About the Author
The author of The Great Housing Bubble, Lawrence Roberts, lives in Irvine, California with his wife and son where he witnessed the rise and fall of residential home prices from ground zero of the housing bubble. He works as a consultant to the land development industry. He has worked on the evaluation, acquisition, development, and disposition of over $100 million in real estate assets since 1993. Mr. Roberts holds a Master of Science in Land Development from Texas A&M University. He is also an experienced securities trader and a student of financial markets and the role of psychology in the fluctuation of asset prices. The author’s education and experience make him uniquely qualified to offer analysis on real estate related matters.
The Author’s Story
I work as a development consultant in the real estate industry in Southern California. My education and experience has acquainted me with a variety of real estate markets, but residential real estate is the one with which I am most familiar. I am not a realtor or a mortgage broker, and my livelihood, though dependent upon the real estate industry, it is not dependent upon facilitating a home-sale transaction. What is presented here is both historical account and unbiased analysis. My observations of the residential real estate market are not tainted by any need or desire to convince anyone they should buy a house. In fact, one of my motivations for writing about the Great Housing Bubble is to convince people not to buy a house when prices are inflated and save them from financial ruin. It saddens me to watch homebuyers get caught up in the bubble mythology and enter into a financial transaction that will have a strongly negative impact on their financial lives. People who have already made that decision cannot be helped except at the expense of a naïve buyer. Sellers have the marketing machine of the National Association of Realtors to help them. Buyers have few sources of unbiased information to assist their decision. Part of the purpose of this writing is to educate both buyers and sellers on the realities of the residential real estate market.
One of the difficulties of writing a book on the Great Housing Bubble in 2008 is that the bubble has not played itself out yet. There is a necessary change in tense required when speaking of events prior to 2008 and those projected to occur during and after 2008. Someone reading this in 5 years may look back on it as history, but for those of us living it now, it is a history not yet lived. Much of what is presented here may not come to pass, or it may not happen in the way hypothesized in this book. History will judge whether this is prescient, or if it is “a tale told by an idiot, full of sound and fury, signifying nothing.”
Irvine Housing Blog
I discovered Real Estate Bubble Blogs in November of 2006. Many were in existence much earlier, but I was not a big reader of blogs prior to this time. I first discovered the Irvine Housing Blog when my wife found a series of interesting posts on people who were attempting to sell properties for a quick profit (flipping,) and they were getting burned. I was quickly hooked. From the blogroll (links to other blogs) I was able to locate several other bubble blogs, and I quickly became a regular reader and commenter on several blogs in this community.
In February of 2007, I was asked to write for the Irvine Housing Blog. I had a great deal of pent-up energy for writing about the housing bubble. Over the months that followed I wrote a series of analysis posts which became the struc-ture of this book. Daniel Gross, a freelance writer published in Slate Magazine, the Washington Post and Newsweek, characterized the writing as follows (Gross, The Real Morons of Orange County, 2007): “IrvineHousingblog, brilliantly drives home the same point with daily dispatches. The blog is a guide to the seventh circle of real estate hell – people who buy houses on spec with no money down. A typical entry chronicles the purchase price, tracks down the amount of debt on the property, and then calculates how much each party – the buyer, the first mortgage holder, the second mortgage holder – stands to lose assuming the seller receives the asking price.“
The Reservoir of Schadenfreude
The readers of the Irvine Housing Blog have a voracious appetite for profiles of losing properties. They are not alone. Why do people get so much pleasure from seeing would-be real estate moguls lose a great deal of money? I can think of no other human endeavor that has engendered so much pleasure in the misfortune of others by otherwise caring, compassionate people. In my opinion, the outpouring of schadenfreude we are seeing as the housing bubble deflates is a mixture of Greek tragedy and bad karma. In short, bubble participants should have seen it coming, and they are getting what they deserve.
Schadenfreude is not a spiritually uplifting emotional response. Most religious traditions would counsel us against it. In Buddhist teaching, people are taught to cultivate feelings of compassion for the misfortune of others – feeling empathy and sadness for the slings and arrows of outrageous fortune when they impact another. The near enemy of compassion is pity: it masquerades as compassion, but it has an element of separateness which detracts from the sense of Oneness with all things. Joy is good: Sympathetic joy, the joy in the happiness of another, is another pillar of a spiritual existence; however, joy in the misfortune of another – schadenfreude – is not a skillful behavior leading to happiness. Even knowing that, many of us feel this joy anyway. Why is that?
I recognized financing terms were creating artificially high prices early on. By 2004, I was telling people I knew that this was a problem which would cause a market crash. Most people looked at me like I was crazy. “Real estate always goes up,” I was told. “The government would never allow prices to crash,” I was told. “If you do not buy now you will be priced out forever,” I was told. This is the intoxicated language of real estate junkies who have overdosed on the real-estate-appreciation kool aid. If these statements had been offered in a defensive manner of someone who is being made to realize they made a serious mistake, I could have felt sympathy for them; I would have been able to disarm their defensiveness and helped them see the light. However, what I generally got was a smug assuredness of someone who truly believed he was right and I was wrong; not just that I was wrong; I was a stupid, cowardly fool who did not have the brains or the bravery to take the free money being given out. This was particularly surprising given my line of work. It was as if a patient after getting a diagnosis of cancer told the doctor that the physician did not understand the tissue growth was a natural, healthy process. The buyers caught up in the Great Housing Bubble did not recognize the financial cancer even when an expert in the field told them how dangerous it was.
During the bubble rally, those of us who chose not to participate were labeled as “bitter renters.” It was suggested we were envious of the good fortune of homeowners as their property values rose, as they took on insane amounts of debt, and as they blithely financed a lifestyle well beyond their means. This was undoubtedly true for some, but in my opinion, this is not the primary reason so many derive so much pleasure from the misfortune of those now suffering from declining property values. These same people who chided us for being envious actually wanted us to be envious: they wanted us to know they were the winners in our competitive society; they wanted us to view them as superior. This act of putting themselves above us created a separation which prevented us from feeling sympathetic joy for their good fortune, and it prevented us from feeling compassion for them when they fell.
In our collective unconscious which manifests in our dreams and our mythology, water is often symbolic of our emotions or our emotional state. Have you noticed people are often categorized as deep or shallow? If you are in debt you often feel “underwater.” Anger is much like water: if not given an outlet, it will fill a reservoir until it reaches a breaking point and is expressed in a flood of emotional rage. Each encounter with a pathologic, kool-aid-drinking housing bull during the bubble rally has added to this reservoir, and reveling in failed flips is an outlet for this pool of toxic emotional waste.
There is an element of tragedy in every disaster, but financial bubbles are some of the most interesting because they are completely man made. They are created by the accumulation of individual decisions of buyers who are motivated by greed, foolish pride, and a false sense of security. Each of these people should have known better. Many of them were warned of their impending doom by those who saw trouble brewing, and yet, many chose to go down the path to the Dark Side. Newton’s Third Law states, “For every action, there is an equal and opposite reaction.” The Law of Karma states, “For every event that occurs, there will follow another event whose existence was caused by the first, and this second event will be pleasant or unpleasant according as its cause was skillful or unskillful.” It became obvious as the crash began; the behavior of buyers during the bubble rally was not skillful. Whether it is Newton’s Third Law, Karma, or a Calvinist form of retributive justice, as this bubble deflates, many of the participants in this bubble are about to experience a great deal of hardship. Like many others, I will enjoy their suffering until my reservoir of schadenfreude is emptied. For the sake of my own personal spiritual well being, I hope this happens soon so I can regain my normal emotional balance and rekindle my feelings of compassion for my fellow human beings.
Articles by Lawrence Roberts
- In Financial Markets, the Herd is usually Wrong
Financial markets are fickle monsters. Whichever way the herd moves the market will go the other direction. During the Great Housing Bubble rally, prices were pushed up the herd mentality. As prices r… - The Participation of Women in the Housing Bubble
One of the unique characteristics of the Great Housing Bubble was the large increase in market participation among women, sometimes single women and sometimes as married women buying property on their… - Subprime Will Return, Alt-A is Dead
Like a Phoenix rising from the ashes, Subprime lending will make a comeback. Lenders focus on the three Cs: Creditworthiness, Capacity, and Collateral. Creditworthiness is measured by one’s FICO score… - The High-End Suburbs Will Also Crash
The course of a financial market, particularly the real estate market, is a long and winding road full of twists and turns and unexpected outcomes. It was certainly foreseeable that banks and builders… - The Loan Program for the Next Housing Bubble
Lending during the Great Housing Bubble was too messy. There were too many loan programs. Since real estate always goes up, and since people want immediate access to this appreciation to spend it like… - Can You Still Make Money Flipping Houses?
Speculation is a battle. The forces of greed and fear drive the financial markets, and the speculator attempts to profit from these moves. Speculation is not investment, although most do not understan… - Why Did We Have All Those Bailouts?
It all starts in the housing market. Realtors peddle fantasies of unlimited wealth that leads to people wanting to overpay for houses. The desire for real estate at any cost provides an opportunity fo… - Housing Desire is Not Housing Demand
The last line of defense for the housing bulls is the fallacy of pent-up demand. Belief in this fallacy relies on people’s inability to distinguish between desire and demand. Most people want a house…. - Why Were People Buying Houses While Prices Were Dropping?
There is a great deal of price volatility in California. There are significant periods of time where house prices will appreciate faster than incomes increase. This is purely the result of irrational ... - Does Home Appreciation Make It Easier to Move Up?
The conventional wisdom in California real estate is that you buy a home, and when it appreciates, you sell it and move up to a better home. There is some truth to this idea, but not in the way most p… - Moral Hazard and Housing Bailouts
All bailout measures have embedded within them serious issues of moral hazard. Both lenders and borrowers were extremely foolish during the real estate bubble. To bail them out at the expense of the w… - Getting Out of a Real Estate Transaction
Changing your mind on a stock purchase is relatively easy. Stocks are very liquid, and transaction costs are very low. However, changing your mind about a real estate transaction is not so easy. Real ... - Market Solutions for Preventing the Next Housing Bubble
There is one potential market-based solution that would require no government regulation or intervention that would prevent future bubbles from being created with borrowed capital: change the method o… - What Did Not Cause the Housing Bubble?
To fully understand what caused the housing bubble, one needs to examine some of the purported causes that are not valid because these often lead to incorrect policy initiatives. Bad policy initiative… - Do We Really Need to Maximize Home Ownership Rates?
There needs to be an open discussion of the goal of maximizing home ownership. Owning a home has become synonymous with the American Dream. Every Presidential administration has had the expansion of h… - Personal Problems Resulting From the Great Housing Bubble
The economic problems caused by asset price bubbles often lead to personal problems in the wake of the deflating bubble. Statistics about unemployment, foreclosure and bankruptcy are impersonal. The e… - Take Advantage of a Buyer’s Market
When the market turned up in the late 1990s the market shifted. During the last decline, the buyers had an advantage. During the bubble the advantage went to the sellers. The seller’s market went on f… - What Happens in a Foreclosure?
Foreclosure is the forced sale of a property owned by the borrower in order to satisfy the debt(s) secured by the property. Foreclosure laws are complex, and they vary from state to state. There are n… - Lingering Problems from the Deflation of the Housing Bubble
As with any illness, the recovery is often plagued by symptoms of the disease and unwanted side effects. The recovery from the Great Housing Bubble will be no exception. The main problems will be expe… - How Does a Decrease in Home Ownership Rates Impact Residential Real Estate Markets?
There is a strong correspondence to the growth of the subprime lending industry and an increase in home ownership rates. This is a direct result of lending money to those borrowers previously excluded… - Only a Fool Believes Real Estate Prices Always Go Up
In 2007 and 2008, house prices declined nationally for the first time since the Great Depression. From 2002 to 2006, there was a massive Ponzi Scheme of ever-increasing debt that fueled the Great Hous… - Factors that Influence the Price Declines in Residential Real Estate Markets
There are a number of factors that will influence the timing and the depth of the price decline. There are a number of psychological factors and technical factors in play…. - Housing Market Speculation Was a Disaster
Many people decided to speculate in residential real estate markets during the Great Housing Bubble. Most were amateurs that had no idea what they were buying or why prices were increasing. The only t… - Emergency Economic Stabilization Act of 2008 Did Not Work
In early October 2008, the Congress passed and the President signed the Emergency Economic Stabilization Act of 2008. The purpose of the bill was “to restore liquidity and stability to the U.S. financ… - Housing and Economic Recovery Act of 2008 Did Not Work
In late July 2008, Congress passed and the President signed the Housing and Economic Recovery Act of 2008 that included the following provisions: Federal Housing Finance Regulatory Reform Act of 2008,... - Hope Now? The Big Lies of the Housing Bubble
The first of the numerous bailout programs was “Hope Now” introduced in October of 2007. As the name suggests, Hope Now was sold to the general public as a reason for them to hang on and continue maki… - Conspicuous Consumption - It’s a California Thing
So what happens when you give poor people money? They spend it. The stories of people who won the lottery and managed to spend themselves into bankruptcy a few years later are classic examples of the ... - The Despair Stage in a Financial Bubble
There are many identifiable stages in a financial mania. These include: enthusiasm, greed, delusion, denial, fear, capitulation, and despair. From a perspective of market psychology, it is difficult t… - The Capitulation Stage in a Financial Bubble
There are many identifiable stages in a financial mania. These include: enthusiasm, greed, delusion, denial, fear, capitulation, and despair. The transition from the fear stage to the capitulation sta… - The Fear Stage in a Financial Bubble
There are many identifiable stages in a financial mania. These include: enthusiasm, greed, delusion, denial, fear, capitulation, and despair. The most important change in the market in the fear stage ... - The Denial Stage in a Financial Bubble
There are many identifiable stages in a financial mania. These include: enthusiasm, greed, delusion, denial, fear, capitulation, and despair. When the limit of affordability is reached and the pool of… - The Greed Stage in a Financial Bubble
There are many identifiable stages in a financial mania. These include: enthusiasm, greed, delusion, denial, fear, capitulation, and despair. In the greed stage of a financial bubble, the bullish sent… - The Enthusiasm Stage in a Financial Bubble
There are many identifiable stages in a financial mania. These include: enthusiasm, greed, delusion, denial, fear, capitulation, and despair. At the beginning of the enthusiasm stage of a financial bu… - Precipitating Factors in Financial Bubbles
There is often a precipitating factor causing the initial price rally that pushes prices above their supported fundamental values. A bubble rally is usually kicked off by some exogenous event, but it ... - Behavioral Finance Theory
Behavioral Finance abandoned the quest of the efficient markets theory to find a rational, mathematical model to explain fluctuations in asset prices. Instead, behavioral finance looked to psychology ... - Efficient Markets Theory
The efficient markets theory is the idea that speculative asset prices always incorporate the best information about fundamental values and that prices change only because new information enters the m… - Housing Bubble Deflation - The Stages of Grief
Markets are the collective actions of individuals, and the psychology of the markets can be broken down to the psychology of the individual participants who make it up. When price levels in a financia… - Floplords - Flippers Turned Landlords
When house prices stopped their dizzying ascent in the Great Housing Bubble, many speculators found themselves with large monthly debt service costs and no income to offset expenses. Many chose to qui… - How Does Leverage and Debt Impact Returns on Residential Real Estate?
As a speculative investment, residential real estate has the potential to make or lose vast sums of money due to the impact of financial leverage (debt). Houses are typically leveraged at 80% of their… - Housing Bubble Market Psychology
Financial markets are driven by fear and greed: two basic human emotions. Rationality and careful analysis are not responsible for, or predictive of, current or future price levels in markets exhibiti… - When Will Housing Prices Stop Falling?
House prices became very elevated relative to fundamentals of income and rent. Since these fundamentals underpin the housing market, prices will continue to fall until they come into alignment with hi… - One Hundred Percent Financing Ruined the Housing Market
Once 100% financing became widely available, it was enthusiastically embraced by all parties: the lenders suddenly had a huge source of new customers to generate high fees, the realtors and builders n… - Adjustable-Rate Mortgage Resets Deflated the Housing Bubble
The loan reset issue is not confined to those who bought late in the bubble rally of the Great Housing Bubble. Many borrowers are homeowners who refinanced to take advantage of more favorable loan ter… - Subprime Foreclosures Burst the Housing Bubble
The first sign of trouble for the housing market was the implosion of subprime in early 2007. Subprime borrowers stopped paying back the loans they were given due to loan resets and payment recasts. T… - The Credit Crunch Deflated the Housing Bubble
Loan standards vary over time as the credit cycle loosens and tightens. Many borrowers in the bubble rally were qualified with low credit scores, very high combined-loan-to-values, high debt-to-income… - Reactions to the Housing Bubble Burst
When a bubble in a financial market pops, it does not explode in spectacular fashion like a soap bubble; it is more comparable to a breached levee which releases water slowly at first. Once the financ… - The Affordability Limit in Residential Real Estate Markets
Affordability is the ultimate limit of any asset bubble. If prices are so high that no buyer can afford them, there are no transactions and thereby no market. The fear of many buyers in a financial ma… - The Supply Curve in Residential Real Estate Bubbles
The supply curve is the opposite of the demand curve: sellers will make very few units available at low prices, and sellers will make a great many available at higher prices. Wherever these two curves… - Affordability Measures in Residential Real Estate Markets
Affordability is a measure of people’s ability to raise money to obtain real estate. It is often represented as an index that compares the cost to finance a median house price to the percentage of the… - The Guide to Pick-a-Pay Option ARM Loans
The Option ARM is one of the most complicated loan programs ever developed. It was heralded as an innovation because it allowed people greater control over their monthly payments, and it provided grea… - Four Lies Believed During the Housing Bubble
There are a number of fallacies about residential real estate that either affirm the belief in perpetually rising prices or minimize the fears of a price decline. These fallacies generally revolve aro… - Eighteen Common Lies Realtors Tell
Realtors are agents of sellers, and it is not uncommon for them to exaggerate the income and appreciation potential of a given property to help sell it. It is a realtor’s job to obtain the highest pos… - Debt-To-Income Ratios and Residential Real Estate
The cumulative impact of the decisions of buyers is represented in the debt-to-income ratios, how much each household pays to borrow versus how much they make. Comparing the trends in debt-to-income r… - Price-To-Rent Ratios as a Measure of Residential Real Estate Value
Price-to-rent ratios represent the cost of a dwelling unit relative to the cost of a comparable dwelling unit. This ratio is also subject to the same variability exhibited by the price-to-income ratio… - Price-To-Income Ratios as a Measure of Residential Real Estate Value
Price-to-income ratios represent the amount borrowed relative to the incomes of the borrower. There are many variables that impact house prices, and some of the variability in prices over time can be ... - Price Measurements of Residential Real Estate Markets
There is no perfect measure for any broad financial market activity, and real estate markets are one of the most difficult to measure accurately. There are a number of methods for measuring prices and… - Housing Bubble - How to Identify One
Prices went up a large amount during the Great Housing Bubble, but what makes this price increase a bubble? To answer this question it is necessary to accurately measure price levels and review histor… - The Great Housing Bubble - Who is Responsible?
Who is responsible for the Great Housing Bubble? It is one thing to identify who or what caused the bubble, but it is another to assign responsibility and blame. Borrowers, lenders, investors, and the… - Visualizing the Real Estate Bubble
The Great Housing Bubble can be visualized with a simple thought experiment. Imagine a room with 100 people representing the pool of subprime borrowers. These are new entrants to the market. They were… - The CDO Market Solution for Future Housing Bubbles
The solution to preventing future bubbles in the residential real estate market lies in the market for collateralized debt obligations and conforming loans insured by the government sponsored entities… - Residential Appraisals and Collateralized Debt Obligations
There are three methods of appraising the resale value of residential real estate: the comparative-sales approach, the cost approach, and the income approach. The comparative-sales approach uses recen… - Credit Rating Agencies and the Secondary Mortgage Market
Credit rating and analysis of collateralized debt obligations and all structured finance products are integral to the smooth function of the secondary market for mortgage loans. A credit rating agency… - The Housing Bubble was a Credit Bubble
The Great Housing Bubble was not really about housing; it was about credit. Most financial bubbles are the result of an expansion of credit, and the Great Housing Bubble was no exception. Housing just… - Why did Freddie Mac and Fannie Mae Go Under?
The Federal Home Loan Mortgage Corporation, also known as Freddie Mac, was created by Congress in 1970 to make possible a secondary mortgage market to provide greater liquidity to banks and other lend… - How to Value a Vacant Home Building Lot
The market value of an individual lot is equal to the revenue it could generate when a residential housing unit is built on it minus the cost of creating that revenue (construction cost, marketing, pr… - Valuation of Lots and Raw Land
The valuation of land used for residential housing is mysterious and often misunderstood. The valuation of lots and raw land requires a detailed knowledge of construction and marketing costs as well a… - The Inflation Premium for Residential Real Estate
Residential housing does have a cash-saving value, if financed with a fixed rate mortgage. Over time, the growth in income and rents increases the cost of housing for renters. The inflation of housing… - Negotiating Skills Make a Big Difference in Home Sale Profits
The negotiating abilities of buyers and sellers and the overall market environment greatly impact the profits from real estate. Sellers almost universally believe their properties are worth more than ... - The Appropriate Discount Rate for Residential Real Estate Analysis
The investment value of a property can only be measured against other investment opportunities available to an investor. If investors can earn 4.5% by investing in government treasuries, they will dem… - How Much Does a House Really Cost?
When contemplating purchasing a home, one should examine all of the costs of ownership to budget properly for the expenses they will face. Most people simply focus on the payment, and soon after they ... - Buy a Home as a Place to Live
A house should not be viewed as an investment. When investments go bad, it causes financial hardship and anguish. When the bad financial investment is a family home it ruins everything. The joyous mem… - Everyone Wants To Live Here… Not!
The Great Housing Bubble witnessed many foolish ideas and beliefs about real estate. Among the most foolish was the idea that prices went up because everyone wants to live wherever they are. When rati… - Have California House Prices Always Been Crazy?
Volatility in real estate prices is not new to California. During the 1970s, real estate prices detached from typical valuations of three-times yearly income seen in the rest of the country. Once resi… - Should You Worry About the Opportunity Cost of a Housing Downpayment?
The initial equity in a home is equal to a purchaser’s downpayment. If a buyer pays cash for a home, all equity is initial equity. There is an opportunity cost associated with downpayment money. This ... - Where Is The Epicenter Of The Housing Bubble?
The epicenter of the Great Housing Bubble is located in Irvine, California. One of the primary causes of the bubble was the lowering of lending standards and the extension of credit to people who coul… - Fifteen Common Lies Realtors Tell
Realtors are agents of sellers. It is their job to obtain the highest possible sale price for a piece of real estate. The most common ploy realtors use it to attempt to create a sense of urgency in a ... - If You Are Underwater but Can Afford the Mortgage Payment You Should Hang On
Anyone that can manage their payments should consider trying to hold on, even if the house value has dropped well below their purchase price. There are still a great many overextended homeowners and s… - The Pent-Up-Demand Meme Is Complete Nonsense
The realtor spin about “pent up demand” is complete nonsense. There is probably a lot of pent up desire for housing, but demand is measured in dollars, and there is a major lack of demand with the abs… - Regulating the National Association of Realtors Would Help Prevent the Next Housing Bubble
The sales tactics of the National Association of Realtors should be examined and potentially come under the same restrictions as securities brokers through the Securities and Exchange Commission. Real… - Regulating Loan Amounts Would Help Prevent the Next Housing Bubble
The parameters of the forming limitations on the debt-to-income ratio and combined-loan-to-value are essential to prevent bubbles in the housing market and to prevent the banking system from becoming ... - Strict Loan Documentation Standards Will Help Prevent the Next Housing Bubble
One of the most egregious practices of the Great Housing Bubble was the fabrication of income by borrowers that was facilitated and promoted by originating lenders. Stated-income loan programs were wi… - Regulatory Solutions to Prevent the Next Housing Bubble
The regulatory solution proposed herein is simple, yet far reaching. It comes in two parts, the first is to limit the amount lenders can loan to borrowers with a rather unique enforcement mechanism, a… - Changing Appraisal Methods would Prevent the Next Housing Bubble
Investor confidence in the market for CDOs and all mortgages was shaken during the decline of the Great Housing Bubble, and rightly so. Investors were losing huge sums, and nobody clearly understood w… - Housing Bubble Economic Problems - Have We Seen the Worst?
The foremost problem resulting from the deflation of the Great Housing Bubble was the imperilment of our banking and financial system. The bailouts emanating from Congress have mostly focused on keepi… - Housing Bubble Causes - Why Did It Happen?
The Great Housing Bubble was caused by an expansion of credit that enabled irrational exuberance and wild speculation. The expansion of credit came in the form of relaxed loan underwriting terms inclu… - Future Housing Bubbles - Should We Prevent Them?
The deflation of housing bubbles is very financially and emotionally painful, and if possible, housing bubbles should be avoided. The pain of the deflation of a housing bubble cannot be avoided by try… - In a Buyer’s Market the First Offer is the Best Offer
The most counter-intuitive part of buying in a buyer’s market is to make the first offer the best offer. Ordinarily sellers, or more accurately the seller’s realtor, try to create a sense of urgency t… - Distressed Sellers - Should They Attempt a Short Sale?
A short sale is a property closing where the proceeds from the closing do not satisfy the outstanding debt on the property. The lender must agree to accept less money at the closing table for the clos… - What to Do When the Sale Price of a Home Does Not Pay Off a Mortgage
Once a price decline gets underway many buyers who were late to the price rally find they are in a property worth less than they paid for it. As prices continue to fall, many find themselves “underwat… - Buying and Selling Real Estate during a Decline
Residential real estate markets generally move very slowly and trend in a single direction for long periods of time. Once these markets reach an inflection point, the direction of price movement chang… - The Housing Bubble - What Buyers Need to Know
During the decline of house prices in the deflation of the Great Housing Bubble, price levels will fall to fundamental valuations of historic levels of appreciation, price-to-rent ratios, and price-to… - Foreclosures and Residential Real Estate Markets
The number of foreclosures will affect both the timing and the severity of the deflation of the Great Housing Bubble. It is foreclosures that drive prices lower quickly. Foreclosures control the timin… - Unemployment and Residential Real Estate Markets
Prior to the Great Housing Bubble, house price declines had only been associated with economic downturns and increases in unemployment. As people lost jobs, they lost their ability to make house payme… - It Is Different This Time… Not!
Each time the general public creates an asset bubble, they believe the rally in prices is justifiable by fundamentals. When proven methods of valuation demonstrate otherwise, people invent new ones wi… - Residential Real Estate Markets Crumble from the Bottom Up
The real estate market can be visualized as a massive pyramid. There are very few multi-million dollar properties at the top of the pyramid, and a large number of relatively inexpensive entry-level pr… - Home Price Appreciation and Transaction Fees - Only the Realtors Get Rich
Profiting from house price appreciation requires getting more money from the sale of a property than was originally paid for it and not having that profit cancelled out by moving costs, transaction fe… - Buy Now or Be Priced Out Forever… Not!
When prices rise faster than their wages, people can obtain less real estate with their income. The natural fear under these circumstances is to buy whatever is available before there is nothing desir… - Flip That House… Not!
During the Great Housing Bubble, many speculators tried to make money through trading houses. The vast majority of these traders were not professionals but amateurs who thought they could be professio… - They Aren’t Making Any More Land… Not!
All market pricing is a function of supply and demand. One of the reasons many house price bubbles get started is due to a temporary shortage of housing units. This is a particular problem in Californ… - Inflation and Home Equity - What Is the Relationship?
House prices historically have outpaced inflation by 0.7% nationally. In a normal market, this is the only appreciation homeowners obtain. This appreciation is caused by wage inflation translating int… - Lies Realtors Tell - Ten of Their Favorites
Realtors are agents of sellers. It is their job to obtain the highest possible sale price for a piece of real estate. By law they cannot misrepresent any facts about the property, but when it comes t… - Renting Versus Owning Residential Real Estate
Renting versus owning is both an intellectual, financial decision and an emotional decision. The financial decision is first and foremost an analysis of the comparative cost of renting versus owning. ... - Housing Bubble - Why Should Anyone Care?
Why should anyone care about financial bubbles in general and the housing bubble in particular? The first and most obvious reason is that the financial fallout is stressful. Many people lost a great d… - Real Estate Bubble Fallacies - Can You Identify Them?
There are a number of fallacies about residential real estate that either affirm the belief in perpetually rising prices or minimize the fears of a price decline. These fallacies generally revolve aro…