Posted on 05/25/2005 2:09:58 PM PDT by Rutles4Ever
NEW YORK (MONEY Magazine) - Twenty-four-year-old Kelly Pearson says the $580,000 ranch-style house she bought near downtown San Diego last August is a dream come true.
It is nice: 1,450 square feet, four bedrooms, two baths, crown molding, a big kitchen with an island and -- quick! duck! -- a 737 jet descending upon her roof with what feels like 10 feet to spare.
With no savings, and a college loan to repay, Pearson took out a mortgage for 100 percent of the price of the house. Closing costs were paid for by a $10,000 gift from her parents (money first earmarked for her wedding).
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The rub is that fewer and fewer San Diegans have a standard mortgage. According to PMI Mortgage Insurance Co., more than two-thirds of the loans to buy homes here last year were interest-only mortgages, which have much lower monthly payments but much bigger bills to pay down the road. (See "The Miracle Mortgage.")
--SNIP--
What's more, 40 percent of the 18,400 net new jobs (jobs created minus jobs lost) in San Diego last year were in construction and real estate, reports the State of California.
This raises the risk that any downturn in housing prices could cascade through the economy. Falling prices would translate into lower incomes for all those people working in real estate, which means less for them to spend on homes, which would depress prices further. A nasty cycle.
(Excerpt) Read more at money.cnn.com ...
More bubble; when this punchbowl disappears, the headache will be a big one.
Wanna do a headcount on the illegals alone? The state can barely pay its employees. The state budget is roadkill. Ask all the teachers they're laying off while the population continues to skyrocket...
The SoCal real estate market is a glorified Ponzi scheme. My bro-in-law bought for $250,000 in Cucomonga three years ago, now worth $450,000. At this point, if you move from SoCal, you can't get back in. You're out. If the prices are so exorbitant, a typical middle class income can't buy you a phone booth, you've effectively eliminated the middle class. California may have its own economy, but with the rising cost of owning a home, employers are going to have to start spending more money for cost-of-living, and that's going to either discourage new commerce or drive away existing firms that can operate for less, lease for less, and cash in whatever real estate profits they've made up until now.
You're a fool if you don't see the light at the end of this tunnel...
The new condo bldg. accross from me here in San Diego,
each unit $800,000 all sold before bldg was finished.
Several dozen high rise condo bldgs have gone up in the
downtown and center city area and more going up.
Mostly 25 to 43 stores high going for over 1 to 3 million
on up a unit. Most sold befoe bldgs are finished.
We have diverse employment, besides the largest amount
of Navy and Marine bases in the world. defense industry,
Large bio-tec and medical, large amount of telecommunication, etc. hugh convention and tourist area.
Oh absolutely - compared to NoCal, it's a steal, but houses were never meant to be trading instruments. I don't blame people for jumping in and making their money, but if the real estate market doesn't cool off, the economy will. It has to. Disposable spending can't continue when people are up to their gills in debt. Sure, equity loans are great sources of cash, but it has to get paid back with interest.
I just think that given the budgetary woes, the problem with illegals, and the general pace of this boom, there's going to be on helluva hangover when this inebriation breaks.
Famous last words. One word - Bubble.
Do you remember Nadaq at 5000? We may see it again in a decade or so.
I hate to tell her that my wife and I are buying a brand new house, 2200 square feet, 2 car garage, 3 beds, 2 1/2 baths, granite counter tops, tumbled marble in the kitchen and master bath, jacuzzi tub, double vanity in both baths, zoned dual fuel heat pumps, regular oven, convective oven, built in microwave, (it goes on), on 5 acres for 219K.
Put it this way: The safest investment for the middle class has been home ownership. A nice, consistent 5% return was the means of building security for the future.
If the middle class cannot get into a house and build that nest egg because prices are unattainable, the future of the economy does not bode well. And I'm not talking about getting in with a 120% loan - I'm talking about a standard 30-yr, with 10-20% down. San Diego is going to have an upper class, real estate rich population, and everyone else will be renting. That's not a very strong economic model.
So it will get condemned and sold to a developer tob build another $700K cookie cutter house... (hope not, but these days, nothing is safe!).
Most of us have our own homes, grew up in comparable ones in the '50's & '60's, and wonder how our children will ever be able to afford anything like what we had.
And the bank reappraises the house every year? I don't suppose you have seen a contract that does this, have you?
As long as she doesn't miss a payment the bank can't ask her to cough up any extra money, IMO.
You obviously are not in San Diego.
We're not quite at the point of developers knocking on the door, but they're snapping up pretty much anything on the market from $200-$250 at this point. If a few more homes go up, I would suspect we'll get unsolicited offers - especially with the people buying new out in the boonies are suddenly figuring out it costs a fortune to drive to work downtown every day because the rail lines don't reach them...
That's a new wrinkle - communes.
Don't forget that all this buying is using leverage. Just like the example given.
People are initiating purchases with NO money down. This means they are financing 100% or more of their purchase.
If there is a decline of say only 10%, that's a HUGE hit!
Take the example, a $500,000 house declines by 10%. That's a loss of $50,000!!! How about a 20% decline, thats a loss of $100,000.
How many of you can lose $50K or $100K with no effect???
Here's a common scenario: Joe Sixpack buys a house with no money down and an interest rate only loan and struggles for the next year or so. Then he gets laid off or has some kind of medical problem, etc. etc.
Now his $500,000 home is worth $400,000, so he owes more then it's worth. Even if he sells it, he'd still owe the bank $100 grand.
Guess what Joe Sixpack will have to do. Hand it back to the bank. Now multiply this scenario by ten thousand homes and you can see the potential for disaster.
There was a reason people had to put a down payment on a house.
Good luck all.
There's always the tax sales. You may not get one in move-in condition but it would be a whole lot cheapter, plus it would be paid for.
Unless you have to sell there will be no effect. What % of people sell each year?
That was a pretty rude statement to Rules. Chill.
We bought 2 heavily wooded acres on Lake James with 407 feet of shoreline in Western NC, nestled in the Blue Ridge mountains and built a 4,200 sq. ft. brick house, built a gazebo, dock, etc. Total cost... $650,000.
But we don't criticize others' lifestyles or judgement.
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