Tax Rebate

[JayB]

One more time...

 

 

so i assume your point is....?

 

are you certain there is no history of unsustained commodity price appreciation which doesn't conform to historical trends?

 

we are now what, 2 years along the road since that graph came out, and we have witnessed a correction to historical averages? no.

 

we have witnessed further price appreciations in seattle and other markets, with some areas experiencing precipitous drops. nationwide, i believe the last year brought a 1% drop in prices on average? am i right in this?

 

since you are so bearish on the housing market, i'm curious about your opinion on what the eventual outcome of this will be, let's say 5 years out nation-wide, 5 years out seattle, and let's throw in a 10 year time-frame too for kicks. changes expressed in percentages.

 

 

clarification: i have no idea what the market will do, but my best guess is that certain areas of the country will get hammered for many years to come, while other areas (read, seattle) will plateau out (i think it's happened here with single family), maybe drop a few percentage points for a few years on average, then slowly appreciate again. the mortgage rate reduction would affect this....

 

Here's what I wrote to someone who asked this question in June of 2006:

 

" haven't done as much research into the Seattle market as I have Boston, but it sounds to me like you've got the financial side squared away pretty well - and most of the variables that you are wrestling with have to do with lifestyle decisions.

 

As far as the direction of house prices go, that's a tough one to predict, as this market has been driven by investor psychology rather than fundamentals for quite some time, and investor psychology is awfully tough to predict. There are quite a few metrics that you can plug-in to verify this (mortgage-to-rent ratios, etc), but clearly these aren't affecting people's decisions with respect to home buying out there. However, one of the few stats that I've come across that seems to have any predictive value is supply. Dividing raw inventory numbers by the 1-year moving average of home sales gives you a pretty good idea of where the market is heading supply-wise, but just taking a look at the raw numbers and comparing them on a month-to-month basis is a quick and easy way to gauge where things are heading. The bottom line is that supply-wise, things look awfully tight in Seattle and there's been no discernable change in market psychology out there "Houses always go up! Buy in now or be priced out forever!," etc. So if I was to take a stab at predicting where the market will go out there I'd expect to see home prices continue to increase, albeit at a more moderate pace, for at least the next year (until '07). I'd also start expecting to see inventories start to rise slowly after about a year, and some of the euphoria wearing off by then, as well as hints of mortgage related stress as 2 trillion in ARM resets start to kick in. I'd say it'll take at least a year of rising supply relative to demand to get to the point where we get to the "ball hanging in the air" phase at the top of the price-increase parabola (summer of '08), and then for prices to start trending down slowly in the year thereafter as demand wanes, market psychology continues to erode, and the price equilibrium increasingly set by people who have to sell, rather than those who are sellers of convenience, and who will do whatever they can, for as long as they can to avoid dropping their sales price. So my personal prediction is that there won't be meaningful inflation adjusted price reductions in the most desirable Seattle neighborhoods until well into the summer of 2009. Get about 40 minutes outside of Seattle and I'd expect the timeline to kick in about 9-12 months sooner."

 

 

If I had to put numbers on things, by 2012 my best guess would be up to 40% real (inflation adjusted) cumulative declines in the outer-periphery of commuterland. 15-25% real-cumulative declines in all of greater Seattle. Neighborhoods which are on the fringe of the zone-O-gentrification and furthest from downtown take the greatest hit (First Hill comes to mind), and boutique neighborhoods that are close to downtown like Queen Anne see cumulative declines of less than 10%. Single-family homes retain value better than condos or townhomes in all areas. 10 years out I'd venture that nominal prices will be roughly equal to '06 prices on average.

 

With respect to permanent changes in a given asset class - I can't think of any cases off of the top of my head, but I don't think it can be dismissed out of hand. I'd have to say that in order for this to happen, there has to be something real driving the change. In the case of homes, I think that the plateau you see emerging in the late 40's corresponds to permanent changes in mortgage lending that made it possible for the average person to borrow more money, and probably has something to do with the increases in real income that the average person realized during that time.

 

I don't personally can't think of anything permanent or real that changed between '98 and '08, except that when the smoke clears - we'll probably find that the securitization of mortgages is here to stay (with substantial revisions), since the borrow-short/lend-long model is something that most banks involved in home lending will be reluctant to rely on exclusively . It's possible that this will sustain prices at a higher level relative to incomes than we've seen in the past, but I doubt it.

 

It's also possible that the government will effectively assume responsibility for all or most private mortgage debt and disperse the risks and inevitable losses associated with lending money at high multiples to borrower income with little-or-no downpayment. If this occurs, then that might put a higher floor under prices as well.

 

I'd personally be happy to forsake the possibility of capital appreciation and rent until the tax-adjusted costs of renting and owning are roughly equal to one another, but intangibles might tip my hand at some point.

 

*Also worth remembering that:

 

-If a $100K asset appreciates by 25% it's worth $125K.

-If the $125K asset subsequently loses 25% of it's value, it's worth $93,750. Percentage changes always hurt more on the way down...

 

[Peter_Puget]

If I had to put numbers on things, by 2012 my best guess would be up to 40% real (inflation adjusted) cumulative declines in the outer-periphery of commuterland. 15-25% real-cumulative declines in all of greater Seattle. Neighborhoods which are on the fringe of the zone-O-gentrification and furthest from downtown take the greatest hit (First Hill comes to mind), and boutique neighborhoods that are close to downtown like Queen Anne see cumulative declines of less than 10%. Single-family homes retain value better than condos or townhomes in all areas. 10 years out I'd venture that nominal prices will be roughly equal to '06 prices on average.[/quote]

 

 

 

 

 

1) Please calculate the average inflation rate during the periods you desribe above. Esp interested in the rate between now and 2012.

 

 

[JayB]

Depends on the methodology, doesn't it? I'd venture 3-5%. Easy to see a case where prediction A and prediction B don't square up if you plug in a given range or ranges of inflation values. Was that the point of the bold text?

 

Are we still on for the 11/1/07-11/1/08 bet?

[ZONK]

I'm buying AMMO ! 7.62 & 45-70 buy the case load

[archenemy]

I get the impression most people are going to pay down debt with it, which wouldn't really stimulate the economy IMO.

Please, for the love of God, take a basic course in economics.

 

How could anyone understand that bad debt hurts the economy and not understand that when people actually pay off their debt that they are helping the economy--especially right now

 

Maybe JayB can correct me on this--or at least refine what I am saying here--but in a time where companies are having to cover their bad debt, those companies are thankful for folks that are paying.

[KaskadskyjKozak]

I get the impression most people are going to pay down debt with it, which wouldn't really stimulate the economy IMO.

Please, for the love of God, take a basic course in economics.

 

How could anyone understand that bad debt hurts the economy and not understand that when people actually pay off their debt that they are helping the economy--especially right now

 

Maybe JayB can correct me on this--or at least refine what I am saying here--but in a time where companies are having to cover their bad debt, those companies are thankful for folks that are paying.

 

OPINIONS ARE WHAT MATTER. GET IT????!?!?!? OPINIONS. AND FEELINGS TOO!!

 

IMO.

 

 

[Jim]

I get the impression most people are going to pay down debt with it, which wouldn't really stimulate the economy IMO.

Please, for the love of God, take a basic course in economics.

 

How could anyone understand that bad debt hurts the economy and not understand that when people actually pay off their debt that they are helping the economy--especially right now

 

Maybe JayB can correct me on this--or at least refine what I am saying here--but in a time where companies are having to cover their bad debt, those companies are thankful for folks that are paying.

 

I think what he meant was that paying off debt - such as a credit card, will not do much compared to buying some consumer item. Look at it this way. If you pay cash now for a washing machine that's much more a stimulus than if you're going to take your rebate to pay off the credit card you used to buy a washing machine 5 months ago. Frankly the credit card company would prefer you didn't pay it off so they earn intrest. What it would do, supposedly, is then have that money that would be going for interest down the road available to purchase some other tshatshke.

[Recycled]

Hey, I have a bright idea. Let's wait for inflation to save us. Maybe we can have an inflation rate of, say, 8-10%. Then y'all be paying off those ARM converted to fixed rate loans with cheaper money. Yeah, that's it! I'll bet it's never been done before.

[JayB]

Certainly not by any governments...

[Hugh Conway]

next Mugabe Recycled will propose solving our energy problem by consulting witch doctors

[Clavote]

I'm going to buy some carbon credits from the carbon credit company that I am starting!

 

I encourage all of you to send me your tax rebate and I will gladly take it in and send you a paper certificate, suitable for framing, that shows your concern and action to lower your carbon emission and increase my bank account.

[marylou]

I think what she meant was that paying off debt - such as a credit card, will not do much compared to buying some consumer item. Look at it this way. If you pay cash now for a washing machine that's much more a stimulus than if you're going to take your rebate to pay off the credit card you used to buy a washing machine 5 months ago. Frankly the credit card company would prefer you didn't pay it off so they earn intrest. What it would do, supposedly, is then have that money that would be going for interest down the road available to purchase some other tshatshke.

 

Correct. Didn't think I needed to write that all out in longhand, but it appears I was mistaken.

[Hendershot]

Hey, those rebate checks might actually be coming to a bank acount near you.

 

http://money.cnn.com/2008/04/24/pf/taxes/Stimulus_checks/index.htm?cnn=yes

[Peter_Puget]

I am not getting one.

[olyclimber]

because you make too much money! consider taking a paycut!

[Hugh Conway]

I am not getting one.

 

children who don't believe in Santa Claus don't get presents either

[KaskadskyjKozak]

 

 

Cool, I'll be able to fund my Roth while the stock prices are still low.