Zillow Advice: Rent vs. Buy - Home prices plunge by largest annual rate EVER

Thank you for that link, ...

Wed, 18 Feb 2009 23:47:00 GMT

Thank you for that link, Randy. I will go read and try to understand, but I have to read and reread things before they sink in. I think it's from head injury, LOL. I can do math, can write, can watch somebody do something and pick right up on it, etc., but when I try to learn something (especially mathmatical) by reading it, I simply see blankness. Most people in my entire family think I'm hopelessly stupid, sunnyview, so don't feel bad if it's only your brother who's like that. I have been a very simple person for most of my life and like I said, I think we are blessed today with being debt-free and having a somewhat healthy chunk of money in the bank just because we were afraid of credit. Too bad we weren't as afraid of some scams in our younger years, because we got taken several times - afraid of credit, but trusted people we shouldn't have. Talk about stupid. We'd probably have twice as much saved now if it weren't for that, but I'm grateful for what we have when I hear about how many people are deeply in debt. Now, I will concentrate, concentrate, concentrate... I'm making it my career right now to concentrate, and learn. We're all ignorant about something, and if I now have to pick and choose what to educate myself about in this day and age, what could be smarter than econ.? You are very generous with your time and resources here, Randy. Thank you.

Thanks for the response, ...

Wed, 18 Feb 2009 21:32:00 GMT

Thanks for the response, Randy. With banks' balance sheets being what they are today, and the need to stay within reasonable standards of lending, it will be interesting to see just how creative they are going to be/be able to be given their new paradigm.

If prices do fall back to historic norms of affordability (price:income, price:rent, etc.), and rates are still near all-time lows, would you recommend buying regardless of rates? In other words, would rising rates returning closer to historic norms (~8%) put further downward pressure on already affordable housing? Or is this kind of reasoning false-logic?

I realize I'm somewhat of a financial simpleton, so please be gentle. I'm having trouble grasping how rising rates won't effect affordability. I appreciate your patience.

an elderly relative who sold ...

Wed, 18 Feb 2009 21:18:00 GMT

an elderly relative who sold her house in 2005, used the profits to pay off massive credit card&home equity debts, put the rest into an annuity and now rents a very nice little place...had she not done that I doubt there would have been a dollar of inheritance left to go to her children. Of course, another cousin decided to quit his job and start flipping homes in LA shortly thereafter also, so you can't win 'em all.

LMAO!!

That is the Bubble in a nutshell!

Yes, interest rates are important. ...

Wed, 18 Feb 2009 20:52:00 GMT

Yes, interest rates are important. I'm primarily trying to demonstrate that they don't, in and of themselves, drive buyer-demand behaviors.

During the 1970s the availability of ARMs became much more common, so demand actually rose as rates were rising. People were OK taking on ARMs because they assumed their rates would reset down in the future -- which wasn't that crazy given the times. And banks adjusted their affordability metrics accordingly, thereby creating more "buying power" for home buyers.

None of that was necessarily bad lending standards. It's only bad lending standards if they borrower can't repay under reasonably expected circumstances (there will always be disasters and tragedies, and no one faults lenders for missing those).

Banks can, and will continue to, slice and dice their financial math in order to make a competitive profit. This is their job. What will be changed for a long time to come is that they'll need to do it within reasonable standards of lending.

I am going to order that ...

Wed, 18 Feb 2009 20:42:00 GMT

I am going to order that book for my brother. He won't listen to me because we're family and he thinks I'm stupid, but maybe if it comes from another source like the WSJ he will take it to heart. He's been a financial goob in every area of his life from student loans to credit cards to taxes. If the book doesn't work, maybe I'll just ask azrob if he would go directly over to his Phoenix apartment, ring the doorbell, slap my brother upside his head, say "Stupid" and walk away. If azrob's too busy, maybe I can advertise for the head slap on craigslist. You can get anything there.

Randy_H wrote:"Actually, ...

Wed, 18 Feb 2009 20:37:00 GMT

Randy_H wrote:
"Actually, I disagree that interest rates have more than a very small, marginal effect on buying demand. It's not the interest rates per se, but the affordability."

I've been lurking these boards long enough to have a great deal of respect for your opinions, Randy. I can admit to being fairly finance-illiterate, and lean heavily on my father for advice in this regard (Masters in Econ). My question is, if the banks are essentially insolvent due to the lax lending standards that significantly contributed to the current credit crunch, how much more creative financing can we expect to see in the future? Without such creative financing, don't interest rates become an important factor re: affordability once again?

I gave everyone in my family&extended ...

Wed, 18 Feb 2009 20:16:00 GMT

I gave everyone in my family&extended family that book for xmas about 5 years ago when this storm started gathering. From what I can tell at least one person read it and took it to heart: an elderly relative who sold her house in 2005, used the profits to pay off massive credit card & home equity debts, put the rest into an annuity and now rents a very nice little place...had she not done that I doubt there would have been a dollar of inheritance left to go to her children. Of course, another cousin decided to quit his job and start flipping homes in LA shortly thereafter also, so you can't win 'em all.

You don't need to take a ...

Wed, 18 Feb 2009 20:11:00 GMT

You don't need to take a class in your "old age". I recommend the WSJ Guide to Personal Finances, it's tremendously good as a foundational reference that's easily readable by anyone with a high school degree.

I have a ton of books reference on my blog that will give you probably more than you ever wanted in econ/finance for much less time&money than taking a course.

If you want to change your profession or get a license/certification, then go take courses at a reputable community college. Azrob is best to advise on that.

"But really, unless you took ...

Wed, 18 Feb 2009 20:02:00 GMT

"But really, unless you took a basic finance class in college, or a decent economics class in high school (undergrad econ does nothing to help in this regard) you're very very very unlikely to posses even a basic command of personal financial knowledge."

I would only add "or a family member with such knowledge and the inclination to teach you." It really is scary how society has come to operate, and, I agree Sunny, that at least basic finance should be taught in high school (along with that class on caring for a baby - but I digress). One of the silver linings that I see with this housing/stock crash is a return to basics in terms of viewing debt/affordability. I couldn't be happier about the fact that Coach bags are no longer on the Jones' "mandatory" list.

Sunnyview wrote, "I would ...

Wed, 18 Feb 2009 19:47:00 GMT

Sunnyview wrote, "I would love to see schools to add Personal Economics 101 to the high school requirements for graduation."

Amen. I'm going to go take some now in my old age because I think it's too dangerous now not to know... I didn't even know there was such a thing as a stock market when I graduated from high school, and to this day have been too embarrassed to ask what it all means, because it seems like everybody "just knows". Now it's time to learn all I can.

"I know maybe that seems simplistic, but I frankly was stunned at first when I heard people talking about buying a house that way. It was very short sighted for them and for the market."

I see some people knock the idea of being simplistic now and then, and agree to some extent, but this is what has gotten my husband and me by all these years: we were afraid of credit, so simply saved up and paid in cash for everything. For years we didn't even have a credit score.
The only thing we borrowed for was our first house, on an owners' contract, and that scared us spitless. It sure wasn't because we were so wise or anything.