The deals are only going to get better...
The deals are only going to get better...




I was a little surprised by the first line of your article. I looked up to see if i could find some numbers. When I found them I was in major shock.
Irvine, Calif. – April 25, 2006 – RealtyTrac™ (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its 2006 Q1 U.S. Foreclosure Market Report, which showed that 323,102 properties nationwide entered some stage of foreclosure in the first quarter of 2006, a 38 percent increase from the previous quarter and a 72 percent year-over-year increase from the first quarter of 2005. The nation’s quarterly foreclosure rate of one new foreclosure for every 358 U.S. households was higher than in any quarter of last year.
http://www.realtytrac.com/news/press...ssReleaseID=99
By and large over time, you are better to buy if you can afford it versus trying to time housing like an investment.
Our first house was purchased at 10.5% interest rate in a recession, the second at 13%, the third at 9%. We lived in each house from 1-9 years and made money on every one.
Our last one was unusual at 6% with a 200% increase. But by and large, buy, buy, buy.
if you can afford it.




No matter when you buy now the interest rate will be higher than it was a few years ago.
The real concern here is how much you are paying for a house. Doing research and waiting is what I plan to do. If you are in a market that is overvalued waiting would be wiser. Even if you are not in an overvalued housing market I believe that prices will still decline. The decline there will just be at a lower percentage.
What I am hoping to do is time it right. The point where the housing price has dropped and interest rates haven't hit excessive highs.
With the settlement by Fannie Mae for their scandel, predatory lending, subprime lending, plus a million other factors I think this decline in the housing market will be differant than anything we have seen before.





The market is crashing here pretty fast - lots of empty houses . Really don't need a statstic sheet if you talk to the local realators and watch the listings its easy to figure out . A lot of investors are getting caught in that flip this house mode and when they cant flip it it forecloses . Many get themselves in a situation they cant afford to be in its a gamble and sometimes it pays off but I have seen many that don't . The ride is over !





again this boils down to liquidity being drained from the global economy, which leads to higher interest rates and tighter lender 'creditworthiness' standards being imposed on would-be borrowers. In areas where the majority of residents are 'fat cats', they have no reason to want/need to sell lots of homes in that area, thus real estate values will probably hold pretty steady. However in other areas where current homeowners are distressed, be that speculators in formerly 'hot' markets, or suburban housing developments with lots of recent ARM mortgage low down payment homebuyers, it's very probable that lots and lots of properties will wind up being marked down / foreclosed & auctioned in the very near furure.
If you extrapolate the 1 in 358 current quarterly foreclosure rate annually, that means that over the next year, on every street 1.1 out of 100 houses are soon going to result in a 'distressed sale'. This of course is on top of the number of houses already on the market, plus the number of homeowners who will list their homes for sale before becoming 'distressed'.
At the same time, today's CPI numbers and worldwide reaction tend to indicate that there isn't going to be any slacking off re rising interest rates. With 1.6 trillion dollars worth of ARM mortgages being subject to an interest rate adjustment by the end of 2007, and with many of these ARM's seeing a 2%+ interest rate jump = 40%+ increase in monthly mortgage payment, IMHO the 1 in 358 foreclosure number will seem tiny by first quarter 2007.
Also at the very same time, tightening creditworthiness standards plus rising interest rates will tend to kick more and more would-be home buyers out of the market. This could set the stage for MAJOR reductions in future prices of 'median priced' and lower priced homes, where the would-be buyers are likely to have the most difficulty with rising interest rates and rising down payment requirements.
IMHO the upscale multi-million dollar properties in very desireable areas will probably not take all that much of a hit, as extremely few sellers will be 'distressed' and extremely few would-be buyers will have income / asset / creditworthiness problems.
As to the former wisdom that, if you buy a house and hold it long enough, you will eventually make money on the deal usually doesn't hold water when inflation of the US dollar's 'purchasing power' is factored in between the purchase price and sale price. While it's probably true that one could buy a $300,000 house tomorrow and sell that house for $350,000 in 5-10 years, for an accurate analysis of whether or not you 'made money' you'd have to compare the value of the same $300,000 placed into a 5-10 year US$ denominated investment, or converted into a foreign currency.
~
Last edited by Melonie; 06-14-2006 at 09:42 AM.
That's what I'm hoping for too. Here in Tampa there are new condos going up all over and a lot of the prices start at $300k. I mean who are all these people who can afford these things? I make pretty decent money but as a single person I still can't afford a $300k home or condo. I don't have a down payment and I want to have more in the bank if I buy something and I'm not even sure I want to stay in Tampa. But I'm hoping it will be more of a buyer's market in the future and that I can buy at the right time. Right now these prices are just way too high for me.What I am hoping to do is time it right. The point where the housing price has dropped and interest rates haven't hit excessive highs.
They are so high because they are selling to two income families.
Want some more bad news? Rents nationwide have gone up an average of 3%.
As more people realize they can't afford a home - or are in the midst of loosing one - they have to rent - putting pressure on that market.
I would lay odds that the squeeze will begin soon - people will hold on to the houses hoping to make something while the renters are squeezed by new demand.
Then it will break and no one will be in a position unless they take careful steps NOW.
P.S. All those fabulous illegal immigrants that the unwashed hippies love so much - most are renters. Imagine if even just 10,000,000 apartments and homes opened up in that market. That would push rent right back down again. Buy hey - unwashed hippies usually live in their parent's basements or in subsidized housing - as in student loans and grants.




I agree that people don't consider real estate earnings sensibly re inflation and compared to other possible investments of the same money. However, the above only lists the negative factors. Two VERY important positives re real estate which should also be put in the equation to be fair are 1) you can live in your investment while you are waiting for its value to grow, and 2) the govt heavily subsidizes the interest on your mortgage (via income tax deductions). Imo, #1 is particularly important; I definitely can't think of any other long term investment that is remotely as useful (and used) in one's day-to-day life or which adds as much to your quality of life at the same time it is appreciating in value. In fact, almost all other investments do nothing at all for you...just sit there...until you sell them. (There are a few exceptions, e.g., buying quality pieces of art that make your surroundings more enjoyable, but not many.) I think this is the main reason that buying a home is so enduringly popular.Originally Posted by Melonie
The same point, put slightly differently, is that if you take the money you could have put into a house and instead put it into a foreign currency or something, you somehow have to come up with still more money to pay your rent...money that is definitely going to return zero as an investment.
Point #2, the tax subsidy, is pretty amazing too.
-Ww
"At this moment what more need we seek?
As the Truth eternally reveals itself,
This very place is the Lotus Land of Purity,
This very body is the Body of the Buddha."
- Zazen Wasan




Uhmmm...I think a few decades may have slipped by on you unnoticed. Most of those former unwashed hippies are now in their 50s and 60s, work in well paid white collar jobs (or better) and have their parents living in their basements.Originally Posted by Deogol
-Ww
"At this moment what more need we seek?
As the Truth eternally reveals itself,
This very place is the Lotus Land of Purity,
This very body is the Body of the Buddha."
- Zazen Wasan
^^^ I tell ya man! They are still out there!



Great thread.
For what it is worth, housing is generally a pretty cyclical market. That means that if you buy wrong (maybe now?) it could take years to 'make a profit'. Prices are overvalued and interest rates are going up substantially.
However, if you buy right, at the end of the recession as the bottom is being scraped, it is pretty much impossible to lose money. Interest rates will soon start to fall and values will rise.
BTW - I concur with Melonie. 1 in 358 seems pretty small, but given 12/18 months, the picture is likely to be vastly different. 1 in 150/200 perhaps. Nationwide, that'd be a lot of mortgages and homes.





granted that if you intend to live in the house you will be buying for a long period of time, that the US mortgage interest tax subsidy can be a major factor in one's particular personal financial equation.
However, like 401k retirement accounts, making such a decision is based on a (possibly dangerous) assumption that US gov't policy toward the present mortgage interest tax deduction will be continued as-is for the next 20-30 years term of your mortgage. This is NOT cast in stone ... and could be quickly quashed by the AMT, by a future US congress who comes to view the mortgage interest tax deduction as a benefit which subsidizes the rich (who can afford to buy homes) at the expense of the poor (who rent) thus should be abolished etc.
Unfortunately, the mortgage lender is not going to make changes to their 'end' of the deal if and when the US gov't causes a change in the homeowner's 'end' of the deal. If future tax law was changed (or if future year AMT reductions are not made permanent), the consequences of losing the mortgage interest and real estate tax deductions could negatively affect the homeowner's overall cash flow by several hundred dollars per month.
~
Last edited by Melonie; 06-21-2006 at 04:18 AM.
There's a whole new breed of hippies out there now, but yes, they exist. I didn't even know this until I started meeting people who called themselves hippies.^^^ I tell ya man! They are still out there!



Houses are taking onger to sell around here, and they do not sell at the asking price. Since we seem to have constant turnover around here with job transfers, about the same amount of mc mansions have for sale signs going up each week. In the aggregate however, there are more signs, and more supply of houses to sell each week. Now August around here is closing month on mc mansion deals. As of now, the mc at $500,000 and up and the houses over $350,000 are not selling... period. However, almost any house under $300,000 sells almost immediately. This tells me that family income is stagnant, or has dropped to about $100,000 to $120,000 per year. Maybe disposeable income after paying increased medical insurance co pays and deducts is down. Maybe income from 401 k's is down. Maybe all the airline pilots who live around here aren't getting their $200,000 pensions anymore and are now getting the federal guarantee amount of $40,000 instead of the $200,000?
The sellers however, will not lower their prices. I've talked to three I know nearby and they won't lower their prices by more than 5% from asking.
It's getting real interesting.
At the start of a housing downturn, with rising rates, shaky employment, pension under stress, new job wages much less than downsized jobs, it does not make sense to buy buy buy housing right now. In four or five years at the bottom of the recession when you can get a good price that is the time to buy.
The condos that are not premium views are having trouble in maor cities right now more than the single family mc mansions.





Undoubtedly this is due to an element of self-denial on the part of many homeowners/speculators who are unwilling to concede that resale prices are dropping, thus they choose to hold onto their property in hopes of a quick turnaround versus selling now at a 'loss'. Unfortunately, doing so is not without its own 'costs', i.e. another mortgage payment and utility bill being due every month and another property tax bill being due every year. As interest rates continue to rise, and as real estate values continue to drop, sooner or later the home sellers with 'weak hands' (i.e. ARM's that readjust, carrying mortgages on two houses) are going to be forced to sell regardless of current market prices versus losing the (spec) house to a mortgage default.The sellers however, will not lower their prices. I've talked to three I know nearby and they won't lower their prices by more than 5% from asking.
(snip)"Assume a home buyer purchased a condo for $500,000 using a zero-down, no-doc, interest-only ARM. Let's assume that his interest rate was 4%, with taxes, insurance and maintenance adding another 1% per year. The annual cash cost would be $25,000, or just over $2,000 per month. However, if the buyer assumed an annual appreciation rate of 10%, creating the potential of $4,000 per month in equity extraction, the expected monthly cost becomes negative $2,000. (In a survey last year the typical Los Angeles homebuyer expected an annual appreciation rate of 20%) In other words, our condo buyer actually expects to be paid $2,000 per month as a result of his purchase. So even if he had monthly income of only $3,000, he would have no qualms about assuming a mortgage equal to almost 70% of his actual pretax income and lying about his income to qualify for the loan.
Now assume the interest rate on a zero down $500,000 interest-only mortgage rises to 7%. Assuming taxes, insurance and maintenance still add 1%, the annual cost is now $40,000, or $3,300 per month. However this 65% increase is actually just the tip of the iceberg. If the borrower, now more modest about his expectations, assumes an annual appreciation rate of only 5%, his expected annual cost is now only reduced by $25,000, resulting in an expected annual net cost of $15,000. From the buyers perspective a house which once paid its owner $2,000 per month to live in it now costs $1,250 per month to own. Therefore the true increase in cost is not just 65% but 3,250%! Of course, if housing prices remain stable or fall, the real cost is far higher. Since the $1,250 per month represents over 40% of the buyer's pre-tax income, these higher mortgage payments will now be a difficult burden to bear, even with the diminished equity extractions. Without the cash outs, affordability would be impossible."(snip)
~
Last edited by Melonie; 06-24-2006 at 03:29 AM.





I came across this great summary page of current and historical real estate markets ...
This link also raises a new 'spectre' over some real estate markets - the fact that many private property insurers are now cancelling coverage at worst or refusing to renew insurance coverage at best in areas that have a high statistical risk of property damage. The link discusses Florida, but the same principle undoubtedly applies to the entire gulf coast, certain parts of California, certain east coast areas etc. Of course, without property insurance, no mortgage lender is going to write a new loan where the financial institution itself must bear the potential risk of damage/loss of their 'collateral'.
Undoubtedly a 'niche market' of high risk insurers will come in to fill the void left by the cancelling mainstream insurance carriers. However, instead of averaging the risks and monthly insurance premiums of Florida / California / Louisiana home and business owners with those in Nebraska / Iowa / Vermont, residents in higher risk states will now have to bear a more proportionate cost for insurance. This increased insurance cost could significantly impact local real estate resale values in high risk areas if it winds up adding a couple of hundred dollars per month to the 'cost of ownership' of local real estate.
~
Last edited by Melonie; 06-24-2006 at 04:03 PM.





and here's another one straight from a little known gov't agency report ...
"Here's what the graph says in simple terms: only 74% of U.S. households are above the poverty line, and 69.1% are homeowners. In other words, just about everyone who has a paycheck above poverty level has bought a house. Homeownership, remarkably stable for years at 64%, suddenly leaped to 69.1% in the past 10 years. And who were those buyers? People who could not have qualified for a mortgage before standards were lowered.
This revelation reminds me of the Vietnam-era draft. When the Pentagon needed warm bodies, standards dropped to near zero. At my pre-induction physical in 1972, they were basically checking to see if you had four limbs and could walk upright. If so, you were good to go.
The same cursory standards have been applied to mortgages for the past few years, with the predictable result that poor risks are turning out to be, well, poor risks. As the Denver Post recently reported:
"We made it easy for people to buy houses and difficult for them to hold onto them," said Tom Clark, an executive vice president with the Metro Denver Economic Development Corp. One out of 128 homes in Adams County is in foreclosure, nearly nine times the national ratio. In Arapahoe County, one out of every 161 homes is in foreclosure, seven times the national ratio. Other counties with heavy foreclosures are Denver, Weld, Larimer, Elbert and El Paso.
Foreclosures, like a funnel cloud, tend to create their own downward spiral once they get started, said Lori Strange, director of planning and resource development at the Adams County Housing Authority in Commerce City. Lenders who suffer a large number of foreclosures try to recover whatever they can, often underpricing the market, she said. That further depresses resale prices, making it harder for sellers needing to get out to pay off their mortgages.
That triggers more foreclosures, more pressure on lenders to dump properties and more downward pressure on prices.
The FDIC staff reckons 10% of consumers will experience a "recession" (a polite term, apparently, for losing your home and/or suffering complete financial ruin). But as the Post article notes, a rising wind of foreclosures generates its own downdrafts."




I am basically repeating myself, but the point keeps getting lost in this discussion. It is important to keep in mind that for the vast majority of home owners, and essentially all of those in the lower income bracket of home owners, the choice is not to by a home or to otherwise invest the money; it is to buy a home to live in and hopefully to eventually see a profit due to appreciation or to pay rent and *definitely* never see a penny of it back.
-Ww
"At this moment what more need we seek?
As the Truth eternally reveals itself,
This very place is the Lotus Land of Purity,
This very body is the Body of the Buddha."
- Zazen Wasan





^^^ nobody is disputing this point ! In fact it is this point ... specifically that total American home ownership has increased from 64% to 69% precisely because 'those in the lower income bracket of home owners' (as you put it) were actually able to obtain financing to purchase a house during the last few years under credit and terms that they could not have been approved for / afforded in earlier years ... that the gov't agency is talking about. It is precisely this group who is the most likely to be short on 'equity', the most likely to be exposed to variable interest rate mortgage payment increases, the least able to absorb rising property tax, insurance, and utility costs, and the most likely to be forced to sell their homes in the near future thus tanking real estate market prices for everyone.
Ultimately the 'subprime' home ownership equation has nothing to do with 'investing' in real estate versus investing in stocks, bonds or money markets. For 'sub-prime' homeowners and for many middle class homeowners as well, it boils down to the amount of money that home buyers spent for their down payment + closing costs, versus the amount of money they would have spent by continuing to rent (plus additional paying income taxes) compared to the the size of their mortgage payment over the past 3 years, versus the amount of capital gain or loss they will incur (due to current market prices being higher or lower than the purchase price 3 years ago) if / when they are forced to sell their home in the near future. For the past several years the equation clearly favored the home buyers. However, the near future will ultimately indicate whether the same equation may turn very unfavorable in short order.
Bottom line is that renting involves financial commitments which have terms of 6 months or 1 year at most, and there is no way that renting can 'cost' more than the agreed amount. On the other hand, purchasing a home involves a 20-30 year financial commitment, with a very real risk that the 'costs' can wind up being far higher than originally bargained for if any of the 'initial assumptions' about costs do not hold true over the life of the financial commitment. Obviously over the past year a whole bunch of 'initial assumptions' have already changed i.e. the cost of property taxes, the cost of home utility service, a no longer continually rising appraised value of their home now making refis and home equity loans impossible etc.
At this moment in time, in investment terms, renting is roughly analogous to buying put options, whereas home ownership is roughly analogous to shorting a stock. The former are short term but with a finite limit to cost if the market doesn't 'co-operate'. The latter involve 'open-ended' exposure to risk in an 'un-cooperative market' in exchange for the promise of a possible greater reward. Thus recent 'sub-prime' home buyers, who are the least able to absorb losses, are also positioned for the greatest risk exposure and highest probability of default / bankruptcy.
Losing their house, plus filing for bankruptcy, plus having to assume a 5 year court ordered bankruptcy payment schedule on capital losses from the forced sale of their home, plus again being required to pay rent, does not sound like the type of financial dream that recent 'sub-prime' home buyers were counting on - and over the next year or two I suspect that a few million recent 'sub-prime' home buyers will wish that they had continued to rent.
~
Last edited by Melonie; 06-25-2006 at 07:45 AM.



On the under insurance or no property insurance in partgs of coastal south east, I heard the following from some insurance brokers on the train from Chicago. They stated that premiums charged for property insurance in those areas were way up, but the face value of the amount of coverage was much less, in many cases 50 per cent to 30 percent of the mortgage amount on the inflated price paid.
The concern was that if another bad storm hit, and it couldn't be blamed on water damage instead of wind, that there wouold not be enough proceeds available for the nucleous of
property rebuilding to rebuild the areas. The people who rebuild after hurricanes are those who can afford to out of cash resources, or those who have good insurance, and that the damage was caused by wind not water. (If caused by water the insurance companies pay zero. See Trent Lotts lawsuit and the people in Mississippi who can' get a dime to rebuild their houses from State Farm and Allstate and other major insurance companies.)
Is this another issue to get rid of private insurance companies in addition to their crazy inflated bureacracies on health insurance claims and coverage? But I digress.
The broker concern is a legitimate underwriting administrative concern. Bottom line... this time there is not enough money from private property insurance to rebuild if a bad storm hits.
While at the moment financial ruin and bankruptcies number one cause is a catestrophic family health problem with no insurance, with number two loss of job and the new 21st century subplot of reduction of income and benefits in the new "service" job, a new one could be no money to rebuild after a catestrophic storm.
Add other potential mega economic problems like high gas prices, loss of pensions,
reduction in pensions and loss of helath due to corporate bankruptcies, housing bubble prices for condos and houses, extremely lax underwriting on mortgage loans, with a Wall Street induced CMBS bond market where the salaries to underwriters are "pay for perfomance" and 360 degree peer review (play along and take your money or we get rid of you for not being on the team), no documentation on mortgages, and in the last year or two incompetant contrators and byuilding crews building shoddy real estate product and the list of risks is huge. One of them is almost sure to hit. (I forgot rising interest rates in the list of risks.)
The probability is that one will indeed hit. In true fashion, I'm sure the corporate types will be quick to blame the economic disaster, as being cauased by an external factors like war, or super hurricane to deflect part of the blame. (After all if you have a out of control event hit you might as well "spin it" for your own gain.)
Next micro events in June. Interest rates, falling Ford and GM sales, and the strangely stable gas prices at $3.00 per gal. are the next micro events along with housing stats
all being reported for June.





This is certainly one aspect of the transition of homeowner's insurance policies in areas of statistically high risk. However, there will undoubtedly be a more mundane result too. As more and more mainstream insurance companies cannot afford to 'subsidize' the actual cost of losses in high risk areas by charging higher than necessary insurance costs to homeowners in other much less risky areas (because it raises the premiums in low risk areas to the point where homeowners seek different insurance agents), they have no choice but to enact large increases in insurance premiums in more risky areas plus cut corners on coverage in more risky areas.On the under insurance or no property insurance in partgs of coastal south east, I heard the following from some insurance brokers on the train from Chicago. They stated that premiums charged for property insurance in those areas were way up, but the face value of the amount of coverage was much less, in many cases 50 per cent to 30 percent of the mortgage amount on the inflated price paid.
The concern was that if another bad storm hit, and it couldn't be blamed on water damage instead of wind, that there wouold not be enough proceeds available for the nucleous of
property rebuilding to rebuild the areas. The people who rebuild after hurricanes are those who can afford to out of cash resources, or those who have good insurance, and that the damage was caused by wind not water. (If caused by water the insurance companies pay zero. See Trent Lotts lawsuit and the people in Mississippi who can' get a dime to rebuild their houses from State Farm and Allstate and other major insurance companies.)
As mortgage lenders catch up to the fact that their 'collateral' in high risk areas may no longer be 100% insured, they will probably INSIST that the provisions of the mortgage be met by the homebuyer regardless of cost. This can resolve itself in one of two ways. Either homeowners in high risk areas will be stuck ponying up several hundred dollars per month to purchase high risk area homeowner's insurance, or state gov'ts will come under pressure to established state-backed insurance (to be paid for by an increase in state property / income / sales taxes). Either way in the short or medium term the homeowners in high risk areas will wind up being forced to pick up a bigger tab for insurance or to sell their house to a new owner and pay off their outstanding mortgage to avoid the insurance requirement.
(snip)""My income has not increased 300 percent, and please don't tell me to sell out and move out of the state," Martin said. Her estimate didn't even include an 80 percent rate increase set to take effect in August for State Farm customers.
State officials largely have come up empty in a search for solutions to the insurance crisis that's put a serious pinch on homeowners' budgets.
Martin is still one of the lucky ones: She holds a homeowner's policy with a solvent private company. Thousands of residents have seen their insurers pull out of the state, leaving them no choice but to turn to Citizens Property Insurance Corp., the state-run insurer of last resort"(snip)
So far that insurer of last resort is being funded by a $3 billion dollar bond issue, the largest in Florida's history. As future years' storms cause ever increasing losses, this will translate into ever increasing payouts by the Citizens Property Insurance Corp which must be financed by ever increasing Florida state taxes in future years. Of course, like Social Security and most other gov't benefit programs, the future gov't costs and future tax consequences of subsidizing Florida property insurance premiums are almost totally lacking in today's mainstream media reports on the subject.
~
Last edited by Melonie; 06-25-2006 at 04:09 PM.
^^^ Or the replacement homes are of a lower value.
Sooner or later the folks will realize their taxes are being used to replace rich folks homes by round robin schemes.





^^^ for a moment there this was starting to sound like 'reverse welfare' but not so since whatever tax scheme Florida ultimately comes up with will probably be progressive towards those with higher incomes and more expensive assets. IMHO all Florida residents are going to wind up taking a beating, rich or poor, as will residents of other high risk areas such as Louisiana who previously enjoyed subsidies from those homeowners living in comparatively low risk states. Theoretically, there should have been some winners in this deal i.e. the homeowners in low risk areas who will no longer have to subsidize homeowners in high risk areas by paying higher than necessary insurance premiums ... but in the real world their insurance premiums are not going to drop either !
^^^ Yep - fully agree.
Motorhomes for everyone! When the storm comes they can pack up their lawn chairs and grill - head north. Water goes away, head back. heh heh heh Taxes will be low too.
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