Bubbles, Interest Rates*, Housing Prices, and Bigfoot (*Now Available With Gratuitous Bikini Graph)

“Well, I don’t think it’s officially called bubble bath if the bubbles happen accidentally, but whatever, Shawn.” – Psych

I’ve heard that bubbles can get bigger forever, and that fingers never happen.

This is the latest reader request post – I don’t think I have another one in the hopper – if I missed one or if you have a topic you’d like to see, please hit me up either in the comments or via email at movingnorth@gmail.com, but remember that the NSA® is like Santa – they know who has been naughty and who has been nice.  Unlike Santa, however, the NSA™ is real.  Not sure about whether or not they jiggle like a bowl of Jell-O® when they laugh.  Guess it depends on how good the Federal wellness program is?

Lathechuck posted in the comments of a recent post (Cognitive Dissonance, Normalcy Bias, and Survival, with Wonder Woman, Bigfoot, Johnny Carson, Stalin, and a Bond Girl.) following gem – “Favorite topic to see explained: how mortgage payments are independent of interest rates.”

Housing is an emotional issue for most people.  It’s the reason that realtors say “it’s not a house, it’s a home,” and advise people selling houses to bake cookies so that fresh-baked cookie smell permeates the house and also suggests that you remove the corpses from the fridge prior to a showing.  Very few people want to open a fridge in a house they’re thinking about buying and see even a single severed head staring back at them, let alone three!  I think it’s the “not blinking” that puts people off?

I guess that’s what I get for buying Marilyn Manson’s old house.

Yeah, it’s odd when a picture of Marilyn Manson discussing Joe Biden touching him suddenly makes the post less creepy.

I’ve never seen people get more upset than being involved in a negotiation over the purchase of a house – it becomes personal, and ceases being a business transaction.  And when people take things personally, people get emotional.  When people get emotional, people get stupid.

“How could he say that about my home?”  Yeah, I know you raised your kids there/did the tile in the bathroom yourself/became a self-taught expert on shaving and tattooing baboon crotches.  Honestly, I don’t care as long as you take all the baboon hair with you.  The more I know about you, the less I like your house, because how will it ever become my house, especially if I’m still finding baboon hair in three years?

Our realtor advised us that, given that we have about several thousand pounds worth of books, our house would sell much better if we weren’t in it.  I would wager that we have the most comprehensive library in Upper Lower Midwestia on several topics (none of which involve tattooing baboons).  To be 100% honest – the Wilder family has never, not once, sold a house that we were living in.  We are far too odd, and the skeleton on the front porch seems to be a bit off-putting.  Real conversation we had once:

New neighbor, enthusiastically:  “Nice Halloween decorations!”

The Mrs.:  “Halloween?”

The Mrs. took this picture one day while I was at work when we lived in Houston.  The statue got broken by a dog after we moved to Modern Mayberry.  Response?  We have a new statue, but we keep it inside.  Yes. I have a bigfoot statue in my living room.  Who would buy a house from a family that had a bigfoot statue in their living?  Nobody.  You just can’t forget crap like that.

Realtors try to actually increase your anxiety with sales patter.  One technique that salespeople used on me when I was young was to magnify the importance of the decision way out of proportion.  “This will be the most important financial decision that you’ll ever make . . .”

That’s a lie.  The most important financial decision you’ll ever make is your choice of spouse – and the next most important financial decision is your choice of career.  The third most important financial decision you’ll make?  Paper or plastic.

As I got older, I wondered about why a salesman would try to inject a scary thought like that in the middle of a negotiation.  Shouldn’t they be trying to make me calm and happy with the decision?

No.

The sales process is entirely about emotional manipulation.  Salespeople are actively trained in creating mind-games to sway your emotions.  It’s what they do.  There are entire manuals on the Internet devoted to the process of managing the way a buyer feels through every step of the car buying process.  And salesmen go through it dozens of times a week.  The average buyer goes through it a few times a decade.  Who do you think is better at it?

I don’t know what the name of this emotion is, but I’ve felt it.  Also, this emotion goes well with a nice Chianti and some fava beans.  Plus?  I really enjoyed writing this caption.

Realtors do the same thing.  The incentive for the Realtor™ taking you from house to house while you tangle their seatbelts isn’t to put you into the best possible house for you at the best price.  Your Realtor© isn’t your friend, they’re a salesman.  Their incentive is to sell a house.

The incentive for the Realtor® listing a house for a client isn’t to get them the best possible price.  The incentive for the Realtor© to sell their house.  Quickly, if possible.

The buying realtor and selling realtor split a six percent commission.  So, if you have a house that you want to sell for $300,000 and the realtor can sell it more quickly for $250,000, they’ll try to get you to price it for $250,000.  Why?  A certain $7,500 now is preferable to maybe getting $9,000 later.  The extra $50,000 to them isn’t irrelevant, it’s an impediment to them getting a commission this month.

Other advice you’re given is that “interest rates are low, it’s the best time to buy.”  Based on history, interest rates today are very low – nearly a record low.  But how does that impact the price of a house?

You can see how serious that interest rates are by the expression on Candy’s face.  You certainly don’t want to be caught underwater on an expensive house, or without $1 bills when she’s pole dancing a bit later on the main stage.

Now for boring math:  If you bought a house for $250,000 at 4%, your monthly payment would be $1,194 (before taxes and insurance).  I hear the entire state of California laughing at that sales price, since most of them had to give up all of their spare organs like kidneys, nostrils, or eyes just to qualify for a down payment.  Guess I won’t mention that in Modern Mayberry you can get a 4,000 square foot (16,000,000 square meter) riverfront house on 3 acres for that amount of cash.  I’m not kidding.  It’s a nice house, nicer than mine.

Okay, we all agree that $250,000 for 4,000 square foot house sounds like a great deal, but what would your house payment be at 8% interest?  $1834.  Ouch!  That’s an extra $640 per month!  Outrageous!  Will Bernie Sanders save us?

See?  Communists can even make drinking suck.

No, because Bernie lives in fantasy land.  But for grins, let’s pretend that you bought that house at 4%.  Four years later, the interest rate pops back up to 8%.  Time to sell because your psycho soon-to-be ex-wife entered a less than honorable relationship with Johnny Depp.  Let’s assume that the average wage where your house is will support that $1,194 per month payment.  How much can you sell your house for at 8% to attract a buyer at that payment?

About $160,000.

That’s a net loss of $90,000.  If you absolutely had to sell the house, you’d be out that $90,000, and some people work a whole month and don’t make that much money!

Does the same principle apply when interest rates are going down?  Sure.  I had a house for sale when the interest rate dropped by 3% over a weekend.  Weird – I think the Federal Reserve ate a bunch of marijuana brownies and slept with the cast of Cats®.  I went from no lookers in a month to three full price offers in a single day, netting me a 50% profit on the house.  That might explain why the drop in interest rates from the late 1990’s (about 8%) to the 6%-ish number of the early 2000’s helped inflate the Housing Bubble that almost ate the economy.

If low interest rates raise home prices, high interest rates make house prices drop – it’s that simple.

But the story doesn’t end there.  Homeowners are generally voters, so lawmakers like to do things homeowners like.  Examples include:

• Making homes harder to build by putting in silly restrictions. San Francisco is a prime example of this strategy, having regulations that strictly prevent higher density development.  Lower supply?  Higher cost.
• Property tax caps. These insulate homeowners from market price increases at the expense of newer homeowners.
• Giving homeowners a free massage near election time.

Legislators realize that people who don’t want homes might want them and might one day be voters, so they have (in the past) put in place laws that:

• Prohibit lenders from not lending to people with bad credit. Certainly no consequences to that idea.
• Provide loans that are easier to qualify for with sketchy qualifications (FHA). As a recipient of two FHA loans, I guess I’m okay with the government guaranteeing massive amounts of money to people just out of their teens, because young people make the very best  Go Sanders 2020!  Am I right, fellow young people?

Listen to Mr. Pink when you have a decision to make – he’s such a young hep cat.  Tippecanoe and Tyler too!  Just noting, there aren’t many blogs making jokes about the election of 1840.  For that sort of cutting edge comedy, you’ve got to come here.

Politicians want housing prices to go only one way – up.  As prices go up, people who want to buy houses have a few choices:

• Suck it up and pay the big bucks,
• Commute from some distance just inside the orbit of Mars to get a lower price, which has the effect of raising prices in the new housing subdivision on Phobos,
• Rent, or
• Move to a city or state that doesn’t cost as much.

Believe it or not, there are places that don’t cost as much as California, with odd little names like “the People’s Republic of Washington” or “the Oregon Soviet People’s Collective” that you can move to.  Readers of this blog would be better advised to move to states that are not actively governed by Che Guevara’s Ouija® board.  Oddly, they are known as “red” states.

Actual Che quote:  “If you tremble with indignation at every injustice, then you are a comrade of mine.”  Looks like he was triggered before triggered was a thing.  But he did it ironically.

In Modern Mayberry, I’m thinking that Chateau Wilder has probably decreased in value by 10% to 20% since we bought it.  Yikes!  But the decade I’ve lived here, the total I’ve paid in mortgage payments plus an assumed 20% depreciation is less than three years in a one bedroom apartment in San Francisco.  Oh, the torture, having to live on five acres with a lake for a decade rather than three years in a one bedroom.  I feel so deprived.

I bought a house, not an investment.  If you’re trying to invest, the best buy will be a neighborhood that’s going to be popular in the future in an area where wages are going up, so you need a crystal ball and there’s still risk involved – but it is a great way to get rich quick.  Buying in a recession is great, especially if you know the future.  Many a small fortune has been made in real estate, and some of these small fortunes were initially large ones.

Selling is easier:  sell into low interest rates in high demand, high wage areas.  Also?  Avoid Detroit.

Yes, making fun of Detroit is like kicking a puppy.  In my defense it’s a really, really, ugly puppy.

Beware if you’re buying in a hot market at low interest rates and if you’re planning on selling quickly.  You just might get caught.  Not that we’ve seen that before.