saved money.

Given the above conditions, it seems to me that there is an ideal time during Ka and before Poom for a person who has saved dollars for the purpose of buying a house to go ahead and buy the house.

What I was hoping to get some perspective on is when and how I should buy my house given these conditions. New or existing? Pay in cash or take a mortgage?? etc. Any ideas in general on how I can maximize the money I have saved to get a nice place to live in.

Haha, unfortunately that is as articulately as I am able to explain my position and question. I realize there is a distinct possibility that I am missing the big picture and embarassing myself but I'll risk cyber shame for the opportunity to post this rather important personal question on this forum where I put great stock in the knowledge and intelligence of other community members.

Thanks again to all.

[Basil]

Re: Housing Bubble Correction Update: Here IS the jobs crash (Part I)

FRED,

I think there are alot of folks in MB's shoes (myself included). The problem is we don't own a house where we want to live. Question is if I control my wants and find the best time to buy, "when is going to be the time to buy the house I want to live in and raise my kids in and stay in till I'm 65?"

I'm thinking it is somewhere between the q3 of 09 to mid 2010 based on CS projections.
Just want to know what your thoughts are for this SPECIFIC purpose. (owning my own house where I want to live for shelter)

Thanks

JT

I am in the same boat. The wife and I are sick of renting and want to buy at some point in the near future. I am looking in MA, within the 495 loop but not necessarily within the 128 loop. Prices have come down, but my feeling is that they will begin to fall hard in 2009. For those of us who simply want to own a reasonably priced home, what is the best time in the cycle to take the risk? Perhaps we should ask, what indicators should we look for to let us know that now is a better time to buy than others?

I know I make my own decisions here, just hoping for a bit of input, as most information on purchasing real estate does not provide any clarity other than "Now is a great time to buy."

Thanks,

Basil

[The Outback Oracle]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

Ok sorry ...sometimes i get confused...it's easily done:eek:

[mercerbear]

Re: Housing Bubble Correction Update: Here IS the jobs crash (Part I)

I am in the same boat. The wife and I are sick of renting and want to buy at some point in the near future. I am looking in MA, within the 495 loop but not necessarily within the 128 loop. Prices have come down, but my feeling is that they will begin to fall hard in 2009. For those of us who simply want to own a reasonably priced home, what is the best time in the cycle to take the risk? Perhaps we should ask, what indicators should we look for to let us know that now is a better time to buy than others?

I know I make my own decisions here, just hoping for a bit of input, as most information on purchasing real estate does not provide any clarity other than "Now is a great time to buy."

Thanks,

Basil

FRED,

I think there are alot of folks in MB's shoes (myself included). The problem is we don't own a house where we want to live. Question is if I control my wants and find the best time to buy, "when is going to be the time to buy the house I want to live in and raise my kids in and stay in till I'm 65?"

I'm thinking it is somewhere between the q3 of 09 to mid 2010 based on CS projections.
Just want to know what your thoughts are for this SPECIFIC purpose. (owning my own house where I want to live for shelter)

Thanks

JT

Thanks JT and Basil, it's nice to have some company here! It seems the 3 of us are fundamentally curious about the same issue. I thought I had inadvertently drawn the ire of the itulip powers that be for a moment before explaining that I'm not a speculator! ;)

[FRED]

Re: Housing Bubble Correction Update: Here IS the jobs crash (Part I)

Thanks JT and Basil, it's nice to have some company here! It seems the 3 of us are fundamentally curious about the same issue. I thought I had inadvertently drawn the ire of the itulip powers that be for a moment before explaining that I'm not a speculator! ;)

No ire. Just want to be sure that Ka-Poom isn't taken as some sort of "get rich off inflation" scheme. There's a lot of that mentality on Internet financial sites.

No question that if you are looking for a place to live that asset price deflation is your friend. It will be obvious when the market has bottomed: the same family and friends who told you years ago there was no housing bubble and prices only go up will tell you that you are a dummy for buying a home and that housing is a terrible investment.

But you won't be buying a house as an investment but as a cheap place to live. Very likely the reversion to the mean of home prices will in many places mean homes will be well under-priced in terms of equivalent rent because cash and credit will be too limited to bid up home prices.

While you're at it, you may want to wait before buying a car.

[mercerbear]

Re: Housing Bubble Correction Update: Here IS the jobs crash (Part I)

Thanks Fred, sorry for not making my position clear initially.

But you won't be buying a house as an investment but as a cheap place to live. Very likely the reversion to the mean of home prices will in many places mean homes will be well under-priced in terms of equivalent rent because cash and credit will be too limited to bid up home prices.

How do you do this kind of analysis to see if the price of buying is cheap in terms of rental prices?

While you're at it, you may want to wait before buying a car.

Haha, I'm 27 and I still don't own a car. During the season in Europe the team I play for provides one and when I'm in the states I drive my parents' 3rd car....a 1995 Honda Civic with plenty of dents. I have saved everything and now I'm just trying to protect myself and make good decisions.

[FRED]

Re: Housing Bubble Correction Update: Here IS the jobs crash (Part I)

How do you do this kind of analysis to see if the price of buying is cheap in terms of rental prices?

Rent - (Taxes/month + Insurance/month + Warranty/month + Other expenses/month) = cashflow

Haha, I'm 27 and I still don't own a car. During the season in Europe the team I play for provides one and when I'm in the states I drive my parents' 3rd car....a 1995 Honda Civic with plenty of dents. I have saved everything and now I'm just trying to protect myself and make good decisions.

Glad to have you here. I bet 90% of the older folks here can relate to driving around in a beater at your age. Good man.

[jtabeb]

Re: Housing Bubble Correction Update: Here IS the jobs crash (Part I)

Rent - (Taxes/month + Insurance/month + Warranty/month + Other expenses/month) = cashflow



Glad to have you here. I bet 90% of the older folks here can relate to driving around in a beater at your age. Good man.

I have three kids, we were a 1 car family until I turned 31, and then I paid cash for a junker $1000 get me to work car.

Bought a new family car when I was 33 paid it off when I was 34.

[Basil]

Re: Housing Bubble Correction Update: Here IS the jobs crash (Part I)

I have three kids, we were a 1 car family until I turned 31, and then I paid cash for a junker $1000 get me to work car.

Bought a new family car when I was 33 paid it off when I was 34.

Sold my car in August because I was already biking everywhere anyways, rain, shine, sleet or snow. My wife has one for the kids, but hardly drives it. I have always felt that cars are a very bad use of money if one can avoid them.

As for the housing, Roubini seems to think that we are looking at another 20% down in 2009. Based upon the vibe I am getting from realtwhores, I think we have a ways to go before the realization that the boom is not coming back sets in (at least in the Boston area). But it is nice to see prices falling quite a bit faster. Perhaps if I wait until 2010 I can buy with cash. The last time I bought a place, I paid cash. My realtwhore thought I was crazy, but it felt great.

[aa]

Re: Housing Bubble Correction Update: Here IS the jobs crash (Part I)

If you are truly looking for a home to live in for a long time, it is more a lifestyle issue than a financial one (within reason).
Over a long period of time (eg 30 years) it will all even out and paying a little more or less now won't make a big difference.

Find the area you want to live in that you can afford. If you can find your dream house that has already been built, buy it. Only build a new house if you have to create your 'own space' from scratch.

I look at it this way:
Take the amount you would pay in rent per year and multiply it by the number of years you would live in the house.
Eg: If renting is $15k pa and assume 30 years in the house, spend $450k on a house. It doesn't matter what the house is worth in the end - you only spent what you were going to spend on rent anyway - and you own the house!

If you pay cash up front you lose the income that cash could have earned. If you take a mortgage you pay interest but can invest your cash. Probably doesn't make a big difference which way you do it in the long term (ie 30 years).

[BP]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

mercerbear

I believe that the next 1 - 3 years would be the best time to buy your house, because many of the variable interest, teaser rate, pick a payment loans will reach negative equity and / or re-adjust from home purchase made at the peak of the market.

I wouldn't suggest hiring builders to build a home, because most likely you can buy one from a distressed seller (home owner or builder in trouble)
cheaper than you can build it.

Keep 3 - 6 months cash in an emergency fund and use the rest to buy your house. It's silly to have a mortgage, especially when you don't have to and in times of uncertainty. Look at it this way, paying cash for your house is like earning 6.5% or so on your money - guaranteed. You aquire wealth by combinations of increasing money earned and decreasing money spent. If you hear the idea that a mortgage is a tax deduction, this is a stupid idea - the math doesn't work out to your benifit.

I know this site is dedicated to somewhat predicting the future - but if all of the news letter, website, talking heads, etc. could actually predict the future, then they wouldn't need to sell their services. Just find a house you like, do your research (don't take a sales person's word as gosple), get a discount, and be happy.