SteveF *High Fives*

*High Five* ... kindergarteners on crack

"educate the blinds" ... easy than teaching the davenport Latin, I guess.

ALAN!!
How's your new condo?

It's a coop, and it's well-established, and you would not be allowed to buy in because fast money doesn't fly here. Thanks for asking.

What would be the rationale to buy real estate in NYC at current average price-rent ratios, unless it's with a big discount compared to the average, which already takes into account the price declines probable over the next years, or for non-financial reasons and I don't need to care about that renting something with similar price and quality is more affordable than buying? Since there obviously is an expert on this topic here, educate my under developed financial mind!

High Five bro..that we did.

Roubini? Seriously?

This guy? http://nymag.com/daily/intel/2009/03/nouriel_roubinis_wall_vaginas.html

He's a putz.

I wouldn't take this shyster's advice on anything, ever.

Good morning,

@needsadvice:

Strange argument to discredit Roubini. He was one of the few economists who saw the economic crisis coming. Apparently, he understands more about the functioning of the economy than the mainstream of economists, analysts, or Wall Street financial people.

@steveF:

You still haven't disclosed your assumptions about inflation rate and annual rate of property appreciation for your calculation according to which buying in NYC was allegedly more affordable than renting.

rootless, is that the other thread?

@steveF:

Yes, it is.

@rootless

The media picked through thousands of economic reports to find one that fit the conditions. They latched onto this guy.

Even a blind dog occassionally finds a bone.

@needsadvice:

Do you have a little bit more than some silly metaphor? Anything to back up the assessment that Roubini was just a blind dog who had found a bone regarding his warnings about the outcome of the credit market and housing bubble at a time when most economists, including Bernanke and all the economists employed by the Fed, Wall Street analysts, and average home buyers were totally oblivious to it (perhaps you, ericho75, and steveF too?)?

Why the refusal to give credit to someone for the things for which he deserves credit? Vaginas at the wall. How relevant is this?

Man I'm joining the other side.

Let's base our financial well being on being able to trade into it! Everyone go.

But wait a minute. If we all do this and on average we'll just trade to a draw, doesn't it mean we'll all have the same financial wealth? Wow? That sounds like communism. R you guys Fking commies?

If not, you gals sound like financial comedians.

Now this is funny.

Funny, once again, ericho and steveF rewrite history to avoid admitting their mistakes. And, man, were they DOOZIES. SO wrong... yet taking credit for getting it right.

What ACTUALLY was said by Steve 2 years ago..
I'm sick of stocks, it's time for real estate investing" - that wasn't just something he said, it was the title of the thread he started!

Let's see how that one has turned out...
Dow Up 80%, RE down 13.3%!

Well done, guys!

Now, who was it that called it right... don't be in RE, be in stocks... wonder who that could be...
"nyc10022
about 2 years ago
SSO... double long S&P.

We're talking about buying opportunity of the decade. And, hey, if I'm wrong, it doesn't matter... money won't be worth anything anyway."

So, ericho, man up... admit I was right... c'mon... you can do it!

> High Five bro..that we did.

Yup, you certainly did call it wrong...

"Let's see how that one has turned out...
Dow Up 80%, RE down 13.3%!"

While in no way do I recommend steveF or ericho's advice, nor do I think anyone should rush out and invest in local real estate right now, you really can't expect to continually cherry pick in such a blatant manner. First, the DOW is not a great measure of the market, as you know, and second, SSO is still down 45.5% from peak, despite a runup from the most recent trough. As should be obvious, there was and is plenty of risk in other investment vehicles.

High five stevef, love your consistency and the reaction you get here. Funny stuff.

bjw2103,

Singing a different tune?

"nor do I think anyone should rush out and invest in local real estate right now,"

Juiceman - totally agree! I love his consistency, and I always look forward to the reaction. He is hilarious indeed!

My pleasure JuiceMan. JM the voice of reason.

Sure I get a little too excited and happy but better for evryone than too miserable and negative. Have an awesome 3 day weekend!...POUND...

SteveF -- Why do you think that pumping a bubble, with all its associated destruction for New Yorkers and the economy, is "positive"?? Unaffordable housing, wasted resources and economic distortions are negatives for patriots and anyone else with a modicum of respect for their fellow citizens.

You are forgetting financeguy that Manhattan had NO bubble b/c it had no subprime. Prices/sales psychologically stalled b/c the rest of the world was suffering. That's why Manhattan bounced back so quickly.

Small/big/medium bubbles are all part of a free-flowing capitalistic system. They are inevitable and expected. It's called Highs and Lows. (Economic distortions) aka Bubbles(peaks) and valleys are just greed and fear magnified. It's the best we've got so let's make the best of it.

The spectrum of financeguy's plumage gets increasingly vivid each time I have the pleasure of reading one of his sermons.

It's been 2 years since the bears on this site 'promised' me that prices will collapse another 25-60% from the March lows. Where's the beef bears?

steveF and others who have a stake in the market are now non-patriots without any respect for their fellow citizens. I guess when all else fails.... Brilliant FG!!

> You are forgetting financeguy that Manhattan had NO bubble b/c it had no subprime.

Wow, that is dumb... even for SteveF.

Then again, part of exactly why he called it so wrong.

> Small/big/medium bubbles are all part of a free-flowing capitalistic system. They are inevitable and
> expected. It's called Highs and Lows.

The problem for SteveF, he buys in the bubbles.

There will absolutely be peaks and valleys, the key is to be the opposite of steve, who buys HIGH and sells LOW.

...and with painful predictability in comes 022 with his nauseating >>>>'s

I see those >>'s and immediately tune out. Sorry, as I'm sure you have lovely things to say.

Now shhhhhhh!

FG is working on his latest missive.

I mean sermon

equilibrium DAMMIT!

spinner, youre all punchdrunk...id be depressed...you coulda been in stocks, and youre all levered up in re...you and your wife may be design consltants for all your wannabee designer friends, but i doubt anyone wants you for your financial planning...

you should limit your preaching to the wannabee design pulpit...that....sya hi to the flock!!!!

Stocks are excessively valuated, currently. PE10 at 24, dividend yield about 1.8%.

Actually not designers, we just know how to live intelligently and inspire others. By the way bottom's, what processor error in your cranium has you believing that owners are all "levered up" and not also in stocks?

holy crap spinner, you are such a douche

pls tell us more about how you and your wife live intelligently and inspire others

Cream cheese

Wbottom, so many run-ins, huh?

spin, you mean the ability to own real estate and invest in equities are NOT mutually exclusive propositions? That is outrageous; please stop.

I'm with the big puffy sail. Long live designers and homesitters! Therez just not enough of them. I mean we got the xbox, playstation, board games..... Things to do while their 'home' earns them a salary or is it 'playing xbox' that leads to higher net worth? Fsteve tell me again how bubbles are good?

'bottoms LRH and Amway baby!

Actually the prob you are all in in equities is a little off.... Cause for MOST Americans the 20% down is a significant portion of their net worth. btw, do you know how many Americans don't even have a 401k but own a car and home Bc of the bubble? S Orman says ALOT. Flmaozzzzzz.

Since when has life not been about hanging on by your fingernails? Jesus, you act like this is something new. What percentage of Americans have a retirement plan today versus 30 yrs ago?

Oh you missed it, but the 60yo retirement Plan was to create a housing bubble whereby they lived well and ate well and then sold a pos to young people wiling to mortgage $2mm at 4%. In effect the housing bubble allowed the old farts to force the 20 to 45 yos to take on the old farts retirement plans.

You know what the best part iz? They youngins never saw it coming. Flmaozz

But I did.

ahh oblivious bj

dont stop, youre too entertaining

pls explain how money invested in real estate can be invested in stocks

Oh, so it was the old fart owners who created the bubble. Shit, I never had the scruples to look at it that way.

wait...get a home equity loan and buy stocks...ok, now youre talking

W, first explain how buying real estate precludes you from buying any stocks.

The capital & risk budget get used up, bjw. I think spinny bought in 2009 to take advantage of the panic he saw (his words). Had he seen a bigger opportunity in equities and allocated the capital there, he would have been up 50-100% by now. Presumably, he had a chunk of risk capital he was looking to put to work early 2009. I would guess that mainly went to RE, and he would have put more in stocks had he not seen such a great opportunity in stocks.

You're right: investing zero in something is not particularly special, but let's not pretend the decision to tie up your capital in RE does not affect your opportunity to invest elsewhere.

inonada, it really depends on how you view these things, IMHO. As you yourself have stated, owner-occupied real estate should really not be viewed as an investment. For anyone serious about buying a home, parking your downpayment in anything as risky as equities is generally a bad idea. For someone like you, for whom renting is more or less a perfect substitute for owning, that risk is much more palatable. It's also a bit too facile to state (with the benefit of hindsight obviously) that anyone pumping money into equities would have been up 50-100% by now. I was bullish on the stock market, as were many people here, but I don't think too many among us expected us to be where we are at the moment (and I suspect several expect a decent correction in the near term anyway).

Beyond all this, it should be obvious that if you're buying, and you have to break the bank, it's probably not going to turn out well. You absolutely should have a separate chunk of money available for investments, be they equities, bonds, real estate, etc. Obviously, not everyone follows this line of thought, but that's to be expected. Wbottom's "you coulda been in stocks" comment, as spinny pointed out, is not particularly astute when you get down to it.

... especially since, from what I can tell, spin and myself absolutely were in stocks. Unless he meant this: http://en.wikipedia.org/wiki/Stocks. Wbottom does seem to favor the kinky, as his handle might imply.

Wait a second nads... this is just my opinion but a buyer unloading 500k on an overly devalued property to achieve a manageable monthly nut is no less wise than an investor putting that same money in the shaky equities market. Many at the time would have debated the wisdom of either move.

I don't have the expertise to play the equity markets like some of you. That is why I pay other people to fuck up my investments for me. What I have been able to do since the mid 80's is make money through a combination of sweat, guts, a good eye, and timing.

You know, the old fashioned way.

a beauty from spinner--who knows WTF he is talking about??

which field? a septic field?

"You're right: investing zero in something is not particularly special, but let's not pretend the decision to tie up your capital in RE does not affect your opportunity to invest elsewhere."

When the original post was about the guy who said "I'm getting out of stocks and going into real estate", then it is absolutely fair to point out the contrast in returns of the two.

You can certainly invest in one or both, but that wasn't what OP is trying to brag about (unsuccessfully).

Fact is, since the specific time the call was made two years ago, the dow and s&p are up 70-80% (S&P actually the higher of the two)... and RE continued to slide, 13%+ based on the quarterly numbers.

Folks who went one way at that specific time made out like bandits, folks who went the other way at the time didn't. With a 20% down mortgage, the downside was almost the same as the stock upside.

spinner.....he didnt use the >>>>>....have you read? bj? steviepompoms? juicy?

elsewhere has kind of captured the essence of this thread, and also your folly

it's not that complicated

W, you ninny, what exactly have I said that has so offended your delicate sensibilities? You seem generally to have a hard time reading and "wrtng," so I'm curious.

"You can certainly invest in one or both, but that wasn't what OP is trying to brag about (unsuccessfully)."

Fair enough, but talking about steveF ad nauseum is kind of boring I guess.

"Folks who went one way at that specific time made out like bandits, folks who went the other way at the time didn't."

Ok, but how many people went exclusively one way or the other at that specific time? It's a bit of a silly point.

Have you been outside today bottoms? I decided to take the tarp off the teak furniture today so I've been in and out a lot. You see my life is rich with reckless commitment like that. Try not to get too torn up about the lack of intangible wealth in your portfolio my friend, it doesn't come across very well.

"As you yourself have stated, owner-occupied real estate should really not be viewed as an investment."

I don't think I ever really said that, or at least not in those terms. I think some people view it as consumption, and these people usually understand that they are paying a less-than-reasonable price for this consumption. I'd put, for example, happyrenter as a prime example of people in this category. Even though he purchased in the past year, he was and has been pretty explicit in stating that from a financial point of view, it was an iffy proposition.

On the other hand, you have people like ericho75 and steveF here. They are pretty clearly looking at their purchases from an investment / financial point of view. Or take someone like spinny, my dearest frenemy here, who makes noise about finding his little birdhouse yet posts drivel like this about his magnificent decision to buy during bear hysteria:

http://streeteasy.com/nyc/talk/discussion/17580-oh-dont-you-just-wish-you-bought-at-the-height-of-bear-hysteria

I think he's toned down his tune since then, but somehow I think he views it differently than he'd view a purchase of a car.

Nadsie, you shouldn't have! A stick in the hornets nest still ringing true 13 months later and counting.

"Wait a second nads... this is just my opinion but a buyer unloading 500k on an overly devalued property to achieve a manageable monthly nut is no less wise than an investor putting that same money in the shaky equities market. Many at the time would have debated the wisdom of either move."

Well if we can't debate the wisdom of different choices, what fun would there be left? Yeah, I know, the fun in life is to sit on your teak furniture on such a nice day.

I do believe buying NYC RE for cash will end up yielding you, over a long period like 30 years, something like inflation plus 2% on your cash. So you put up $500K, sure you're going to save $20K or $25K a year. Is that a wise use of capital? I don't think so. When the market is willing to give you risk-free yield at inflation plus 2% (TIPS), it is unwise financially to get that same yield at from a illiquid high-risk asset. I'm willing to bet that by 2030, we'll see that investing in S&P 500 starting in April 2000 will have outperformed inflation plus 2%. You'd even get a dividend yield along the way, giving you something against your monthly nut. It doesn't make it a wise choice, though.

IMO over early 2009, a reasonable expectation on NYC RE was inflation plus 2%. During that same period, a reasonable expectation on equities was inflation plus 10%. One was giving you no premium over risk-free despite being a risky asset, the other was giving an 8% premium in an albeit riskier asset. The relative wisdom of the choices seemed quite clear to me.

"I don't think I ever really said that, or at least not in those terms. I think some people view it as consumption, and these people usually understand that they are paying a less-than-reasonable price for this consumption. I'd put, for example, happyrenter as a prime example of people in this category. Even though he purchased in the past year, he was and has been pretty explicit in stating that from a financial point of view, it was an iffy proposition."

inonada, I think there's a big difference in "paying a less-than-reasonable price" vs not expecting massive appreciation. I am firmly in the latter camp. You can look for a good deal on a home and not need/anticipate huge returns. That's my point here. I expect good returns from investments; I expect a nice place to live in from my home.

"On the other hand, you have people like ericho75 and steveF here."

Yeah, I honestly think a few people spend way too much time talking about them on here. Yes, some of their comments are ridiculous (hardly a first for StreetEasy), but I don't get the constant need to go after them. Do you think their comments are dangerous? That's over the top for me. This is an anonymous internet message board read by not-that-many people.

"Nadsie, you shouldn't have! A stick in the hornets nest still ringing true 13 months later and counting."

What the hell are you talking about, spinny? Between the time you decided to buy your place and the time you made that post 13 months ago, equities were up 25-30%. Since you made that post, they're up another 25-30%. The only thing still ringing true is what I said in my response to your post 13 months ago: "Maybe your purchase will end up fine, but isn't it a bit premature to be crowing when you are treading water, and meanwhile everything else you could have invested in went straight up?"

inonada, I'll ask again - where are you putting your capital to work now? Still looking for pockets of value in equities? Pulling out? Cash? Things are not really as "obvious" as they were 2+ years ago.

But what's the yield on a happy wife and settled life? Do I wish I put my DP it into equities in 09 instead? No way, and that's about as honest an answer I can give you. I'm not sitting here feeling like I've cheated myself out of anything.

Nadia, I disagree with your assumption that people considering buying back in early 09 were making a choice between equities or real estate. I suspect the vast majority who didn't buy kept their DP money in cash.

"You can look for a good deal on a home and not need/anticipate huge returns."

I guess what I'm saying is from a financial perspective, anticipating risk-free returns from a risky asset is an unwise decision.

Let's put it this way. Let's say that you put down $400K for your $2M home. If at the end of 30 years, after all is said and done w.r.t calculating the rent benefit vs. interest paid vs. transaction costs vs. price sold, that $400K became $1.4M, would you be happy? After all, you're up $1M.

Maybe you would. I, on the other hand, would want to turn that $400K into $6M after 30 years if I'm going to tie it up in something illiquid and risky.

"I suspect the vast majority who didn't buy kept their DP money in cash."

I guess that depends on your definition of DP money. If you are talking about people with the attitude "I gotta buy in the next X years", you're probably right. I suspect you fell into that category. If you are talking about people with the attitude "I'll maybe buy when it makes sense to do so financially, which seems unlikely for next several years", I'd disagree. I fall into that category; I don't even know what part of my money or future expected income is DP money vs. other money. It's all just money to me.

> IMO over early 2009, a reasonable expectation on NYC RE was inflation plus 2%.

Of course, after the runup, returning to that average rate would represent a HUGE decline.... which is exactly what we are seeing.

WOW!
70 replies!!!

More HIGH FIVE STEVEF!!!

*HIGH-FIVE!*
*HIGH-FIVE!*
*HIGH-FIVE!*
*HIGH-FIVE!*
*HIGH-FIVE!*
*HIGH-FIVE!*

Ho and Bro -- Don't get too excited because most of the posts (a) aren't even responding to the OP and are on another topic; and (b) to the extent it mentions you two, it is derogatory. But whatever floats your boats, dudes.

MidtownMoron, were you smart enough to see this 19 months ago????

Whatever floats your boats...

"ericho75
about 19 months ago
ignore this person
report abuse
Thumbs Up Thumbs Down

Posted 2 months ago...Bears please eat crow.

http://www.streeteasy.com/nyc/talk/discussion/11252-more-signs-of-a-bottom

"The 7 year auction went very well today. There's tons of money out there, the 10 year notes are being sold because folks are rotating into equity. It really is that simple. Here's more...

1) Oil at 64 bucks now...new highs on the move. How's that possible with a global deflation?
2) Agriculture stocks are all going bonkers. Check out POT (the ticker symbol)!!!!
3) All commodities are rock'n!
4) After a 11 week runup in stocks, stocks are barely pulling back.
5) Junk bonds are UP over 1,500 basis points from their lows!!! (signs of improving business)
6) Jobless claims, unemployment data, durable goods, etc. etc. all came in BETTER than expected.
7) The dry baltic index have been rock'n. Why are shipping rates going up if things are dead????!?!??!
8) 90% of economist think the economy will start recovery this year.
9) Prof. Roubini sees a recovery too later on this year.
10) New and Existing home sales all came in better then expected.""

*high-five!*
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"ericho75
about 19 months ago
ignore this person
report abuse
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SteveF, we've done a great job educating others and spreading the words."

"ericho75
about 19 months ago
ignore this person
report abuse
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"ericho75....it's been a pleasure. Noah still calling for the W? Don't get fresh now. I now love IBM!!!!!
http://www.cnbc.com/id/31945067"

We did..he missed it. Equity overshoot by a few hundred points, but corporate notes didn't.
Noah, here's your W.

http://finance.yahoo.com/echarts?s=SHIAX#symbol=SHIAX;range=2y"

"inonada, I'll ask again - where are you putting your capital to work now? Still looking for pockets of value in equities? Pulling out? Cash? Things are not really as "obvious" as they were 2+ years ago."

I'm still highly-loaded in equities, still looking for pockets of value. I haven't sold anything but have been much more slow to pull the trigger on investing new cash. Despite obvious positive effect of the large rise on my portfolio, I'd on the whole be happier if S&P were sitting at 1100-1200. That said, I don't think I'd recommend such a course of action for most people. For various reasons, this is a long-term buy-and-hold portfolio so I am averse to doing anything other than buy-and-hold in it. Also for various other reasons, I wouldn't bat an eye if I saw a 30% drop: I'd likely be able to take advantage of such a drop for long-term buy-and-hold, which isn't the case for many people.

In early 2009, I would have said that valuations are so attractive that you should consider risking your lunch money. I certainly don't think we're there any more -- just not a market for lunch money.

Ho -- The sound of one hand clapping himself on the back. If no one cares, does it really make a sound?

"In early 2009, I would have said that valuations are so attractive that you should consider risking your lunch money. I certainly don't think we're there any more -- just not a market for lunch money. "

LOL..ARE YOU FOCK'N KIDDING ME?????
In 2009, there at BEST 2-4 person here that was SCREAMING TO BUY...everyone else was BEARISH!!! INCLUDING YOU.

Read this thread again..

http://streeteasy.com/nyc/talk/discussion/13029-roubini-now-says-the-worst-of-economic-crisis-is-over

I could find 10-20 more with the same 2-3 people saying it was time to buy because the ECONOMY was turning around.

FIND ME A POST IN SPRING OF 2009 THAT YOU WROTE THAT SUGGEST IT WAS TIME TO BUY!!

Mr. MidlifeCrisis....
I came on this board 21 months ago and posted what i saw on this economy. It was SteveF and I against the rest of the Streeteasy Bears...essentially the rest of the world. I stood by what i saw. I posted it. I got laughed at...mocked. Well, 20+ months later i'm going to point my finger at folks like you and LAUGH my BRAINS OFF!!!

MUHAHAHAHAHHAHAAHAHA!!!!

*high-five!*
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The same loonie toons on this site that told you to stay out of stocks in Spring of 2009 are now telling you to buy!!

O
M
G
!

Wow, ericho is delirious..... being wrong is driving him insane.

Once again, SteveF's call two years ago:

"I'm sick of stocks, it's time for real estate investing"
"I can't take it anymore!! I need an investment where I can't watch it every second!! I need something with less volatility and will build wealth and no more panic and fear!!!!!!!!!!!!!!!!!!!......where is the best place to invest??" "hmmm, ya, manhattan."...you know they're thinking it........"

Anybody high fiving THAT likes pain...

> FIND ME A POST IN SPRING OF 2009 THAT YOU WROTE THAT SUGGEST IT WAS TIME TO BUY!!

Ericho, we get you are delirious. Are you blind, too?
Unocover your ears already, posted this several times...

"nyc10022
about 2 years ago

SSO... double long S&P.

We're talking about buying opportunity of the decade. And, hey, if I'm wrong, it doesn't matter... money won't be worth anything anyway."

Better luck next life, ericho.

I dunno what to tell you, ericho. Do you want to meet up, swap account statements, and do high-fives?

Here's the difference between you & SWE, taken from the July 2009 link you posted:

ericho75: "Now, let's see if housing in NYC can catch a bit of this recovery fever. We'll know by Q1 & Q2 of 2010."
SWE: "I'm on record saying buy stocks, and sell RE."

You seem to have an unanswered prayer. It's a sad state of affairs to be pointing at everything that rose in hopes of getting your horse to rise, only to have it not happen.

Agreed, definitely sad.

"I guess that depends on your definition of DP money. If you are talking about people with the attitude "I gotta buy in the next X years", you're probably right. I suspect you fell into that category. If you are talking about people with the attitude "I'll maybe buy when it makes sense to do so financially, which seems unlikely for next several years", I'd disagree. I fall into that category; I don't even know what part of my money or future expected income is DP money vs. other money. It's all just money to me."

nada, I think this underscores just how comfortable you are with risk, which I would not describe as typical. Sounds like you keep very little in cash. And I don't think it's necessarily a mentality of "I gotta buy in the next x years" but more "I want to make sure I can buy something when the time's right for me." It sounds like you're confident/comfortable enough not to worry about losing a ton in equities, a la 2008.

I think most people have trouble understanding risk and therefore under-react or over-react to it. Buying a home with the thought that you cannot lose money if you hold long enough, or thinking you'll break even compared to renting after 10 or 20 years & holding cash: under-reaction to risk. Keeping money you won't be needing for 20 years out of equities no matter the price because there may be a drop: over-reaction to risk.

Absolutely, inonada.

The fact that you see the value of a stock portfolio on a daily basis contributes to that... as does the fact that you can be completely delusional about the value of your own real estate (and the zillow studies show time and time again how freqent, if not the general rule, this is).

It is crazy how much risk folks will take on with a 5x or 10x leverag on a house but then freak out about owning an index fund or two.

I think another part of it is, folks only get the "simple" type of risk... risk of capital loss. But no sense of interest rate risk, etc. Where "breaking even" after 30 years can actually be a huge loss.

nada, I agree with that. 20 years is a very long time in this instance. My view is colored by the fact that I'm already paying less to own than to rent, which takes some work to achieve in most cases. But I think you'd agree most people do not react to risk the same way you do, regardless of whether that's the "right" approach.

>It is crazy how much risk folks will take on with a 5x or 10x leverag on a house but then freak out about owning an index fund or two.

If we are talking about 20 year horizons, we aren't talking about 5x or 10x average leverage over the life, let alone 5x or 10x leverage at the end of the 20 year period. Under normal circumstances, a home is not bought on an IO basis.

"My view is colored by the fact that I'm already paying less to own than to rent, which takes some work to achieve in most cases."

How exactly are you achieving this? By putting 50% down and not counting that long-term at-risk money at something appropriate like 7%? By being in an ARM at 3% and ignoring the fact that those are indexed at 2.5% above 1-year treasuries, which the forward rate market is predicting will average at around 4% starting in a few years? By ignoring abated taxes?

I think people go through various misunderstanding of risk/reward over time that is colored by bubble mentality. If you looked at the fallacies of stocks circa 2000 and the fallacies of RE circa 2007, they were distinct. People need a good time period like a decade to unlearn a fallacy, it seems. Unfortunately, they seem to replace it with another set of fallacies.

Nope

Ericho answer the man, you douche. Like steve, you went ballz deep in re in 2007 and had nothing left to ballz anything the last 4 years, yet you keep cheerleading at the track everyday somehow thinking your LIC condo will win one, someday. Somehow. By the grace Allah.

Bubble = real estate. First to pop last to reflate, ask the japanese. You'll be 70... Pace yourself clown.

You own real estate, right?

"But I think you'd agree most people do not react to risk the same way you do, regardless of whether that's the "right" approach."

Understanding people boggles my simple mind. The owner of my apartment could sell this place tomorrow no problem. It's a high-demand line where the only sale this past decade was on a much, much lower floor last year. Instead, he rents it to me for a net yield that is literally 1% (rent minus fees), and that's not even giving any consideration to transaction costs. Maybe 1.25% if you use a fire-sale price.

Now why does he hang onto it? Heck if I know. A long-term illiquid asset with a yield of 1% plus inflation, with 10% transaction costs. What's a sane man to do but say "thank you for the cheap money", rent the place, and put his own money elsewhere?

"I think people go through various misunderstanding of risk/reward over time that is colored by bubble mentality. If you looked at the fallacies of stocks circa 2000 and the fallacies of RE circa 2007, they were distinct. People need a good time period like a decade to unlearn a fallacy, it seems. Unfortunately, they seem to replace it with another set of fallacies. "

Well put.

I find it is generally the same fallacies with slightly different spins. After '87, everyone said "we won't do that again" (I"m sure they said it after every crash before then). Then dot come comes, and they do exactly the same thing, with the "paradigm shift" spin. We've had RE bubbles before, and the only new spin this one had was "its even bigger".

"Now why does he hang onto it? Heck if I know. A long-term illiquid asset with a yield of 1% plus inflation, with 10% transaction costs. What's a sane man to do but say "thank you for the cheap money", rent the place, and put his own money elsewhere? "

It is a mental flaw. Similar things happen with stock investments too (but less so because of less leverage, the transparency in pricing, and the consumption hidden as investment cover). You're much more likely to allow yourself to take a bath if you don't have to admit it to yourself by selling at a loss. This is a large portion of behavioral economics.

The guy just doesn't want to admit his mistake... and renting it out means you never have to.

"How exactly are you achieving this? By putting 50% down and not counting that long-term at-risk money at something appropriate like 7%? By being in an ARM at 3% and ignoring the fact that those are indexed at 2.5% above 1-year treasuries, which the forward rate market is predicting will average at around 4% starting in a few years? By ignoring abated taxes?"

I did not put nearly that much down, have a 30-year-fixed at a very low rate, and am not ignoring unabated taxes (which unlike most people, I am actually able to determine). Does it help that I got a good price? Of course. I think that's what buyers should be aiming for. It's simply foolish to condone buying at any price, but it's also foolish to expect a good deal to be handed to you. I think there are some around here who anticipate a major second leg down, followed by sellers left and right begging them to take their places off their hands for next to nothing. Maybe, but I wouldn't hold my breath.

"Now why does he hang onto it? Heck if I know. A long-term illiquid asset with a yield of 1% plus inflation, with 10% transaction costs. What's a sane man to do but say "thank you for the cheap money", rent the place, and put his own money elsewhere?"

Hey, you've got a good deal; I wouldn't rack your brain searching to understand behavior. I have not seen a property worth buying as an investment property here in many many years, but again, I view that quite a bit differently than buying a place to actually live in. It sounds like you view buying a home as just as much of an investment as buying equities, or any other investment: if there's something with better projected returns and you're comfortable with the risk, go for the money. Renting is a perfect substitute for you.

"The guy just doesn't want to admit his mistake... and renting it out means you never have to."

Nope: he bought it long ago, so it's in the green. Would've probably done better with a mix of stocks & bonds, but firmly in the green...