The dialogue between commenters has been interesting to read on Ardell’s most recent post about predictions.
Is this a helpful or counterproductive prediction?
“So, don’t be swayed by media reports of a ‘disastrous housing economy.’ Take the long-term view and be confident that your home will continue to appreciate in value. And know that if you buy a home today, in seven years it will be worth a lot more.”
– Geoff Wood, CEO Windermere Real Estate
(Quote taken from the Spring Quarter 2008 of ‘Inhabit,’ The best of the Pacific Northwest magazine) Published by the Seattle Times.
I don’t necessarily disagree with Geoff’s sentiment and I understand his overall point within the larger context of the quote**—I just took the last paragraph quote from his ad titled “Gaining Perspective on the Real Estate Market”. Seven years is a long time. But this is one heck of a prediction, no bones about it.
**his use of a “Casino” and “gambling” analogy was terribly ironic, intended or not.
I have no idea if this was solely a local ad or if they ran it or a similar one in other markets Windermere has offices as well.
Agents are resources in so many aspects for their clients. Consumers turn to them for valuable feedback, for information, data, suggestions AND ADVICE, which includes feedback on where the real estate market is trending. In so many ways, they are advocates whom consumers want to trust, but for a variety of reasons find it difficult. Building and gaining trust does not begin with “I don’t know where the market is heading, beats me.”
You have to give Geoff Wood credit. At least you know where he stands.
“So, don’t be swayed by media reports of a ‘disastrous housing economy.’ Take the long-term view and be confident that your home will continue to appreciate in value. And know that if you buy a home today, in seven years it will be worth a lot more.
“…And know that if you buy a home today, in seven years it will be worth a lot more.”
its conviniently fails to mention that if you wait a bit more to buy, you may do even better in those 7 years 🙂
One customer’s take on predictions:
I’m looking to a real estate agent to help me learn enough about real estate to make decisions in the market. In the end, it’s my money and my call, so I need to get educated & do a good job making that call. I wouldn’t buy or sell solely on an agent’s prediction, but I do appreciate seeing those predictions, esp. when I can see how they got there. Even if I choose not to accept the prediction, the methods & thinking behind it help me understand what’s worth paying attention to. They’re data about what realtors use to assess a property or a market. Worth having.
IMO a good agent will be clear on when they’re stating facts & when they’re making predictions. If they’ve done that, I can sort out what I can accept offhand & what I need to think through before accepting. I can understand why a realtor would choose to say less so that clients who do take their word too seriously don’t blame them for any troubles down the road. Personally, wanting whatever education I can get while looking for a home, I’m OK w. agents stating more than facts. Better IMO to draw on too much info than too little.
If nothing else, the argument that comes from disputing a prediction brings out more handy info. When Kary took exception to Ardell’s prediction, for example, he brought up employment, interest rates, and a lot of other things that go into gauging a market. All worth considering–and if it weren’t for talking through a prediction, they wouldn’t have come up.
What I’ve observed on the larger public real estate blogs is whenever the conversation goes toward market generalities, conversations become polarized, which by and large is the reason I don’t mix it up much when the conversations like these go polar. I have at times injected market “specifics” which, I’ve also observed tend to ground the conversation.
From my perspective market generalities cause more confusion with the “public” than market specifics. It’s too easy for people to read from an emotional level –from their individual perspectives and market paradigms to support their point of view. Which, (again my opinion only), cause hostility –sometimes degenerating to the gutter, on the local real estate blogs.
There IS value in looking at the market from all angles. That being said, for me, I place very low value on national stats, low value on regional stats and a very high value on market specific stats (ie. absorption rates by area/by price range) – which are hard to argue against- because the (specific) market is, what it is.
Predictions? They may come true and they may not. Nobody really goes back to see if the prediction is right, and if the predictor brings up his/her uncanny success, few go back to research.
Because predictions are all about market generalities, by nature they’re controversial and are best for increasing readership and comments.
At the end of the day, we all get to live with our opinions.
BTW, What Geoff Wood had to say about the market is the same thing that is said and printed virtually on a daily basis by thousands of people who share this particular perspective.
Seven years out doesn’t help people decide whether they should sell this year or next, or wait until Fall to buy.
I don’t care for Mr. Wood’s predictions any more than Ardell’s. But between the two, I think it’s pretty clear which was was designed to try to generate business, and it’s not Ardell’s statements. And I’d probably say more analysis probably went into Ardell’s predictions.
Tim wrote: “You have to give Geoff Wood credit. At least you know where he stands.”
In favor of making more money? 😉
BTW, I would agree with him on not basing your analysis on press reports.
Things are unsettled in the economy, no one can question that. Buyers and sellers will always have needs to buy and sell, and it is the real estate agents’ JOB to assist them.
Yes, we need to counsel our clients, which we do, by using statistics and data specific to their market area and neighborhood.
I have said this many times: I started selling real estate in 1983. The advice and expectation then was very conservative, that a seller likely could not ‘break even’ for at least 3 years.
The last 10 years of our current real estate cycle have been nothing short of candyland — and I mean by that: unreasonable expectations.
I can’t find a link to Geoff’s post, so I’m not sure what he said, but somewhere on some post, I also equated this last cycle of housing to be similar to the cycle of gambling: and we all know that gambling doesn’t pay off. Remember the stock market gambling days prior to the .dotcom failures? Todays’ housing crisis has many of those same players.
Home prices do not go up-up-up forever. Nor do they go down-down-down forever. 7 years seems like a very long time, but it’s not.
Perhaps it is time to think about the wisdom of being such a transient society.
Here is what I think. If you’re a buyer, great. Go find yourself a top-notch agent you trust, and choose your home wisely. Enjoy your home as a part of your life, not your gambling habit.
If you’re a seller, go find yourself a top-notch agent you trust, and price your home for the market. What you ‘need’ may or may not be reality. If you bought with the expectation that prices never go down, I’m not sure how you thought that was possible …
Buyers and sellers all have brains. We are not lemmings, we are thinking people.
“And know that if you buy a home today, in seven years it will be worth a lot more.”
Tim asked if this is a helpful prediction. I don’t think it’s particularly helpful, mainly because I think it will turn out to be wrong.
Lax, that might depend on whether you’re accounting for inflation. Throw inflation into the mix, add different levels of debt vs. cash holdings, and you could get all sorts of scenarios.
What’s the cash you’re holding going to be wroth in seven years?
Agents tell us that all real estate is local. Hyperlocal in fact, and that we should not listen to broad based mainstream media reports of gloom and doom. Yet in this quote, we are suppose to listen to another broad based mainstream media report that everything is fine.
I believe this is called “talking out of both sides of your butt.”
Agents need to practice their statistical analytical skills. Throw away the sales scripts. Toss out the memorized press releases.
Buyers and sellers want facts supported by data. Agents, you tell us that your value lies in your negotiation skills, your local market knowledge, and your experience.
So if it’s true that real estate is hyperlocal and that you are worth your commission, then please polish your statistical analysis skills and give home buyers and home sellers what they want.
They want to know what is going on out there right now, not in seven years.
It doesn’t matter if your predictions are 100% accurate. Get in the game.
Jillayne wrote: “So if it’s true that real estate is hyperlocal and that you are worth your commission, then please polish your statistical analysis skills and give home buyers and home sellers what they want. They want to know what is going on out there right now, not in seven years. It doesn’t matter if your predictions are 100% accurate. Get in the game. ”
This is a bit inconsistent in that if you’re just giving them the local data on what is “going on out there right now,” there would be no prediction involved, and it should be 100% accurate.
BTW, the one thing that’s sort of funny about this whole thing is that when you give people data, they typically don’t really care about it enough to try to understand it. They either just want to be told what they should do, or want the agent to do what they’re told. It’s actually refreshing to work with someone that cares about the data.
I vote for counter productive. The prediction is purely aimed at buyers. If the market is falling it’s clever to wait, period. If it was any other item you purchased and you see a likelyhood of the price falling with ~$5000 a month would you buy now or next year? Say a car, $40k today, $20k 4 months from now? It’s the same $20k, it takes the same amount of hard work to earn it. It impacts your future savings and spendings in a similar way. Just because it’s a home doesn’t make it ok to be irrational or plain stupid. Yes, there is a chance of future appreciation a couple of years from now, but there is also a good chance of it not happening until much later.
tj wrote: “If it was any other item you purchased and you see a likelyhood of the price falling with ~$5000 a month would you buy now or next year?”
That’s a prediction. I don’t know what area you’re in, but for King County the median in March was up $10,000 over February. You’d have to go back to October, 2007 to get a higher median, and then to February, 2007 to get a lower one. And if the second half of April is like the first half, it’s likely April will be $10,000 higher than March.
The point is prices don’t go straight up or straight down.
Another point would be that those numbers don’t really mean much, because not many areas are performing like that. Some areas in King County are performing better, and some worse.
Kary, look at trends of fundamentals.
– Real estate: inventory up, sales down.
– Economy: worsening.
– Financing: tightening.
– Personal costs: increasing ( oil, food etc ).
Tell me that this looks like an environment for home appreciation?
You might not see it in your little sphere yet but you will soon. That is my prediction.
Well, inventory was up in 2007 too, but prices rose so fast then that the YOY comparables now are very tough.
Economy/Financing: I don’t think those were too favorable in the late 70s, early 80s, but Seattle residential prices did okay (condos didn’t). Interest rates on mortgages actually got well into the double digits, greatly increasing the monthly payments necessary to buy a house.
Personal costs: That I’ll give you. My concern (stated in the other thread) is that the price of gas will work it’s way through the economy not just on prices, but also activities such as shopping. That could lead to a real downturn in the economy.
My whole problem with predictions (again stated in the other thread) is there are too many things that affect the result. You may have 8 factors that are negative and 2 that or positive, and get a positive result. Or 2 that are negative, 8 positive and a negative result.
I think you have to take predictions with a grain of salt. There are other factors to consider besides how much your home may depreciate or appreciate.
With that said, I would not recommend that buyers do minimum down (such as FHA or Flex 97) if they’re only planning on retaining the home for a couple of years or if they have any inkling that their employment is not secure.
No matter what predictions there are, there are valid reasons why many people want to own rather than rent. There are a lot of people who simply are not ever going to choose to rent, no matter what.
The drive to own for many is for a sense of permanence, a place to put down roots. When people have children, that desire becomes much stronger. For single people, or couples with no children, renting is an easier option. But renting, and the inherent impermanence of renting, means moving … and moving is never easy, especially moving with small children in tow.
Rhonda, perhaps if someone thinks their employment is not secure, they are better off to put as little down as possible, and save the cash for emergencies.
<p>leanne regarding “perhaps if someone thinks their employment is not secure, they are better off to put as little down as possible, and save the cash for emergencies.”</p>
<p>I agree that if someone has little savings, I will (or would) often recommend a low or no down mortgage. However if someone does not feel secure about their jobs, their small savings is only going to make so many mortgage payments and then if they have to sell their home, there is a significant cost to that. It cost more to sell a home than to relocate to a more affordable rental.
It really depends on what their entire financial picture looks like. Often times, low down does not mean they have big savings.
</p>
It just gets worse,
In Real Estate it’s called knowing where the freeway on ramp/ off ramp is going to be built. It’s not what you know it’s who you know. The great thing about Real Estate is that there are no laws against insider trading.
More importantly a rise in commercial pricing usually is good for future economic growth. The people driving the local economies usually know something the public doesn’t.
In many cases however it’s just instict.
if the prediction is that housing will appreciate, then its helpful. if it is that housing will depreciate, its counterproductive.
I wandered around for a while and spent some time with my son. Then when I started thinking about it, maybe my comments are to cryptic, or unfair, so I’d like to share a story that for me clears this up.
When I was a kid I used to go to the assessors office to get information about properties. The tunnel runs below the street over to the court house. There were these guys there looking at plat map books, and going though documents. Microfiche was a new revolution of technological data. As years went by it was always the same guys. Some people look at divorces, and some look at bankruptcies. Some look for lots to split, and some look for probate filings.
It’s always the same guys. These are the pickers who take that data back to whoever buys it. It’s a lot of things, not just Real Estate. Now you can get a ton of this data on line. It’s like shooting fish in a barrel.
When I read the posts and comments my question is why is it a point of discussion? It’s always been this way, it will always be this way, it’s the people who know the pickers and are willing to pay for the information that are ahead of the game.
I know some very low people in high places. Have you ever heard that before? It’s the basis of commerce.
I read this blog and the seattle bubble kids too, and find it interesting that I see this one gaining on the negativity stance, and the bubbles lightening up.
Mr. Losh, I think that you have a fast paced mind, that is far ahead of your typing capabilities, and like many, I cannot figure out what you want to say. Are you saying now that it is the same bottom feeders looking for bargains as always?
Real estate may be somewhat local, but financing and access to credit is not.
If the boom was caused by easy money, what is going to happen now that the money has dried up?
It’s purely a question of timing at this point. The greater trend is painfully obvious.
Markets always correct, and this one was long overdue. The easy money was the wild card, and makes me wonder – where did all the seasoned, experienced lenders & bankers go? Retirement at age 50?
This never should have gotten so out of control.
b wrote: “if the prediction is that housing will appreciate, then its helpful. if it is that housing will depreciate, its counterproductive.”
I would have never guessed that “b” was a buyer’s agent! 😉 😀
Matthew wrote: “If the boom was caused by easy money, what is going to happen now that the money has dried up?”
Money hasn’t dried up. Interest rates wouldn’t be where they are if the money had dried up. The biggest change is 97% is now pretty much the top (except things like VA). Interest rates are higher for people with lower credit, but that’s how it always should have been (maybe always was????)
But it does raise a point I’ve wondered about. If the market wasn’t so slow most everywhere, including here, would that push interest rates higher? I guess it would depend on whether the funds paid off got recycled back into the system. Some investors probably are just happy to get their money out, and won’t put it back in.
Matthew,
What will happen in the areas that went down before the easy money dried up? Why are they thinking they are at or near bottom and immune to further impact from the mortgage changes?
Kary,
So you are telling me that someone with a crappy FICO score, no money down, and no stated income is going to be able to go into a lender and get a loan similar to what they received 12 months ago?
When I say “dried up” I am referring to the financing that caused the boom. Lending money to people that did not deserve to be in the market in the first place is what caused the runup. This has, for the most part, disappeared from the market and IMNHO will continue to tighten. People with good credit and money down have always been able to receive loans and will continue to do so.
Why are mortgage rates moving upward while the Fed cuts its target rate? The reason that mortgage rates haven’t shot to the moon is due to the fact that the Fed is cutting rates at an extremely rapid pace. Yet despite the cutting of the FFT, mortgage rates have moved very little, and in fact have actually moved up. This should scare you.
Ardell,
My guess (Excuse me while I hazard a guess Mr. Prediction Police Officer Kary) is that areas that were seeing price declines prior to tightening lending standards are going to be some of the hardest hit areas. The areas that saw more building and hence a greater supply of inventory, are going to be some of the hardest hit areas in the region. Now that lending has tightened, these areas are going to be hit even harder.
I have no idea why anyone would think that we are due to a bottom, but I believe that it is human nature to seek out any signs of recovery. During most market downturns in any market, people call for a bottom over and over and over again. It is my belief that once these people are silent, a recovery is in sight.
BTW,
Lets take a look at some numbers. Not predictions, but just cold hard data.
Fed Funds Target Rate 1 year ago : 5.25
Fed Funds Target Rate Today : 2.25
1 Year Libor 1 year ago: 5.32
1 Year Libor today : 2.87
30 year fixed 1 year ago: 5.78
30 year fixed today : 5.90
1 year ARM 1 year ago : 5.37
1 year ARM today : 5.79
So despite LIBOR and the FFT being slashed nearly in half, mortgage products have actually moved in the opposite direction.
So please don’t tell me that the money hasn’t dried up. We have seen the Fed Funds target rate nearly slashed in half but yet mortgage rates moving higher. If that isn’t a sign of something serious happening in our financial markets I don’t know what is.
Sorry that above post is supposed to be 1 Month LIBOR not 1 year.
Everyone makes predictions. If we didn’t make our own predictions then we would just flounder around doing random things.
I live in Boston so I DON’T predict that if I am trying to cross the street in a crosswalk that a car will stop. When I am in Seattle I DO predict that the car will stop the second my foot touches the crosswalk or if I even make a slight move that I might cross the street. 🙂
On the real estate predictions I also have my own. My predictions stem from having watched the market in San Francisco, Boston, and Seattle over the last couple of years in preparation for purchasing our first home. We both work full time and have Masters degrees and felt we were already priced out forever. It is only now that the these markets have been trending down that we have hope that we will be able to purchase a place that we would like to live. We have been able to rent in a place that we like but when we have looked into purchasing in the past it was always been such a downgrade from our rental that we have always decided against it.
What I like about other people sticking their predictions out for the world to see is that it gives me an idea of what they are thinking. Are their thoughts aligned with mine? I have always been hard stretched to find a realtor that would tell me they think prices will come down even as all trends point downward. I wait and watch and see price reductions in properties I am interested in almost daily. When I hear Lawrence Yun and his predicitons I am to the point it just goes in one ear and out the other. When I hear Shiller on 60 minutes I perk up because my sense is that he is closer to correct on his predictions.
In the end it makes complete sense that I would go with a realtor that shares my views. If the realtor does not ever give a prediction other than the typical trademark NAR remark then why should I value their opinion? If I do not value my realtors opinion then I might as well just hire a lawyer for the legal work and someone willing to open doors for me on an hourly basis. My views and predictions might not be correct but in the end I will be the one assuming a very large loan and my opinion and comfort level will be the one that matters.
Matthew wrote: “So you are telling me that someone with a crappy FICO score, no money down, and no stated income is going to be able to go into a lender and get a loan similar to what they received 12 months ago?
Why are mortgage rates moving upward while the Fed cuts its target rate? T”
I already said 100% isn’t available for the most part. Stated income is more difficult, but I didn’t bring that up. And yes, credit score is now more important–as has been discussed in the mortgage threads.
Mortgage rates are not tied to the fed rates (except some HELOCs). Apparently you don’t remember the late 70s early 80s if you think our interest rates are high today.
Matthew wrote: “So despite LIBOR and the FFT being slashed nearly in half, mortgage products have actually moved in the opposite direction.”
Again they are not tied or correlated. Rhonda can probably fill you in better there, but I think there’s a theory the fed lowering rates is actually bad for mortgage rates because it’s potentially inflationary.
Matthew wrote:
“30 year fixed 1 year ago: 5.78
30 year fixed today : 5.90”
Is that a typo or are you really trying to defend your definition of “dried up” by showing interest rates have gone up .12% in a year? Not really the most compelling argument.
Peter wrote: “Everyone makes predictions. If we didn’t make our own predictions then we would just flounder around doing random things.”
But you don’t need to make predictions to act. I don’t represent investors. I represent people who for one reason or another want to buy our sell real estate. With the exception of one person that wants to sell because the market is high, those people do not want to buy or sell because of the market. They want to buy or sell because of events in their lives. Getting married, a child being born, getting separated, their building being converted to condo, etc.
Yes they’re aware that real estate prices have generally headed upward, but that’s not why they’re in the market when I’m dealing with them. They’ve already made the decision to buy or sell and they don’t need me affecting their decision with a bunch of meaningless predictions. But if you feel it would somehow help you to have an agent reaffirm your beliefs as to where the market is headed–that’s fine. That won’t help you find a house, and that won’t help you negotiate a price, that won’t help you during the inspection, but if it makes you feel more comfortable, great!
Peter wrote: “I have always been hard stretched to find a realtor that would tell me they think prices will come down even as all trends point downward. I wait and watch and see price reductions in properties I am interested in almost daily.”
All trends point downward? Hardly. Also, you see price reductions on properties even in the strongest markets. A price reduction on a house is not evidence of a declining market. It’s evidence of an overpriced house. Good agents know that regardless of whether they pretend to know the market will head up or down.
BTW, I let Yun go in one year and out the other too–always have.
Kary,
Are you for real or are you just intentionally acting like this to aggravate people? Obviously LIBOR and the FFT rate are not directly tied to mortgage rates, that’s my whole point! They are however, correlated, just not directly. They have an indirect relationship. The Fed Funds Target rate is the rate at which banks borrow money, and lend money to one another. This also effects the rate at which you can borrow various products from the banks. The fact that banks are getting money at a cheaper rate, but yet not passing on that rate to the consumer, tells you that something else is happening.
The fact that the rate at which banks are lending to each other (the FFT) and LIBOR are going down, but yet mortgage rates are moving up, signals that something else is being priced into mortgage products : inflation and risk.
On a level playing field, with all things being equal, a cut of the FFT rate and LIBOR would decrease mortgage rates. Obviously this has not happened and is due to a number of factors one of which is the repricing of assets, inflation, and risk. A .12 increase may not seem like much at first glance, but when you consider that the FFT has nearly been cut in half, a .12 increase is in fact something that I believe the market has never seen before. If you can note a time in history in which the FFT has been slashed in half but yet mortgage rates have increased, I’ll be shocked.
As to historically low rates, what does it matter if you can’t get a loan? With the rampant price inflation that the economy is currently going through, how long do you think the Fed is going to be able to stomach low interest rates while there are food riots in developing nations and truck drivers are paying over $4 dollars for a a gallon of diesel?
Matthew wrote: “Are you for real or are you just intentionally acting like this to aggravate people? Obviously LIBOR and the FFT rate are not directly tied to mortgage rates, that’s my whole point! They are however, correlated, just not directly. They have an indirect relationship.”
I’m trying to educate people. You can try to find an agent based on their predictions, but that makes as much sense as picking a real estate agent based on their being a Democrat or Republican. And if your agent does make a prediction, you should not let that affect your financial decisions. We’re not talking about a weatherman’s prediction of the weather, where a bad prediction can cause you to get wet. We’re talking about a financial decision that could cost you tens of thousands of dollars. And guess what? If the agent’s wrong, they are not going to step up and pay you a dime.
As to the interest rate issue, they are inversely correlated, if anything. Here’s a thread:
http://www.raincityguide.com/2008/02/28/will-st-pattys-day-bring-us-luck-with-conforming-loan-limits/
What I don’t understand is why you think banks would enter into 30 year loans based on the Fed’s short term loan rates. That makes no sense at all.
I’m saying there are no predictions.
A client of mine buys where Safeway is going to build a store. He buys in the surrounding neighborhood. How is that so difficult to follow? That’s really my question here?
How about straight line appreciation for the stock market or Real Estate pricing from 1920 to today. Is that a new concept? or is this the econ 101 people talk about.
There’s a discussion about the LIBOR and interest rates which is a red herring. Cheap money (low interest rates) only have a value if there is an equity in the property based on that straight line of appreciation. Cheap money on an over value piece of poop is no longer “cheap” money.
What’s galvanized for me here is that you don’t know what I’m talking about.
“I live in Boston so I DON’T predict that if I am trying to cross the street in a crosswalk that a car will stop. When I am in Seattle I DO predict that the car will stop the second my foot touches the crosswalk or if I even make a slight move that I might cross the street.”
I LOVED that line! Kary, would you like it better if we called them “reasonable assumptions”?
Dave Losh wrote: “I’m saying there are no predictions.
A client of mine buys where Safeway is going to build a store. He buys in the surrounding neighborhood. How is that so difficult to follow?”
I’d call that a different type of prediction, or perhaps an educated guess. It’s a prediction that the one factor (a new store) will override every other factor, and result in a higher price down the road. Something like that is entirely different, and probably a safe bet, but by no means a sure bet.
That’s entirely different than looking at where we’ve been, and trend lines, to determine where we’re going. It’s also entirely different than predicting the price of real estate will drop based on interest rates, the price of gas, or any other economic stat.
David,
We do know what you are talking about. It’s how people make wise decisions regardless of market conditions. There’s always a 5% that can make money no matter what the market conditions.
But “the average Joe” likes to ride the wave. Not because they can’t find someone to help them with the decision and fill in the blanks, but because they want to buy what they want.
They don’t want to have to select their housing based on sound and reasonable decisions regarding future financial impact. “I like this; I want it.” is as far as they want to go. So they want appreciation to be a given, and not a choice.
How many times have I heard, “Why isn’t buying a house like buying a car or a coat…no huge ups and downs?” They don’t want housing to be “a market”, they want it to be “a product” with inherent value that is relatively stable.
Matthew wrote: “I live in Boston so I DON’T predict that if I am trying to cross the street in a crosswalk that a car will stop. When I am in Seattle I DO predict that the car will stop the second my foot touches the crosswalk or if I even make a slight move that I might cross the street.
Why should it matter what happens to house prices in the short, or long, term when deciding to buy? So long as you are financially prepared to deal with the possibility of a 50% price drop, then don’t worry about what might happen, just buy a house you like and live your life. We don’t buy homes to get rich, so what happens to prices doesn’t matter.
Just accept that house prices can have massive fluctuations both up and down. There are plenty of home-owners in Japan and Hong Kong who saw their homes fall 80% in price during the ’90s and have been living in homes worth less than the mortgage for over a decade. But who cares? So long as we buy the home understanding massive price declines are a very possible eventuality then there is no problem. Hey, you might luck out and actually enjoy some appreciation (although that is by no means guaranteed).
The only real sin is to buy with the expectation that there is some kind of floor on prices, or that a certain amount of appreciation is “guaranteed” over the long-term.
Great points Sniglet.
I bought my first condo in 1978. A year earlier I was looking at houses, but in that year prices went up so much I got priced out. The interest rate on my condo was 10.25%. The condo market went south after that, and I probably couldn’t have broke even for 7 years or so. But I had no desire to sell. When I did sell, I sold at a profit, and my only mistake was selling too soon (before the current condo boom). The decision to sell was actually based on an earthquake. I wasn’t using the condo much, and it didn’t make sense to me to have so much tied up in something that could disappear in an instant.
I think my clients are more like Sniglet. They buy and sell because they need to, or want to. They sure don’t buy and sell based on what I tell them the market is going to do.
Kary said: “Let’s say all your life lower volume has lead to lower prices. Or higher interest rates to lower prices (meaning you’re not very old and/or have not lived in Seattle 40 years). You make a “reasonable assumption
Ardell wrote: “Why would you worry about the negative impact of a sloppy neighbor, and not the negative impact of drastically reduced volume of sales and a mortgage crisis?”
Because I’ve gone through both, and the temporary lower prices didn’t affect me (as explained in the post that you might not have read immediately before yours), while the sloppy neighbor affected me every day.
Matthew said “So you are telling me that someone with a crappy FICO score, no money down, and no stated income is going to be able to go into a lender and get a loan similar to what they received 12 months ago?” “What does it matter if you can’t get a loan?”
Somewhere, I believe on one of these posts, I read that our market area (maybe all of Washington, not sure) had less than 2% of sales with loans in the sub prime categories. So, if less than 2% of our sales were to sub prime borrowers, that isn’t such a big loss.
The FHA loan product is not a sub prime loan product, and has some very nice features for low-cash buyers, and even buyers with some credit scoring issues.
Rhonda, you talk to the buyers, are you seeing very many who simply cannot qualify for a loan, more so than in recent years, or are you seeing buyers can qualify, but for less?
The desire to own is strong, and people who could have afforded more in loan $$$ last year, likely will decide that the lowering of prices equals the fact that they may not be able to borrow as much as before, and will choose to move forward with their buying plans as they see fit.
We all discuss the market individually with our buyer and seller clients, and discuss their goals. We don’t make the choices for people to buy or to sell, and the best agents guide their clients towards reasonable decisions. None of us here are in this business for the short haul, we all have long term repeat clients, which we would not have if our advice was not worthy.
The problem is people who read the papers think the mortgage situation is much worse than it is. Back in about October/November the consumers on the Zillow boards thought 100% financing had dried up, when in fact you could get it with a rather marginal credit score.
What’s caused the end of 100% financing wasn’t the lenders so much as the mortgage insurers. And quite frankly, I can’t say that I blame them in that almost no one was getting mortgage insurance until less than a year ago. They don’t have the base of policies to generate sufficient revenue to cover the risk.
But Leanne, I think your 2% figure is low. Seattle is low, and Tacoma and Vancouver are high, so I don’t think the state is anywhere near as low as 2%.
I read that our market area (maybe all of Washington, not sure) had less than 2% of sales with loans in the sub prime categories
I think this is likely on the low side. I’ve seen some statistics showing Seattle area subprime loans were something over 15% of all new mortgages in 2006 alone. Regardless, subprime is just the tip of the ice-berg. Of much bigger concern is the number of home-owners with little or no equity.
In 2006 33% of all Seattle area mortgages were either 100% financed or of a negative amortization variety. This scares me silly: indicating that we may have an unprecedented number of home owners with little or no equity cushion. The amount of equity is the single biggest determining factor of foreclosure. When people have equity they can always sell if they run into some kind of financial trouble (e.g. unemployment, divorce, etc). However, when you have no equity, the only option is foreclosure when things get bad.
http://www.recharts.com/reports/CSHB031207/e31.GIF
That’s an interesting chart, Sniglet. I wonder for a 5-year history if there is charted data?
Kary said: “Because I’ve gone through both, and the temporary lower prices didn’t affect me (as explained in the post that you might not have read immediately before yours), while the sloppy neighbor affected me every day.”
But why is it about you? Isn’t the sign of a professional when they stop talking from personal perspective? If you are going to react and advise from personal perspective, doesn’t that put you on an even keel with the client vs. the expert in the room?
Advices are about “What would I do if I were YOU, not what would I do if I were ME.” What would I tell you to do if you were my child? (and my child is asking me at the moment…a good test.)
Would you tell your own child that the future doesn’t matter…you win some; you lose some?
That’s why I said I don’t point out patently obvious neighborhood conditions. I don’t want my hypersensitivities to affect the client’s decision. By doing that you don’t discover what they like and don’t like. If I let my own preferences affect what I showed clients, I’d never show a house with vinyl siding or plastic pipe.
On the other hand, pointing out the neighbors keep up their yards particularly well doesn’t lessen your chance of learning what the client likes, because I’ve yet to come across a buyer that would be put off by that.
When it comes time where the client might be trying to decide between two choices, then I will come up with as many positives and negatives as I can, whether they would bother me or not. I’d focus on what typical buyers might say. And the client will almost undoubtedly weigh those factors differently than I would. It’s their choice, not mine–I’m only there to offer guidance.
Ardell wrote: “Would you tell your own child that the future doesn’t matter…you win some; you lose some?”
Are you advocating that I should get a crystal ball and lie to them claiming that I could predict their future?
I never said it doesn’t matter whether prices go up or down (although I did say the owner might not care at any given time). Just because it matters you don’t need to pretend you can predict what it will be. Like I said, your predictions make for entertainment, but I would never pass predictions on to a client to have it affect their decision in any way.
Kary,
Do relo enough and you will understand that having to go back and sell the house, often in a short time frame from date of purchase, is part of the job. I can’t foresee everything or with hindsight advantage, but clearly my advices to Mr. Moving Here, Mr. Lived Here All His Life, and Mr. Young and Single vs. Mr. Having Second or Third Child are different.
I don’t ask people how long they plan to stay as much as I “predict” the liklihood, and that has served my clients well.
I had a call the other day from someone who told the agent she HATED the house and the agent said…just buy it…no worries…I can come back in 2 years and sell it for more money and you will get a profit.
It should NOT be abnormal to predict negative impact and point out negatives and should be MORE common than pointing out positives and upward potential. We both know it isn’t. We both know agents do not keep quiet until it turns negative, and only want to talk about the plus factors and not the minus factors.
“I don’t have a crystal ball” is just a means to justify keeping quiet when the expectation is negative. Everyone seems to have a crystal ball about “in 7 years it will be UP” or “hold more than 3 years and you should be fine”. Reality is that you can be up in one and down in seven. Better to have a crystal ball than to blow smoke saying more time increase the liklihood of profit vs. loss, which is clearly not always the case, and not likely the case from today forward.
First, I will take crossing the street in Seattle any day over Boston.
We almost bought a new townhome in Seattle last year because we were feeling it was something that we liked and many people were saying to hurry up before we lost it. We ended up deciding to wait at least a year and not be pressured into it.
In the meantime it has dropped from over $500,000 to $415,000. Right now it is listed on Craigslist for rent. I shouldn’t have to say how lucky I feel that we waited.
There is another house that came up last month. It sold a year ago for $523,000 in the Ballard area. It came on the market for $500,000 which seemed like a good deal! Less than was paid a year before. Two weeks later it dropped to $450,000 and then two weeks after that it dropped to $400,000 which is what it is listed for now. I have no idea if it is a short sell or foreclosure or what.
I understand that Kary is saying that he doesn’t like predictions but from my simplistic perspective it sounds like he is saying that he doesn’t KNOW the prices will go down and that they might keep going right on up.
I haven’t had a hard time finding a realtor with a perspective like Kary’s. The more difficult task is finding a realtor with the guts to tell it like they see it even when it goes against the roses.
Ardell wrote: “It should NOT be abnormal to predict negative impact and point out negatives and should be MORE common than pointing out positives and upward potential. We both know it isn’t.”
Well, I will agree with you real estate agents are more likely to put a positive spin on where prices are headed. That’s part of why I think it should be unethical to make predictions. It’s also why I think a client would need to be really naive to listen to such predictions. But again, I’m not including advice that 2 years is too short of a time frame as being a prediction.
Peter wrote: “I understand that Kary is saying that he doesn’t like predictions but from my simplistic perspective it sounds like he is saying that he doesn’t KNOW the prices will go down and that they might keep going right on up.”
That’s not what I’m saying at all. Go read my first post here (#6). I was more critical of the positive prediction than Ardell’s negative prediction.
Even back when the market was really hot I gave the same answer as today to the question: Where is the market headed? That answer was: No one really knows.
“But again, I’m not including advice that 2 years is too short of a time frame as being a prediction.”
Not good enough if the client is a flipper. They need a short term projection. Clearly my answer in May of 2005 is different than today, cause it’s not simply about hold time.
An agent who is saying the same thing today that they said in early 2005…is by definition giving bad advice.
Ooops, sorry Kary,
I was answering your comment 58. before I saw this, “Even back when the market was really hot I gave the same answer as today to the question: Where is the market headed?”
You can’t have the same answer during a hot market and a slowing market. You just can’t. I didn’t mean to make it personal, but in your defense I guess you are not very different from most agents.
Ardell wrote: “You can’t have the same answer during a hot market and a slowing market. You just can’t. I didn’t mean to make it personal, but in your defense I guess you are not very different from most agents.”
I don’t know why you keep trying to make this personal. I’m like other agents because I don’t make predictions to try to generate business? Was that a typo? It makes no sense whatsoever.
It’s the reverse Kary. Agents who don’t make predictions do it so they can always sell regardless of market conditions.
I’m making it personal? You’re the one saying I “can’t” and “shouldn’t” do what I do…THAT’s personal.
Now if I came over to your post on the PI and told you what you can and can’t do in a comment on your blog post…well then I’d call that my making it personal “against” you.
But you are the one, and have been since I posted my predictions, who is making it personal. I don’t even read your posts, so I would never do that to you.
Don’t like how I blog or write or work? No problem. Go read the PI. 🙂 Leanne will write something for you.
Kary –
Its pretty obvious from your PI blogging and comments here how you think the market is going to end up. And you never had to make a single specific prediction for everyone on this board to be able to see what your assumptions are. All of human behavior is based on locating trends and making decisions for the future based off those assumptions. You might not be as bold as Ardell and slap down a list of raw numbers, but you certainly have a working assumption of the market right now in your mind and will base your behavior, comments, advice, etc around that. Its a lot like flipping a coin to help you make a decision between two things, you can tell which one you “really want” by your reaction to the result and not the result itself.
Ardell, there’s a difference between when I say you shouldn’t and you can’t.
That you shouldn’t predict is my opinion (especially when it comes to clients–blogging on the other hand, no real harm). You can choose to ignore my opinion.
That you can’t predict is my questioning your abilities, but since I don’t think anyone can predict, that’s hardly personal.
On another note, mortgage rates are much more closely correlated with 10 year treasuries. Accordingly, the spread has increased from about 1.5% to 2.5%.
To put it in real numbers, $400k @ 4.9% is equivalent to $357k @ 5.9%. The extra risk increase in real mortgage rates means your customer can afford about 10% less house right now. As losses at banks increase the spread should also further increase.
b wrote: “ts pretty obvious from your PI blogging and comments here how you think the market is going to end up.”
If that was true, I wouldn’t check the stats as often as I do, and look forward to the official release of stats.
I’m on eggshells like everyone else. The difference might be I’m not in panic mode. The only time I was panicked was when the Fed reduced rates twice in one week.
I’d describe my position on the market as cautiously optimistic, cautiously concerned. I’m not making any assumptions the market will go up, down or be flat.
I will say my concern is more over volume than price. I’ve done pretty well professionally in this low volume environment, but for the system to work, there needs to be more volume over the long term.
Perhaps you might find what I wrote before the March numbers came out interesting:
http://blog.seattlepi.nwsource.com/realestate/archives/135574.asp
Kary,
An interesting side conversation would be how agents and brokers will deal with the reduced volume.
Kary, have you ever conisdered that your aversion to predictions could come from your old profession? In the court a likely scenario can be discarded by reasonable doubt. I assume it’s very hard to predict the outcome even if the case is strong when a very likely scenario backed by facts can be dismissed by an unlikely but not impossible scenario if it is viewed as “reasonable doubt”.
Similar things can happen in markets but for the average homebuyer or seller I would argue that acting on the most likely scenario is a good strategy. As you say, no one knows for sure but there is always a likely scenario based on the main fundamentals and trends.
In my “old” profession we had to devise different strategies depending on who the assigned judge was. So I don’t think the legal profession rules out predicting outcome based on which judge is on the bench and other factors.
Even a Mom predicts what her different children will do in various situations and is proactive vs. reactive accordingly.
One has to be pretty linear in their thinking not to be in a constant predictive mode. Predicting markets is often about predicting mass behavior, as that mass behavior affects the market to a large degree.
Kary – If you really think it’s a coin toss as to whether prices will go up or down, I’ll give you 2-1 odds that prices of SFH in King County, measured by the MLS median (you’re preferred stat, right?) will be lower in April of 2009. I’ll pay you a hundy of they are higher, you pay me fifty if the are lower. I’ll even give you inflation, by not adjusting for it.
If you really believe what you are saying, you should be jumping at that action and begging for more.
bili,
Safe bet. If nothing else, the weakness in the high end should affect both means and medians regardless of what happens.
Bili,
Let’s at least even the score and show you what Kary can see before you firm up that bet.
April to date:
STI – 694 – median sf 1,929 median price – $424,950
Pending – 1,946 – median sf 2,100 – median price $447,200
Closed month to date – 786 – median sf – 2,080 – median price – $455,000
Here is my final post regarding fed funds and mortgage rates. If you can’t connect the dots after this I am done.
You talk about high mortgage rates in the late 70’s early 80’s. Do you know what the Fed Funds Target rate was? At one point it was over 15 percent. According to your logic mortgage rates should have been at an all time low because you said:
“As to the interest rate issue, they are inversely correlated, if anything”.
Mortgage rates follow the prime rate, and most closely the 10 year treasury. When the Fed starts cutting rates, this is generally a sign of a weakening economy and therefore people buy bonds, therefore driving mortgage rates down.
b wrote: “On another note, mortgage rates are much more closely correlated with 10 year treasuries. Accordingly, the spread has increased from about 1.5% to 2.5%.
To put it in real numbers, $400k @ 4.9% is equivalent to $357k @ 5.9%. The extra risk increase in real mortgage rates means your customer can afford about 10% less house right now. As losses at banks increase the spread should also further increase.”
I’d guess it’s more dependent on the market for selling the securities, but obviously it would track the federal long term rates better than the short term rates.
But thing about the spread issue. If I’m reading that right (and I only skimmed the link) there was only a 1.5% premium of what’s paid on a mortgage and what you can earn on a 10 year bond? That’s nuts. The difference is between paying and receiving, and risk and no risk. The spread should be a lot more. Apparently it was part of the process of thinking that mortgage backed securities were somehow no risk. I’ve never understood that.
tj wrote: “Kary, have you ever conisdered that your aversion to predictions could come from your old profession? In the court a likely scenario can be discarded by reasonable doubt.”
I never did criminal work, but on the civil side being in court did create a lot of uncertainty. I don’t think that’s it (but it is why I shake my head at the idea that the people at Bear Sterns, etc., could somehow think mortgage backed securities were low risk).
Rather than going into stories about courts, the answer to your question is more likely my familiarity with the stock market. Analysts follow stock and make predictions all the time, but most of them are simply FOS. I learned that for a company that maybe had 20 analysts following the stock you’d be lucky to have one whose opinion was worth anything. And the press reporting was even worse–a contra-indicator more than anything. Ignoring the reporters for a moment, the stock analysts had a lot more training and a lot more data than real estate agents.
Ardell wrote: “In my “old
Greg, did you realize bili’s bet was out a year?
Ardell, the month to date median for April was close to $450,000 last time I checked, or about $10,000 above March 2008. That’s obviously a seasonal affect is showing up again, but as I said in the piece linked above, before the March numbers came out, I’m actually glad that’s below April 2007.
To expand on that a bit, last year at this time the market started getting too hot. Between February and July, 2007 the increase in the median for King County was in excess of 20% when annualized. That’s not good long term, as the folks in CA, NV, CO and FL have discovered. So maybe bad news was actually good news! 😉
Matthew wrote: “You talk about high mortgage rates in the late 70’s early 80’s. Do you know what the Fed Funds Target rate was? At one point it was over 15 percent.”
The last time oil went up significantly it set off a pretty good round of inflation, that lasted for years. Remember Whip Inflation Now! and price controls? We may see that inflation again, or we may not. It’s not the same Fed.
I didn’t realize it was “out a year”. Let’s all bet, but let’s pin down the parameters better 🙂
Kary,
I remember we once had to shelve a request until a certain Judge died. In the Trust business the same Judge generally held juristiction for life. Last I checked, which wasn’t too long ago, the issue was still on the shelf.
I’m not arguing that its the same Fed Kary, I’m arguing that the FFT indirectly effects mortgage rates. Can you prove otherwise? Have you ever admitted (on the internet) that you are wrong?
Hmmmm….. 221 comments between two posts and nobody is budging from their positions…..
I’m predicting a trend here.
My bet is that it will take another 221 to pin down the parameters.
Slightly off topic.
I learned a new legal term today. It was a Tolling and Standoff agreement. I am involved in a land offer and it seems 2 homeowners were fighting over a property line and created a legal agreement to agree to disagree.
Matthew wrote: “I’m not arguing that its the same Fed Kary, I’m arguing that the FFT indirectly effects mortgage rates. Can you prove otherwise? Have you ever admitted (on the internet) that you are wrong?”
Did you read the material I linked on why it doesn’t, or consider my arguments as to why it wouldn’t?
My memory isn’t that fantastic going back that far, but I think it’s fairly obvious that the fed back then was trying to clamp down on credit (presumably to stop inflation) and that’s what caused the interest rates to go so high. So, yes, if you had the fed making really stupid decisions, such that they’d virtually bring the economy to a halt (Stagflation), that would cause interest rates to rise because capital would dry up.
Macro isn’t really my thing, I’m much better at micro-economic concepts. But this discussion does remind me of another reason why I sort of shake my head at the term mortgage crisis or credit crisis. In the not so distant past you’d have periods where the banks simply didn’t have money to loan, or couldn’t loan. Very wealthy people/companies went into bankruptcy because they’d be mid-project and funding would dry up. Right now there’s no credit crisis or mortgage crisis, there’s in investment crisis. People investing money lost their minds and thought mortgage backed securities were low risk, and now they have a hangover.
BTW, I’m very quick to admit I’m wrong (and I’d ask you the same question since you’re really reaching with that 15% thing). Find me a source that says lowering short-term fed rates will lower long term mortgage rates. I believe you’ll find that like finding a needle in a haystack, because most the stuff you find will say otherwise.
http://www.frbsf.org/education/activities/drecon/2002/0206.html
” Still, as is shown in Chart 4, over time the discount rate and the mortgage rate tend to experience similar trends, although the relationships between the two short-term interest rates shown in Chart 1 and the two long-term interest rates shown in Chart 2 are closer.”
I think my message got filtered as spam due to links.
I’ll get it.
Thanks Ardell, here’s another article that explains things:
“Here’s the basic sequence: The Federal Reserve lowers the overnight lending rate banks pay to borrow money. This overnight lending rate will have its impact on the Prime Rate, which is tied directly to home equity lines of credit or second mortgages, and they will go down. Meanwhile, the Fed decision will begin to have an impact on the stock and bond markets, and traders will begin speculating. In figures released for December, unemployment raised to 5 percent, with manufacturing and construction leading the job losses. Those
warnings about a possible recession will prompt investors to buy bonds and sell stocks. As bond prices improve, then our mortgage rates will go down. ”
Yes I read the article you linked Kary, and I agree with the fact that mortgage rates follow long term rates closely. However, if you look at a historical chart in the long term, short term and long term rates are move in an almost identical pattern. Check out any 30 year chart of the Fed rate, mortgage rates, and the prime rate. They all move in a similar pattern.
The whole debate as to whether low Fed rates caused the credit crisis are beside the point. We are where we are, regardless of how it was caused. What’s important to consider right now is what percentage of home owners have little or no equity, and how that compares to previous real-estate downturns.
It is this population of equity poor home-owners that will determine how deep the downturn goes. They are the ones who will wind up in foreclosure if they run into any kind of financial stress such as divorce or job loss (i.e. people with equity can always sell if they run into trouble). If the percentage of equity poor home-owners in the Seattle area is lower than in the early ’90s or early ’80s then our ultimate downside is likely to be limited. However, if the percentage of equity poor home-owners is greater than in the past we are likely to see things get worse.
If some of these equity starved home-owners are pushed into foreclosure, then prices will decline further which will push even more of the equity poor into foreclosure, and the vicious cycle will continue.
The other ominous factor looming over everything right now is the sheer global scale of the credit bubble and bust. Unlike any other past credit expansion this one has blown bubbles EVERYWHERE. Home prices have exploded everywhere from South Africa and New Zealand to the Ukraine, Spain, Ireland, China and Saskatoon. Eerily, we are now seeing growing property market stresses across the entire planet.
Just who is going to keep driving the global economic engine if everyone is facing economic decline?
Matthew, from the material you linked, compare chart 2 to chart 4. Clearly mortgage rates more closely track long term rates. That mortgage rates track short term rates at all is only due to the fact that you don’t usually get wide spreads between long term and short term rates. If you compared long term rates to short term rates (the green on Chart 2 to the Red on Chart 4) you’d see a correlation, but that’s just because the spread is never that great.
From the last paragraph of the article: “Of interest in early 2002 is the wide differential between the mortgage rate and the discount rate. A series of discount rate reductions for monetary policy purposes lowered the discount rate sharply in 2001. In contrast, the mortgage rate remained fairly stable during the period.” That’s basically what we have today too.
Sniglet, I don’t think we’re saying the Fed caused the crisis. We’re just arguing over whether mortgage rates follow long term or short term rates, and whether a cut in the fed’s short term rates will translate into cuts in long term mortgage rates. Matthew is saying it will, while I’m saying it only will if long term rates follow and the folks that buy the mortgage backed securities allow it.
I think one reason that the predicition threads generates so much traffic is that people are so dead tired of “predictions” like:
– Prices always go up.
– All markets corrects.
– Markets are cyclical.
– If you buy now some time in the future your home will be worth more.
All intended to upease cautious buyers and make them take the leap independent on current market conditions.
When Ardell as a real estate professional came out with a predicitions that was not only speficic but also realistic it was like a door had been opened to the stale, smelly basement of earlier predicitions. Fresh air was making it’s way into the rot.
Before blogging, I guess I didn’t realize that what we as agents say to one another isn’t what agents say to their clients. I reserve the right to change my mind based on new information at all times. But I do not have one “story” for agents and a different one for clients.
Still, even I don’t reveal everything I would tell a client in a blog post.
I do run into agents who seem to convince themselves and refuse to look at the facts, as it might tempt them to believe in something contrary to their purpose. It’s like a seller who would rather not know as knowing requires them to disclose.
“Ignorance being bliss” is one thing, but bitching the market is a mess to one another, and then walking out on the street and saying it’s rosy, is another.
I think it’s important to note, however, that in most brokerages an agent is only allowed to repeat and hand out “The Company Line”, and is not necessarily free to talk from a personal standpoint outloud and in public to people who are not clients. I think they are free to use “the Company Line” with clients or not, or at least agents choose in that case. But clearly they can’t do it in public.
So finding agents blogging from personal standpoint will decrease even more, as brokers set more and more policies regarding who can blog and what the agent bloggers can and can’t talk about..
“- All markets correct.
– Markets are cyclical.
I would call these facts, not predicitons.
Greg, true if you are talking history but not if you are talking future according to Kary’s hard line. No one knows for sure what the future brings. It is extremely likely that they will prove true but until they do they are predicitions about the future not facts.
Ardell said, “I think it’s important to note, however, that in most brokerages an agent is only allowed to repeat and hand out “The Company Line
Greg,
These things are “facts” until what is happening doesn’t fit that fact.
If normally the sales after August 15th equal 40% of a year’s sales, and in a given year they only represent 25%, then it is not “OK” to chalk up the whole change as a cyclical event.
At least one would have to say “well PART of that is cyclical”, and not lead people to believe that the full force of the change was merely normal cyclical activity.
Ardell said, “I think it’s important to note, however, that in most brokerages an agent is only allowed to repeat and hand out “The Company Line
I dunno tj,
I can look in the future and see with a certainty that the markets will rise and fall, just like they always have (this is not exclusive to real estate).
I just can’t see the exact timing.
My best prediction was that this post — (based on every “prediction” post I’ve ever seen) on any of the public local blogs has commenter’s entrenched in defending paradigms and perspectives. Because it is framed in market “generality” , so much information can be inserted to attempt to prove a point.
I do say the same thing to both agents and clients. When people ask me about the market, my stock reply is “it depends”. It depends on the area, the price range and sometimes down the house style.
You see, you do not see the exact data I see and how I track the market on a weekly basis. I don’t see the exact data that Ardell uses.
I have confidence that Ardell has a good handle on the market. I also have confidence that Kary has a good handle on the market. Both of them prove to me that they are actively working hard to do the best for their clients. Two people can see the same thing and reach a different conclusion.
Part of the reason they stay on top of the market is because they blog. Many agent working the trade really do not have the market savvy. It’s easy to get lazy or complacent, and then wonder, “What happened?”.
Greg, to be honest I think b went to the bottom of the issue very early in this thread.
“if the prediction is that housing will appreciate, then its helpful. if it is that housing will depreciate, its counterproductive.”
It has less to do with grip on the market than it has to do with honesty, intentions and predicted impact of the predictions. Sad but probably very true.
If this is such an issue for agents to agree on, imagine wading through this information as a consumer. There is no one answer. As was mentioned in earlier threads real estate is hyper-local and a home will be one of the biggest financial investments a person makes. I can tell you that as a first time buyer this can seem like a terrifying gamble.
I’ll take these on:
– Prices always go up. (Prediction)
– All markets corrects. (Assumes an error in the market, but otherwise true.)
– Markets are cyclical. (True.)
– If you buy now some time in the future your home will be worth more. (Prediction.)
REYO wrote: “If this is such an issue for agents to agree on, imagine wading through this information as a consumer. There is no one answer.”
That’s also true with the facts! I think it was November 2007 that local real estate prices in King County fell YOY, if you looked at the combined SFR & condo numbers. SFR was up YOY that month, as were condos, but when you put the two together there was a drop because more condos sold relative to the prior year. So the data would allow you to say prices had fallen, or prices were flat.
Alternatively, prices tend to rise in the summer months and fall in the fall/winter. So let’s say you’re looking at December, 2007. You could report that as being 1.2% off of December, 2006, or pick the peak of the market and report it as being 9.5% off the summer peak.
The problem with a buyer being “terrified” is that “begs” someone to assauge a fear. When in fact, everyone should look at worse case scenario, and enter into things with that in mind and a “Plan B”.
No one can ever guarantee that everything is going to go well. When things don’t. go well, you have to deal with it. Anyone who is begging for an agent to tell them the price will be up no matter when they sell, is part of the problem.
There’s one factor we haven’t discussed, and I predict it will send real estate prices skyrocketing. In fact, I think the gain in March was just in anticipation of this one factor.
It’s those $600.00 tax rebate checks. They’re going to turn everything around! 😉 😀
tj, re:101
Since you addressed me, I’ll respond.
I appreciate your thougthts. My thoughts? I really do not think anyone here is being dishonest. I think it may have to do more with a passion invested in one’s perspective.
Early in the conversation, this was my thought, ” It’s too easy for people to read from an emotional level –from their individual perspectives and market paradigms to support their point of view.”
Another way of saying, if your writing (prediciton/ perspective/idea/you make it)agrees with my perspective, I like you. If not, you’re dishonest?
For instance, I don’t always agree with Ardell, nor Kary. I think them both very honest people, communicating from their perspectives. And I might add, I learn things from both of them.
– Prices always go up. (Prediction)
– All markets corrects. (Assumes an error in the market, but otherwise true.)
– Markets are cyclical. (True.)
– If you buy now some time in the future your home will be worth more. (Prediction.)
Kary, you are using history to say if it’s true or not for the future. You could have a month of depreciating markets and then the world ends. This scenario is a future with no market correction and no cyclical pattern. Not very likely but not impossible. So it’s not facts when it comes to the future it’s predictions.
You are doing exactly what you say you shouldn’t. Making predictions from what is likely to happen. I say you should do such predicitons and that they are helpful in planning your life in general and in specifcs as a home purchase.
Greg, you might be right but after the one-way propaganda type of predictions the re-industry is spewing it doesn’t matter since the perception is one of spin or dishonesty.
Imagine the following scenario:
Tomorrow a local TV station run a prime time show where 10 random real estate professionals were asked to predict the home values at the end of the year. Immediately after the show the same professionals were gathered in a closed room and were informed that they will compete in a secret home value prediction contest with a one million dollar price for the one that comes closest. They are given the option to either stay with the prediction they made on the show or change it. If they gave honest unbiased predictions noone would change it. My guess is that all would change it. I might be the only one who thinks that but if not that’s a pretty serious credibility issue. I’m sure they are mostly good people in general but the industry has a bad rep. for spin and imo deserves it.
tj wrote: “Imagine the following scenario:
Tomorrow a local TV station run a prime time show where 10 random real estate professionals were asked to predict the home values at the end of the year. Immediately after the show the same professionals were gathered in a closed room and were informed that they will compete in a secret home value prediction contest with a one million dollar price for the one that comes closest. They are given the option to either stay with the prediction they made on the show or change it. If they gave honest unbiased predictions noone would change it. My guess is that all would change it. I might be the only one who thinks that but if not that’s a pretty serious credibility issue. I’m sure they are mostly good people in general but the industry has a bad rep. for spin and imo deserves it.”
Is this like that thing where you shouldn’t change if Monte Hall offers to let you change to Door #2 after showing you Door #3? 😉
Monte Hall problem: http://www.letsmakeadeal.com/problem.htm
Kary,
Are you reading any of my posts or simply trying to make circular arguments for the sake of arguing?
My initial point was this: The recent increase of mortgage rates at a time when the FFT is being slashed in half, is a rarity.
Nowhere in any of my posts did I say that mortgage rates do not follow the 10 year or prime rate closer than they follow the FFT. In fact, I said that right off the bat.
Look at the charts and they clearly demonstrate that the majority of the time, when the Fed is cutting rates, mortgage rates are moving lower. You were arguing the contrary, and the charts clearly show that you are wrong.
Argue all you want, data is on my side. The fact that mortgage rates are moving up while the FFT is being slashed is an anomaly and demonstrates strain on the financial markets, which was my point the whole time.
Matthew, go back and read what you wrote. You started in this thread by falsely claiming that mortgage money had “dried up.” (Post 24) Then in support of that false claim you said:
“Why are mortgage rates moving upward while the Fed cuts its target rate? The reason that mortgage rates haven’t shot to the moon is due to the fact that the Fed is cutting rates at an extremely rapid pace. Yet despite the cutting of the FFT, mortgage rates have moved very little, and in fact have actually moved up. This should scare you.” (Post 29)
Then we went into the reasons why the mortgage rates would move up when the fed lowers rates. Then you tried to dispute that.
It’s just one wrong point after another, and pointing out that you noted mortgage rates move with long term rates (after a third party pointed that out BTW), doesn’t change that.
Everything I have said so far is correct. How are any of those points wrong?
Historically speaking, when short term rates are decreased, long term rates generally move in lock step. In times that they don’t, this signifies problems in the financial markets (either risk or inflation).
Do you agree or disagree? How is any of this incorrect? If it is, please prove it with data and not just your opinion.
BTW my post above said “EASY” money caused the boom, not mortgage money. I have never argued that a mortgage was impossible to get, only that the funny money is gone.
Matthew, you’re correct, you did say easy money. And I’ll agree that is part of what caused the “boom,” but it’s certainly not all that caused it.
In the past I’ve said that the sub-prime contraction will mainly affect the lower end, but that it could work it’s way up to through the market as it affects people trying to move out of starter homes, which will affect people trying to move out of second homes, and so on. It’s similar to the reason I call “first time home-buyer” programs, “second time home-buyer” programs. The person that benefits from the loan packages is the seller, not the buyer. These programs increased demand for certain houses (which is apparently what they’re supposed to do on the first time programs, since some only apply in very specific neighborhoods).
I think we agree that over the longer periods long term and short term rates will tend to move together. We’re dealing with the short term here, however. You seem to view the fact that mortgage rates haven’t dropped as some sort of a danger sign. In contrast, I view what happened in August (or earlier) as the danger sign, and view the Fed actions as part of the fix. I don’t expect mortgage rates to drop as a result of that fix. It’s not a danger sign, it’s a sign of the treatment that was given (and also could be a sign of banks’ and investors’ fear of inflation, as we’ve discussed).
BTW, the risk is that Freddie or Fannie will stop functioning, or that investors will completely stop buying new mortgage backed securities. Right now mortgage rates don’t reflect that being perceived as a likely event.