From the Naples News, we have Denise Zoldan writing about Mortgage foreclosures are up, and a working class is scarce.
The once-dormant microwave oven at Cedar Bay Marina on Marco Island is now the hot spot in the employee lunch room.
Even though the marina-turned-private yacht club is surrounded by pizza joints and fast food restaurants, Cedar Bay employees are packing lunches.
"The problem is they just don't have the money," said Manager Scott Hopkins, pointing out that employees are facing higher rents, higher interest rates, increased property taxes and steeper insurance rates — all of which take a bite out of disposable income.
People like Hopkins are struggling, even though he earns more than the area median income of $66,100 a year.
The three-bedroom townhouse Hopkins bought for $367,000 in November costs $9,000 a year in taxes, insurance, and mortgage insurance. By the time Hopkins pays the principal, interest and condo fees, he's spending nearly half his annual income on housing.
"How is that affordable?" he asks, anger rising in his voice.
The time to think about that was before you bought, jackass!
This is just stage two, folks! We're past stage one which was denial.
Coming up in the batting lineup are "bargaining" soon to be followed by "depression".
Sunday, December 31, 2006
Spin, Spin, Spin
From the San Diego Union Tribune, we have Jeremy W. Peters interviewing a spinmeister: Home sales on rise as owners cut asking prices.
While recent signs have led some economists to speculate that the worst of the housing slump has passed, many are taking a wait-and-see approach, including those at the Realtors association.
“Maybe we've hit bottom,” Lereah said. “I'll need another month before I can get comfortable with that statement.”
Maybe we've hit bottom, or maybe we've not.
Maybe I'm a billionaire, or maybe I'm not.
Maybe David Lereah screwed the pooch, or maybe he did not.
Maybe David Lereah's pooch screwed him six ways from Sunday, or maybe he did not.
With a "maybe", anything is possible.
While recent signs have led some economists to speculate that the worst of the housing slump has passed, many are taking a wait-and-see approach, including those at the Realtors association.
“Maybe we've hit bottom,” Lereah said. “I'll need another month before I can get comfortable with that statement.”
Maybe we've hit bottom, or maybe we've not.
Maybe I'm a billionaire, or maybe I'm not.
Maybe David Lereah screwed the pooch, or maybe he did not.
Maybe David Lereah's pooch screwed him six ways from Sunday, or maybe he did not.
With a "maybe", anything is possible.
Friday, December 29, 2006
Losing your cool
Every once in a while, a journalist loses their cool, and says frankly what this blog has tried to imply for a long time. Journalists are nothing but shills for various industries.
From the horse's mouth herself, I present Diana Olick from CNBC: By the Numbers.
I’ve been getting a lot of feedback from users out there questioning the housing numbers we report on CNBC. Yes, we do a lot of numbers: Existing Home Sales from the National Association of Realtors, Housing Starts and New Home Sales numbers from the US Dept. of Commerce, the monthly Housing Market Index of home builder sentiment from the National Association of Home Builders, just to name a few.
One user writes: “How honest are the NAR’s numbers? Days on Market? Median Price? etc. I have yet to see a major news network investigate such goings on. The REI commissions depend on strong numbers. How accurate is this data?”
Another, Michael Crespy, writes: “Although you periodically have a "housing bear" on the program, more than not, the program is filled with the NAR or NAB's "economists" who are no more than the HEAD cheerleaders for the housing industry!!”
Mr. Crespy, you’re right, they are the cheerleaders for the housing industry, but they are also economists whose sole purpose is to organize and present data on the industry.
Still, NAR’s chief economist David Lereah gets a lot of flak. He not only gets hate mail, he’s got his own hate site: (link). Actually, there are several not-too-savory sites on David. I called him this morning and asked, “Why are people so skeptical of you?” (That wasn’t exactly how I phrased it.)
“Because I’m a shill. Look, they’re basically saying, ‘You’re the Realtors, you’re in it for the money, you have to say the market is going well.’ What are you going to do?” says Lereah.
David Lereah speaks the truth, but he’s also one of the best spinners I’ve ever met, and after 17 years in this business, I’ve met a lot. David always finds a way to turn a negative number into a positive outlook. The steep fall in sales is a “correction” to him. Falling prices are “healthy for the market.” He’s got a million of ‘em, but guess what, he’s also got real numbers.
Now before everyone starts yelling at me, YES YES YES, these guys will do their best to make the market look brighter. YES, they represent Realtors and builders and investors who want good results. Their quotes in the press releases are often nauseating, but when you look past the quotes, there are the numbers.
Here comes the coup de grâce:
I confess, I do own a house, so there’s my bias; I’d like it to continue to appreciate. If you don’t buy what I’m reporting, that’s your choice.
Looks like Diana Whore-lick finally lost her cool, and blurted the truth out in print.
From the horse's mouth herself, I present Diana Olick from CNBC: By the Numbers.
I’ve been getting a lot of feedback from users out there questioning the housing numbers we report on CNBC. Yes, we do a lot of numbers: Existing Home Sales from the National Association of Realtors, Housing Starts and New Home Sales numbers from the US Dept. of Commerce, the monthly Housing Market Index of home builder sentiment from the National Association of Home Builders, just to name a few.
One user writes: “How honest are the NAR’s numbers? Days on Market? Median Price? etc. I have yet to see a major news network investigate such goings on. The REI commissions depend on strong numbers. How accurate is this data?”
Another, Michael Crespy, writes: “Although you periodically have a "housing bear" on the program, more than not, the program is filled with the NAR or NAB's "economists" who are no more than the HEAD cheerleaders for the housing industry!!”
Mr. Crespy, you’re right, they are the cheerleaders for the housing industry, but they are also economists whose sole purpose is to organize and present data on the industry.
Still, NAR’s chief economist David Lereah gets a lot of flak. He not only gets hate mail, he’s got his own hate site: (link). Actually, there are several not-too-savory sites on David. I called him this morning and asked, “Why are people so skeptical of you?” (That wasn’t exactly how I phrased it.)
“Because I’m a shill. Look, they’re basically saying, ‘You’re the Realtors, you’re in it for the money, you have to say the market is going well.’ What are you going to do?” says Lereah.
David Lereah speaks the truth, but he’s also one of the best spinners I’ve ever met, and after 17 years in this business, I’ve met a lot. David always finds a way to turn a negative number into a positive outlook. The steep fall in sales is a “correction” to him. Falling prices are “healthy for the market.” He’s got a million of ‘em, but guess what, he’s also got real numbers.
Now before everyone starts yelling at me, YES YES YES, these guys will do their best to make the market look brighter. YES, they represent Realtors and builders and investors who want good results. Their quotes in the press releases are often nauseating, but when you look past the quotes, there are the numbers.
Here comes the coup de grâce:
I confess, I do own a house, so there’s my bias; I’d like it to continue to appreciate. If you don’t buy what I’m reporting, that’s your choice.
Looks like Diana Whore-lick finally lost her cool, and blurted the truth out in print.
Wednesday, December 27, 2006
Incentives : The Fuel of Economics
From the much esteemed New York Times, we have David Leonhardt talking about: To-Do List: Wrap Gifts. Have Baby.
For decades and decades, the busiest day of the year in the nation’s maternity wards fell sometime in mid-September. Americans evidently do a lot of baby-making during the cold, dark days of December, and once a baby has been made, the die for its birth date has largely been cast.
Or at least that’s the way it used to be. In the last 15 years, there has been a huge increase in the number of births that are induced with drugs or come by Caesarean section. In either case, parents or doctors can often schedule a baby’s arrival on a day of their choosing.
Not surprisingly, they tend to avoid weekends and holidays, when doctors have other plans, hospitals are short of staff and the possibility of an unfortunate birthday — Christmas Day, anyone? — looms. During holiday weeks, births have become increasingly crowded into the weekdays surrounding the holiday.
Over this same period — since the early 1990s — the federal government has been steadily increasing the tax breaks for having a child. For parents to claim the full amount of any of these breaks in a given year, a child must simply be born by 11:59 p.m. on Dec. 31. If the baby arrives a few minutes later, the parents are often more than a thousand dollars poorer.
Not surprisingly, they tend to avoid weekends and holidays, when doctors have other plans, hospitals are short of staff and the possibility of an unfortunate birthday — Christmas Day, anyone? — looms. During holiday weeks, births have become increasingly crowded into the weekdays surrounding the holiday.
Over this same period — since the early 1990s — the federal government has been steadily increasing the tax breaks for having a child. For parents to claim the full amount of any of these breaks in a given year, a child must simply be born by 11:59 p.m. on Dec. 31. If the baby arrives a few minutes later, the parents are often more than a thousand dollars poorer.
Obviously, there are reasons beside taxes that someone might prefer having a baby in late December rather than early January. Many people will be on vacation next week, with extended family in town to see a new baby and help around the house. The stress of having relatives visit may also be enough to send some expectant mothers into labor.
So to see if taxes were truly the culprit, Mr. Chandra and another economist, Stacy Dickert-Conlin of Michigan State, devised some clever tests. They found that people who stood to gain the most from the tax breaks were also the ones who gave birth in late December most frequently. When the gains were similar, high-income parents — who, presumably, are more likely to be paying for tax advice — produced more December babies than other parents.
Excellent article. I suppose praise is due for the newspapers once in a while as well.
The article clearly demonstrates the role of economic incentives on such mundane matters as child birth. Of course, it's the arbitrariness of the calendar that is to blame.
The article also correctly points out the obvious solution : you should only get a tax break for the fraction of months in the year since the baby was born i.e. if the baby is born in December, you only get 1/12th the tax break.
There is a similar binary decision variable playing out in Germany.
From the BBC, we have Pregnant Germans seek cash bonus.
Many German mothers-to-be are reportedly trying to delay labour so their births coincide with a generous new government scheme.
Parents of babies born on or after 1 January will be entitled to up to 25,200 euros (£16,911, $33,300) to ease the financial burden of parenthood.
But those born even a minute earlier will not be covered by the scheme.
Doctors have been warning women not to take any medication to try to delay labour, and few, they stress, would put the life of their baby at risk for the sake of the money.
But what many mums-to-be do in order to bring on labour, pregnant Germans are now anxious to avoid.
These include drinking red wine, eating curries and taking part in physical activity.
This is just plain stupid but then the Germans have never been much on the side of economic rationality.
For decades and decades, the busiest day of the year in the nation’s maternity wards fell sometime in mid-September. Americans evidently do a lot of baby-making during the cold, dark days of December, and once a baby has been made, the die for its birth date has largely been cast.
Or at least that’s the way it used to be. In the last 15 years, there has been a huge increase in the number of births that are induced with drugs or come by Caesarean section. In either case, parents or doctors can often schedule a baby’s arrival on a day of their choosing.
Not surprisingly, they tend to avoid weekends and holidays, when doctors have other plans, hospitals are short of staff and the possibility of an unfortunate birthday — Christmas Day, anyone? — looms. During holiday weeks, births have become increasingly crowded into the weekdays surrounding the holiday.
Over this same period — since the early 1990s — the federal government has been steadily increasing the tax breaks for having a child. For parents to claim the full amount of any of these breaks in a given year, a child must simply be born by 11:59 p.m. on Dec. 31. If the baby arrives a few minutes later, the parents are often more than a thousand dollars poorer.
Not surprisingly, they tend to avoid weekends and holidays, when doctors have other plans, hospitals are short of staff and the possibility of an unfortunate birthday — Christmas Day, anyone? — looms. During holiday weeks, births have become increasingly crowded into the weekdays surrounding the holiday.
Over this same period — since the early 1990s — the federal government has been steadily increasing the tax breaks for having a child. For parents to claim the full amount of any of these breaks in a given year, a child must simply be born by 11:59 p.m. on Dec. 31. If the baby arrives a few minutes later, the parents are often more than a thousand dollars poorer.
Obviously, there are reasons beside taxes that someone might prefer having a baby in late December rather than early January. Many people will be on vacation next week, with extended family in town to see a new baby and help around the house. The stress of having relatives visit may also be enough to send some expectant mothers into labor.
So to see if taxes were truly the culprit, Mr. Chandra and another economist, Stacy Dickert-Conlin of Michigan State, devised some clever tests. They found that people who stood to gain the most from the tax breaks were also the ones who gave birth in late December most frequently. When the gains were similar, high-income parents — who, presumably, are more likely to be paying for tax advice — produced more December babies than other parents.
Excellent article. I suppose praise is due for the newspapers once in a while as well.
The article clearly demonstrates the role of economic incentives on such mundane matters as child birth. Of course, it's the arbitrariness of the calendar that is to blame.
The article also correctly points out the obvious solution : you should only get a tax break for the fraction of months in the year since the baby was born i.e. if the baby is born in December, you only get 1/12th the tax break.
There is a similar binary decision variable playing out in Germany.
From the BBC, we have Pregnant Germans seek cash bonus.
Many German mothers-to-be are reportedly trying to delay labour so their births coincide with a generous new government scheme.
Parents of babies born on or after 1 January will be entitled to up to 25,200 euros (£16,911, $33,300) to ease the financial burden of parenthood.
But those born even a minute earlier will not be covered by the scheme.
Doctors have been warning women not to take any medication to try to delay labour, and few, they stress, would put the life of their baby at risk for the sake of the money.
But what many mums-to-be do in order to bring on labour, pregnant Germans are now anxious to avoid.
These include drinking red wine, eating curries and taking part in physical activity.
This is just plain stupid but then the Germans have never been much on the side of economic rationality.
Wolves Eat Sheep : Movie at 9
From the Denver Post, we have the triumvirate of David Olinger, Jeffrey A. Roberts and Greg Griffin writing about: Builders often key players in high-risk game.
Carmen Pedrego said the builder assured her she could own a brand-new home for no more than her monthly rent.
But when she came to the loan closing, a surprise awaited her. No one was in the room except a stranger from the title company. And after Pedrego signed a first mortgage loan, the agent produced a second mortgage. They totaled 64 percent of the single mother's take-home pay.
Because she had already signed one contract, "I felt trapped, like I couldn't get out of it any more," Pedrego said. She signed the second and made two mortgage payments, she said, then filed for bankruptcy.
64% of take-home pay? Single mother? Felt trapped, and signed a second piece of paper?
Residents who bought houses from Strodtman said they were lured by offers of low payments, then learned at loan closings that their monthly costs would be hundreds of dollars higher than they expected.
"They tell me in one year you can refinance," said Librado Herrera, who does not read English and depended on Strodtman's sales assistant to explain the contract.
When he called a lender eight months later, he said he was told his loan had a prepayment penalty and his house wasn't worth $245,000.
Herrera is unemployed. His wife sews bags for a living. They have fallen behind on their $1,500-a-month mortgage payments and fear they must abandon their new home.
In one year, "I waste all my savings, and I have no more ways to save," he said. "I'm paying too much. I don't understand why the bank loaned the money. The value is not real."
Unemployed? Can't read English? Wife sews bags for a living? Bought a house for $245K?
On the one hand, I know that, thanks to my "liberal" sensibilities, I'm supposed to feel sorry for these people. However, I don't seem to be able to muster up any pity.
They were speculating, and they got caught with their pants down, and like any other speculative episode when the game is winding down, the truth is revealed, and much fraud is exposed because there will always be people who will take advantage of the unwashed masses who wanted to make "easy money".
After this, there will be much hand-wringing, weeping and wailing; heart-rending stories will be published to sell newspapers; politicians will pretend to tear their garments, and promise the masses that this will "never happen again"; people will be subpoenaed before Congress; there will be much finger-waving, and finger-pointing; laws will be passed that mortgage documents must be bilingual (English and Spanish); mortgage brokers will have to take "ethics" courses, etc. etc. etc.
YAWN!
None of this will ever stop the wolves from eating the sheep, of course!
Carmen Pedrego said the builder assured her she could own a brand-new home for no more than her monthly rent.
But when she came to the loan closing, a surprise awaited her. No one was in the room except a stranger from the title company. And after Pedrego signed a first mortgage loan, the agent produced a second mortgage. They totaled 64 percent of the single mother's take-home pay.
Because she had already signed one contract, "I felt trapped, like I couldn't get out of it any more," Pedrego said. She signed the second and made two mortgage payments, she said, then filed for bankruptcy.
64% of take-home pay? Single mother? Felt trapped, and signed a second piece of paper?
Residents who bought houses from Strodtman said they were lured by offers of low payments, then learned at loan closings that their monthly costs would be hundreds of dollars higher than they expected.
"They tell me in one year you can refinance," said Librado Herrera, who does not read English and depended on Strodtman's sales assistant to explain the contract.
When he called a lender eight months later, he said he was told his loan had a prepayment penalty and his house wasn't worth $245,000.
Herrera is unemployed. His wife sews bags for a living. They have fallen behind on their $1,500-a-month mortgage payments and fear they must abandon their new home.
In one year, "I waste all my savings, and I have no more ways to save," he said. "I'm paying too much. I don't understand why the bank loaned the money. The value is not real."
Unemployed? Can't read English? Wife sews bags for a living? Bought a house for $245K?
On the one hand, I know that, thanks to my "liberal" sensibilities, I'm supposed to feel sorry for these people. However, I don't seem to be able to muster up any pity.
They were speculating, and they got caught with their pants down, and like any other speculative episode when the game is winding down, the truth is revealed, and much fraud is exposed because there will always be people who will take advantage of the unwashed masses who wanted to make "easy money".
After this, there will be much hand-wringing, weeping and wailing; heart-rending stories will be published to sell newspapers; politicians will pretend to tear their garments, and promise the masses that this will "never happen again"; people will be subpoenaed before Congress; there will be much finger-waving, and finger-pointing; laws will be passed that mortgage documents must be bilingual (English and Spanish); mortgage brokers will have to take "ethics" courses, etc. etc. etc.
YAWN!
None of this will ever stop the wolves from eating the sheep, of course!
Who thought of this one?
From the Washington Post we have Million-Dollar Condos, With a Soup Kitchen Below.
Urban hipsters have shown a knack for dropping up to $1 million for condos in the heart of the District.
But will they spend that much to live over a church that feeds the homeless?
One-bedroom apartments would sell for between $400,000 and $500,000, while two bedrooms with a den would go for about $1 million, said David DeSantis, PN Hoffman's vice president of sales and marketing.
DeSantis said the company is well aware that some home buyers may blanch at the prospect of living above a homeless service center. But he said the developer expects to attract buyers who "are fully aware of the urban lifestyle" and will "appreciate the building and the neighborhood for what it is."
"I don't think I'm going to have any problem finding 140 families who want to call this building home," DeSantis said.
Who, in their right mind, would spend a million dollars to live above a homeless shelter?
"Darling, I don't feel like cooking today. Let's just order in from the soup kitchen."
"Oh look, darling! There's a homeless wino pissing on our doorstep."
"Sweetheart, why don't we invite your boss over for hors d'oeuvres next week to watch the Homeless Bum Parade?"
Urban hipsters have shown a knack for dropping up to $1 million for condos in the heart of the District.
But will they spend that much to live over a church that feeds the homeless?
One-bedroom apartments would sell for between $400,000 and $500,000, while two bedrooms with a den would go for about $1 million, said David DeSantis, PN Hoffman's vice president of sales and marketing.
DeSantis said the company is well aware that some home buyers may blanch at the prospect of living above a homeless service center. But he said the developer expects to attract buyers who "are fully aware of the urban lifestyle" and will "appreciate the building and the neighborhood for what it is."
"I don't think I'm going to have any problem finding 140 families who want to call this building home," DeSantis said.
Who, in their right mind, would spend a million dollars to live above a homeless shelter?
"Darling, I don't feel like cooking today. Let's just order in from the soup kitchen."
"Oh look, darling! There's a homeless wino pissing on our doorstep."
"Sweetheart, why don't we invite your boss over for hors d'oeuvres next week to watch the Homeless Bum Parade?"
Tuesday, December 26, 2006
A History Lesson
A modest lesson about the Great Florida Land Boom in the early 1920's.
The arguments should sound eerily familiar!
The arguments should sound eerily familiar!
Government Subsidies of the Absurd Kind!
From the esteemed BBC, we have S Koreans offered cash for no sex.
Male workers who vow to stay away from prostitutes after year-end celebrations in South Korea are to be rewarded.
The Ministry for Gender Equality is offering cash to companies whose male employees pledge not to pay for sex after office parties.
Men are being urged to register on the ministry's website. The companies with most pledges will receive a reward.
Officials say they want to put an end to a culture in which men get drunk at parties and go on to buy sex.
But some critics have described the move as a waste of money.
Any smart person would both take the money, and then go on to behave just as they preferred before the money was given.
No disincentives to behaving badly, and an enormous incentive to lie.
What would you expect?
If you wanted to learn economics in a nutshell, this example is it!
Male workers who vow to stay away from prostitutes after year-end celebrations in South Korea are to be rewarded.
The Ministry for Gender Equality is offering cash to companies whose male employees pledge not to pay for sex after office parties.
Men are being urged to register on the ministry's website. The companies with most pledges will receive a reward.
Officials say they want to put an end to a culture in which men get drunk at parties and go on to buy sex.
But some critics have described the move as a waste of money.
Any smart person would both take the money, and then go on to behave just as they preferred before the money was given.
No disincentives to behaving badly, and an enormous incentive to lie.
What would you expect?
If you wanted to learn economics in a nutshell, this example is it!
Don't be insulted, babykins!
From the Palm Beach Post we have Home sale situation a bit less bad.
Yes, home prices are falling, but there's a not-so-thin line between making an offer that reflects this reality and insulting the seller.
"We are amazed at some of the crazy (low) offers people put through on homes that have been marketed at a reasonable price," says Realtor Randy Bianchi of Paradise Properties in West Palm Beach.
"It almost becomes insulting," he says.
Actually, Bianchi is too polite to say that some offers are insulting.
Case in point: Bianchi has a condo in West Palm Beach listed for $170,000 - a reasonable asking price, he says, for an end unit with many upgrades and a great view. The last two sales (within the past 45 days, he points out, not last year) were for that much or more.
"We got an offer of $145,000 with 95 percent LTV (loan-to-value)," he says. "Come on! If it were cash, I might understand. But financed? I think buyers are assuming that all sellers overprice homes, or they're not listening to their agents or nobody is doing their homework."
There are so many things wrong with this article, it's hard to see where to begin.
I'm also going to use standard terminology unlike the reporter who has no clue : an "offer to buy" is called a bid, and "an offer to sell" is called an ask, or an offer.
Firstly, there is no such thing as an "insulting" bid. That's why it's a bid, and that's how capitalism works. People bid what they feel something is worth, and you can either take it or leave it. To call something "insulting" demonstrates a level of foolishness that's shocking.
Secondly, there are two reasons to under-bid, one mathematical, and one pragmatic. (actually, they're the same thing.)
The mathematical reason is called the winner's curse.
Here's the cleanest way to think about it : assume you attend an auction where the true worth of the object being auctioned is unknown. Let us also assume that each bidder bids independently.
Well, obviously the highest bidder wins, but since the object should be worth roughly the same to each bidder, one could make the argument that the "average" (mean or median as is appropriate) is probably a better judge of the "true worth" of the object than any individual bid. In which case, the highest bidder overpaid, by definition.
Oooops!
This is a very nasty mathematical fact that's hard to escape.
The trick out for professionals is called "bid shading". You revise downward your ex ante estimation of the value to a level that you would be comfortable were you to actually win. (In plain English, you need to have no "regrets" that you won the auction.)
Now, the actual implementation of this is tricky (of course! otherwise everyone would get rich off trading stocks, or bonds, or currencies, or fine art.)
As someone who's worked as a professional market-maker, on a pragmatic level, professional bidders also take into account whether the market is rising or falling, and at what rate. You underbid the market to take into account this directionality. You also take into account the fundamentals of the situation given the time-frame that you propose to hold that object.
Given my reading of the Florida market, one could easily make the case that this 15% underbid is actually a huge overbid, and the sellers instead of being insulted should have rushed to pass the buck onto the greater fool.
Thirdly, on a brute-force common-sense level, if this is an "insulting bid", where are all the "non-insulting bids"? If they don't exist, then the perhaps the seller has an inflated value of the object compared to the market (which in this case is a single bid.)
So one more time : there is no such thing as an "insulting" bid or offer!
Yes, home prices are falling, but there's a not-so-thin line between making an offer that reflects this reality and insulting the seller.
"We are amazed at some of the crazy (low) offers people put through on homes that have been marketed at a reasonable price," says Realtor Randy Bianchi of Paradise Properties in West Palm Beach.
"It almost becomes insulting," he says.
Actually, Bianchi is too polite to say that some offers are insulting.
Case in point: Bianchi has a condo in West Palm Beach listed for $170,000 - a reasonable asking price, he says, for an end unit with many upgrades and a great view. The last two sales (within the past 45 days, he points out, not last year) were for that much or more.
"We got an offer of $145,000 with 95 percent LTV (loan-to-value)," he says. "Come on! If it were cash, I might understand. But financed? I think buyers are assuming that all sellers overprice homes, or they're not listening to their agents or nobody is doing their homework."
There are so many things wrong with this article, it's hard to see where to begin.
I'm also going to use standard terminology unlike the reporter who has no clue : an "offer to buy" is called a bid, and "an offer to sell" is called an ask, or an offer.
Firstly, there is no such thing as an "insulting" bid. That's why it's a bid, and that's how capitalism works. People bid what they feel something is worth, and you can either take it or leave it. To call something "insulting" demonstrates a level of foolishness that's shocking.
Secondly, there are two reasons to under-bid, one mathematical, and one pragmatic. (actually, they're the same thing.)
The mathematical reason is called the winner's curse.
Here's the cleanest way to think about it : assume you attend an auction where the true worth of the object being auctioned is unknown. Let us also assume that each bidder bids independently.
Well, obviously the highest bidder wins, but since the object should be worth roughly the same to each bidder, one could make the argument that the "average" (mean or median as is appropriate) is probably a better judge of the "true worth" of the object than any individual bid. In which case, the highest bidder overpaid, by definition.
Oooops!
This is a very nasty mathematical fact that's hard to escape.
The trick out for professionals is called "bid shading". You revise downward your ex ante estimation of the value to a level that you would be comfortable were you to actually win. (In plain English, you need to have no "regrets" that you won the auction.)
Now, the actual implementation of this is tricky (of course! otherwise everyone would get rich off trading stocks, or bonds, or currencies, or fine art.)
As someone who's worked as a professional market-maker, on a pragmatic level, professional bidders also take into account whether the market is rising or falling, and at what rate. You underbid the market to take into account this directionality. You also take into account the fundamentals of the situation given the time-frame that you propose to hold that object.
Given my reading of the Florida market, one could easily make the case that this 15% underbid is actually a huge overbid, and the sellers instead of being insulted should have rushed to pass the buck onto the greater fool.
Thirdly, on a brute-force common-sense level, if this is an "insulting bid", where are all the "non-insulting bids"? If they don't exist, then the perhaps the seller has an inflated value of the object compared to the market (which in this case is a single bid.)
So one more time : there is no such thing as an "insulting" bid or offer!
Friday, December 22, 2006
Christmas Party!
Last night, a bunch of us at work went out for a few drinks, and dinner. What started out as some minor complaining about the cluelessness of our friends and families about economics turned into a major whinefest. But, the booze and the vitriol was flowing freely, and much merriment was had by all...
Here are the top 5 complaints:
"I bought a stock at 20, and now it is 60. Should I sell it?"
What's the name of the company, dumbass?
"Should I invest in X?"
No, you shouldn't! You're a dumbass!
"I never have any luck in stocks."
That's because successful investing is a matter of "analysis" not "luck", dumbass!
"Will the market go up or down?"
If I knew with any degree of confidence, I wouldn't be talking to someone like you. I would be on my private jet flying to my own private island, and no, you would not be invited, dumbass!
And the NUMBER ONE complaint universally voiced by all:
"I bought a stock, and it went down 50% but I haven't lost any money because I haven't sold it yet."
Yes, you have! The market doesn't "remember" when anyone bought or sold; it is what it is currently, and you've lost half your money, dumbass!
Happy holidays!
Here are the top 5 complaints:
"I bought a stock at 20, and now it is 60. Should I sell it?"
What's the name of the company, dumbass?
"Should I invest in X?"
No, you shouldn't! You're a dumbass!
"I never have any luck in stocks."
That's because successful investing is a matter of "analysis" not "luck", dumbass!
"Will the market go up or down?"
If I knew with any degree of confidence, I wouldn't be talking to someone like you. I would be on my private jet flying to my own private island, and no, you would not be invited, dumbass!
And the NUMBER ONE complaint universally voiced by all:
"I bought a stock, and it went down 50% but I haven't lost any money because I haven't sold it yet."
Yes, you have! The market doesn't "remember" when anyone bought or sold; it is what it is currently, and you've lost half your money, dumbass!
Happy holidays!
How to use a calculator
From CNN Money, we have Early Retirement: The hurry-up offense.
Ten years ago, Anne and Joe Raspanti said "I do" in Hawaii. Among the things those two words changed for Joe were his plans for how, and where, he'd spend the rest of his working life.
As a deputy security director at a naval weapons station, he had assumed that until he retired at age 62, he would remain in Hawaii, where he'd lived for the past 16 years.
But after Anne's children began having kids, she wanted to return to the mainland to be closer to her family.
So in 2002, the Raspantis headed to South Carolina, taking a $25,000 pay cut to do so. Though their combined income is now down to $122,000, Joe, 50, hopes to retire at the same time as Anne, 56, a registered nurse, who plans to call it quits in just six years.
Starting at age 56, Joe is eligible for a monthly government pension of $2,000, with a $1,000 supplement until age 62. After retirement, he hopes to bring in another $15,000 a year by working part time.
Both Raspantis started saving late, but before they left Hawaii, they had begun funneling $25,000 a year into their retirement accounts. "We were doing great before the move," says Joe.
Recently their yearly retirement contributions have dropped to just $10,500. Still, Joe has $122,000 in his Thrift Savings Plan, the government's version of a 401(k), and Anne's IRA balance tops $90,000.
They each have a $5,500 Roth IRA that is entirely invested in a variable annuity, as well as a third, jointly owned, variable annuity valued at $17,500.
It isn't out of the question for Joe to retire early, say financial planners Jenny Curran and Bill Prewitt of Charleston, S.C. But in order for him to do so, the Raspantis will have to give their finances a serious overhaul.
The couple have just $5,000 to cover unexpected expenses. They need to bring that up to at least $24,000, says Prewitt, which would cover about three months of living expenses.
When the planners asked for a budget, the Raspantis found that they could not account for about $2,000 each month. "They need to write down what they are truly spending," says Curran. "Then they'll know where their cash is disappearing."
The missing money, say the planners, is the key to whether they can retire in six years. To hit that goal, they need to save an additional $1,000 a month.
Given this data, I'll give a dissenting opinion. It is utterly out of the question for them to retire in their time frame.
Here's the analysis:
If three months of living expenses are $24K, they need $8K a month. $2K seems to be "disappearing". Let's assume they scale back the $2K (a very optimistic assumption.) You're still left with $6K a month.
Now, on the assets side, assuming they save most optimistically, you're looking at: 122K + 90K + 5.5K * 2 + 17.5K + 72K (1K a month for 6 years) = 312.5K.
Before taxes, this thing is going to net something like $18K a year. Add in the $36K from his pension, and you're up to $44K. After taxes, you're at roughly $33K or so, which is $2,750 a month.
That's nowhere close to $6K a month that they "need" for living expenses, and if you pull out the difference which is roughly $40K a year, the money will last just under 8 years (and remember, you're going to get less interest each year too! Not to mention the loss of that extra $1K after he turns 62.)
I call bullshit on these "financial advisers".
Ten years ago, Anne and Joe Raspanti said "I do" in Hawaii. Among the things those two words changed for Joe were his plans for how, and where, he'd spend the rest of his working life.
As a deputy security director at a naval weapons station, he had assumed that until he retired at age 62, he would remain in Hawaii, where he'd lived for the past 16 years.
But after Anne's children began having kids, she wanted to return to the mainland to be closer to her family.
So in 2002, the Raspantis headed to South Carolina, taking a $25,000 pay cut to do so. Though their combined income is now down to $122,000, Joe, 50, hopes to retire at the same time as Anne, 56, a registered nurse, who plans to call it quits in just six years.
Starting at age 56, Joe is eligible for a monthly government pension of $2,000, with a $1,000 supplement until age 62. After retirement, he hopes to bring in another $15,000 a year by working part time.
Both Raspantis started saving late, but before they left Hawaii, they had begun funneling $25,000 a year into their retirement accounts. "We were doing great before the move," says Joe.
Recently their yearly retirement contributions have dropped to just $10,500. Still, Joe has $122,000 in his Thrift Savings Plan, the government's version of a 401(k), and Anne's IRA balance tops $90,000.
They each have a $5,500 Roth IRA that is entirely invested in a variable annuity, as well as a third, jointly owned, variable annuity valued at $17,500.
It isn't out of the question for Joe to retire early, say financial planners Jenny Curran and Bill Prewitt of Charleston, S.C. But in order for him to do so, the Raspantis will have to give their finances a serious overhaul.
The couple have just $5,000 to cover unexpected expenses. They need to bring that up to at least $24,000, says Prewitt, which would cover about three months of living expenses.
When the planners asked for a budget, the Raspantis found that they could not account for about $2,000 each month. "They need to write down what they are truly spending," says Curran. "Then they'll know where their cash is disappearing."
The missing money, say the planners, is the key to whether they can retire in six years. To hit that goal, they need to save an additional $1,000 a month.
Given this data, I'll give a dissenting opinion. It is utterly out of the question for them to retire in their time frame.
Here's the analysis:
If three months of living expenses are $24K, they need $8K a month. $2K seems to be "disappearing". Let's assume they scale back the $2K (a very optimistic assumption.) You're still left with $6K a month.
Now, on the assets side, assuming they save most optimistically, you're looking at: 122K + 90K + 5.5K * 2 + 17.5K + 72K (1K a month for 6 years) = 312.5K.
Before taxes, this thing is going to net something like $18K a year. Add in the $36K from his pension, and you're up to $44K. After taxes, you're at roughly $33K or so, which is $2,750 a month.
That's nowhere close to $6K a month that they "need" for living expenses, and if you pull out the difference which is roughly $40K a year, the money will last just under 8 years (and remember, you're going to get less interest each year too! Not to mention the loss of that extra $1K after he turns 62.)
I call bullshit on these "financial advisers".
Wednesday, December 20, 2006
The Miracle of Christmas
From the San Diego Union Tribune, we have Adviser says worst of housing slump may be over.
The worst of the housing slump might be over, although some pain is likely to linger, an adviser to President Bush suggested Tuesday.
Of the housing slump, Lazear said, “it looks like the precipitous decline that we saw earlier is not going to occur in 2007.”
He also struck a hopeful note that energy prices will be more stable next year.
There, it's been declared, it's officially over!
The fundamentals are back in line, no more exotic loans are being issued, the speculators have all exited the market in an orderly fashion, there will be no more foreclosures, all the fraudsters have been rehabilitated, and magically all the formerly stupid people have now become born-again Einsteins.
MISSION ACCOMPLISHED!
The worst of the housing slump might be over, although some pain is likely to linger, an adviser to President Bush suggested Tuesday.
Of the housing slump, Lazear said, “it looks like the precipitous decline that we saw earlier is not going to occur in 2007.”
He also struck a hopeful note that energy prices will be more stable next year.
There, it's been declared, it's officially over!
The fundamentals are back in line, no more exotic loans are being issued, the speculators have all exited the market in an orderly fashion, there will be no more foreclosures, all the fraudsters have been rehabilitated, and magically all the formerly stupid people have now become born-again Einsteins.
MISSION ACCOMPLISHED!
Mea Culpa
In an earlier blog entry Three is the new two, I commented on the fact that two people can't live in three houses in the same county.
An astute reader has pointed out that while that is indeed true, two people can run around and pretend to live in three houses provided they are close by. In fact, why stop at three?
So why would one want to do that?
Well, it turns out that the capital gains tax laws are different for houses that are "lived in" v/s houses that are "investments". (Yes, yes, this is stupid, but that's not the point here.)
Of course, some of us (including the attorney general) would refer to it as fraud.
An astute reader has pointed out that while that is indeed true, two people can run around and pretend to live in three houses provided they are close by. In fact, why stop at three?
So why would one want to do that?
Well, it turns out that the capital gains tax laws are different for houses that are "lived in" v/s houses that are "investments". (Yes, yes, this is stupid, but that's not the point here.)
Of course, some of us (including the attorney general) would refer to it as fraud.
Tuesday, December 19, 2006
California Haze
From the North County Times, we have Survey finds alternative loans are still popular.
More than one-third of California mortgage brokers believe that interest-only loans will be the most viable loans for borrowers because of the continued high cost of housing in the state, according to a survey released Monday.
Ed Smith, director of the association and a San Diego mortgage broker, said that interest-only loans were not necessarily desirable, but were a product of the market.
"Most people can't afford a 'real' payment on their house," he said. "They're hoping for an increase in income or a windfall. A lot of people got in on the frenzy and made an emotional decision."
Holy hallucinations!
Most people can't afford a "real" payment but are hoping for a windfall. Hence, the proliferation of i/o-loans.
Well, an epic ass-pounding is not necessarily desirable either, but it's going to be a product of the market.
Here's looking at you, kid!
More than one-third of California mortgage brokers believe that interest-only loans will be the most viable loans for borrowers because of the continued high cost of housing in the state, according to a survey released Monday.
Ed Smith, director of the association and a San Diego mortgage broker, said that interest-only loans were not necessarily desirable, but were a product of the market.
"Most people can't afford a 'real' payment on their house," he said. "They're hoping for an increase in income or a windfall. A lot of people got in on the frenzy and made an emotional decision."
Holy hallucinations!
Most people can't afford a "real" payment but are hoping for a windfall. Hence, the proliferation of i/o-loans.
Well, an epic ass-pounding is not necessarily desirable either, but it's going to be a product of the market.
Here's looking at you, kid!
Three is the new two
From NBC-2.com, we have Foreclosures nearly double in Lee County.
Patricia Francioni has three homes for sale. That's not easy in a buyer's market.
They aren't investment homes, she and her son have lived in them. Now she wants to sell them all.
Two people living in three houses. Flitting around from house to house like delicate little butterflies. And, they're all in the same county too!
But, no sir! they're not speculating, nosirree bob!
Patricia Francioni has three homes for sale. That's not easy in a buyer's market.
They aren't investment homes, she and her son have lived in them. Now she wants to sell them all.
Two people living in three houses. Flitting around from house to house like delicate little butterflies. And, they're all in the same county too!
But, no sir! they're not speculating, nosirree bob!
Monday, December 18, 2006
It's a Wonderful Life
From the Tampa Tribune via TBO.com we have A Dozen Houses, A Dozen Headaches.
On their wedding day, Lee and Rebecca Womack turned off their cell phones so they wouldn't hear the creditors calling.
Months before, the Tennessee couple who had never owned a home purchased 12 dilapidated rental properties in central Tampa, sight unseen. They paid $1.5 million. With $14,600 a month in mortgage payments and only three tenants, they were running out of money.
The couple postponed their honeymoon, moved to Tampa and have spent the first five months of their marriage trying to keep from going bankrupt.
Blinded by what they saw as an opportunity to make a lot of money, the pair ignored signs of trouble and entered into one risky deal after another - with the guidance of a felon.
"We see now that we made big mistakes," Rebecca Womack, 27, said, standing in one of the vacant rental homes. It has been burglarized three times and the mortgage is two months late. "Now our financial lives are ruined."
The couple blame Lee Womack's older brother, 33-year-old Billy Womack, owner of Tampa-based Womack Property & Asset Management. He pitched the investment proposal to them in February and encouraged them to buy 12 homes in 43 days. The plan was to fix them up, rent them and sell later.
They say they didn't know that Billy Womack talked sellers into accepting a lower price and bumping up the recorded sales price by an average of $30,000. The difference went to his company, documents show. He distributed some of it to the Womacks to help with improvements and mortgage payments.
The main players in the transactions are pointing fingers at Billy Womack. He blames the couple for not understanding the deal and other professionals for not warning him.
It all started with family and the dream of making money.
The couple say they were skeptical of the brother's proposal but were encouraged by family members to help him. Billy Womack had recently served eight months in jail for operating an Ecstasy lab in his Lakeland home. He pleaded guilty to five counts of possession of Ecstasy with the intent to distribute. He had just started his real estate company and was trying to turn his life around.
The couple agreed to be his first investors.
Billy Womack has no real estate license. His company puts property transactions together and helps clients manage investment homes.
"We just want out," Rebecca Womack said. "I don't care about making money anymore. If we could get out of this, we could start over. But I don't think that's going to happen
This is such an amazing tale. Family, felony and fraud, deceipt, deception, dope and "dopes", honeymoon, hearth and happiness. All in a warm and cozy little package!
Just the right antidote to the seasonal stomach-churning, haul-me-before-the-porcelain-goddess-already It's a Wonderful Life.
On their wedding day, Lee and Rebecca Womack turned off their cell phones so they wouldn't hear the creditors calling.
Months before, the Tennessee couple who had never owned a home purchased 12 dilapidated rental properties in central Tampa, sight unseen. They paid $1.5 million. With $14,600 a month in mortgage payments and only three tenants, they were running out of money.
The couple postponed their honeymoon, moved to Tampa and have spent the first five months of their marriage trying to keep from going bankrupt.
Blinded by what they saw as an opportunity to make a lot of money, the pair ignored signs of trouble and entered into one risky deal after another - with the guidance of a felon.
"We see now that we made big mistakes," Rebecca Womack, 27, said, standing in one of the vacant rental homes. It has been burglarized three times and the mortgage is two months late. "Now our financial lives are ruined."
The couple blame Lee Womack's older brother, 33-year-old Billy Womack, owner of Tampa-based Womack Property & Asset Management. He pitched the investment proposal to them in February and encouraged them to buy 12 homes in 43 days. The plan was to fix them up, rent them and sell later.
They say they didn't know that Billy Womack talked sellers into accepting a lower price and bumping up the recorded sales price by an average of $30,000. The difference went to his company, documents show. He distributed some of it to the Womacks to help with improvements and mortgage payments.
The main players in the transactions are pointing fingers at Billy Womack. He blames the couple for not understanding the deal and other professionals for not warning him.
It all started with family and the dream of making money.
The couple say they were skeptical of the brother's proposal but were encouraged by family members to help him. Billy Womack had recently served eight months in jail for operating an Ecstasy lab in his Lakeland home. He pleaded guilty to five counts of possession of Ecstasy with the intent to distribute. He had just started his real estate company and was trying to turn his life around.
The couple agreed to be his first investors.
Billy Womack has no real estate license. His company puts property transactions together and helps clients manage investment homes.
"We just want out," Rebecca Womack said. "I don't care about making money anymore. If we could get out of this, we could start over. But I don't think that's going to happen
This is such an amazing tale. Family, felony and fraud, deceipt, deception, dope and "dopes", honeymoon, hearth and happiness. All in a warm and cozy little package!
Just the right antidote to the seasonal stomach-churning, haul-me-before-the-porcelain-goddess-already It's a Wonderful Life.
Friday, December 15, 2006
Splitting
From the Herald Tribune in Florida, we have 'Splitter' market gets sophisticated pitch.
Splitters are "individuals who own at least two homes and split their time between them for recreation, for work-life balance or to connect with family and friends," explains an innovative public-private marketing campaign that aims to target potential new part-time Floridians.
Obviously, real estate giant WCI Communities Inc. and the Florida Chamber of Commerce both think a second home in the Sunshine State is a great idea for nearly everyone. Together they have created an unusually eye-catching marketing tool to stimulate the concept.
"Splitting to Paradise -- Your Guide to Owning a Second Home In Florida," is a colorful and humorous tongue-in-cheek 35-page printed brochure, Web site and musical CD aimed at planting the splitter seed in minds everywhere.
A faux whimsical "confidential" file holds a letter from a woman who finds "love at first sight" on Florida's golf links with "Pierre Billiou, a debonair businessman from the Hamptons."
Another card in the file is from "Biff Buckstein, Extreme Athlete and Splitter," who writes about his "killer condo" and Florida's "tasty waves."
Biff, who clearly is not in Southwest Florida, also informs his pals that "I totally PARTY at night."
A "footnote" from the editors of the brochure points out that Biff's parents also live in the condo and that Biff "sleeps till noon each day."
Party on, dudes!
Splitters are "individuals who own at least two homes and split their time between them for recreation, for work-life balance or to connect with family and friends," explains an innovative public-private marketing campaign that aims to target potential new part-time Floridians.
Obviously, real estate giant WCI Communities Inc. and the Florida Chamber of Commerce both think a second home in the Sunshine State is a great idea for nearly everyone. Together they have created an unusually eye-catching marketing tool to stimulate the concept.
"Splitting to Paradise -- Your Guide to Owning a Second Home In Florida," is a colorful and humorous tongue-in-cheek 35-page printed brochure, Web site and musical CD aimed at planting the splitter seed in minds everywhere.
A faux whimsical "confidential" file holds a letter from a woman who finds "love at first sight" on Florida's golf links with "Pierre Billiou, a debonair businessman from the Hamptons."
Another card in the file is from "Biff Buckstein, Extreme Athlete and Splitter," who writes about his "killer condo" and Florida's "tasty waves."
Biff, who clearly is not in Southwest Florida, also informs his pals that "I totally PARTY at night."
A "footnote" from the editors of the brochure points out that Biff's parents also live in the condo and that Biff "sleeps till noon each day."
Party on, dudes!
Thursday, December 14, 2006
Californication
From USA Today, we have: More homes are going, going, gone.
"In California, I saw a billboard that said, 'Own the home you want, not the one you can afford,' " says Thomas DiMercurio, a Denver real estate broker who specializes in bank-held foreclosures. "That was so silly."
Gee, you think?
"In California, I saw a billboard that said, 'Own the home you want, not the one you can afford,' " says Thomas DiMercurio, a Denver real estate broker who specializes in bank-held foreclosures. "That was so silly."
Gee, you think?
P2P : The New Paradigm
The title refers to "paycheck to paycheck" as evidenced by an article on CNNfn: Scraping by on $150,000 a year.
If she thought it would really fix her family's finances, Amy Schuett would make it her New Year's resolution to squeeze every bit of extra spending from the family budget.
But she's already slashed so many little luxuries - the gourmet coffee, the restaurant lunches, the weekly dates with husband Brian - that she's fresh out of ideas.
Cable TV? Unplugged. Pool membership? Down the drain.
They've even considered giving up their unlisted phone number. At a cost of $3 a month, this move wouldn't save much - even over, say, 150 years - but it shows how desperate the couple feel about easing their financial strain. "We're struggling week to week to get by," says Brian, 42. "Any money that comes in gets chewed up right away."
Digesting that fact becomes harder when you consider that the Schuetts earn a comfortable living, with Amy, 39, pulling in $150,000 a year as a hospital psychiatrist. True, their income did take a big hit last summer when Brian got laid off from his job as a sales rep for a pharmaceutical firm (he'd been making a base salary of $82,000 a year, plus commissions as high as $24,000).
And they do have four daughters to raise, ages four to nine. But still.
The Schuetts don't have any child-care bills (Brian is now a stay-at-home dad). They don't have credit-card debt. They don't splurge on fancy vacations. And they live in a nice but definitely not luxurious home on a three-acre plot in Elkhorn, Neb., just west of Omaha, where the cost of living is, well, livable.
For readers that are not familiar, $150K is a boatload of money in Nebraska. It would be one thing to argue that about a family of six in California, New York, or Illinois. It's a completely different thing in Nebraska.
(For the record, I have friends in all three places with similar family sizes that make the numbers work, and they make it work without any debt, I might add.)
You're netting a little more than $8,000 a month. If you can't make ends meet on that, you're seriously fucked up.
So what the fuck is going on?
Read below:
A closer look at the Schuetts' finances reveals, for example, that a big chunk of their income is eaten up by two rental properties. Brian purchased them thinking they'd generate extra income, but he has yet to find tenants. Even when the properties are finally occupied, the area's softening rental market probably won't allow them to make enough to cover carrying costs.
Meanwhile, the two houses are expected to appreciate only about 3 percent a year - the couple can do better than that with Treasuries (bonds, at least, will never need expensive new wiring).
But the Schuetts haven't had a heart-to-heart about selling the properties yet because Brian has been so keen on making them work. "Our strategy has been to practice 'avoidance,'" says Amy. "But you don't have to be a psychiatrist to see that."
Two "investment" properties, no tenants, no hope for tenants, no plan. Just a "keenness to make them work".
What's the strategy? "Avoidance."
How can it not end badly?
Last year, for instance, Brian's parents gave the Schuetts a horse named Red for their kids to ride. They think it will cost a few hundred dollars a month to feed and care for the animal, and they're willing to give up ballet lessons and gymnastics classes for the girls to pay for it.
The trade-off is worth it, says Brian, because "the kids so love having a horse."
In fact, Amy has already got a name if they get a second horse: Buttercup.
Oh, good! A horse.
Note that they "think" it'll cost a few hundred. They don't actually have any solid numbers. And they're planning on a second horse while their finances are all fucked up.
Also, who cares what the kids love? If they love riding so much, you can always give them "riding lessons" just like swimming or gymnastic lessons. You don't "need" to own a horse.
Who actually believes that this will not end badly?
Broke is the new black!
If she thought it would really fix her family's finances, Amy Schuett would make it her New Year's resolution to squeeze every bit of extra spending from the family budget.
But she's already slashed so many little luxuries - the gourmet coffee, the restaurant lunches, the weekly dates with husband Brian - that she's fresh out of ideas.
Cable TV? Unplugged. Pool membership? Down the drain.
They've even considered giving up their unlisted phone number. At a cost of $3 a month, this move wouldn't save much - even over, say, 150 years - but it shows how desperate the couple feel about easing their financial strain. "We're struggling week to week to get by," says Brian, 42. "Any money that comes in gets chewed up right away."
Digesting that fact becomes harder when you consider that the Schuetts earn a comfortable living, with Amy, 39, pulling in $150,000 a year as a hospital psychiatrist. True, their income did take a big hit last summer when Brian got laid off from his job as a sales rep for a pharmaceutical firm (he'd been making a base salary of $82,000 a year, plus commissions as high as $24,000).
And they do have four daughters to raise, ages four to nine. But still.
The Schuetts don't have any child-care bills (Brian is now a stay-at-home dad). They don't have credit-card debt. They don't splurge on fancy vacations. And they live in a nice but definitely not luxurious home on a three-acre plot in Elkhorn, Neb., just west of Omaha, where the cost of living is, well, livable.
For readers that are not familiar, $150K is a boatload of money in Nebraska. It would be one thing to argue that about a family of six in California, New York, or Illinois. It's a completely different thing in Nebraska.
(For the record, I have friends in all three places with similar family sizes that make the numbers work, and they make it work without any debt, I might add.)
You're netting a little more than $8,000 a month. If you can't make ends meet on that, you're seriously fucked up.
So what the fuck is going on?
Read below:
A closer look at the Schuetts' finances reveals, for example, that a big chunk of their income is eaten up by two rental properties. Brian purchased them thinking they'd generate extra income, but he has yet to find tenants. Even when the properties are finally occupied, the area's softening rental market probably won't allow them to make enough to cover carrying costs.
Meanwhile, the two houses are expected to appreciate only about 3 percent a year - the couple can do better than that with Treasuries (bonds, at least, will never need expensive new wiring).
But the Schuetts haven't had a heart-to-heart about selling the properties yet because Brian has been so keen on making them work. "Our strategy has been to practice 'avoidance,'" says Amy. "But you don't have to be a psychiatrist to see that."
Two "investment" properties, no tenants, no hope for tenants, no plan. Just a "keenness to make them work".
What's the strategy? "Avoidance."
How can it not end badly?
Last year, for instance, Brian's parents gave the Schuetts a horse named Red for their kids to ride. They think it will cost a few hundred dollars a month to feed and care for the animal, and they're willing to give up ballet lessons and gymnastics classes for the girls to pay for it.
The trade-off is worth it, says Brian, because "the kids so love having a horse."
In fact, Amy has already got a name if they get a second horse: Buttercup.
Oh, good! A horse.
Note that they "think" it'll cost a few hundred. They don't actually have any solid numbers. And they're planning on a second horse while their finances are all fucked up.
Also, who cares what the kids love? If they love riding so much, you can always give them "riding lessons" just like swimming or gymnastic lessons. You don't "need" to own a horse.
Who actually believes that this will not end badly?
Broke is the new black!
Life is just like a television show!
From sunny Orange County, CA, we get some whining, whinging, and simpering from the OC Register: Falling prices trap new homebuyers.
David Dunn felt as if Christmas were stolen from him when prices for neighboring homes in his new subdivision fell by about $140,000.
Now, he says, his home is worth less than he owes, making it next to impossible to refinance before his $3,000-a-month payment doubles. Eleven neighbors who bought before the price cuts are in the same boat.
"They put us in a bad financial situation by lowering the price," said Dunn, 33. "Some of (the buyers) did 100 percent financing, so they're completely over their head right now."
The homeowners said that the price cuts began in November, just months after the first dozen buyers closed escrow, paying from $770,000 to $888,500 for their homes. The average price was $825,000, property records show.
Dunn said he's in a financial bind because he's using an exotic mortgage called an Option ARM, an adjustable-rate loan in which the homeowner can pick his monthly payment from a variety of options.
Eventually, he'll be responsible for making full payments of $6,000 a month, he said, adding, "I don't know how we'll be able to pay that."
Oh, no! Heaven forbid that you actually have to pay back what you borrowed.
"It's not just the financial aspect. It's the emotional," Dunn said. "We can't eat, can't sleep. I can't concentrate on work. This is all I think about."
Dude, you live in "The OC"! It's all about the "lifestyle"! Rock on!
David Dunn felt as if Christmas were stolen from him when prices for neighboring homes in his new subdivision fell by about $140,000.
Now, he says, his home is worth less than he owes, making it next to impossible to refinance before his $3,000-a-month payment doubles. Eleven neighbors who bought before the price cuts are in the same boat.
"They put us in a bad financial situation by lowering the price," said Dunn, 33. "Some of (the buyers) did 100 percent financing, so they're completely over their head right now."
The homeowners said that the price cuts began in November, just months after the first dozen buyers closed escrow, paying from $770,000 to $888,500 for their homes. The average price was $825,000, property records show.
Dunn said he's in a financial bind because he's using an exotic mortgage called an Option ARM, an adjustable-rate loan in which the homeowner can pick his monthly payment from a variety of options.
Eventually, he'll be responsible for making full payments of $6,000 a month, he said, adding, "I don't know how we'll be able to pay that."
Oh, no! Heaven forbid that you actually have to pay back what you borrowed.
"It's not just the financial aspect. It's the emotional," Dunn said. "We can't eat, can't sleep. I can't concentrate on work. This is all I think about."
Dude, you live in "The OC"! It's all about the "lifestyle"! Rock on!
Subscribe to:
Posts (Atom)