bostonbubble.com

[admin]

Yes, you can lock in a lower rate now, but that would also lock in a higher debt and cost basis. Maybe you can break even in nominal terms if you stay for an extended period of time, with nominal gains thereafter, but that as a benchmark is a permutation of the sunk cost fallacy. There is nothing particularly special about breaking even, except psychologically. My goal would be to make the financially optimal decision (or to at least identify it) and this would likely entail a growth of savings over the same time period that it would take to break even on a purchase now.

Focusing on mortgage payments also ignores the size of the down payment. I like to do a thought experiment and ask myself whether I would buy if I were paying 100% cash. The answer would be based entirely on price in that case. My instinct is that the answer wouldn't change from a "no" to a "yes" by virtue of switching to using other people's money. You need to pay for that privilege and it therefore shouldn't be less expensive.

Time also works in your favor with the down payment. A 20% down payment now would become a 25% down payment if prices decline 20% (not a prediction - I'm just making the math easy). You can earn interest on your down payment in the meantime, which will make it even more substantial. You can also save the difference between buying and renting and tack that onto the down payment as well. This strategy could be followed to achieve a higher than normal down payment for when the time is right, which would make higher interest rates a non-issue.

- admin

[JCK]

[john p]

Hey, I went to an open house on the $550k (mentioned above). I guess it started at $680k. My guess is that there is a generational taste thing (this place had lots of early 80's stuff going on). It would need about $50k of personalization and the layout and flow are a tad bit unusual, but might align with someone who wanted a private office or possible in-law. It also wasn't in a "neighborhood" situation... I think that at that price point, there are more options that would align with today's buyers and they wouldn't have to spend the time and money to redo. I wonder if existing condos and new condos are having a similar dialogue in the urban markets...

I am glad JCK and Admin are elevating the dialogue to integrate the market dynamics with the options available of personal finance (in my opinion this is the context of today's fundamentals). The equities market is turbulent. Sure, people would love to buy a house with cash, but if people are going to cash in that much in the equities market, the whole real estate market would go up. Unless, you live cheap and save here, and then move to a place with a much cheaper cost of living. I had a great plan in the late 90's; the real estate market had been flat for about 10 years so I figured it wouldn't shoot up and MBA grads were making pretty good money right out of school. Well, that plan backfired; house prices skyrocketed after the late 90's salary spike along with the lower interest rates, and the equities market crashed right when I graduated with my new loans... So, I was young enough to get a "do-over", and it delayed my home purchase for about 5 years.

Because I learned the do-over lesson, I made sure that whatever I bought, I'd be happy for 8 years or so. In the face to today's market, depending on my job stability, I would either wait a year to see if we get a recession or if my job was safe, I'd be low- lowballing.

[spork]

[john p]

You know lots of folks have different target price points and target neighborhoods they are looking at. And the crazy thing is that there is a range and a lot of people can be right at the same time. For some, the jumbo loan is not an issue, but if you step back a bit you can see how that range might affect your range (kind of like meso economics).
What I took away from JCK is that blanket statements don't apply because the market is complex and dynamic.

My earlier post regarding the "fault" line created by the jumbos and when you compound that the higher interest rates of a year ago with the higher prices; it makes a property significantly more reachable. I would call this a "sweet spot" in a declining market. I still get the MLS listings for the same range of towns and prices as when I was looking before. I think Zillow is kind of close for my area, but somehow they factored in the updated assessed value (which were based on the 2005 sales) so it was skewed for some months.

You know, you can only control what you can and macro economics are easy to follow because there is an abundance of information and lots of media covers it. I go to the blogs to find the Meso Economic conditions. I wouldn't put my head in the sand right now and focus too much on one neighborhood (micro view). I would invest my time understanding how the micro economics and macro economics are doing the tango.

[john p]

One other point about meso economics. If you go through a particular exercise like I did earlier and you get this spark of exhuberence; you need to have that meso view to keep things in perspective. People like the MAR will look for any spark to light a fire under buyers. If you know the context, the meso, you can keep it in perspective.

All in all, I think the FED wants people in ARMs to refinance and has lowered the rates to grab as many folks as can grab on, to dampen the potential tsunami. I think the hand outs are kind of like the Romans Bread and Circus

http://www.answers.com/topic/bread-and-circuses

I think that they are thinking like true elites and people like the dumb masses. (Here I go again). Anyway, I think the biggest thing lacking in the last 10 years here is Justice. The Judicial Branch of Government is totally M.I.A. Giving people money for nothing is totally unjustified. In government there is a thing called a regulatory taking.

http://www.answers.com/regulatory+taking?cat=biz-fin

In theory, the intervention with interest rates increased the value of property and created a hardship to younger first time buyers. One could theoretically argue that compensation for this intervention by first time buyers is in order, i.e. first time buyer tax benefits etc. If any benefits are given out, they should align with those that absorbed the hardship of the government intervention to the "free markets". Lowering the rates was done to benefit some and created a negative impact on others. Giving money to those that benefited on the prior bail out is totally unjustified. I think the free money being doled out is intented to take people's attention away from being critical and responsible members of society.

Nobody asks to justify these measures. Justice is out the window. The scope of the word "justice" is unfortunately bound to the curiculum and training of a lawyer. Justice extends beyond that, and it is a value that regular folks need to value. People weren't asking themselves if 2005 prices were justified, they just were greedy. People don't care that this handout isn't justified, they did nothing to deserve it, but they'll take it. To me, justice is about making sure that people clean up their own messes and don't cause unfair harm anyone else in their pursuit for what they want.

[john p]

Sorry for not doing the spell check; I'm not that much of a cement head...

[spork]

Good points john p...i think about that fault line often since it affects me and you are coorect..especially if they increase jumbo limits in this area too...but each price point in each mkt is adjacent to the next...you can start to afford more and more of a house you were once priced out on...people will wait..like i have been in my case maybe later this year...lowball (which is a bad name for it)...u are also correct on justice.

but i am completely aware of niche mkts and the complexity... what i am saying is this thing is so big and will get much bigger (everywhere- Steeper declines) in the next ensuing few months..that blanket statements will be easier to apply and for me to stomach( since i am very anal and aware of the subtle complexities of mkts) ...like i have previously posting...it is like a wave(fro the boston mkt and probably the same or similar for others) and nothing is immune...just look at the national mkt...no major metro area is immune. Everyone has been pulled down to at least some degree. i remeber hearing that areas like Portland, san fran, etc were to some degree immune- now we are seeing they might be better off-but by no means immune- or what town was it here locally, alrington?

of course there will be local mkts/areas/towns/cities that sustain prices better and vice-versa... my comments are based on the boston mkt in general, in private i evaluate my own personal mkt within the bos metro- i guess you can sum it up in comparison as the same thing as systemic and mkt risk in regards to equity mkts-

also...FYI for everyone...i don't take the time to spell check, coplete sentences etc becasue i am usually to busy to be typing this anyway...who has the time??? i just love the conversation! conveying the ideas are more important to me than grammar...I appologize...

[admin]

[john p]

I always love this character, the mayor in the movie "Jaws"

http://www.jabootu.net/images/jawsmayor.jpg

Check out the anchors on his baby-blue blazer,

Chief Brody is warning that it is not safe to go in the water and the mayor is saying that he doesn't want them to cut open that shark's stomach and see that Kitner kid spill out on to the dock. Then, the mother of the dead kid comes over and slaps Chief Brody right on the kisser.

People right now are a little afraid to go into the water. Although I think you guys are right to be weighing the macro view (potential collapse and recession), I would stay active as if you were thinking about buying and keep your eye on the micro and meso perspective if for only to debunk any propaganda that the NAR or MAR might try to spin.

If the FED decides that inflation is better than a recession and keeps rates lower, what do you think that will do to house prices? Won't the cost of living go up, people's salaries go up? Also, an inflation premium is part of long term rate so it is hard for mortgage rates to drop if people think that the money they will get back in 30 years will be worth as much?

I think that Chief Brody represents a good model for a house hunter. In hunting for the shark, he had someone help him who had street smarts, book smarts, and he was considered a crack-pot or a responsible leader who took precautions despite public opinion...

In my MBA, they talked about how some managers saw their staff as always drifting towards being lazy and doing the minimum. If this was their disposition, they would be a bit more heavy handed and motivate with fear etc. Those that had a more hopeful outlook aimed at empowering their people. Paulson, Bush and the Fed most likely see the American People like immature children that can be quelled with candy.

When you look at the whole "herd mentality". If you see it as a weak and always in retreat and fear that is one thing. If you've ever seen a herd go on the attack and stampede a predator you might be more respectful of their potential. The predators will hope to break up the herd and get them to lose their connectedness so they don't look out for eachother and turn on the predator. The last aspect of the herd is that if they act like a battering ram and stampede and just take squatter's rights over whatever ground they want. This type of behavior is the kind that can deform fundamentals. It breaks the elastic limit and deforms. That correction, that snapping back of the elastic band, that gravitational pull breaks when you break through the atmosphere. The properties, the fundamentals are deformed. I mean when you look at America's historical context you'll find that we aren't in a controlled scientific environment where behavior is entirely predictable. I mean waiting for a just correction might not happen because the Government might intervene and give out candy to the masses so they don't protest.

Barack Obama wants people to be "hopeful". What we need is for people to be more like Chief Brody and be responsible.

[john p]

Another guy to model yourself after is Carmine Ragusa "The Big Ragu".

http://www.judithgeiger.com/egg/laverneandshirley/pics/mekka.jpg