Moving this blog.

I would like to move this blog to
http://patrick.net/wp/
because it will then be on my own web site, so I won't be dependent on blogger.com any more. It wasn't bad for a free service, but there were some problems.

I have a new posting up on my blog at the new site. Please take a look and comment, and if you have any trouble seeing it or commenting, write me at p@patrick.net. Thanks!

Patrick

Flipping

There's an article about how flipping is back up to rates not seen since just before the last crash, in 1989. What I don't understand is how you can buy anything to flip and make a profit, since so many other people are doing the same thing. I guess a lot of it is people buying dumps and renovating them.

Patrick

Psychology

Amazing how upset and angry owners get when you start showing just how weak their reasoning is. They need to BELIEVE in their hearts that housing will go up and up again because they know in their brains that it just isn't going to happen. The internal conflict drives some really interesting behavior.

The fundamentals march on regardless. Interest up, supply up, population down, salaries down, outsourcing continues...

Patrick

What to do?

OK, given that house prices are doomed, what is the best thing to do? Reader haka naka maru writes:

Mainly 2 areas. First about how to manage cash and Second on how to prepare for coming high foreclosures?

1. Maximise your saving by keeping cash aside in bank.(no brainer..)
2. Keep your cash in Cd's, ing direct etc as much as possible.
3. Moderate stocks investments.
4. Good 401k investments.
5. Mutual funds etc investments.

I agree about keeping cash.
I think Treasury Direct ibonds are a better deal that most CD's, because even though the 5-year rate is between 3% and 4%, it's free of state tax (a big win in CA) and it adjusts for inflation.
I agree about stock, just pick based on sane indicators, like PE and dividends.
It's definitely a no-brainer to max out your 401k contributions, but I hate how corporations limit you to the investment choices they pick. I always suspect they pick them based on a kickback.
Mutual funds tend to take a significant hidden management fee. I think index funds are better, because the fees are very low, and because they beat most mutual funds hands down.

I kind of wish I had shorted Fannie Mae, and it may still be a good idea, but the unlimited risk is scary.

Patrick

Spectacular Crash In Australia

Prices in Australia fall 40% in less than a year according to this article.

So much for the theory that house price crashes are never swift or severe.

Australia is a good model for what's going to happen here. Sydney is quite a bit like San Francisco.

Patrick

WSJ Article: Ugly Math

There's a great article in today's (23 March 2005) Wall Street Journal on page D1 called "Ugly Math: Soaring Housing Costs are Jeopardizing Retirement Savings"

This article is an excellent counterpoint to the comment someone made on my last post: "The years go by while you and your family don't get younger. Many people have been waiting for prices to fall since 2000. How many years can you wait?"

The real question is this: Are you willing to bet your family's financial life on one huge and probably foolish transaction?

The author of the article points out that "folks who are piling on the mortgage debt so they can play in today's overheated housing market" are probably commiting financial suicide. Read the article and look at the numbers.

What it comes down to is whether you can save now and probably be well-off later, or feel compelled to jump off the cliff now and hope you never hit the bottom.

No Conspiracy, Just Self Interest

I hope I don't give the impression there is any organized conspiracy to drive up real estate. I think there is just pure self-interest by realtors, bankers, etc, to get buyers to spend spend spend, regardless of how much it harms buyers' lives.

They don't have to be organized, because there is no one with a strong financial interest in telling buyers they're being badly ripped off.

Patrick