Tuesday, November 25, 2008

What is wrong with this article

Hint: I'm going to bold the part that's wrong, and not post the rest of the article.


NEW YORK (CNNMoney.com) -- The home price plunge stayed on a record pace this summer, according to a widely watched gauge of national real-estate markets released Tuesday.

The S&P Case-Shiller Home Price national index recorded a 16.6% decline in the third quarter compared with the same period a year ago. That eclipsed the previous record of 15.1% set during the second quarter.

Prices in Case-Shiller's separate index of 10 major cities fell a record 18.6%, while its 20-city index dropped a record 17.4%

With foreclosures soaring at record rates, the economic picture dimming and job losses ramping up, all the elements were in place to push prices lower.

"The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its own fundamentals," said David Blitzer, Standard & Poor's spokesman for the indexes, in a press release. "All three aggregate indices, and 13 of the 20 metro areas, are reporting new record rates of decline...Prices are back to where they were in early 2004.

Answer: The problem here is that when prices fell by 18%, they fell to 2004 levels. That reflects an insane increase in housing costs over the past 4 years that far outpaces the rate of inflation.

Well boo freakin hoo homeowners. Your house, which you bought for 200,000, and thought you could sell 10 years later for 300,000 is now only worth 260,000. You still made $60,000! Meanwhile, people like me who want to buy their first home have no way of breaking into home ownership, since someone, somewhere, decided that home price inflation should far outpace the rate of actual inflation. How did you think that was going to work out for ya?

I'll tell you how that works out- no one can afford to buy your houses anymore, so you either drop the price or stay on the market forever. So you end up dropping the price. And somehow that's a Big Problem (tm).

Houses aren't something that you invest in to make more money...you're supposed to invest in them so that instead of throwing your money into a big black hole we lesser beings call "rent" you can get the money back in a few years if you want to sell your house. But that doesn't mean you should get your money back at an 18% interest rate! That's just unreasonable! And yet because it's not working out like that, people are freaking out.

(note: the foreclosure problem, though related, is a whole other kettle of worms, and I don't think people freaking out because of that are ridiculous).


  1. I understand your frustration as a renter, and yes, housing is still very expensive in many areas. However, I do feel badly for people who have lost so much home equity. A lot of them were counting on some of that equity to fund their retirement or their kid's college education. Many people took out second mortgages, etc. and now owe more than the home is worth. People have also invested a lot in maintaining and impproving their homes.
    BTW, I didn't buy my first home till I was 30 - we saved for 4 years after grad school. It's not the end of the world.

  2. Supposedly, there are housing bargains available, but perhaps not in the area where you are looking. I don't know what people your age are going to do to build wealth, with the real estate market in the crapper and the stock market in the stall next to it...

  3. The math seems all messed up here, but anyway there is nothing wrong with paying rent. The mortgage interest, property taxes, and maintenance costs you pay as a "homeowner" go into a "black hole" too. I'm almost 44 and don't own a home.

  4. You math is all wrong. We bought a house in '92. Now our house is more than double in price, but guess what, so are the salaries. When we bought our house our combined salary was under $60,000. Yes, that's in Brooklyn. We bought a house and had two small babies and a full time babysitter and put a portion away for 401k. Today, on this income you won't be able to survive in Brooklyn. I think you would actually be able to qualify for government aide with that type of income.

  5. When you think about a house purchase as a pure asset, your logic holds water. Just about every other asset purchase, from a car to an Ipod to a computer depreciates after purchase. But think about this way:

    1) you pay a ton of money to own a house besides the price of a house. You pay interest on a mortage and real estate taxes, for starters. Shouldn't you get a considerable return for committing to laying out such a huge amount of cash for an extended period of time?

    2) many/most people put money into the house they buy and improve their investment and many don't get that money back no matter how much their house appreciates, unless they purchased their house 20 or so years ago. So while real estate has appreciated way faster than other investments, the actual value of the asset often goes up too, because of owner improvements.

    3) if you're middle class, a house is probably going to be the most expensive thing you own, meaning you are going to put a huge percentage of your savings into the purchase. Would you want to tie up so much of your money in something that won't appreciate considerably?

    Does it make a little bit more sense now? I share your frustration in not being able to touch houses in some markets...I'm much older than you are and still can't afford a house on the East Coast. But the appreciation on real estate is not so unreasonable (in most markets).

  6. My Other Blog said "I don't know what people your age are going to do to build wealth, with the real estate market in the crapper and the stock market in the stall next to it..."

    Very true. However AE is still very young, and if you have the stomach for it, now might be a great time to begin investing small amounts while prices are down. She and B probably have 35 or more years to save for retirement, and 18+ years for their kid's college (or Kollel:)). They need to take the long-term perspective. Folks who are only a few years away from retirement, or are getting laid off after working 25-30+ years and just lost half the value of their 401(k)'s are really screwed since they don't have time to make up for it. I don't mean to pit one generation against another and everyone is hurting, but the issues are different at different stages of your worklife. I realize that AE and B are going to face far different/harder issues when it comes to things like paying for their kid's education than prior generations did. Maybe she'll get tenure at a school with free tuition for fuculty's kids.

    While AE is a grad student, it's not such a bad thing to live like a grad student, but then again I am nostalgic for my old cinder block coffee table and living off of 29 cent oodles of noodles.

  7. I understand people wanting to have their houses at least keep pace with inflation, since they want to sell it for what they bought it for when adjusted by that factor. But I agree with your frustration. The truth is, owning a home was packaged as a neccesity or American life in the 80's and especially the 90's. Viola - ARMs and a housing bubble. My grandparents never owned a home - always rented and had happy lives without major financial hardships. (They got married during the Depression, so maybe there were some hardships starting out, but other than that.) It doesn't always make sense to buy rather than renting, especially if you're not staying in the house more than 5 years. Ownership doesn't always mean you'll come out ahead.

  8. That's the right moment for you to buy a house...

  9. http://www.getrichslowly.org/blog/2007/07/16/renting-vs-buying-the-realities-of-home-buying/

    Check out this article for why renting is not necessarily "throwing your money away". Also, google renting vs. buying calculators to find out if and when buying really makes financial sense. It's not necessarily when you first get married.

  10. For freaking real! The idea that unlimited economic growth is the national goal is fucked, and now we are too. Boo!

  11. The problem for me is the people who have been working that hard, but were never able to build enough to lose. No equity, no investments, just scraping by for year after exhausting year.
    When this shit started and everybody started freaking out about how to protect THEIR MONEY, I was not the only person around going "what fucking money?!" It's hard to be sympathetic of peoples losses when they are not acknowledging that they are still the fortunate ones, that many of us already started out that badly to begin with. And not because of "bad behavior" or bad choices or lack of moral fortitude. The playing field is vastly tilted crazily to begin with. Hard work isn't always enough.
    I'm not saying I don't feel bad about their suffering. I feel all of their suffering. What I'm saying is this is indicative of a bigger problem. And if people are bruised by their own hardship, I expect them to begin noticing all the hardship around them, and to speak up and say there's some bullshit going on. And to look to find out what that bullshit is. Cause if we don't make a noise ain't no one gonna hear!
    Or just keep running with the lemmings right off the fucking cliff.

  12. Is it possible for you to not get really arse comments back?! Some of the people who read you are some uptight people who don't understand what a freaking RANT is. It's sad. :(


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