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Thread: Home Ownership may no longer be the best investment ...

  1. #76
    God/dess Bridgette's Avatar
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    Default Re: Home Ownership may no longer be the best investment ...

    Most of the time, unless you buy a house that is waaaaay out of your means, your total monthly payment including principle, interest, taxes and fees will be less than rent. I can buy a 3BR house in my area and pay alot less per month than what I pay for rent in my 1BR apt. Even with higher utilities to heat and cool a larger space, I'd still be paying less in total. Then consider my mortgage interest will be tax deductible, and I save even more money. If I have to pay for repairs and maintenance, that could come out of the money saved by no longer paying rent. And this says nothing of the fact that a mortgage payment equals buying an asset I could theoretically live in forever, where paying rent only serves to put money in someone ELSE's pocket.

    I think where most people run into problems with their house payments costing more than rent is exactly what scorpio said - they overbuy.

    Quote Originally Posted by pheno View Post
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    Default Re: Home Ownership may no longer be the best investment ...

    Agreed. I was paying $650/m rent for a two bedroom house with an itty bitty yard (which was costing me closer to $800 with utilities). Then I bought this place super cheap, was able to pay cash for it, and my utilities/taxes/etc. are way under $200.

    Lena



  3. #78
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    Default Re: Home Ownership may no longer be the best investment ...

    Quote Originally Posted by scorpio
    new construction is not the only indiex of housing purchases. The mortgage application stats are not declining.
    Scorpio is exactly right. The MBA mortgage applications data is a more reliable indicator of home purchases than either the Census sales data or the initial estimate by the NA of Realtors.

    The four-week average of mortgage applications for the month of November was a record high by a solid margin and the December data is almost as strong and was only exceeded by November. These numbers suggest home sales (closings) in either December of January (or both) will set a new all-time high record.

    The aforementioned housing starts are hyper-volatile and not vey reliable until revised. Builder confidence is very high and the only thing keeping starts below their peak levels is the fact that builders are running down the permits they got earlier in the year but did not start at the time.

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    Default Re: Home Ownership may no longer be the best investment ...

    Just for the record here I don't own an SUV. I was responding to a comment made by Emily about SUV's (I do own a 70 Z-28, a 94 Mitsibishi 3000 VR4, and a 2003 Chevy pickup).

    I have OWNED 4 homes in the past 15 years. An older 1600 sq ft 3 bdr/2 bath in Las Vegas (Henderson actually) ..sold in 1990. A new 2100 sq ft 4 bdr/2 bath in Denver sold in 1996. A 2600 sq ft 4 bdr/3 bath in Fenton Mo. (South St Louis) where I was the designer and general contractor .... sold after the divorce in 2002. My current abode is a 1200 sq ft 2 bdr/2 bath CONDO because im tired of mowing the yard. I made money on all but the divorce sale.

    I have a degree from UNLV in Business Administration but I have REAL WORLD experience which is much more valuable. I do location evaluations for the company and I deal with appraisers all the time. First thing they ask me is "What do you need it to be worth?" Gimme a break.

    For EQUITY to be realized, the property HAS TO BE SOLD! Otherwise its not real money. An "interest only" loan may increase your CASH FLOW but it does not increase your NET WORTH. Is that realized (REAL) money? NO! How can you be making soo much money on your RE when you're not paying any principle? Actually if you want to profit on your home shouldn't you make additional payments on it now in pre-inflation dollars? I wouldn't brag about an interest only loan.. Sounds to ME like someone can't afford to pay thier bills.

    Which brings me back to my original point. The average person in the USA making $32,000 a year CANNOT Afford a $200,000 home! The disparity between classes is widening daily. very few people make the magic 50-80K/year it takes to be "middle class" They either knock down 100K+ or they are in the "blue collar" 30-40K area. A 100K+ guy is going to build new so he (his wife actually) gets what she wants. Since it takes 30K /year to support a family at just above poverty ....the 30-40K guy never saves a down payment.

    What Scorpio spouts is THEORY. It has worked in the past. The reality is that IF (according to theory) Houses keep appreciating in excess of inflation (which is why they were a good investment) and WAGES/EARNINGS continue to FAIL to keep pace with inflation (which has been the case for 5 years) Then each year LESS and LESS people can afford to buy a house. When the SUPPLY of "used affordable" houses outgrows the DEMAND for (and ability to AFFORD) those houses GUESS WHAT HAPPENS? (You did learn the laws of supply and demand?) I think Melonie and I are saying that this may be happening NOW and people might not want to get caught up in it ...but then I understand why someone who is already up to thier ears in debt would be in denial.

    I re-state my original opinion: Own the home you live in but avoid RE as an investment vehicle.
    14 years working in Strip Clubs. "What a long strange trip it's been"

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    God/dess Emily's Avatar
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    Default Re: Home Ownership may no longer be the best investment ...

    but people have to live somewhere! This is the typical person's number one priority.

    If they aren't buying homes, they are renting, thus one could say that buying real estate for the purpose of renting is a solid investment, no?

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    Featured Member scorpio's Avatar
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    Default Re: Home Ownership may no longer be the best investment ...

    No, dear, not theory-reality. I am an executive at one of the nations largest home lenders. I wouldn't pretend to tell you how to do your job, and you certainly know zero about the mortgage business, so don't tell me about mine.
    I use an Interest only loan as an example of realising income from a property today in the form of cash-flow, instead of equity later. Even with little or no principal paid down, the property still appreciates, so you still realise equity. What is so hard about that to understand?

    As far as your appraisers, well, they are not the same as residential real eastate/mortgage appraisers. try using a stretched appraisal to refinance your home. The bank uses its own appraisers to review yours, and they will cut or reject a bad appraisal.

    The bottom line is, you make money when you buy real estate, NOT when you sell it. Do your research, buy a property under market value, and you will make money when you sell it.

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    Banned Melonie's Avatar
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    Default Re: Home Ownership may no longer be the best investment ...

    If they aren't buying homes, they are renting, thus one could say that buying real estate for the purpose of renting is a solid investment, no?
    In many situations, investing in rental real estate can be extremely risky. For starters, mortgage interest on such a property is not tax deductible, meaning that the government is not going to help subsidize your business. Next, when local government budgets are in the red, politicians have to decide whether to increase taxes on individual homeowners (several registered voters per household) or commercial property (only the owner is a registered voter) to cover the shortfall. Next is the issue of maintenance costs, where the people actually living in your building having nothing at stake in regard to being "careful".

    On the income side you have the issues of going rate for rents, which is a function of everything from population growth rates to unemployment/starting wage rates to state welfare benefit levels to direct rent control by local governments.

    You then have the issue of turnover/vacancies, where you not only lose revenue while people are moving but it may cost you ad/agent expenses to find new tenants. Then add in deadbeat tenants who stiff you for rent money.

    On top of all of this, the possibility exists that the market value of your rental property will drop !

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    Featured Member scorpio's Avatar
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    Default Re: Home Ownership may no longer be the best investment ...

    Thats why you buy property wisely, Mel! Use low interest/Interest only loans, and research market rents, conditions before you buy. Personally, I am a fan of section8-government pays your rents, finds you tenants, rents are over market value, and if you have problems with atenant, they will find you new tenents. These are for lower level properties or multi levels. It never failes to suprise me when peiople buy new contruction with little down on a fixed rate loan, and then try to rent it out. If the market can only bear $1200 rents, and your PITI payments are $2000, you will have a negative cash flow. This is not how to do it and it is instances like this that cause people to be afraid of real estate investing. Remember, you must buy the property right.

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    Default Re: Home Ownership may no longer be the best investment ...

    Scorpio, that sounds like a good program the gov't finding you tenants, and replacing them if necessary. Here in Ontario, the rent is capped at 2.9% increases, unless there are special circumstances, you must give tenant 60 day eviction notice, even if they aren't paying the rent, and then they can still damage the property. Trying to get the money out of them in court is next to impossible. Things swithched to tenants favour in some areas due to rental shortage that occured in late 80's, and they haven't gotten rid of those controls now that there is an over-abundance or apartments for rent. If you find the right tenant that gets rid of most of your problems.
    What I was talking about before if people are renting an apartment, they have no added expenditures, no utilities, so their discretionary income is much greater than that of a home owner, if they took that extra money they could invest it and still be able to purchase a home outright to retire in. There are some people that just shouldn't own homes, but the banks up here are more than willing sometimes to give them that loan, and everybody ends up losing.
    The first rule of Fight Club is you don't talk about Fight Club.

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    Default Re: Home Ownership may no longer be the best investment ...

    Here in Ontario, the rent is capped at 2.9% increases, unless there are special circumstances, you must give tenant 60 day eviction notice, even if they aren't paying the rent, and then they can still damage the property. Trying to get the money out of them in court is next to impossible.
    This isn't exactly the same as government subsidized rent arrangements in NY and NJ, but close enough. Besides 'limited' monthly rent amounts established by the gov't for the different cities, there is the huge sinkhole of only one month's rent amount being allowed as a security deposit. Obviously it's very possible for a rotten tenant to cause damage far in excess of this amount, and the landlord is left totally without recourse.

    In point of fact, the main reason that rents in available NYC apartments are so expensive is because of NYC's gov't rent controls. These were enacted many years ago, and cap rents on downscale/midscale apartments. Because of the rent controls, landlords of these sort of apartment buildings cannot make a profit if they do proper maintenance. As a result some have been converted to different use, and nobody in their right mind will build new downscale/midscale apartment buildings. The only type of apartment which is not severely rent controlled are so-called 'luxury' apartments. As a result, essentially all of the new and refurbished NYC apartment buildings are built to 'luxury' standards to avoid the gov't rent controls - with 'celebrity' level monthly rental rates to boot. Thus the only way one can get into a downscale/midscale apartment is if it is 'willed' to you by a dead relative who was already living there !

    What I was talking about before if people are renting an apartment, they have no added expenditures, no utilities, so their discretionary income is much greater than that of a home owner, if they took that extra money they could invest it and still be able to purchase a home outright to retire in. There are some people that just shouldn't own homes, but the banks up here are more than willing sometimes to give them that loan, and everybody ends up losing.
    Well, that's the piece of the equation which people seem to have the hardest time understanding. Tying up large amounts of money in a property may still provide a lower rate of return than other investment possibilities even in a real estate market where property values are rising and property taxes are not rising. When you factor in the possibility of the property taking a 10-20% decline in value, plus real estate taxes rising 20-30% or more, the ROI situation can really get dicey.

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    Featured Member scorpio's Avatar
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    Default Re: Home Ownership may no longer be the best investment ...

    When you factor in the possibility of the property taking a 10-20% decline in value, plus real estate taxes rising 20-30% or more, the ROI situation can really get dicey.
    name one instance where this has happened. (outside extreme localised and special circumstances)

    The taxes rising, yes. Your property losing 20%? Not a chance.

    If you invest in stocks, MF's, or other investments, you are liable to lose alot more than that, possibly 100%.

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    Default Re: Home Ownership may no longer be the best investment ...

    That's what I was thinking

    there are some "ifs and and buts" in real estate, but they exist in stocks too, and are much bigger!

    No investment is completely safe, but given the information we have about real estate and that of stocks, I feel real estate is the better investment.

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    Default Re: Home Ownership may no longer be the best investment ...

    name one instance where this has happened. (outside extreme localised and special circumstances)

    The taxes rising, yes. Your property losing 20%? Not a chance.
    How about it happening nationwide during the 1930's depression ! In terms of downscale/middle of the road apartment buildings, how about every northeastern big city which has enacted rent controls in the past 20 years ! How about Houston after Enron ! How about every city where the military has 'consolidated' and closed a major military base !

    When comparing an investment in rental real estate to investing in stocks, where stocks are concerned one has a pretty good idea what the potential risk vs reward ratio is going to be. There are 'safe' investments i.e. utility companies which will continue to provide 5-10% returns between dividends and share appreciation with next to no chance of losing your initial investment. There are also highly speculative stocks such as biotech research or gold mining companies which could turn into a 100% loss of your original investment or a 1000 percent gain. The point is that one accepts the risk/reward ratio before making the investment.

    But with rental real estate, you THINK you know the potential risk vs reward ratio right now, but in fact you're at the mercy of local governments, local economies etc. where a major change can come with the next election or the next plant closing. And unlike stocks, rental real estate is not 'portable' such that if things go sour you are entirely dependent on the local buyer's market to get your money out.

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    Default Re: Home Ownership may no longer be the best investment ...

    this is for you, Scorp ...

    You're gonna love this one!! sponge

    NEW 12/26/2004 3:55:18 PM
    Post Your Reply

    Here in Southern (ventura county) California, property prices are now well past the words "ludicrous" or "ridiculous" or "mind-boggling". Prices are now in their own "Twilight Zone". So, concerned perhaps that those of low incomes need help to buy property, the local government decided to only grant building permits to builders who would agree to include several properties in their plans for people of low incomes. The latest development consists of 27 houses. 20 are "luxury" houses, priced between $650,000 and $750,000. 7 houses are for low income earners. Price...........$365,000. Am I missing something here?


    RE: I guess I need to........ Yogibear101

    NEW 12/26/2004 4:08:08 PM
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    ...dust off the old framing hammer. No wait, I'll just rebuild both my pnuematic nail guns.

    Low income housing is normally represented by trailer parks. Here in VA I was told the ROI on building a trailer park was five years as compared to over 10 on apartments. This was during a discussion on my land clearing contract from the developer of an apartment complex next door to a trailer park. Of course he lost his butt after two drownings of children in the apartment pool.

    RE: You're gonna love this one!! quiet bruin

    NEW 12/26/2004 5:19:23 PM
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    This has been done for years in California nothing new here. It is a requirement under state law to provide a number of units for low cost housing. Don't worry the tax payer is the one picking up the difference. Also so the builder gets a number of breaks on regulations if the provide this housing. Remember the only one who get's taken in this deal is the taxpayer.

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    Default Re: Home Ownership may no longer be the best investment ...

    and this just came out in the NY Times ...

    If Home Prices Plunge, Will Damage Be Worst in Democratic States?


    By FLOYD NORRIS


    No boom lasts forever, and in countries like Britain and Australia, the housing market has suddenly turned lower, leading to discussions of how a plunge can be avoided and what will happen if it is not.



    The American housing market received a scare yesterday, with a report that the pace of new-home sales slipped in November as the median price of a new home fell to the lowest level in a year. But mortgage applications indicate that a rebound has begun, and in any case, prices of new homes can fail to capture price trends for existing homes in areas without new construction.



    A more reliable measure, albeit one that is reported more slowly, is an index that compares prices over time on the same house and is put together by the Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac. Even though the index excludes many higher-priced homes, and thus probably understates house price inflation, it is booming like never before.



    Through the third quarter, it showed prices up 13 percent over the previous 12 months. The index, which dates to 1980, had never before recorded even a 10 percent annual gain. In the last five years, the index shows a gain of 48.5 percent, while consumer prices for things other than housing have risen 11.8 percent. The absolute gain and the spread over inflation are records. The only time that was even close was the period through 1989, which was followed by a housing bust in 1990 that caused prices to plunge in some areas.



    If this is a bubble, its creation can be traced in no small part to the Federal Reserve's efforts to deal with the bursting of the stock market bubble. It cut rates aggressively and the 2001 recession was a mild one. The very low cost of borrowing, coming at a time when alternative investments seemed less desirable, encouraged a big run in home prices, whose growth outstripped both personal income and rental prices.



    There are indications that speculation is rising. Patrick Lawler, the chief economist of the agency that compiles the index, reports that the popularity of interest-only and adjustable rate mortgages is rising. That would indicate more and more buyers are straining to qualify for loans - and would be vulnerable if interest rates rose.



    The housing market would not have to collapse to have a negative impact on the economy. Even a lack of appreciation could put a damper on consumer spending by depressing sentiment and the volume of refinancings.



    House prices vary significantly by market, of course, and it is reasonable to think that a decline in prices would be most likely in areas that have had the strongest gains. And those areas are concentrated in states that voted Democratic in the last election. Of the 12 states with the fastest-rising home prices in the last four years, only Nevada and Florida voted for President Bush. The 12 states with the smallest gains all backed Mr. Bush.



    Over all, states that supported Senator John Kerry averaged a 47 percent rise, while prices in Bush states climbed 24 percent. Rhode Island and California led the list of states, although neither could match the 80 percent rise in the District of Columbia. In California, the median-price home costs $460,000, and the state association of Realtors says only 19 percent of the state's residents earn enough to afford to buy such a home.



    With the trade deficit hitting records, the American government seems to welcome a weak dollar. But there are surely limits to that. A nightmare for the Fed would be that it finds itself under pressure to raise rates to support the dollar, just at the time that a weakening housing market needs lower rates to avoid big declines. If that were to happen, the Fed might regret having done so much to encourage the boom in home prices.

  16. #91
    God/dess montythegeek's Avatar
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    Default Re: Home Ownership may no longer be the best investment ...

    Melonie,
    Maybe I can beat Scorpio to this one so this time he can agree with me.

    The stories of housing sales or sales price "collapsing" in November are pure crap. The numbers quoted are average prices which a tremendously affected by composition and location. What happened in November was a reported large drop in sales in the West. Average prices in the West are 2.5 times the national average and they are about 2.25 times the national average in the Northeast. Thus when the reported number for one region moves a lot the average moves a lot from month to month. Thus a single month's numbers are crap. It is the same principle as reporting one stores sales in Iowa and calling it a national trend. It just makes not statistical sense. According to the number reported the West had sales plunge.

    What declined was sales of homes which were not started and under construction. New homes which are not even homes yet. People were grabbing new construction before it was even built yet. and that was almost half the market for new homes in the RECORD SALES month of October. This November # will be a reasonable thing to look at in 4 weeks when they revise it.

    Pay MUCH more attention to the NAR (Realtor) number due out 12/29. You can find it at http://www.realtor.org/PublicAffairs...ARNewsReleases

    PS Melonie you can see how wild and badly done the new home sales numbers are at http://www.census.gov/const/newressales.pdf


    Melonie, use the cocktail party rule of thumb to gauge booms. If at the holiday parties you went to a large percentage of people were speculating in real estate you have something to worry about. Nationally just over 6.5 million homes changed hands in 2004 (see NAR for confirmation of this estimate). That is 6.5 million out of about 120 million units or just about 1 in 20 (just over 50% more than a BAD year).

    You can make a better argument that the car you bought is going to collapse in value because a higher percentage of the vehicle fleet was bought new at heavy discounts in 2004.

    PS Mr Norris does not know shit about economics. The NY Times economics correspondent who really knows what he is doing is Louis Utichelle (spelling?) Mr Norris is a pundit who does not know shinola from gastrointestinal by-products.
    Last edited by montythegeek; 12-26-2004 at 07:07 PM. Reason: addendum and typos

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    Default Re: Home Ownership may no longer be the best investment ...

    yeah! What he said!

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    Default Re: Home Ownership may no longer be the best investment ...

    Is there a place to find out the average rental rate for different parts of a city? And/or average sale price of houses?



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    Default Re: Home Ownership may no longer be the best investment ...

    contact a realtor. Their job is to help you with these things. An appraisor is also a good resource.

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    Default Re: Home Ownership may no longer be the best investment ...

    damn. melonie you are so smart!!! you write some of the most intelligent posts on here!
    "RIP THE SYSTEM"

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    Default Re: Home Ownership may no longer be the best investment ...

    i've made my descision- get an rv! my datsun's getting old.
    "RIP THE SYSTEM"

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    Default Re: Home Ownership may no longer be the best investment ...

    Quote Originally Posted by toxicgirl
    damn. melonie you are so smart!!! you write some of the most intelligent posts on here!
    naaaah ... I'm just a dumb blonde with huge boobs !

    It's fairly obvious that there are significant differences of opinion in regard to the relative value of real estate investing. Personally, other than continuing to own the house that I'm living in, my investment funds will be betting on a falling US$, betting on rising US interest rates, and betting on Chinese commodity companies, rather than betting that already ridiculously priced US real estate markets will continue to hold their ridiculous valuations.

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    Default Re: Home Ownership may no longer be the best investment ...

    Melonie,
    For the record the NAR (Realtors) reported a new all-time sales record of 6.94 million sales (annualized). December appears to be awful close to the record if not a new record.

    http://www.realtor.org/Research.nsf/...E/REL0411K.pdf
    Last edited by montythegeek; 12-30-2004 at 06:08 AM. Reason: link fixed

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    Default Re: Home Ownership may no longer be the best investment ...

    Record sales means the SUPPLY is way up there doesn't it? It means there is lots of supply in both pre existing and new const homes. Perhaps an OVERSUPPLY?

    I have believed for 2 years that the ratio between houses for sale and buyers who can afford them is out of sync. Show me the number of homes that DIDN'T SELL! Show me the number of mortgage apps that were refused. Some people just refuse to see the whole picture.

    When an industry resorts to rebates and creative financing to support it's thru the roof prices (also see Cars and electronics) its a sign that objects in the mirror may not be what they appear.

    When the supply is at record levels and sellers are resorting to tricks and gimics to attract new buyers .... Hmmmmmm Sounds like the bottom getting ready to fall out to me.
    14 years working in Strip Clubs. "What a long strange trip it's been"

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    Default Re: Home Ownership may no longer be the best investment ...

    Quote Originally Posted by DJ_WuLf
    Record sales means the SUPPLY is way up there doesn't it? It means there is lots of supply in both pre existing and new const homes. Perhaps an OVERSUPPLY?

    I have believed for 2 years that the ratio between houses for sale and buyers who can afford them is out of sync. Show me the number of homes that DIDN'T SELL! Show me the number of mortgage apps that were refused. Some people just refuse to see the whole picture.

    When an industry resorts to rebates and creative financing to support it's thru the roof prices (also see Cars and electronics) its a sign that objects in the mirror may not be what they appear.

    When the supply is at record levels and sellers are resorting to tricks and gimics to attract new buyers .... Hmmmmmm Sounds like the bottom getting ready to fall out to me.
    I think this is faulty interpretation of the law of supply vs. demand. If I buy a house, it's not because there's a huge supply - it's because I want a house. If I can get a good deal on it, it's probably because of an oversupply (i.e. buyer's market.) This is Economics 101. A house is not a luxury item. It's a necessity. It cannot be compared to consumer goods.

    Also, how does the number of mortgage applications that were refused have any effect on the record number of sales? I'm one of the "some people" that refuse to see the whole picture, I guess. I see houses selling like crazy, the last few years in particular. There is no such thing as a house that can't sell....only houses that are overpriced. But even in this market, people are obviously buying, so they cannot be THAT overpriced.

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