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Tuesday, February 22, 2011

This is NOT your Grandfather's Housing Market

As if the news of oil booming, tensions in the Middle east booming and anger in Wisconsin booming was not enough to be a bugger on the old stock market today, the news on the once booming—now dooming—housing market continues to stink worse than a laundry basket of poop filled newborn diapers (of which I now have in the house).

So, with all the negativity, is NOW the perfect time to buy a house? 

If you looked at consumer confidence numbers in Feb, you would think that YES, it is time to buy, but I still say MAYBE.  Consumer confidence rose to 70.4 in Feb vs 64.8 in Jan.  Despite the rise, only 4.4% of people said they are planning to buy a house—this is a Bigfoot on Steroids drop from 5.2% only a month earlier.    

Why have we seen such a boom in confidence but a continual decline in housing?  Simple—consumers have been gaining in confidence because everything has become cheaper—flat screen TVs in every room of the house at these prices! This means that despite not having any more money, cheaper goods means they can buy more stuff.  More stuff makes us happy.  It makes consumers more confident.  People are cool with deflation!

But is consumer confidence sustainable?  I say no—this is apparent as prices on goods increase.  As gas goes up, money supply for Hannah Montana concert tickets, Red Lobster Ultimate Shrimp benders and Shake Weights goes down.  As consumers can buy less stuff, they will fill feel less confident about their personal economies.  You don’t have to be a wizard to understand that. 

Ok… so what does this say about housing?  

Distressed sales accounted for over 49% of sales last month.  If you are buying a house at full price, you are just barely in the majority.  Depending on the market, that still means that 51% of homebuyers are suckers.  Paying full price for a home right now is financial suicide, unless you are (a) paying cash, or (b) buying for the long haul. 

This is not your grandfather’s housing market—there is no guarantee you will make money in housing in the future-- You may not make money in 5 years, or 10 years, or 20 years if you don't buy correctly.
Housing prices in the last 3 months of 2010 are down 4.1% from the year earlier.  This was also during a time when rates were their lowest in history. Look at that nasty bubble… see the false rise in price from government interventions!  You can’t have a double-dip if prices never recovered.  Feb 22 Case Shiller Report with Charts

So, why do I say MAYBE now is a good time to buy a house?  I think that you can get a good deal if you shop hard and have a good imagination.  Every home buyer wants to buy a foreclosure, but most buyers opt out of this when they see the work needed to get the home Pottery Barn ready.  If you can see the true potential of a home, have the cash resources to do the repair and understand that prices in your neighborhood will fall BECAUSE you bought under market, I say jump in.  You won’t make 120% of your kitchen upgrade in 2011, but you may be able to buy at a price where you will never be underwater as the market slides.  As always, location is key—A screaming deal in the ghetto is only a good deal if you want to live in the ghetto. 

On the other hand, if you are a 22 year-old that thinks a screwdriver is a cocktail, renting is best.

Remember too—housing sucks right now.  Robert Shiller is calling for another 25% drop in housing.  Your house will not be immune, nor will your neighborhood, you state or your country (I'm talking to you Canada).  You will lose money in housing over the next 5 years if you pay full price for a home today.  

Think of it like a car.  If you are like me, you shop all over the country for the best deal on your car.  I had a 4runner shipped from Kentucky to save $4000, and I shipped my wife’s car from Omaha Nebraska to save $5000.  Some people would think this is crazy— buying sight unseen from a seller you will never meet eye to eye.  If you are one of those people, go and buy the brand new townhouse with the dramatic finishes at the top of the market—set the high water benchmark for your neighborhood and I will ship you a ‘I’m a Sucker’ button for Christmas next year.  If you see these car purchases as an opportunity to put $9000 extra to work in the market, or the means of financing your next few years of family vacations, then YOU are a candidate for the big MAYBE of home purchasing. 

Maybe I am wrong.  Maybe rates go to 9% and housing prices skyrocket higher like financial porn sites want you to believe.  What a crazy world that would be—9% unemployment, no wage growth, $6 gas and 9% mortgages… Funny that I fail to see home prices rising in this Bernanke Wizard Utopia world (though I do believe the wizard will eventually achieve this disaster scenario). 

Pay full price for housing right now or stab yourself in the eyes with scissors—both are the same— painful blindness or blind buying into a painful reality.  


  1. boatman:

    glad to see you're changing diapers....better than counting days.

    houses wayyup in NYC, DC i know realters in each....not surprising...its a govmint n bank party after all......not going to last.

    down n going down everywhere else.

    el-erian: libya brings stagflation....(the gold bugs are right):


  2. Maybe in US.
    Definitely No in Canada. Half a mil for a 100 year old piece of s**t, that comes as a "character home" with new wood floors and 20 layers of paint on walls. Come on, shoot me in the foot.