Posted on 08/24/2006 8:44:42 AM PDT by Hydroshock
HERNDON, Va. -- For years, real-estate brokers and home builders promised that the soaring property market eventually would glide to a soft landing. These optimists predicted that home prices, which had more than doubled in parts of the country between 2000 and 2005, would continue to rise, but at a more normal pace of 5% or 6% a year.
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Interactive Tool • Use an interactive tool to search the latest data on housing inventories and price trends in 26 real-estate markets, at RealEstateJournal.com.
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It isn't working out that way. The rapid deterioration of the market over the past 12 months has caught many homeowners and builders off guard. Some are being forced to cut prices far below what their homes could have fetched a year ago. It's too early to say how hard the landing will be, but at a minimum it will be bumpy for many people who need to sell homes. And the economy as a whole, buoyed in recent years by the housing frenzy, could suffer.
WALL STREET JOURNAL VIDEO
David Seiders, chief economist for National Association of Home Builders, forecasts a cooling housing market.The pain that homeowners and home builders are now feeling follows a raging national house party. As Americans soured on the stock market after the tech bubble burst in 2000, they poured money into real estate, spurred on by the lowest interest rates in four decades and looser lending standards. Surging demand created home shortages in California, Florida and the Northeast. Over the five years ending Dec. 31, average U.S. home prices jumped by 58%, according to a federal housing index.
(Excerpt) Read more at online.wsj.com ...
And gee, great golly whiz, that created a bubble as well. What a surprise.
You the stand-in for ex-Tex? j/k
What is the next bubble - Gold? Oil Futures?
There are so many bubbles around these days, I think we're suffering a bubbles bubble.
But what are all the illegals going to do now that the construction work is drying up? There's no berry-pickin' in Virginia.
March in the streets demanding welfare and unemployment insurance...
Wait, they are already doing that. Nevermind.
the next bubble is copper which has tripled by high demand and a strike.
no housing means less need for copper.
Having trouble selling your home? You need the St. Joseph's Real Eastate Home Selling Kit!
This is just like the stock bubble. Stocks with sound fundamentals didn't get hit nearly as hard as tech stocks for companies that were purely speculative.
This bubble has the same characteristics. Property owners who are in for the long haul won't feel that much of an impact. Idiot speculators buying properties with the hope of flipping them quickly are gonna get burned, because now they have negative equity and rising rates on their adjustable mortgages.
Oil and gas futures, I hope.
THE homes in my neighborhood gone up 150,000 in the last year alone, so i will take this "hard landing"(LOL)
That is wise observation - except for one thing - the real estate market is in no way like the stock market or - even worse - the commodity market - because people can't / don't just up & sell their houses on a dime like they can dump stocks or sell-off gold, oil, etc. And even if they're so inclined to do so, people still need a place to live.
These people are completely crazy. The value was never there to begin with. There are going to be a lot of people who are going to be going into bankruptcy and/or skipping out on these bills. I'm currently watching "House Hunters" on HGTV and all these clowns can think of are the ameneties, space, etc., but no concern at all about the price. Sheer lunacy.
And the smart REIT investors who got out last year will be waiting to hoover them up from the suckers.
A lot of these were bought as investment properties, not residences. But your comment about the lack of liquidity is spot-on. Even if they wanted to bail today, it takes time - and during that time, prices can drop further.
The local govs love the artificial run-up. That gives them more cash to waste and hand out to the illegals.
So, with the increases in energy (gas), property taxes, insurance, and food in particular, unless the average worker is going to get a 10-15% raise next year to offset the COL, we're just going to start cutting a lot of expenses out of necessity which further slows the economy.
It's because many got $$$$ stuck in their eyes and the prices of housing kept going up up up .. and families can only afford so much for a house
With that said .. if one looks back at the housing history ... what is occurring is not unusual and will rebound
The housing market alway has it's ups and downs ... and the economy always survives
Yep. I know a stripper named Bubbles and she's getting a little big.
Same thing happened in the 70s until the Fed over-inflated.
Gold went from $35 to $850.
BUMP
You're forgetting the Chinese.
Housing in Shanghai has gone up 300% in the past three years.
BUMP
Go on welfare. Apply for unemployment.
Good deal. I have been waiting for a housing collapse for awhile, I view it as a buying opportunity. The bloodier the better.
No, you will do just fine because you already owned the house which you bought at a reasonable price you could afford.
Your new neighbor that stretched his budget to the limit to just to afford the monthly payment on an interest-only, ARM will be forced into foreclosure when the interest-only grace period expires and he can't find a greater fool to buy the house at the inflated price he paid for it.
Baloney. I've rarely seen anyone on House Hunters buy the highest priced home they are shown, regardless of the fact that they clearly would like to to buy it. The house hunters clearly have a price 'range' that they have already decided upon and been approved to purchase.
Price, amenities, space, and location are always the main consideration they talk about when purchasing a home. I don't understand your embellished beef.
Could someone explain why anyone would ever get an adjustable mortgage? I don't understand, seriously. It sounds like gambling with little chance of winning to me.
That is wise observation - except for one thing - the real estate market is in no way like the stock market or - even worse - the commodity market - because people can't / don't just up & sell their houses on a dime like they can dump stocks or sell-off gold, oil, etc. ....Steven W.
The people who have the luxury of deciding if they are going to sell or not are the people who bought with good fundamentals and can afford to carry the property.
Those who stretched their budgets to the limit just to afford the monthly payments on an interest-only ARM won't have the luxury of choice once the interest-only grace period expires and their choices are either eating or foreclosure or finding a greater fool that no longer exists.
And even if they're so inclined to do so, people still need a place to live.
Yep. Once the $850,000 three bedroom house gets foreclosed, the guy that bought that house with a gimmick loan at a crazy price will need to go out and rent a two bedroom apartment for a monthly payment he can afford.
Those of us who own houses that we bought at prices we can afford can ignore all the talk about real estate prices.
Those who bought houses at a foolish price with foolish financing are in deep kimchee.
dream on-the avg. buyer/inspection doe not care/know.
My wife and I are planning to be looking for a house in about 2 years. I have already said I will not buy one that was made after 1998.
People need a place to live so they have to buy real estate. (There is no such thing as renting.)
Therefore, real estate will always keep rising in price. (Trees grow to the sky.)
At the very worst, somebody will buy the house when your payments are more than you can afford and you will make a profit. (The greater fool theory.)
Using an interest-only ARM to buy that $850,000 house is the only way you can afford the monthly payment. (Saying "No" to the price is not an option and you need to live for today and not worry about tomorrow.)
That's how the reasoning goes.
ARM's and interest-only loans are a nice cash flow tool if you are wealthy enough to pay off the balance in cash whenever the need arises or, like a surgeon finishing training, you expect a large increase in your future income.
However, if you use an ARM just to be able to afford the monthly payments on a house selling for an inflated price, you are playing Russian roulette with your financial future.
After living for so long in a house built in 1889, I think anything built after 1898 is new-fangled cheap construction. ;-)
True,true
Because it is usually lower than a fixed rate and it usually allows them to qualify for a bigger loan.
There are folks out there now doing INTEREST ONLY loans where they pay no principle at all. Those are the folks that are going to get it when this bubble pops.
Simple reason, most people don't stay in a home more than 5 years. You can get a 5-year adjustable and save over $1000 in interest per year on an average home. If you know you are not staying in a home long term, an adjustable makes a lot of sense. The problem is, some folks get an adjustable so they can qualify for the loan and only get a 1-year adjustable. Sometimes builders even buy down the rate so that the buyer can qualify which compounds the problem more. If you get the adjustable rate for the right reason, they make sense. If you don't you can get in trouble quick.
Well I understand much better now about the length of time you plan to own the home. I guess that makes sense but its still risky if you get into it when interest rates inch up, which they have been doing for a long time now. I just think it would worry me too much to take advantage of it, too stressful.
I am so lucky to own a home without a mortgage but I did think if we were going to get one, that we would get a fixed even at a higher rate just so you know what to expect. And I always see my home as a long-term commitment. But we decided to buy what we could afford after selling two apartments in Manhattan. We rode that bubble for all it was worth and got into a big house in Brooklyn. Now it was built in 1886 so I refer to it as the money pit (scaffolding up right now to fix the tin cornice and turret), but its awfully nice to live in and we didn't go above our means to get it. I think people get caught up in the here and now and an earlier poster pointed out and it comes back to haunt you later.
Why will they get it more than anyone else? The principal one pays down over the first 5 years is nominal at best on a fully-amortizing mortgage. If the market tanks now, anyone who bought in the last two years will see the same depreciation regardless of whether they have an IO, ARM or fixed mortgage.
"Baloney. I've rarely seen anyone on House Hunters buy the highest priced home they are shown, regardless of the fact that they clearly would like to to buy it. The house hunters clearly have a price 'range' that they have already decided upon and been approved to purchase.
Price, amenities, space, and location are always the main consideration they talk about when purchasing a home. I don't understand your embellished beef."
"Could someone explain why anyone would ever get an adjustable mortgage? I don't understand, seriously. It sounds like gambling with little chance of winning to me."
I've had three of these and they are not the problem. Usually safeguards are built in if the loan is properly structured. And I've actually saved money on these loans. The problem is that these properties are 2, 3, 4 or even 5 times overvalued. It doesn't matter what kind of mortage one has. If you pay a million dollars for a home that will be worth $500,000 (or less) a year down the road, how long do you have to hold onto it to recover your investment? Just ask all of those fools (of which I was one) who thought the tech bubble was a license to print money. That was six years ago and has yet to come back to even 1/2 of what it was. There are going to be a bunch of people who are going to be financially ruined and some will be jumping out of windows before this thing has run its course. I once made the mistake of having two mortgages because I thought I was so smart. I wound up losing my shirt and 10 years off my life. This is sheer lunacy what is going on.
This news doesn't phase me at all.
I bought my house in Bartlett, TN (immediately north of Memphis) back in 1997 and signed for a 15 year fixed rate mortgage of 5.60%. Yeah, the monthly notes are a little higher due to the 15 years instead of 20 or 30, but I will have it paid off in November 2012.
The house was built in 1986 and is quite solid.
The thought of having my home piad for, 100% free and clear, a full four years before I retire is simply an awesome feeling.
Folks I was in the RE business for 40 plus years. Prices go up and prices go down. But since WW II, the highs have been higher than the previous highs and the lows have been higher than the previous lows. The trend line is up and I expect it to continue into the foreseeable future. All this talk about higher interest rates and over supply and too many buyers is the same as the previous declines in prices. Everything is the same only in a little different matter. Nothing really changes. Obviously people are going to get hurt, but thats the way the free market system is.
Shhhhhh, quit advertising that fact if you want to keep your town from being discovered by the masses! ;-) I know what you mean because I've lived in East Texas, Central Texas and now Houston. The prices for homes inside the loop in H town have gone bonkers. Buying further out becomes more affordable, but putting up with the commuting traffic is a killer for many. Most people would opt for a quaint East Texas town if given the choice, but the jobs aren't there. (Be glad)
These people are out of their ever loving minds to pay these prices. It is speculation and greed. And they are going to be ruined financially.
Seriously, the market is driven by demand. Lucky that you don't live in a big city where real estate prices have continued to soar right along with rentals. Those who didn't jump on the ARM bandwagons when interest rates were already at an all time low will not be ruined.
I do agree that the "I want it now, and will think about the cost going up tomorrow" types are in store for a very rude awakening.
There are three primary economic components not included by the Fed in computing the Consumer Price Index (CPI). Those components are (1) Energy costs; (2) Real Estate Prices and (3) Food. We have all watched real estate prices go higher and higher. In some regions, housing costs have doubled in the past two years. Oil has gone up from about $ 42 per barrel to over $ 73 recently. Now food is starting to go up as well. What poor Ben Bernanke going to do about it? Print greenbacks 24/7 and play PPT games with hidden M3 reports? Oh, well . . . "Nothing to see here. Not in my neck of the woods. Time to move on." Just check my FR page
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