If you have the cash, it seems like it's going to be a good time to pick up a recent used car. $150 billion worth of adjustable rate mortgages are set to reset to a higher rate in October. The next 11 months will see an average of $30 nillion worth resetting every month (source). That's roughly 500,000 households in October and then another 100,000 per month, or a million and a half over the next year. Those people are going to have to cut out other things to keep their houses, and I'm sure a lot of them bought nice cars in the last couple of years.
There's lots of talk about "buyers' markets" and "sellers' markets" in residential housing. We've been in the latter for some time, but we're pretty emphatically moving into the former. A lot of people care a lot more about what kind of market they're in than they should, or at least, they care for the wrong reasons.
Consider. Most residential real estate transactions involve people who are moving within a market. Certainly you'll find people moving between markets, like from California to Texas, people entering the market for the first time, or people exiting completely, but by and large, most of the time, people are staying locally. That means that buyers are also sellers. A buyers' market helps you with the new house, but it hurts you selling your old one. A rising tide lifts all boats. Similarly, a sellers' market hurts you with the one one and helps with the old one. It would appear that it doesn't make much difference what sort of market it is.
That's not quite true, though. It's only irrelevant if you're moving between properties of about the same price. If your old house and your new house are both $200,000 and a bubble market is inflating the price of each by 10%, you neither win nor lose. However, if your new house costs substantially more than your old house, it's going to matter. Suppose the house you're selling would be $150,000 in a normal market, and the one you're buying is $250,000. That means you need to cover a $100,000 difference. If you're in a sellers' market, and each house's price is inflated by 10%, you're going to get $165,000 and pay $275,000; the difference you have to cover is now $110,000 1. On the other hand, if you're in a buyers' market with each house's value depressed by 10%, you'll get $135,000 and pay $225,000, for a difference of $90,000. Even if you paid more than $135,000 for the house you're selling, you're still better off in a buyers' market because you're trading up, and you want the difference between old and new to be as small as possible.
Naturally, the reverse is true. If you're moving into a less expensive house, that's when you want a sellers' market. In that case, the difference between the price of the old house and the price of the new house isn't a cost, but a profit. Even if a bubbly housing market means you're over-paying for the new house, whoever's buying your old house is overpaying even more2 than you are.
Sellers' markets aren't always good for sellers, and buyers' markets aren't always good for buyers, because usually buyers in a market are sellers in that same market. It may seem that it all cancels out, but it doesn't. If you have any flexibility about when you move next, and you plan on a bigger or fancier house in a nicer area with better schools, wait for a slump. Don't get irrationally attached to making a "profit" 3 on your house; if you're making a loss because of market conditions, think about what a good deal you're getting on your new house.
2 In absolute, not relative terms, but it's usually absolute returns that matter when your resources are limited.
3 When you factor in taxes, insurance, and maintenance, and look at the annualized rate of appreciation rather than the total appreciation, most houses are terrible investments.
I'm not too motivated by money these days. What I hope for from my career 5 or 10 years down the road is more about whether what I'll be doing will be interesting. That wasn't true when I started out. Back then, I cared more about how much money I'd be making later. I certainly like money, of course, but it's not something I look forward to the way I used to. Maybe it's because I make more now. Or maybe it's because I'm starting to get a little jaded. Or maybe, just maybe, it's maturity.
Is it possible for the broader economy to be more stable while individuals are less stable? It seems counter-intuitive, but it makes sense. Lifetime employment is long dead, and it seems like the social contract of the earlier post-WWII era has been sundered forever 1. And yet, the broader economy is more stable than ever, even with the current dislocations. Economic cycles have been dampened, inflation seemingly tamed. Perhaps it is like how the San Andreas Fault creeps along instead of letting the pressure build up, and then violently releasing it in a massive earthquake. The economy creeps along, lubricated and stabilized by the fortunes and failures of millions of individual economies. Perhaps that will keep the mortgage collapse from becoming an economic collapse. I'm no economist.
1 Of course, it was a historical anomaly to begin with.
As his wedding day approached last spring, Marshall Whittey found that his money could not keep pace with the grandiosity of his plans. But rather than scale back, he chose instead, like millions of homeowners across the country, to borrow against the soaring value of his home.
He and his bride, Holly Whittey, exchanged vows on the grounds of a sumptuous private estate in the Napa Valley. They spent their honeymoon at a resort in Tahiti.
But now, in an ominous portent for the national economy, Mr. Whittey has grown tight with his money. His home is worth far less than it was a year ago, and his equity has evaporated. And like many other involuntary adopters of a newly economical lifestyle, he can borrow no more.
"It used to be that if I wanted it, I'd just go and buy it and finance it," Mr. Whittey, 33, said. "I'm feeling the crunch, and my spending is down significantly."
Link1. What a tragedy? What a tool. The people I know have varying degrees of financial responsibility, but few of them are outright irresponsible. I figure few of you come right up against this kind of idiocy, so it's good to know how recklessly foolish people can be.
Uma likes this obnoxious Berenstain Bears book about Easter. In one part of the story, Mama Bear chides Sister Bear for thinking holidays are all about stuff, whether it's presents or special food. Now, I realize these are fictional characters, but it's a common sentiment. If they're anything like most people, that's because most of the parents' emphasis is on the stuff. How much time do you spend at Thanksgiving thinking about all the good things in your life? And how much time do you spend stuffing your face (or preparing to stuff your face, or cleaning up after stuffing your face, etc.)? How much time do you spend on presents at Christmas vs thinking about the birth of Jesus?1 The kids think what matters is the stuff because the parents demonstrate it through their actions. If they want kids to pay attention to the sentimental stuff, then they'd better demonstrate it through their actions.
Of course, I don't think there's anything wrong with seeing Thanksgiving as an excuse for a party and gorging yourself. That's fine by me. For us, Christmas is all about tacky decorations, shiny lights, and presents. I'm A-OK with that. But if you're not, make sure your actions reflect it. Kids are smart. They can tell what you think is important. Don't blame them for getting it right when you got it wrong.
People should be complaining about the spike in food prices. That's something more essential that the government can legitimately do something about, like eliminating the corn ethanol subsidy (since farmers are switching fields from other food crops to corn), eliminating other farm subsidies (so as not to prop up prices), and getting rid of tariffs (like on imported sugar).
There's not much difference between clothes dryers. You've got energy source, size, noise, and whether there's a moisture sensor. They all use the same methods and the same amount of energy; Consumer Reports doesn't even bother rating them on energy usage. Broadly speaking, if you have a working dryer, a new dryer is a waste of money. Where they get you is this idea that washers and dryers come in matched sets. There are all these pretty, sleek, colorful sets out there. You buy a new washer, and they try to take you for a ride on a completely unnecessary dryer. The internals of washers vary. There are lots of reasons to get one washer or another, or to replace the one you have. Dryers are basically all the same. Matching is nice, but is it really worth $500 or $1000 just to get a shiny new box around a machine nearly identical to the one you already have?
As you might have guessed, we got a new washing machine. Two kids in cloth diapers means doing a lot of laundry. It cost $700 regular price (same price at Lowe's and Best Buy). All told, it cost us less:
-$35: On sale. Lucky us.
-$50: I asked. Mind you, I am a terrible negotiator. However, I have two things going for me that help a lot. One, I'm willing to ask. Two, I know what I'm willing to pay, and I'll walk away if I don't get my price. The corollary is that I'm ready to buy if I do get my price; I'm not just playing games, and I want the salesman to know that. Apropos, the NY Times just had an article about negotiating at big box stores (the gist is: you can). I told the sales guy: "This can be the easiest sale you make all day. Take $50 off and I'll buy it now."
-$60: Free delivery and installation promotion (in-store only). Luckier us. I did ask if we could skip the installation for a discount, but no dice.
-$85: I bought gift cards at a discount ranging from 8% to 20% on eBay, Craig's List, and Card Avenue.
-$50 (forthcoming): City of Austin water rebate for buying a high-efficiency washer.
-$50 (forthcoming): Texas Gas Service rebate for same.
-$50: sale of our old washer, which was perfectly good, just not very efficient. Best Buy offered to take it away for free; while convenient, that gets no moneys.
Note that you can also use coupons. Sometimes they have restrictions, so make sure they're valid for what you want to get. You can get these coupons on eBay or elsewhere. Little known fact (even to employees): some stores will take competitors' coupons; I've saved about $60 over the last few weeks using Lowe's coupons at Home Depot.
Overall, our net hit will be something like $380, after figuring in taxes and such. We're currently on a rate of 2-3 loads of laundry per day. High-efficiency front-loaders save you money by using less water, but they also save money because your clothes are less sodden when you put them in the dryer. In the current economy, getting a 5% yield on a safe investment is pretty good; 10% is great. I estimate we'll save between $60 (very conservatively) and $120 (more likely) each year, which is a yield of 15%-30%.
We're also saving money by getting our detergent1 through Amazon's "Subscribe & Save" thingie; that gets us down to $0.15/load2 (which still costs more than we were paying before, but that's because we were using the super-cheap (and quite good) Purex).
1 Generally considered the best widely-available high-efficiency fragrance-and-dye-free detergent for cloth diapers
2 Incidentally, chances are, you're using too much detergent. Their cups have 3 markers on them; intuition suggests that you want to fill to the middle or top one, but filling to the lowest line is usually enough, unless you've had some kind of rotavirus shitstorm in your house (makes it come out both ends; for some reason, I have a vision of one of those double-sided S-shaped lawn sprinklers).
The NY Times summarizes the phenomenal1 earnings of some hedge fund managers. One sentence caught my eye: "Some ... profited handsomely from the turmoil in the mortgage market ripping through the economy." That makes it sound like they caused the collapse, or at least made it worse. In reality, they probably made the collapse less severe.
These managers made their money through short-selling (well, to oversimplify). That means they bet securities would go down. Lots of people dislike short-sellers because they confuse making a profit from a decline to causing a decline, a decline that wouldn't otherwise happen. Consider a simple example. Shares of UDG are currently trading at $10. You're willing to buy them at that price. I think that's too high, so I borrow some shares and sell it at $10. That action pushes the share down to $9. Then your trade goes through, and you end up getting it for $9. If the share price subsequently rises, you make an extra $1 profit, and I get hit. If it goes down, you lose money, and I make money, but you lose $1 less than you would have. Either way, you're $1 better off than if I hadn't sold it short.
That's an example simplified to the point of triviality, but it illustrates the point. Short-sellers smooth out the market. The hedge fund managers who bet against mortgage securities kept the bubble from getting even bigger. They kept other parties in the market from losing as much money because they got better prices than would have otherwise existed. That doesn't mean that their pay is reasonable, only that they can't be blamed for sabotaging our financial system.
1 And excessive, but that's only a problem for the people paying them, i.e., their investors