Real estate can only fall 10% to 20%, right? Right?
You've probably read this before: Even when housing prices slump, they don't fall all that much, at least compared to stocks and other risky investments. I've passed on this bit of "wisdom" myself. And it it's not a totally ridiculous thing to say: Even in the big California bust of the mid-1990s, prices in the L.A.-Orange County metro area fell only 20%
 It's easy enough to dismiss the evidence from the oil patch, if you want to. Prices there were forced down by an unusual, and very local, economic shock. The economies of L.A. and Boston are better diversified. Then again, if the oil boom-and-bust of the 1980s was an anomaly, what should we call the easy-credit-driven housing inflation of the early 2000s? Liar loans, interest-onlys, option ARMs, and aggressive subprime lending have changed the rules. History wouldn't seem to be a very reliable guide right now.
One reason real estate prices tend to be less volatile than stocks is what housing economist Karl Case calls "downward stickiness." When prices fall, many people just decide to stay in their houses rather than cut their price low enough to make an easy sale. But that also means there's a lot human pain behind a housing decline of "just" 10%. People get stuck in their houses, and that can change their lives. There's a good story in today's USA Today about workers who can't relocate to find better jobs:
The silver lining here, I guess, is that companies are complaining about real-estate job lock, and they're shelling out a little bit to help entice reluctant workers. That means the job market is still reasonably tight, which should help the economy. If it holds. If. Update 3/15: For the record, the chart has been corrected since the initial post. (I added "5-year" to the label.) Update 3/16: Lots of good points in the comments below about the true cost of real estate losses. They should be drilled into the head of every Realtor. A few things worth expanding upon: I only have data for nominal (that is, before inflation) losses on real estate. Losses after accounting for inflation are much, much more common: The FDIC report found that since 1978, some 142 metro areas have seen real losses of over 15% over a five year period. That's compared to just the 21 cities in the chart with 15% or greater nominal declines. Even a nominal loss of 20% looks pretty small compared to nearly 60% (also nominal) for the Nasdaq in the five years after the crash. And while some houses in the LA market may have fallen more like 40%, some Nasdaq stocks went to zero. The big difference, though, is that most people have a lot more in their house than they do in the Nasdaq. And most people aren't diversified in real estate, whereas that's very easy to do with stocks. Bottom line: It's difficult to make apples-to-apples comparisons of the returns on real estate to the returns on stocks. In real life--that is, in the lives of non-professionals with a limited ability to diversify and a primary goal of purchasing shelter--equities and housing are very different assets. Beware of people in the real-estate industry who use simple average-returns comparisons to convince you that a house is an easy money machine. Finally, leverage adds to the risk of real estate. But don't forget about imputed rent. You have to live somewhere. The fact that some of your investment pays for a necessary consumption good dampens your risk exposure. When calculating investment declines, one cannot forget to factor in inflation. This will amplify losses.
Will, comparing percentage losses make inflation irrelevant.
I'm from Las Vegas. Prices here went up 100% + in the last 5 years. Prices continue to stay high and haven't went down. It's got to be only a matter of time because the average Joe can't afford these prices. It's ridiculous!
location...location...location
In some places this can be good news, as "reaches" to upgrades can effectively cost less, as the different "levels" of housing in "intra-local" markets, tends to become more compressed. Considering what prices were in 2001, I would expect housing to readjust again to normal levels a little above those prices back then.
If that means a 50% price drop, why not. If it can go up that much without any real reason other then a subprime frenzy, then it is just as possible for it to drop that much. I haven't yet seen any reliable or solid evidence that prices will stabilize. Housing is outpriced well above peoples salaries or possible earnings. Its beyond reasonable. You have to go back to stable/normal times before the frenzy and realize housing was priced with many factors there. The recent 5 year craze was because of mass numbers of buyers on the market who shouldn't have been allowed to purchase in the first place which drove up numbers to record levels. With 2+ million and more each day of inventory onthe market, and no more exotic loans, only "true" buyers will be allowed to purchase homes. It's going to be bad. Really bad. Although LA on average only declined 20% during the implosion following the MUCH SMALLER 1989 bubble, single family home prices neighborhoods with more speculation like Santa Monica 90405 declined a full 40-60% in nominal terms. The amount of speculation this time is far greater and far more widespread.
What most people forget is to add the "Inflation Factor" into recovering from a down turns in housing prices. The 20% price drop in LA housing market required the housing prices to climb by approximately 36% to get back to the real value dollar amounts that the housing was worth before the 20% decline. So if you really want to know the true effect of a housing downturn you need to factor in the inflation for the number of years that it takes to get back to the current equivalent value in current Dollar Values that equals the Dollar Value of the House before the market downturn. So Guys & Gals, until we get to that point in the future we will not really know just much this downturn is really going to cost us.
The real decline may be even worse. Don't forget to include the opportunity costs; after all, your money could have been safely sitting in a money market account earning interest the whole time. So if you could have obtained 5% from a money market account, then the 10% decline in your $100,000 house *actually* cost you $15,000 ($10,000 decline in the value of your house plus an additional $5,000 in interest).
Additionally, you are not factoring the additional 6% real estate commission off the sellers net for traditional real estate services. So a 20% drop is really a 26% drop to the owner unless they sell fsob and try to save the commission.
The reality is that prices could drop substaintially more than that nationally and here's why: A) When you apply the upcoming qualifying guidelines for exotic mortgages being "fully amortized" and "fully indexed", a borrower making $60,000 a year will qualify for a loan that is 28% less than qualifying at the start rate. This means that the sales price of homes that look at is 28% less than before. b) the above scenario does not factor in the amount of people who use "state income / liar loans" to qualify. When you apply standard debt to income qualifications of 30/40% many people will qualify for even less. I.e. a borrower earning 5K a month qualifies for a $1,500 a month pITI payment assuming his / her monthly bills are less than $500 total. Here is a mortgage calculator to play with some qualifying numbers. People will buy what they can afford to finance... can't finance it within their budget, they don't buy. If leasing a Ferrari was only $475 a month, everyone would have one. c) downward price pressures will only increase from the addition of "must sell" real estate inventory like foreclosures and builder excess. d) public perception of stagnent home prices will cause people to be "sticky" as you mentioned in your article and this will only change when property values get low enough were a mortgage payment would be equal to renting. e) this is my personal view that I think is way under estatimated. The majority of homeowners are baby boomers rapidly approaching retirement. They have been told that their home is the retirement "nest egg". When they watch property values drop 5-10-15-20% and see their equity evaporate, they will panic and sell to salvage the equity that is left. f) we are a nation built on consumer spending which is subsidized by credit card companies and recently the home atm machine. When credit goes away so does consumer spending and in turn our economy suffers dramatically. Look at the impact $3.00 a gallon for gas does.. which for most families this is only $200-$400 a month from their budget. So yes, 20% is very much a possibly... maybe even a guarantee at this point. Leverage is great when things go up and a killer when they don't. A 10-30% decline in home value will wipe out 100% of most people's equity. That leverage phenomena was fairly limited in the equity decline of 2000-2002, wheras virtually everyone's home is levered, with those with greatest risk of default typically having the greatest amount of debt.
Agreed. Convert nominal to real and you'll see that even the coast cities have seen 1/3 to 1/2 price drops in real terms.
FYI - AMC Mortgage (Ameriquest) has started laying off employees in their Illinois office. Don't know exact numbers, but it has been only 15 days since Citi invested, they move fast.
The other factor people seem to forget is leverage. Yes, housing prices may only decline by 15-20%, but for a significant portion of the population who have either bought or refinanced recently, this means their equity goes to zero. When you compare that to the stock market (which is an apples-to-apples comparison) housing equity isn't a safe investment at all.
It would help if you included the ski towns of VT like Stowe and Ludlow. You might find some even more "impressive" troughs.
Great look at a different side of the housing market. People seem to be so myopic when comparing stock and real estate markets. Yes, real estate markets probably wont go down 50% but most people didnt owe 85% on their stocks in 2000.
Two points:
1. When workers can't re-locate, and re-training takes 2-4 years to accomplish, it is difficult for workers to adjust to the quickly globalizing economy. By the time many complete re-training their new career is already on its way out of fashion. 2. The stock-market "bubble" beget the real estate "bubble", and there is no reason a decline similar to the stock market could happen to real estate. Let us remember that - although the nominal Dow gauge is higher than January 2000 - the inflation-adjusted Dow needs to rise another 20% just to match the January 2000 peak. That is assuming it happens in extremely short order and that number will be higher when factoring in more inflation over the longer term it will actually take. Considering inflation in home prices, the median home price after adjusting for inflation floated around $125,000 from 1987 to 2000 in current dollars. Now, the median home price is about $228,000. To return to the historical price level home prices will have to take a 45% plunge. Will it? Probably not. But don't underestimate how dramatically overpriced real estate is, and don't underestimate the ability of a market to take a substantial plunge. Selling at a major loss isnt an option for most folks - they just cant afford the loss. Absent financial calamity, I suspect most people will hold on to their homes, or rent them, rather than sell at a loss. This is particularly true in desirable areas (for example, Boulder Colorado real estate is notoriously expensive because of the great quality of life, access to good jobs, and building restrictions - these factors wont change).
The best news I've heard in a long time. When houses get cheaper, everyone benefits.
20% in California was in the Past.
The present is a far worse off than any so called guru or economist can predict.. 80's and the ofcourse the late 90's to right before Sept 11th .. People where giving away thier HOmes,lost of jobs and another fake stock boom!!! AFTER SEPT 11 th is when if we all can remember? This is when the government switched gears to pull the trigger and drop rates and realitors started to take advantage as well as homeowners and create a false market..All three parties are to blame. Someone please tell me when the price of wood and a ocean view tripled in value!!!!! This was a wash people and some people made a ton of money .. And others will be homeless and the smart ones who sat back and watched the lies are in the right place to finally buy the Home they wanted three years ago for the correct price.. THIS IS ONLY THE BEGINING OF WHAT LOOKS LIKE THE S&L SCANDAL OF THE PAST BUT KNOW IN THE LENDING GAME.. WATCH THE NEWS FOR MANY WILL BE GOING TO JAIL!!!! Lots of good points here about the real cost of real estate losses. They should be drilled into the head of every Realtor.
A couple things worth expanding upon: Even a nominal loss of 20% is pretty small compared to nearly 60% (also nominal) for the Nasdaq in the five years after the crash. And while some houses in the LA market may have fallen more like 40%, some Nasdaq stocks went to zero. The difference, though, is that most people have a lot more in their house than they do in the Nasdaq. And most people aren't diversified in real estate, whereas that's easy to do with stocks. Bottom line: Apples-to-apples comparisons are tough. I only have data for nominal losses. Real losses are much, much more common: The FDIC report found 142 metro areas with real losses of over 15% over five years. That's compared to just the 21 cities in the chart with 15% or greater nominal declines. Finally, while leverage adds to the risk of real estate, don't forget about imputed rent. You've gotta live somewhere! The fact that some of your investment pays for a necessary consumption good dampens your true risk exposure. Nationally home prices probably will not fall more than 10%, but buyers need to beware in bubble markets.
In the last housing bust, Connecticut was probably hit the hardest and in some areas of that state, prices still have not recovered to there 1989 levels. The northern area of the state- specifically the greater Hartford area - was in a housing recession that protracted throughout the 90's. If you were lucky, you purchased after the crash and picked up a great bargain. Can't forget the effect of speculation as well as subprime. I read that the average home owner in Las Vegas owns something like 1.7 homes. Most of those extra ".7" homes were purchased by individuals as investments to take advantage of the boom. Now they are stuck with unmovable inventory, and all the negative price pressure associated. I'm renting one of those condos now, and I plan to switch locations every 6 months to take advantage of dropping rents.
I wouldn't call anything short of being paid to live in Hartford a 'bargain'.
Hey Pat:
Since when is 1978-2003 a "five year period"? Finally, I'm glad this over-inflated r.e. bubble is making some factual headline news across america. It's been way overdue. The Phoenix metro market has ballooned beyond belief, more than doubled in less than 2 years. Even my 6 figure pharmacist salary can't afford the typical tract home here (about $350 K for anything decent, Scottsdale about $600 K.) Now, you know folks there's something seriously wrong with this picture. The sharp pin can't come fast enough!
The big question remaining is "who is going to pay for the bust"? Will it be those responsible...or Joe Taxpayer (you and me). I hope it is all of those responsible. Or, will this be S&L (Subprime Lender) Bailout Part Deux?
I think the "subprime woes" issues are not indicative of anything but what they are which is subprime loans. I find the slang "duh" appropriate for use here. Mr. Greenspan conceded it was "hard to find any such evidence" about spillover from housing yet, but added: "You can't take 10 percent out of mortgage originations without some impact." Now the Dems want to bail everyone out which is a huge mistake.
This too shall pass! Opportunity cost is HUGE. So is leverage.
Here is what I have done: Sold home(s) and cashed in 750k which is now in bank at 5.5 percent CDs. FDIC protection. In 2 years it will be 1 million(i'm adding to it monthly at a huge huge rate because i rent cheap) Now If I had kept the 2 homes I would possibly see in two years ALL of that 750K disspear with a mere 20% correction in housing. I would thus have ZERO vs my 'guaranteed' 1 million in bank by selling and moving to CDs. All I have to do is stay employed for the next 2 years and keep earning 5% in CDs) compare that to the risk of real estate where a small 20% dip wipes out 100% of your gains! It was a no brainer to sell and rent. If you are over 40 and 50%+ of your net worth is in real estate your risks are ENOURMOUS you could/will be wiped out in a modest real estate downturn. SELL NOW or never retire. The last downturn in Los Angeles was horrifying. People were wiped out, couldnt rent it out to cover costs and it ruined thousands of lives, marriages and there were suicides. Its called a crash for a reason and its here now. 2007 will be the last chance to cash in your home for near peak price for 15 years. When I bought a forclosure in '97, I remember the appraisal mentioning that the previous owner had paid $186K for it in '86. I paid $94K. This was in Los Angeles. Quite a bit more than 20 percent. These figures between 'peak and low' over only a 5 year span are giving a false hope as I see it. Sorry.
And have we forgotten what happened to the price of office buildings in Boston during the Ninties? Or what happened to all real estate in NYC in the mid Seventies? A 10% drop in price is nothing compared to what has happened before. My Grandfather was born in 1888 in Boston. He sold his parents' large house and stables on Commonwealth Avenue for $10,000 during the Depression, and he know it was a steal then at that price. He never liked real estate for the rest of his life. It is absurd to think that real estate cannot suffer the kind of decline that the stock market has or will. And then there is the death by a thousand cuts when real estate declines in price gradually or barely appreciates over a twenty year period, which is probably a highly likely outcome for housing today.
This is true there will be pressure to sell as credit once again becomes harder to get. The pressure to sell will indeed drive down prices. I am curious to see if the tax man follows suit. I think that in the long run real estate will hold value. A 1967 dollar would be worth six dollars and thirty two cents today. This is how the banks and government write off bad debts (sub prime and Iraq come to mind). I see a time when the average yearly wage will be $100,000 and the medium price of a home will be $600,000.
This 5 year 'high-low' comparison isn't valuable to current owners. For instance, I bought a forclosure in 1997 for $94K. On the appraisal, it shows the original owner bought it new in 1986 for $180K. That's way more than a measly 20 percent! Last year, identical properties there sold for $340K. Sorry... 20 percent isn't even close to the losses coming. At least that means the rest of us who don't currently own will be able to buy again at a sensible price.
I am thankful yet another buble has popped (what is the next one going to be?)
I bought in a townhome community in 2003 after relocating to Jacksonville, FL. Bought at a fair price, but was dismayed at the number of 'investors' who bought in here to rent out, and the number of people that were very young and seemed to be in here with the 'no money down / no-interest' loans. There are tons of for-sale signs up now, I figure some will become foreclosures, I am just glad that my unit is paid-off and hopefully 'real' buyers will start trickling in at some point. Mr.Clinton's disasterous policies of free trade, left our piggy banks empty; recession was in the air. The Bush administration with Greenspan its collaborator, pulled wool over our eyes. They dare not treat the cause but offered a snail sauce for cure.They reduced interest and the mirage of affordability and wealth, soon appeared in the air. People borrowed money because they could repay it, if they kept their weel paying job, but the security on the loans was imaginary, the value was not there to support them. Do not be surprised if within the next five years myriad of people will lose their homes and affordable rent would be the theme of the day. But affordable rent is not enough to make payments on monies borrowed by a Landlord. Except in arears when Government is the main employer, as in DC, expect devastation, devaluation, foreclosures and bankruptcies galore. The deficit was the cannary in the mine whose song we did not hear. It keept the politicians afloat. Tt will bankrupt those who have elected them. So sell your home even at a loss because down the road you will be able to buy it back for half your present reduced sale price. Greenspan kept silent during his watch but now for his usual fee on a speaking spree is telling you the truth about the problems of subprime and everevaluation. Take this precocious ecomonist to the bank and see how much you get for integrity.
Home prices have also been over-stated because refinancing appraisals are included in the government indexes, even though the house never sold. High appraisals are very easy to get.
Gold. Gold. Gold. Gold.
If you want your family to have any food at all through the coming calamity, make sure you stay away from fiat "money" and get into *real* hard assets. Here is what we have been doing: 1. Sold the house and moved into a much smaller place that we own outright. It's pretty far from any major city but it's cheap and away from potential harm. 2. Stock piled food (mostly canned goods, but also plenty of wheat and other grains.) 3. Installed a large underground water cistern and rain water collectors. 4. Setup solar cells for once the grid goes down. 5. Started to learn Chinese for when this becomes a requirement. If you want to protect you and your family from the coming chaos, consider these changes. Stop what you're doing and start saving hard assets and foodstuffs. And get out of your house while it's still worth something. Fear is once again being fueled by the press - including CNN MONEY. Having lived in Europe for 10 years everytime real-estate hit a press induced panic "High" - they still went higher and today they are still rising. The upper limit to real estate is a great deal higher than is being communicated. There may be an issue in new construction area - as a camparison to US car manufacturers may be valid - in that they build not to market requirements - but to what they are capable of building which like US car compoanies is too much with the same consequences - overcapacity and rebates!
We cashed-out from our Sacramento, CA suburb (Roseville) at the peak in summer of 2005. Today's motivated sellers have dropped prices $100K (15%) in our same subdivision. There simply isn't the high-wage job base there to cover prices that were run-up by junk loans, buy-now-or-never hysteria, and unbridled lust for luxury homes. Game over, man.
A 20% drop in real estate wipes out your entire down payment. That is a 100% loss to the homeowner, and possibly more to the lender. Also stocks can be sold in seconds; real estate can take months while you're paying the mortgage payments. It's more than straight numbers.
Doesn't help when CNN, particularly your housing correspondent Chris Isidore, keeps crying wolf 2-3X a week. No other business site spends more time on "gloom and doom" theories about housing than CNN. Look, let's be real -- After years of double-digit growth nationally, things were bound to slow down. Like everything else, it's cyclical. Let it go and stop getting everyone in a panic -- just to grab attention and click-through rates.
When trying to calculate your true equity position gain or loss on a house or property you may want to factor in inflation and the total interest paid over the life of the mortgage as well as capital improvements. Unless you were borrowing at zero percent the interest paid must be deducted from the equity gain or loss or you are only fooling yourself. When you factor inflation, cost of borrowing and capital improvements and upkeep you had better hope the values in your area have gone way up or you are way behind.
Any thoughts on the short-term prospects of the NYC real estate market? This is obviously a different animal as the only direction to build is up. It seemed like prices were about to stabilize in late '06, but this year has been off to a roaring start. We have already lost one bidding war and are expecting to lose another. We received 3 offers on our place the first hour it was on the market, and it went for 5% above asking. I can't figure out if there is any upside to getting back in, or if I should sit out for a year and watch. I'm worried that the market will go up another 10% in that time. Weak dollar emboldens the international buyers, who are here in droves. Additionally, the prevalence of co-ops penalizes (or flat out disallows) speculators and flippers, either through onerous flip taxes or by screening out potential investors in favor of actual residents. Would love to hear thoughts from others.
While there are definite tax benefits for home ownership, one issue people don�t mention that much is property taxes. In the Bay Area where million dollar homes are common place, home buyers are facing ongoing annual taxes in the $10,000 to $15,000 range. Ouch! Lets not even mention the inevitable future increase in income taxes required to balance the massive government overspend in the past 5 years.
The fortunate thing, (or unfortunate depending on your perspective), is that real estate is not a liquid asset so the market cannot collapse overnight. But we are going to be in for a slow downward grind. One final point; people need to change their expectations. Home ownership should not be a path chosen because of the opportunity to reap large profits. If that happens then that�s a great by-product but sometimes breaking even is OK. You do after all have to live somewhere! I've been looking to buy, but it just pays to rent. I was considering a brand new, never lived in condo which is renting for $2200 and the buyer bought for probably $670K. Factoring property taxes and HOA fees, the owner will be lucky to net $1200 a month to pay his mortgage. So I would be borrowing his money at 2% to live there while he is paying at least 6% interest on his mortgage. Another way to look at it is that it would cost over $5000 a month to pay interest, taxes and HOA. Why not rent and keep the money in the bank!
Good thinking Will! While there are many valid points here, people tend to get in a panic mode very easily. Yes, things could get ugly, but dont underestimate the size and resiliency of the US economy. Whatever happens, there is still a huge pool of cash that needs to find a home. Corporate portfolio managers need to get their portfolios invested, and 4.691% for a 30 year bond (todays tresury rate)is just not enough return. Corporations are still willing to take on risk to increase earings, and because of that, riskier investments will ays be around. If its not in the arena of sub prime loans, then it will be somewhere else. This is all the result of a prolonged abundance of very cheap money; a problem in our economy that has to be dealt with, reguardless of the real estate debacle. But again, dont underestimate the resilance of the entire US economy.
Not true I live in Las Vegas as well and I've seen the value of my home go from $380K last year to $325K and prices are still falling as builders keep building in a market where there is no demand.
SELL NOW OR BE PRICED IN FOREVER! The Ponzi scheme of the last five years is coming to an end. Enjoy the show.
This is a great thread, thanks for all of your great comments.
I am going to be a first time home buyer in next month of so (NOT VERY LIKELY THOUGH AFTER LOOKING AT ALL YOUR COMMENTS). Last year when i decided to build a house with a builder i was seeing the sign of Housing market slow down but, i was hoping that it will go towards stablization in 2007 but it doesn't look that way. The funny thing is these days when i see national trends i see big downfalls and when i see local trends in our Dayton/Cincinnati local market it still shows price increase by around 5% as compare to the last year. This doesn't make much sense. I am sure even if this local market is not seeing down fall yet, it will join rest of the country fairly soon. I purchased my house in 1993 for $130,000 putting $7000 down. I just sold it for $390,000 that much. Not bad for a $7000 investment. People told me then that I would lose money. While they paid rent for 14 years and never seeing a dime back, I made back every penny and more that I paid. Now I am buying a house on the water. In 14 years my renting friends will still be living in apartments while my house will appreciate.
I assume most folks posting comments here are heavily vested in the stock market (as am I). Even Alan Greenspan doesn't think any of your dire real-estate scenarios will pan out. But keep in mind that if they do, the result will be catastrophic lossees in all asset classes -- including the stock market. So while there will be "bargains" in the housing market, you're not likely to have any money to take advantage of them.
I live on Cape Cod where the average price of a home is $350,000. When I say average, I mean a 3 bedroom ranch home in a crowded neighborhood, built in the 70's, hollow core doors, cheap cabinets, maybe a bath and a half, it's kind to say that needs a lot. Even if you could save $35,000 to put 10% down (who can really save $35,000!)you would have payments of $1888.00 plus $225 for real estate taxes and you'd need a ton of money for maintenance. And you wouldn't even want to live in it! At the traditional ratios, you would have to make over $75,000 to qualify (How do you save any money making $75K, especially with kids and college. The only reason to risk your $35,000 is in the hope that the property value goes higher, which until now, that's what has happened. We are going to see a dramatic decrease in the price of housing, this is the tip of the iceberg. Our foreclosure rate is off the charts, our savings rate is in negative numbers and credit card companies nail you with 18-21% rates which escalate with late payments. Strap on your seatbelts, we're going for a ride. Remember the tulip story in the Netherlands 400 years ago?
The sky is falling?!
Markets that are shedding huge value are the same ones that have increased over 100% in the prior 5 years, some increasing as much as 200% as of 2000. The same markets will see a bounce down to about where they were in 2000 and a quick recovery to 2004 levels. High cost homes (top 30% of local market) will stand to lose 15-20%. The rest of the market will shed 5-10% and recover most by 2010. this is like every type of market....the flavors change a little but the cycle is always simmilar. The only real threat to the national housing market is the same as for every other issue in the nation, baby boomers over the next 20 years. This article is a load of BS. Of course there may be a correction but it won't be that bad in most places. There are still plenty of buyers out there with fat wallets. Just because some delusional idiot can't buy a 500K home with a 50K a year income doesn't mean anything. Working in fixed income, I've heard the rumors related to future real estate blow up for about four years now and all that's happened is a slight slowdown. Nothing but hype!
A funny thing happened on the way to your financial web site -- I encountered two ads for what were obviously "sub-prime" type loans, offering refinancing at rates of less than 2% APR and "interest only" payments. So I decided to have some fun. I went to several other financial websites, many of which had stories on the demise of the subprime industry, and, in the course of less than 20 minutes, found 14 ads for such loans. It appears, then, that one of the causes of the easy money real estate inflation is the financial news establishment that warns so much against it!
Not only is the Funny Finance loan alive and well, so is the housing market, at least here in Southern California. My wife and I visited several new housing developments over the past month, in Palmdale, Oxnard, and Camarillo, only to find that all the homes have already been sold and that a couple of other developments have all been presold. I guess I should do my future shopping in cyberspace, where home prices are crashing, financing is scarce, and I can get that home in Santa Barbara for a lot less that a million dollars! Dream on -- the biggest mistake people make in real estate is to buy later istead of now! A lot of the doomsday scenarios mentioned above are as likely to happen as the sky falling. But thunderstorms do result in lightning strikes.
needless to say, there will be pain, angst in certain parts simply because home values got out of control, and some people got into houses because tomorrow it might be more costlier and took advantage of teaser loans and low interest rates. For some people just the mere fact that home values will decline over the next year is a shocker and that causes them to burst into state of denial. Although the sub-prime situation is likely to get ugly specially if interest rates dont change and lenders tighten the noose on re-financings which are likely to spurt Now.. but in the end its good for the economy to get this fluff out of it. The last few years have shown that people have started to trade in real estate like trading in stocks, making it a very dangerous game. Until this housing bubble people considered houses as primary place of residence.. but now you have investment clubs spanning all across the country making the housing bubble the last bubble of this decade.. and likely to be one of the most expensive ones Hey Walter in Princeton -
I second your question... I actually went down comment by comment and was amazed that no one raised that issue... NOT ONE person! :) PAT - Have you looked at the Memorial area in Houston? Would die to find a house that sells for 20% less than five years ago! I think the same forces that drove the stock prices up in the late 90's is behind the upswing in housing prices in the early 2000's. To use Alan Greenspan's term; irrational exuberance. People have money that's performing poorly in stocks and when property became the place to invest, they moved their money into that market. It's not just Americans that are driving this. We have lots of money going overseas. They have to do something with that cash and our bond prices are pretty low. Real estate was a better deal. Fixing this is going to take fixing our current account deficit.
Let's all remember we pay for the rareness of the commodity, in this case, land and housing. In some areas that are land short and industry healthy, housing is in demand and so prices will reflect that health. Other areas that are short on jobs or have a great deal of housing on the market due to construction or the graying of the community don't sell so quickly, but they still sell, so please keep that in mind. A glut of housing might also happen when a particular factory or industry shuts down and many people are moved or need to move at the same time... look at what happens when the military closes a base, like Long Beach some years ago... Charts and graphs are only indicators to a particular window to a particular scenario and shouldn't be used to scream wolf. Be careful please, you're scaring the general public or at the very least, possibly misleading them. The media has been for a number of years writing about a bubble. Well I'm in the housing industry and I know that life continues to happen... people move because they choose to, they have to or they can. We're healthier than that colorful graph. I'm telling America to not be afraid to live your life. You want to buy a house? Buy a house... it's still an excellent thing to do.
Walter 1978-2003 is a standard forcast period
1979 1980 1981 1982 1983 1978 is used as a base year Owning a house is the American Dream. One of my co-workers whom make about 60k a year, and he bought a house for 480k last month. How does he do it? Yes, it is one of those crazy loans, negative amortization loan. He put down 5%, and his monthly mortgage payment is about $1200. He will most likely loose his house in the next two or three years if the interest rate goes up or the house price doest'n goes up. I think we need to educate our people the word "affordability".
NYC thoughts,
As the RE markets in other areas of the country take a beating, one here should now be thankful of those "pesky" co-op boards. They have collectively keept away the exact reasons for now that other area prices are recieding big time. With 99% of co-op's you could not finance without 20% down or receive the rediculous mortgages that others have. This alone has helped keep and raise NYC housing prices. Another reason, here prices are so high that there is very little room for both the speculator and the second home owner type deals. Mostly never heard of except in very extreme circutances. It will take more than the sub-prime market mess to dent the real estate value here. We have other problems on the horizon to be sure, but not this one. Walter and M. Halmagean,
The chart does not show performance from 1978 through 2003. It highlights the worst five-year performance for each market shown, within the 1978-through-2003 period. For example, the 19% drop for the LA area took place sometime in the mid- to late 1990s. The Grand Junction and Peopria drops took place in the 1980s. Great list! More original ideas here than in all the media put together. it's usually real estate broker 'propaganda', or meaningless drivel that comments on the state of things without any real predication.
That said i am living in the 4th most expensive city in America: Honolulu. ave single family homes (and small) are $700,000. condos around 450,000 unless you move to one of the suburbs 20 miles away. feel my pain...ALoha is evaporating as people feel the stress...i tell you, people are lookin at each other funny these days, and you can feel the frustration of the common man. i make $70,000 a year and can't afford to buy a place, having missed the boat in '03-'05. i hope this correction happens and all the idiots who took out big mortgages get slammed. wheeeeeee! Come on People! I bet most of the people posting comments on this blog listend to CNN during the 2002 - 2006 span and never bought becuase prices were bound to fall! How much did that cost you? I can sun the sun is going to burn out and I will be right someday!
Prices are going to stay flat for awhile but no drasitc drops are going to take place. We may see 5-10% dips in certain areas. And then the investors will jump back into the market and steal all of those foreclosure homes! O Yeah one last thing! The banks are going to come up with even more interesting financing such as 40 (already in place) or 50 year loans. 2010 prices will be well above todays prices! Since I never bought a home, I suppose I will not commit suicide over this drop.
Well here on the east cost of florida, prices have shot through the roof and the average home price is 450K, there goes the cops,firemen,teachers and others priced out. Not to mention the property tax has jumped a 100% or more in 12 months. Now your property tax is same as your mortugage Now try getting home owner insurance after Jeb Bush sucked down 9 1/2 millon form Insurance companies.
Home prices are not falling, yet homes sales and condo sales has fallen flat. Florida is screwed............. WTF - Another Bush I get a kick out of those who think them media is "panicking". LOL!
I saw a post where some genius in Malibu thinks housing crashes overnight. LOL! There will always be those heavily invested in Real Estate who are unwilling, unable, or a combination of both, to acknowledge reality. The bubble is over folks� Every market corrects, weather it's stocks, bonds, cash or real estate. The only cause is, and always will be, human emotion. (We) put value on things and take them away. A chunk of land is the same as it was 1000 years ago, only we put a value on it. And when people start to panic look out. The old saying" sell your stocks when your barber starts giving you advise" also rings true in real estate when everyone jumps in to "flip" houses and make "easy" money. What goes up must come down(and correct) and the bigger they are the harder they fall. Many people will get hurt in the next few years, it's the people who keep their wits and think clearly, they will be the ones who really come out winners.
I really, really do hope that bubble burst. Specially in Phoenix!! My husband make well over 6 figure but we can not buy decent house at decent neighborhood with fixed conventional loan. Buying a house suppose to be a joy. not a getting to huge debt..or poo.
Simple math. 1999 2bd/2bth condo in my SD coastal neighborhood was $99k. 2005 they were selling for $425k. 2007 they are listed at $295k on the decline and not moving.
I live in a western suburb of Rochester NY and the BRAND NEW 1600 sq ft house that I bought in 1985 for $72,500 has NOT EVEN doubled in 21 YEARS ! It's only worth $117,000 now. That's not bad for a house on a half acre that borders woods, but the high cost of living elsewhere means I wouldn't consider moving to a place where a lesser house costs 3x as much !
I agree with Willow. Take it from an OKIE who remembers the oil bust. Treat your home as a HOME not a cash machine. If you're upside down right now just live in your home and enjoy it until things get better. Besides, there are plenty of guaranteed investments out there, they aren't glamourous but then neither is a foreclosure.
Anyone who has bought since mid 2003 and held on until now has really been renting for that entire time in regards to equity gains. We are back in 2003 again today! Anyone who bought after 2004 at 100% financing is underwater today! The end of this won't come until the new president is elected and in office for a year! Hold onto your FICO scores until then!
I used to live in LA, CA. I had purchased a house in 2001 (fighting off 12 other offers at the same time) and by 2005 I saw an opportunity to unload my home for triple the amount. I did and moved elsewhere where home prices seems to make sense. I for one thought that the prices simply did not make sense. Wages did not go up nor did the IRS decided to stop collecting taxes :-) to support this frenzy.
With the recent news of the subprime lending market, it all started to make sense. I am happy that I got out and waiting to get back into the LA market when I see the low point. Sad, but my happiness is built on top of other people's stupidity and misery, however, I won't feel sorry for it. Beware of victimizing people who can�t afford their payments! The only way things will be affordable again is by allowing fundamental economic principles to unwind. Speculators (read as �the many stories you will see about little old ladies who can�t afford their new payments�), as well as mortgage companies and investors MUST pay for the risk they took with these financial instruments. If congress bails the banks and "little old ladies" who can�t afford their payments, then prices will not drop and those who patiently � and wisely � waited will get the short end of the stick. Remember, no one is entitled to wealth and those who speculated in the real estate market (no one in their right mind would pay the prices people were paying for stuff) must pay for their risk they took - like any other economic entity (even if that economic entity is a little old lady).
Why would I want to own a house if I can rent it on the cheap and invest the money elsewhere? Go to
Rent vs Own for a comparison. In many cases, it is far better to rent than own these days. Do the math before you write the big check for a house down payment. What goes up will eventually come down. This market was completely inflated. Just like the Internet boom when I heard taxi drivers and waiters giving stock tips I knew it was time to get out. The same goes for the housing bubble. People don't realize these "exotic loans" were never meant for the average worker. They were invented for the millionaires who could already "afford" a $25,000 a month mortgage but wanted to invest their money somewhere else for a better return. The key point here is that they could afford the payment anyway. When people making 40-60K a year and are buying 500K+ homes thinking the market will go up you know we have a problem. If you have one of these loans get out now if you can't afford the what a normal 30 year loan would cost.
Foreclosures are abound and for the savvy investor their will be lots of opportunity. Buy low - sell high! Sorry to rain on the gloom parade, but remember that when financing real estate with a 30yr much of the borrowing is paid back in inflated dollars, i.e. the mortgage is an inflation hedge. So when the baby boomers retire, inflation spikes to 50%/annum, the mortgage basically goes away in real terms over a period of time.
Keep on dreaming, Jeff in Newport. That's the same line of BS that people bought into in Tokyo 20 years ago. Guess what their financial wizards dreamed up? 100-year mortgages. They called them "three generation mortgages". Guess what happened to Tokyo's bubble? 15 years of decline...
My philosophy on this kind of matter is that, like anything else, with the "wrong" ingredients, housing prices can always drop, and with "perfectly wrong" ingredients, drop very steeply (and the opposite is true too).
Take my parents' house in Japan. They bought the house in 1974 for about $200,000. There were right ingredients in Japan for housing prices to appreciate at one point, and by 1991, their house was assessed at something like $1.2 million. Then perfectly wrong stuff came in, and today, in 2007, the same house has a market value of about $350,000. My parents did not lose money, or did they care one way or the other as they were not going anywhere. But what about those neighbors who bought in 1991? Up until then, everyone believed that the real estate value would never come down in Japan. Right. What goes up does come down, and comes down very hard at times, with wrong ingredients. Some very good points here. The only thing wrong is those of us who are reading and posting are not the one's who need this information. The problem is not the "12 National Builders" (these are my thoughts) who can control the process. It is the problem of ignorant, money hungry local builders who claim to be custom. In fact they are only higher priced production builders with more "upgrades". In a normal market these builders are the ones who a homeowner will go to for their second home after they went through the production homebuilder. This naturally should take place about 6-10 years (or even longer, i.e. kids out of the house) after they build w/ a production builder. All the local "custom builders" heard how much the production builders were making on their net investment and decided to try it out. They purchased land, did a small development, built spec's, hired "has been" production sales staff, and flooded the market even more. What is worse, they don't have the six figure person who studies the local economy every day like the "big 12". What you are left with is an overpriced home sold to people who possibly can afford it, yet is still a strugle to get by. Now these people have to turn and sell their production home at an over-rated price to a buyer. Most of these buyers are your "sub-prime", or IO's, arm's, etc. The other buyers of these production units are investors. They have bit off more then they can chew as of now. I don't call it ripple effect, I don't have the words to describe it. I just tried to warn as many as I could in the prev. years about this happening. Those people thought I was too young to be shelling out advise. I am hearing some "not so good" news on their end.
Thanks Jeff for being the voice of sanity..here is the real deal:
The CNN site---like all sites--- have to come up with new material to post daily and quickly to keep readers coming back. This in turn brings the CNN site advertiser revenue. Doom and gloom brings more eyeballs to the site than, "Hey real estate is going through a normal correction." Bottom line: Hold your real estate for now if you can...they don't make any more land. I know buying a house is the American Dream but man, I still want to live. I currently rent and looking for a house with my brother. Our income is around $150K together. I went over my numbers and was thinking, how can I even live my life after putting all my money into the house. What about traveling, going out for fun? Those things are important in life too. I'm hoping for a 10% reduction in price... then I can feel better about getting into a house. One thing people have to consider is that the real estate market has given a ton of people jobs. There is clearly going to be a downturn in business so what are they going to do? Where are they going to live? I ran into my friend that works at Etrade yesterday and works with mortgage loans. She told me all the money is in foreclosures now. That might give you a hint of where this is going.
Why does it seem like only those who are leveraged to the hilt refuse to admit there is a liquidity crisis?
The CEO of Countrywide Financial, in an interview yesterday, said, "There is currently a liquidity crisis in the sub-prime market" If anyone is dumb enough to think the upper echelon alone will save housing, you deserve to lose your shirt in this over-inflated market. Only those who financially can't handle a loss in real estate, refuse to see the reality that is before them. The only people taking a "loss" are the ones who bought the year the bubble peaked...or financed on risky terms. Everyone else is going to at least break even.
Ok people you need to WAKE UP that MEDIAN PRICE stats =useless and trickery.
Read up on it. Median continues up when Actual Prices go down. This has been happening EVERYWHERE. Median is not average and its not same home sales. It just means more higher end homes are selling. "Rich people keep buying" is what the headline should say. New homes are pricey and that skews the number. Who cares?! However when you see median go down you can add 25% to that to see an actual price decrease that is happengin. Check out ZILLOW.com for ballpark in your area. The sad thing is I meet people who still say 'but prices are still going up' because the realtors publish the median stats, NO THEY HAVE BEEN GOING DOWN SINCE LAST SUMMER AND STILL TANKING. They might as well make up a number thats how misleading median is! Its a travesty it is. real estate is a local market. if you bought into a market at the top where there was rampant speculation then you are obviously going to see a drop in your homes value. Most parts of PA, NJ, haven't seen any significant drop in values aside from certain pockets of market weakness. i know that isn't the case in places like FL, NV, AZ, etc. where people went nuts on cheap real estate and drove the market over the top. also remember, like it does with everything else... the media built the market up during the last several years getting people in a frenzy to buy homes, now they are doing the opposite. they play on your emotions for one reason... to sell advertising. if you are able, stay calm, stay put, hope to keep your job or work to get a better one, and everything will likely turn out just fine. the ones who keep a level head are the ones who survive. good luck.
Thank goodness Hillary and Dodd are going to pass legislation to help out distressed borrowers. Now I can trade up from a boxster to a 911 when my lease is up next year!
See when the teaser rate expired I was vacationing in Hawaii and didn�t notice for a month or two since I took a few months off of work to travel. Everyone should take many expensive vacations, do like I do and use the mortgage payment money for it. Now I�m back from Hawaii (with an awsome tan BTW!) and the credit cards are maxed out, the mortgage is behind and the rate reset up! Its not fair. I�m glad this is The Dmocrats platform: Everyone deserves 4 months a year vacation, a new porche every other year, and mortgage debt forgivness to pay for it all. Hopefully they can raise the FHA loan limit like Hilaray wants to 500k so I can buy a beach front condo in Maui, and lie on my application that its a primary residence. That way I can get it for no down payment, guaranteed by the you dumb tax payers and then rent it one year and flip it for HUGE $$$$. Oh and I can write off my vacations too! THANK YOU DEMOCRATS -THE PARTY OF THE REAL ESTATE FLIPPERS!!! REAL ESTATE IS THE NEW SOCIAL MOBILITY VEHICLE, YEAH!!!! Let the War On Savers continueth! At the risk of stereotyping, doesn't the subprime market drying up affect a certain economic strata and correspondingly, a home value level? Meaning, there can't be a lot of subprime buyers getting in above $300- 400k, can there?
Just wondering if this is the flip side of the dot-bomb burst, where paper houses over $1M were suddenly going for 30% off. If so, is there a slice of the home selling pie which is relatively stable and thus immune from these two ends of the buyer spectrum. C'mon...make some of us middle-of-the-road guys feel a little optimistic!! Prices have been falling in some markets that's for sure. I sold two houses in CA and Phoenix last spring both dropped in value 5% and 21% respectively. People I know are suffering losses in Florida and Vages. These are investors and they are loosing money monthly because the rents do not cover the mortgage/tax/insurance payments and they can't sell or refy because they are upside down. At this point they are thinking of walking away and foreclosing before wasting cash for another 5-10 years. These people are not alone there are plenty of other investors that are in the red and as conditions get even worse they will walk away from their properties and that will only add to the inventory levels.
As of today, in most cases, buyers will need to have 5% down payment. In the coming months that might even increase to 10%, if the market will show more weakness. While majority of the country will survive the downfall, markets in CA, FL, AZ, and Las Vegas will suffer for a very long time. In Los Angeles we have seen prices drop accross many neighborhoods, but for some reason the averages still point to a growth from 2005 to 2006. I am still puzzled how this happens. Majority of the renters can not afford to buy their first homes. Also many homeowners, who refied recently, have spent most of the money on remodeling, vacation and etc. Now is the time to pay those bills. Very soon we'll see justification for paying $800K 60 year old small houses. Only time will tell what happens, but the current fundamentals here are way off in LA and most of CA. I bought my house in Casper, WY in 1994 and it's appreciated almost 400% thanks to yet another boom coupled with "the easy-credit-driven housing inflation of the early 2000s". What's amazing is watching hundreds of homeowners who have lived here long enough to remember the last bust take their equity and trade up into a nice new big house with a mortgage that will be underwater for sure in the next one. In the oil patch, a bust eventually following on a boom is 100% predictable, but knowing that doesn't lead many people to make any better financial decisions than the rest of the naive, bubble-intoxicated nation.
A 20%, 30% or 50% drop in real estate prices would have no effect on my wealth. How could that be? Because I don't measure the value of my house in dollars (or Chilean Pesos for that matter). My house is worth 1 House. I could sell it and use the proceeds to buy another one just like it (same sq. ft., same location, same pool, etc.). I wouldn't be 20% poorer. I wouldn't have 20% less kitchen or 20% less pool and I wouldn't have to reduce my spending by 20% because I my income would be the same.
What's my point? If you buy a house to live in, you shouldn't worry about how much money a real estate speculator (a.k.a. ex-dotcom speculator) is losing. What Greenspent said & What Greenspent will be remember for:
�Irrational exuberance� precedes: �Rational emaciation� 30 yrs ago a person bought a house that was well within their means with the intent to one day own the home. Today it seems that purchasing a home is a way to get rich quick or as an ATM cash machine. I bought a home, will pay off the loan, and own it. That will be the one thing that no one (bank) can take from me. Many will loose out in this downturn and may learn a hard lesson: Market fundamentals allways win.
Pat,
This post is useful in several ways. First of all, by showing the extremes in certain local markets over the years you help point out this current upturn in prices isn't a national phenomenon. Real estate is very local and the current areas of the country facing pricing drops are contained to those localities for specific reasons. Look to the Midwest as an area that didn't have a pricing boom over the past five years. Look to Utah and Washington and New Mexico as areas that are still seeing appreciation gains. Real estate is very local and the so called housing bulls take offense to the mainstream media suggesting otherwise. The second point you make here regards jobs. That's the biggest reason there are housing bulls during this housing downturn. If jobs were bad, I don't think there would be any bulls, but they're not. While house prices have risen significantly, wages have lagged behind. The 2001-02 recession retarded wages which are now seeing a comeback. Even after the recent downturn in the stock market, unemployment is still dropping. Today's surprising employment numbers missed the headlines I guess to keep the bad news flowing. After doing my own research on past housing trends, I have my own theories about house prices. You can read some of them here and here. This is getting so boring. Renters who missed out 2001-2006 are crossing their fingers and toes and wishing real hard prices will fall back to 2001 levels. Well you can wish all you want boys and girls, it won't make it so.
Where I live homes that were selling for $500K in 5 days in 2005 are now selling for $470K in 5 months. And that is the extent to this supposed housing crash, homes are taking longer to sell with a 2,3, 4, 5% drop in prices. Given the fact the homes in question cost less than $200K in 1999 when they were built, I'm not exactly losing sleep over it and neither are any of my neighbors. This talk of doom and gloom is no different than the early 90s. Anyone here wish they'd bought a home in California or Boston at the peak of the last "crash"? By the late 90s those losses were recouped and then some. If you are in it for the long run real estate is still the safest bet you can make. Yo! Joe in Dayton, you are safe. The great mid west doesn't have the warm climate, half clothed woman, beaches, etc. There will always be a SLOW increase in the mid west (normal pop. growth has no reason to spike). Yes there have been foreclosed homes in the recent month's, but pretty normal numbers for that area. I left C-bus three years ago (that's when the signs of a bubble bust started to show) to be a manager for some builders here in Fla. and now I going back home to get my own company going. Good luck.
Everyone is assuming that residential real estate is the ONLY factor at play here. Add in the national debt, the trade deficit, a dicey social security system, health care costs, a baby-boom just now beginning retirement, the rest of the world's dissatisfaction with the dollar....
This could get very ugly. Sounds like many in this forum failed to buy before the prices went way way up. Now, it does not appear like they are comming down. I was one of those fools who took an "option ARM" on two places in Newport Beach, CA ten years ago. Now, I am worth millions. I guess taking an "option ARM" is stupid. Dumb me.
Frankly, I wish the San Francisco market would dip a bit. At these inflated prices there are so few people who can afford to buy a home here. Isn't that a sign that something is wrong with this market? Shouldn't somebody with a well-paying job be able to buy his own home? Not in San Francisco, I guess --- here it takes two physicians' incomes to do that.
I bought my home three years ago with a 35% down payment and a fixed 30 year loan. I feel good about the price I paid and since that time, values in my neighborhood have risen about 15% or so. A unit in my development was just into escrow last week at a record price for any unit since our tract was built. There are issues in the housing market, but looking at Southern California, the housing recession that occurred was one based upon very weak unemployment figures. It is likely that prices could fall, but I don't see a dramatic decline unless the bottom drops out of the job market. During the 2000-2003 recession, unemployment remained low in Orange County, interest rates fell, and more people moved to the area from weaker economies. Many business writers in the press keep talking about a dramatic downturn, etc ... maybe their is some credence to what they are saying, but I have to say almost everything I read is in a negative slant ... where is the objectivity?
And yet NYC keeps on rising, rising, rising.
What price declines? I don't see any. Not one mention about the tax benefit of mortgage interest. For middle class Americans, the home remains the #1 tax shelter. Rent is NOT tax deductible, while mortgage interest is tax deductible, reducing the true after-tax cost of home ownership. I purchased my home($160k in Austin,TX) last yr. with a 15yr fixed rate mortgage, and each month $400 of my payment is going towards the principal. Even if property values fall in the next several yrs, I am comfortable with the fact that in 15yrs., I won't have a mortgage payment.
wow.
thanks 'wet back' in santiago, for voicing a viewpoint that seldom gets credibility in the whole "bubble has burst- what will I do?- when will my house (as an investment) be worth what I thgought it would be worth after XX months/years?" dialog. Of course, this does not work if your home (not viewed as an investment vehicle, but rather as a "home") becomes "worth" less in a declining market...then you couldn't replace your "1 home" for an equally sized, located and appointed "1 home" in your current community....or elsewhere if you were forced to move... but I do generally share your view on NOT looking at your dwelling as an investment vehicle. i have been in home building and real estate sales for 20+ years...never ceases to amaze me how many folks stretch to afford TOO MUCH on the firmly rooted expectation that it will ALWAYS be "worth" more. I was in real estate sales in New England in the 80's when the market corrected. There was a section in the local newspaper devoted only to foreclosures, over 150 on any given Sunday. It lasted for two years and many people lost everything. What precipitated the drop was a change in the tax code. There were no sub-prime mortgages. Prices averaged $140K. The cycle lasted about five years and then things slowly returned to normal. This time it's much different. It's a perfect storm. 50% of the wealth in this country is in 2% of the hands. The average family has bills that are three times of 20 years ago. Gas prices are high and going higher. College costs have gone through the roof. The "free trade agreements" have cost regular people thousands of jobs. Prescription drug prices are ridiculous. GM and Ford are losing billions. We have a very expensive war with no end in sight and our trade deficit numbers are staggering. The cities and towns have continually raised the taxes on real estate and are still cutting services. The sun belt states will ride this out in relatively good shape, they'll take a hit, but the baby boomers will still retire to the sun. We have an aging industrial revolution, a third rate political system and a population that is "out for themselves". The long term prospects of housing are anyone's guess. It's hard to go against an uptrend that has lasted for so long. The real problem is that most of the wealth is in a small amount of hands and that trend will continue for a long time.
population hit 300mm in '06, not including 14mm + illegal immigrants...
Pop goes up, available liveable land shrinks, prices over time have little option other than to increase. Just like a river constantly flowing. Everything else is just the short term headlines. Reading all of these blogs reminds me that a primary residence (whether it's renting one or owning one)should be thought as a life necessity (along with food and clothing). Once many people bought into the theory that homes were savings accounts (by chashing out equity), it allowed for major increases in prices. It's unfortunate that the results have priced alot of people out of the market in many places although the correction may soften the blow. I think the bigger issue is the fact that along with prices, so does property taxes and homeowner's insurance. If prices decline, what happens to the property tax revenue? This along with a growing older population will ultimately result in higher taxes on income, consumption, savings etc. The bottom line is enjoy life, your family and friends, but live below your means. I recommend to save and use the tax free items (Roth, traditional IRA's and 401 k's). Think of high dividend paying low cost funds. It does work and you don't have to deal with realtors, lawyers and mortgage brokers. Good luck.
I agree with Bill W. The whole point is to eventually own the home. As long as you can afford the mortgage the rest doesn't matter.
Who wants a mortgage/rent when they're retired? The housing market is the least of our worries. Try researching hyperinflation guys. Everything our wonderful government has been doing is inflationary: deficit spending, war spending, tax breaks. The dollar is falling against the euro and yen...huge amounts of dollars are being held in reserves by foreign banks (in asia and the middle east) and when they realize dollar inflation here is eating away their purchasing power, they'll dump them like you wouldn't believe and make it even worse. China simply talking about diversification caused a financial crisis in the asian financial markets. Why did our treasury secretary and Bernake feel the need to "visit privately" with China recently? They know China could hold the trigger. Interest rates will begin to go up (rich bankers hate inflation and they much rather send us into a recession raising rates then eating it) to try and counter inflation. If interest rates go to what they were in the 80s, our interest on our national debt will go from 400B to close to 1.5 TRILLION. That's three times our military spending for interest only!! And to who!?!? They'll try to increase our taxes, but the worst thing they'll do is start printing money like crazy... buying our own bonds (because no one else will want to buy them anymore... or to try and hold down the yields... and this might already be happening) and flood our system with even MORE fiat currency. Do the research. Why did the Federal Reserve stop publishing the M3 money supply when gold shot up to $750/oz last March?? Why would they want to HIDE measuring how much money really is in circulation?? Look into it yourself. We'll be able to pay off our fixed rate mortgages easily with the worthless money... but get ready to remortgage when you have to pay your new property tax bill. WE NEED TO FIRE ALL OUR POLITICIANS AND PUT OUR CENTRAL BANK BANK IN CONTROL OF CONGRESS AND NOT PRIVATE BANKERS!! Rome debased their currency trying to pay for a war on terror too. Read some history! Bin Laden is winning... we couldn't even learn from the U.S.S.R.'s mistakes in Afghanastan. Turn off the TV and READ SOME HISTORY. Please America wake up!! Form those relationships and sharpen those communication skills... and maybe buy some silver (no one will have change for gold *wink*). Boy I sound crazy... but these are CRAZY times!
Jeff in Newport Beach,
Thanks for the laugh! It's been a long day and I needed that. Homes are only worth what people can pay for them. Investors do not live in homes. At the end of the day some average Joe has to buy the home. Average Joe's can not afford homes (at least in California). It all comes down to affordability. I'm not super rich, but I have zero debt, nearly $100,000 in cash and I rent. Living in the LA area is not easy nor cheap, but if Japan( with really limited land) can have a 15 year correction, then I think that LA and other bubble locations better hold on for a wild ride.
Some of you people are hillarious! Stock pile food, solar cells, sell your house when its worth something. OY! Get real people. It is as if the world is ending by reading this. Just stick through it, housing prices may go down but land is the best investment a man can have. Get real and look at history! Unbelievable how misled you can be. Relax! Just be prepared to understand your damn mortgage and know that you may not be able to leave your current property unless you sell now for a few years.
Some of the comments on here are making me sick to my stomach. I'm a recently married 28 year old who purchased our first home in November of 2005. It's a little condo, nothing fancy. We put 5% down, as it was all we could do at the time. Now, I'm facing the fact that I can't afford to sell because I can't get anywhere near what I paid for it. I see people on here talking about how they sold their five properties for 1 million in profits, which is exactly why the market is as out of balance as it is. I also see all these people saying what a great thing it is for the crash to come. Have you all forgotten that there are newcomers to the market like me who are going to lose everything? I'm not in a panic since we bought below our means and can afford the payments, but we can't stay here forever and we'd like to have kids before too long. Seems to me that my American Dream was ruined by some of the investors on this very site.
I'm not really sure how bad it's going to get, but the downturn's effect on the rest of the economy is going to be bigger than most people think. I live in Dallas, where prices officially haven't gone up very much compared to the coastal cities. The reason for the lack of price appreciation here is increased supply. Builders have been bringing incredible numbers of homes into the market (we've got lots of land). The result is that, although there isn't a price bubble here, there is an activity bubble. That activity bubble's gonna pop with everyone else's price bubble. I think a lot of the non-coastal cities are in the same boat .
It is simple economics. Supply and demand. With all the subprime lending fiasco and the amoutn of speculation that was in the housing market it was only a matter of time. Your going to see a lot more houses for sale and not enouogh buyers. Worse yet, if the bank is selling a forclosure you can bet it isn't going to be at the market price. They are not in the business of owning real estate. You haven't seen nothing yet. In some places it will be magnified by the local economy. I just recieved my equalized value statement for my taxes this year. It went down.
Real estate is not always a good investment... like everything else depends when you get in. Beach front property in Long Beach, CA which runs about 2+ mil, which with 30% down - $600K and a loan of 1.4 my PITI for 30 year fixed fully amortized is: $8,624 + property taxes of $2,083 + insurance of $500 a month. Total: $11,207.
According this this real estate growth calculator. assuming a 6% real estate appreciation with no drops or dips from this point forward for the next 30 years, the property should be worth $12,045,150 and net equity after all cost (down payment and mortgage cost) of $8,423,415 without the future real estate commission of say 700K to get the property sold so I can get my money out? - vs - renting same house for $3,500 a month, deposting $600,000 in the bank at 6% compounding monthly and depositing the difference of 92k a year into the account for 30 years... end up with 11,386,984.78 according to this calculator minus my 1,300,000 in rents still have about 10 million vs. the 8.4 (or 7.7 after agent cost) of owning. Sure, I did not factor in the mortgage tax write-off or factor in inflation... but if you do the above calculation at 3% average appreciation vs. the 6... home value is 4.9 mil and net equity after all cost is 1,29 mil w/o cost of sale... at that point renting looks damn good! Hey the people that say prices will go flat then continue going up are REALTORS.
Its impossible to NOT have a crash. I work in los angeles, we have all these open positions paying 100k a year (sofware jobs) we cant hire ANYONE who isnt already a home owner OR an H1B immigrant from china/india. And those people are not here to stay (a few will). So how can a city grow when you cant even get people to move here for 100k a year?!?! Please research it - in 2006 coastal areas all have NEGATIVE population growth. Ask a teacher!!! All the local schools have less and drastically smaller class sizes. So real estate goes up?! impossible. I'm only living in LA temporarily, I will flee to wonderful CO after its foreclosure boom you can get a 3000 sq foot home for 180k. really. I see a lot of coastal bias in the comments on this thread. The vast middle of America, where a nice house can still be purchased for $150K, is wondering what the heck a bubble is. Over the years I've watched DIY shows and read the articles in magazines and wondered how the heck an average Joe like me (teacher making 40K/yr) could ever buy into markets that have houses selling in the half million dollar range. A 2x4 costs pretty much the same in Waco as San Diego and the cost of the loan is pretty close. I think the cost difference is in local jobs and housing supply.
So, will the house I have here in central Texas be affected by the bubble? No. It's price will be affected by the local market and supply and demand, and if there's a shortage of supply, the prices will hold, even if the mortgage rates tighten. Look overseas, as one poster said. I'm very familiar with the housing market of Germany and the UK and there, average people will pay what they have to to get into a house. Over there, there's a huge shortage of buildable land and demand for a house, ANY house, far outstrips supply. The chart above shows the disasterous turndown in the 80's here in Texas. I can remember bulldozers going into subdivisions in "oilpatch" Texas and razing brand new, unlived-in houses because it was cheaper to raze them than maintain them until the market recovered. People forget, those houses were built to house oilworkers who left the area. When you look at your area, ask yourself, what will make people leave? Are jobs disappearing? If your jobs are holding and employment is steady, then the speculative part of the bubble won't be so disasterous. The Employed, who need a place to live, will soften any fall in the market, even if mortgage rates tighten, they'll just get smaller/cheaper houses. I assume the chart is for 1998-2003, rather than 1978-2003. Thanks.
The only problem here (if there even IS a problem) is SPECULATION. We don't invest any more in this country, we speculate. We used to buy a home to live in. Now, we only buy hoping the value will skyrocket. We bought stock in a company because it would make a profit selling goods or services, and we would get a share of that. Now we only buy stock hoping the value will skyrocket, we don't care if the company ever earns a dime. That will be the ultimate damnation of our civilization, that we don't make any investment in anything that really earns any real value, we just speculate on the price getting perpetually, artifically bid up. Come on, folks, it can't go on forever.
Especially with more and more good jobs leaving the country! I guess that's a separate story... are there really that many overpaid yuppies among you who are CERTAIN that what YOU do can't be done more cheaply overseas (or not done at all)? I have seen property and homes stagnate at this time..On the border of our town lies over seventy acres of prime farmland that was developed and made into cookie-cutter residences with the dream of quality living..so far only a handful of residences have been sold in the last year...What a loss of prime land for the dollar..
I really hope that housing prices crash, and teach all those retards out there who didn't deal, didn't bargain, didn't try to hold prices down when they bought homes. There is absolutely no reason for homes to double and triple in price over the space of five years than the stupidity of the buyers and the greed of the real estate agents. The American consumer really, really needs to look at the value of his/her income, and not just idiotically say "I can afford this payment" and then allow themselves to be fleeced.
I disagree that "comparing percentage losses makes inflation irrelevant". As an example assume a 100,000 home suffers a 20% decline with zero inflation - loss 20,000. Assume the same situation with inflation at 10%. Loss is the 20,000 PLUS 10,000 on purchasing power of the original 100,000 for a total loss of 30,000. Estimates are that the Fed is increasing the money supply by at least 10% per year. Those dollars will be fully discounted at some point. Add in real life CPI increases, and a 10% loss in purchasing power on the dollar on an averaged annual basis is not unlikely.
38 lenders out of business and HALF ARE IN SO CAL!!
http://ml-implode.com/ These are the HIGHEST PAYING jobs outside hollywood so tell me now far prices will go. Its like 1990 and aerospace layoff in SoCal (remember?) If you dont you better read up. That Rent vs. Own link was great fun. Here are my results:
By buying your home versus renting you will have saved $425,786.42 over the next 10 years I'm buying! Ya'll can sit on the sidelines but you've got to live somewhere and that costs money regardless of whether or not it's your asset. I don't care if the market goes up or down, I'll pay about what I was renting (fixed 30-year term, great rate) and I only have to cough up a small percentage (5-10% of the value today) whereas when you buy stocks you pay 100% of the value. The lower cash out of pocket makes my ROI higher. Hawaii saw a flat market from 1978 to 1997 -- nearly a 20 year plateau. I had a friend who actually had a house he paid $350,000 for in 1978 valued at $250,000 -- twenty years later! Of course, Hawaii made a huge leap up in the last decade to catch up with that flatline period (in part caused by the Japanese stock market crash), but for folks unable to wait 20 plus years, it was zero appreciation! I watched for ten of those years and jumped in June, 1997 and did okay. But I really felt for those who were in that market and trying to sell their properties. A lot of "no money down" bargains...
One thing that many here fail to see is the unknown demand that sitting on the sidelines. After real estate prices went crazy in major cities, young 20 somethings that earn middle class wages can't afford to buy a house, period. I'm nearly in the upper tax bracket and our price range had us looking at little houses in shady neighborhoods. I know plenty of people that cannot get into the market. 10 years ago, these people would have been able to get a nice house. This phenomenon has been going on for several years and the number of people in this category are building up. Once prices on the low cost "starter" homes decline a little, more and more of the younger generation patiently waiting will be able to get a house, because the numbers are there the low end of the housing market won't fall off too much. The previous folks in starter homes have an easier time moving on into houses whose value has declined more than theirs. The market will flatten, low cost homes seeing very little change with the change growing exponentially, so the top end homes will see gigantic losses. Sorry baby boomers, but your crazy spending spree from a few years back that kept us out is dying down and now that we are getting our chance, prices will plummet, at the top.
You people need to go back to school and learn to spell properly.
Dear Pat,
We're all gonna die, this it, the end of the world..... My grandson is a senior in college majoring in real estate...I sent him these comments..he surely will find quotes to try on his prospects...thanks folks.
Hey Nigel,
Almost everyone recognizes by now that employment statistics are pretty worthless when you consider that the number of jobs being created is less than the number of potential workers. Furthermore it says nothing about the quality of jobs created. That fact is that "The number of workers remaining on unemployment benefits rose by 48,000 to 2.576 million" (From the article you cited). The government doesn't track those who've run out of benefits. It doesn't track those entering the work force for the first time who can't find employment It doesn't track those who are ineligible for unemployment benefits because they work freelance but can't find enough work. More and more people are falling into this last category. The economy for regular people sucks! Bye bye snowbirds! In S. Florida, when you combine out-of-control property taxes, outragous property-insurance, and a median housing price of over 350K (for a dump with a blue tarp for a roof), you get housing that is almost California-like in it's unaffordability. With added inventory on the market due to the relocation of storm and insurance-weary snowbirds coupled with speculators just trying to get out, there may be an even greater drop in the Florida real-estate market. Come-on bust!
This article is low quality. The title is very scary and when you read teh contents its based on simple speculations. I noticed that most articles related to real estate on this site are low quality. When the major banks think their risk is well contained with 20% down (i.e. no PMI) it means teh big wigs are not counting on worst than 20% drop in worst case. Or in other words the banks won't allow a drop of more than 20%. Also, buying in real estate was always beyong the means of first time buyers even in the 1950's when a home was 20,000 - this figure was too much for a new buyer then.
The mortgage market was fueled on unrealistic greed, they all get what they deserve in the end
It would be very interesting to see what happened in the prior 5 years in each case, and the following 5. By just taking the worse case, you are fudging the case a bit. It is very likely that each market corrected after such a drop. Certainly LA did.
LEt 'em fall as far as they can! I live in the San Francisco Bay Area where the average 1 bedroom ranch house costs $500,000 or more! Let alone a bigger house in a desireable neighborhood! So from my perspective, property is totally unaffordable for 90% of the population in my area. As I want to buy a house some day - I'm overjoyed at the continued drop in the housing market!
Someone posted "But again, dont underestimate the resilance of the entire US economy"
I keep hearing this and it drives me nuts. The worth of the US economy is in the PERCIEVED value of the dollar, not it's real value. Come on, look at the trade deficit. How much longer can one keep spending past income? If it ever got to the point that the rest of the world's vaults are so stuffed with dollars that they don't want any more, how could this country's economy continue to function... So... is resiliency equivalent to China financing the US economy? "Doesn't help when CNN, particularly your housing correspondent Chris Isidore, keeps crying wolf 2-3X a week. No other business site spends more time on "gloom and doom" theories about housing than CNN. Look, let's be real -- After years of double-digit growth nationally, things were bound to slow down. Like everything else, it's cyclical. Let it go and stop getting everyone in a panic -- just to grab attention and click-through rates."
Best post yet. Find the same stories on other web sites and CNN's is almost without fail the most apocalyptic. They seem to find the worst bit in any report that comes out and that's the header. Most of the posts here are from markets that are / were so hyper-inflated that people who wanted to own homes were forced into the sub-prime market, and they will pay the price, as will the markets that they are in. Finding the worst cases, throwing it at the wall and using it as the model for the market as a whole is ridiculous. I run a foreclosure company in Orange County, CA. I can tell you that I have seen foreclosures increase at a near exponential rate. It is not just the 80-20 high risk loans. It is spreading. Affluent communities that were once considered "safe" are foreclosing at higher rates that middle-class communities. I watch banks like Countrywide eat $5 million in loans when outside buyers refuse to bid. The coming years are going to be bad, mark my words.
I can't understand why no one else I know, did what I did a few years ago. When the interest rates were the lowest, we re-financed our house from a 30 year fixed to a 15 year fixed. I now have a payment less than what it was before, and add principal to every monthly payment. I'll have a house paid for by the time I'm 40.
All of my friends went out and bought 400K to 600K houses with HELOC's and "creative financing". Their payments are now three times what the bought at (due to rising interest rates), and their house is worth less than what they paid for. I really wish new buyers had to go to a class to understand what they are buying and how the financing works. If they truly understood what "creative financing" gets them - who in their right mind would sign the doc's! My house was worth 320K 9 months ago, now appraises at only 240K. Who cares - I'll own it outright in just a few years. What is also missing is the cost of ownership. At a minimum it is the Taxes per year and the interest cost. If you buy house for 100k and sell it for 207K a year later with no comission you most likely lost money since you paid a years worth of interest and taxes ( ignoring the use benefit) It is the speculators wh owill be driving prices down in the coming months as they are caught in an overssupply situation and the carry costs are piling up.
We bought a condo in 1987 and sold it in 1989, making a 66% profit. Boy, we were so proud of ourselves! We bought a house in 1989 out in a lovely town in the country. Then came the 1990 recession, I lost my job, and the only job I could find, after 8 months of trying, was an hour and a half away. I did the commute for three years, then we gave up and sold the house in 1993 at a 30% loss, and walked away with virtually nothing at all. That's why I roll my eyes when my compatriots coo about their great home equity loans. I know the bad things that can happen. I finally have a house again, and I'm not touching that equity. If I need something, it will have to wait.
i'm glad i'm rich
I am so glad I do not have a doom and gloom crystal ball sitting on my desk! Everything is cyclical - PERIOD! FYI - go back and read some of the Real Estate headline articles as far back as the mid 1950's - same stories - different year! Just remember to look where we are today!
I bet most of the people up there are "homeless", and can't wait for the prices to drop big time. It won't happen folks! Especially not where you want to live. Nobody's stupid to lose money. So you may have to wait another 5 years and still pay the price I want.
A home is a liability not an asset. An asset makes you money. Unless you rent out your home while you live there, you live in a liability. Yes, you do get a tax write off but you also pay for up keep, furniture, utilities, property taxes(which have been going up). The only way you make money on a house is if you sell it, but then you need to buy again(you have to live somewhere). The way to win the game is to have more assets in your life than liabilities. And if you live in a house, it's your home, not your golden egg.
People like to hear news about housing market crashes now-a-days. CNN news editor understand this "need" and keep writing stories about impending doom... after all you need somebody to ready their articles. Dont believe me? Keep watching the "Business" headlines section on the main cnn.com page and count the number of negative housing articles versus others.
honolulu down 15%+. Where are you getting your numbers and why do they end in 2003? Why not continue to the present? A $35,000 piece of land in Honolulu purchased in 1978 would be worth well over a $1,000,000 today.
Yes, real estate is very local. For instance, in Kansas City as a professional couple one can pull a family income of 100k/yr relatively easy. An entry-level home can be had for about 150k. A nice new home can be had for 220k. That is still well within the limits of being affordable.
Compare that to Phoenix where we live now. We moved here a year ago and against everyone's advice, did NOT buy. If we could not afford (or chose not to afford) a 200k home in Kansas, what would magically make us afford one for twice that in Arizona? - Nothing. This is the big difference between markets. Some areas will cruise on alright while others will suffer. I keep asking my wife, if the median income of a city is 51k/yr how many families make 150-200k to be able to purchase a contractor grade POS home in a bland subdivision? Where does the average working professional live when all homes are priced at the exec. level? My condo rental property in N.J fell below 20% value (purchased price) back in later 90s. It was very disappointing, but I hold it out and now is Ok. All paid off and income generatiing few $$$
The truth is finally coming out about housing. The prices can not only fall 10 percent...they can fall 100% percent! That's right, at some point there can be zero demand for housing. Remember, housing is non-fungible -- you can't buy half a house. So, if everyone who wants a house, has a house, then the price is zero...because you can't sell it. And if you want to sell it and you're paying money on it -- then it might be worth your while to pay someone money to take it from you! Yes, that may sound strange to people brainwashed by real estate agents, but it's true market economics!
Looking at the worst data from the past could actually be an optimistic view under the current circumstances, because we have NEVER had a peak that was preceded by such insane lending practices. The credit situation is already deteriorating and the vast majority of mortgages with resets have not yet begun to reset... there's over a trillion dollars of mortgage debt that has yet to reset to higher payment levels. The iceberg is in view, but we still haven't hit it.
Resist the urge to compare a bubble in the housing market to the only other bubble most of us know, the stock market. Stock prices fall fast and furiously because of the ease and speed of computer trading. One click on the keyboard and the problem is gone; trading programs and stops speed the process. Housing is different because it is difficult to sell a house with the primary reason being the problem doesn't go away, people have to have a place to live and rent is generally still higher than a house payment. As for the high inventory of homes, many who list aren't serious but if someone is willing to give tham double what the paid for it two years ago of course they'd be happy to sell.
All you doom and gloomers need to wake up and smell the compost. Real estate is not going to severely correct because compared to the DOW and other investments it didn't run up that much in the first place. Average home prices in the mid-1980's were in the 80,000 range for a city like Seattle. Today they average 400,000. During the same time period the market ran up from 2000 to 12,000, a 6-fold increase. So if you're going to argue the value from an investment standpoint they aren't that over-priced.
I learned my lesson in the oil crash in Houston during the '80's. House I bought for 60G was worth 35G in 1985. I had a nice job offer, but I had to relocate to Austin. No help from the new company-move it or lose it. So my New England sensibilities had to be put on the back burner-gave the house back to the bank. Made a nice living while living in apartments for 15 years. Decided to retire, bought a house in Vegas in 2001. 20% down, 15 year mortgage. Low taxes, mild/hot weather, cheap utilities, strip view. Yes, I had to endure knowing that my credit was crap for 7 years, but everything turned out peachy. Most of the real estate moaners, IMHO, don't want to move (the schools, the neighbors, the neighborhood, the job, boo-hoo). So stay in New England or the Midwest, slog through the snow, and wait for the next boom-and stop bitching-you asked for it, by planting your ass in one place forever.
What raised home prices was private investors (e.g Blackstone) artificially bidding against ordinary people. After they can not squeeze out more cash from Americans now they are leaving the US and going somewhere else (e.g. China and India). This left Americans fighting for their lives.
These large investors consider themselves citizens of the world and will protect their buying power. So if the US is not giving them good returns they not simply move somewhere else. Just sad reality of capitalism. I am not a real estate expert, but I can't identify any reason to be be optimistic about a near-term recovery . I think the growth rate in the U.S. population is either stable or declining; more baby boomers are downsizing their homes; marriages are being delayed until later in life and household size is trending downward; the ratio of home prices to incomes is at an all time high; consumers dependent on wage income see ever smaller annual pay increases absent promotions or job changes; big-ticket energy, education and health costs erode disposable income at an ever-increasing rate, and the immigration pipeline that helped to sustained the housing market during the 1990s has been effectively cutoff either due to lower immigration rates or fewer illegal immigrant purchases (above the table or otherwise).
If you factor in tightening credit standards, possible interest rate hikes later in the year that may make home ownership too costly for some who would otherwise purchase, and buyer-slowdown due to rising perceptions that bargains can be hard for those willing to wait it out, what prompts a recovery? I don't see any changes in the near future in any of the conditions I just mentioned. The numbers don't add up to a recovery for me. Can someone point out what I am missing? Hmmm could this be because more and more 20somethings are paying large loans taken out to pay for college? or possibly 20somethings are not marrying at an early age like the boomers? With an entry level position, college loans, and gas prices I for one am a 20something destined to stay at home with my parents for quite some time...
If you think housing in the US is overpriced try buying in France, or Spain, or Italy, or the UK. If house prices in the USA continue dropping they will just get snatched up by Europeans who are looking for dirt cheap vacation homes.
To tell you how crazy an insane it was, a clerk in my company making 28,000 bought a house in 2005 for 380,000 dollars with no money down! If you want to call it a house - located in a bad area, unpaved road, simple raised ranch with no backyard! So many stories like this.......the loose money policies were a fraud and the uneducated, unwise, and untruthful, all came together to create the perfect storm. The housing market in RI is slowing coming down, and now with the funny money going away, panic is setting in. As someone making 145k a year and renting, I can't wait for a real opportunity to arrive and the correction to make things the way they should be!
This might be a tad offtopic but as someone who hasn't bought a house yet but can certainly afford one, I'm very turned off by people upgrading houses with options I don't want.. such as throwing in a plasma TV then jacking up the price 5 grand or adding marble counter tops.. how about taking out the fancy stuff that you might have a preference for and leaving the house alone so its more affordable. It's akin to people souping up cars... What you might consider nice and would gladly pay for might not be what most people want
Everything I read in the way of comments to financial articles screams the same thing: it seems that every American citizen is a financial wizard, has stocks (aside from those incorporated in their 401k funds), and has incredible knowledge about the real estate market.
I am happy at least to see an article that is not all "happy news" (i.e. wishful thinking). I am just an average person in a one income family. I am no financial wizard and have made some bad, though not devastating, financial decisions. We DO own our own home and shun credit cards, and subscribe the now "prehistoric" notion that most debt is bad for people's over all peace of mind and contentment. As an "ordinary jane", I can observe that, though I have limited financial knowledge, I do have common sense, and even a moron knows what he can and cannot truly afford. There are two groups to blame in the coming horrendous decline of the housing market and the over all economy - lenders of all stripes -the loan shark banks, credit companies, and mortgage lending agencies- and those who, though they want so badly to consume,deep down inside, know they cannot afford it. The goal in life now seems to be "get it and get it now". The fall may not be so bad, but the landing will be terrible. And average janes like me, who try to soncume only what we can afford and take on debt as little as possible, will also have to take it on the chin for the bankrupcies caused by all the financial wizards. Thanks a lot, oh brilliant ones. I have been predicting this bubble for 2 years now. It is of no surprise to me.The only thing that saddens me about all of this is that I dont think the housing market or anything to do with the economy will ever bounce back.Ther are too many new variables in the picture,including a government that hates Amerians.
I think sometimes people don't look at real estate for what it relly is. For most of us it is purchasing a home to live in. A home you can afford and that's how you should make the decision when you buy. Can I afford the payment? Are there factors (ARMS ETC) that could impact my ability to stay in my home? People, live within your means.Don't look at your home as an investment in terms of cash. History tells us real estate always goes up and down, so make sure you make decisions based on what you can afford today. Don't look at your home as a financial investment think of it as an investment in a home for your family. If the value increass, thats a bonus. If not,you have not lost, you have a home for your family.
Bought my house for $300K in 2003 using a 4 year fixed ARM. That ARM readjusted this month and GHASP!! my monthly paymen went up $203!!!
Gee wiz, guess I'll have to declare bankruptcy huh? Oh but I make $30K more today than I did back then, so hmmm maybe not. The sky isn't falling folks. This is a wake up call for Corporate America , that concentates so many jobs and employees in one region or city. Look at the New York Metro , the number one Terrorist Target in the world. A concentration of population which is impossible to evauate but yet Corporate America continues to grow its job base there escalating population and housing costs. Ofcourse if there is a downswing in the economy these Super Cities are hit the hardest in real estate prices. Its simply a reality check.
I'm just amazed at how complicated people in the media make this. It's not very complicated.
Housing (like stocks, bonds, commodities, currencies), goes up and down. It's gone up and down since the beginning of time. A decline in housing is not new or unexpected, the way SARS is a new epidemic. The media and politicans like to gloss everything over and pretend no one will ever get hurt by anything. Of course people are going to get hurt, we had a wild boom. What other end result would you expect? The idea that housing goes down because of "downward stickiness" is lunacy. Try telling Japanese homeowners that prices went to down because of "stickiness". Its like anything else, if you can't make your payments anymore, you're going to have to sell. The reality is, a bunch of people bought houses they couldn't otherwise afford. It'd be like a middle class wage earning buying a $75,000 BMW. Instead of a normal lease, the payments were "creatively" stretched out. Everyone rushed into the BMW dealership, happy as can be. But now, payments are going to start doubling, tripling, quadrupling, the creative financing dept of the dealership is closed down, and a bunch of people are going to find out they can't afford their new luxury car. THe end result will be a mess, people will swear off real estate, there will be tons of investigations, there will be fines and hearings. Just a disaster. Why is everyone worrying? Houses are going on sale. This is where the real investors step in.
Purchasing homes is the only sure way to acquire great wealth.
It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase. Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas. This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent. When the stock market crashed everyone overloaded their credit cards. Credit card debt is out of control. The only saving grace most people have is their home. The Fed can NOT afford a major crash, a strong correction - yes. When things get bad look for mortgage rates to correct with tighter application requirements. It will be painful but a payment is a payment.
My goal was to have my mortgage paid off. I started with a 20 yr. fixed rate loan in 1991 with a monthly PITI of around $900/mo. at around 8.5 %. Refinanced a couple of years later to a 15 yr. fixed at 6.5 %. My monthly payment was virtually unchanged, but I knocked 3 years off the term. My mortagage balance was down to about $50,000 five years ago when I took 20k out of IRA's, plus 30k from non-retirement accounts and paid it off.
Was it the "smartest" use of money? I don't know the answer to that. Some would say keep the relatively inexpensive, tax deductible 6.5% loan and invest that money; some would say that paying the 10% penalty on early withdrawl of IRA funds was stupid. Perhaps. I do know that owning my house free and clear with no monthly payment is a good feeling. Very good. I realize that I have been very fortunate in that health or employment matters did not interfere with my goal. I also know that I never looked upon my house as an ATM machine by continually borrowing more money whenever it's value "increased"--either in reality or in the mind of some creative financing mortgage lender. I have no idea how this latest sub-prime debacle will play out. I know personally that the market value of my house is of very little concern to me. If this spills over into the economy and stock market, then it will no doubt affect my investments and perhaps my employment situation. Everyone is writing about how affordable the housing market will be. When will I be able to see this. I understand that it will change but as I continue to wait and wait I still do not see it. Let's get some predictions from some of you that know about the market.
People...get ahold of yourselves!
This is the same old story...media headlines drive mass hysteria. The same thing happened in the dot-com era run-up and subsequent meltdown. The key to boom and bust cycles is to keep a cool head, gauge the opportunities and "silver linings" that will inevitably appear. The people that dumped all their equities after the '01 market crash locked in their losses and have terrible stories to tell. The people who read the current crop of media 'doom-and-gloom' reports on the sub-prime liquidity crisis and sell their valuable real estate at fire sale prices will also have tragic stories to tell to the 24/7 media machine (talk about free therapy!) The street-smart solution (both mainstreet AND Wallstreet) is to hunker down and HOLD ON. Yes, you may not be able to buy that new car you wanted or go to Aruba AND Vail this year, but let's face it people...we, the people who own assets CAN afford an extra $1,000 per month if we make the effort. The vast majority of the total outstanding mortgage balances at the national macro level are NOT sub-prime or exotic liars loans as the media headlines would make the average person believe. Real estate in the U.S. is inherently valuable because of the stability and long-term security even the most craven skeptics will admit are ours in this Republic. The proof of this are the hundreds of billions in treasuries, securitized mortgages and debt financing via derivative instruments that foreigners on all shores have continued investing unabated in American assets for over 100 years...during booms AND busts. In closing, I will admit wholeheartedly that I am a property owner with vested interests in both Colorado and California. I own a total of 20 rental units in 3 different properties as well as my own home. Anyone who tells me I should "dump" my properties because I have to pony up a few extra hundred dollars a month per mortgage is just another of P.T. Barnum's "fools born every second." This is the time to suck it up, cancel that extra weekend in Marin or stop getting your pedicure and manicures while sucking down $5 dollar coffees every other day...come on, people...life just AIN'T THAT BAD!!! Plus, five years from now, this "crisis" will be old news and I'll STILL be sitting on a cash-flow machine that brings in damn near $20K per month gross. Just because I have to work a little harder and stretch bills out a little longer, in 10 years those properties will be worth millions (at least) and the cash flow will be more than half mine. Get a GRIP and don't give in to the hype! Cheers, DB Denver, CO Huntington Beach, CA Typical investors. Buy when prices are high, even though every smart advisor warned against it, then cry like a baby and sell at the low. I get rich off of fools like you, seriously.
P.T. Barnum was correct...it is sad that there are too many suckers that should have been protected by due process from the lenders...is it let the buyer beware, or a fool and his money is soon parted? Me? I sold and now rent and thank the fool who bought my over-priced house (for cash no less).
Thank god the days of 50% interest only housing ratios are coming to an end. The crazy lending just qualified people who couldn't afford the house and drove up prices. Now that they can't qualify for a refi, their ARM bumps will put many into foreclosure. I'm glad the lenders are going to get hit because they created much of the problem. Unfortunately, the stupidity is not over yet. New Home Builders are still managing to find buyers by offering modest upgrade incentives. I'm shocked that people are still chasing new homes in the Bay Area. I fear that inventories will need to get much worse before the Bay Area buyer puts on the brakes. I suspect it will be a slow death over several years before the market tanks. As long as employment is strong and rates remain low, the market correction will likely be cushioned in the near term. Has anyone thought about demographics? The last of the baby boomers have bought their move up house already...
sounds like many people here missed out on some good investing during this long overdue realestate boom. Hey, I know sorry losers when I hear them. I bought & sold over ten homes over the past 8 years here in Florida and set my family up well. I now own a home on the Indian river 5000 sqft indoor pool & the works . I paid 600k for it last year. 4800 property taxes, 5000 yr insurance. You find a cheaper place to live like this and I'm all ears. Florida realestate bubble my ass. The best place in the world to call home. Ranked 39th in the country for cheapest taxes. Bubble? You people watch to much TV. The world aint coming to an end believe me. In fact you will kick yourselves in the ass for not taking advantage of these great deals right now. Oh yeah, you didn't buy before the boom so your definately not going to buy now. No risk no reward is how the wealthy get wealthy. Go against the grain and you will find the pot of gold. Media has an agenda and is run by the smooth politicians. I went from $500 bucks in my pocket in 1989 to over a million today by taking risks. I have no education to speak of, just a strong will and dream to be the best I can be. If all of you people painting this doom and gloom picture knew how many investors were smelling you blood right now you would be amazed. I can smell it, I'll wait till it's an all out panic then I will pounce. Sorry for sounding so cold but if you only knew. You wonder why the rich get richer? It's simple really, they feed off the weak. I see plenty of weak hands right now. Time to add to the soup bowl. Good luck all.
I bought my house for $280000 last year in Salt Lake City. I just sold it for $5.71 so I'm pretty sad.
The debts in U.S. are on two bases, the individual debts and the national debts. The individual debts are mortgages, credit cards, home equaty loans, etc. The national debts are U.S. Treasury bills and bonds. Let's find out where all these trillions of dollars come from? For mortgage and equaty loans, the lendors bundled these loans then sell them to hedge funds, pension funds, mutual funds and big foreign investors (includes commercial banks). These funds and investors expect a good interest return. Freddie Mac and Fennie Mae are the two largest lendors among them. The availability of trillions of dollars helped fuel the risky housing bubbles. The lendors expect the borrowers to either work hard with steady good pays, or refinance when the house prices increase. Now the house prices do not increase as expected, the only savior for their investment are the steady jobs with good pay. This applies to ALL kinds of loans, prime, Alt-A, sub-prime, etc. Since the global economy and U.S. job market are still seem to be healthy, the big finnacial institutions on Wall Street and golbal markets are not in a panic mood. Now we start to look at the huge national debts, which is fueled by the huge trade deficits owned by many foreign central banks. For as long as we Americans spend irationally, the big global economical wheel will keep turning and feed our dollars back to us as national debts. But unfortunately, the big easy money (i.e. home equaty loans, credit card debts, etc.) is getting exhausted. That is, we Americans are spending less and less, as everyone can easily see. The slowing down of global economy will erode away the U.S. job markets and good pays. Folks, this is the real killer which will slowly pull the only remaining leg from the real estate markets. Now can you see the gradual long drop of house prices in the next 5-10 years.
I am not a doom sayer, instead I am an aggressive multi-million investor for the last 30 years. I believe in real estate, I rent out the S. Cal. ocean front complexes, I sold the Del Mar houses in 2005 and exchanged into four plexes West of I-5. In very few isolated areas it's bubble proof but the majority of the red hot areas from 2004 are subject to a painful long decline in prices. I suggest those current house buyers to be VERY cautious. It's better to stash cash in CDs or commodity ETF when you can not find a super bargain. Take me for example, I live 1500 miles away from S. Cal in a cheap place, and I am very patiently waiting while gethering resources. Many young men/women can see this is your first big chance, just don't hastly waste it. No one should be suprised that bankruptcy laws were changed to make it harder to be clear of financial problems. This has been a setup that we've all been suckered into by all of the credit card companies and banks. There's a reason that our grandparents and parents very rarely if at all, used credit. It can get you into a lot of trouble. This is the endentured slavery of the 21st century.
Another attack of our 'Media of Fear'. While I am sure that Mr. Regnier is an experienced journalist and Money is respectable publication (I am personally a subscriber), fact remains that most of the media is enticing viewers, readers and bloggers while leaving some keys facts on the table.
Rarely is there mention of population increases, personal income increases, booms of immigrants coming to the US, or what continues to be historically low rates for borrowers. Compare inflation figures? Try comparing population figures. There are 55 million more people in the US in 2000 than there were in 1990. And we question why we had a real estate boom. Blame developers? Sure they are an easy target. What business doesnt make a double digit profit? How about the clothes you wear, car you drive? What is the markup on that Latte? How about local governments who cant hire qualified people, cant get the regulations straight and continue to raise regulatory fees? Are they to blame for a percentage of housing increase in major metro markets? Lax lending is the pitfall of the US economy. It is the Ghost to your PacMan, gaining on you constantly. However, real estate is a tangible asset, a field of dreams, if you build it, someone will show up. Yes, some markets are overbuilt, the Southwest, Florida. But where there are jobs, it is a basic supply and demand calculation. Are some in over thier heads, sure. Probably the same people that are upside down on auto loans, is congress going after them? What about credit card companies and the ratios of personal debt to income? 60k salary with 30k due to Capital One at 14%? What did we do with that 30k anyway? Ah. Is Johnny Repoman going to come and foreclose on my tan from Bermuda and my gut from all of those restaurants that I frequent? Is he going to give me a raincheck on my alcoholism? No. If you think that you are getting in over your head. "Read about it". Since this turning out to be an era of unbridled greed and unscrupulousness, is there any chance that we will see insider abuse in the foreclosures market? In other words, bank employees, credit agency folks, pvt equity etc. abusing their access to inside information to corner creamier properties? I there any thing regulators can do to preempt potential for fraud?
Real estate hasn't historically been very volatile since returns haven't been very high in that sector. It's your basic risk-return trade-off. But that relationship can change, and now that we've seen big jumps in returns to real estate, volatility might similarly increase. In sum, given an unprecedented run-up in real estate prices over the last few years, who can accurately predict what happens in the opposite direction?
Come on now. Can we forget the baby boomers? What about the baby boom echo? That's a huge population anomoly looking to buy retirement and first time homes. Plus the amount of foreign investors that still have an appetite for our bonds are keeping mortgage rates relatively low. I just can't see a crash like you are talking about. Sure a stabilization is under way but no crash.
Seeing and being use to a slow growth of 4% per year in my area in both construction and housing it is easy to see how some area's that have seen huge jumps over 10% per year to feel a major pain when in 2 or so years the market takes a crap on them. Being lucky enough to have bought a penthouse condo in the early 90's at fair market value for the time I can now sell cheaper than my neighbors and make a nice profit of 56% going by current fair market value. My other real estate investments have been trimmed also. I went from a total of 14 rental houses (mostly section 8) to zero in 2 years time. That maney was placed in Mirant stock when they went bankrupt and the price was low. Now that small investment has grown from 15 dollars a share buy in to a little over 38 dollars a share today. I tend to have a strange investment strategy though. I only invest in public utilities, liquor and beer, and tobacco companies. Seems no matter how bad the market gets everyone needs electricity, and when the economy gets really bad people drink and smoke more also.
Most of the people writing here live in places that suck. No wonder you are so down. The towns are dead-end and boring so of course you leach onto the gloom and doom headlines like this one that grabbed all of our attention.
I live in Naples, Florida!!! Real estate here has not declined. Prices HAVE risen and the market here is realistic. We have gorgeous beaches, sun almost all of the time, more golf per capita than any other place in America, tennis everyone, boating, no snow to shovel, more cleavage to see than anywhere except the beaches of Rio. That, friends, is worth money. Guess what? All of those things are here to stay and improvements to our area make it even better all of the time. There are plenty of rich people who want to move away from places that suck so they continue to move here. Go ahead, wait. Rent. Lament. People here who own will happily sell to you later for more money. So many people think they are economists and analysts. It's all wishful thinking. Buy a home when you want one and LIVE there. I bought my first house in 1991 because we needed a place to live. It was $165,000 and I was scared to death. What a mistake, I kept thinking, worried it would get taken away. 12 years later I sold it for $910,000. I love the people who rent my other two homes because THEY pay my mortgage. If you think you can flip, you are a moron. Real estate is a long term investment. Will Rogers said, "You don't wait to buy real estate. You buy real estate and wait." That's because there are plenty of people too scared to buy and end up paying even more later. Sunny beaches, boats, boobs... it's all here. Also, one of the strongest job markets in the country. Stay where it sucks. You deserve it. I live where you vacation. Don't agree with the article, but great comments from both sides of the argument. One thing to keep in mind that humans tend to have this "herd mentality". Just like those do-do birds or lemmings, we blindly accept comments from others and follow. STOP AND THINK FOR YOURSELF FIRST! It doesn't take a rocket scientist to recognize that we were living in a borrowed time, but instead of "oh-my-god, the world is ending" attitude, do what YOU CAN to fix the situation:
1. If you have ARM, refinance now to a fixed loan. 2. If you are upside-down and have ARM, call you lender now to arrange for a fixed loan. They rather lose $$ and refinance your loan than lose $$$$$ and get nothing 3. Get rid of your Hummers and Suburbans to save money on gas! There is absolutely no reason why 9-5 office people and soccer moms to drive these mack trucks 4. If you make $4000 per month, don't be an idiot and spend $5000 on crap like HDTV, hi-def this and hi-def that. The bottom line is to live within your means and turn off all these chatter box journalists. Yes, the real estate market COULD crash 20, 40, 80%. The only recourse for you is to suck it up and prepare as best as you can. Good luck! I bought a 1 bed/1 bath condo 1 block from the beach in 1994 in Long Beach CA for $49,000 !!! Imagine that!! In 2004 I sold it for $275,000 and then got transferred to Phoenix. Bought a 2bed/2bath condo for $62,000 in cash. I'm mortgage free ---yeahhhhhhh!! The place is now doubled in price but I can see the prices in the neighborhood have gone down a bit. But, I dont care--I'm mortgage free and dont have to worry about all this drama. However, if the prices start to plummet further I think will pounce on a foreclosure for a rental unit for extra income. I think the worst is about to come in the next 2 years and opportunities will be everywhere----get ready investors!!!!!!!!
Way to go DB from Huntington Beach!!!
The only way to know if prices are going up or down in a market is to graph the $/sq ft vs. square feet of recent sales vs. the same period in past years. On this basis, the prices in my town are flat, as they are in many other towns nearby. The median house price number that everyone uses is useless for determining what prices are doing. I do think there will be downward price pressure, but not the catastrophic drops written about here.
look folks...
This is going to get Bad and Ugly I mean real bad. We are on the Cusp of another Great Depression in this Nation. This one is going to be worse than the Great Depression of the 1930's If we lose 1/3 or 2/3rd's or more of our nations food supply that is predicted as a result of drought, the loss of our honey bee's and other new agriculture diseases that have recently inflicted our nation. Not to mention the absolute foolishness of wasting our nations food crops on Ethanol. you will be lucky to get a loaf of bread for your house as tens of millions could be starving to death as our nation faces it's first recorded Famine in it's History. Its nobody's fault but those who took the risk of borrowing more than they could afford. For those blaming Realtors (I'm not one), guess what, they want you to sell quick and cheap not sit on the market for the highest price possible. The seller wants the high price and was bumping it up.
America is full of material gluttons who are trying to live the lives they see on TV. Go buy a friggin mirror and get clue. If you aren't paying cash, you probably can't afford it. That applies to anything! The solution is simple: Rent your home.Buy or build a country estate in South America(at $22 a sq.ft)and retire off shore. We've outsourced everything else, why not outsource the good life. I have,
For those of you that read it, the Wall Street Journal had a great article last week in their monthly "Your Money" section. To paraphrase, a home is a bad investment. I fully agree with this, yet I expect to be a home-owner until I am buried. The reason I don't worry so much about prices going up or down is that I intend to stay in the same market long-term. If I sell in a down market, I will buy in a down market. If I sell in an up market, I am forced to buy in an up market. Over a 40 year time period, I figure I end up OK. I live in a home I can design around my needs, I take advantage of the tax breaks, and I sleep well at night knowing a portion of my monthly payments are going back in my pocket. If you are planning a big switch in geography within 5 years, particularly from a lower priced to a higher priced market, probably best to rent. Same way if you are planning to need money in the next few years, don't tie it up in stocks. The simple reality is that in the long-run, it is good to own a home, there are very few sustained 30 year periods that have seen price declines. The only ones that really need to worry about fluctuations in the real estate market are speculators.
None of this matters if, as a buyer, you were buying your primary residence and you wisely chose a fixed-rate loan with mortgage, property taxes, and insurance totalling not more than about 25% of your stable monthly gross income. So you won't become rich overnite, but you'll live comfortably your whole life. The moral is to avoid doing stupid things in your life.
I can't believe all the Chicken Little's here. Yes, the housing market is due for a decline, how big is hard to say, 20%+ may well be in order and if you calculate inflation etc... the real losses will be bigger. HOWEVER, you still need somewhere to live. S.California's economy for example is much more diverse than it was in the early-mid 90s, desireable areas will always command a good price, you can't build on already developed land! The good news in my book is a decline offers future buying opportunities and with the Prop-13 tax benefits in California, buying at a lower price is an even greater benefit. Prices/Rents will stay solid if you live in an area people desire to live. Sub-prime woes are overblown and the companies who are now suffering, have no one to blame but themselves.
Hooray! Looks like a it's going to be a nice time for a first time buyer like myself to jump on the home-ownership bandwagon - being careful to avoid "funny financing" of course!
Nice to see CNN *FINALLY* catch up to web-sites like PIGGINGTON.COM and PATRICK.NET. You know only a couple of years behind the curve.
Anyhow, previous commenter noted if housing goes down, stocks will too so why count on that? I tell you sir, I can sell my stocks in a matter of minutes. How long will it take you to unload that KB-manufactured stucco albatross? A lot of stickiness in prices right now is people waiting for the promise of spring sales to bail them out. When they hear nothing but crickets chirping this spring at the Open House..... well by the summer is when the collapse will become GLARINGLY apparent to everyone. The emperor has no clothes, too bad it took everyone so long to catch on. It's not a loss unless you sell and take a loss no different than with stocks. If your playing the short term the risk reward is always going to be higher. If your playing the long term then you have much less to worry about. Similar to stocks there is alot of money to be made when people panic. The job market is better than good therefore people will buy and or stay in the homes they have purchased over the last 5 years. Unsold inventories are dropping not increasing. The subprime stuff accounts for a max of 10% of the market and the subprime troubles are primarily made up of people that purchased in the last 90 days and haven't made a payment...that's right they purchased less than 3 months ago with a credit score under 660 and haven't made a payment.....so the mortgage gets kicked back to the mortgage company from the investors which causes a problem because the Mortgage company doesn't have the money to buy all these loans back. It's a more recent problem where some aggressive/greedy/un-wise mortgage companies got caught with their hands in the cookie jar and simply don't have the cash to float these bad loans they made. The Gov't/Fed has been in there as well trying to make these alternative loan products available to the less creditworthy in the name of equality. The markets that are getting hit the hardest have been the ones that had the greatest rates of inflation. On the whole retirement issue we just had someone with our company retire who bought there house in 1973 for $55,000. They just sold it for $1.1million in a down market. Was that a bad investment. 33% of homes in the USA are owned outright and 57% have traditional fixed rate products which accounts for 89% of the market(facts courtesy of the WSJ). So someone is going to tell me that 100% of the 11% variable rate subprime mortgages are all bad and going to cause values to drop 20%-50%. What really will drive the values down is the loss of jobs or significant wage reductions or the media needing something to report on. They move stock prices at will and they move house prices as well. Simply follow the money and figure out who is making money on all this and then you will find the responsible party for your property value declines.
I watched a vacant home here in KC go from $142,000 in July all the way down to $95,000 currently. Still vacant, and there are many similar properties in this area that have seen the same drop in value. I wonder how much I should low-ball the mortgage company who owns it? Any suggestions?
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