9 ms·

All right, I'll bite. If me and my SO wanna buy a house, how should we go about approaching the next financial crisis to get a good deal on one? Who predicted

All right, I'll bite. If me and my SO wanna buy a house, how should we go about approaching the next financial crisis to get a good deal on one? Who predicted the last one correctly, and what are those people saying now? I'm under the assumption that the regulations put in place after the last financial crisis are impotent, and that the people in the finance industry have little incentive not to do it again. Is this an accurate statement?

mejin 9y ago
You can't just look at who predicted it correctly lat time. You also have to make sure that they didn't predict that it would occur other times when it didn't.
- graphitezepp 9y ago
  Adding on to your important thought, if you do NOT accept that the regulations are impotent, than you should look to a different sector besides housing that could cause a crisis. If it is the case that something else creates the problem, different people with different domain knowledge are likely to be the ones predicting it.
  - captain_crabs 9y ago
    To grandparent comment: great point. Didn't think of that. To parent: You too!
- deleted 9y ago
  [deleted]
hartator 9y ago
I am in the same situation. I feel crisis are hard to predict timing wise. However I do also feel the stars are line up for another one for sure.
hartator 9y ago
I am on the same situation. I feel crisis are hard to predict timing wise. However I do also feel the stars are line up for another one for sure.
xyzzy4 9y ago
It's difficult to say if there will be a financial crisis, but multiple current economic indicators are not predicting one any time soon (meaning in the next 6 months). This isn't counted in those indicators, but also S&P 500 earnings are predicted to go up a lot by December 2018, according to S&P Global. Credit Suisse's Global Wealth Report predicts a 5% annual increase in wealth among all adults globally in the next 5 years. Houses in major metropolitan areas have gone about 6% annually on average, counting recessions and popping of bubbles. Timing the market could help but it's very difficult. I predict they will keep rising at a 4-7% rate for the next decade, but I could be wrong. A recession is possible but I wouldn't delay buying a house right now. But I would definitely buy within your means and don't expect prices to rise, because the future is very difficult to predict.
Chaebixi 9y ago
This opinion is based totally on "The Big Short," so take it with a grain of salt: It seems like the people who can predict a crisis correctly are the ones who actually do the legwork to verify the ground truth, in detail, when everyone else is just trusting conventional wisdom, the executive summary, and their current profit numbers. However, the person who predicts the next crisis is probably going to have to be looking under different rocks than the people who predicted the last one.
- gdubs 9y ago
  Right. I believe it was Michael Barry (sp?) who looked into all the mortgages and found a ton of fraud, etc. When he brought the info to the big banks they were like, "how do you know all this?" And he was like, "I looked at the mortgages." [blank stares]
lazerpants 9y ago
Robert Shiller gets a lot of credit for calling the real estate bubble. Though he did do so in around 2000, so he was very early.
- jbooth 9y ago
  He calls that bubble every single year. He was bound to be right eventually.
mtgx 9y ago
They started doing the same stuff they did pre-crisis like months later. But first they made sure to pay themselves billions of dollars in bonuses. https://www.youtube.com/watch?v=mzJmTCYmo9g&list=RDmzJmTCYmo9g https://www.youtube.com/watch?v=mzJmTCYmo9g&list=RDmzJmTCYmo...
Retric 9y ago
IMO, it's much better to buy when you can both easily afford it and it fits with what you want than trying to time the market. Just accept home ownership has high transaction costs. So, you need to be happy living their for 10+ years or renting is generally a better idea.
yequalsx 9y ago
There's a famous joke along the lines of: Economists have predicted 12 of the 3 market crashes. The problem with looking at who correctly predicted the last crash is that so many people make predictions of the form, "there will be a crash in the next x months". Eventually someone will be correct. How will you be able to tell that person being correct due to random chance versus actually knowing that there would be a crash?
matwood 9y ago
> I'm under the assumption that the regulations put in place after the last financial crisis are impotent, and that the people in the finance industry have little incentive not to do it again. Is this an accurate statement? No. If you're talking specifically about the housing bubble/crisis that crippled the economy ~2008, the rules have stopped what happened then. People forget that during the housing boom, dogs (people's actual pets) were able to get no-doc loans for $500k. Right now, we're probably on the opposite end of that spectrum where a mortgage is extremely hard to get and only getting harder. I bought soon after the crash, and recently refied with the same bank. The documentation I needed and the scrutiny from the underwriters had increased a lot from when I originally purchased.
- dmoy 9y ago
  Yea wow the underwriters are getting picky. We recently bought with a mortgage, and they kept asking about two things that were hilarious from my end: - transactions between my own accounts to put enough in one place for down payment (this despite sending them transaction records from both sides multiple times) - the fact that my dad and I co-purchased a condo in the Midwest for 100k in cash. They kept asking for docs on the mortgage for that when there wasn't ever a mortgage. Idk how they wanted me to prove something that never existed. Finally got our insurance agent to call them up on the phone and explain, "yes real estate prices in flyover really are that cheap; no there never was a mortgage; no, that means there's no other bank to talk to" Really frustrating process when they keep asking for stuff that doesn't exist. The loan officer at the bank that I was working with was similarly frustrated with their own underwriters.
  - javajosh 9y ago
    In these cases I often wonder if there is a piece of software (or three) to blame. When someone's role is tied to a form requires them to pick an option, and gives no free-text alternative, this creates a recipe for making mindless, illogical demands. But in truth, it's not the underwriter, really: it's the underwriter parroting their bad software that is making mindless, illogical demands. (And the manager who gives instructions like, "Just fill out the form. No, I don't want to hear about exceptions. The form has worked for 15 years, why are you so special?")
richardknop 9y ago
Peter Schiff predicted the housing bubble. He also claims that the current housing bubble is even bigger as the market imbalances have not been fixed (government interference and bailouts intervened in the natural free market process, if left to free market forces there would be a lot more failed banks). He's also a gold bug. Other than housing bubble he claims there is a massive bubble in stock market and also that the next crisis will be a currency crisis as people lose confidence in US dollar. He would probably suggest to invest in gold and in markets outside of US/EU. Disclaimer: I am not saying I agree with Peter Schiff just describing his view, so please don't down vote me.
- QAPereo 9y ago
  In what fantasy does the US Dollar collapse, and our society is still stable enough to trade in something like gold? I'd invest in agricultural and blacksmithing skills if you're really worried about that.
  - richardknop 9y ago
    It doesn't need to collapse suddenly. But be replaced by Yuan or more likely basket of currencies as a step by step process.
    - QAPereo 9y ago
      Every time I try to imagine that "peaceful" transition or something similar, I just see mushroom clouds.
      - richardknop 9y ago
        I am not sure. Mushroom clouds would end in a total world economy collapse probably so it's not in the interest of US to go that route just because the world will become multi polar rather than the current model with a single superpower (This process is already well underway and I don't see how it can be stopped). Yes US will end up losing some of advantages but it doesn't need to be so dramatic. Even in multi polar world with several super powers US will be one of wealthiest and most prosperous countries. The tremendous wealth accumulated over last century is not going anyway.
econner 9y ago
I'm betting student loans are going to have something to do with it. https://pbs.twimg.com/media/CkcJGZfVEAEw239.jpg:large https://pbs.twimg.com/media/CkcJGZfVEAEw239.jpg:large
- artursapek 9y ago
  It seems so obvious that it's too obvious to end up happening... but I agree.
  - liquidki 9y ago
    Kinda like giving home loans to people who have no ability to pay them back?
    - artursapek 9y ago
      That's exactly why it seems obvious!
- jdmichal 9y ago
  Except student loans are going to be worse. You can't exactly have your diploma foreclosed on, and they're difficult to extinguish through bankruptcy.
- adventured 9y ago
  Your chart needs to be updated. It's no longer climbing at the same rate, because that rate of growth was impossible to sustain. The chart will increasingly begin to flat-line in the next decade. Student loans will not be the source of the next financial crisis, that problem is trivial to solve as necessary. It involves a trillion dollars; the financial crisis involved tens of trillions of dollars. 1) The Fed was printing nearly a trillion dollars per year for QE in prior years, one print run like that directed at student loans instantly ends the problem. 2) Option one is a bad premise, as it rewards the student loan borrowers and punishes savers (debasing the dollar). Alternatively, you can drop the interest rate on student loans (which would encourage a greater pile of debt long-term but solve the problem short-term). Or come up with any number of other easy solutions to the payments such as lower caps on monthly payments based on income. 3) The Feds can begin bringing down the cost of college education at any time, by slowly reducing their loan backing. Universities will be forced to unwind their spending bubble.
gdubs 9y ago
I'd check out Random Walk on Wall Street. Read what it has to say on trying to time the market, and decide whether you think it applies to Real Estate. Then, think hard about why you're buying a home. Is it to live in for a long time? Or are you hoping to resell it in a short time frame? Are you thinking of Real Estate as an investment? Burton Malkiel – author of random walk – says that in general you can't time markets. There's a ton of evidence on this. (Most is related to stocks and bonds, so take it with a grain of salt.) But what you can look for is irrationality. Irrationality is what was identified by the folks who made a killing on the last crash. See "The Big Short".
- captain_crabs 9y ago
  Love that movie. The house is for a very specific purpose: it's how I want my life to be. Both to live with SO, but also to have space to get an aquaponics setup running. So that will be happening when it needs to happen regardless of market timing. But if there's a thing I can take advantage of in that window, totally should! Is random walk on wall street viable on audio (audible) or are there a lot of charts and stuff?
- AnimalMuppet 9y ago
  The best quote on timing the market is: "The market can stay irrational longer than you can stay solvent." (John Maynard Keynes)
seanmcdirmid 9y ago
If you believe foreign speculation is playing a role in inflating your market, I'd watch China carefully, who didn't take much of a hit in the last crisis and has very bubbly real estate of its own ($1000 rents for $1 million apartments). For examle, when Japan's asset bubble tanked, it took California real estate a decade to recover. But if a crash happens, you'll need to be liquid with lots of cash because banks are less likely to loan then. Putting that cash in the bank means you won't much upside from the current boom...its a tricky balancing act!
- dmoy 9y ago
  Hey related Q - if I got an in law being evicted in a smaller city over there (that still has massive new high rise development), is there still gonna be an easy cheap rental market? They are being very insistent on only buying, saying "nobody in China rents, only buys", so I guess that might be why you see low rents?
  - seanmcdirmid 9y ago
    That isn't true at all. A lot of people rent in china. It's just that demand for housing to live in is way lower than demand for housing as a speculative asset.
    - dmoy 9y ago
      Ok that's what I figured, I was skeptical at believing them.
frgtpsswrdlame 9y ago
What makes you think the next bubble will still be housing? Or be as big? Banks aren't leveraged on CDOs like they were precrisis. Current bubbles are probably subprime auto-loans, which is a much smaller market than home loans, and maybe apartments and commerical real estate. As millenials age they will move from city apartments out into the suburbs to have yards and access to good schools for their kids. This will probably continue to drive the housing market up. If you need a house in the short term you are gonna have to hop on the housing market rollercoaster and adopt your new NIMBY lifestyle. EDIT: and for sources of financial news, I really like nakedcapitalism.com as a contrarian supplement to the regular stuff, check out these three articles then look at the dates. http://www.nakedcapitalism.com/2007/03/market-correction-is-coming.html http://www.nakedcapitalism.com/2007/03/market-correction-is-... http://www.nakedcapitalism.com/2007/03/unwinding-fraud-for-bubbles.html http://www.nakedcapitalism.com/2007/03/unwinding-fraud-for-b... http://www.nakedcapitalism.com/2007/03/michael-panzer-on-subprime-delusions.html http://www.nakedcapitalism.com/2007/03/michael-panzer-on-sub...
- captain_crabs 9y ago
  I'm imprecise with my language because I don't know what I'm talking about really. If financial institutions did something horrible that should've sent them out of business, and they got bailed out, then it stands to reason the next time they figure out a way to do that, they will. So maybe not housing. But I bet there's some exploit somewhere. So then my next thought is, if I can identify this, I should react accordingly. And I want to buy a house soon. And those links - 100% marginal tax on all income above $500k!? I like the freewheeling nature of ideas there. Seems like a good place to brainstorm from

mejin 9y ago

You can't just look at who predicted it correctly lat time. You also have to make sure that they didn't predict that it would occur other times when it didn't.

graphitezepp 9y ago
Adding on to your important thought, if you do NOT accept that the regulations are impotent, than you should look to a different sector besides housing that could cause a crisis. If it is the case that something else creates the problem, different people with different domain knowledge are likely to be the ones predicting it.
- captain_crabs 9y ago
  To grandparent comment: great point. Didn't think of that. To parent: You too!
deleted 9y ago
[deleted]

hartator 9y ago

I am in the same situation. I feel crisis are hard to predict timing wise. However I do also feel the stars are line up for another one for sure.

hartator 9y ago

I am on the same situation. I feel crisis are hard to predict timing wise. However I do also feel the stars are line up for another one for sure.

xyzzy4 9y ago

It's difficult to say if there will be a financial crisis, but multiple current economic indicators are not predicting one any time soon (meaning in the next 6 months). This isn't counted in those indicators, but also S&P 500 earnings are predicted to go up a lot by December 2018, according to S&P Global. Credit Suisse's Global Wealth Report predicts a 5% annual increase in wealth among all adults globally in the next 5 years. Houses in major metropolitan areas have gone about 6% annually on average, counting recessions and popping of bubbles. Timing the market could help but it's very difficult. I predict they will keep rising at a 4-7% rate for the next decade, but I could be wrong. A recession is possible but I wouldn't delay buying a house right now. But I would definitely buy within your means and don't expect prices to rise, because the future is very difficult to predict.

Chaebixi 9y ago

This opinion is based totally on "The Big Short," so take it with a grain of salt: It seems like the people who can predict a crisis correctly are the ones who actually do the legwork to verify the ground truth, in detail, when everyone else is just trusting conventional wisdom, the executive summary, and their current profit numbers. However, the person who predicts the next crisis is probably going to have to be looking under different rocks than the people who predicted the last one.

gdubs 9y ago
Right. I believe it was Michael Barry (sp?) who looked into all the mortgages and found a ton of fraud, etc. When he brought the info to the big banks they were like, "how do you know all this?" And he was like, "I looked at the mortgages." [blank stares]

lazerpants 9y ago

Robert Shiller gets a lot of credit for calling the real estate bubble. Though he did do so in around 2000, so he was very early.

jbooth 9y ago
He calls that bubble every single year. He was bound to be right eventually.

mtgx 9y ago

They started doing the same stuff they did pre-crisis like months later. But first they made sure to pay themselves billions of dollars in bonuses. https://www.youtube.com/watch?v=mzJmTCYmo9g&list=RDmzJmTCYmo9g https://www.youtube.com/watch?v=mzJmTCYmo9g&list=RDmzJmTCYmo...

Retric 9y ago

IMO, it's much better to buy when you can both easily afford it and it fits with what you want than trying to time the market. Just accept home ownership has high transaction costs. So, you need to be happy living their for 10+ years or renting is generally a better idea.

yequalsx 9y ago

There's a famous joke along the lines of: Economists have predicted 12 of the 3 market crashes. The problem with looking at who correctly predicted the last crash is that so many people make predictions of the form, "there will be a crash in the next x months". Eventually someone will be correct. How will you be able to tell that person being correct due to random chance versus actually knowing that there would be a crash?

matwood 9y ago

> I'm under the assumption that the regulations put in place after the last financial crisis are impotent, and that the people in the finance industry have little incentive not to do it again. Is this an accurate statement? No. If you're talking specifically about the housing bubble/crisis that crippled the economy ~2008, the rules have stopped what happened then. People forget that during the housing boom, dogs (people's actual pets) were able to get no-doc loans for $500k. Right now, we're probably on the opposite end of that spectrum where a mortgage is extremely hard to get and only getting harder. I bought soon after the crash, and recently refied with the same bank. The documentation I needed and the scrutiny from the underwriters had increased a lot from when I originally purchased.

dmoy 9y ago
Yea wow the underwriters are getting picky. We recently bought with a mortgage, and they kept asking about two things that were hilarious from my end: - transactions between my own accounts to put enough in one place for down payment (this despite sending them transaction records from both sides multiple times) - the fact that my dad and I co-purchased a condo in the Midwest for 100k in cash. They kept asking for docs on the mortgage for that when there wasn't ever a mortgage. Idk how they wanted me to prove something that never existed. Finally got our insurance agent to call them up on the phone and explain, "yes real estate prices in flyover really are that cheap; no there never was a mortgage; no, that means there's no other bank to talk to" Really frustrating process when they keep asking for stuff that doesn't exist. The loan officer at the bank that I was working with was similarly frustrated with their own underwriters.
- javajosh 9y ago
  In these cases I often wonder if there is a piece of software (or three) to blame. When someone's role is tied to a form requires them to pick an option, and gives no free-text alternative, this creates a recipe for making mindless, illogical demands. But in truth, it's not the underwriter, really: it's the underwriter parroting their bad software that is making mindless, illogical demands. (And the manager who gives instructions like, "Just fill out the form. No, I don't want to hear about exceptions. The form has worked for 15 years, why are you so special?")

richardknop 9y ago

Peter Schiff predicted the housing bubble. He also claims that the current housing bubble is even bigger as the market imbalances have not been fixed (government interference and bailouts intervened in the natural free market process, if left to free market forces there would be a lot more failed banks). He's also a gold bug. Other than housing bubble he claims there is a massive bubble in stock market and also that the next crisis will be a currency crisis as people lose confidence in US dollar. He would probably suggest to invest in gold and in markets outside of US/EU. Disclaimer: I am not saying I agree with Peter Schiff just describing his view, so please don't down vote me.

QAPereo 9y ago
In what fantasy does the US Dollar collapse, and our society is still stable enough to trade in something like gold? I'd invest in agricultural and blacksmithing skills if you're really worried about that.
- richardknop 9y ago
  It doesn't need to collapse suddenly. But be replaced by Yuan or more likely basket of currencies as a step by step process.
  - QAPereo 9y ago
    Every time I try to imagine that "peaceful" transition or something similar, I just see mushroom clouds.
    - richardknop 9y ago
      I am not sure. Mushroom clouds would end in a total world economy collapse probably so it's not in the interest of US to go that route just because the world will become multi polar rather than the current model with a single superpower (This process is already well underway and I don't see how it can be stopped). Yes US will end up losing some of advantages but it doesn't need to be so dramatic. Even in multi polar world with several super powers US will be one of wealthiest and most prosperous countries. The tremendous wealth accumulated over last century is not going anyway.

econner 9y ago

I'm betting student loans are going to have something to do with it. https://pbs.twimg.com/media/CkcJGZfVEAEw239.jpg:large https://pbs.twimg.com/media/CkcJGZfVEAEw239.jpg:large

artursapek 9y ago
It seems so obvious that it's too obvious to end up happening... but I agree.
- liquidki 9y ago
  Kinda like giving home loans to people who have no ability to pay them back?
  - artursapek 9y ago
    That's exactly why it seems obvious!
jdmichal 9y ago
Except student loans are going to be worse. You can't exactly have your diploma foreclosed on, and they're difficult to extinguish through bankruptcy.
adventured 9y ago
Your chart needs to be updated. It's no longer climbing at the same rate, because that rate of growth was impossible to sustain. The chart will increasingly begin to flat-line in the next decade. Student loans will not be the source of the next financial crisis, that problem is trivial to solve as necessary. It involves a trillion dollars; the financial crisis involved tens of trillions of dollars. 1) The Fed was printing nearly a trillion dollars per year for QE in prior years, one print run like that directed at student loans instantly ends the problem. 2) Option one is a bad premise, as it rewards the student loan borrowers and punishes savers (debasing the dollar). Alternatively, you can drop the interest rate on student loans (which would encourage a greater pile of debt long-term but solve the problem short-term). Or come up with any number of other easy solutions to the payments such as lower caps on monthly payments based on income. 3) The Feds can begin bringing down the cost of college education at any time, by slowly reducing their loan backing. Universities will be forced to unwind their spending bubble.

gdubs 9y ago

I'd check out Random Walk on Wall Street. Read what it has to say on trying to time the market, and decide whether you think it applies to Real Estate. Then, think hard about why you're buying a home. Is it to live in for a long time? Or are you hoping to resell it in a short time frame? Are you thinking of Real Estate as an investment? Burton Malkiel – author of random walk – says that in general you can't time markets. There's a ton of evidence on this. (Most is related to stocks and bonds, so take it with a grain of salt.) But what you can look for is irrationality. Irrationality is what was identified by the folks who made a killing on the last crash. See "The Big Short".

captain_crabs 9y ago
Love that movie. The house is for a very specific purpose: it's how I want my life to be. Both to live with SO, but also to have space to get an aquaponics setup running. So that will be happening when it needs to happen regardless of market timing. But if there's a thing I can take advantage of in that window, totally should! Is random walk on wall street viable on audio (audible) or are there a lot of charts and stuff?
AnimalMuppet 9y ago
The best quote on timing the market is: "The market can stay irrational longer than you can stay solvent." (John Maynard Keynes)

seanmcdirmid 9y ago

If you believe foreign speculation is playing a role in inflating your market, I'd watch China carefully, who didn't take much of a hit in the last crisis and has very bubbly real estate of its own ($1000 rents for $1 million apartments). For examle, when Japan's asset bubble tanked, it took California real estate a decade to recover. But if a crash happens, you'll need to be liquid with lots of cash because banks are less likely to loan then. Putting that cash in the bank means you won't much upside from the current boom...its a tricky balancing act!

dmoy 9y ago
Hey related Q - if I got an in law being evicted in a smaller city over there (that still has massive new high rise development), is there still gonna be an easy cheap rental market? They are being very insistent on only buying, saying "nobody in China rents, only buys", so I guess that might be why you see low rents?
- seanmcdirmid 9y ago
  That isn't true at all. A lot of people rent in china. It's just that demand for housing to live in is way lower than demand for housing as a speculative asset.
  - dmoy 9y ago
    Ok that's what I figured, I was skeptical at believing them.

frgtpsswrdlame 9y ago

What makes you think the next bubble will still be housing? Or be as big? Banks aren't leveraged on CDOs like they were precrisis. Current bubbles are probably subprime auto-loans, which is a much smaller market than home loans, and maybe apartments and commerical real estate. As millenials age they will move from city apartments out into the suburbs to have yards and access to good schools for their kids. This will probably continue to drive the housing market up. If you need a house in the short term you are gonna have to hop on the housing market rollercoaster and adopt your new NIMBY lifestyle. EDIT: and for sources of financial news, I really like nakedcapitalism.com as a contrarian supplement to the regular stuff, check out these three articles then look at the dates. http://www.nakedcapitalism.com/2007/03/market-correction-is-coming.html http://www.nakedcapitalism.com/2007/03/market-correction-is-... http://www.nakedcapitalism.com/2007/03/unwinding-fraud-for-bubbles.html http://www.nakedcapitalism.com/2007/03/unwinding-fraud-for-b... http://www.nakedcapitalism.com/2007/03/michael-panzer-on-subprime-delusions.html http://www.nakedcapitalism.com/2007/03/michael-panzer-on-sub...

captain_crabs 9y ago
I'm imprecise with my language because I don't know what I'm talking about really. If financial institutions did something horrible that should've sent them out of business, and they got bailed out, then it stands to reason the next time they figure out a way to do that, they will. So maybe not housing. But I bet there's some exploit somewhere. So then my next thought is, if I can identify this, I should react accordingly. And I want to buy a house soon. And those links - 100% marginal tax on all income above $500k!? I like the freewheeling nature of ideas there. Seems like a good place to brainstorm from