January 25, 2022

Sketch Guy: It’s Not Everyone’s Time to Buy a Home

My family and I are renters, and most of the time that feels fine. But last week I found myself in a state of temporary panic when I read this Twitter post from the financial journalist Felix Salmon: “John Paulson: if you rent, buy. If you own, buy a second home.”

When I read it, I immediately felt anxious. I recognized the feeling. It’s the feeling you get when you think you have to act on something right away or you’ll miss out. After all, if John Paulson, the guy who made “The Greatest Trade Ever,” was saying I should rush out and buy a house, I’d better get on it!

After allowing myself to get all worked up about this, I did what I’ve done several times before. I pulled out a piece of paper and a pencil and worked through the emotions and the numbers. In the end, I was reminded of something incredibly important.

John Paulson doesn’t know me or my situation.

There is absolutely no reason I should be making decisions based on something he said. The same is true for any other “expert” who decides to share his guess about what he thinks will happen next in the housing market.

The same holds true for the other three people who just happened to express similar concerns to me about buying right now. Two were convinced that if they didn’t buy a house now, they’d be priced out of the market, and maybe they will be. But I heard that argument a lot in 2005-6.

Then there was the third conversation I had.

It’s time for this person to downsize to a different home. The children have all moved out and the house just takes too much work. But even though it’s the right decision to sell now (given her individual situation) and buy a smaller home, a decision has been made to wait because the news, the forecasts and even the guesses are implying that the house could be worth substantially more sometime in the next 12 months.

This is madness!

Buying a home is one of the biggest financial decisions that most of us will make in our lifetimes. And yet it’s often a decision in which the person with the most knowledge about what makes the most sense gets overlooked: You.

There’s a simple way to fix this problem. As I was reminded last week, all it takes is a piece of paper, a pencil and some time. So if you’re struggling with this decision to buy (or sell), take a minute to think through these questions and write down the answers, because I suspect you’ll need to refer back to them the next time somebody decides to share what he thinks will happen with housing market. This list is not meant to be prescriptive. It is meant to get you thinking about something other than forecasts and guesses.

■ Can you afford it, and do you have enough saved for a down payment? Make sure you include the cost for things like property taxes, homeowner association fees and utilities.

■ Can you qualify for a loan? If the answer right now is no, then you can stop torturing yourself, because it doesn’t matter if the market is about to take off. You can’t buy a house.

■ How long do you plan to live in the home? There’s some debate about the minimum time you should live in a home for it to be worthwhile, but if it’s less than five years, forget about it.

■ What guess are you making about housing prices? It is a painful reality that the one variable that makes a huge difference in this decision is unknowable. What is going to happen to housing prices in the short term is anyone’s guess. But for your own sanity, just assume that housing prices will continue to increase by about the long-term average of inflation, or 3 percent. You really can’t afford to buy a house if the decision depends solely on what the house might one day be worth.

The answers to all of these questions will depend on you and your individual situation. And that’s the point. Hopefully it’s clear now how ridiculous it is to buy a house based on some stranger’s advice.

Through this process, you may discover that buying and owning a house isn’t for you, and that’s O.K., too. But these questions can also help end your anxiety around what is probably the biggest financial decision you’ll make. Don’t you think that’s worth a piece of paper, a pencil and a little time?

Article source: http://www.nytimes.com/2013/07/22/your-money/its-not-everyones-time-to-buy-a-home.html?partner=rss&emc=rss

Netflix Lost 800,000 Members With Price Rise and Qwikster Plan

“That is awful,” the friend, who was also a Netflix subscriber, told him under a starry sky in the Bay Area, according to Mr. Hastings. “I don’t want to deal with two accounts.”

Mr. Hastings ignored the warning, believing that chief executives should generally discount what their friends say.

He has since regretted it. Subscribers revolted and many dropped the service. The plan further tarnished a once widely respected Internet service that had already been wounded by an unpopular price increase in the summer. Mr. Hastings was forced to reverse the planned split — but not the price increase — three weeks later and apologized.

On Monday, the company revealed the damage that had been done. It told investors that it ended the third quarter of the year with 800,000 fewer subscribers in the United States than in the previous quarter, its first decline in years. The stock plummeted more than 25 percent in after-hours trading.

Despite the decline in subscribers, the company did well financially in the quarter. It reported net income of $62.5 million, or $1.16, a share, compared with $38 million, or 70 cents a share, in the year-earlier quarter. Revenue rose 49 percent to $822 million. Both revenue and income topped analysts’ expectations.

Like many other companies built in Silicon Valley, Netflix prides itself on its analytical, data-driven approach to making decisions. But it made a classic business misstep. In its reliance on data and long-term strategy, the company underestimated the unquantifiable emotions of subscribers who still want those little red envelopes, even if they forget to ever watch the DVDs inside.

Mr. Hastings said in an interview last week, his most detailed discussion yet of the bruising period, that he had been guilty of overconfidence and of “moving too quickly.” But he said he still believed — as do nearly all investors and analysts — that Netflix’s future lay not in DVDs but in streaming over the Internet. “We still need to move quickly in streaming,” he said.

Twice in the interview, Mr. Hastings linked the hostility toward Netflix’s price change and proposed breakup to the angry mood of the country, even citing the Tea Party and the Occupy Wall Street movement by name.

He said — and repeated it on a conference call for investors on Monday evening — that subscribers had been bothered more by the summer price shock than by the breakup plan. Until September, a combination of video streams and DVDs cost as little as $10 a month; now, that same package costs $16. “We are done with pricing changes,” Netflix said Monday in a letter to shareholders.

Mr. Hastings said he was not sure whether the plan to split the company had been presented to customer focus groups before it was made public. Mr. Hastings said he assumed it had been. But he said he did not recall what those focus groups had said about the plan.

He said Netflix was now trying to slow its decision-making to ensure that there was more room for debate about major changes at the company.

How Netflix came to be so out of touch with its customers is a cautionary tale for other companies that try to transform to new media from old. As the company’s streaming Internet service caught on with consumers, subscriber numbers soared and, with them, the company’s stock, rising ninefold from the start of 2009 to peak above $300 in July.

Last year, Fortune magazine put Mr. Hastings, 51, on its cover as the businessperson of the year after he seemed to pull off the rare feat of finessing the “innovator’s dilemma” by navigating Netflix to the digital future from its DVD rental business.

A key to its success was the way it blended its new and legacy businesses. While the library of material available for streaming was relatively sparse because of Hollywood licensing restrictions, Netflix customers could find many of those missing movies, especially new releases, in the company’s far larger DVD selection.

But Netflix needed to spend more money to license additional material for its streaming service. Collecting $10 a month from subscribers was insufficient as costs ballooned. Mr. Hastings defended the increase last week and again on Monday, but he said it was “too big a price change all at once.” Hubris played a big role in the errors, he said.

Article source: http://feeds.nytimes.com/click.phdo?i=0b69e678c0fd794fe4f975d382dfcb51