Re: Book on buying a house?

On Fri, 14 Mar 2008 03:43:36 -0400, "sinister"
<sinister@xxxxxxxxxxxxxx> wrote:

<royls@xxxxxxxxx> wrote in message news:47d96254.9143286@xxxxxxxxxxxxxxxxx
On Tue, 11 Mar 2008 13:58:07 -0400, "sinister"
<sinister@xxxxxxxxxxxxxx> wrote:

For better or worse (well, probably for worse) I might buy a primary
residence this year.

Why not wait a year? I've been expecting China to pull the plug after
the Beijing Olympics, and times could then get very interesting, in
the Chinese proverbial sense...

One word: "Wife".

Ask her how she is going to stand being married to you when you end up
owing $400K on a house worth $300K, and your down payment has
evaporated, and YOU have ALL the I-told-you-so rights, FOREVER.

US house prices are falling off a cliff. You really, really don't
want to ride them to the bottom. I'm trying to save you $100K here,
pal, minimum.

My own model is that, while the bubble has deflated somewhat recently,
(1) it takes quite a while for prices to adjust downward---at least a year
in response to changes in the fundamentals,
(2) prices will really take a beating when interest rates go up.

Both are entirely true. In Japan, in took three years for the bulk of
the bubble to go. But prices kept falling for another DECADE. I
advised a friend of mine in Tokyo to sell his house in 1989 (he'd
bought it for $100K 20 years earlier). He could have got $5M for it.
Now it's worth $1M.

The US real estate crash probably won't be that bad, but the financial
fundamentals are much worse than Japan's were. Show your wife the US
house price chart. Bucking the kind of INCREASING downward momentum
we have seen lately would be insane, and you will be glad you waited
it out.

I don't know when rates will go up again, but the rest of the world cannot
keep lending to the US forever. My estimate is that in 15 years, it's a
certainty that this part of the world economy (trade balance, etc) will have
gone back to equilibrium. 10 years, very likely. Five years, probably but
not at all certain.

IMO you will likely see some pretty drastic changes in the next TWO
years.

My wife really wants to buy, and even though I've explained the fundamentals
to her and she's not at all stupid...well, let's just say that my impression
is that on average women are much more emotionally attached to the idea of
owning an abode.

I hear you, but the beginning of a deflationary crash is a time to be
saving, not getting into debt.

The safest and most profitable time to buy real estaste is when prices
have been steady for a year after a crash.

Agreed...like I said above, though, the real crash won't happen until rates
go up 100+ basis points, and I think that's coming, but my wife's patience
will be exhausted first.

:-(

I can see her pushing to make the leap two years ago, when the
momentum was up, but NOW???

Insanity.

The thing is, land prices depend on the trends in both interest rates
and growth rates. The rising growth and falling interest rates of
2001-2005 are now falling growth and rising rates. Land prices take a
while to reflect the changes in fundamentals, but this double whammy
is going to be brutal.

Here's an idea: multiply the annual percentage change in the house
price index by your target price, and see how much you are saving:
"We've saved $20K by not buying when you wanted to a year ago."

-- Roy L
.

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