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Riding through financial crisis
Published Saturday, September 27, 2008
Photo by The Daily Journal
Joel Myhre
So I did a dumb thing on Friday morning. After reading about the tiffs regarding the proposed $700 billion bailout plan, I decided to take a peek at my own retirement assets. I also checked out what I now owe on my home, and tried to take the temperature of real estate values of similar homes.
As expected, my investments are doing worse than they were previously, and thus, the amount of money in my retirement account is less than it was three, even six months ago. In addition, it’s likely that, if I were to put my home on the market right now, the equity I would receive, and about $2, might be able to buy me a cup of coffee.
Clearly, it was something I should not have done. That said, I am remarkably calm about my recent decline in personal wealth.
If you talk to any investor worth his or her salt, the advice will be this: think long term, and don’t worry about the inevitable short-term drama.
So that’s what I’m going to do. At my age, though I wish it were different, retirement is 20 years away at a minimum, and more likely closer to 30 years. I decided to check what financial life was like 20 years ago. We were bailing out of the savings and loan crisis, inflation was a clear concern, and while the economy appeared to be on its way up, we were clearly working out of a prior recession.
Of course, since that time, we’ve had a couple of booms, a couple of recessions, and a lot of drama in between. But when you average it over the years, the stock market has continue to grow, and I guarantee that whoever bought mutual funds 20 years ago are doing just fine today.
As to the housing market, it was interesting that the mortgage interest rate 20 years ago was close to 11 percent, and in early 1989 went close to 11.5 percent. I assume most homeowners today pay a mortgage with an interest rate between 5 and 7 percent. By the way, for those who bought their house in the late 1980s and have not refinanced, I would suggest doing so.
In other words, life isn’t great if you bought a house that you now can’t afford to make payments on, and you owe more on it than it’s worth. Similarly, the banks that loaned you the money and are finding out now that you could not afford the house you bought are also in a pickle.
But for those who can afford the payments on the house they live in, the low interest rate you received means you are probably in a better house than you could have afforded in the late 1980s.
Yes, there’s a likelihood that your house is worth less – today. But like the stock market, the housing market will again rebound. Unless you purchased your house, say, two years ago, and have a desperate need to sell it today, the value of your house today is essentially irrelevant.
I’m not saying the economy isn’t in a pickle in the short term. Nor am I necessarily happy about the idea of adding to already massive national debt, leaving my daughter and her children and her children’s children to pay for it.
So after reading the news, and examining my own financial situation, I have decided that I am going to do nothing, and let it ride. We’ve been through this and come out of it before, and in all likelihood, we’ll come out of it again.
••••••
I want to wish a happy retirement to Shirley Frigaard, who has served as my administrative assistant for the last six years. Shirley made sure I and the rest of our advertising sales staff stayed on track. She did it with great competency and enthusiasm, and we’re all going to miss her.
Joel Myhre is The Journal’s general manager. E-mail him at joel.myhre@fergusfallsjournal.com
Comments
The Daily Journal is happy to host community conversations about news and life in Fergus Falls and the surrounding area. As hosts, we expect guests will show respect for each other. That means we don't threaten or defame each other, and we keep conversations free of personal attacks. Witty is great. Abusive is not. If you think a post violates these standards, don't escalate the situation. Instead, flag the comment to alert us. We'll take action if necessary. It's not hard. This should be a place where people want to read and contribute -- a place for spirited exchanges of opinion. So those who persist with racist, defamatory or abusive postings risk losing the privilege to post at all.Posted by mccain08 (anonymous) on September 27, 2008 at 10:20 p.m. (Suggest removal)
you're lucky to have a retirement account, a lot of people live paycheck to paycheck so they can stay alive without ever accumulating wealth, which is exactly how the wealthy planned it.
Posted by mgdbottled (anonymous) on September 28, 2008 at 9:15 a.m. (Suggest removal)
Homes are not liquid assets. Folks need to remember that. A person's home is worth what it costs to build a new one of equal size and quality less what it would cost to update a used home to new quality. A home's value has nothing to do with what your neighbor's house sells for. Assuming of course, it's located in a decent neighborhood. It's also important to remember that the realtors and appraisers know nothing. Most are forty hours wonders who think they're experts. They seem to think a homes value is tied into what your neighbors home sells for. Wrong!!! Realtors and appraisers are a big part of the problem in the housing market today. They've played a major roll in why the banks are in trouble today.
If you want to know what a used home is worth, hire an experienced building contractor and have him look at it and ascertain what a new home of equal quality on a similar lot would cost and what it would cost to bring the used home up to new home quality. Most of the cost of a home is labor costs and a contractor's estimate will vary depending on the labor costs in your particular area. Do not rely on what a forty hour wonder tells you.
In my part of the country, housing has actually increased in value over the past couple years. It has year after year after year increased in value pretty much in accord to the inflation rate and cost of new homes. The market is slow, but that happens from time to time. If you want to list your home for sale, put in on the internet. It'll sell eventually and you'll save big bucks in unearned real estate commissions.
You might want to think about keeping your home mortgaged to the maximum as a protection against creditors. The reason I say that is that if you get sick and run up large medical bills that you can't pay, you'll lose everything. Why have equity in your home when you're one illness or one lawsuit away from bankruptcy. There's absolutely no incentive to save any money in this country. Retirements accounts are usually safe from creditors but not safe from a downturn in the economy. Just ask my son who lost $29k dollars in his 401K last month.
Posted by Joe (anonymous) on September 29, 2008 at 1:14 p.m. (Suggest removal)
MGD - might you kindly set your bottle aside so that I could have a bit more of your focus for a moment? Your statements, as I have encapsulated below, are (respectfully) erroneous. I quote:
"A home's value has nothing to do with what your neighbor's house sells for. Assuming of course, it's located in a decent neighborhood. It's also important to remember that the realtors and appraisers know nothing. Most are forty hours wonders who think they're experts. They seem to think a homes value is tied into what your neighbors home sells for. Wrong!!! Realtors and appraisers are a big part of the problem in the housing market today. They've played a major roll in why the banks are in trouble today."
Your canvassing of all real estate sales agents, as well as real estate appraisal professionals, as people who 'know nothing' is blatantly false. There are a good number of professional, ethical real estate sales agents and appraisers that would welcome the opportunity to debate your position in a public forum to, first, establish to the educated public their credibility and depth of knowledge related to real estate and, second, to factually establish the inaccuracy of certain comments you have proclaimed to be realistic as being nothing more than reckless banter.
Just to clarify your comment related to a property's value having 'nothing to do with what your neighbor's house sells for': WRONG. A comparative market analysis (CMA) is considered standard practice for establishing guidance on market value for a property that may be offered for sale. Granted, there are adjustments made to accommodate for age, construction variations, 'wear and tear', and dissimilar features, but using a comparison of recently sold properties in proximity to the subject property (a neighbor's property) is an established and proven means of providing guidance for market value.
I associate with licensed real estate sales agents on a regular basis and I can state with full confidence these individuals are extremely knowledgeable and certainly had no negative effect on today's present housing market as you so unfairly allege. Furthermore, professional real estate agents do EARN their commissions and they DO add value to real estate transactions. You might be interested in knowing the overwhelming majority of all FSBO (for sale by owner) properties ultimately require the services of a professional real estate sales agent to sell the property.
One further point of enlightenment for your consideration: Not all real estate sales agents hold the professional REALTOR® designation. This designation indicates membership in the National Association of REALTORS® (NAR) and is not held by all real estate sales agents nor is it an appropriate reference for real estate sales agents in general. (Just another nugget of information to further expand your real estate knowledge base.)
Good day!
Posted by mgdbottled (anonymous) on September 30, 2008 at 9:31 p.m. (Suggest removal)
Only a real estate agent will say a real estate agent is needed. Hah! With the advent of the Internet and now wide spread use of Title Insurance Companies, there's absolutely no need for a realtor. They're obsolute. The title company will do all the title research and closing documents and provide a title insurance policy. Sellers can find and print off a buy-sell agreement and disclosure statement from the internet by themselves. If they're not comfortable doing it themselves, they can hire an attorney to do it for them for less than $500 rather than pay $15 to $20 thousand dollars to some forty hour wonder.
I've spoken with several title company representatives lately as I practice real estate law. They've all said that eight out of ten real estate closings are "for sale by owner" sales. Smart people don't pay $15 to $20 thousand dollars for something they can do themselves. As I said above, if a seller wants an accurate value on their home, they should hire an experienced building contractor to provide an estimate. The builders I know are more than happy to help. If I need a title search done, I call a title company. They can provide that service to my client much cheaper than I can. The only work I have is the buy-sell, disclosure and deed. Like I said, less than $500.
Posted by Joe (anonymous) on October 1, 2008 at 8:41 p.m. (Suggest removal)
MGD – My commiseration if the above logic-based, factual summary created any sense of consternation in your world. There is not even the slightest inkling on my part to sway your opinions. Trust me on this. However, I believe it is vital that each of us be emboldened to confront positions that may askew or offend the sensibilities of reasonable people. To that end, your assertion that real estate sales agents are ‘obsolute’ tends to push my BS-O’meter into the red zone.
Your obvious displeasure with real estate agents seems to have coloured your entire world with a funky haze of bleu. ‘Tis a pity. Try this – repeat after me . . . “It’s OK. I’m OK. You’re OK. They’re OK.” OK? (If not, there are some really spiffy anger management courses out there . . .)
HOWEVER, your compartmentalization of a real estate transaction into little more than the assembly of a few papers is much too abbreviated. It is worth noting there would be no need for paperwork if there were no negotiated deal, if there were no buyer, if there had not been a properly executed (pronounced ‘it DOES take a good amount of time and money to pull off’) marketing plan. Real estate sales agents do ALL of the above – and much more. In fact, much like any field of employment, there are a good many challenges inherent in the real estate sales industry that may well be non-apparent to the unconditioned eye – much like, I would surmise, practicing real estate law. . .
Lastly, as I have previously alluded, there is a tremendous difference in values of depreciated construction cost vs. market value for any property. Assuming a ‘decent’ neighborhood doesn’t fly when calculating guidance for market valuation. Let us leave market valuation to the professional appraisers and real estate sales agents and have the building contractors focus on contracting for building. There is a place for everyone in this world. ‘Live and let live’, I always say. (I really do say this.) Likewise, no group of individuals should be the subject of an anonymous, biased onslaught as is being so attempted in this thread.
One more thing: Where are you getting this $15 – 20 grand number that ‘smart’ people don’t pay? (SPOILER: Be careful, MGD, this might be a trick question.)
Now then, MGD (BTW, is it OK if I call you ‘M’?), can we try to play nice on this forum which the Fergus Journal has so generously provided?
Cheers!
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