Quote of the Day
"We've covered a lot of territory in terms of restoring balance in the housing market. The froth has been completely blown away." - National City's chief economist, Richard DeKaser. DeKaser says the drastic declines in home price values have brought equilibrium back to many previously unaffordable U.S. housing markets. (CNN Money, June 2nd)
Wednesday, June 4, 2008
Tuesday, June 3, 2008
Today's financial sacrifices can result in big dividends in the future
Mike Summey -- Very successful Real Estate Investor gives some wise advice....
When I was a young man just getting started in life, I struggled. The product of a broken home and with little education, I struck out at the tender age of 15 to make it on my own. I remember those times when I woke up knowing I would have to earn money that day or I wouldn't be able to eat that night. Too proud to accept handouts and unwilling to turn to the government for help, I embarked on a journey that led to a most important discovery: I learned what is required to live the lifestyle of success.
I couldn't help but notice people around me who by middle age were living what appeared to be charmed lives. I never missed an opportunity to pick their brains and try to learn how they did it. The first thing I learned was that it is nearly impossible to earn your way to wealth. Sure, high-income earners often had big houses and fancy cars, but very few of them could sustain their standards of living if they were suddenly unable to work.
I also learned that truly wealthy people were the ones who were able to live on the income from their investments. They also seemed to be more relaxed because they weren't facing the daily pressures that having to earn an income to support a lavish lifestyles can bring. I wanted to be like them.
Once the income from your investments is adequate to cover the cost of your remaining days on earth, you have reached what I call "functional retirement," and there is no age limit associated with it. It's the point in life where you are able to choose what you do. If you wake up and want to play golf or go fishing, you can.
Many people lack patience and try to reach functional retirement too quickly. They play the lottery, invest in high-risk speculative ventures or turn to illegal activities in an attempt to get there with little sacrifice. They can't see themselves ever becoming wealthy, so they resign themselves to working the rest of their lives or scrimping by on a Social Security check in their elder years.
Another telling sign of impatience is people who mortgage their futures by committing tomorrow's income to buy more today. These are the ones who struggle to make payments on cars and boats and run up big credit card bills. Too many people in America suffer from an "I-want-it-now" syndrome. They fail to see how this mentality guarantees an "I-will-have-less" lifestyle later.
Life is like a bank account: You have to make deposits before you can make withdrawals. If you deposit part of your earnings each time you get paid and live on what's left, gradually your bank account grows. If you keep at it long enough, eventually the earnings from your investments can replace your paycheck.
"But," you say, "how can I invest when I can barely pay my bills now?" Answer: It's simple. You reduce your standard of living for a period of time just as you would if your income was suddenly cut by 10, 15 or 20 percent and you couldn't find another job to replace the loss. Is that easy? No. Is it possible? Absolutely.
Here's a tip: Pay yourself first. Each time you get paid, take a portion of your earnings and put it aside in some type of savings account. Then force yourself to live on what's left. It may mean you live in a smaller house or drive a smaller car, but doing so will result in a much higher standard of living in the future.
Developing the habit of saving is the secret to financial success. As long as you are saving and investing regularly, you are on the road to financial independence.
Many young people tell me that money isn't everything - they want to be happy too. But are those two things mutually exclusive, or have we just been brainwashed into thinking that way? If you want the real answer, ask elderly people who are struggling to keep a roof over their heads and food on the table. I'll bet they'll tell you they wish they had saved and invested when they were younger.
When I was a young man just getting started in life, I struggled. The product of a broken home and with little education, I struck out at the tender age of 15 to make it on my own. I remember those times when I woke up knowing I would have to earn money that day or I wouldn't be able to eat that night. Too proud to accept handouts and unwilling to turn to the government for help, I embarked on a journey that led to a most important discovery: I learned what is required to live the lifestyle of success.
I couldn't help but notice people around me who by middle age were living what appeared to be charmed lives. I never missed an opportunity to pick their brains and try to learn how they did it. The first thing I learned was that it is nearly impossible to earn your way to wealth. Sure, high-income earners often had big houses and fancy cars, but very few of them could sustain their standards of living if they were suddenly unable to work.
I also learned that truly wealthy people were the ones who were able to live on the income from their investments. They also seemed to be more relaxed because they weren't facing the daily pressures that having to earn an income to support a lavish lifestyles can bring. I wanted to be like them.
Once the income from your investments is adequate to cover the cost of your remaining days on earth, you have reached what I call "functional retirement," and there is no age limit associated with it. It's the point in life where you are able to choose what you do. If you wake up and want to play golf or go fishing, you can.
Many people lack patience and try to reach functional retirement too quickly. They play the lottery, invest in high-risk speculative ventures or turn to illegal activities in an attempt to get there with little sacrifice. They can't see themselves ever becoming wealthy, so they resign themselves to working the rest of their lives or scrimping by on a Social Security check in their elder years.
Another telling sign of impatience is people who mortgage their futures by committing tomorrow's income to buy more today. These are the ones who struggle to make payments on cars and boats and run up big credit card bills. Too many people in America suffer from an "I-want-it-now" syndrome. They fail to see how this mentality guarantees an "I-will-have-less" lifestyle later.
Life is like a bank account: You have to make deposits before you can make withdrawals. If you deposit part of your earnings each time you get paid and live on what's left, gradually your bank account grows. If you keep at it long enough, eventually the earnings from your investments can replace your paycheck.
"But," you say, "how can I invest when I can barely pay my bills now?" Answer: It's simple. You reduce your standard of living for a period of time just as you would if your income was suddenly cut by 10, 15 or 20 percent and you couldn't find another job to replace the loss. Is that easy? No. Is it possible? Absolutely.
Here's a tip: Pay yourself first. Each time you get paid, take a portion of your earnings and put it aside in some type of savings account. Then force yourself to live on what's left. It may mean you live in a smaller house or drive a smaller car, but doing so will result in a much higher standard of living in the future.
Developing the habit of saving is the secret to financial success. As long as you are saving and investing regularly, you are on the road to financial independence.
Many young people tell me that money isn't everything - they want to be happy too. But are those two things mutually exclusive, or have we just been brainwashed into thinking that way? If you want the real answer, ask elderly people who are struggling to keep a roof over their heads and food on the table. I'll bet they'll tell you they wish they had saved and invested when they were younger.
Housing market may turn more quickly than you expect
The following story provides a warning for would be home buyers. The market will turn but it may happen before you expect it or are ready for it.
IRWIN KELLNER
Home economics
Commentary: Housing market may turn more quickly than you expect
By Dr. Irwin Kellner, MarketWatch
Last update: 12:05 a.m. EDT June 3, 2008
PORT WASJHINGTON, N.Y. (MarketWatch) -- Here's an all-points bulletin to prospective homebuyers: The protracted decline in home prices has made many houses more affordable than they've been in years.
You know what this means? Housing could shift from a buyer's market to a seller's market before you know it.
Now don't get me wrong. I am not saying that all is copacetic when it comes to housing. Far from it.
I would agree with those who say that it will take many months before balance is restored between supply and demand. There are simply too many homes for sale at asking prices that are still too high for housing to do a 180.
Nor am I expecting another housing bubble to form, not in this decade anyway.
All I would like to point out is that, in broad macro terms, the average house is no longer as overpriced as it once was. That being the case, it is no longer prudent to assume that home prices have to fall a lot more before they stabilize.
For now, however, this is what most buyers believe. Knowing full well that there are a lot of unsold homes out there, most would-be buyers are waiting for a sign that prices have stopped falling and thus stabilized before making a bid.
They are waiting because history has conditioned them to do so.
Until recently, home prices used to go in only one direction, up, the only question being how fast. As a result, a house became just about the only item -- large or small -- that people would buy expecting its price to appreciate.
This kind of thinking does not apply to any other product the typical household purchases. Indeed, people routinely buy the latest cell phone, personal digital assistant, high-definition TV, or other electronic gadget fully expecting that those who buy after they do will probably pay less.
But housing is different - at least it used to be. Maybe now that people see that home prices can behave no differently than most other prices (They can go down as well as up), they will adapt a different attitude.
Getting back to affordability, loyal readers know that I believe that this measure is the best way to value a house.
I don't care about the cost of land, labor, building materials or the house next door. What matters to me is the ratio of home prices to household incomes (see my column of Feb. 4).
As of the April stats, the typical existing home cost 3.4 times estimated household incomes, while median new-home prices equaled almost 3.8 times family incomes.
These are down from the peak of 4.2 reached in the bubble year 2005, although they remain above the 2.8 figure that prevailed in the 1980s, when housing sold at a brisk pace.
But home prices don't have to get down to 2.8 times incomes to kick-start the market. A bit over three times might do it.
Remember, incomes are still rising, so home prices don't have to fall as much as you think before buyers decide that they can once more afford the home of their dreams. Sooner or later, the fact that housing is more affordable will sink in. That's when the market will turn.
And, no, my home is not for sale.
Irwin Kellner is chief economist for MarketWatch and for Capital One Bank.
IRWIN KELLNER
Home economics
Commentary: Housing market may turn more quickly than you expect
By Dr. Irwin Kellner, MarketWatch
Last update: 12:05 a.m. EDT June 3, 2008
PORT WASJHINGTON, N.Y. (MarketWatch) -- Here's an all-points bulletin to prospective homebuyers: The protracted decline in home prices has made many houses more affordable than they've been in years.
You know what this means? Housing could shift from a buyer's market to a seller's market before you know it.
Now don't get me wrong. I am not saying that all is copacetic when it comes to housing. Far from it.
I would agree with those who say that it will take many months before balance is restored between supply and demand. There are simply too many homes for sale at asking prices that are still too high for housing to do a 180.
Nor am I expecting another housing bubble to form, not in this decade anyway.
All I would like to point out is that, in broad macro terms, the average house is no longer as overpriced as it once was. That being the case, it is no longer prudent to assume that home prices have to fall a lot more before they stabilize.
For now, however, this is what most buyers believe. Knowing full well that there are a lot of unsold homes out there, most would-be buyers are waiting for a sign that prices have stopped falling and thus stabilized before making a bid.
They are waiting because history has conditioned them to do so.
Until recently, home prices used to go in only one direction, up, the only question being how fast. As a result, a house became just about the only item -- large or small -- that people would buy expecting its price to appreciate.
This kind of thinking does not apply to any other product the typical household purchases. Indeed, people routinely buy the latest cell phone, personal digital assistant, high-definition TV, or other electronic gadget fully expecting that those who buy after they do will probably pay less.
But housing is different - at least it used to be. Maybe now that people see that home prices can behave no differently than most other prices (They can go down as well as up), they will adapt a different attitude.
Getting back to affordability, loyal readers know that I believe that this measure is the best way to value a house.
I don't care about the cost of land, labor, building materials or the house next door. What matters to me is the ratio of home prices to household incomes (see my column of Feb. 4).
As of the April stats, the typical existing home cost 3.4 times estimated household incomes, while median new-home prices equaled almost 3.8 times family incomes.
These are down from the peak of 4.2 reached in the bubble year 2005, although they remain above the 2.8 figure that prevailed in the 1980s, when housing sold at a brisk pace.
But home prices don't have to get down to 2.8 times incomes to kick-start the market. A bit over three times might do it.
Remember, incomes are still rising, so home prices don't have to fall as much as you think before buyers decide that they can once more afford the home of their dreams. Sooner or later, the fact that housing is more affordable will sink in. That's when the market will turn.
And, no, my home is not for sale.
Irwin Kellner is chief economist for MarketWatch and for Capital One Bank.
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