Where is the US economy headed?

@hawkeye10,

Who is Zillow?
There is a more than slight chance I am wrong about knowing a stripper named Zillow.

@realjohnboy,

http://www.zillow.com/

dont think they operate out where you are. They have Zestimate, which is a computer generated product of home value based upon location/sf/bedrooms based upon recent sales...to include auction.

at lot of these auction homes are in disrepair, but the banks will give you all kinds of grief if you try to pay way above recent sales prices. When you have a way better product to buy than what has been sold recently you can have trouble getting a bank to approve the price that both the buyer and seller want. Also, a lot of would be buyers balk at a price way above comparable sales no matter how much they like the house....they get to thinking that they are paying too much.

A guy across the street just spent a year upgrading his house, it is really nice and it is totally worth what he thinks it is, but no dice. He can't move it. A house down the street sold a little over a year ago for more than $300k, was foreclosed, and sold at auction two months ago for $233K. The guy across the street wants $255 for a smaller house. Good luck. AND a house about his size on the other direction on the street sold at auction a year ago for $195K...it was torn up at the time by super bad tenants and lack of basic maintenance for years, but the banks don't know that.

1 Reply

@hawkeye10,

hawkeye10 wrote:

http://www.zillow.com/

dont think they operate out where you are. They have Zestimate, which is a computer generated product of home value based upon location/sf/bedrooms based upon recent sales...to include auction.

at lot of these auction homes are in disrepair, but the banks will give you all kinds of grief if you try to pay way above recent sales prices. When you have a way better product to buy than what has been sold recently you can have trouble getting a bank to approve the price that both the buyer and seller want. Also, a lot of would be buyers balk at a price way above comparable sales no matter how much they like the house....they get to thinking that they are paying too much.

A guy across the street just spent a year upgrading his house, it is really nice and it is totally worth what he thinks it is, but no dice. He can't move it. A house down the street sold a little over a year ago for more than $300k, was foreclosed, and sold at auction two months ago for $233K. The guy across the street wants $255 for a smaller house. Good luck. AND a house about his size on the other direction on the street sold at auction a year ago for $195K...it was torn up at the time by super bad tenants and lack of basic maintenance for years, but the banks don't know that.

Do you have charts as to how much the price went up from 1998-2007? Because that's how much they are going to fall again before parity is achieved.

As a young person who will be looking to buy a home in a few years, I certainly am not upset by the recent trend in falling prices. And I think that it really forces people to reevaluate this idea that one's home is an investment that will ALWAYS rise over time. I don't know where the hell this meme came from.

Cycloptichorn

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@Cycloptichorn,

From people trying to sell homes to buyers.

1 Reply

@rabel22,

rabel22 wrote:

From people trying to sell homes to buyers.

I blame late-night infomercials about 'no money down!' mortgages and investments. You don't see them anymore.

Cycloptichorn

1 Reply

@Cycloptichorn,

The idea of a house being an investment is relatively recent. It was first mentioned . . . to my knowledge . . . in the book Paper Money by "Adam Smith," who used the house as investment as the guiding theme of that book.

1 Reply

@Cycloptichorn,

ACtually, a couple of things came together to create the impression that a house is an investment. When the Baby Boomers hit the housing market, suddenly, a great many people were looking to buy homes and when more people chase limited goods, the price of said goods rises.

Not only did the Boomers want houses, they wanted houses in towns where the schools were good, so the prices rose faster and higher in the towns where more kids went to better colleges.

All the while, the divorce boom was going on which meant that families were living in two houses and separating husbands pushed for higher prices on the houses that were being sold. That is not an anti-male statement but the report of a friend who appraises houses.

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@plainoldme,

plainoldme wrote:

The idea of a house being an investment is relatively recent.

I think I remember a house being a decent investment from the first house I ever purchased, which was almost 40 years ago. Most reasonable people knew even then that if something did not depreciate or lose its value soon after purchase, as automobiles or furniture typically did, then it was at least a better investment than renting your housing, which basically meant the money went down a rathole, never to return.

Of course that did not mean it was wise to go around buying houses or land without some judgement of quality of what you were purchasing.

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@okie,

Quote:

United States
Median Home Values

Adjusted to 2000 dollars

2000 $119,600
1990 $101,100
1980 $93,400
1970 $65,300
1960 $58,600
1950 $44,600
1940 $ 30,600

http://www.census.gov/hhes/www/housing/census/historic/values.html

Homes have gotten larger and nicer, and lots smaller, but I think we have proven POM wrong....

1 Reply

@okie,

Quote:

then it was at least a better investment than renting your housing, which basically meant the money went down a rathole, never to return.

That's not very sensible okie. Some people have made great investments with the money freed up by renting. And many people have made very poor investments by being landlords.

The Dow in 1940 was 150 and in 2000 was 11,500. On hawk's figures the house appreciates 4 times in the same period and the Dow appreciates 75 times. Set against that is the rent. On the plus side there's income from the shares and the maintenance is the landlord's responsibility and also the tenant is free to move without having to sell which can be an important matter.

Hardly a "rathole". And the Dow is not necessarily the best investment.

1 Reply

@okie,

Well, forty years is relatively recent. That would put the purchase of your own house right in line with the first houses purchased by Baby Boomers.

My ex-husband will turn 68 this summer and so is not a BB but his parents bought a house in the early 1930s which his mother sold (too many memories) one year after she became a widow in 1949 for the same price they paid for it. The family kept track of the home for a few years. The next two times it was sold, the sale price was the same.

My own parents bought their house in 1950, paying the same price the original purchaser paid in 1949 when the house was built.

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Quote:

NEW YORK (CNNMoney.com) -- Economists generally aren't worried about the U.S. or global economy falling into another recession. Looking at the bond market, many investors don't agree.

The yields on long-term U.S. Treasurys, such as the benchmark 10-year bond, have tumbled sharply over the last six weeks, hitting as low as 3.1% in early trading Friday before they rebounded to 3.2% late in the day. Some experts say this is a sign a lot of major investors are betting on tough times ahead.

"There is big money making big bets that at a minimum we we'll have a recession if not a depression that could last for years," said Kevin Giddis, managing director of fixed income at Morgan Keegan. "It's a scary scenario to subscribe to, but that's the current one being batted around."

http://money.cnn.com/2010/05/21/news/economy/bonds_warning/index.htm?source=cnn_bin&hpt=Sbin

not good

1 Reply

@hawkeye10,

Quote:

The veteran global investor Mohamed El-Erian, who runs Pimco and has lived through many a financial crisis, recently issued a report describing the new, perilous state of today’s global economy. He described it like this: “The world is on a journey to an unstable destination, through unfamiliar territory, on an uneven road and, critically, having already used its spare tire.”

I like that image. America used its spare tire to prevent a collapse of the banking system and to stimulate the economy after the subprime market crash. The European Union used its spare tire on its own economic stimulus and then to prevent a run on European banks triggered by the meltdown in Greece. This all better work,....

http://www.nytimes.com/2010/05/23/opinion/23friedman.html?hp

see above post for the conclusion that the people with the money have made.

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@hawkeye10,

No, you did not. For one thing, consider what happened between 1940 and 1950. WWII. What happened immediately after WWII? Lots of returning GIs with money to make a better life for themselves, either by buying houses or going to college or both. Remember that there was even a phrase describing the situation: the post-War housing boom.

What does a boom do? It pushes up prices. Consider, too, that price of domicile was probably flat or else in decline for an entire decade prior to 1940.

Now, look at the differences between the decades: 1950 was an increase of $14,000; 1960 saw an increase of $14,000, while 1970's increase was less than $7,000 or not even half the rise over the previous two decades. The rise between 1970 and 1980 was a whopping $28,100. That's when the Boomers were buying their houses.

Besides, how much do you want to argue with George Goodman, aka Adam Smith?

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@spendius,

spendius wrote:

Quote:
then it was at least a better investment than renting your housing, which basically meant the money went down a rathole, never to return.

That's not very sensible okie. Some people have made great investments with the money freed up by renting. And many people have made very poor investments by being landlords.

I don't know what the situation is where you live, but most places here the payments on a loan are not necessarily higher than paying rent, so paying rent often does not "free up" any money at all. And to clarify, I was not arguing that buying a house to rent as a landlord is a great deal. In fact, I do not necessarily think landlording properties is a great investment, not unless you really know what you are doing and perhaps can do alot of the work yourself to maintain and improve properties

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Anyone here actually read any economists?

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The purchase of a house certainly is an investment, just as is the purchase of retail property, commodities or stocks in operating corporations. The owner of a house who also lives in it is in effect taking a dividend from his investment equal to the rental value of the house. The structure of the building is, of course, a depreciating asset whose absolute value will decrease over time. The value of the land will depend on the market for it (a lot in Detroit is worthless while one in LaJolla is usually worth quite a bit). For most people who hold such an investment for more than a decade there is a significant financial benefit.

We have recently emerged from a financial bubble in home prices, stoked in major part by the practice of securitizing mortgages to recapitalize the sellers of them (the central function of Fannie Mae and Freddy Mac) and the willingness of banks and brokers to by and sell those securities as though they had no risk of default. Those who bought homes during the bubble will likely be underwater for some time. For others the situation is more or less what it has always been, though demographic shifts in the country do promise some changes in the pattern of demand.

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@georgeob1,

Quote:

he structure of the building is, of course, a depreciating asset whose absolute value will decrease over time.

I don't think that modern youngsters really understand this aspect at all, as they seem to believe that the house itself is in fact an APPRECIATING asset.

Cycloptichorn

1 Reply

@Cycloptichorn,

Probably true - a holdover attitude from a decade in which this illusion appeared to be permanent. It never was so.

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@georgeob1,

Good points, George. When speaking of investing in a house or home, it needs to be in context, in terms of the comparison to other potential investments. Buying a house to live in may be a good investment, compared with spending the money on rent. A similar comparison could be made with terming the purchase of a vehicle an investment, as compared with renting or leasing a vehicle, which may also indicate the purchase of the vehicle is a good investment, although that scenario may depend upon the usage and whether you do it as a business or as an individual.

Comparing buying houses and vehicles, I think buying a house is typically a much better investment, due to the fact that historically most houses have appreciated in value, while vehicles do not. However, buying a vehicle is also a good investment most of the time, as compared to leasing a vehicle, but buying many vehicles would be a lousy investment if you did not take advantage of their use. And the same could be true for houses if you bought too many in the wrong areas where you could not rent them at a profit or be able to resell them at a decent profit. As is true for many investments, a buyer and seller of stocks must be sharp and astute, and so would an investor into real estate.

In summary, I have never been a real estate investor, but I have owned my own home for the past 38 years, and the properties I have owned have always returned a nice profit when sold, and so the investment has always been sound and profitable for me, but only on a limited scale as my own personal residence as opposed to paying rent down a rathole.

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Where is the US economy headed?

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