Wednesday, August 29, 2007

Some Perspective Please

Its that time of the month when I don't have any new data to play with....and at present I need to rant a consider yourself warned....normally I'm not this bitter...but some things are starting to wear on me.

The first thing that really gets my goat is all the wailing about the 10% drop in values (I think the drop was more like 3% nationwide). Hello......did I not just see my little townhouse in the suburbs of D.C. increase in value by 80% in 5.5 years. Homeowners across the country experienced the same thing (especially in the coastal markets). That's a CAGR of 11%!

Its free money for anyone who is able or willing to cash out. Why everyone feels so entitled to every last penny of this money that they did almost nothing to make is beyond me. So instead, you only make 70% profit if you lower your price to sell your home. Its still 70% more than you had free rent for x amount of years....So stop complaining!

The whole, "I can't sell my house argument" is also really starting to piss me off. My father has had his house on the market for almost 2 years and is always lamenting how they "can't" sell it. It's not a matter of "can't". I'm almost positive almost anyone can sell their house if they lower their price (ironically Dad increased his price after not being able to sell it the first year).

To some degree I feel the same about the stock market. We have seen relatively steady gains since early 2002. That's 5 years of growth.....a couple days here or there where the value drops 1%-3% is pretty small potatoes in the greater scheme of things.

People need to stop expecting something for nothing. Money doesn't grow on trees. It comes with strings attached.....its called risk.


Giacomo said...

Speaking of lack of data...what's with the Sac Bee "Recent Home Sales" web pages? It's the end of August, and there's no July entries yet? Never mind that they stopped making links for months after April.

Yes, there is still a lot of whining from householders. We're just at the beginning of the acceptance phase, as it's becoming "common knowledge" that home values are falling (the MSM has finally picked up the theme, thanks). The housing stories are moving from the business and real estate sections to the front pages.

I have a growing sense that we'll see big prices drops between now and next spring as sellers get a little more panicked. The wife and I are going for a 6-month extension on our lease, and will see what develops.

Patient Renter said...

Here here! Well said.

I totally agree that people have unusually heightened expecations for their investments and have completely forgotten about risk.

I quickly found it was pointless to discuss investing around the office. Everyone is quite proud of their portfolios that have been gaining 15-20% a year, which is not surprising given that the indexes have gone up by as much, but they don't seem to get this. They think their gains are due to exceptional stocking picking skill or luck. Asset allocation? What's that? Risk aversion? I can already see the look of disbelief the day they realize their portfolios weren't all they thought. It should be a familiar look for them though, since most of them recently came upon when realizing their house value might not be making those double digit gains the REALTOR (tm) and their friends told them about.

Giacomo said...

Its seems like most folks relate to the stock market, real estate - and gambling - in much the same way, that is, with emotion and superstition rather than arithmetic and rationality. Perhaps it's because these are relatively complex subjects, and most people won't invest the time to understand them.

Housing prices were driven up by irrationality; we shouldn't expect that these same participants will suddenly "get religion" and start paying attention to graphs and spreadsheets. More likely, they will just reach a point of despair and resignation as coverage in the MSM and chatter at backyard BBQs wears them down.

Gwynster said...

Funny you mention gambling. I've always found it interesting that televised poker and Vegas trips became so hip from 03-06.

G Spot1 said...

You are absolutely right about perspective. When I was selling my house this summer, I didn't focus on the 50k I was "losing" by dropping my price but the 50-100k I was gaining by cutting my price and selling before everyone else figured out the market had gone into the tank. I was very concerned the other sellers would see the same data and sense the same slow market and cut their prices along with us, but much to my surprise (at the time), they held tight and sat and sat on the market. Many weeks later, they are still priced high and still sitting. This behavior no longer surprises me, but I still can't understand it....

Sippn said...

AB - so you're just unhappy about the price?

Have you made any written offers with that a price you think it should be?

Otherwise, no seller would take you seriously.

Giacomo said...

Gee, just this morning, I was thinking, when the local sellers reduce their asking prices by about 15-20% more, then I can begin to believe they are "serious" about finding buyers.
Until then, the interest from our moneymarket accounts will continue to pay our rent.

Sippn said...

What, you think buyers are paying "list" price? Silly.

Cmyst said...

Somehow I doubt that any of the sellers of the houses I'm interested in would fail to be insulted by my honest assessment of what I am willing to pay for their house. If they were within 10% on their asking price, I'd bargain. But it seems foolish, unless I want to provoke them, to offer them 50% less than what they're asking.
I did another drive by today to a working/middle class neighborhood in Citrus Heights on Northeast Circle where almost all the homes are Strengs. This particular house was valued at just under 200K in 2004, and the present owners paid 137K for it in 1997. The neighborhood median household income is 59K/year. They're asking 400K for this house. I don't think that house is worth more than 250K, and probably closer to 200K.
See the dilemma?
I could present a 200K offer, back it up with all the above data, and I bet they'd still be insulted.

Gwynster said...

If it was just a matter of 10% to 20% over, Hell, I'd be in there haggling. My area is still 40% to 50% overvalued and I have no desire to launch a into free pig singing lessons.

I can wait.

buying time said...

If you really want the house, I don't feel you can lowball more than 20% without pissing off the seller.

If you do that, even when they lower their price 3 months from now, they may not respond since you were the harbinger of bad news.