Saturday, March 4, 2006

As you can tell the response to this blog has been overwhelming. I feel I need to take a little time and answer a few of the many emails that have poured in.

G.F. from California asks:
Hi Mr. Bubble,

Prices have gone up so much in the last 5 years. I'm worried about buying at the peak and overpaying for a house. The house I'm considering is a fixer upper in North Oakland. It is 1100 sq. ft. and needs a new roof. The asking price is $675,000. What should I do?

Good question. First of all, remember, you can not over pay for a house. In fact, as I proved previously, the more you pay for the house the more money you'll earn in the long run. I know some deluded renters are screaming at their monitors right now "that's the stupidest thing I ever heard!" Here's the proof. Let's say you buy that house for 675K and we'll be very very conservative and assume only 10% yearly appreciation instead of the industry standard 20%. After 10 years you'll have a little over 1 million in equity (even if you negatively amortize a few hundred thousand you're still sitting on a mountain of cash). Now, let's say you aggressively bid 750K on this Oakland charmer. After 10 years at ONLY 10% appreciation on the higher price you'll have over 1.2 million in profit. That's right, you made an extra $200,000 by "overpaying" for that house. As the math above proves you can not make a mistake of overpaying for a home. In fact the only mistake would be passing on that cute Oakland home.

John A. from Missouri asks:
I never heard the phrase "housing bubble" until after September 11th, 2001. Who is behind all these lies?

That is a very perceptive observation my friend. I too never heard a single person mention the housing bubble before the terrorists struck at our country on that fateful day. Ask yourself this: does Osama Bin Laden want home prices to plummet? Of course he does. He would love for home prices to collapse and ruin the American economy. And if Hitler were alive today do you think he'd want Americans to make a lot of money in real estate? Or do you think he'd hope for falling home prices to bring our economy to a halt and make us more vulnerable to invasion? I think we all can agree that he'd want to destroy our economy. Do you really want to be on the side of the terrorists and the Nazis? Do you really want to help them win their war against our country and obliterate our entire way of life? Ask yourself why do the lying "housing bubble" proponents want you to sell your home and rent "before it is too late?" Do they really want to save complete strangers lots of money? Or do they have some other motivation? Some sinister motivation to wreck havoc on the new paradigm of our real estate based economy.

Alan G. from Washington DC writes:
Housing price bubbles presuppose an ability of market participants to trade properties as they speculate about the future. But upon sale of a house, homeowners must move and live elsewhere. This necessity, as well as large transaction costs, are significant impediments to speculative trading and an important restraint on the development of price bubbles.

Some homeowners drawn by large capital gains do sell and rent. And certainly in recent years some homebuyers fearful of losing a purchase have bid through sellers̢۪ offering prices. But these market participants have probably contributed only modestly to overall house price speculation.

More likely participants in speculative trading are investors in single residence rental and second home properties. But even though in recent years their share of purchases of single family homes has been growing, in 2003 their mortgage originations were still less than 11 percent of total home mortgage originations. Overall, while local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity.

Ummmm....I'm confused, are you saying there is a housing bubble or there isn't one? Whoever you are I hope you are never in a position of power because you talk out of both sides of your mouth.

D. Lereah from Virginia asks:
The story of little Timmy Jones has left a hole in my heart. What can I do to help Patrick and Timmy?

You can do what every patriotic American does, buy a home and convince everyone you know to do the same. If everyone owned 1 or more homes there would be no renters and no little Timmies would ever risk being born into the hell I described. In fact, if we all became home owners America would guarantee its place as the wealthiest nation on earth. However if we listen to the bubble heads and their easily popped lies, we're a nation headed into poverty and deprivation. We'd become a nation of Patrick and Timmies and that thought is too frightening to contemplate.

Anonymous from California writes:
I be a realuhtor in san jose. I sell milliun dolor homes to janiters waitors and morgage brokers. I urn my 6% comision. I maid 1 milliun dolors last yeer selling homes. I urn my money. Tell people the trooth about homes allways going up in price. Its a fact. I no. I'm a realuhtor.

Wise words from someone who knows his industry. Who better to listen to than a highly trained real estate professional who knows the market and your home's value? What sort of training do most of these "housing bubble" maniacs have? They are not trained real estate professionals. Rather they are bitter amateurs who are projecting their hopes and fears onto other people. They don't understand why changing demographics, immigration, environmental, and other socio-economic factors have caused real estate to reach a permanently high plateau. People in the industry and educated home owners know the truth. They don't need some outsider trying to confuse them with so-called facts. But I give you my pledge that as long as I have fingers to type I'll proudly proclaim "there is no housing bubble!"