In the email;

Thanks for your RE Notebook updates. Every little bit of positive (or even reasonably )news is welcome, but it seems there are so many headwinds to any significant near term recovery or any substantial increase in values that it might be time to go back to the old model (pre-1970) of “buy and house and pay for it” over the term of the loan.

In any case, I seem to be forced into that kind of thinking. At least every month I’m paying down the loan by hundreds of dollars; better than renting because you know when you rent, you get no equity and a rent will increase every year.

My mother bought [this] house in 1951 for $7,200. 30 years later and just before her death at age 72 in 1982, she paid the loan off and owned it free and clear. I think it was worth about $48,000 at that time. It’s possible that residential real estate has lost it’s glitter as a get rich quick scheme and will recede to a more traditional, long term, buy and hold “place to live”. Bob

I agree.

Homes are for living in.

It used to be the purpose of a home was to have a happy place to raise a family and, hopefully if you were lucky, you would be able to pay it off so maybe you didn’t have to work forever.

Then real estate became a casino. It wasn’t about the family, it was about getting rich quick.

Sure Arizona’s had plenty of booms and busts before but this last one was different.

This Time It’s Different

There are a zillion theories about why. And Bob may not agree with this but one factor that has been completely overlooked but partially explains Bob’s point has been a change in the culture – the rising social acceptability of gambling in Arizona and the United States.

What’s the biggest public education program the State of Arizona has? Some public health or school issue?

No, the biggest public education program the State of Arizona has had for about 30 years now has been to promote gambling, the Arizona Lottery. All those zillions of commercials and billboards and radio ads for decades has gotta have had an affect.

An entire generation of kids grew up steeped in these State funded commercials celebrating the joys of gambling and getting rich quick.

The Arizona Lottery changed the culture far beyond making buying lottery tickets acceptable. They made the get-rich-quick ideology socially acceptable.

Apparently, for the Arizona State Government values like work hard and saving money to slowly get ahead are for losers. Winners take (stupid) risks.

Our Arizona State Government has promoted gambling more than any other social ideal for 30 years. So, what did you expect?

ADDED: Bob doesn’t agree with me on gambling but makes a lot of good points.

Hi John, thanks for posting my take on real estate, old time persectives about real estate values and the way we are experiencing current changes to our models.

I do not agree with you that gambling has anything to with real estate investing, except for a few at the late stages of the bubble. I believe the central thing about our current situation has to do with the Boomer Generation; add to that all the other problems with lending, forecloser, etc. In ’71 I bought a cabin/house in La Jolla for $17,000. The next year, that same house was worth $35,000 and a year later it was valued at $65,000. It’s about a Million and a half-today.

I believe the historic baby-boom generation fueled housing demand since 1971. I am 3 years older than the first boomers. Before my time to buy that house in LJ, prices were essentially flat for 30 years. Demand and values increased since 1971, add to that, policies led to easier and easier lending standards. everyone should be able to own a home. I still believe that is a worthy goal, but affordability is the controlling dynamic. Balloons only fly so high; kites get ripped apart in strong winds.

Of course, every [local] market is different. The coastal zone will always be influenced by high-powered money and income, whether or not US buyers or South Americans. The coastal zone is a special environment. Some developments on Mt. Soledad were only marketed in Spanish.

The Phoenix metro market is mostly influenced by the ability for developers to build on the periphery, ad-infinitum, which definately influence values. That aspect of development adds affordablility but also contribues to the boom and bust cycle we experience. Every 10 to 12 years, in my experience, the ovebuilding decimates values. I call it the housing cancer of southwest cities, which seem to have unlimited land on the periphery. Hopefully, water shortage and the energy crises will change that model.

This time it’s different. I do not expect any sensible rebound in values. This is a long term adjustment, having to do with macro-economics, banking crisis, lending restrictions, the low formation of new families and protracted unemployment…add to that no jobs that pay very much in this metro area. However, in my opinion, the central change I see, which I believe over-arches all current circumstances, is that Boomer Generation is now beginning to downsize, causing less and less need for fixed housing. In the past, we counted on these people selling their homes and moving to the SW to retire. Now they are stuck in their houses which have lost value.

I could go on and on, but I think we are in for a long arch in terms of real estate being anything other than an exciting adventure. Buy a house to live in it and pay for it, like any other consumable. I think that the idea of buy/sell or buy/ flip is over for a long long time. And that could be a good thing.