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Thread: Housing bubble

  1. #26
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    Unhappy a 'bubble' bit...

    Did you guys hear about the mobile home for sale in [IIRC] Malibu, CA? It had an ocean view, was in a gated, guarded MHP, and was NOT even a doublewide. The asking price, and this was a few weeks ago. was $1.4 MILLION!!! The lot rent was $2500/month. 'Nuff said...

    Laz

  2. #27
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    Quote Originally Posted by Woochifer
    Glad to know that we can count on them for factual market-based information!

    How the hell does anyone say that with a straight face? Unfreaking real. I guess I should start converting grain elevators in the rural Midwest into housing because the price per s.f. in those markets is off the charts low!



    Optimism reigns supreme. Is it any wonder we have so many dotcom refugees now getting their real estate licenses? In Cali, if not for the huge upsurge in jobs tied to real estate and residential mortgage lending, we would have had totally flat job growth over the past three or so years. Scary to think that if the residential market hiccups just a tiny bit, we're back in recession.

    There are three major causes that have contributed to this overpriced inflated California Real Estate market!

    1. The lending institutions who make these outrageous "interest only loans" to people who otherwise couldn't qualify for a normal 30 year fixed or even a variable interest rate loan! Then when the loans come due in 3 to 5 years, what do they think these people are going to do, refinance when short term loans are 2% higher and going up? No way, its reckoning time!


    2. The Real Estate sales people who continue to spue their hype to cause buyers to buy now before the market goes higher, convincing them that the already over inflated prices are really a good deal. Oh yeh, it's a good deal for them since they are making commissions larger than they've ever seen in history! They refuse to look at the signs of the coming gloom and convince buyers to go in debt no matter what the cost, only causing more potential bankruptcies when the big bubble pops!

    3. Lastly, the blind buyers who pay these outrageously high prices believing there is no end to this already thin skinned ready to pop bubble! Forget that very few buyers can afford these houses without creative financing, or that even when these buyers get in they will see the largest property tax bills they've ever experienced at the end of the year, so large it could choke a cow! Then you have the sellers who know they should unload now but hold on for an even bigger profit. Relatives of mine keep holding on to their small $700,000 tract homes in hope of making just a little more money before the market falls.
    As the gambler says; "Know when to hold and know when to fold." A lot of people are holding who have little experience in gambling, or, have not watched or studied Real Estate over the last 40 years.

    The doom sayers (most sensible economist) predicted a possible market fall at the end of last year, then possibly sometime this year and it hasn't happen. So now those that cry wolf sound like a bunch of broken records and all think things will go on as usual, so they hope! Will or can these inflated prices continue to go up without a market correction? I say they have already passed that point and are artificially being sustained by the above mentioned. When the fall comes it will be the worse correction in California history and many will be stuck with no way out, owning homes that are worth much less than they owe on them. Time will tell!

    Ed Frias
    Last edited by EFE Speakers; 07-24-2005 at 11:43 PM.

  3. #28
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  4. #29
    Forum Regular Woochifer's Avatar
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    Quote Originally Posted by EFE Speakers
    There are three major causes that have contributed to this overpriced inflated California Real Estate market!

    1. The lending institutions who make these outrageous "interest only loans" to people who otherwise couldn't qualify for a normal 30 year fixed or even a variable interest rate loan! Then when the loans come due in 3 to 5 years, what do they think these people are going to do, refinance when short term loans are 2% higher and going up? No way, its reckoning time!
    The interest rates are the primary leg that continues to drive the upward escalation in real estate prices in Cali. In the Bay Area, there's plenty of pent up demand, but the gap between purchase prices and rent has widened to an unprecedented level. The scary part about the interest-only loans is that we're in completely uncharted territory, not only in Cali but all over the country. Interest only loans made up only about two percent of the mortgage market three years ago. Now, it constitutes 31% of the mortgages nationally, and over half of the loans in inflated markets like the Bay Area, Southern California, and the D.C. area. We have no idea what the effect will be in about three or four years, when the principal starts coming due on these loans. With relatively flat income and job growth, this indicates at least some risk of an uptick in defaults. (And increased supply of housing units on the market) I read that the last time interest only loans were used to this extent was right before the Great Depression.

    Quote Originally Posted by EFE Speakers
    2. The Real Estate sales people who continue to spue their hype to cause buyers to buy now before the market goes higher, convincing them that the already over inflated prices are really a good deal. Oh yeh, it's a good deal for them since they are making commissions larger than they've ever seen in history! They refuse to look at the signs of the coming gloom and convince buyers to go in debt no matter what the cost, only causing more potential bankruptcies when the big bubble pops!
    Also consider that the number of realtors has skyrocketed over the past five years. Plenty of articles came out a couple of years ago about how dotcom refugees were turning to real estate as their new vocation of choice. Unfortunately for them, the current real estate cycle resembles the irrational exuberance that accompanied the dotcom driven stock surge from a few years ago.

    Quote Originally Posted by EFE Speakers
    3. Lastly, the blind buyers who pay these outrageously high prices believing there is no end to this already thin skinned ready to pop bubble! Forget that very few buyers can afford these houses without creative financing, or that even when these buyers get in they will see the largest property tax bills they've ever experienced at the end of the year, so large it could choke a cow! Then you have the sellers who know they should unload now but hold on for an even bigger profit. Relatives of mine keep holding on to their small $700,000 tract homes in hope of making just a little more money before the market falls.
    As the gambler says; "Know when to hold and know when to fold." A lot of people are holding who have little experience in gambling, or, have not watched or studied Real Estate over the last 40 years.
    There's also the element of speculation to consider. Topspeed already mentioned how the Las Vegas housing market, which was touted as the hottest in the country just over a year ago, has collapsed over the last few months. I read that at the market peak, up to half of the units sold were going to speculators. Nationally, I believe that the speculation rate has gone up from (I can't remember the exact figure) 15-18% to close to 25% over the last few years. That's usually a sign of trouble.

    Some friends of ours bought a million dollar home a few months ago and had to take out three loans to complete that transaction. Sad part is that they had a nice modest home that was purchased several years ago when the prices were still reasonable. Their property tax bill will now be more about $15k annually, which is more than my wife and I pay on our mortgage! (She was smart by buying into undervalued neighborhood during the last recession)

    Quote Originally Posted by EFE Speakers
    The doom sayers (most sensible economist) predicted a possible market fall at the end of last year, then possibly sometime this year and it hasn't happen. So now those that cry wolf sound like a bunch of broken records and all think things will go on as usual, so they hope! Will or can these inflated prices continue to go up without a market correction? I say they have already passed that point and are artificially being sustained by the above mentioned. When the fall comes it will be the worse correction in California history and many will be stuck with no way out, owning homes that are worth much less than they owe on them. Time will tell!

    Ed Frias
    The thing about California is that they've defied real estate cycles historically, and that led to a false sense of confidence. Taken as a whole, housing appreciates by about one percent annually in real dollar terms. California had always far outpaced that rate until the housing market collapsed in the early-90s.

    I think the housing bubble in California would have burst a year or two ago if not for the interest only loans keeping a sizable portion of potential buyers in the game. The economists that I've heard at these regional forums have been saying that the job and income indicators are not contributing to the housing market, which leaves the interest rates as the remaining indicator sustaining growth. If job and income growth don't substantially pick up, then I think two things on the interest front will lead to a market correction -- 1) if the interest rates rise by another one percent or more; or 2) if rate of adoption with these interest only loans stops growing or contracts. And we're not even talking about the potential flood of units coming onto the market in a few years if loan defaults start to increase with principal starting to come due on those interest only loans.

    As mentioned before, we're in completely uncharted territory right now, and unfortunately Cali does not have the level of economic growth needed to sustain the housing market once the interest rates are no longer at historic lows.

  5. #30
    Loving This kexodusc's Avatar
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    Quote Originally Posted by Woochifer
    The interest rates are the primary leg that continues to drive the upward escalation in real estate prices in Cali. In the Bay Area, there's plenty of pent up demand, but the gap between purchase prices and rent has widened to an unprecedented level. The scary part about the interest-only loans is that we're in completely uncharted territory, not only in Cali but all over the country. Interest only loans made up only about two percent of the mortgage market three years ago. Now, it constitutes 31% of the mortgages nationally, and over half of the loans in inflated markets like the Bay Area, Southern California, and the D.C. area. We have no idea what the effect will be in about three or four years, when the principal starts coming due on these loans. With relatively flat income and job growth, this indicates at least some risk of an uptick in defaults. (And increased supply of housing units on the market) I read that the last time interest only loans were used to this extent was right before the Great Depression.



    Also consider that the number of realtors has skyrocketed over the past five years. Plenty of articles came out a couple of years ago about how dotcom refugees were turning to real estate as their new vocation of choice. Unfortunately for them, the current real estate cycle resembles the irrational exuberance that accompanied the dotcom driven stock surge from a few years ago.



    There's also the element of speculation to consider. Topspeed already mentioned how the Las Vegas housing market, which was touted as the hottest in the country just over a year ago, has collapsed over the last few months. I read that at the market peak, up to half of the units sold were going to speculators. Nationally, I believe that the speculation rate has gone up from (I can't remember the exact figure) 15-18% to close to 25% over the last few years. That's usually a sign of trouble.

    Some friends of ours bought a million dollar home a few months ago and had to take out three loans to complete that transaction. Sad part is that they had a nice modest home that was purchased several years ago when the prices were still reasonable. Their property tax bill will now be more about $15k annually, which is more than my wife and I pay on our mortgage! (She was smart by buying into undervalued neighborhood during the last recession)



    The thing about California is that they've defied real estate cycles historically, and that led to a false sense of confidence. Taken as a whole, housing appreciates by about one percent annually in real dollar terms. California had always far outpaced that rate until the housing market collapsed in the early-90s.

    I think the housing bubble in California would have burst a year or two ago if not for the interest only loans keeping a sizable portion of potential buyers in the game. The economists that I've heard at these regional forums have been saying that the job and income indicators are not contributing to the housing market, which leaves the interest rates as the remaining indicator sustaining growth. If job and income growth don't substantially pick up, then I think two things on the interest front will lead to a market correction -- 1) if the interest rates rise by another one percent or more; or 2) if rate of adoption with these interest only loans stops growing or contracts. And we're not even talking about the potential flood of units coming onto the market in a few years if loan defaults start to increase with principal starting to come due on those interest only loans.

    As mentioned before, we're in completely uncharted territory right now, and unfortunately Cali does not have the level of economic growth needed to sustain the housing market once the interest rates are no longer at historic lows.
    It's quite ironic how the steps taken to pull our economy out of one recession could ultimately drive us into an even greater. Nothing like borrowing from the future to pay for today.
    I spoke with an economist counterpart of mine in South Dakota last week...he mentioned to me that the financial institutions aren't blind to these realities, and we can expect them come up with every possible creative solution to ensure that the default rates on mortgages/loans doesn't increase, and that the housing bubble doesn't suddenly pop.

    He seriously believes that 30, 40, even 50 year mortages are on the horizon as the "normal form", and showed me examples of a reverse-amortization mortgages, residential property leases, and a whole slew of other "creative" finance schemes. Smoke and mirror's if you ask me. But he had a good point. If defaults on mortgages start to soar, the financial institutions will find themselves with a bunch over-priced properties in a market with weak demand.

    In the end, creative financing this will only shift the risk from a short term market collapse to a long-term financial liability...can't see that being any better.

  6. #31
    Forum Regular Woochifer's Avatar
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    Quote Originally Posted by kexodusc
    It's quite ironic how the steps taken to pull our economy out of one recession could ultimately drive us into an even greater. Nothing like borrowing from the future to pay for today.
    I spoke with an economist counterpart of mine in South Dakota last week...he mentioned to me that the financial institutions aren't blind to these realities, and we can expect them come up with every possible creative solution to ensure that the default rates on mortgages/loans doesn't increase, and that the housing bubble doesn't suddenly pop.
    If we get into a market correction similar to what occurred in the early-90s, then there'll be a lot of buyers who owe more than their house is worth. Temptation's strong to just walk away from the deal, and no amount of creative financing will change that situation if these buyers are already paying way above their means just to keep up with interest only payments. A lot of people wound up letting their homes get repossessed in the early-90s because the market had dropped by up to one-third since the time of their purchase, and they owed a lot more than the property was worth. As I mentioned, it wasn't until about a year or two ago that the housing prices in the Bay Area got back to where they were in the late-80s in real dollar terms.

    It's unfortunate, but you got a lot of households who earn less than $100,000 trying to buy homes in the $600-$800k+ range. Using normal affordability assumptions like 10% down, applying about 30% of gross income to housing, and using a 30-year mortgage term, families earning $100,000 are normally looking at property in the $400,000 range. Anything above that and you're either stretching beyond normal means, or you need alternative financing to make the numbers add up.

    Quote Originally Posted by kexodusc
    He seriously believes that 30, 40, even 50 year mortages are on the horizon as the "normal form", and showed me examples of a reverse-amortization mortgages, residential property leases, and a whole slew of other "creative" finance schemes. Smoke and mirror's if you ask me. But he had a good point. If defaults on mortgages start to soar, the financial institutions will find themselves with a bunch over-priced properties in a market with weak demand.
    I started reading about reverse-amortization mortgages a couple of months ago. That and all of these other financing schemes that you're listing sound absolutely frightening to me. The house of cards already built with the interest-only loans is precarious enough, adding more layers to the mix only adds more to what the juggler's already got in the air.

    Quote Originally Posted by kexodusc
    In the end, creative financing this will only shift the risk from a short term market collapse to a long-term financial liability...can't see that being any better.
    Having a long-term drag on the economy isn't a great prospect either. So much of the economic growth that we've had over the last four years has been financed by the growth in residential equity and consumer spending. I'd hate to think that something as tenuous as interest rates has been keeping the American economy afloat, especially with the federal deficit now ballooning out and so much of our debt now held overseas.

  7. #32
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    The bubble will burst soon...

    Well, tomorrow I pick up my contract to build our house. We should be done and in it by January. This tells me that, if there is a bubble, it will burst soon. Hope it's a small bubble.
    WARNING! - The Surgeon General has determined that, time spent listening to music is not deducted from one's lifespan.

  8. #33
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    I've been looking forward to buying property for a very long time, because it is important for me to have something of my own. At the same time, I tried to find a good option with an HVAC system so that the house had good air circulation, heating and cooling. True, in most of the options that I looked at, the air ducts were quite dirty, which, of course, is not a problem, considering that there is the dryer vent cleaning NJ company whose specialists quickly deal with accumulations of dust and dirt in the pipes.

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    I am so happy I found your post because I am searching for information related to the real estate agent and I found your post where I found all the information I need. I also want to know about One Bernam Balance Units and I think you can help me out in searching for a site online where I can find all information I need regarding one bernam balance units.

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