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melonrightcoast
Joined: 22 Feb 2009
Posts: 236
Location: metrowest
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 Posted: Mon Mar 02, 2009 11:33 pm GMT Post subject: prices have "always" been too high... |
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| JCK wrote: | | BelmontRenter wrote: |
I hope it's true, as I've been in the market for 6+ months, and as I've been posting here from time to time, there are a dearth of properly-priced sfh's in the "resilient" towns. I'm holding out with the homes that your prediction comes true, but I submit that up 'til now it hasn't. I guess we'll know when it happens as a bunch of reasonably-priced sfh's will come on the market, right? I'll be watching . . . |
My sense as well too. People have been saying that prices have been too high since about 2003. A subset of those folks have been claiming the entire time since 2003 that lower prices are just around the corner.
The people claiming that prices are/were too high are certainly being vindicated today, but no one seems to have a good handle on the timing of the declines.
That's not to say prices won't be significantly lower in six months; I just wouldn't count on that being the case. |
I'll have to trump your 2003 people with people that have been claiming housing prices were too high in the mid-90s. Not surprisingly, these same people are still renters as they watched "prices of townhouses go from $250K in mid-90s to $800K at the 2005 peak". So, even though I wish prices in desirable towns in suburban Boston would go to 3x income, historically speaking, I don't think it will ever happen and we'll have to bite the bullet at, say 4x, or be permanent renters.
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JCK
Joined: 15 Feb 2007
Posts: 559
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| Posted: Tue Mar 03, 2009 12:03 am GMT Post subject: |
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Mel,
Take a look at some of the graphs on this site that admin has posted. Even during the mid-1990s, prices never dropped to 3x median income in the Boston area.
I'm not saying that it's impossible for prices to go that low, but they haven't been that low around here in a long, long time.
FWIW. |
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john p
Joined: 10 Mar 2006
Posts: 1820
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| Posted: Tue Mar 03, 2009 12:51 am GMT Post subject: |
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And to reiterate one of JCK's earlier points, you have to look at the median salary of the actual town you're targetting.
Does anyone know where you can get current data on the median salary of a town. Also, if you can get the median salary for past years. I'm on my town's finance committee and I'm trying to benchmark the growth of the tax burden relative to the growth of the town's median salary... |
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melonrightcoast
Joined: 22 Feb 2009
Posts: 236
Location: metrowest
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| Posted: Tue Mar 03, 2009 12:57 am GMT Post subject: Re: prices have "always" been too high... |
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| melonrightcoast wrote: | | So, even though I wish prices in desirable towns in suburban Boston would go to 3x income, historically speaking, I don't think it will ever happen and we'll have to bite the bullet at, say 4x, or be permanent renters. |
I think I didn't articulate what I meant. My point was that, historically speaking, prices in the Boston area have been above 3x income, even in the troughs, and if we wait for 3x income, we are probably waiting in vain. So, we'll have to either buy around 4x income (assuming or desired homes ever get to that price), or stay renters. Or, buy a small fixer and do an addition, which I am not so crazy about with small children.
Sigh.
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Hard Rain
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| Posted: Tue Mar 03, 2009 1:36 am GMT Post subject: |
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"So, even though I wish prices in desirable towns in suburban Boston would go to 3x income, historically speaking, I don't think it will ever happen and we'll have to bite the bullet at, say 4x, or be permanent renters."
Historically speaking?
Did you ever think that your life savings would be cut in half in a few short months? Frankly I shocked so many people still don't get it, we are facing the biggest financial collapse in history. Black Swan event.... |
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melonrightcoast
Joined: 22 Feb 2009
Posts: 236
Location: metrowest
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| Posted: Tue Mar 03, 2009 2:12 am GMT Post subject: Black Swan |
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| Hard Rain wrote: | | Did you ever think that your life savings would be cut in half in a few short months? |
Frankly, yes. I did. That's why I refused to put all of our money in the stock market. We would have more money, but hubby put some into the S&P500 a couple years ago ... that's right, almost at the peak ("... you put how much into an S&P 500 ETF AT IT'S (then) ALL-TIME HIGH????!!!!!"). I absolutely refused to let him "invest" our money without discussing it with me after that.
Now, we'd like to buy a house and settle in a town and raise our kids... but it seems like this whole mess of an economy/credit culture/country is putting those plans on hold.
As for the Black Swan "event", I suppose that this mess qualifies because we will now have a point in time to say "This is when Rome(USA) fell...". However, as an unforeseen "event", I don't think it qualifies. I think there are too many people out there that were living within their means and shaking their heads (or shaking their fists) at all those that heloc'd their homes and bought expensive cars/vacations/college for kids/clothing/jewelry/TVs/phones/etc....all on credit. A lot of these people took cues from parents or grandparents that lived through The Great Depression, which followed a very large abuse of credit. I think a lot of these people, myself included, don't think this "event" was so unpredictable.
We'd really just like to buy a house and raise our kids for the next 20 years. I don't know when it will happen, though.
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Tue Mar 03, 2009 5:23 am GMT Post subject: Re: Black Swan |
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| melonrightcoast wrote: |
Frankly, yes. I did. That's why I refused to put all of our money in the stock market. We would have more money, but hubby put some into the S&P500 a couple years ago ... that's right, almost at the peak ("... you put how much into an S&P 500 ETF AT IT'S (then) ALL-TIME HIGH????!!!!!"). I absolutely refused to let him "invest" our money without discussing it with me after that. |
I have the same mindset. There's been many serious recessions in the past and it seems that even those who lived through them quickly forget. I am one of those who thought that I should build my cushion before taking my risks. I have a knack for investing at peaks as well (Mar 2000 and Oct 2007), even though I frequently dollar cost average to avoid market timing.
| WestCoastXPlant wrote: | | Now, we'd like to buy a house and settle in a town and raise our kids... but it seems like this whole mess of an economy/credit culture/country is putting those plans on hold. |
Your plans to buy a house may be on hold. You can settle as there are many good landlords out there. I have a friend who rented his old house to the same family for 25 years. You can certainly continue to raise your kids. You just have to unprogram yourself into thinking that owning a house is required to get on with your life. Thinking of the advantages of renting. For one, you aren't constrained to a single line of schools. You can move from school to school so that your children are always at the top schools.
| WestCoastXPlant wrote: | | As for the Black Swan "event", I suppose that this mess qualifies because we will now have a point in time to say "This is when Rome(USA) fell...". However, as an unforeseen "event", I don't think it qualifies. I think there are too many people out there that were living within their means and shaking their heads (or shaking their fists) at all those that heloc'd their homes and bought expensive cars/vacations/college for kids/clothing/jewelry/TVs/phones/etc....all on credit. A lot of these people took cues from parents or grandparents that lived through The Great Depression, which followed a very large abuse of credit. I think a lot of these people, myself included, don't think this "event" was so unpredictable. |
Let's also not forget that a good portion of our success depended on those poor decisions. If Americans had been living within their means, then your husband would like have made far less money over the past decade and would have a lower salary today. I suppose you'd be able to get a nice house though.
| WestCoastXPlant wrote: | | We'd really just like to buy a house and raise our kids for the next 20 years. I don't know when it will happen, though. |
I've met a lot of immigrants who are extremely successful in this country because they don't even try to buy a home or if they do it is way below their means. They pour all their resources into their children. I don't mean to question your judgment I'm just trying to get you to focus on what's really important in life and I'm assuming that its your kids. Don't go too far, though, we enjoy your involvement on this message board  |
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Tue Mar 03, 2009 1:11 pm GMT Post subject: |
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melonrightcoast: I think your hubby has the right idea - S&P500 is a good investment, if it is part of a balanced and diversified portfolio tailored to your risk tolerance and long term goals. Nobody had any idea it was at the 'all time high', though this is not the point. The problem is that S&P500 as a single investment has an associated risk which is a lot more than most people realize. Yes, we know beforehand that you can lose 50% or even 70% investing in S&P500, and other index funds. People have to understand that just like owning a single house, owning a single US large blend index fund (even though it is 'spread out' across US stocks) will not shield you from market risks. Just like owning 1000 houses will not shield you from market risk. Even diversification will at times fail investors, as the assets are instantly 'correlated', or behave similarly to each other, which is not true at other times.
This is why people have to understand that you must absolutely be able to afford your house hands down, and that even 3x times income test is pointless. What if your husband loses his job? Is it still 3x income? Its like me saying to your husband, you can buy S&P500 if your risk tolerance is high enough for a 70% loss. This is silly! Nobody has a tolerance for a 70% loss, since you never know when you 'have to' take it, especially if you count on this money to fund your retirement. Most people are simply oblivioius to risks they are taking and are not capable of imagining what will happen if they lose it all quickly. I think that if you want to buy a house (or an S&P500 index fund) you must pretty much lay it all out - a good plan and a good budget with the most thorough look at possible scenarios and outcomes. Affordability test for house purchase and a long term investment plan together with a risk tolerance analysis for stock purchase is a must. |
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melonrightcoast
Joined: 22 Feb 2009
Posts: 236
Location: metrowest
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| Posted: Tue Mar 03, 2009 3:18 pm GMT Post subject: investing |
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| GenXer wrote: | | melonrightcoast: I think your hubby has the right idea - S&P500 is a good investment, if it is part of a balanced and diversified portfolio tailored to your risk tolerance and long term goals. Nobody had any idea it was at the 'all time high', though this is not the point. |
I would agree that looking at the long-term trend and that we have 30 years until retirement that the S&P500 is a good index fund to invest in. However, when he put the money in the ETF, the S&P500 was at it's all-time high to-date... it did go up a bit more over the next few months, and now it is down to 700. Anyways, I didn't make him sell it because our time horizon is so far out, but I did point out to him how high the P/E ratio was at the time and that before we bought anymore index funds, we needed to wait until the P/E ratio had come down and he agreed. We've been dribbling money into the stock market since it crashed last fall.
My husband (I probably portray him badly here, he really is a very smart and great guy) and I differ IMMENSELY on our risk profiles for investing. His idea of a diversified portfolio would be 100% stocks (20%emerging markets, 20%technology, 20%blue chips, 20%small cap). My idea of a diversified portfolio is 50% stocks/50% safe inv. (20%small cap, 10%emerging technologies, 10%blue chip, 10%foreign markets)/(some mix of CDs, treasury bills, high interest bank accounts). So what we decided to do because our of our risk profiles being on the opposite ends of the spectrum is split the money: he gets to invest some and I get to invest some, and we tell each other what we are investing in so that we don't have too much overlap.
I agree about not buying too much house. If I had it my way, we'd buy a ~1700sq ft ranch or raised ranch for $400K or less, and add-on in the coming years. Hubby is looking for more of a WOW affect with a house and I'm looking for more affordable, easy to maintain, livable shelter. I think he is starting to come around though. I hope he is, at least  . And the economy does have us (rightfully) skittish to buy right now. I'm looking into getting certified as a substitute science teacher so that if my hubby is laid-off, we could have some additional income.
What else should we be doing? Hoarding food, water and buying guns?
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melonrightcoast
Joined: 22 Feb 2009
Posts: 236
Location: metrowest
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| Posted: Tue Mar 03, 2009 3:36 pm GMT Post subject: Re: Black Swan |
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| balor123 wrote: | | I've met a lot of immigrants who are extremely successful in this country because they don't even try to buy a home or if they do it is way below their means. They pour all their resources into their children. I don't mean to question your judgment I'm just trying to get you to focus on what's really important in life and I'm assuming that its your kids. |
I also know a few immigrants like this (all Asian) and their kids went to Harvard and MIT. We moved back here for our kids to go to excellent schools, for our good friends, for my husband's career and so we could potentially own a home (compared to SF Bay Area where the schools and housing was completely out of our reach, even renting). It can be difficult to find the right balance, even with the kids having the highest priority.
| balor123 wrote: | | Don't go too far, though, we enjoy your involvement on this message board |
Why thank you  , I find this board a tremendous place to vent my angst, frustration and hope.
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Boston ITer
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| Posted: Tue Mar 03, 2009 4:37 pm GMT Post subject: |
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| Quote: | | JCK: Even during the mid-1990s, prices never dropped to 3x median income in the Boston area |
Folks, there's something here which didn't occur during the mid-90s, a widespread exodus of white collar jobs.
True, there was the *big iron* recession of '89-'92 but I was privy, around then, to the knowledge of the "up and coming" jobs, which although didn't always pay a mint, were still up and coming and were poised to take off. I'd older acquaintances, who were contracting at over $150K/yr (today's near ~$280K/yr). The juniors, in those areas, however, were at $35-$55K/yr, all fine salaries for the time period. None of them were sitting around and talking about their profession ending up in Beijing, the following season, as today.
In effect, we didn't need a Nasdaq 5K event, there was already momentum long before the bubble economy of '98. The bubble simply destroyed the authentic, underlying fundamentals to a tech society.
In contrast, these 00s were a completely stagnant decade, once you factor out the real estate and private equity bubbles. So what's happened is that the basis for a significant bear market, in asset classes, is in full swing. There's little, right now, propping up the present housing market other than the hubris of the prior decades. |
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Tue Mar 03, 2009 5:29 pm GMT Post subject: |
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melonrightcoast: PE analysis has been discredited as a predictive tool. There is no mean reversion, and PE analysis assumes this as if it was a fact (it is not, and until it is proven conclusively, it is nothing more than a wild guess). Market timing does not work, so if S&P500 fits his portfolio and his long term plans well, its ok if he buys it, whenever he feels like it. However, it seems that he has no idea about what risks are, so he's in for a ride.
| Quote: | | My husband (I probably portray him badly here, he really is a very smart and great guy) and I differ IMMENSELY on our risk profiles for investing. |
There in lies the problem. However, I still argue that because he has no idea he can lose 90% of his investments when he least expects (the longer you hold the MORE RISKY your investment is), he shouldn't be holding 100% stocks if you guys want to retire, period.
| Quote: | | His idea of a diversified portfolio would be 100% stocks (20%emerging markets, 20%technology, 20%blue chips, 20%small cap). My idea of a diversified portfolio is 50% stocks/50% safe inv. (20%small cap, 10%emerging technologies, 10%blue chip, 10%foreign markets)/(some mix of CDs, treasury bills, high interest bank accounts). So what we decided to do because our of our risk profiles being on the opposite ends of the spectrum is split the money: he gets to invest some and I get to invest some, and we tell each other what we are investing in so that we don't have too much overlap. |
Technology and blue chips are not asset classes. I think you are way too overloaded on small caps and emerging markets, and I think you have a ton of overlap in your holdings (small caps with technology and with the 'blue chips'), increasing your risk a lot more than you realize. CDs and bank accounts are typically part of your 'cash' holdings. I wouldn't even consider this as part of your portfolio. The other 50% of your portflio (and I think 50:50 is a good mix to start) has to be picked right (treasuries), otherwise you do not get the benefits of diversification.
It seems that your husband's investments will skew your overall portfolio big time - so it wouldn't matter if you held a 50:50 mix - it seems that your overall portfolio is 75% invested in stocks. So much for 'balancing' him out. To balance him out you should be in bonds 100%. And you should be able to rebalance (right about now wouldn't be too bad) - if your money is spread out, you have no way of doing that.
Wouldn't be a bad idea to stock up on some guns...everybody's doing it right now, take it or leave it |
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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Tue Mar 03, 2009 5:34 pm GMT Post subject: |
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| john p wrote: |
Does anyone know where you can get current data on the median salary of a town. Also, if you can get the median salary for past years. I'm on my town's finance committee and I'm trying to benchmark the growth of the tax burden relative to the growth of the town's median salary... |
This site has estimates of the median income by town for 2007 along with actual values for 2000:
http://www.city-data.com/
A lot of the stuff there looks like it might be a pretty formatting of data from some IRS database, or maybe from the MA DOR. I'd search the websites of those agencies if you're interested in additional historical data.
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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Tue Mar 03, 2009 6:16 pm GMT Post subject: |
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| GenXer wrote: | | melonrightcoast: PE analysis has been discredited as a predictive tool. There is no mean reversion, and PE analysis assumes this as if it was a fact (it is not, and until it is proven conclusively, it is nothing more than a wild guess). Market timing does not work, so if S&P500 fits his portfolio and his long term plans well, its ok if he buys it, whenever he feels like it. However, it seems that he has no idea about what risks are, so he's in for a ride. |
Correct me if I'm wrong, but doesn't "buying whenever you feel like it" imply acceptance of the efficient market hypothesis? The efficient market hypothesis has not been proven conclusively (in fact, I've seen ample evidence that it's wrong), so how is operating under the assumption that it is valid any less of a guess?
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Tue Mar 03, 2009 6:44 pm GMT Post subject: |
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admin: Sorry, I have to be a little bit more precise. What I meant to say was that it makes no difference when to buy, not because of the efficient market hypothesis, which is most certainly wrong, but because market timing doesn't work, so you may as well buy whenever you are ready to spend the money. However, given that it is possible to get spiked with an extreme random event, it does make a lot more sense to buy into the market gradually, NOT because you are trying to time it, but because this (hopefully) reduces the impact of such an event. This is why you want to dollar cost average and contribute a small amount periodically.
Efficient market hypothesis is right on one point - it says you can not time the market, but wrong on many other counts - the markets have memory, they do not price all of the information correctly, and investors are not behaving rationally, and on top of that there are outside interferences to the market which can move the market more than all of the players combined. |
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