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I simply love “Fear And Greed: How did the real estate bubble get so big”
I’m not sure if you are aware that there is a grass-roots group that is starting a “boycott on housing.” They feel that the prices in the San Francisco Bay Area are unreasonable.
It’s kind of interesting.
The website is at: http://www.boycotthousing.com/home.aspx
What do you think about websites like this? Do you think that something like this is “catch on?” I submitted my vote (I’m currently boycotting myself until my six figure down payments actually matters in this wacky market). But I was just wondering what your thoughts would be on this issue.
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Can boycotters make a difference in the “real estate” game?
I’m outraged at the high cost of food. Do you think me boycotting buying food will have an effect?
Well, if enough of us did, it would have a marginal effect for a while. But people have to have food to live, and creating all of your own food yourself is just not an option for most folks. This leaves your choices as supermarket or starve. Given those choices, I’ll take the supermarket (much as a couple weeks without food might benefit my waistline)
The same goes with housing. I went and poked around that site, and just couldn’t find any evidence of knowledge of the laws of economics. The only effect that boycotters will have is to marginally reduce demand, thereby slightly reducing prices for those who are buying, for which my clients surely thank you. If you couldn’t afford to buy anyway, it makes zero difference. If it makes sense for you to buy but you choose not to, then you are hurting no one except yourself. If you want to do something real about the high cost of housing, you’d do better to read my article on The Economics of Housing Development and act accordingly.
There are circumstances where I straightforwardly recommend against buying. Right now (originally published 2005), given the state of the market, those are a lot of circumstances. I could have made a lot more money than I have these last eighteen months had I been a shark. But the recommendation to buy or not to buy is always based upon individual circumstances balanced against the state of the market.
The clients I’m pursuing right now are those who are looking for a place they can be happy in for the next ten years. Speculators, Flippers, and other players of real estate roulette have mostly gotten the message and dropped out of the market anyway. Given past performance and the approximate size of the bubble (roughly 30 percent at peak in San Diego, in my estimation, which has since deflated by about 10 percent), the speculators who are left are like participants in a game of musical chairs who don’t yet realize that the music has stopped. On the other hand, those who need a place to live and can afford it will do very well once prices recover in a few years. I know this from personal experience; I was one of those folks who bought near the peak of the last cycle. Furthermore, with the desperation of many sellers, the bargaining is highly favorable to my buyer clients right now.
There are also significant and increasing opportunities in distressed properties, providing you’ve got some cash and are willing to buy and hold for a while, or do some significant work. Distressed properties are not a game for the weak of wallet, because you’ve got to have a certain amount of cash to play the game decently. Given the state of the market, it’s very possible to lose significant money even there, mostly if you’re a do-nothing flipper. If you’re a buy-and-holder or a fixer upper, there are still places for you to do very well in this market segment.
The third group of clients I’m seeking out is those who were taken advantage of by their agents and/or loan officers, to see if I can fix the situation with a new loan. These are folks who were sold on unstable or unsustainable loans in order to get into the property. I’m not an altruist by any means, I’m getting paid for my work, but that doesn’t alter the fact that the client wins also, by being put into a better situation if it can be done. If it can’t, I am set up to handle a distress sale to get them out of the situation before it gets worse. I’m not a magician who can make it never happen (and nobody else is, either!), but I can stop the green bleeding. Once the bleeding is stopped, then you can talk about getting some money back for having been the target of a Dastardly Deed™, but those sorts of solutions take years. If you try to get your pound of flesh first, you’ll bleed to death long before you might possibly get it, with all kinds of unpleasant consequences.
To summarize, housing is a necessary good, one third of the basic “food, clothing, shelter” that everyone is familiar with. This creates a “need” as opposed to a “want”. Mind you, most folks have wants bigger than their needs (and eyes bigger than their pocketbooks), but some market segment boycotting housing will hurt only themselves as rents get higher so that the landlords can feed the loan alligator. High demand is not going away. If you really want to make housing more affordable, start doing something about the low supply of new housing. Artificial scarcity benefits only those who are already owners, and that includes the flippers and speculators who are probably the largest part of the reason for the current bubble.
Caveat Emptor