I cried because I had no shoes...
While at an empty open house, another broker and I got to talking.
She told me this: One of her buyers had dropped out because that buyer had lost $80,000 from her investment portfolio. The broker rolled her eyes and said that was $80,000 more than she’s ever had in investments. I am hearing a lot about investments flattened by the economic crisis. I also hear a lot of people comparing what they have and what they lost to what someone else had and lost.
And that brings me to today’s real estate discussion: poverty and housing
According to the National Coalition for the Homeless, there are two reasons for the rise in homelessness in America:
Increased poverty and lack of affordable rental housing.
About poverty: The bad news is that poverty is on the rise; the good news is that it’s not generally a chronic condition for those who fall below the poverty line. (The Census Bureau report in August 2008 is 84 pages; you don’t need to read it all today.) Here’s what they say about poverty:
• Of households in the lowest 20 percent of income in 2001, 28.6 percent were in a higher percentile group in 2003; of those originally in the highest income 20 percent, 32.1 percent were in a lower percentile group 2 years later. • Households with householders who had lower levels of education were more likely to remain in or move into a lower quintile than households whose householders had higher levels of education. • Nearly one-third of the population had at least one spell of poverty lasting 2 or more months during the 3-year period from 2001 to 2003. • Chronic poverty was relatively uncommon, with 2.4 percent of the population living in poverty all 36 months of the period.
Lack of affordable housing seems to be chronic and getting worse. The Low Income Housing Coalition writes:
The gap between the number of affordable housing units and the number of people needing them has created a housing crisis for poor people... Between 1970 and 1995, the gap between the number of low-income renters and the amount of affordable housing units skyrocketed from a nonexistent gap to a shortage of 4.4 million affordable housing units – the largest shortfall on record (Institute for Children and Poverty, 2001). According to HUD, in recent years the shortages of affordable housing are most severe for units affordable to renters with extremely low incomes. Federal support for low-income housing has fallen 49% from 1980 to 2003.More recently, the strong economy has caused rents to soar, putting housing out of reach for the poorest Americans. After the 1980s, income growth has never kept pace with rents, and since 2000, the incomes of low-income households has declined as rents continue to rise.
The past few weeks have been tough on everyone, no matter where you fall on the economic ladder. However, it is always toughest for those at the bottom.
Housing is a basic need. More and more people are doing with less and less housing security. Do you feel secure? Renters, has your income kept pace with your rent over the past ten years? Owners, are your cost stable, or are they still rising?
How are you making it in Massachusetts?
I love Boston.
But is it really love or I am just comfortable and feel secure in a place I grew up?I have the famously stereotypical feelings about the area: We are more educated, read the newspaper more, have better schools and 4 seasons. blah blah blah. But really examining my feeling I think wherever you are is great as long as you have friends and family and can be active.
But really it is getting tough to stay. I have a sister in Georgia with a Mansion: 5 br, 4 bath, on a few acres for what a 2 bedroom pile of junk geos for here. They have very few worries and enjoy life with many vacations and other niceties. (OK I cannot confirm they are happy but they sure do have the toys. I do see them smile but I cannot associate this smiling with actual happiness).
So to answer your question: My salary keeps up with my rent. I am awaiting the upcoming real-estate apocalype to buy. I will know this when the blood is flowing in the streets and the NAR admit that a house is not an investment.
a big part of the homelessness problem is zoning. Seen any rooming houses lately?
ANother part of course is mental illness and substance addiction.
CHmarcus,
Haven't you heard?! Boston and the surrounding areas are immune to the financial mess that is the rest of America.
"the NAR admit that a house is not an investment."
Well, its not just housing my friends. Its ANY asset.
A good set of tools is a good investment in a high-inflation economy. So are antiquues, gold, gasoline, and.. also.. houses.
But this recession isnt about housing necessarily. Its about **DEFLATION**, where the money supply shrinks. Therefore so does the value of assets, and one needs to look no further than stocks to see that. The problem is that the money supply is shrinking, but loan balances are static, and that is why we are in for some rough time.
But be warned, and you heard it here first. There is a global effort to reflate currencies, and kill Bretton Woods. We could be on the road to heavy inflation, and that doesnt just mean houses, but gold, cars, labor, machinery, stocks, you name it. Deflation is here, it is completely not reconized, and totally misunderstood. And its going to be here for a while. But if you honestly expect world governments to just kick back and let asset values plunge 40%-80% and let many nations go bankrupt, as opposed to punnishing savers and weakening currencies in an effort to inflate away government debts, well.. you are just plain wrong.
May we are confusting NAR;s Because on the NAR's website: That is National Asscoiation of Realtors, on October 16th this is what is said.
Facts are funny like that:
Copied from the website:
Over the past 30 years, the median price of existing homes has increased an average of more than 6 percent every year, and home values nearly double every 10 years, according to historical data from NAR’s existing home-sales series. Thanks to the power of leverage, a homeowner’s return on investment is even more impressive over time.
For example, over 10 years, a $10,000 investment in the stock market at a normal 10 percent market rate of return would yield $23,600. The same investment as a down payment on a $200,000 home at a normal appreciation rate of 5 percent would return nearly 5 times the stock market return, at $110,300.
“Home Values” demonstrates the long-term value of housing as an investment, and encourages buyers who are on the fence about making a home purchase to contact a REALTOR® who can help them make a smart investment in their future.
Typical NAR, gotta love it. Makes no mention of what happens when a levered investment goes down. Or that an equally levered investment in the stock market would have way outperformed housing. Not quite lying, but sure is on the thin edge of misleading.
And strongly implies that past performance = future performance.
I have little sympathy for anyone who gets taken by that nonsense. Prices aren't a function of habit, but of fundamentals. Which is to say, it's the math!
charles,
Why don't you show us a specific example of the math proving "an equally levered investment in the stock market would have way outperformed housing".
Sally, it's right above in NAR in #5, pull out the calculator and do the 7th grad math...
Charles, it was arrogant and unnecessary to demean Sally's intelligence with a catty pot-shot about 7th grade math just because she asked you (not Buyers Market) for an example to illustrate what you were trying to say in your speculative remark. It is not out of line to ask for you to choose examples to prove (or disprove) the veracity of your assertion. No matter how adamantly you phrased your strongly worded opinion in post #6, it was still just an opinion.
Sally asked for an example, in a way which I took to not actually be a request for education, but argument. Therefore I pointed out, in the same tone as her response, that the example she wants is already in this thread, in #5.
The math involved is fractions. I actually think it pre 7th grade, but put 7th grade to be safe.
Its not out of line to ask me for examples. It is out of line to ask when they are in the thread already - that's not the sort of response I'm going to take seriously.
If you think that is arrogant, kindly look up the word arrogant in the dictionary - it has a meaning already, you don't get to make it up as you go along. "Patronizing" might be fair, though.
Like I said, I did not take Sally's response as a serious request for education. If it was, I apologize for responding to the tone that wasn't there, and will lay out the math in steps.
But I still take her tone as argumentative, and in such a case, it behooves her to avoid making the sort of arguments that will prompt 7th grade comparisons.
addendum - James, it wasn't just an opinion. Its math, using nothing but the NAR numbers above. Math is not opinion.
What on earth could you possibly find to be opinion in #6? The fact that leverage increases volatility? The fact that comparing an unleveraged investment to one levered 20-1 is simply absurd? The Fact the prior performance is a poor indicator of future performance?
I didn't even post about the deep irony of the last sentence in Buyer's Market's post, but you guys are rubbing it in.
Hello,
I am being sincere with my request for examples of "an equally levered investment in the stock market would have way outperformed housing". I'm wondering how well equally levered investments in the stock market faired these last few weeks, especially as compared to investment in real property during the same time frame. Insults and argument serve no good purpose here and I'm not looking to get into that.
I really am looking for people to share their real life experience so we all my become more enlightened.
Taking the NAR example - obviously the stock market has gone down, but equally obviously the real estate market has gone down, so using their data roughly normalizes.
Normalizing the math for simplicity a bit as well, as they did.
They used 10k as a downpayment, and leveraged it 20x (almost Lehman levels) to get a return of 110k
They then compared an unleveraged purchase of the stock market and said that 10k would result in 23600.
But to compare apples to apples, you have to lever both investments equally. So you multiply the 23600 by 20, and get 472k
So an accurate comparison would be that real estate performed around 25% as well as the market in the intervening time period. NARs example makes it look like real estate is better. Though not a lie per se based on what they wrote, it is calculated to mislead the average person as to which was a better investment.
Now you can get into the fact that it is much easier for the average person to lever up real estate than the market for various reasons. Which would involve getting into how dangerous leverage can be on the downside, something Bear, Lehman, and all the people who have to bring cash to closings or are getting foreclosed have learned.
But the NAR release skips over that too.
As a result, I find it an unethical attempt to mislead the unsophisticated. Pretty typical of the organization, frankly.
Charles.
Also note that the NAR number does not include the 120 mortgage payments made over the ten year time period. How does the R.O.I. look now Sally ?
Thanks, charles, for the explanation of what NAR is doing, which of course I am aware of and can see it for what it is, as you can.
I guess I was looking for your own personal experience in making more of a profit from the stock market than real estate, especially because based on your posts here it sounds like you've done well in real estate with your good timing and research.
NAR is going to toot it's own horn that's no surprise. Buyers must take responsibility for their purchase and perform their own due diligence. In fact that sounds like a great buyers workshop:
"Due Diligence for Home Buyers: 10 Things You Must Be Aware of When You Buy A Home".
my personal approach to make money was to leverage a short position for the last year. I made 112% since every time the market dropped I made multiples. Before that I was long energy. And before that, I was a huge fan of investing in real estate. But what I do in the market is nuts if you don't understand what you are doing, and I'm worried if I post what I do people will copy it without understanding it., which is why though I've alluded to it over the last year, I don't go into details.
Basically, I do take a high leverage position, which involves a lot of derivatives and trading. Its one of the reasons I post so much here actually, its my entertainment/procrastination while doing my monitoring and analysis.
Don't get me wrong, I do think one can make money in real estate obviously - I made a lot myself, I'd be nuts to say one can't. But I do have a knee jerk reaction to bad and misleading advice.
And the truth is, one doesn't make money in anything just by showing up. Whatever it is, it takes work and effort and time. And lots of math! Anyone who tries to steer people differently is generally trying to mislead them.
This blogger might want to review your comment before posting it.
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