View Full Version : Home Ownership may no longer be the best investment ...
We have so many really smart people on Stripperweb.
montythegeek
12-30-2004, 07:16 PM
DJ,
In the case of sales volume for an already existing product which is an asset, sales volume setting records means the market is fluid- techically liquid. Both buyers and sellers are freely selling the asset at a mutually agreed price. People who want to go upscale can do so as well as people who want to go downscale or move out of town.
Dangerous mismatches in the market place show up as a large supply of homes for sale and weak sales. The ratio is very high. The number of homes for sale relative to actual sales is the last column on the first page of the link I posted before. At 4.3 months it is almost at a record low (4.2). Buyers and sellers can list their house and buy a new one very easily with no awkward lag. A year ago during what was then a record sales pace the ratio was 4.9 months. There are no more homes for sale today than there were a year ago.
Emily
12-31-2004, 06:44 PM
Found this article today: http://forbes.com/lifestyle/realestate/2004/12/24/cx_sc_1224home_ls.html
Most Expensive Home Sales In America 2004
Sara Clemence
This was a year of record-breaking real estate sales, with high-end properties pushing through price ceilings around the country. In fact, the average price of the homes on our list jumped from last year's $25.9 million to $34.9 million, a dramatic increase of nearly 35%.
*
Click here for the slide show.
*Significantly, in 2004 the record for the most expensive house ever sold in the U.S. was broken when billionaire Ronald O. Perelman unloaded his Palm Beach estate for $70 million. Perelman, 61, whose holding company MacAndrew & Forbes owns cosmetics producer Revlon (nyse: REV - news - people ) and flavoring maker M&F Worldwide (nyse: MFW - news - people ), sold to Dwight C. Schar, 62, who has been chief excutive of Virginia-based construction service company NVR for 18 years, and is a part owner of the Washington Redskins football team. The sale price shouldn't be too much of a stretch for Schar, who had a paycheck last year of $58 million, making him the fifth best-paid CEO on our annual roundup of executive pay.
The $70 million sale beat the previous record set in 1996, when Thunderbird Lodge in Lake Tahoe, Nev., sold for $50 million. But it wasn't an anomaly. From Palm Beach to Buffalo, prices were moving up.
The National Association of Realtors expects the median price for an existing American home to be up nearly 8% this year, to $182,500. But the top props shifted even more dramatically.
In Rhode Island, a Newport estate sold for $10.3 million, making it the priciest residential purchase in the mansion town's history. Honolulu saw a record-setting $17.5 million sale of an oceanfront estate. And they didn't even make our top ten. In 2003, a $42 million-plus penthouse in the Time Warner Center in New York topped off our list of the most expensive home sales. This year's winner surpassed that by 66% and two others also cleared the $42 million mark.
One thing that didn't change was that our list was studded with top business names, such as Donald Trump and Robert Hurst, retired vice-chairman of Goldman Sachs Group (nyse: GS - news - people ).
The list could look very different if we included properties that didn't close this year. Media mogul Rupert Murdoch set a New York residential price record by offering $44 million for the Fifth Avenue triplex owned by the late Laurance Rockefeller. But Murdoch still needs to be approved by the building's notoriously tough co-op board.
And there are open contracts at the Time Warner Center that would also make the top ten says Jonathan Miller, president of real estate appraisal and consulting firm Miller Samuel.
Next year could be even bigger. The penthouse at the Pierre Hotel in Manhattan is still on the market for $70 million, as is Three Ponds, a Bridgehampton estate with an asking price of $75 million.
"That could be telling of where the upper end of the market is going to go," Miller says.
Higher interest rates will likely not put a damper on things. In a survey of luxury home buyers by Coldwell Banker Real Estate, 61% of respondents said that rates would not affect their buying decisions.
"If we could have narrowed it down to super-duper (luxury buyers), it would have been higher," says Jim Gillespie, president and chief executive of Coldwell Banker, a division of Cendant (nyse: CD - news - people ). "I don't see anything that makes me think that the market's not going to continue to go crazy."
lost niki
12-31-2004, 08:07 PM
You must be in Florida. Housing prices keep going up here, the problem is our wages are to low here.If you have any houses to sell, contact me private.
Emily
12-31-2004, 11:06 PM
it's not just florida....
scorpio
12-31-2004, 11:47 PM
What DJ Wolf doesn't understand is that people now are starting to buy investment properties at record paces. With loans on investment properties that require only 5% down, and interest only rates as low as 2%, as a mortgage lender, I see more and more people with multiple properties in their credit reports. Also, more renters now are buying instead of renting, so his theories are not well though out.
NinaDaisy
01-02-2005, 01:34 AM
While it's a fact that housing prices have been going up more and more in the last 5-6 years, the fact is that this is a bubble and it's gonna burts. The increase in home prices is outpacing income increases to the point where it's gonna have to hit critical mass soon. The luxury market will continue to have buyers since there are more millionaires now in the U.S. than ever before, but the middle class is gradually vanishing.
Bridgette, I know buying in Baltimore sounds appealing initially because prices seem cheap, but be careful. A lot of thouse boarded up houses have been passed around for years by people with the same idea who lost their investment because of the rampant crime in those areas. And I know for a fact that the house across the street from you sold for $600K. I was looking at it and saw how much it was online and was stunned. I've been in Baltimore since '96 and know the neighborhoods a lot better. Baltimore lenders have a history of being unscrupulous too. Do a ton of research before you buy. Typical rents for those boarded up neighborhoods are $200-$300 a month and the people that rent those apartments are people that are, uh, challenged in many ways, to say the least. Remember Mike's neighborhood? There's your target demographic.
There are some gems to be found though, but you're gonna have to do some digging, because they're not as obvious as rehabbing a condemed, rat-infested 10K former crack house.
I admit that if I knew I would have stayed in Baltimore as long as I did I would have bought a house, but houses in decent neighborhoods are going fast. Kermit210 bought a house in the city last year and the houses in her soon to be formerly blue-collar neighborhood sell the day the hit the market.
People need to stop seeing houses as investments solely and start looking at them as homes again. Yes, it's great of you're house appreciates. My mother's house was recently appraised at $1.2 MILLION and she bought it 15 years ago for $150K. But she's gonna LIVE in it because it's her HOME.
All these specualtors make me nauseous. They're driving prices up into a frenzy and making it harder every day for regular hard-working people to own a decent home. Fuck low interest rates. A low percentage of an artificially inflated price still sucks.
Emily
01-02-2005, 02:06 AM
the fact is that this is a bubble and it's gonna burts.
This is not a fact. It's a hunch. While evidence may suggest it, we don't know it will happen for sure.
The increase in home prices is outpacing income increases to the point where it's gonna have to hit critical mass soon. The luxury market will continue to have buyers since there are more millionaires now in the U.S. than ever before, but the middle class is gradually vanishing.
It could be possible that the price of housing increases at a slower rate than income, but increases nonetheless. Why would you suggest the middle class is vanishing?
People need to stop seeing houses as investments solely and start looking at them as homes again. Yes, it's great of you're house appreciates. My mother's house was recently appraised at $1.2 MILLION and she bought it 15 years ago for $150K. But she's gonna LIVE in it because it's her HOME.
Like any investment, it takes knowledge of the market conditions. It is a home first, but it can serve as an investment as well, so why not make the most of it?
All these specualtors make me nauseous. They're driving prices up into a frenzy and making it harder every day for regular hard-working people to own a decent home. Fuck low interest rates. A low percentage of an artificially inflated price still sucks.
True. It's very scary. This is why it's more important now than ever to start thinking about buying a first house.
NinaDaisy
01-02-2005, 02:22 AM
Emily,
Well, you're definitely right about the "bubble" idea being a hunch, but I'm far from being the only person that has it.
I absolutely agree that real estate CAN be a great investment, but the the frenzy over it now is making people ignore diversification of their investments. Too much house "flipping" going on to make a quick buck.
The middle class IS vanishing and that's a fact. The rich are getting richer and more people are also sliding into poverty every day. It's not uncommon to see a family of four with a combined income of $30-$40K a year going to food banks. One main reason is increased housing costs!
The point of my last comment is that for a lot of people buying that first house is outside of their reach, so how can they start thinking about buying one if the odds are stacked against them so much?
Emily
01-02-2005, 02:39 AM
A lot of people think it's a bubble and it may burst. That may be correct, but people were saying that 2-3 years ago and it just grew. If we do assume this is the case, we cannot assume that that time is now.
I also don't know why a booming real estate market means people aren't diversifying. If they aren't, that's their own stupid fault. That's like the first rule of investing.
The point about the declining middle class may be true (although this is the first time I've heard of this), but it doesn't stop the rates of sales. More people are buying homes now than before.
And to your last comment....a lot of people buy a lot of stuff they can't afford. That's the American way! This isn't changing.
NinaDaisy
01-02-2005, 02:51 AM
Your points are all valid Emily, no question.
I'm not necessarily saying all this is good or bad. I think a lot of people are still gun-shy about the stock market and see homes as a more "secure" investment.
It's just been a self-perpetuating frenzy. Yes, there have been murmurs of the bubble bursting for about 2 years now, but I wonder how much of that spurred buying to try to cash in before it ended.
Baltimore isn't really having too much of this. A few blocks away from Bridgette someone has been trying to unload two spearate houses for $500,000 and $750,000. Both "fixer-uppers"! Her neighborhood is mostly college kids and a few long-time middle aged hippie homeowners. People are just getting greedy and some are refusing to buy into it.
I'm definitely watching this phenomenon to see where it's going. Whether the bubble bursts this year or in 10, I doubt this rate of price increases can be sustained, which is my main point.
Emily
01-02-2005, 02:56 AM
I wonder that too, but look at San Fransisco bay area....the price of a modest "fixer-upper" is in the 300-400s. People still manage to live there. I don't know how though!
Bridgette
01-02-2005, 03:14 AM
Much like in London, where housing costs are so high, people basically get stuck in roommate situations or spending ALL their money on housing - or moving waaaaayy out in the suburbs and commuting 2 hours+ to work.
Nina, you bet I'm not jumping into the first cheapass boarded up crack house I see. LOL You have to do alot of research in any market. I agree alot of those boarded up houses I see have clearly been passed around, but I have a hunch many of them have been passing through the hands of people who leapt before they looked and couldn't exactly afford the necessary renovations. I know what some of the houses in my neighborhood go for. Ridiculous. Believe me I'll be doing my homework before handing my money over.
Melonie
01-02-2005, 06:23 AM
The point about the declining middle class may be true (although this is the first time I've heard of this), but it doesn't stop the rates of sales. More people are buying homes now than before.
It may be true that more homes have been bought and sold in 2004 than in previous years. However, I have to believe that the massive 9 billion dollar scandal at Fannie Mae is going to result in a severe tightening of creditworthiness requirements for first time home buyers in the very near future. However, this obviously won't affect the 'millionaire' McMansion home market, only lower echelon 'starter homes', 'fixer uppers' etc. - which I guess further plays into the theory of a declining middle class. But this could/would leave the would-be sellers of 'starter homes', 'fixer uppers' etc. with a severe shortage of qualified potential buyers, thus putting major downward pressure on the future pricing of such homes.
Melonie
01-02-2005, 07:19 AM
also, here's some fresh news on the subject ...
michele1
01-02-2005, 10:05 AM
There will always be lenders out there who will finance anyone. There are ways to get around this such as no doc loans, no income verify. Fannie may isnt the only lender out there.
Melonie
01-02-2005, 08:30 PM
There will always be lenders out there who will finance anyone. There are ways to get around this such as no doc loans, no income verify. Fannie may isnt the only lender out there.
Michele, in the case of dancers who actually do have an adequate income to cover mortgage payments (documented or not), I totally agree with you. However, where blue collar workers are concerned, i.e. where payroll records do exist which clearly show they do NOT have an adequate income to cover potential mortgage payments, tightening of Fannie Mae/Freddie Mac loan criteria (plus adoption of the same tighter criteria by commercial and savings banks) is definitely going to boot many of these 'unqualified' buyers out of the real estate market.
Like the Vegas story, in any local market where real estate prices stagnate, or particularly in any real estate market where potential real estate prices actually go into decline, lenders are going to become VERY selective in terms of writing new mortgage loans. The reason for this is obvious. In the past, with rising real estate values, if the mortgage went into default the lender still made money since the house they could repossess was worth more than the mortgage loan balance they wrote a year or two or three earlier. But in the future, it's entirely possible that the actual market value of a repossessed home will NOT be sufficient for the lender to recoup the outstanding mortgage loan balance in the case of a default.
VenusGoddess
01-03-2005, 12:32 AM
Michele, in the case of dancers who actually do have an adequate income to cover mortgage payments (documented or not), I totally agree with you. However, where blue collar workers are concerned, i.e. where payroll records do exist which clearly show they do NOT have an adequate income to cover potential mortgage payments, tightening of Fannie Mae/Freddie Mac loan criteria (plus adoption of the same tighter criteria by commercial and savings banks) is definitely going to boot many of these 'unqualified' buyers out of the real estate market.
You're wrong Mel. If someone has a high enough credit score...they can do a no doc/no verification loan. Those loans are not just for dancers. Even a lot of the big banks are doing those loans now, without having the borrower paying 8%+.
FannieMae/FreddieMac loans are not as widely used anymore. With the increase of "criteria" to get them, a lot of people are moving more towards the other lenders. Less headache.
Melonie
01-04-2005, 12:38 AM
A high credit score does NOT override the fact that a blue collar worker's W2 and employer payroll records clearly show that they cannot afford to make the mortgage payments on the property they are seeking to buy. No doc /no verification loans are primarily of value when the would-be buyer actually has sources of income or actually has assets which make them a reasonably good credit risk. Financial institutions are going to be very skittish about writing a loan in any form where the would-be buyer has a clear documented trail showing that they really can't afford the payments, regardless of how well they have been able to manage their personal finances in the past (i.e. good credit score). This is even more true in markets where property values have stagnated or are actually in decline, such that the lending institution would have a very hard time recouping the loan principle via foreclosure and auction/resale.
Granted, if the potential buyer is in a position to cough up a 20%-25%-30% down payment, regardless of their actual income and actual ability to make mortgage payments, then their large down payment bridges the lender's potential auction/resale value gap and all things are possible. However, your typical blue collar worker is usually not in a position to come up with this substantial of a down payment. Therefore, without a Fannie Mae or Freddie Mac to substitute the 'full faith and credit' of our tax money in place of a substantial down payment, lending institutions are going to be very skittish about the degree of risk they're willing to assume. IMHO this will wind up icing the vast majority of blue collar would-be first time home buyers out of the market entirely unless/until they save up the 20%-25%-30% down payment first (and the odds of that happening are virtually nil given today's economy).
michele1
01-04-2005, 10:42 AM
Melonoe you are missing the point. No doc loans are just that no doc. You dont have to show any proof of income or how much you make. They are ways for lenders to get anyone financed.
Emily
01-04-2005, 11:00 AM
I think Mel gets it. She is saying that the problem is that they will need to come up with 20%+ down, which is really hard to do.
NinaDaisy
01-04-2005, 12:30 PM
Another good point Emily, especially with the rising house prices.
What about the effect of first-time homebuyer incentive programs on mortgage availability?
Michele, yes you are probably right about being able to find financing for a home if you look hard enough, but people need to beware of unscrupulous lenders that are little more than loan sharks with a storefront. Baltimore's had a lot of problems with that sort of thing in recent years, fro one.
VenusGoddess
01-04-2005, 01:33 PM
A high credit score does NOT override the fact that a blue collar worker's W2 and employer payroll records clearly show that they cannot afford to make the mortgage payments on the property they are seeking to buy. No doc /no verification loans are primarily of value when the would-be buyer actually has sources of income or actually has assets which make them a reasonably good credit risk. Financial institutions are going to be very skittish about writing a loan in any form where the would-be buyer has a clear documented trail showing that they really can't afford the payments, regardless of how well they have been able to manage their personal finances in the past (i.e. good credit score). This is even more true in markets where property values have stagnated or are actually in decline, such that the lending institution would have a very hard time recouping the loan principle via foreclosure and auction/resale.
Granted, if the potential buyer is in a position to cough up a 20%-25%-30% down payment, regardless of their actual income and actual ability to make mortgage payments, then their large down payment bridges the lender's potential auction/resale value gap and all things are possible. However, your typical blue collar worker is usually not in a position to come up with this substantial of a down payment. Therefore, without a Fannie Mae or Freddie Mac to substitute the 'full faith and credit' of our tax money in place of a substantial down payment, lending institutions are going to be very skittish about the degree of risk they're willing to assume. IMHO this will wind up icing the vast majority of blue collar would-be first time home buyers out of the market entirely unless/until they save up the 20%-25%-30% down payment first (and the odds of that happening are virtually nil given today's economy).
No, you are wrong. There are no doc/no income and asset verification...you don't have to prove anything. You TELL the bank how much money you make and if your credit score is high enough, they'll take you at your word. You are basing every banks "requirements" on Freddie Mac and Fannie Mae. It's not like that anymore. There are people who do no doc/no income/asset verifications and 95-100% financing. There are plenty of banks out there willing to do whatever it takes to get more money...and if you have a high enough credit score, you can say whatever you want to get that house you want.
I am a first-time homebuyer, and got a no doc loan at 100% financing. I'm refinancing my house with the same method. I chose to put my money elsewhere instead of down on my place. If your credit score is high enough, then the bank "doesn't care".
DJ_WuLf
01-04-2005, 03:04 PM
I don't believe you are getting these "no-doc" loans from a BANK. FDIC Regulations and the Fiduciary responsibility of a Bank to it's shareholders just won't allow a REAL Bank to make this kind of loan on a Mortgage basis. When Banks make "no-doc" loans based on credit score alone its called a CREDIT CARD!
I DO Believe that there are private investment firms out there who ARE making "no-doc" loans to SOME PEOPLE who are buying SOME Properties but these loans are deeply tied into the value of the property itself where the "Lender" actually WANTS the borrower to default after making payments/improvements. In some cases (usually with a big down payment) the borrower is actually set up to fail and default. The financing world is CRAZY right now. Its where all the crooks are working.
"No-doc" loans are nothing new. They used to be called "personal loans" and "lines of credit" which have turned into Credit Cards. Something everyone needs to remember is that no matter what documentation or collateral you place with the lender to secure the loan ...EVERYTHING YOU OWN CAN BE RE-POSSESSED AND SOLD TO COVER A LOAN THAT HAS BEEN CALLED DUE! And a loan can be called due at almost any time. You'll owe the loan balance ....not just the value of the collateral .... so be VERY Careful with creative financing. This is just one reason why SMART People say "Home Ownership may no longer be the best investment".
Emily
01-04-2005, 03:50 PM
as a non "SMART People", tell me what the best investment is
scorpio
01-04-2005, 04:48 PM
It may be true that more homes have been bought and sold in 2004 than in previous years. However, I have to believe that the massive 9 billion dollar scandal at Fannie Mae is going to result in a severe tightening of creditworthiness requirements for first time home buyers in the very near future. However, this obviously won't affect the 'millionaire' McMansion home market, only lower echelon 'starter homes', 'fixer uppers' etc. - which I guess further plays into the theory of a declining middle class. But this could/would leave the would-be sellers of 'starter homes', 'fixer uppers' etc. with a severe shortage of qualified potential buyers, thus putting major downward pressure on the future pricing of such homes.
Fannie mAy does not lend on "starter homes" and fixer uppers. that is what sub-prime lenders are for.
scorpio
01-04-2005, 04:57 PM
I don't believe you are getting these "no-doc" loans from a BANK. FDIC Regulations and the Fiduciary responsibility of a Bank to it's shareholders just won't allow a REAL Bank to make this kind of loan on a Mortgage basis. When Banks make "no-doc" loans based on credit score alone its called a CREDIT CARD!
I DO Believe that there are private investment firms out there who ARE making "no-doc" loans to SOME PEOPLE who are buying SOME Properties but these loans are deeply tied into the value of the property itself where the "Lender" actually WANTS the borrower to default after making payments/improvements. In some cases (usually with a big down payment) the borrower is actually set up to fail and default. The financing world is CRAZY right now. Its where all the crooks are working.
"No-doc" loans are nothing new. They used to be called "personal loans" and "lines of credit" which have turned into Credit Cards. Something everyone needs to remember is that no matter what documentation or collateral you place with the lender to secure the loan ...EVERYTHING YOU OWN CAN BE RE-POSSESSED AND SOLD TO COVER A LOAN THAT HAS BEEN CALLED DUE! And a loan can be called due at almost any time. You'll owe the loan balance ....not just the value of the collateral .... so be VERY Careful with creative financing. This is just one reason why SMART People say "Home Ownership may no longer be the best investment".
Dude, stop talking about a subject you know nothing about. Mel too. I wouldn't tell you how to do your jobs, so don't tell me mine. Over 60% of loans now are stated income loans, and No Doc loans are rising as well. It's a fact of life. Fannie may/freddie Mac do not do these loans, and they are rapidly loosing market share. You can call me up today, and I will fund an No Doc loan for you.
Melonie
01-04-2005, 06:25 PM
I DO Believe that there are private investment firms out there who ARE making "no-doc" loans to SOME PEOPLE who are buying SOME Properties but these loans are deeply tied into the value of the property itself where the "Lender" actually WANTS the borrower to default after making payments/improvements. In some cases (usually with a big down payment) the borrower is actually set up to fail and default. The financing world is CRAZY right now. Its where all the crooks are working.
Thanks for making this point in an extremely straightforward and unambiguous manner !
Fannie mAy does not lend on "starter homes" and fixer uppers. that is what sub-prime lenders are for.
If you'll reread my posts you'll find that I never said they did. What I DID say is that Fannie Mae and Freddie Mac coming under much higher scrutiny in regard to the actual creditworthiness of would-be home buyers, and tightening their creditworthiness standards on future loans as a result, will spill over to the creditworthiness standards of other financial institutions in particular commercial banks and savings banks. I then attempted to draw the conclusion that tighter creditworthiness standards would disqualify a significant number of would-be home buyers from the (conventional) mortgage market, and thus create downward market pricing pressure on the lower priced segment of homes which includes 'starter homes' and 'fixer uppers' by nature of the price category.
I'm not going to argue the point that if someone looks hard enough, and if someone is willing to accept whatever terms that a lender is willing to offer, that today a person can find 'creative' financing for just about anything. Yes, 'creatively financed' home purchases is a growth industry today, with the example of 'interest only' adjustable rate mortgages probably being the most extreme example. Obviously Fannie Mae and Freddie Mac are going to lose market share as their creditworthiness standards are tightened, thus leaving marginally qualified and unqualified would-be home buyers with no choice other than to seek 'creative financing' elsewhere !
However, the wisdom of using 'creatively financed' real estate purchases as an investment vehicle is IMHO entirely contingent on real estate market prices continuing their rising trend, in exactly the same way as with conventionally financed real estate purchases, which was the original point of this entire thread. I am going to assume that the point you are REALLY trying to make is that 'creative financing' lenders are actually going to keep the marginally qualified and outright unqualified would-be home buyers as active participants in the real estate market, thus perpetuating the real estate pricing bubble for a while longer.
Good point actually, as this might indeed be the result in the short term. However, adding yet more homeowners who can't afford their mortgage payments to a housing market where many homeowners are already in that position will only increase the steepness of any future real estate market value crash when financial fundamentals finally come home to roost ! But IMHO the prudent 'investment' would be a short term chunk of Capital One stock shares, and the shares of other sub-prime lenders, rather than real estate itself !
~
scorpio
01-04-2005, 11:42 PM
The lender NEVER wants the borrower to default. Lenders are in the finance business, not the real estate business, and everytime a lender takes a home back, they lose their ass.
Fanni/Freddy CAN'T tighten up their credit/value crieria any more than they are. If they did, they would not be able to fund any loans at all.
Many buyers opt for alt-A or BC lenders not because they can't qualify for a conforming loan, but because conforming lenders require too much personal info, ask too many questions, aren't flexible for self-employed people, have horrible customer service, and above all, take too goddam long to close a loan. Many of my clients need a purchase or re-fi done in DAYS, not MONTHS so they come to a non-conforming lender. Some people, because they work in cash businesses, write off their income, or whatever, cannot prove they make enough money when they actually do. In that situation, they would be turned down by a conforming lender but not a BC lender.
Melonie
01-05-2005, 08:14 AM
The lender NEVER wants the borrower to default. Lenders are in the finance business, not the real estate business, and everytime a lender takes a home back, they lose their ass.
In theory I agree that no lender WANTS a borrower to default. However, lenders seem to be much more agreeable to writing a shaky loan if they know that the market value of the underlying asset will have risen 10%-20% between the inception of the shaky loan and the borrower defaulting than if the market value of the underlying asset is likely to remain the same or actually fall 10%-20%. In the first case the lender realizes more than enough market value gains to cover their costs of foreclosure and liquidation with a nice profit left over. In the latter case the lender gets double whammied by having to take a loss on the market value on top of absorbing foreclosure and liquidation costs ! Accordingly, lenders are not likely to allow themselves to be subjected to the financial risks which exist in the latter case. Thus the lenders will become more demanding in terms of borrower creditworthiness or underlying equity or both, meaning that unqualified buyers who do not have significant down payment or collateral assets are going to be rejected by 'creative financing' lenders in exactly the same way as they have previously been rejected by 'conforming' lenders.
Some people, because they work in cash businesses, write off their income, or whatever, cannot prove they make enough money when they actually do. In that situation, they would be turned down by a conforming lender but not a BC lender.
I previously pointed out that no-doc no-verification financing definitely benefits dancers who DO actually have enough income/assets to present a very low credit risk to the lender even though their income is difficult to prove. However I think you'll agree that no-doc no-verification lenders still must adhere to some sort of rational credit risk evaluation, thus they're still not likely to write loans to unqualified buyers unless the lender's ass is covered by a large down payment or some other form of hard collateral ! It is a logical conclusion that when no-doc no-verification lenders DO write loans to unqualified buyers on the basis of a large down payment or other hard collateral, that the lenders are in fact anticipating a high probability that the unqualified borrower is going to default - but knowing from inception of the loan that foreclosing on the down payment/collateral equity when the loan goes belly-up will also provide them a tidy profit !
scorpio
01-05-2005, 10:29 AM
In theory I agree that no lender WANTS a borrower to default. However, lenders seem to be much more agreeable to writing a shaky loan if they know that the market value of the underlying asset will have risen 10%-20% between the inception of the shaky loan and the borrower defaulting than if the market value of the underlying asset is likely to remain the same or actually fall 10%-20%. In the first case the lender realizes more than enough market value gains to cover their costs of foreclosure and liquidation with a nice profit left over. In the latter case the lender gets double whammied by having to take a loss on the market value on top of absorbing foreclosure and liquidation costs ! Accordingly, lenders are not likely to allow themselves to be subjected to the financial risks which exist in the latter case. Thus the lenders will become more demanding in terms of borrower creditworthiness or underlying equity or both, meaning that unqualified buyers who do not have significant down payment or collateral assets are going to be rejected by 'creative financing' lenders in exactly the same way as they have previously been rejected by 'conforming' lenders.
mmm, sort of. lenders are very hard on appraisals. They do not accept wild market variations in value on appraisals, and tend to be very conservative in the value they accept. I see appraisal values chopped by lenders all the time. While it's true lenders look at equity first and credit second, you can still get a stated/no doc loan for 5% down WITH GOOD CREDIT. Those who have money to put down 20%, even without good credit, are a good risk because money down is an equalizer of risk. Fannie May/Freddie Mac require 20% too.
Melonie
01-05-2005, 11:41 AM
mmm, sort of. lenders are very hard on appraisals. They do not accept wild market variations in value on appraisals, and tend to be very conservative in the value they accept. I see appraisal values chopped by lenders all the time
An admission which brings us right back to the point of this thread ...
Has Greenspan Over-Pumped the Real Estate Bubble?
"(snip)Finally, my other concern about this behavior is that these are first-time real estate “investors,” or what stock traders would refer to as “weak hands.” Strong hands are professionals and seasoned investors. Weak hands are neophytes who have no experience with equities that always get sucked in as buyers at or close to the peak. Certainly, this is what happened in the first quarter of 2000 when you couldn’t swing a dead cat in this country without accidentally hitting someone who had never invested in stocks in their lives, but now owned either dot-com shares, or an aggressive growth mutual fund that was largely investing in such worthless assets.
Today, the weak hands -- people who have never purchased investment property before -- are actually willing to lose money every month because they believe that real estate will keep going up. It’s dot-coms all over again, folks, but with much larger sums of money, much greater degrees of leverage, and, as a result, much more ominous portent. When people were speculating this way in the stock market five years ago, for the most part, all they lost was their savings and their retirement plans. This time, if the cards begin to implode, people could end up quite literally losing not just their investment properties, but also the homes that they live in. (snip)"
montythegeek
01-05-2005, 06:45 PM
Melonie,
I hate to spread a few facts to drown out the author's rhetoric, but he is flat out lying or biasing his "facts" to support a false premise.
He states he has a friend in the mortgage business whose "average" customer is a realestate speculator leveraged to the hilt to buy a property rather than a residence. If that were true, it would mean "true" home sales were not 6.6 million for the year 2004 but 3.3 million. Do you know when home sales were last 3.3 million? 1985 when mortgage rates were 11-12%. What is he is half true? (it is really a quarter) of sales. that puts you at 1994 when rates were 9.0%.
Do you know what percentage of the housing stock (including new homes built) was in 2004? A whopping 8.5%. The lowest it has ever been in the last 35 years was 3.25% when mortgage rates were in double digits and the economy was in a severe recession. The average from 1980-1999 was around 6% of the stock.
Maybe he interviewed a pawnbroker---they always have tales of woe and disaster.
I reccommend you go back to my "cocktail party" guage. How many people do you know who are speculating in residences they do not live in?
Melonie,
Here's the thing. I've read all your ideas, and agree that they make sense based on the facts that you've presented, but...
Right now I'm looking at buying a duplex. It has tenants with one year leases, and the monthly lease income is double the payment. I don't see how it relates to the things you've said at all. I don't see it depriciating (it's already cheap), but even if it did depriciate by 5 or 10k, I would still make a profit with the rental income. My hunch (based on the way the nearby city is "spreading" towards this area, and the nearby college is growing) is that it will actually increase in value. But either way, I'm buying it more for the monthly rental income. How can this be a bad idea?
Lena
scorpio
01-05-2005, 11:49 PM
How can this be a bad idea?
It's not Lena, and once you do some homework and make sure the purchase price is below market value, the property is inspected to make sure it's up to code and isn't falling apart (unless you are a rehabber) and that your financing still allows you to make a positive cashflow....then it is ABSOLUTELY a great investment.
DJ_WuLf
01-06-2005, 12:27 PM
Scorpio: I CHALLANGE you to find me an FDIC Insured BANK who will make a No-Doc stated value Mortgage Loan with conventional terms and reasonable interest! Prove I don't know what I'm talking about rather than just SAYING it. Otherwise YOU need to engage a brain before you type.
There is a Mortgage Company in Kansas City. The Owners of this Mortgage Company are Builders and RE developers who have built sub divisions in the Suburbs on both the KS and MO sides where property values have risen and continue to rise. This was great when Sprint was hiring executives at 50K salaries but NOW .... with sprint downsizing and moving it HQ to the east coast ..... Well there are ALOT of Mid level ($200K - 500K) houses for sale and not many buyers even with 5% interest. As these Mortages foreclose the Mortgage Co guys buy them from the Banks at 80% of appraised value and sell them on creative terms. These guys BUILT these houses in the first place and made money then ... They are making money NOW without doing an labor. Just creative financing where they WANT you to fail so they can do (flip) it again. THIS is happening all over the US and its the part of the market that Carlton Sheets doesnt tell you about. They're setting you up to fail.
Most Insurance Companies are owned by Doctors. Most Banks are owned by Car Dealers and RE Developers. Imagine that huh! Theres ALOT that some people DON'T KNOW!
DJ_WuLf
01-06-2005, 12:42 PM
Lena: Any income property you can buy at 50% of ACTUAL income is a good deal. The downside is that if it is subsidized housing you have to deal with lots of Govt BS and repairs can easily outpace the positive cash flow. A years lease is meaningless because it can be broken easily usually only forfeiting that deposit. Good tenants are VERY hard to find nowdays and bad ones can tear up more than you ever imagined. With encroaching urban and academic populations comes Zoning restrictions which may make you duplex into a Single Family home overnight (thereby eliminiting one rental income). You may even lose the property to eminent domain when they decide to build a Highway or a Wal Mart there. You very seldom profit form this anymore. Those were the good old days.
The property you describe sounds like a good investment but it is much more hands on (and just as risky) as a good mutual fund which can return the same average 20% per year as ROI. It really depends on how much TIME you have to monitor and repair your investments. RE is labor intensive. Securities aren't.
scorpio
01-06-2005, 05:16 PM
Scorpio: I CHALLANGE you to find me an FDIC Insured BANK who will make a No-Doc stated value Mortgage Loan with conventional terms and reasonable interest! Prove I don't know what I'm talking about rather than just SAYING it. Otherwise YOU need to engage a brain before you type.
There is a Mortgage Company in Kansas City. The Owners of this Mortgage Company are Builders and RE developers who have built sub divisions in the Suburbs on both the KS and MO sides where property values have risen and continue to rise. This was great when Sprint was hiring executives at 50K salaries but NOW .... with sprint downsizing and moving it HQ to the east coast ..... Well there are ALOT of Mid level ($200K - 500K) houses for sale and not many buyers even with 5% interest. As these Mortages foreclose the Mortgage Co guys buy them from the Banks at 80% of appraised value and sell them on creative terms. These guys BUILT these houses in the first place and made money then ... They are making money NOW without doing an labor. Just creative financing where they WANT you to fail so they can do (flip) it again. THIS is happening all over the US and its the part of the market that Carlton Sheets doesnt tell you about. They're setting you up to fail.
Most Insurance Companies are owned by Doctors. Most Banks are owned by Car Dealers and RE Developers. Imagine that huh! Theres ALOT that some people DON'T KNOW!
Dude, You have absolutely no idea what you are talking about. Here, I'll prove it to the rest of us:
Define "conventional" in terms of a mortgage.
Class is now in session.
scorpio
01-06-2005, 05:20 PM
Lena: Any income property you can buy at 50% of ACTUAL income is a good deal. The downside is that if it is subsidized housing you have to deal with lots of Govt BS and repairs can easily outpace the positive cash flow. A years lease is meaningless because it can be broken easily usually only forfeiting that deposit. Good tenants are VERY hard to find nowdays and bad ones can tear up more than you ever imagined. With encroaching urban and academic populations comes Zoning restrictions which may make you duplex into a Single Family home overnight (thereby eliminiting one rental income). You may even lose the property to eminent domain when they decide to build a Highway or a Wal Mart there. You very seldom profit form this anymore. Those were the good old days.
The property you describe sounds like a good investment but it is much more hands on (and just as risky) as a good mutual fund which can return the same average 20% per year as ROI. It really depends on how much TIME you have to monitor and repair your investments. RE is labor intensive. Securities aren't.
again, you don't know what you are talking about.
For instance, Subsidised housing or "section 8" IS desirable because the government guarantees the rent, pays more than market value, and section 8 tenants are less willing to tear the place up for fear of losing their section 8 vouchers.
second, if a municipality re-zones the building to a one unit, you will be grandfathered in and will not have to give up renting the second unit.
third, you COULD gain 20% with securities, and you could just as easily lose your entire investment. That would never happen with real estate (unless you are uninsured)
Melonie
01-08-2005, 10:12 AM
It's not Lena, and once you do some homework and make sure the purchase price is below market value, the property is inspected to make sure it's up to code and isn't falling apart (unless you are a rehabber) and that your financing still allows you to make a positive cashflow....then it is ABSOLUTELY a great investment.
I absolutely agree with Scorp on this issue ... with "your financing still allows you to make a positive cashflow" being the key phrase. This is of course the area of major risk. Yes, granted, under the current situation of tenants with leases for the next year, with a known mortgage payment every month, with known property tax rates for the next year, with pretty well known building maintenance costs for the next year, you can be rather confident of a positive cash flow for the next year. But your mortgage payments run for 20 or 30 years ! Can you be confident that this year's cash flow equation will remain positive in future years, with potential real estate tax increases of 20% per year as local gov'ts attempt to balance their budgets, with stagnant wage levels making it difficult or impossible to retain tenants willing to absorb rent increases, with rising college tuitions and dropping gov't tuition assistance levels reducing the number of future students, etc. This potential risk is even higher if you use adjustable rate financing for your mortgage, meaning that future monthly mortgage payments will also rise along with rising interest rates.
The scenario to be feared the most is that 5 years down the road, other landlords start running into negative cash flow problems before you do. When this happens, the speculator landlords will quickly try to get out from under a loss situation and put their properties on the market. This in turn will depress the rental real estate market such that if/when you reach the point where negative cash flow convinces you to unload the property that you'll take a second whammy by having to sell at a significant loss in terms of property value. In extreme cases, i.e. if the neighborhood goes to hell, there won't be any qualified, willing buyers at any price - which is where rows of boarded up houses come from !
This is of course extremely sensitive to local conditions now and in the future - and you know the particular area in question much better than we do !
An interesting read on the potential future risks involved with real estate ...
(snip)"Today something unusual is happening. Even in this modest recovery, the rental market is extremely weak. The explanation is simple: The excitement around mining money from lots and shingles, coupled with the lure of low rates, is persuading people to buy houses even though rentals are, in many cases, a far better deal. The frenzy has driven the ratio of house prices to rents up to levels that are simply unsustainable. According to data from Fidelity National Financial, the ratio now stands at 15.2, the highest level in at least 20 years.
Since the mid-1990s, prices nationwide have risen an astounding 25% faster than rents. As usual, the gap is most glaring in hot markets. Michael Sklarz, a real estate analyst with Fidelity National Financial, calculated the ratios of median home prices to annual rents in a number of U.S. cities. Since 1995 the ratio has jumped to 18 times rents in San Francisco (up from 13); to 22 times in San Diego (up from 13); and to 18 times in New York (up from 11). In Orange County, a house selling for $800,000 two years ago now fetches $1.2 million. But rents haven't budged; tenants are still paying the same amount to enjoy that sumptuously priced home as in 2002-around $4,000 a month.
The numbers are much like inflated P/E ratios. In time, rents exercise a gravitational pull on housing prices. "House prices are just the present value of future rents, so when the prices decouple, the fundamentals aren't supporting the rise," says Andrew Clark, an analyst with Lipper, a financial research firm. "Prices must eventually fall back into line." Morris of HSBC reckons that if rents rise with inflation, at around 2.5% [a year], for the next six years, housing prices would have to stay totally flat to bring the ratio back into balance, showing no gain at all through 2010.
Prices are also way out of line when stacked against another important yardstick: personal income. From 1975 to 2000, home prices always stayed in the range of 2.7 to 2.9 times median annual income; in fact, 2.9 was once considered a huge number. It's where the ratio stood before housing prices sank in the early 1990s. But starting in 2000, this crucial figure entered uncharted territory. Today the ratio stands at 3.4, 17% higher than just five years ago. And get this: The ratio is now 6.4 in California and five in Massachusetts. Just to return to the once-lofty level of 2.9 would require roughly five years of flat prices-about the same kind of market correction that would be necessary to bring prices back in line with rents.
When rates do jump, some people who stretched to buy their houses with the shorter-term ARMs won't be able to afford the monthly payments. It doesn't have to be a huge number; a relatively small shift in the ranks of sellers puts heavy pressure on prices. But people holding 30-year fixed-rate mortgages aren't totally protected either. The market value of their house isn't affected by their own carrying charges but by the monthly payments a new buyer must make. Say 30-year rates rise by next year to 7.25% (which is still below the 35-year average of more than 9%). To keep mortgage payments at the same level homebuyers enjoy today, would-be borrowers will have to take out a 20% smaller loan.
There's another powerful threat to demand-one that has gotten surprisingly little attention: the burden of property taxes. Last year total property taxes on homes and condos reached about $235 billion-about 87% of what Americans spend annually in mortgage interest. For many of the elderly, property taxes are the biggest housing expense. And they're exploding, with little relief in sight. In a study of 12 suburban towns outside Los Angeles, Miami, New York, Washington, and other cities, Runzheimer International, a research firm in Rochester, Wis., found that taxes rose an average of 39% from 2000 to 2004. "With the increases in local budgets, property taxes will just keep rising," says Ken Cuccinelli, a Virginia state legislator who lives in Fairfax County. "My taxes have jumped 80% in five years."(snip)"
DJ_WuLf
01-08-2005, 06:27 PM
I'm providing EXAMPLES and evidence of the potential pitfalls of investment Real Estate that I have learned from ACTUALLY OWNING Investment property rather then buying Carlton Sheets course off of late night TV as Scorpio seems to have done.
Telling someone "You don't know what you are talking about" is not a valid debate principle. It may work with submissive women and small domestic animals but NOT with ME unless you actually RESPOND to the challenge with something other than a question.
Again: I CHALLENGE you to find me an FDIC Insured BANK who will make a No-Doc (based on credit score only) stated value Mortgage Loan with CONVENTIONAL TERMS (15-30 year duration with the property itself as the only stated collateral) and reasonable (5-7%) interest!
I say YOU CAN'T DO THIS because FDIC Regulations will not allow it. Prove I don't know what I'm talking about rather than just SAYING it. Otherwise it's just a pathetic personal attack and useless as a post in any forum. Jealousy often manifests itself as rage without reason.
Emily
01-09-2005, 01:30 AM
DJ, you're the only one doing personal attacks and expressing rage (at least in internet terms by boldfacing and capitalizing things).
It's a discussion about the real estate market! No need to get all worked up....
montythegeek
01-09-2005, 11:05 AM
Melonie,
Your comment that rents have risen less since the mid 1990s is literally nothing more on its face than saying interest rates have fallen.
In a central way a rental real estate piece of property competes with bonds. Both provide a stream of income over time. The 10 year T-bond was 6.5% on average in 1995 and 96. It is not 4.25%. The asset appreciates in price for the same income stream the lower long-term rates go. The situation reverses when rates rise. The fixed income stream becomes less valuable (price of a bond goes down) and the rent rises faster.
Melonie
01-09-2005, 11:13 AM
Unfortunately, your analogy of rental real estate to bonds neglects large and significant differences between the two investment types. Bonds have a stated rate of return for the life of the bond, while rental real estate's rate of return is subject to many LARGE variables. Perhaps more importantly, bonds have no associated "ownership costs", whereas rental real estate has significant ownership costs in the form of property taxes and upkeep/maintenance costs.
scorpio
01-09-2005, 02:15 PM
OK, Wolf-Boy:
A little background on me, I have been in the finance industry for 8 years and the mortgage industry for 5. I have been a loan officer, broker, and now I am an account executive with a national mortgage lender. Oh, and I own investment property. Carlton Sheets has nothing to do with it. (I do own his property management course, and it's very good)
So, what are your qualifications? What industry do you work in?
To answer your question, The FDIC has absolutely NOTHING to do with mortgage lending. The FDIC insures deposits. Most mortgage lenders are not the kind of banks that you can open an account in. That being said, here are is a small list where you can get an Alt Doc loan (Stated income, State Income/Stated Asset, No ratio, No Doc, etc.)
BNC
New Century
Argent
First Franklin
Freemont
GreenPoint
Broker Funding Solutions
Delta Funding
Long Beach
Wells Fargo
GMAC
CIT
Citi Financial
NovaStar
Pinnacle
Platinum
National City
Creve Cor
ResMae
WMC
Etc,
Etc,
Etc,
get the picture?
You do not know what you are talking about.
Respond if you need to be schooled further.
DJ_WuLf
01-10-2005, 12:17 PM
If you don't understand that FDIC regulations determine how a BANK operates and the criteria that Bank uses to evaluate loans (Mortgages included), then there is no point in continuing a discussion because: "You do not know what you are talking about".
Thank you for agreeing that "Most mortgage lenders are not the kind of banks that you can open an account in." (Although I wouldn't end a sentence with a preposition) What kind of Banks are they? I wonder why real Banks avoid these loans?
Those are rehtorical questions ..... I don't believe I'll be attending any more of your second hand Carlton Sheets classes. I have the picture clearly focused. No further schooling required.
scorpio
01-10-2005, 11:08 PM
banks specialize, in case you haven't noticed. Some are investment banks, some are in the consumer loan business, some do auto and other installment loans, some banks take private deposits, some take only commercial, some banks do mortages. Some do it all. Typically, the best ones for a particular type of loan are the ones who specialize in that type of loan, so....if you want the best mortgage programs, you go to a bank that specializes in mortgages.
Is that simple enough for you?
Do you need me to use smaller words?