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What Makes the Housing Bubble Like Global Warming

 
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PostPosted: Sat Dec 02, 2006 1:12 pm GMT    Post subject: What Makes the Housing Bubble Like Global Warming Reply with quote

Experts agree to disagree on both the magnitude of the Housing Bubble and the magnitude of Global Warming. The news is full of contrasting opinions of the two. I'm aware that part of the reason for the difference of opinions is because their research is funded by conflicting sources, but I also think there are vast difference in where data is collected.

While one reasearcher is screaming, "the sky is falling," another researcher is claiming, "the sky is fine and the sun is out - relax and work on your tan." Maybe they're looking at different patches of sky, and both of them could be right.

Some of this thinking is just part of each person's mental process. My wife calls herself a "feeler" and I'm a "thinker." Her mind is focused on the "moment" and I'm focused on the "big picture." This is not just psyco-babble, but it's like color blindness. I'm trying to explain that I see red, and she's telling me it's green.

She saw the facts: prices were going up, year after year, and I saw that there was nothing fundamentally supporting prices. I tried explaining wages, rents, supply and demand; however, the same response came back, "prices are rising." Our therapist (yes, we had to find a professional to help us sort this out), said, "one person is looking at a theory, and the other is looking at the facts."

We had to merge the facts with the big picture, and two years ago, while we were doing our taxes, we put together the numbers. We started with family planning: do we want to have kids. What would be the size of house we would need. What would we put aside for our retirement. Do we want to take vacations and buy holiday gifts. Do we want to maintain our current lifestyle. When we were finished adding all the numbers together the total came out to $160,000. Neither of us made that kind of money. Then came the question: are we sure we want to have kids.

Maybe everyone who has kids and a house is making $160,000 a year, but it wasn't us so. We finally packed it up.

So here's a question, are you a "thinker" or a "feeler" and how does your finanaces stack up?
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PostPosted: Sat Dec 02, 2006 4:30 pm GMT    Post subject: Reply with quote

It's funny you should mention this as I just watched An Inconvenient Truth last night and at points the housing bubble came to mind. I thought this quote from Upton Sinclair which they used in the movie seemed particularly applicable to the MAR telling us prices have stabilized and the NAR telling us that there is no bubble:

Quote:

It is difficult to get a man to understand something when his salary depends upon his not understanding it.


As for your situation...

Quote:

Our therapist (yes, we had to find a professional to help us sort this out), said, "one person is looking at a theory, and the other is looking at the facts."


I don't understand how your wife's position was any less hypothetical than yours. The only fact she was looking at was that prices were rising - the implication that this meant that they would continue to rise is entirely hypothetical. The disclaimer that you see on just about every other investment vehicle in the US of past performance being no guarantee of future results was very apropos here. Without additional data, I think that the fact of recent price rises would support your hypothesis just as well as hers since it's just as plausible that the price rises were temporary and you missed out on them. In fact, by bringing the other data to the table, you showed the fact that price changes have been cyclical in the past rather than always up, which would actually give more weight to your hypothesis and put more facts on your side.

Creating a budget seems like it was a very good idea, though, since it entirely side stepped the issue. You should take some comfort in knowing that almost everybody else is in the same boat, which consequently means that the current situation can't last forever.

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john p



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PostPosted: Mon Dec 04, 2006 4:52 pm GMT    Post subject: your wife is number one Reply with quote

No matter what happens, you're wife is the number one thing. A good partnership depends on pooling together the best knowledge and skills of both people, so a good partnership would seem to have the best knowledge and skills prevail no matter which individual was presenting them. The desire to let the winning proposal prevail has to be balanced with respecting the other person in the marriage. I would say even if you see a great deal or your wife sees a great deal and the other one is not ready to pull the trigger, both agree to pull the trigger together and while you're in this collaboration, both agree to respect each other and put each other first no matter what. There is always another deal, another house, etc. You're wife is forever so it is not worth damaging that for any deal. My wife and I would agree to take some time off when things got stressful. I would write long e-mails and detail where I was coming from. I learned how to best present information to her and I learned from her points and it made us a stronger couple. You'll even have sleazy people in the industry that might detect the tension and try to play each of you against each other. The two of you are in it forever, so even though your spouse might not have all the information, no one on earth is watching out for you like she is.

Just like the patchwork in the sky, the two of your knowledge could be a bit sophomoric, meaning that you're able to see sparks of understanding, but both don't have the confidence to feel comfortable to act. Be patient and let the knowledge and experience fill in the gaps. The reality of the market is mixed and it takes a certain mentality to operate within this context. Once you have the right basis of observation, then you fine tune your observations. It's like playing sports, the difference between the college level and pro's is like a fraction of a second. An invisible pitch for a college athlete is easily picked up by a pro. In fact, Ted Williams used to get angry at his teammates because they couldn't see as well as he could and he thought that they weren't trying. He had incredible vision and could see the pitch better than the next athlete. Be patient, and wait until things come into focus better for you two as a couple.

Surprisingly, I used the lack of confidence as reinforcement to justify the low-ball. Meaning, if I was unsure about a position on a property, I would ask so far low, that even if the market dropped, I would have a little cushion or factor of safety built in. The way I calculated my "base" was to take any house and property and then take 2/3 the value for a comparable lot on the market and then take 85% of the cost for new construction (or more depending on the age of the home). Think about it, if house lots drop 1/3, contractor’s salaries and building materials can only drop about 15% so it's kind of a safer bet. I understand that this "base" isn't applicable for most people; I just offer it as a model to have you think about your own.

The FED has to decide who they want to make happy. Rich people who live off of "income" stocks/bonds etc. want to have lower inflation, which puts the squeeze on the middle class. They can only tear into the social fabric so far before the market bears out. Young families are being torn up like yours and family values like having children are now being weighed. The three options are for 1- house prices to drop, 2- wages catch up, 3- people move from higher costs of living to areas with lower cost of living and the markets get more evenly distributed. I think with the global market, our nation and private companies needed the financial flexibility to compete. I don't know if currency values will dilute the effect or not. The FED may have had to juggle an extra chainsaw in recent years with the global market, the war, the stock market bubble etc. Just like you and your wife have this two dimensional dialogue going: theory, fact, we as citizens in society need to be better democratic citizens and better smarter consumers to have a healthy democratic/capitalistic society. Has the FED needed to act rashly in order to offset consumer’s irrationality in the stock market and then real estate bubble? Regular folks like yourselves that play by the rules are getting caught in the crossfire.

What I am starting to understand better is this economic ecosystem. For instance, do I buy a sit down lawn mower and cut the grass myself or do I pay a guy to come to my home. This make or buy decision is balanced perfectly. It is frustrating because the landscapers charge just enough so it is a difficult decision. When things got out of balance and contractors were charging too much, you saw Home Depots pop up because it was cheaper for Joe-homeowner to do it himself. Because our economic ecosystem is now reacting with India, China, etc. it is throwing off the balance. The Fed’s manipulation of reserves is also causing major waves to the economic ecosystem and they are like the zookeepers that are scratching their heads waiting for the Pandas to get it on but are ruining the entire mojo. It sounds crazy, but the Fed is now affecting the rate of reproduction in our society. People like you are wondering if children are a luxury only for the rich. China has a more extreme approach. It may be a primal behavior such as how warfare thins out the population/ competition. Understanding the balance so that we don’t need to resort to warfare and extreme measures are what make us civilized. My concern with the Fed’s policy is that it serves the Paris Hiltons of the world and makes it more difficult for those who have more to offer society. Personally, I am tired of the mysterious way the Fed talks. I just want them to be clear about what their objectives are. When they make policy, they are tilting the playing field and it is not a natural environment. They should be clear about who is being hurt and who is being helped and why. I hope that the new Congress establishes "pay-go" so we can at least eliminate that wildcard.

In this patchwork of clouds, the only thing you should focus on seeing clearly is your wife. To be a good American you need to be a knowledgeable voter and a smart consumer. That's all second to being a good husband. You’re right, things are out of balance. We need to put foot to ass on the policy makers as well as exercise self discipline as consumers in order for this to get back to a more civilized balance.
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PostPosted: Mon Dec 04, 2006 6:26 pm GMT    Post subject: Reply with quote

Quote:

You'll even have sleazy people in the industry that might detect the tension and try to play each of you against each other.


Like in the "Suzanne Researched This" Century 21 commercial? What were they thinking?
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