Sales of previously owned homes in March fell 8.4 percent from February, the group reported. It was the largest one-month drop since sales plummeted 12.6 percent in January 1989, when the country was in a housing recession. It was also 11.3 percent below the number of units sold in March 2006.
Not surprisingly, industry shill David Lereah attributed the decline to "bad weather". Where did you go to college again, David? The housing bubble Greenspan created got people greedy about real estate. They saw other people make LOTS of money for doing nothing and figured "if it's raining gravy, why I am standing here with a fork" and they bought houses they didn't intend to own so they could sell them a few months later and double their money.
I actually met Alan Greenspan once, but I was in celebrity shock so I didn't tell him what I thought about the job he was doing.
If someone offered to loan me money so that I could buy a million dollar yacht, I wouldn't take them up on it because I have no business owning a million dollar yacht. So just because Greenspan made it possible for banks to offer lots of people enough money to buy homes that they couldn't afford, doesn't mean they should take him up on it either. After all, Alan's not the one who's gotta make the mortgage payments.
Friend: Holy sh1t, man, we just shook Greenspan's hand. Alan Fcuking Greenspan, man!
Me: Yeah...but I forgot to call him an asshole.
Greenspan created an artificial boom that made people feel like things were okay, but it has to be paid for eventually. It's like buying things on your credit credit card. You FEEL like you are doing okay because you have all this new stuff in your house, but then the bill comes and you're screwed. You can't make people richer by printing more money.* If you could, the government would just gear up the printing presses and send everyone a check for a million dollars? There are lots of millionaires in Turkey, unfortunately a million turkish dollars is worth about $0.18. And you don't know what disgusting is until you've seen a Turkish Toilet.
Unfortunately, Alan burned the dinner and now we all have to eat it. The drop in housing prices will mean people in the housing sector will get laid off. Greenspan is making great money on the lecture circuit though, so as long as his parachute opens, he doesn't care.
A lot of people who bought houses they couldn't afford, but figured they would sell them to a bigger sucker in 6 months will go into foreclosure and the banks will get burned and will be hesitant to make new loans. We'll be paying for his foolishness with higher interest rates.
I hate to say I told you so, Alan, but you suck!
*See the www,mises.org website on my sidebar for information on the Austrian Business Cycle Theory (for which Hayek won the Nobel Prize in Economics), which proves this point empirically.
11 comments:
I'm reposting this here -- just for fun!
Hmmmm, yeah, I wondered why I was the only one not buying a condo or home in the last few years. With my conservative notions of how much money one must have for a down payment and how much income one must make to sustain payments, I just assumed everyone was making more money than yours truly.
Now I realize that many people bought what they could not afford.
When, by the way, did renting become such a bad thing?
2nd what cicumlocutor said, and I do feel smarter about it now (even though there are still ways around losing principal in a poor marke - you just have to be willing to take on more risk, as w/any investing idea).
Diane Sawyer was doing a show a few weeks ago about the tragedy of people who'd bought homes without understanding the English language well (and this was all over the news probably because of new data). I'm sorry, but if you really don't understand what you're getting into, you have no business owning a home. For example, I wouldn't try to go to Thailand, for example, and buy a home without knowing the Thai language fairly well. People = often not so bright.
Peope sure do like Mr. Greenspan though, because from my understanding, he makes pretty good coin at his speaking engagements.
However, I also understand from some things that I've read (much to the joy of some) that his popularity will be short-lived.
circ: yeah, renting isn't a BAD idea, especially if you could rent a place for a lot less than it would cost to buy it (which is the case in a lot of DC right now).
anon1: yeah, you can take on more risk, but in a diversified portfolio, real estate should be only one part of your assets (albeit a really big part). If you need to use up all your money and a big chunk of your future savings to buy a place, then you are putting too many eggs in one basket.
anon2: they liked him because they thought the economy would keep growing forever. They don't wanna believe that the longer you expand by printing money, the more severe the eventual correction will be.
Upon reading Anon #1's comment, I remembered one of the best pieces of advice I ever heard, told to me by a CEO who speaks several languages: NEVER personally negotiate business deals in a language other than your mother tongue.
A WaPo write-up a few weeks back mentioned a woman, who is a cashier at Giant, who's having her $500,000 townhouse foreclosed on. Her monthly salary is less than her mortgage payment. Come on, folks???!!!??? I'm no check-out girl, but I wouldn't be foolish enough to think I can afford a half-million dollar home. Get real!
The DC housing market always seemed like a time-bomb to me. The prices were so high for so little that it just didn't make any sense. In that regard, buying within the confines of ANY big city these days almost seems like taking on too much risk/debt at once. I own in Winston-Salem, which is small, but growing in the Biotech community. Housing is still cheap, despite the area seeing annual 6% increases in housing prices over the last 5 years. So, the market correction pain hasn't arrived here yet, and I doubt it will anytime soon. By the same token, people have never seen and probably will never see 150% returns on investment within 1-2 years, either.
Learah or whatever his name is attributed the drop to the exceptionally cold February though. However, I think we're not out of the woods until Spring 2008. 12 more months. Hold on!
circumlocutor: exactly. You gotta have some exit strategy other than "some bigger sucker will come after me and bail me out".
You can call me, 'Sir': I think you can make a lot of money investing in real estate in big cities (just ask Donald Trump), but you won't make money if you buy at any price. It has to make sense from a profit/loss POV.
My Meze Brunch Date: So you found my blog eh? Well, at least I don't discuss dorky topics like this over brunch.
I think it's actually a combination of greed and stupidity that makes people think that they can do this.
The mortgage industry is party to blame. They started making loans to people they knew couldn't afford them. Those folks are having massive layoffs now, too.
Having personally owned a rental house from back in the mid-1990s when you couldn't sell for anything, I knew first hand how hard it was to manage tenants, get them to pay, keep the house up and still make the rent.
I would get so irritated at parties in the past 3-4 years when it seemed everyone was buying houses to rent and fix up. Now they're all panicking and trying to sell. This stuff isn't rocket science, but you should understand basic economics about how much you have to charge in rent vs. your mortgage before jumping into the fray.
So what do you all think about the latest news re: possibility of height restrictions being lifted in DC?
I don't see it happening anytime soon, but it probably would be a good thing long-term for local residents.
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