Anyone thinking that the house market is about to crash?
I just finished an interesting book about the coming crash in the residential house market.
blue
Just because you can, doesn’t mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I’m a hackmeister…they might be right! Of course, they might be wrong too!
Replies
don't believe the hype
don't sell your house and buy a bunch of gold, either.
DCS Inc.
"He who xxxxs nuns will later join the church." -The Clash
You mean, now that you are on the retail side, you think that maybe you picked the wrong thing to retail?
hehehe
Gene, if I'm counting on new construction, it won't matter if I'm a sub or the builder...if it all goes down like it could, it won't be pretty.
Anyone here remember the early 80's when they had 18% interest rates?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
i remember the early '80's... they were followed by the biggest run-up in real estate we'd ever seen... closing the credit unions in RI burst our bubble about two years before everyone else
thing is... in the waterfront communities.. all that happened is that prices flattened.. never turned down.. then they soared again in the late '90's and are still climbing... looks like another flat period ahead....
but ... money has to go somewhere.... the stock market is not very reassuring... thing about owning a house is you can enjoy what you own... you could frame your stock certificates and put them on the wall.... if you have a wall...
the only people who got hurt in real estate were the one's who had their notes called , or who could no longer service their notes...
if you can keep servicing your notes , then a real estate setback will not hurt you...Mike Smith Rhode Island : Design / Build / Repair / Restore
I skipped a lot of this thread and thought I'd stop back in with this fior any interested - I just farmed off of another site where i'm doing some researchhttp://www.schwab.com/public/schwab/market_insight/investing_strategies/other_choices/reits_another_year_of_double_digit_returns.html?cmsid=P-686704&lvl1=market_insight&lvl2=investing_strategies&refid=P-435503&refpid=P-435505
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Thanks for the link. Basically it reinforces my thinking.
If I were to invest in real estate other than my home I would buy REIT's. They are more diversified than holding properties yourself in respect to the types of properties, residential, industrial, commeercial, and geography. Also a lot of REIT's get their revenue from managing properties so that smooths out any ups and downs on the market. As with any investment you just have to do your research and find the appropriate REIT's.
As it is, my home makes up about 1/3 of my assets and that's enough real estate holding for me, the rest I invest in my kids, may be not so much as investing, then I like to go into financial, manufacturing, resource, utilities, consumers and such.
Piffin, reits look like fun, but my CPA showed me a stock called NVR (nvrinc.com) that you could have bought for about 460 (they don't split) last July. Its selling at 811.50. It went up 20.25% in the last 50 days.
Doesn't all this sound like the tech stock runup?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Money chases money until the first dollar ducks into the rabbit hole.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Main conditions causing the current construction and real estate boom are low interest rates and weak stock market. Where else ya gonna put yer money? Buy, build and sell has been the order of the day for a while.
Interest rates starting to creep up from their extreme lows, but the Fed will be reluctant to bring them up much IMHO - the economy is not great. If inflation numbers start to rise they will put on the brakes with interest increases. And stock market has probably gone through its worst but confidence is still fairly low, so many strong corps are undervalued at present. Some investors are quietly buying into the stock market again looking for undervalued but solid performing corps.
So I'd say the real estate market will go off the boil somewhat - it has been frantic here in western Canada - but I can't see it crashing because the conditions that caused the boom are still substantially in place.
Good luck with the new business ideas, Blue.
Wally
Wally, certainly low interest rates play a role in the current run up. The stock market situation really isn't a major factor, in the opinion of this author.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
I think it's a big part of the equation. If the stock market is flying high, a lot of people will stay with stocks and mutuals because they're easy to set up and very liquid. A weak stock market is symptomatic of low confidence in the economy, and in such times, people turn to more tangible assets like real estate and gold. It's no coincidence that stocks have been soft since Sept 2001 and real estate and construction got very busy since then.Lignum est bonum.
It was explained to me that 911 started this housing boom, not interrest. Interrest was a resulting action. Then people with money would not touch the stock market or at least a good sized percentage . Here came all those investors in real estate. The stage was set .
Tim Mooney
This is not quite true, Tim. I think 9/11 accelerated things, but the economic weakness was already there. The tech stocks crash of mid 2000 hurt the economy more than anyone realised at the time. The fed had already dropped its prime rate eight times in 2001 prior to September 11. Of course both interest rates and the stock market took a huge plunge after that, but the trend was already underway.
Source: http://forecasts.org/data/data/DISCOUNT.htm
Wally
Lignum est bonum.
Edited 2/10/2005 10:06 pm ET by sly_karma
Thats one look , but 911 devastated the stock market from a trust stand point .
I agree we already had problems , but our president, what I call a stock market crash, and 911 caused people to stay at home and reinvest in home and family values. Its a trend thats still here and its hot. It depends on which author you are reading at the time. All of the above shook the nation to grab what was close to us. Thats what weve done .
My wife is in industry and her customers are the same plants that make things we all buy. Nearly half the industry has moved out of the US. The jobs went with it , and thats hit a toll on weakness and our current president signed that if you remember after 911. We have stricter standards we must follow and we pay our people more money than our long range competitors. We are still very shaken and jobs are not solid . That uneasiness also causes us to hold on to values that are close to us and hold hands with it .
Fuel prices have soared . Transportation is up in what we buy and our own. Heating fuel is out of site from a year ago. Im counting natural gas. I paid 2.75 per gallon for job site heating fuel - kerosene. Our gasoline with "taxes" is only 1.85 per gallon. We are being poked in the rear end. So, thats all bad .
The only thing that is good is interrest rates and what better thing can Americans do than buy a home and get a tax break! Home ownership and family values to hold on to and that is solid .
Tim Mooney
Sly, you are right, we certainly were already in a serious recession in 2000 and 2001 and the dropping of the interest rates was being done to make more spendable money available for the economy.
That technique for stirring the economy is now down to the last straw. The overnight fed rates don't have any more room to move.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
The interest rates have started to go up a bit now, that's why the US dollar is up a bit too. But the govt will keep monetary policy loose for a while to keep the economy rolling, it needs all the help it can get. Or they could pull out of Iraq and stop wasting a billion a day there....
Wally
Lignum est bonum.
>>Main conditions causing the current construction and real estate boom are low interest rates and weak stock market. I think that another factor might be a push of the "ownership society" to increase home ownership.I see a lot more deals involving FHA and VA guaranteed loans and I get the impression that the credit standards have been loosened.Great goal of course, and it happens to create pressure at the bottom of the market which primes the pump and works its way upward.
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Sojourners: Christians for Justice and Peace
credit standards have been loosened.
Bob, credit standards have indeed been loosened and not just for hud and va. Talbott claims that the push for profits by fannie mae and freddie mac have caused them to venture farther into riskier deals. The governmental agency overseeing these two companies is a conspiracy unto itself. Ever hear of Office of Federal Housing Enterprise Oversight?
These two companies are larger than anything on Wall street, but they don't open their books up to the public for scrutiny, due to special federal exemptions.
I'm thinking Enron squared.....
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Actually, OFHEO just put the bite on Fannie, caused the CEO to be forced out...IMHO it's the $$$$ he'll still get in retirement, stock options, etc. along with all the other vastly overpaid/downright crooked CEOs,CFOs, etc (check out what the now ex-head of H-P is walking away with....), $$$$ that really could jump-start a small business but instead will go to another empty McMansion or other status toy, that are the most troubling thing about todays economy.....yeah, there is always some trickle-down, but if the rich get too rich they just can't spend it fast enough to re-circulate the money in productive ways...
Actually, OFHEO just put the bite on Fannie, caused the CEO to be forced out...IMHO it's the $$$$ he'll still get in retirement, stock options, etc. along with all the other vastly overpaid/downright crooked CEOs,CFOs, etc (check out what the now ex-head of H-P is walking away with....), $$$$ that really could jump-start a small business but instead will go to another empty McMansion or other status toy, that are the most troubling thing about todays economy.....yeah, there is always some trickle-down, but if the rich get too rich they just can't spend it fast enough to re-circulate the money in productive ways...
If they forced out the CEO, there must have been a lot of hanky panky going on. You'd have to assume that it's just the tip of the iceberg.
The author explains that the OFHEO was hand picked by congress to oversee one of the largest private unregulated semi quase governemental agencies in the world. He likens it to the foxes guarding the henhouse.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Why dont you share what the book said ? Next thing , did you buy the information as well as the book?
My outlook takes in the fuel problem as the major hitter. If I knew what would happen there ,.........................................
If gasoline should go to 5 bucks a gallon or even 3 or 4, thats going to complicate things considerably.
I read we have a short term out look thats good , but thats just reading .
Did anyone tell us 911 was going to happen so we could sell our shares of stock? Many of the men in my high school reunion lost their savings. I was lucky enough to hold mine while other friends were telling me I should invest in the stock market to get a bigger return than real estate. Thats a true story Blue . I took a lot of pressure even with DW over it and she invested in stocks with out me . She lost 60 percent which her stock broker said was reallt "good" considering what others lost ! I suppose there was also people who got rich and got out too. The only thing I know [which isnt much] is that rentals stood the test and had no rebounding to do. But , Ill be the first to admit , it was just luck for me as I was just doing the only thing I know to do. [which isnt much]
The people who sold and lost big after 9-11 would have also lost their butts after Pearl Harbor, the start of Korea and whenever anything else bad has happened to the US or the market. The old adage "Buy low, sell high" still applies. Panic selling is never a good idea. The ones who made a lot of money after the market tanked post 9-11 were the ones in the position to buy when the prices were low. If you look at the market averages over a long time, these periods of big losses end up looking like bigger dips, not a huge dive. The slope is still upward, all things considered. The closer someone looks at the graphs, the worse they look. It's still a good idea to diversify and the people who lost everything at Enron are a great example of this. Holding stocks/bonds in what people actually need is usually a good way to temper the high/low cycles. Pretty conservative way to go about it, but it works. On the other hand, has anybody here ever heard of a group of economists that agreed?
"I cut this piece four times and it's still too short."
Tim, sorry about just tossing it out there without info. I was on the way to the airport and I wanted to get a few opinions before I shared the author's concerns.
As I've mentioned, I've been on a reading binge for a while now and when I bought my last batch of books, I remembered skipping over a book titled "The Coming Crash in the Housing Market" by John R. Talbott.
When I skipped over it, I knew I was going to go back and get it, but I wanted to first establish my goals of figuring out exactly where I wanted to start my efforts in real estate investing. I've pretty much decided that I'm going to work the pre-forclosure market and "nice home" lease option market for flips and cashflow, then invest in commercial or industrial for long term holding. I will consider all motivated sellers of income property, both large and small.
With those goals in mind, I wanted to read the book that is basically contrary to all those who are currently telling us to invest in real estate. Since I'm basically a contrarian anyways, I knew that the info would appeal to me. I'm not really worried about the market crashing, I just want to understand the whys, try to guess the whens, then work the market as it spirals in the best possible way. As you probably already know, there is tons of opportunity in all markets if they are going up, as well as going down...the only difference is the approach to profiting from it.
Talbott doesn't mention anything about high oil prices, other than to cite the sector crash that gutted the housing market following the oil bust that demolished prices in Texas.
You are correct to point out the sudden collapse of the markets following 9/11 but Talbott uses five other spectacular crashes to show some similarities: 1)1987 stock market crash 2)1990 LBO (Leveraged Buy outs) crash 3)1990 commercial real estate market crash 4)93-94 Japanese stock market crash and 5)2000 US technology stocks crash.
The crux of John's concern lies in the relationship of the two semi-quasi governmental agencies Fannie Mae and Freddi Mac, who are essentially buying all the mortgages on the after market. His biggest concern is the lack of regulation over them and when he cites all his figures, he makes a compelling case.
This isn't a political book, but I can tell he's liberal, but I won't hold that against him!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Blue, I'm no expert, but of the five reasons you give none of them have anything to do with residential real estate. I personally don't think we'll see a bubble "burst" but over the next 2-3 years I think we'll see housing appreciation rates slow down a bit, mainly due to rising interest rates. What many of you "mini-mansion" bashers are failing to realize is the value of LAND. As they say "they ain't makin' any more of it". People want one acre lots, they want them close to major roads and shopping centers, they want their land/home to be "out in the country" yet close to all the amenities, etc. We purchased our lot a year ago and, based on the selling price of neighboring lots, it's appreciated 25%. I don't care what anyone thinks about the value of the house going up on the lots (ok, I'm a little biased, I think we have a nice home! :-), the reality is that as more and more houses go up people are going to be pushed further and further out from the city "center" - which in turn drives up demand for those homes that are closer to major roads, restaurants, amenities, services, etc. Don't forget about the value of land. The same logic applies to water property (of which I wish I had purchased some!!!).
I don't know what you plan on doing with pre-foreclosure stuff but I just spent about 12 months doing some work in that arena. Let me tell you, it's a LOT of work. After 12 months when I finally figured out what my true hourly return was I decided to just re-double my efforts on my primary job. I'm not trying to dissuade you, just go into it with your eyes wide open and realize that there's very few needles buried in that haystack they call foreclosures.
Good luck,
Rob
Rob, the author doesn't make any predictions about the timetable for the coming crash, he only makes the case. He lays out the foundation, explains the system, exposes it's flaws, shows quite a few serious graphs, etc. The entire book is about residential properties.
This book was copyrighted in 2003, and the crash hasn't occurred yet, but none of the underlying reasons have been corrected either, so there's no comfort in that.
As far as your work in the foreclosure arena, I guess I'm wondering what you mean by that. There are numerous ways to work in that market and it sounds like you may have been working it in a way that might be different than I'm heading. I'm all for going into something with open eyes...
I doubt that I'll be looking for a needle in a haystack though....I've already ascertained that I don't want to spend a lot of time chasing properties and I don't intend to do any remodeling in properties that I obtain.
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
" I don't intend to do any remodeling in properties that I obtain."
What is your plan to avoid it ? Repos are repos...................Plus when folks sell property for less than appraisel or give it up they havent been attending to a lot of things .
If you dont do it , what would make you any different than a retail customer ?
Repos are a mess Blue.
Tim Mooney
" I don't intend to do any remodeling in properties that I obtain."
What is your plan to avoid it ? Repos are repos...................Plus when folks sell property for less than appraisel or give it up they havent been attending to a lot of things .
If you dont do it , what would make you any different than a retail customer ?
Repos are a mess Blue.
Tim, As you know, I've already "dabbled" in the real estate market and I've also endeavored to study the subject in a serious manner. Because of my efforts, I've learned that there are more than one way to skin the cat in this business.
There is a lot of info out there that will teach you/me to understand our goals and skills and propensity for the various ways of doing the business. After some soul searching, I've decided that I don't want to involve myself in any major rehabs, nor do I want to become a residential landlord. Even though that would seem to rule out a large segment of the real estate business, it actually leaves another larger segment for me to choose from.
I have chosen to focus my short term goals on creating working capital to pay my daily living expenses by working the preforeclosure market using primarily three buying strategies: 1) 60% cash or 2)taking properties "subject to" and offering a small ($1000 or less) incentive to move or 3) paying full (or near full) price and lease optioning.
If I should happen to acquire a property that needs extensive repairs, then I would simply market it to a rehabber and leave most of the profit on the table for him.
I do intend to do the cosmetic stuff needed such as paint and carpet.
I think our confusion lies in the difference of term: repos and preforeclosures.
To me, repos means the banks have already taken the property....they are called REOs (real estate owned)s. Preforeclosures would mean that the owners are still in the property and trying to find a way to save their equity and credit. I see myself filling that role...solving their problem.
For instance, I have a committment from a lumber sales friend that has a "problem" house. It's been on the market for more than a year at 325K with a realtor. We both have agreed that it isn't going to sell because even though it's new (3 years), the much cheaper new houses in the new sub have substantially degraded it's FMV. He's tried for more than a year to sell this property to "A" type buyers...those able to get nice mortgages with their great downpayment and credit. I used a classic question to position my argument: "Hows that been working for you?" Of course, I already knew what the response would be..."Not very good....." his voice trailed off knowingly.
My solution went like this. "Matt, we both understand that you have a problem property, right?" "Right" he replied. I continued "I think it safe to say that you'll never unload that problem property to people that can afford to buy non-problem property. Your realtor screens out the type of prospects that would be candidates to buy your property and therefore never actually shows the property to someone that will buy it. We need to find a "problem" buyer and get him into your "problem property"! I can do that using a lease option technique that is something that your realtor will never talk to you about"
Basically Tim, by walking Matt through his real world numbers, I'm able to lease option his property for at least 10% less than he was asking. By using a different approach to buyers, I can show that the property will be worth the 325k. I basically get that spread, and any spread I can create on the monthly lease.
Essentially, I'm the middle man, with no responsibilites other than to take checks and make bank payments.
No rehabbing for me...
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Hi Blue, thanks for the info on your strategy. I'm all for Capitalism and I sincerely hope you succeed. Personally I'm in my prime working years and I love what I do for a living. So after trying the pre-foreclosure "thing" (a co-worker tries to do it, he convinced me to try) I gave up after about a year. I decided I could make more just focusing on my work. My main focus was mailing out letters to people with horrible credit and/or that were about to go into bankruptcy. I received great response, but then it was a BUNCH of work after that.
My co-worker has a realtor that funnels him pre-foreclosure homes. He either flips them, rehabs them or becomes the personal bank for the homeowner, allowing them to stay in their homes while paying him instead of some mean 'ol bank that wants their money every month. If he does a lease option then he makes his money on the monthly spread using his good credit. The downside is that if it's a "small money" house (<$100k) there usually isn't much money to be made. By the time you add up all your time, various loan, title, etc. fees you find that you'd make more money making sandwiches at Subway. If it's a "big money" house the risk can be huge. When the homeowner bails on a $400k house you're suddenly making the payment and it's a bit tough to unload such a house on the market. And guess what people usually do to the house right before they leave? Turning it over to a rehabber, essentially being a "bird-dog" sounds good, but he wants to make some money too. Is there really enough fat for all the middlemen?
Blue if I recall you're in the Detroit area which is probably prime for such a venture. But just keep the risk/reward factor in mind. My co-worker has made up to $50k on a home and he's lost up to $50k on a home (once he factored in his various costs, lost "rent" when the homeowner bailed, realtor fees to unload the crappy house, etc.). And this is on top of his 50 hour/week job, family/kids, 20 hours/week of chasing down leads, talking to realtors, bankers, title companies, etc., etc. Personally I truly think he'd come out better if he just worked a part time job.
There's a great article on this topic in Money magazine about six months ago. Go to your local library and check it out. Best of luck Blue!
- Rob
My co-worker has a realtor that funnels him pre-foreclosure homes. He either flips them, rehabs them or becomes the personal bank for the homeowner, allowing them to stay in their homes while paying him instead of some mean 'ol bank that wants their money every month. If he does a lease option then he makes his money on the monthly spread using his good credit. The downside is that if it's a "small money" house (<$100k) there usually isn't much money to be made. By the time you add up all your time, various loan, title, etc. fees you find that you'd make more money making sandwiches at Subway. If it's a "big money" house the risk can be huge. When the homeowner bails on a $400k house you're suddenly making the payment and it's a bit tough to unload such a house on the market. And guess what people usually do to the house right before they leave? Turning it over to a rehabber, essentially being a "bird-dog" sounds good, but he wants to make some money too. Is there really enough fat for all the middlemen?
Stroke, Thanks for your reply. All of the "problems" that you are mentioning are situations that should be understood and thought out before getting involved in any real estate deal. I see a lot of red flags in your post.
Problem: Your coworker is taking a lot of referrals from a realtor. That's a red flag...we all know that the realtors only refer the worst deals after keeping the good ones for themselves. Solution: Find the preforclosures before they are filtered by the realtors.
Problem: The "small money house" eats up profits because of various loans, title work, and fees. Solution: Small money deals need not eat up all these various costs. If it's truly a small money deal, the coworker should insist in taking the property "subject to" the existing loans. There are no fees/title work/loans etc using this technique. If there isn't any equity, then the coworker should insist on getting a check to cover his title work and attny feels to take over this property. He also should be getting the "sellers" to cover a couple of months payments on "slim" deals.
Problem: Added risk on big money homes. Solution: Larger option fees. The typical option fee requested is 3% to 5%. That type of fee should be more than enough if the house is located in a region that is experiencing good appreciation. If the house is located in a region that has flat housing market, then it might be necessary to get a higher option fee...in the 10 to 15% range.
Blue if I recall you're in the Detroit area which is probably prime for such a venture. But just keep the risk/reward factor in mind. My co-worker has made up to $50k on a home and he's lost up to $50k on a home (once he factored in his various costs, lost "rent" when the homeowner bailed, realtor fees to unload the crappy house, etc.). And this is on top of his 50 hour/week job, family/kids, 20 hours/week of chasing down leads, talking to realtors, bankers, title companies, etc., etc. Personally I truly think he'd come out better if he just worked a part time job.
Stroke, if your coworker is "buying" these houses right, he would be glad to get the house back if the homeowner bails. There also wouldn't be any realtor fees because he wouldn't be selling any of the houses through a realtor.
My guess is that he's been running a much different operation than I'm setting up.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Problem: Your coworker is taking a lot of referrals from a realtor. That's a red flag...we all know that the realtors only refer the worst deals after keeping the good ones for themselves. Solution: Find the preforclosures before they are filtered by the realtors.
Blue,
What's the best way to accomplish the above task?
Wivell, the challenge is to get the referrals before they go anywhere else.
First of all, let me say that just because a deal comes from a realtor, it doesn't mean it's a bad deal. But, realistically, let's face it, in most real estate offices, there is usually someone in there ready to jump on the most lucrative deals and they simply buy them before they ever hit the market.
So, the challenge is to get the preforclosure people to contact you, not vice versa. You do that by marketing: ads, signs, word of mouth, knocking on doors, classified ads in major, minor, church papers, ad posted on store bulletin boards etc.. If you simply start telling people that you are in the market to buy houses, you will get referrals...almost everyone knows someone that is selling, or wants to sell.
The second challenge is to understand where you are going, what your goals are and what deals you are willing to do, then know how to do them when they appear. All of this takes time to understand and time to experience. I had a hard time understanding the value of some highly or fully leveraged preforclosures, but I've come to understand that most of the value is in the owner financing combined with appreciation. There are many ways to do the real estate business...landlording, junkers, rehabs, commercial, speculating, etc, etc, etc. Decide which avenue appeals to you, then learn and jump in.
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Around here 1994 was a tremendous year. And my boss told me we'd never see another one like it. The housing market was about to collapse.
Next year was also a great one, and he said the same thing.
The year after that, same thing. And every year after that.
So I'm more than a bit tired of hearing the same doomsday speech year after year.
Being as there are still plenty of baby boomers out there looking to build, I'm not terribly worried.
Granted, anything could happen. I just get sick of hearing negative B.S.
Right. People are run over crossing the street all the time, yet we still do it without problems. The ones who spout doom and gloom seem to be the type who are trying to scare everyone else away so they can buy cheaper. Long term, the prices rise. Short term, it's a bigger gamble unless they actually know something that the rest don't.
"I cut this piece four times and it's still too short."
Long term, the prices rise. Short term, it's a bigger gamble unless they actually know something that the rest don't.
Long term? How about 35 straight years of upword growth representing an eightfold increase? It also represents an average appreciation rate of 6.3 percent.
The author explores the reasons behind continuing escallation of housing prices in the face of poor economic times. He points out that free market rules apply only to free markets. He makes a compelling case that our mortgage markets aren't "free markets".
Does Talbott know something that the rest of us don't? Not really, but he's attempting to put all the facts on the table and let the circumstantial evidence speak for itself.
blue Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
From:
Cleveland_Ed <!---->
Feb-4 10:46 pm
To:
TOMCHARK <!---->
(22 of 54)
53678.22 in reply to 53678.20
I'll be happy if I can make 10% this year
10% is about average over the long term. The 90's were sure better but that's hindsight.
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Ed was talking about the stock market of course.
Long term? How about 35 straight years of upword growth representing an eightfold increase? It also represents an average appreciation rate of 6.3 percent.
So why would anybody want to dip into the real estate market at all?
Are you cnovinced that the bubble is going to burst? If so I would like to know a way to short it.
Long term? How about 35 straight years of upword growth representing an eightfold increase? It also represents an average appreciation rate of 6.3 percent.
So why would anybody want to dip into the real estate market at all?
Are you cnovinced that the bubble is going to burst? If so I would like to know a way to short it.
Tom, those numbers are impressive when you consider the fact that you only have to invest 10% to control 100% of the asset. When, when you consider that the rate of appreciation has been steady going up, without the dips, it's even more impressive. THEN when you consider that you get to take significant writeoffs.....
In real esate, it's possible to have positive cashflow and lose money in the eyes of the IRS.
Can you do that with stocks?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Blue eyed devil,
You point out part of the benefit in that 10%* can control 100% of the gain without any tax ramifactions,
* O% can control 100% if you like me are quailified to use the GI bill (I bought my first house with nothing down and a $50.00 earnest money loan from my realitor!)
In addition you could properly consider the property tax costs as your true cost of "rent" thus you are able to "invest" your whole housing budget something you cannot do with any other investment scheme.
In the event of a worst case scenero you still maintain a residence and last I read are allowed to maintain that in spite of declaring bankruptcy. Thus your potential gain is even immune from bankruptcy I know of no other investment that you can hold capable of that.. ( you can thank the right to life crowd for that provision.; The banks wanted to eliminate it but the right to lifers have many properties protected by that provision and kept congress from changing the rules.
"In the event of a worst case scenero you still maintain a residence and last I read are allowed to maintain that in spite of declaring bankruptcy. Thus your potential gain is even immune from bankruptcy I know of no other investment that you can hold capable of that.. ( you can thank the right to life crowd for that provision.; The banks wanted to eliminate it but the right to lifers have many properties protected by that provision and kept congress from changing the rules."That is not true.There are two things.First the mortgage is on the HOME. You need to re-afirm the mortgage and keep the payments current. Bankruptcy will not inhibit foreclousres (but it might slow it down a couple of months).The other thing is that in bankruptcy you are only allowed to keep certain assests. For homes is it called homestead expemption.The amount varies. In a few states it is unlimited.In MN it is $200,000 equity. If it more than that you can be forced to sell or refinance it.And here are the other assests that you can keep.# the debtor's family Bible, library, and musical instruments,
# a seat or pew in any house or place of public worship,
# a lot in any burial ground,
# wearing apparel,
# one watch,
# utensils, and foodstuffs of the debtor and the debtor's family;
# household furniture, household appliances, phonographs, radio and television receivers of the debtor and the debtor's family, not exceeding $8,100 in value;
# life insurance, unmatured, $7,200;
# Farm machines and implements used in farming operations by a debtor engaged principally in farming, livestock, farm produce, and standing crops, not exceeding $13,000 in value;
# tools, implements, machines, instruments, office furniture, stock in trade, and library reasonably necessary in the trade, business, or profession of the debtor, not exceeding $9,000 in value (This and the previous exemption cannot exceed $13,000);
# motor vehicle, $3,600. If modified for the disabled, $36,000;
# Additional exempt personal property may include certain public assistance,
# employee benefits, $54,000;
# retirement plans, $54,000;.http://www.bankruptcyaction.com/bankruptcyexemptions.htm
Thanks Bill,
I appreciate facts like that rather than just having word of mouth to go by, I still contend that home ownership is the wisest investment a person can have in tough times.
(short of a giant pile of gold coins)
I appreciate facts like that rather than just having word of mouth to go by, I still contend that home ownership is the wisest investment a person can have in tough times.
Frenchy, I would agure that point.
I'm a firm believe that home ownership is an awesome achievement, but when times are tough, cash is king.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
check out how long it took for the stock market to get back to "29 (pre-Great Depression) levels....the only thing that keeps going in one direction is time (everything else goes in waves, some big, some small)....and the physicists are working on that!
Your point?
When Ed and Blue were talking about stock market and real estate, they were both talking about long term. BTW that average 10% that Ed quoted includes the '29 depression.
History will always repeat itself but not quite in exactly the same way. Do you see something similar to the '29 depression happening in the future? Sure there is always that possibility but if that's the case it really doesn't matter what you invest in.
What time frame are you using? short term means several years to me and the numbers simply won't support a total system failure.
Pretend that the sky really does fall and the housing market goes bust.;
Where will the 280 miilion Americans live? OK, use some smaller number say 10 or 20% lose their homes while 80 to 90% will remain in theirs.; how long before empty houses will be filled? (remember our currant growth rate)
You'll only lose if you are forced to sell during that temprary down time.;
Imagine that you invested heavy in the stock market prior to Oct 1987. The crash comes and in a panic you sell, well, you will lose dramatically! However if you'd held on untill the following January you would have recovered completely and experianced no loss.
The same with housing in any over inflated realestate area of the country.; Calfornia had highly overinflated housing and much speculation went on.; However in the worst case all you needed to do to recover was wait a couple of years.
it's worth reading the history on what percentage of the population became homeless in '29...
Boss, don't get too complacent. Certainly I'm not here to tell you the sky is falling but....
Actually one of the negatives about the baby boom is that as the population ages, the baby boomers will be leaving their lifelong homes and going into assisted living complexs, warm climates, nursing homes, graves, etc. Will the "glut" of those homes left behind contribute to deflation?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
I read the thread through first Blue, before commenting, but my thioughts haven't changed so far. I know little about thisissuer but I have some thoughts based on my life and what I've read around...First, the biggest overall thing influencing that particular marklet is going to be money supply and cost of money. I think you alreeady know more about those details than I do, buit I had to say it.Second, demand will keep stable or rise, because while the baby boom is aging, there are a surplus of hard working immigrants who have a higher birth rate, and because The aging baby bnoomers are just now getting to the point in life where they can afford a second home
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Piffin it's interesting that you based your thoughts on your life and framed your response relative to your situatioin in regards to the money supply and the cost of money. I'll try to regurgitate the conclusions of the author in some later posts in a way that will relate to you.
The stable demand might not be so stable if too many houses flood the market in period of deflation. Sure there will be plenty of people needing house, but will they buy your house if they can choose from ten others priced at 40% less in your neighborhood?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
because The aging baby bnoomers are just now getting to the point in life where they can afford a second home
Not real sure I agree with that since the range of ages for the BB's is so wide.
But, if as they age, do you really think they will want that many 'second' homes.
I see it as a solid demand for those' last homes we will live in' type homes.
Not really second homes.
Is the single family dwelling going to continue to be a free standing dwelling on it's own seperate lot? Or, is the defination going to be redefined to include more townhouses, condos, high rise residences, etc as the younger generations mature into homebuyers?
"A hard head makes for a sore a$$."
IC
I think the second home thing is real. BB have been spoiled all thier lives. What is the one thing mom and dad didn't have(usually)? A house at the beach, mountains, etc. BB are into better than thier parents. They want it because they "deserve" it.
And don't forget the wealth transfer coming as the Greatest Generation dies off and the wealth that they accumulated is passed on.
You make a good point intepid cat,
The currant Mc Mansions that are so popular will be replaced by smaller more rural homes (read Boss Hogs story about aging parents) as people age the trend will be to vacation type homes by the lake or in the country where they may remain able to drive around with less challenge from heavy traffic and freeway congestion.
I see older people who retire to the 'country' and buy 5-60 acres and build a nice home. Live there about 4-5 years and realize that it's too far to drive 30 miles to Wal-Mart, the doctor, kids live a long way off, etc. Then the place goes on the market but they have spent so much on the home that they have a had time selling. Whole thing turns bad.
There are a lot of stories in the naked real estate game. This has been one of them.
"A hard head makes for a sore a$$."
Yeh! on the other hand, those folks who had a place in Northern Minnesota by a lake need to bring a chain saw with them to keep the realitors at bay...
One guy I grew up with bought an old run down resort a decade ago for a little over $100,000 and now gets that for just 20 feet of lakeshore! with 3000 feet of lakeshore to sell off he's doing real nicely.
I don't think it's the Wallmart thing that has them selling rather it's the drive to a hospital...
A lot of people think they want to live a 'rural lifestyle' until they realize it can sometimes be a little inconvenient.
"A hard head makes for a sore a$$."
Wouldn't all this speculation be more suited to a regional discussion?I think sometimes people can end up complicating things unneccesrily. Here in Boston they've been forecasting the big bust for awhile now, but prices seem to continually go up. And housing prices here are morbidly overpriced.It seems to really come down to supply and demand here. And as long as this area has enough high paying jobs to support this kind of housing market, then I don't really see a bust coming.One of the things that does concern me is the loss of a lot of regional jobs to more competetive parts of the country (i.e. Charlotte and Atlanta). It seems fairly simple to me: if you have 125 people vying for 100 houses, prices go up...if you have 75 people vying for 100 houses, prices come down.
Wouldn't all this speculation be more suited to a regional discussion?
No Strat because the bust speculation is based on national mortgage policies. Its the system, not the regional economies that are dictating the runup. One the flaws are exposed in the system, it's all going to topple like a house of cards...according to Talbott.
Boston is a segment of the market. Your number 4 in Talbotts analysis of major metro areas regarding ratios of price to income (your housing prices represent 5.6 times average income. Detroit doesn't even register in the top 123 markets, which means we are paying on average less than 1.59 times avg incomes (thats Topeaka, KS, the lowest avg in his chart). Talbott claims that at some price point, people start moving out of high priced areas and moving into lower priced areas. He mentioned the bust that San Francisco experienced when they started moving out to cheaper areals like Tuscon. He also mentions that it took San Fransicans a few years to understand that their upward rush had stalled and a lot of people ended up severly upside down on houses because they were buying on the "bigger fool" theory.
Talbott predicts that the areas with the highest ratios will tumble first.
If you listen closely, you'll hear a lot of people preaching the bigger fool theory.
blue Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Blue Eyed Devil,
As you can tell I love this subject, frankly if you'd taken the opposite position I'd have your position simply because I like to think things through from all perspectives before I make my decision.;
Anyway let's look at Mc Mansions for a bit. My daughter is one year from her graduation and she's already recieved several feelers about job offers. Fresh out of college she expects to earn high 30"s and low 40's due to the currant slowness of the industry she's going into. My nephew is on his second year as a chemical engineer and he currantly earns $72,000 a year. Niether will have any significant student loans.
Those two kids represent the average recent college grads (high to low) now add spouses income and the two of them have about $80,000 to $150,000 a year.;
That means their first houses can be as high as $200,000 to $375,000 and still quaify for normal loans at average interest rates..;
Give each of them 5 years of equity and their next house could range from $650,000 to 1.5 million. That's who's buying all those Mc Mansions...
Add inflation factors and the growth rate and that is what's driving housing market prices, not some conspiracy to drive markets to unrealistic levels..;
Some much for the bubble bursting!
Median Price of HomeRose 8.8% to $187,500In the Fourth Quarter
By KEMBA J. DUNHAM Staff Reporter of THE WALL STREET JOURNALFebruary 16, 2005; Page D3
Home-price appreciation skyrocketed at the end of 2004, as buyers competed for a tighter supply of homes.
According to the National Association of Realtors, the median price of a single-family home rose 8.8% to $187,500 in the fourth quarter of 2004, compared with the year-earlier quarter.
Prices appreciated much faster in the hottest housing markets, and a record number of metropolitan areas experienced double-digit price growth. Of the 129 metro areas that the NAR tracks, 62 saw home prices rise 10% or more. That was the largest number of cities with double-digit price increases since the NAR began publishing such data in 1982.
Home prices have been rising across the nation for several years, but economists at the NAR say the latest price surge reflects tight supply. For all of 2004, there was a 4.3-month supply of homes available for sale, the lowest annual supply on record.
The biggest price increase was in the Las Vegas region, where the median price of a single-family home was $281,400 in the fourth quarter, up 47.3% from a year earlier. The second-strongest increase occurred in the Riverside-San Bernardino, Calif., area, where the median price was $322,400, up 34.7%. In third place was the West Palm Beach-Boca Raton-Delray Beach area of Florida, with a fourth-quarter median price of $338,800, a 34% increase over the previous year. The median is the midway price, with half of all homes selling for more than the median and half selling for less. In the third quarter of 2004, the national annual rate of home-price appreciation was 7.5%
Prices declined in four metropolitan areas: Indianapolis; Austin, Texas; Beaumont-Port Arthur, Texas; and Charleston, W.Va. NAR economist David Lereah said these areas currently are facing either local economic weakness or have a large supply of homes on the market.
Mike K
Amateur Home Remodeler in Aurora, Illinois
"That means their first houses can be as high as $200,000 to $375,000 and still quaify for normal loans at average interest rates..; Give each of them 5 years of equity and their next house could range from $650,000 to 1.5 million. That's who's buying all those Mc Mansions... Add inflation factors and the growth rate and that is what's driving housing market prices, not some conspiracy to drive markets to unrealistic levels."So how do you explain the $300 billion in equity converted to cash last year by homeowner refis? Greenspan knows this money is propping up the economy by keeping consumer spending from tanking. On average, American families spend $7K more each year than they earn. That obviously couldn't go on unless there was a "magic" source for the lending, aka mortgage refinance.
So how do you explain the $300 billion in equity converted to cash last year by homeowner refis? Greenspan knows this money is propping up the economy by keeping consumer spending from tanking. On average, American families spend $7K more each year than they earn. That obviously couldn't go on unless there was a "magic" source for the lending, aka mortgage refinance.
Exactly TJK! The refi boom has not only propped up consumer spending, but it has also contributed to the run up in prices of the houses. It won't take much of an interest rate hike to severly damage both of these factors. When you combine deflation with a tanking economy, our economy might look a lot like the Japanese bust that they are still recovering from. It wasn't that long ago that the Japanese were threatening to become the no 1 economic power in the world...
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
The Japanese case is different. First, the gap between the stock and real estate busts was much shorter. Stocks and real estate both headed down in 1990, and lost 60% over fifteen years. Japan is also different because of the relative lack of pain. You would think that when over 50 trillion dollars is wiped off the books there would be mass bankruptcies and a huge jump in unemployment, but that didn't happen. Instead there has been an orderly retreat, for the most part.Despite what you might have read in the American media, the Japanese are still incredibly prosperous, they still have money for expensive new houses, designer fashions, vacations and luxury automobiles. Of course, they prefer to have you think that they are doing poorly, since that takes them off the protectionist radar screen, but the fact is that the orgy of conspicuous consumption has continued despite the slump (and despite the average negative equity for mortgage holders of $150K) mostly paid for by exporter earnings, Toyota, SONY, et al. In this respect, Japan is different. Japan has never stopped exporting high value-added manufactures, in fact, it even has a trade balance with China. Guess what, affluent Chinese like Lexus cars, too. How about Japanese real estate? This is a good question that most of us Japan expats are struggling with at the moment. Piffin (or somebody) hits the nail in the head: REITs and other securitized real estate derivatives seem to be safer and more profitable. These REITs, or JREITs as they are called, are securitized ownership of the Japanese version of Arizona and New Mexico retirement communities (but rather than sunny clime sprawl, this development is prime inner city rental and condo development, as people flee the countryside and suburbs). The real growth is in new apartment rental units, as people feel purchasing is too risky.After 15 years of steady decline, the Japan real estate industry is trying to hype the notion that the market has bottomed out. Surely 15 years and 60%+ is enough of a decline, right? (actually, this number is understated, since it only addresses land prices and not the amazing total depreciation of housing units over 15 years--that is, your plot may be worth only a third of what it was in 1990, but the house has no market value).Is there further downside? Some argue that it's inescapable because of the looming pension shortfall for Japanese Baby Boomers. In fact corporate and municipal pensions are already starting to be cut. You get a notice in the mail that simply says "We regret to inform you...reduction of 33%..." We now know that the unfunded pension liabilities of corporations and other entities (not including the Japanese version of Social Security, which is another story) totals around $10 trillion dollars.Where is the money going to come from to pay for this shortfall? One quick answer is through the liquidation of assets, which are primarily real estate. Now, as for the United States, I think a similar situation exists in terms of unfunded pensions and also just plain underfunded people who have not saved enough for retirement, or else lost most of their savings in the 1999 stock crash.It may be that Americans will also have to liquidate real estate just to get money for groceries and medical expenses in the long term, talking five to ten years down the road.In the short run, I agree that a lot of Americans with nice new plasma televisions and fancy pickups are about to get crushed by their ARMs. Those who survive but are nonetheless underfunded may be forced to follow the Japanese example and move into urban rentals.
Edited 2/18/2005 1:49 am ET by Talking Dog
Some interesting insights -- thanks. One question I'd ask is who exactly will buy the properties if these BBs decide to liquidate for cash? The environment for loans here in the U.S. will be brutal, so few would qualify for investment credit. It seems to me that foreign investors with real wealth (Singapore, China, Switzerland) would be the purchasers in many of these deals.Public and private debt along with unfunded liabilities now totals over $70 trillion dollars in the U.S. IMO, it will be a long, long, time before there is any real wealth in our economy again.
Frenchy,
While you should be proud of your daughter and nephew I think your assesment of that situation may be overly optomistic.
I'll use a scenario I see in my area all the time. Young couple. Lets say $100K combined income. No or insignificant student loans. They buy a house around $325K ( not really a McMansion but a little above average for a starter home around here). Next come two new cars, lets say an Explorer and maybe a VW Golf. Now this couple has a $2k a month Mortgage and $8 or $9 hundred a month in car payments. Add in some new furniture, all financed on a 12 months same as cash plan(18% interest when, not if they don't pay it off in 12 months). Tack on a vacation or two and some weekends away. Next thing you know it's time for kids.
Five years later the Credit cards are maxed out and and it takes most of the equity in the house to pay them off.
My Wife and I have a few friends in McMansions and all have some kind of loan that could go very wrong if thier little financial plan doesn't go just right.
My second concern with the whole McMansion issue is this. I'm not sure how things are in your neck of the woods but around here size and quantity kicks qualities a$$ every day. Around the corner from me is a development that goes from about $325K to $450K. Just the other day I watched a siding crew put siding up over bare plywood. I couldn't help myself so I stopped and asked. I was told that there was no reason to put anything under the siding. "This house is SUPER SEALED". A closer inspection showed that the builder had paid some helper to go around a squeeze soem ALEX caulk into any gaps or seems the homeowner would be able to see from inside.
When I lived in Florida my father used to tell me that some of the developments we worked in were little more than pre-planned ghettos. a return trip 20 years later proved him right. And many of those neighborhoods had seen a slow decline in home values. I'm affraid some of these McMansions may meet the same fate.
While we are on the subject although you are in bed at this hour;
It took a while to get used to what people wanted on Breaktime. Different things , thats for sure. Sometimes I have to stop and rethink . There are a lot of people here for the same reason they are working in the trades. They want to and thats reason enough. Their gonna have pride in their work and work on somthing they want to and thats enough. Just making saw dust makes them happy . They are like bouncers watching Road House ,.... and thats enough.
Few do it for money. Kinda like nursing.
Tim Mooney
See, that's what is good about being a carpenter.
You'll never starve.
L
Blue,
I'm a home appraiser. I work for a national lender. I look at properties around the country.
You are correct about the baby-boomer generation moving to warmer climates. We are seeing properties in Florida, Nevada, and California appreciate at dramatic rates, 20%-30% per year in some markets, sometimes even more. Realtors in these areas are telling me that there just is not enough housing supply to meet the demands of people relocating to these areas.
If I was a builder or contractor I would seriously think about moving to one of these appreciating markets. Perhaps try to determine what the next big area for retirement will be. Perhaps it will be Arizona. I would not be surprised if the costal regions of Mexico become popular for retirement homes.
I live in the Chicago area. Builders are starting to build retirement communities here, which is something new. I have not seen strong demand for retirement communities in the Midwest like they have in the warmer climates.Mike K
Amateur Home Remodeler in Aurora, Illinois
The only thing wrong with your post is that it wasnt l o n g enough. <G>
I wanted to hear more.
I live in rural Arkansas in the river valley.
I had the best REA in the country here and she moved to Florida! Shes retirement age and she thought she would dabble out there. Shes working hard. LOL. We visit from time to time as we`re good friends over 15 years of business . Shes tops and very knowledgeable and skilled. She taught real estate at a university here also plus had the biggest RE comany here and the most successful. I said all that to say I listen when she speaks to me.
She has told me for a few years I need to gear up for retirement customers. She talked of several diffferent methods . We offer nothing here other than normal housing. My thoughts were always that she didnt invest in money in it and because of that I was skeptical. You are saying she was trying to bring me up to speed with other areas.
Tim Mooney
Mike, the wealthiest segment of our nation can afford to own luxury retirment homes in Chicago, and in the south or southwest. Also, a great many seniors don't want to move south and leave their grandkids behind.
The Midwest is definitly in trouble though. They don't call it the rust belt for nothing. I look at the conditions of the roads and bridges around here and get depressed.
I can't wait to beat it out of here.
Incidently Michgan came in 50th when they rated the states for business climate. The recession is still raging here due to the high unemployment rate due to the loss of manufacturing jobs. Our heyday is over. We have been losing population steadily. The future is bleak in Michigan.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Mike,
I just want to comment about your suggestion to move to sunbelt states.;
You make a good argument and the history is really on your side.. one factor to consider,
Water!
that's right most sunbelt states are already at the limit of what they can absorb with regard to water and it's distribution and use... Arizona and New Mexico aready are going extremely deep near the practical limit, with all their wells and the Colorado River no longer enters the Gulf of Mexico.; Water is about to become the oil of the world.
If I were to move to a sunbelt state I'd make darn certain that a ample supply of clean water was available in my location
Ask yourself this question: Can any of the guys building houses in your area afford to buy one? Creative financing, compliant appraisers, and shady brokers have lured far too many people into a mortgage trap. These owners have little or no equity and an artificially low payment that will balloon in the future. And when times get lean, these people will walk away from their properties in droves. You know what that will do to prices.
It has happened on a small scale in isolated areas many times over the past 30 years, but this time the problem is likely to be more widespread. During the depression of the '30s, real estate prices declined 75% -- don't say it can't happen.
Edited 2/9/2005 1:00 pm ET by TJK
Ask yourself this question: Can any of the guys building houses in your area afford to buy one? Creative financing, compliant appraisers, and shady brokers have lured far too many people into a mortgage trap. These owners have little or no equity and an artificially low payment that will balloon in the future. And when times get lean, these people will walk away from their properties in droves. You know what that will do to prices.
TJK, you are on the right track. You asked "can any of the guys building houses in your area afford to buy one?" and I would answer.....YES...but that probably wasn't the anwer you expected. But...that is actually part of the problem according to Talbott. The big two mortgage buyers have chased profits so aggressively that they needed to loosen up lending standards to keep the loan spreads coming in. When you couple 100% financing with low interest, everything looks peachy. But when the rates begin their upward climb, every person locked in to a "low interest, 100% financed house" will be locked in and be "upside down" when they find out that they can't sell their house because the Fair Market Value has dropped due to the higher monthly payments that it would take to buy it. Add in the significant amount of ARMs (adjustable rate mortgages) that will essentially bankrupt most lendees who are operating on the edge and it spells d i s a s t e r.
You also correctly identified the appraisers as part of the problem. It's kinda like the fox guarding the henhouse. All appraisers are told what the loan amount requested is and they quickly find out that if they cant figure a way to fit an appraisal to the house, the mortgage companies will quit using their services.
blue
It has happened on a small scale in isolated areas many times over the past 30 years, but this time the problem is likely to be more widespread. During the depression of the '30s, real estate prices declined 75% -- don't say it can't happen.Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
I think in general we have two years. The best all ways keep busy, and attract the right clients, the cheapest also have their advantages Just never be the guy in the middle of the pack. Then you don't standout in anyway whatsoever. My grandfather had work all the way through his career.
TJK,
please be carefull of your facts. realestate prices didn't decline by 75%
While it may have in some very highly speculative areas of the nation such as Florida, it failed to decline that steeply here in Minnesota. I researched this issue for a college paper and the highest average decline was in St. Paul Minnesota. 7.5 % Here on Lake Minnetonka realestate declined less than 1/2 percent! 1931 was the only year of property decline that lake Minnetonka has ever had.
Perhaps you confused rate of decline with actual decline? Property that may have sold for a hundred dollars in 1929 and had been appreciating at about a 3% rate prior to the depression could have sold for $100.50 and that would meet your 75% rate of decline number.
The difficulty with your number is find a willing buyer and willing seller in a market that was that dramatically stressed..
The normal sort of events would have the owners of property used for their own homes to simply hold onto the property in a down market and sell as the market recovers.
Simply because the stock market puts stress on the rest of society doesn't mean that people will stop needing a place to live.
"please be carefull of your facts. realestate prices didn't decline by 75% While it may have in some very highly speculative areas of the nation such as Florida, it failed to decline that steeply here in Minnesota."The 75% decline for real estate valuations in the Great Depression is an average number and I'm sure some areas were less affected. During the same period, GNP fell by 33 percent, and wages and salaries fell by 45 percent. (BTW, the Florida real estate bubble burst several years before the '29 stock market crash.) Bottom line -- far fewer people were buying real estate, and many others were forced to liquidate."Simply because the stock market puts stress on the rest of society doesn't mean that people will stop needing a place to live"Problem wan't the stock market for most people, it was lack of a paycheck. Yes, people who own homes will simply ride out bad times. Most people living in McMansions are not in that category.
Ah! Mc Mansions,
So easy to trash,........ Anyway, home ownership is always a good thing.; It creates far more good and a much more stable society. Let's assume the sky is really going to fall, that the country will experiance a deep recession. What is the fallout rate and how will it affect most people..
Those who are already on the edge will lose their homes immediately. They will then fill up available rental units and there will be a brief rent run up while the market adjusts. Those homes will be discounted and bankers will try to dump them further depressing the market.; With a building slow down affecting the whole country people who sell refrigerators and furniture will also suffer some losing their jobs as well,
Builders too will lose their jobs because there is a surplus of Mc Mansions that nobody can afford.; Banks will realize that selling off assests at greatly depressed prices is foolish and will work out refinace options for home owners. Maybe interest only payments maybe even less than that, A bank can do many creative things with an underperforming loan. as long as some sort of good faith payment is made the loan doesn't need to go on the banks books as a bad debt. Without a bunch of bad debits on it's ledgers the bank still has some wiggle room.
While America staggers under the burden of debt we've accumulated fighting the most recent wars and suffers from a slowing economy, infaltion will rear it's ugly head. Just like after the Vietnam war and we will again have stagflation..
Interest rates will pop over 20% again and those who owe credit card debt will declare bankruptcy.; that will depress the value of bank stocks and reduce their options. National debt will increase and reduce the options the nation has.;
But most homeowners will be able to if they are willing to fight for it, keep their house.
When the whole mess gets turned around again we'll be able to restart the cycle again.;
Banks will realize that selling off assests at greatly depressed prices is foolish and will work out refinace options for home owners.
That's an intersting "fix" Frenchy. Remember, this author is claiming that all heck will break loose when the interest rates creep upward and all these houses are mortgaged to the hilt with very low interest rates. Now, your claiming that the banks will be willig to offer even better interest rates instead of foreclosing the houses. How is that going to work......if the rates are already as low as they can go, how can the banks afford to do this in the days of higher rates?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
The assumption was that the market had gone bust and there was real trouble. at first banks will try to clean out their loan portfolio and try to dump their bad loans.; If you've been struggling to make payments you will be the first to be forced out....
given time and the resultant loses banks do learn, sometimes surprisingly quickly that it is better to nurse a loan along than to cash out in a terrible market.;
I believe that I was a benefactor of the later thinking. The bank foreclosed on the previous owners and then tried to sell the house in a down market. What was on the books for $185.000 sold to me for $107,000.00
That $78,000 loss would have easily supported many months of underperformance or slow pay and I think the bank realized that eventually... others that I know who had loans thru the bank and were struggling to make payments were eventually given workouts.;
Frenchy, that is called a "short sale" and is done every day.
Banks have their ups and downs. They have to keep their assets and liability ratios at a minimum standard to comply with federal banking regulations. If you catch them at a time when they are under pressure to rid themselves of liabilities, you can easily negotiate short sales. If their numbers are good, they won't be so interested in offering big discounts. You never really know how much pressure their loan officers are under.....
The book i'm discussing talks about massive foreclosures on a national scale alnong the lines of what we've already seen in the '29 depression.
It's good read. I can't possibly make the case in few posts in here when the author takes 185 pages...and doesn't repeat...
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Maybe we are talking about differant time factors here.. I believe that given the wrong economic climate over a relatively short period homes could spiral downwards, briefly! Over a 5 or 10 year period the population pressure will drive prices back up to above the current level. With inflation pressures well above currant levels.
America just aquired a large debt fighting the war in Iraq and Afganistan, actually larger than we had during Vietnam.. (OK not as large based on inflation)
Nobody wanted to pay for Vietnam then either, and as a result we had stagflation..
In periods like that realestate can be like a gold bar. In that a larger and larger population is looking for a fixed amount of realestate. People need shelter and land that is close to sources of earning a living will always command a premium.; land in good neighborhoods will command an additional premium.;
"Anyone thinking that the house market is about to crash?"
Yup! Not for a coupla years ... and not all around the country at the same time ...
but I do think they're be lotsa new miniMansions that are over priced at the moment that'll be available for rock bottom prices after everything crashes.
btw ... as a tie in to your business post .... maybe start building specs and think about phasing into remodeling ....
Jeff
Buck Construction
Artistry in Carpentry
Pgh, PA
Well, hes read all these posts and he hasnt responded , so maybe hes trying to let us hang our self or something . LOL.
"tw ... as a tie in to your business post .... maybe start building specs and think about phasing into remodeling ...."
He thinks remodeling is a dirty word . <G> It is hard to make good money doing it . The problems with hiring qualified help thats diversified sucks. If you can find a person thats multitalented , he can be doing his own gig as a very experienced handiman making more than we do Jeff. Or he can be doing the same thing working for a score of contractors or maintence . He can also remodel himself. Its hard to offer that guy a little salary. Question is really , is can you find that person? Now how about 5 of them to make up a good remodeling company? JMO
Im looking seriously myself at several things.
Tim Mooney
Hehehe Tim, I was just getting ready to reenter this thread. I'm curious about how/why you knew that I had read the thread, yet not responded.
Do you have a back orifice installed in my puter?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
To:
<!---->sly_karma <!---->
unread<!---->
(14
of 14)
See the red UNREAD. It will go away when he reads that message.
I guess you are not yet used to this system we have here .
You cannot read a thread adressed to you without us knowing after you read it unless you have another log in name . Once you open the thread and read it the unread sign goes off. You do this quite a bit by the way. Mike has been doing it too, but he wasnt at home. Finally there was a thread hunting him down the other day. <G>
Tim Mooney
Hehehe, I do read a lot of posts, then choose not to respond. Often, I'm trying to not be so mouthy, sometimes it's already been answered. Sometimes I make a mental note to go back, but then forget...
Hey..I'm old...
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
I believe you are correct and the only way to surmise when adjustment will take place is to do the analysis in your head prior to deciding which direction to take.
What causes interest rates to increase? Increased risk and inflation.
I will offer the factors that may affect the economy adversely just in case there are a few which haven't made it onto your radar... maybe we can get a few back from the other guys that I haven't thought of.
Aging population -who buy many things and not others
Dying population- inheritance rate increasing steadily-those guys buy everything
Oil prices rising- broad scale inflation, my only fear is that the guys with the keys are in the middle east and not very happy right now. Watch the new technologies for our way out of that... those fuel cells that were supposed to be common by now.
0% mortgages/debt ratio (which has never been higher)-dun to death
Outsourcing- we don't make anything in north america anymore... that is a problem. Less unskilled jobs, and we all know that half the economy is made up of uneducated labor. When these guys don't work.. we all hurt eventually.
World Economy- less ability to buy our products... less money in the economy.
World view of America... I don't want to alarm you all... but it seems that the currency markets are more comfortable with the euro than the US buck of late.
Strength of Dollar- lower the dollar... more chance of selling more abroad. Look at Canada's discounted buck... Don't get me started on our Taxes though... I might get Irate.
War, terrorism, disasters, and that horrifying markets bubble, which seems to be relatively in check of late.
Am I worried short term..? no
Am I keeping my eyes open? You bet, things change quickly.
Are houses overpriced in North America? I don't think so. When tradesmen are working for a fraction of what they were paid 25 years ago (adjusted for inflation), and profits are mostly made by the developers, not the small builders, and materials are increasing steadily in price. I don't see them falling mid-long term when that has never ever happened.
So long as we play in a risk adverse way... we'll all be fine.
L
Another factor is the regional differences in housing prices and their markets. I'm in the Milwaukee area and we still have fairly reasonable prices. They're going up, but that's partially due to others moving into the area from higher priced markets and looking at the asking prices as a relative bargain, compared to where they were. A $300K house in California would be in the high $100K range here.
"I cut this piece four times and it's still too short."
High, a factor, however relatively.
If you live in the city.. your average leverage rate is likely pretty similar to those in smaller centers. People in the city make more-and spend more.
You may find that because many people can no longer afford to live in the major centers that you are spared a bit of loss in value due to fleeing city dwellers.
You may have something.
I say... when you have made profit... take it-don't leave it on the table.
L
Downtown, there are a lot of older buildings that are being converted to apartments and lofts. Old buildings that have a lot of character and once they're cleaned up and occupied, they look nice. Not cheap at all. There are some areas of Milwaukee that are really nice, others that aren't. Just like any other city. The city's population has been declining for years. The high was around 816K and now it's around 596K. Lots of people went to the 'burbs, also just like other cities. A lot of decline in areas and some are rebounding. There are definitely some bargains out there, just a matter of finding them.
"I cut this piece four times and it's still too short."
I'd personally kill to try the renovating old buildings game... however I am tied into this multi million dollar sponge I've been working on. If it works out... the buildings sound like fun. Before I do that though, I have some interesting new concepts for residential dwellings that I have to get built.
If you have the right backing... with deep enough pockets to do it right it sounds like a great business... just buy low.
L
Larry, you're mentioning several key items....rising interest rates and 100% financing. The catalyst that could topple this lethal house of cards is the proliference of ARMs which now comprise about 10% of the market and is showing signs of inching upward.
I think the most fascinating aspect of the ARM situation is in the numbers. Even in these record low interest rates, the borrowers had to rely on even LOWER monthly payments by using the ARM loan instead of fixing their costs with a very favorable 30 loan. Since many of these ARMs are loaned out at 3 or 4%, with a maximum interest movement of 3% per year, you would think things are relatively safe. The reality is that a 3% increase is a very substantial monthly outlay for borrowers that are living on the edge and it represents a.....PAY ATTENTION HERE.....it represents a 75% INCREASE in their monthly payment! If their loan was at 12%, then the 3% increase would only represent a 25% increase in the monthly and it safe to say that most of us could figure out a way to come up with that...but realistically, the ARM payments could double in few years, which spells trouble.....
More on this topic later....my grandson wants to play video games...
blue Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
http://www.hsdent.com/home.cfm?NF=1
Blue ... U like to read about such things .... that's the website for the master mind my wife's boss subscribes to as long as forcasting goes. I only know enough to be dangerous ... haven't even sat thru one of the speaking engagments my wife sets up for her boss ... but ... I do get the theories thrid hand. That's good enough for me!
Anyways .... not that I've been in the trades forever ... but I have touched on just about every aspect ... and I'm a quick learn.
The only money to be had to specialize and sub one trade .... and that's a crap shoot ...
or realize the only real money out there is remodeling.
Tim's wrong ... U can remodel w/o a crew. One guy and a helper can do more work than "crew mentality" people can ever imagine. I working by myself can get more work done .. more efficiently ... than most crews.
U may think remodeling to be a dirty word ... but yer thinking dirty remodeling.
There's plenty of high end remodeling out there .. just gotta tap that market and focus on it. That's where the money is ....
Another one is the handyman market ... but for any real money to roll in U need way higher overhead than I have ... for that .. U do need lotsa "crews" of one and two.
I've said it a million times ... U couldn't do remodeling ...
I couldn't do new const.
But in the end ... I'll make more and be happier and less stressed(than the average new const guy).
Jeff
Buck Construction
Artistry in Carpentry
Pgh, PA
Jeff, I shouldn't have laughed so hard when you mentioned remodeling to me. It's actually a little disrespectful on my part and I'm sorry I did that.
Actually, I wholeheartedly agree with you about the one man show. And, if I didn't have a solid game plan brewing in this little ole mind, I could very well imagine a scenario where I comfortably retreated into a cozy little specialized remodeling business.
I believe the most important aspect of any remodeling business is supervision. If it's a big remodel or a simple change of storm doors, the key is to offer expert supervision and execution.....and if I was out there selling remodeling services as a lone ranger, you could bet that I'd be promising to be there every single day, either doing the work better than they could get from ANYONE ELSE IN THE STATE, of simply standing over the subs that I bring in and make sure everything was done perfectly.
I understand your business a lot more now that I've entered my golden age of maturity and I totally understand how you and Mike and James and many others in here can be totally comfortable marketing your services as remodelers.
I'm going to be fine without retreating back into my "comfort zone" which is what remodeling used to represent for me. In my younger years, when the framing fizzled due to local dry spells, falling back on remodeling was automatic....now it just seems like a step backwards...not because it's not a worthwhile endeavor....but because I have plans that are so much more ambitious. Instead of shooting for 100k in yearly remodeling cash flow, I want to shoot for 100k per month in passive income cash flow. Remodeling would simply take up too much of my time.
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
ARM's are like money mart, er, like gambling with your life savings. You win... you get low interest this year... you lose... it's bankruptcy time, and there will be thousands. IMHO, by the time that happens there will be many other things to work through for your average working guys in America.
What scares me... Everyone saying that things are fine... low interest rates are here forever. What your average joe just doesn't understand is what causes interest rates to rise. Most guys will tell you that the central bank sets the rate.. they wouldn't do that to us would they?
This is the important part.
Risk- When there is a high probability that you are not going to get the loan paid back... what would you charge for interest? You charge more... you have to, because your loss rate is higher and that is just the cost of doing business.
Inflation- When things get more expensive quickly your money is worth less. This is why in the early 80's when gas prices went sky high, interest rates shot through the roof due to heavy losses due to bankruptcies and double digit inflation. If inflation is running at 10 or 12% they have to charge that +ROI of 3-6%... voila 18% interest rates.
What concerns me is that in the last 10 years, they have continually changed the factors they use to plot the inflation rate. That's why we make more money... but seem to have less disposible... morso in Canada... they did it more dramatically and we are more heavily taxed.
In this way... it is harder to see where we are going...kinda like when that farmer plowed the 2" of freezing rain off the road for about 2 miles... then stopped at the crest of the hill. I was the 5th one over the crest...
If I told you what happened next I'd be braggin.
L
Boe, I'm interested in hearing the story about you cascading over the hill. Please tell us....it sounds like an interesting fun story is imminent. And don't worry about bragging...it aint bragging if someone specifically asks you how you managed to stay alive.
How did you manage to stay alive?
Rising interest rates is the trigger that will cause the market to implode, according to Talbott. He points out that a significant portion of the recent rapid appreciation is because of the low rates combined with signifcantly looser qualifying standards especially in the sub prime markets. As the interest rates creep up, these sub prime foreclosures will take it's toll on the banks triggering a tightening up of credit standards. The tighter standards combined with the higher interest rates will significantly cut into the buyes ability to make offers, which will add to the downward spiral in the housing market.
Lets analyze that assumption. I happen to agree with Talbott. Piffin talked about his personal experience in general terms about interest rates and ability to pay. Most of us are just like Piffin....we make offers that fit into our budget. If we can afford 1500 per month payments on housing this year, that's what sets our offer to buy. Lets look at Piffin as he attempts to buy a house this year. He sees a nice house in the neighborhood of his liking. He qualifies for a 95% loan at a low interest rate and the payments equal 1500, which fits his budget. Since he loves the house and neighborhood, he makes the offer.
Move into the future when some foreclosing ARMs force the banks to retrench. They prudently no longer offer 100% financing....you gotta come up with at least 90%. The interest rates have spiked up 2 points. Piffin can afford the same 1500, but it don't buy the same house....he can only offer 75 or 80% of the asking price for that same house. He would offer that, but since there are so many other better deals (foreclosures are flooding the market), he gets one for 60% of the asking price. All of a sudden the entire neighborhood has reduced comps and the 90% qualifying level sinks lower....
Talbott asks if we've all been lulled into believing that interest rates will never rise again, and if we have come to believe the the housing market will continue upward forever.
I think it's fairly easy to believe that what goes up, must come down.
More later when I'm not so sleepy.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Sounds like you should likely go and work with Greenspan Blue...
Anyway...Ice and my brand new pickup...
Crested the hill...shocked a bit as I blew by 4 vehicles already spun off into the ditch...I clicked it into neutral and aimed for the middle of the road. (BP skid control, years of cart racing and messing around in the snow and ice served me well).
It's an eerie feeling when you are looking forward trying to slow down 2 tons of steel and you keep seeing flashing lights behind you. I told my gf to look back... we were out of danger...but I didn't want to have to wait for a tow truck to pull us out.
Headlights, taillights, headlights taillights.... Everyone was panicking and putting on the brakes.
I managed to stop about a mile down the road...slight grade down and a strong wind kept us going a while. Backed into a driveway to turn around since going back was the only way out...
You could hear the wind whistling through the door seals as we were blown off the driveway into the ditch...
Nearly did it... noone was injured...Very lucky.
L
Good story Boe.
I can somewhat relate to your dilema. I lived in a rural area. The first main road from my house was a country road...55mph limit. I was headed to work and the first section of the road was beautiful...I went the first 3/4 mile on nice dry ashpalt...the sun had completly dried it off the day before....we love sunshine in rural Michigan. As I crested the very small transition area between the asphalt and the dirt road, I was horrified to see that the sun didn't do such a good job of melting and drying out the dirt section. It seems that the black ashphalt did a much better job of absorbing the warm rays and the dirt section only caused a partial melt and overnight it had refrozen and glazed over.
So....now I'm traveling 55mph (maybe faster) on a superslick ice skating rink...I know from my playing around days that if I put the brakes on, I'm going sideways and into the ditch....probably going to roll over a few times and of course my heart is pounding hard....
Also, this section of the road is essentially a nice rounded mound. If I try to slow down in the only manner possible, which is coasting, then I risk the possibility of drifting off center and I'll certainly slide down the grade into the ditch. I'm not liking this.
Somehow, I managed to stay centered and I was able to slow my red beast down without ditching it.
I never hit that section in winter at high speeds again.
About Greenspan....no thanks.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
blue,
Now wehave heard the bad side of low interest rates. They might go up!!!
How about the good side of low interest rates? Almost everyone has refinanced. So they have lower payments. Homes are more affordable for them. And they are building equity faster. I only skimmed the posts but I think you (?) said 10% of the people have ARMs now. So 90% of the people have a great rate.
Are there people on the edge? Of course. There will always be Cadillac people with Chevy budgets.
How about the good side of low interest rates? Almost everyone has refinanced. So they have lower payments. Homes are more affordable for them. And they are building equity faster. I only skimmed the posts but I think you (?) said 10% of the people have ARMs now. So 90% of the people have a great rate.
Scrpr, you are correct....almost everyone has refinanced. In fact, that's part of the problem.
The refinance boom has been the only reason that our country didn't nosedive farther during this last recession. The re-fi boom has poured spendable cash into the economy, but alas the well is almost dry.
If you believe that homes were more affordable (I agree and the facts speak for themselves), then you must also agree that higher rates will make homes less affordable. It's that "less affordable" that is going to kill the golden goose, especially when you combine it with the coming flood of ARM foreclosures.
I wish Mike would step in here and tell everyone a little bit about the correction that the Northeast experienced in his lifetime. He has lived through a minor segment correction and he almost lost everything. When that same thing hits nationally, combined with all the other economic factors that will come into play, it aint going to be pretty.....according to Talbott.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Blue,
I wish Mike would step in here and tell everyone a little bit about the correction that the Northeast experienced in his lifetime.
It seems like forever ago but it really wasn't. When I first moved back north from Florida I couldn't believe the building boom happening here ( N.J., P.A. and N.Y.). But it wasn't long before it ground to a halt.
There was development all up and down the Rt 78 Corridor. At the junction of Rt 78 and Rt 287 is a development called " The Hills" of Bedminster. The first day that the sales office would open to put the first homes of a new phase on the market, people had spent the night to be first in line to buy. Sales agents couldn't do paperwork fast enough.
Problem was there was lots of shakey income and financing deals to put people in these houses. The week before the stock market took it's dive a house we framed sold for $550K. The week after the crash one two doors down sold for $400K even. The guy down the street who paid $550K was mortgaged to the hilt and now upside down by almost $100K.
By the mid nineties people were finally on level ground again. When I purchased my house the guy I bought from walked away with $5K at closing. He had put money down, been here eight years, and never taken a dime of equity out. And for eight years of payments he walked away with less than his down payment.
I was luck and stayed busy for a while, but not too long. Drove 128 miles each way to work for months. Only thing I could find. In the end Uncle sam had a paycheck and I had a kid to feed.
I only skimmed the posts but I think you (?) said 10% of the people have ARMs now. So 90% of the people have a great rate.
If 10% of the people around here defualted it would look likie a ghost town after the domino's all fell.
Robert, Talbott talks about the financial market crash and the effects on that segment too. That again was a small segment market correction, but he warns about the national one that is coming.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Yeah... but what really made it interesting is that I drive a lot faster than you do Blue ;o)
I've got some road stories... Some day I'll tell you about Vancouver BC to French Village New Bruinswick in 32 hours. Like going from Vancouver to Maine. Ohh, and all we had was a trip permit on the windshield from BC-
L
Yup! Not for a coupla years ... and not all around the country at the same time ...
Interestinly Jeff, the author makes the point that sometimes markets take several years before prices adjust to spectacular crashes. He maintains that the crash could have already started, but often we aren't aware of it until it's happened, then we can look back and think "What were we thinking?".
but I do think they're be lotsa new miniMansions that are over priced at the moment that'll be available for rock bottom prices after everything crashes.
Their actually will be a lot of everything available.....
btw ... as a tie in to your business post .... maybe start building specs and think about phasing into remodeling ....
HAHAHAHAHAHAHAHAHA!
HAHAHAHAHAHAHAHAHAHA!
AHAHAHAHAHAHAHAHAHA!
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Blue,
Could you look at this thread, Im not sure if there are any hangable solutions, and dont know anything about TJI members.
thanks, -zen
http://forums.taunton.com/n/mb/message.asp?webtag=tp-housechat&msg=464.1
Zendo, I think you posted your question in the wrong thread.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Blue,
Like I said in my last post I've seen the bubble burst once and I see it coming again in certain areas.
In my area there are three distinct markets within blocks of each other ( four if you count downtown but I don't go there so I don't count it) 1. Over $600K. These are usually professionals who are established in the area. Doctors, Lawyers, Accountants and the like. Price from maybe $600K to about $1.2M. 2. The established working middle class. Townhouses and singles from around $150K to $300K Two income families in Ok Shape. 3. Between $300K and $600K. There is some stretching here. Maybe more so than in the other segments. Not to say the other two aren't stretching it but not like #3.
Lots of ARM's and worse yet Zero Interest Mortgages. Lots of stretching. Problem is there is little visible employment in the area to support that market. ARM's have risen in the area from less than 1% of all mortgages to over 10%. I forget what the % of negatives and baloons was(Yeah imagine that, Negative amortization at these rates. Maybe an indication that people are buying into the frenzy and going after houses they really can't afford?). There was even a Mortgage show on the local AM radio station that offered advice on how to purchase the biggest house you could with the money you had and the financing you could qualify for ( Hosted by two guys who own a business that specializes in sketchy mortgages. Go figure).
Combine that with a dimishing employment base and the fact that almost everyone has taken equity out of their house( you always hear about the refi boom but you never hear the % of those who get a lower rate and those who take equity out and spend like idiots) and it ain't looking good.
Don't think it will happen everywhere but it's coming. I just hope it lasts long enough for me to get some good deals. Remember, it's bad to hurt stupid people but not to take advantage of them so long as they were stupid and greedy. I smell some good land deals comming my way.
Robert, your post is summing up the problem. When you analyze the amount of gravy that's left to refinance and tap into, you'll see that the end is coming. The creative ways to refi and take advantage of rising appreciation to bail you out will not go on forever.
Itwill be ugly, but there will be zillions made by those who understand how to deal with a falling market. Guess which side I'm studying to be on?!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Blue eyed devil,
I've reserched the issue to death, I honestly don't have a real good answer but I have some thoughts.
There are two things driving the housing market.. first is the growth of population.; We are at 280 million and the country was at 180 million when I was young.. that's a hundred million more people trying to live in the same space.. We should get over 300 million this decade and there are only 5 years left to get there so I think my numbers are a bit dated and we might be at 290 million by now..
More people looking for the same amount of property means that the cost of said property will continue to go up..
Second the tax benefits of owning your own property are dramatic.. That too is driving the interest in property, further driving up the cost of property. In addition home ownership is immune from the effects of inflation, instaed it benefits from it.;. thus a house you buy at say $100,000 if there is a high rate of inflation it will generally appreciate at that same rate of inflation. Thus our $100,000 house will appreciate at say %5 per year and you will "gain" $5000 your first year of ownership. compounding every year thereafter..
The downside happens with interest rates.. rates at or above 7% have several issues that void some or all of the other benefits.. currant rates are around 5.8% and an increase of only 1.2% gets us to that critical number.
Look at effects of the war in Iraq and you should have your answer.(not trying to make a political point rather just pointing out the cost of spending by the government without attending reductions in domestic programs..
Frenchy, if you've researched this topic, you'll want to read Talbott.
You mentioned two points, tax benifits and outside forces such as war.
Bush has been floating tax reform talk. In a restructuring of the taxation method, the elimination of the tax benefit might disappear. Talbott claims that this benefit is 20 to 30% of the houses valuation. If his numbers are correct, that fact alone would cause a massive downward slide.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Blue eyed devil,
You are stone butt correct when you say that if Bush changes the tax code dramatically that all hell will break. I can't imagine a way to "bust" America but Bush sure seems to be determined to do it..
It seems to be a simple process, keep Americans busy working and we can defeat the world. Slow them down with a heavy debt load fighting a war (Notice I didn't make a judgement regarding it's validity?) and you need to do foolish things to pay for that war. Those foolish things lead to further problems and the solution while it could benefit a select few, will potentially damage the whole country.
I wish Jr.; had one tenth the judgement his Daddy had..
Judgement has little to do with it. Since the mid-'90s, Congress has been spending to buy votes, and it really doesn't matter who's in the Oval Office. The one character in this tradgedy who spans all the administrations is Alan Greenspan. After the market collapse in '87, he was the one who provided back-door loans to large banks and brokerage houses so they wouldn't fold. He created the "Plunge Protection Team" in '88 to make sure the machinery was in place if needed again.Greenspan and Robert Rubin cooked up the deal with China in '95 to paper over numerous problems with money borrowed from the savings of Chinese and Japanese workers (look at the trade deficits in that period). In '98-'99, he pumped $2 TRILLION dollars into the U.S. banking system, supposedly to prevent any Y2K disruptions. Much of that money ended up in the stock markets, and we all know what happened next. His next ploy to pump money into the hands of consumers (so they could buy more stuff from Asia) was to artificially depress interest rates so homeowners could refi and extract cash. Banks and their appraiser friends were more than willing to go along because they earn transaction fees, and the mortgages could then be bundled and sold to Freddie-Mac and Fanny-Mae. All reward and no risk -- what a deal! If you doubt there is ongoing manipulation by the Fed, just look at mortgage interest rates today, they are _falling_ even as other borrowing rates rise considerably.And let's not forget the growth of derivative contracts between financial institutions, now totaling over $300 TRILLION worldwide. If only 5% are ever called, there isn't enough liquidity in the entire world to pay them off! Greenspan is going to retire next year -- God help the person who replaces him.
If you doubt there is ongoing manipulation by the Fed, just look at mortgage interest rates today, they are _falling_ even as other borrowing rates rise considerably.
TJK,
Contrary to popular perception the mortgage interest rates are NOT tied directly to the bank borrowing rates. They are tied more to the bond market. This is according to my brother the Mortgage Broker.
You might notice that many times when you hear on the news that the bank rate has dropped that the mortgage rates initially go in the other direction. Mike K
Amateur Home Remodeler in Aurora, Illinois
"Contrary to popular perception the mortgage interest rates are NOT tied directly to the bank borrowing rates. They are tied more to the bond market. This is according to my brother the Mortgage Broker. You might notice that many times when you hear on the news that the bank rate has dropped that the mortgage rates initially go in the other direction."Mortgages are bundled and sold (as MBS) to investors, and they compete directly with other bonds for investor dollars. The fact that mortgage rates are dropping means that _somebody_ is buying enough MBS at the offered price to keep rates headed down. So tell me what investor in their right mind would be buying this long term paper when Greenspan has been warning for months that rates are going up? IMO, somebody is hiding the weenie, big time.
Edited 2/11/2005 6:22 pm ET by TJK
What the Fed controls is the Interbank Overnight rate (or something like that). That is the rate that one bank charges another for 24 hr loans.What that does affect is commercial paper. Those are short term (like a couple of months) that a lot of business use. So that is the most direct effect of the Fed changes is on business.Of course mortages are long term loans. The Treasury 10 year bonds is usually considered a benchmark for mortgagaes.
Mike, you are correct.
There really isn't any hard and fast reason why mortgage rates rise and fall...the free market does steer them somewhat. The biggest influence is the Treasury bonds rate.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Banks and their appraiser friends were more than willing to go along because they earn transaction fees, and the mortgages could then be bundled and sold to Freddie-Mac and Fanny-Mae. All reward and no risk -- what a deal!
TJ, you are making the same point that Talbott makes. Talbott doesn't point fingers at Greenspan or anyone, but does make the point that the bundling of mortgages to be sold on the aftermarket, relieves the banks from risking much. They are free to lower their standards and still reap the rewards. He makes this point and explains that our mortgage system is not really a "true economic market" and therefore has artificially made gains that wouldn't have occurred without the interference of external factors.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"Bush has been floating tax reform talk. In a restructuring of the taxation method, the elimination of the tax benefit might disappear. Talbott claims that this benefit is 20 to 30% of the houses valuation. If his numbers are correct, that fact alone would cause a massive downward slide."
Wait a minute . Im reading legals again. <G> In my words ;
If elimination of the tax" benefit" [tax deduction] might disapear. [ eliminate]
The result of this would attain 20 to 30 percent of the houses "valuation" ? [appraisel value or market value ]
------------------------------------------------------------------------------------------------------------If this happened then rentals would become very strong in a counter active right hand counter punch. The rental market doing business with the goverments give aways , tax breaks, low interrest , goverment aid , loosening up restrictions, bond money to build low rent apartments and houses , plus they are selling them now on a rent to own program too!
Thats what the rental market is competing with right now . The biggest competitor is the federal goverment.
There is counter punching ability now! Build or buy and sell for those 95 to 100 percent loans. Repo them later when the market falls and make rentals out of them at 60 percent of the price you sold them at a higher interrest rate.
Tim Mooney
There is counter punching ability now! Build or buy and sell for those 95 to 100 percent loans. Repo them later when the market falls and make rentals out of them at 60 percent of the price you sold them at a higher interrest rate.
Not so fast buster!
Talbott claims that when the ARM foreclosure disaster occurs, the banks will be forced to retrench, just like they did during the S&L crash. When the banks retrench, it will be much harder to get the appraisals that you need to do the re-fis.
Talbott also claims that the commercial propertys have been doing a much better job of appreciating at the proper rate. As you well know, income property is valued by their income. Investors buy property by their cap rate. So, basically rental property has had a series of immediate corrections based on rental vacancies, which dictate rental rates.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"Not so fast buster!"
Thanks , that gave me a smile .
" When the banks retrench, it will be much harder to get the appraisals that you need to do the re-fis"
Not so fast buster![ Still laughin]
It doesnt really make any difference what the appraisals are . Let me say that again,..............It doesnt make any difference.
Because the appraisel doesnt have any thing to do with a foreclosure. Ive dealt with goverment homes since 1970 . This area is flooded with them and were still building them filling up additions. My father sold S235 farm homes for years. Thats why he built a lumber yard to serve himself a niche in mass producing those homes to make money . We are under what is now called rural developement homes and see very few fannie mae. I bid on my first fannie today.
The way the goverment works , they dont sit on them after they decide to sell them. It may take as long as three years before they move on one, but they sell them in a few months. There are a few different ways they do it ; Marshal sales are under appraised , because after all its an auction and they start it with a low ball bid. Another way is to adverize them through a web site . This week a home may be 76000 , next week its 69000, next week its ,....... and so on till it sells .
If they change that and hold them because of appraisels , then sh^t might hit the fan if they dont sell . There would be a pile up like cars on a bridge behind a wreck. Im not arguing with the author , but Ive never seen it happen differently and its still the same today as it was years ago.
Bank repos .
One case of my own that makes the point ;
House appraised at 65000 and some change. Amount owed the bank after fees figgured to that day= 56000, and the bank owned it after the auction sale. I was there and didnt bid . There was noone else there bedcause of the price , but I had looked at it. I went to the presidents office and gave him a bid of 14,000. He had a few choice words but was nice but no but h^ll no. I asked him, " have you looked at the house ?" He hadnt and said he was busy. I asked for him to meet me at his convience at the property. He agreed and a time was set .
On the front of the house , termites had taken the floor and two walls. It was the heaviest infestation I had ever seen still standing. The back of the house and most of the footage was only a few years old and it was fine . 1000 sq feet on the front was gone . He got really mad at his appraiser , but he sold the house to me . He gave me an additional loan to tear the front down and rebuild it to match the back. Then the house was nearly all new. I even poured a slab and pretreated double. The house got a new appraisel of 49,900. It was in better condition than it had ever been . I own that house today and is part of my rental fleet.
That is what an appraiser can do and DID do. They have so much power , but they are prone to mistakes not knowing construction . Most of them have REA back grounds, not of the building industry. There is a huge difference. A competent home inspector such as Bob would have torn a new butt on that house in the condition I purchased it. Where was the apprasers head? In his butt? That was a huge example and it would be unfair to say it in general. It would not be true. If someone gave me a decent salary , I could make a living making them look like they had their head up their butt. They dont seem to notice any difference between an updated home and a dated home for they consistantly fall in the same price range. Ive paid for a bunch that Ive remodeled and the comps have more over been houses of the same age that have had little done to them or nothing . Its sickening .
I cannot see banks or the goverment holding properties over a few uneducated men [lack of construction knowledge] in supreme power .
Tim Mooney
Edited 2/11/2005 8:42 pm ET by TIMMOONEY52
" When the banks retrench, it will be much harder to get the appraisals that you need to do the re-fis
Tim, I made the above statement in reply to your idea to buy property now at 100% financed, then refi them later. I was trying to point out that the property will be worth less later, and the banks won't lend 100% anymore. The tighter policies effectively reduce the price because people tend to but properties by their montly payments.
I probably shouldn't have used the word appaisals to make the point.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Tim,Let me say first that I am an appraiser. I review appraisals for a national lender.I generally agree with you that many appraisers perform poorly. Every day a see many instances of appraisers misrepresenting the condition of homes and inflating values. What you have to understand is that the mortgage broker has all the power over the appraiser. If an appraiser is honest and reports repairs the broker will no longer send him work. If an appraiser does not hit the broker's magic number he will get not any more work. Don't get me wrong, I'm not trying to make excuses for dishonest appraisers, but you have to understand that honest appraisers have a hard time getting work. Until the selection of the appraiser is removed from the broker the system will remain corrupt.Mortgage fraud is rampant around the country, mostly driven by the greed of brokers and dishonest "investors".Mike K
Amateur Home Remodeler in Aurora, Illinois
Mortgage fraud is rampant around the country, mostly driven by the greed of brokers and dishonest "investors".
I appreciate that truthful answer. It helps to know why , but it doesnt excuse it .
You say you review them. Well , then you must know real horror stories.
Ive tried to give them benifit of doubt , but still find them miserably failing in the area I described. They evidently serve the market or the general public would be killing them or taking them to the supreme court which I never hear. I guess on a regular appraisel they do ok, unless the value of homes is indeeed different. My only education is a half dozen , so unlike you , I cant speak for the industry.
Once I stormed into ones office and confronted him. I was mad enough to whip his butt and he knew it of course. I had bought a repo and had the only key in my pocket . I kept it locked and took off a week for a vacation. When I returned my banker called me to tell me the appraisel didnt come in as well as I had expected. I had already paid for it in closing , so I went to pick it up from his secretary. I actually went to the houses he listed as comps and knocked on the door and asked to see their houses. I took pictures and had them developed at walmart one hour. I took a roll per house inside and out . I was bad pi&&ed !
The results .
The houses in question needed work just like the one I had bought. I had finished mine and had spent 10 weeks full time on mine and had spent 8,000 in materials. Ive got a shop full of equipment and do it for a living. The house got a new kitchen and a new bathroom. It got a new roof and outside paint . I replaced all electrical and plumbing fixtures and added a dishwasher. It had all new floor covering . DW had hung mini blinds in it like we do all of our rentals. The blinds were closed when the inspection was done and the key was in my pocket in Las Vegas.
That was the worst that has happened to me .
My question;
Is there any thing I could have done about it other than my meeting with him and then my banker?
Tim Mooney
Edited 2/12/2005 9:56 pm ET by TIMMOONEY52
Tim,After reading your story I understand your attitude towards appraisers.Appraisers are licensed on the State Level. Unfortunately most states do not have the staff or budget to go after too many appraisers. They typically only go after the very worst that have had many complaints. The best way to go after this appraisal would be to hassle the lender, maybe threaten to sue the lender. If the lender goes through a big ordeal due to an appraiser they are unlikely to use that appraiser again. Hit the appraiser in the pocketbook, then file a complaint with the state.Some of the larger lenders such as Washington Mutual have a system where the regional office orders the appraisal, thus removing the brokers sales rep from any conflict or interest.Mike K
Amateur Home Remodeler in Aurora, Illinois
Mortgage fraud is rampant around the country, mostly driven by the greed of brokers and dishonest "investors".
I think that is an overstatment.
YOur story about a driveby appraisal only reminds me of some things I learned in a seminar or book. There are several types of appraisals...the driveby being the most common. In fact, the author/speaker (I cant remember the source at this time) used exactly your scenario to capitalize on REOs that needed work. By politely informing the loan mitigation officer that the house was improperly appraised because a driveby was done, he'd be able to get a schedule of the walkthrough and be there when the proper appraisal was done. Once he had the ear of the appraiser, he would often be able to ascertain the number that the bank was after. After that, he'd be the only one with the inside tract on the property....as well as being in the position to "help" the loan mitigation officer out on a "problem" property.
Most appraisals are drivebys, but you can always insist on more thorough appraisals....you just have to pay more!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Mortgage fraud is rampant around the country, mostly driven by the greed of brokers and dishonest "investors".
That wasn't my quote.
Blue I paid for a full blown appraisal not a drive by or what's called an office done comparison. I do use office quotes sometimes before I buy or drive bys if you will. Its a professional estimate to use to bid if I'm not sure . Sometimes I pay for a consultation too. But the full blown appraisal is necessary for my financial statement which the underwriters use to gage my borrowing strength. It also give us an accurate figure of total worth. It was important to me to get the job done right .
Tim Mooney
"Mortgage fraud is rampant around the country, mostly driven by the greed of brokers and dishonest "investors"."something like Whitewater, eh?
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Mike, the author Talbott, makes that some point...the appraisers are a captive element in the appraising process.
Of course, everyone involved in real estate, that has taken the time to understand the basics know that the appraisals aren't worth the piece of paper they are written on.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Just got through touring Vermont, and New Hampshire for an affordable, off the beaten path home. Something like 1200 sf, around 100K - 120K. IMPOSSIBLE. Why? There are so many people who ARE wealthy post-911, and so many 50+something, retiring, boomer folks who buy 2nd and 3rd homes just because the interest rates are cheap and their equity base is high . . . that's what high, unsustainable prices are about. Normal people can't buy homes. So, on to my post about what is the best alternative building system to use.
The percentage of people - citizens - who own their own home is higher now than at any time in our nations history. I think it is somewhere around 65%so who are those "normal" people who cannot own a home? What is normal?
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Re:"The percentage of people - citizens - who own their own home is higher now than at any time in our nations history. I think it is somewhere around 65%"How many of those people actually 'own' their home? People 'own' the their big shiny SUV. Until they don't make the payment, then the bank owns it.How many of those 'owned' homes have a second of third mortgage. If they miss a few payments how many of those 65% of HOs won't be HOs for long?How many of those owned homes are owned outright?
Someone made a pretty good case on here a while back that we all just rent our property from the government anyway.
"A hard head makes for a sore a$$."
4Lorn, the term "owned" is deceiving.
I used to always pause when I was asked if I "owned" my house. Instinctively, I'd always reply that I was "buying" it. The reality is that I owned the rights to use the house, but the lien holders get first crack if I stop paying.
That same statement is true even if you own your house free and clear of all liens. Skip your taxes and you'll find out that you never truly "own" your house.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
So, on to my post about what is the best alternative building system to use.
What are you building?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
My broker is very concerned.
Apparently short term interest rates are higher than long term interest rates, which is really really bad and in 96% of the time, forecasts a recession.
He says wait another month or so, and sell everything and prepare for a recession if interest rates remain or continue to degrade at both ends.
Regards,
Boris
"Sir, I may be drunk, but you're crazy, and I'll be sober tomorrow" -- WC Fields, "Its a Gift" 1934
Hmmm,
He says wait another month or so, and sell everything
Think that in 3 mos he'll be saying BUY!!!!?
Yield curves get inverted sometimes. Not a real big deal. How old is your broker?
edit: Armaggedon is coming. See link to Fidelity and Flat yield curves, Humped yield curves and inverted yield curves
http://fixedincome.fidelity.com/fi/FIHistoricalYield
Edited 2/14/2005 4:29 pm ET by SCRAPR
Broker has been my broker and my moms broker for about 20 years. I would guess he is in his 60's. In the last 20 years he has only told me to sell once, in 2000, which was about 5 months before the dot com bubble burst. Smartest advice I ever got.He is not telling me to sell now, but is genuinely freaked out about the yield curve or whatever you called it. He says to watch it carefully, but did say that 96% of the time, this spells disaster, and to watch it carefully. I don't know nuthing-I'm a carpenter. Just passing stuff along. But honestly, he is freaked.Regards,
Boris"Sir, I may be drunk, but you're crazy, and I'll be sober tomorrow" -- WC Fields, "Its a Gift" 1934