August 15, 2007

How the Final Fools Were Sucked Into The Bubble

A Century-21 Come-On ad from about a year ago, just before the first hiss of air escaping from the housing bubble began to be audible. I wonder where this couple is today. The hectoring agressive wife is no doubt kicking herself that a divorce just won't bring her the money she needs...

Not so this cutie as detailed in the "Fashion and Style" section of the shameless New York Times in Buy Low, Divorce High

The client, a former high-ranking fashion executive and perpetual volunteer at her children's private schools, was checking the price she could get for her nine-room co-op in a prewar building. When the market reached a high, she told Ms. Kleier, she planned to divorce her husband, sell the apartment and live on her share of the profits.

Last year, Ms. Kleier delivered the long-awaited news: Manhattan luxury apartments were at a peak. The client went through with her plan. Now the woman calls from her new condo in California, raving about the weather and the distance from her ex-husband.

"She felt that she couldn't walk out on him until she had the money to move away and buy something on her own," Ms. Kleier said. "The real estate market allowed her to buy her freedom."

Well, bully for that bitch. Here's hoping she bought a condo in San Diego where the declines in valuation are dropping about 5% a month.

For the poor schlubs such as the doughy husband in the commercial above, he and his perpetually peeved wife are stuck with each other and the two kids on the treadmill of debt these days. Unless they are lucky enough to get foreclosed. It's the kind of situation that makes even the most stand-up husbands and fathers start to look longingly at Greyhound bus schedules.

Either way, "buy high and sell into a falling market" is no more a recipe for marital bliss than "doing anything just to get 'the look' off her face." There's no measure of how many homes were stupidly bought in the last year because she said "I love that house," but it's a good bet that they run into the millions. The only person buying homes in this market is going to make happy is that real estate agent.. you know, the one listening in on the phone telling them "you guys can do this."

UPDATE: To get a real feel for the "excitement ahead" take a ride on this History of US Home Prices Animated as a Roller Coaster Ride.

You belted in? Hit play.

Posted by Vanderleun at August 15, 2007 11:22 AM
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"It is impossible to speak in such a way that you cannot be misunderstood." -- Karl Popper N.B.: Comments are moderated and may not appear immediately. Comments that exceed the obscenity or stupidity limits will be either edited or expunged.

A tangent, but apropos:
About 25 years ago, Roy Clark (yeah, Hee-Haw) had a minor country hit "Thank God And Greyhound You're Gone."

Posted by: ed in texas at August 15, 2007 12:11 PM

That commercial ranks up with the top 3 all time blood-boiling pieces of garbage on t.v. Every time it came on I'd yell, "Man up and grow a pair. Tell the bitch to get a 2nd job if she wants it that much." My wife used to constantly harass me to get a bigger house but I continually stood my ground. Gradual hearing loss can be a blessing in disguise.

Posted by: JohnO at August 15, 2007 12:59 PM

This is a sore subject and one summarized by the C-21 commercial you cited. Nicely phrased, by the way--the "you guys can DO this" hook from the sales-dame. Being an agent for clients is defined largely by looking after their best interests and working on their behalf to accomplish a goal. Being a retail sales/dame/dude is completely defined by looking after one's own interests without regard to the best interests of the client. Like the sales dame in the ad.

Real estate firms consistently reward sales people on the volume of sales dollars as if that is a correlation to working on the client's behalf. Until commission is removed from the transaction and replaced by fees, none of that will change. And it may not then.

Retail sales techniques spawned such "investment" gurus as Kiyosaki and Hopkins. Such memorable lines as "Buy assets and increase your net worth", "real estate is best bought with other people's money", "this property has three HUGE bedrooms. Is that large enough for your family or would you and your husband prefer the extra pleasure of an additional guest room for your friends?" (Pardon me while I retch)

All that pap works well enough when the roller coaster is on the way up (who can loose when the market is 'snapping'?), but not at all when the correction comes. A far more damaging scene is to fear one's bitchy wife so much that it is easier to cave-in than to make sound judgements. Pussy-whipped by a tyrant, men often (me included) do the wrong thing to take the easy route in the near term. Not good.

Women and the men that fear them. Some legacy.

Cash is king. Debt is bad. Income is good. More income is better. All ups have equal or bigger downs. Oh, and cash is king.

Dan Patterson
Arrogant Infidel

Posted by: Dan Patterson at August 15, 2007 4:46 PM

In 1952 my father bought a 1200 sq.ft. home with hardwood floors throughout and a full basement in a new sub-division for $6400. At the time he was employed as a furniture delivery guy. He was paid $50./week. Real house price = 128 weeks income.

In 1960 I bought a 25 year old duplex, with hardwood throughout, in a leafy neighborhood for $9500. I was making $100./week at the local GM plant and rented the upper floor for $65./mo. Total = $115./week. Real house price = 83 weeks income.

Three mos. ago, my youngest son bought a ten year old 1500 sq.ft house carpeted throughout and full basement for $480,000. He earns $1500./week. Real house price = 320 weeks income. Naturally, his wife has to work until his income rises.

I told my son not to buy the house because the market is at or near its peak. He tended to agree but his wife wanted the house and her wishes prevailed. Why did his wife want the house? One: her parents got rich buying real estate and she figures that there is no reason that they can't do the same. Two: although they have no children, she wants them; three children, to be precise and she could easily see them in this house.

When they told me what they had done I got a knot in my stomach. His wife had rationalized that even if the market went down they would be buying into a market that was down everywhere so the whole thing would be a wash. Silly girl. I told them that what they would lose is their down payment and that they would never be able to save another one in any reasonable length of time. Greed and wishful thinking, it will do you in every time.

What is driving the modern real estate market? In my opinion, it started with the advent of the two income family. They simply bid up the price of homes. People of my father's generation and, to a certain extent, my generation, made a bundle selling our homes to these young moderns. We weren't entitled to this money. We didn't get it because of hard work or risk taking. Still, who is going to turn down the dough?

We really don't have homes anymore. They are bought with the thought of windfall profits coming the home buyer's way. Nobody has to save any money, it is thought. People can spend all they have and they can still retire on their real estate profits. Its become a giant Ponzi scheme. And the children? Well, Mom can't be at home because the family needs her income.

I've got a few bucks tucked away and I will bail out my son and his wife when the time comes. But not right away. They must hurt a little for their foolishness.

As for many others who are in over their heads: life can be cruel for the unwary.

Posted by: viktor silo at August 15, 2007 5:00 PM

That ad would be better with subtitles as Lady Macbeth convinces her husband "We can do this!"

Posted by: StephenB at August 17, 2007 10:37 AM

Nice idea.

Over at the Housing Bubble Blog, on eof the regular commenters posts as "Suzanne, I researched this." Suzanne has been a running gag since the commercial came out.

Posted by: B. Durbin at August 17, 2007 7:14 PM

Nobody has to save any money, it is thought. People can spend all they have and they can still retire on their real estate profits. Its become a giant Ponzi scheme. And the children? Well, Mom can't be at home because the family needs her income.

Posted by: Wire at August 23, 2007 7:52 PM

>>That ad would be better with subtitles as Lady Macbeth convinces her husband "We can do this!"

Glamis thou art, and Cawdor, and shalt be
What thou art promis'd. Yet do I fear thy nature,
It is too full o' th' milk of human kindness
To catch the nearest way.

Act I scene VI

Posted by: Gray at September 30, 2008 9:01 PM