September 26, 2007
Jim Cramer Told Me Not to Buy a Home, and My Mechanic Told Me I Need a Colonoscopy
Posted by Jason Mook under Advice, Home Buyer, Home Owner, Home Prices, Home Seller, Lending, Market Activity, Mortgage, Pierce CountyIt’s obvious to me that Jim Cramer of Mad Money is a sensationalist and irresponsible. If you haven’t seen his show, or you haven’t seen his top blow on CNBC, you’ll probably say to yourself, “Wow, that’s quite an inflammatory statement you’re making. Care to elaborate?” Yes… yes I do.
After Jim dropped his calm, cool, collected, yet hot and steamy deuce on the Today Show this morning, I’m convinced Jim is just that - a sensationalist. Although he left his passion in the green room this time, Jim, a stock market analyst, came on to talk with Meredith Vieira about the housing market. This makes as much sense to me as asking my auto mechanic about internal medicine. Sure, mortgages have their feet in the stock market, but the housing market and the stock market are two different arenas. Doesn’t NBC have a Realtor® or Pat Combs on speed dial by now for these types of stories? Honestly!
Jim really didn’t offer any information that most consumers haven’t already heard - August was a rough month, new home builders are behind the curve and have a glut of inventory which affects the resale market (the home you already own you’re trying to sell), financing isn’t as easy to find as it was, parts of our country are struggling while some less. But then they start talking about consumer confidence. Surely consumer confidence plays a major role in the housing market, as it does in the stock market.
This is where my blood pressure starts to go up. I actually thought that Jim was going to add positively to consumer confidence. Meredith mentioned that some analysts believe that it will take 2 years to get out of this housing slump, but Jim felt that was too “bearish” and that the Fed (Federal Reserve) will have rates lower by the beginning of next year, encouraging consumers to buy. Way to go, Jim. But then Meredith asked, “So bottom line for now, housing sales will continue to drop, correct?”
Jim’s answer to this was, “Don’t you dare buy now… don’t you dare buy a home now. You will lose money.” Exsqueeze me… baking powder. Last time I checked, buy low and sell high was still the preferred investor strategy. I’ll concede that if you buy a home today it may not be worth as much in a month. I’ve seen this happen, especially in the new home market here in Pierce County. You buy a new home, and a month or two later, the builder is cutting the price on your model by ten or twenty thousand dollars. It stings, I know. But since when have we become day-traders on the housing market? We haven’t… that’s the point!
If you intend to sell your home in a couple of years, sure, it’s not a good time to buy. At best you might break even, but more likely you’ll be upside-down on that puppy. But if you’re going to keep your home for longer then that, which most people intend to do, this is a great time to buy. As a seller, you have to realize that there is a record number of competition and marketing strategies fighting against your home sale. You have to get real and you have to get serious if you want to stand out from the pack and get that home sold. As a buyer, you have enough choices to choke a horse, and while money isn’t as easy to find as it was a year ago, it’s out there for the taking and the rates are still good. The tables have turned and there’s no doubt that it’s in the favor of buyers. So believe the national media, believe Jim Cramer if you want, but when the market turns and starts heading the other way, it’s too late, and you’re buying high.
I’m going to follow suit with CNBC here. After Jim’s interview in August on CNBC, they splashed a disclaimer, chiefly to make sure their own butts were covered. I think it’s appropriate here as well, considering the irresponsible comments he made. Here’s my modified version of that disclaimer.
All the recommendations expressed by Jim Cramer are solely his and are not the opinions of sane, informed people, and may have been previously disseminated by him.
Before acting on a recommendation by Jim, consider it’s suitability for your circumstances and consider seeking advice from your own Realtor®.
September 26, 2007 at 3:35 pm
Did you just bust out a Wayne’s World quote? Anyone who lives by Cramer will die by Cramer. Housing, stock market. You won’t get rich, like his book states.
September 26, 2007 at 3:53 pm
You bet - I find it far better than swearing.
I know Cramer is a very popular analyst and TV personality. I also know that I am but a humble Realtor in a small suburb of Tacoma. But I think it’s irresponsible to go on national TV and tell people that if they buy a home today they’ll lose money, without explaining or qualifying their opinion.
And you’re right - as long as people listen to Cramer, I won’t have an income, let alone getting rich.
September 27, 2007 at 12:47 pm
Jason, it’s “lose money”, not “loose money”. They are very different words. Ken
September 27, 2007 at 1:58 pm
I agree with Jason, it is very irresponsible for anyone to go on tv and make such statements! Our market, in Cochise County, Arizona, is mostly rural and never had the dramatic price increases many other areas of the country experienced over the past several years. As a real estate professional, I have certainly seen a decrease in activity, however this is something we here in the southwest can attribute more to “season” and not a problem in our local market. The main thing to consider in real estate has always been “location, location, location”. This is certainly the case when considering today’s real estate industry.
September 27, 2007 at 6:12 pm
Ken - Thank you for catching that. You’re absolutely right.
September 27, 2007 at 9:04 pm
There has NEVER been a sustained price drop in Western Washington housing prices. We got through the Boeing bust in the early 70’s which was followed by 8 yrs of sensational appreciation. The mortgage meltdowns of the early 80’s due to excrutiating interest rates led to a 20 yr price upswing. The .com crash of ‘99 - ‘00 ushered in the greatest price run to hit the northwest for the next 6 yrs. We’ll be out of this by Fall ‘08 and we’ll all be looking back saying, “I should have bought that home last year!”
September 28, 2007 at 12:11 am
I agree with Jason….I am a Realtor in the Atlanta Metro area. Our prices in the Atlanta area did not increase like the prices in many other metro areas across the country. We are currently experiencing a flat market and small decline in some of the housing prices throughout the Atlanta area. New construction is really taking a hit in the Atlanta area. Rental occupancy is WAY up due to the inability of some people to purchase homes at this time. Like the tech market stocks, I think that there may be some people that will be looking back and wishing that they would have bought investment properties and owner occupied homes during this time.
September 28, 2007 at 6:01 am
You people are comical. Let’s start with you Realtors making these comments. So it’s irresponsible for Cramer to go on TV and warn people that they will lose money if they buy a home now (which is demonstrably, undeniably, absolutely true), but it is OK for NAR to wage a propaganda campaign to trick people into making bad investments?
And as for the author, how many of Jim’s books have you read? How many of his articles and videos on the TheStreet.com have you read? Do you subscribe to his Action Alerts service? I just started independently investing and have made 4% on my money in two months thanks to Jim. His antics on Mad Money are an act intended to hold peoples’ attention while he attempts to educate. He is a much different person away from the show.
We have only seen the tip of the iceberg here… The over supply of housing right now is due to builders’ over-construction in order to sustain cash flow. The worst of the foreclosures is yet to come (Jan 08 probably) and that will bring another wave of supply in to the market. You all have your heads buried in the sand.
You likened his comments to day-trading which is ignorant… he meant the exact opposite. Your home is NOT a trade, it’s an investment. So if I buy a home today for 100k and it is worth 90k in one year and then 120k in five years, I’ve made a 20% ROI. That seems to be your thesis - “Hey, I made money so everything is just terrific!” But if I wait a year and buy it it 90k, I’ve made a 33% return. And that doesn’t include any returns earned on the money that I held on to for another year.
One more thing about his “top blow on CNBC.” Doesn’t it count for anything THAT HE WAS RIGHT????? He was the only person in America at that time who predicted this credit squeeze and insisted that we needed a cut. He was universally denounced, abused, and laughed at. I’m guessing he sleeps pretty well at night knowing he was right about the rate cut. And he’s right again about housing. I know it’s your livelihood and that stinks, but it is YOUR problem and you’re trying to make it everybody else’s.
September 28, 2007 at 8:15 am
Wait, let me get this straight. I should buy a house right now even if the builder is going to lower his prices by $10-20k in a month?!?!?
Why shouldn’t I just pay my $750 monthly rent an extra month and wait and see what happens? Or better yet, do that for a few months and see?
September 28, 2007 at 11:49 am
Are there any non-realitors who think now is a good time to buy? I understand your income is at stake here and you should know its historically a 7 year cycle which has not had a downturn in 16 years and thus the correction will be twice the norm to the bad if not more as the price increases were huge. As was already pointed out, you believe the market will continue to go down so in the believe of buy low sell high, why would you buy now? knowing the typical selling season is over as we head into winter and that $50 billion of ARMS will adjust in Oct the earliest bottom is next year. This will hurt not only realitors but contractors, appraisers, escrow companies and so on who also have been the lucky winners over the boom and the market will make many of them find new jobs as happens to all industries.
September 28, 2007 at 12:53 pm
I think there’s a huge difference between the average person buying a home they intend to live in and the investors who helped drive prices in certain parts of the country into the stratisphere. Bottom line is that greed played a very large part in the real estate boom. Money was cheap, many media outlets were telling people they could get rich flipping houses, and anyone who could pass their state’s test went out and got a real estate license, or became a mortgage broker. The fact is that yes many “regular” people did buy homes they could not afford and they probably did so with an adjustable rate mortgage which some inexperienced mortgage broker probably told them they could get out of by refinancing “in a year or two.” However, most real estate professionals actually do not “talk” anyone into buying anything. Our jobs are to counsel people about their options after talking at length with them about their dreams. I have been in real estate for almost 30 years. I’ve survived many rough markets because to be successful in real estate, as with anything else, you must realize that the customer is what matters. Real estate isn’t really about selling houses, or land, or condos or anything else, it is about building relationships with people. A true professional understands that. It simply is not fair to lump all real estate professional with those whose only goal was to take advantage of a booming market.
September 28, 2007 at 1:25 pm
It may be a good time to buy now. But, Cramer is warning potential home buyers that it may be a better time to buy in the future. Be patient and give the market you want to buy into a lot of scrutiny.
September 28, 2007 at 2:02 pm
Jon:
I am not a real estate professional however I believe that it is a fantastic time to be in the market to buy!! (Atleast it is in Washington state, as Jim Cramer stated in his commentary this morning about the good market in Seattle area currently, which is where Jason, the author of this posting is located.)
Right now prices seem to be decreasing slightly and sellers are more flexible with buyer bonus options to be more appealing to a buyer. Yes the prices MAY be better in a few months, but who’s to say that they absolutely WILL be better? By Jim stating “you better not buy right now” he is scaring America, which ultimately COULD cause the prices to fall purely because he made that statement…and what a fool he is to say such a thing. It’s almost like he’s trying to set it up that way — just by the words he chooses to say on national television.
Is it ethical to tell others not to buy right now because prices MAY go down further, when it is not a “for sure” thing? Interest rates are going down, home prices are going down and sellers are more flexible because they want to sell their homes…everything runs in cycles and the prices will go back up again and everyone will regret listening to Jim Cramer.
As Jason mentioned in his article, buying a house is not day-trading stocks as Jim Cramer specializes in — it is a long-term investment that shouldn’t be addressed on national TV by someone who has no idea what he’s talking about.
September 28, 2007 at 4:05 pm
KB Homes and Toll Brothers would love for all homeowners to pull their homes off of the market so they can sell their inventory of new homes at hugely discounted prices (looking forward to the massive lawsuits that will follow). These homebuilders wish all those suckers they sold homes to would just shut up, get their house off the market and GO AWAY.
Cramer is looking more and more like a bagman for these companies and shame on him. “Don’t you dare buy”, clue to Cramer stick to stocks because in real estate investing…. YOU KNOW NOTHING!!!!!
September 28, 2007 at 5:28 pm
Interesting comment spread.
I’m the first to admit Jim Cramer is a colorful personality. What many seem to forget (or refuse to understand) is that he is an entertainer. Stock market commentators appearing on MSNBC, Bloomberg, et al are engaged in financial pornography. No one knows what’s going to happen with the market, much less with an individual stock (unless you have inside information which is illegal to trade upon).
Some of those commenting on Jason’s post are obviously from different areas of the country. As opposed to real estate financing (which is somewhat fungible), real estate markets are local. You can’t make a blanket statement about real estate markets in general and expect accuracy at a local level.
Some areas like San Diego, Sacramento Valley, Michigan, and Florida are probably going to see continued or deteriorating price levels. We’ve all seen the ARM reset schedules. Some of the CA and FL markets saw buyers using exotic mortgages reach 40%. In Jason’s neck of the woods, the rate was more like 15%.
Jon an oversupply of housing in certain areas of the country was not primarily due to builders intentionally overbuilding building to maintain cash flow. The oversupply resulted because the easy-squeeze financing programs went away. And with them, the buyers.
So the question remains: is now a good time to buy a house or not?
I’d say it depends on a number of factors:
1. What locale? Are we talking Pierce County, WA or Detroit, MI? Big difference.
2. Are you going to live in it or is this going to be a rental property? Most people don’t consider their home a pure investment. (Real estate until recently has historically appreciated a couple of points over the rate of inflation - there may be better pure investments.)
3. What price range? (Is this a multi-million dollar waterfront property or an average home in a plat?)
4. Are you considering a property where the situation is such that you have uncommon leverage?
5. Are we talking strictly about the local real estate market, or are we considering the outlook for the economy as well? The subprime and associated reset issue is only one of three or four related problems, and it’s probably the easiest one to handle. (I could write 5000 words here.) If the fed keeps pumping money into the system, will inflation result - and do you want to own hard assets if it does?
In the end it all comes down to supply and demand (demand being constituted not just by wanna be buyers, but buyers who either have cash and/or can obtain financing).
In some areas it may be better to wait. In others, it’s a great time to buy depending on how you answer the above questions.
What’s happened in the past isn’t a predictor of the future.
I wouldn’t suggest basing your home buying decision on a stock market entertainer. (if you haven’t already, read Taleb’s Fooled by Randomness) Your interests would be better served by an expert on the local real estate market.
Purporting that because you’re up in the market over a two month period lends credibility to the source is nonsense. Just because you won money from a slot machine doesn’t mean it’s a good investment (and I have read Cramer’s book).
Most of you probably know the Chinese symbol for crisis is the combination of dangerous and opportunity. Think about it… the greatest opportunities are not to be found in calm markets.
For those of you who think real estate agents all just want to perpetuate yesterday’s market, you’ve got it backwards. Some of us are eager to return to a market where skill, experience, and commitment matter most - because we’ll prosper as the mediocre depart for greener pastures.
BTW, didn’t Cramer say something about except for Seattle anyway?
October 6, 2007 at 10:37 am
It will be interesting to see how quickly many realtors will turn from capitalist to communist with the talk of raising FHA limits on gobbermint backed loans, freezing ARM rates, subsidizing subprime borrowers with taxpayer money, and essentially turning the dollar into toilet paper as a result. All many homeowners have to do is just mail in the keys and walk away from a depreciating asset. Do you think that many of them care that they’ll get to chance to stay into a home that has them upside-down for years to come? They’ll leave, rent, and wait out the 7 year credit hit.
October 6, 2007 at 11:11 am
Yo Momma (John):
My wife and I bought a home 13 months ago. A market analysis shows that we have zero equity in our home. As a matter of fact, if the same model home that’s for sale in our neighborhood goes at list price, we’ll be $10k upside-down on our home.
Just because I’m upside-down on our home, doesn’t mean that it’s time to sell - it’s time to hold.
I don’t understand your comment. Assuming people can stay in their home, why would they sell it just because they’re upside-down?
And I’m sorry, but I just don’t buy the idea that Realtors are out to get the general public. Most Realtors I know, myself included, work mostly by referral. To earn a referral from a client, you have to have their best interest in mind and work hard. To not do that means that our business fails.
If you had a bad experience with a real estate licensee or even a Realtor, I understand where you’re coming from - however, the industry as a whole does not operate as they do. Yes, I am a for profit business, but to make a profit, I have to do right by my clients, which means telling them the truth, not what I think will make them sell or purchase a home.
Greg Swann says it better than I have in this post or conversation. http://www.bloodhoundrealty.com/BloodhoundBlog/?p=2003
October 6, 2007 at 11:30 am
What I am trying to say is that housing is already heavily subsidized through tax deductions. Congress plans to pass a tax-free forgiveness proposal, essentially sticking taxpayers with the bill that a upside-down homeowner might get stuck with if the lender “forgives” the loan. This country is quickly turning Soviet with it’s redistribution of wealth, now targeted towards overextended homeowners. I’m also a homeowner, but I chose to buy small and have no mortgage at all. There are very few in my situation, and I will fight with my last breath any legislation that is aimed at subsidizing a buyer who got in over their heads. There are many more renters than homeowners too, and I’m sure representatives will try very hard to “sneak” such legislation to try not to be discovered by the renting population, but they will do so at their own peril.
Some people can’t hold. Divorce, job relocation, or other life changes happen and essentially force a homeowner out. Also, in super inflated markets like Cali, FL, LV, et al, it will take 5-10 years minimum to realize a break even point. Also, Helicopter Ben Bernanke will help to hyperinflate the economy and “gains” won’t really be gains at all.
November 7, 2007 at 1:40 pm
“And I’m sorry, but I just don’t buy the idea that Realtors are out to get the general public. Most Realtors I know, myself included, work mostly by referral. To earn a referral from a client, you have to have their best interest in mind and work hard. To not do that means that our business fails.”
I don’t buy that. As someone who was thinking about buying a home instead of continuing to rent, there is not a single Realtor who wasn’t eager to take me on as a client. Not a single one said that it might be a good idea to consider waiting 3-6 months or longer.
Your salary depends on sales activity. You may be the exception, but most Realtors that I’ve dealt with seem to pretty darn greedy for more action rather than preaching prudence.
December 1, 2007 at 11:32 am
Jason - you’ve obviously hit a chord with this one. Definitely one of the better titles I’ve come across of late!…
Sumdumguy: Unfortunately, there are those among our ranks who selfishly counsel their clients to buy, thinking mostly of the commission that wait at the end. But thankfully, there is a growing renewed focus on solely representing the client’s best interests. However, just as in any business, there will always be exceptions.
December 5, 2007 at 12:00 pm
http://seekingalpha.com/article/56045-record-home-price-declines-portend-extended-downturn
December 7, 2007 at 4:38 pm
CRAMER WAS RIGHT MAN… FACE IT MAN..
HATE THE GAME!
DONT HATE THE PLAYER.
you should have been shorting or buyiing puts on len and cfc instead of writing this silly article.. you would make a good lawyer though.. i give you that!
February 20, 2008 at 7:16 pm
Buyers in the past always anticipated appreciation, it was in the back, or front of anyone buying a home.
Now that appreciation is not expected anytime soon buyers have no reason to buy except for a cash on cash return. Or said another way, buyers will buy when buying is more comparable with paying rent.
The times I heard Cramer say do not buy he clarified not to buy in the over-heated markets.
February 20, 2008 at 7:17 pm
Buyers in the past always anticipated appreciation, it was in the back, or front of anyone buying a homes mind.
Now that appreciation is not expected anytime soon buyers have no reason to buy except for a cash on cash return. Or said another way, buyers will buy when buying is more comparable with paying rent.
The times I heard Cramer say do not buy he clarified not to buy in the over-heated markets.
February 28, 2008 at 12:56 pm
again, Jim was/is right!
People are losing big bucks!
Unless you can purchase at 2002-03 prices or stay in your home 8-10 years, you too will lose money!
In most areas, renting is currently much better than buying.
Good Luck!
March 25, 2008 at 10:28 am
Jason,
Gee, I wonder if you are you a realtor? I am reading this and I can say that since this was written in Sept of 2007, it now being 6 months later home prices seem to have fallen quite sharply and rates are only getting better since then and will continue only get better.
I would think that if you could save 15 - 20% on the purchase price and 3% on a rate, in 6 months it would seem that you would loose if you didn’t.
And the housing market is not like the stock market, prices do not adjust daily. So there is time to wait out and see the bottom. Why not wait for the best price if if will save you money over the course of a mortage.