U.S. housing boom could turn into bust

[lovuian]

http://feeds.bignewsnetwork.com/?sid=f706dbb2f8f175aa
Big News Network.com Wednesday 4th May, 2005 (UPI)

Risky lending practices have fueled a boom in the U.S. housing market that could turn into a bust, the Federal Deposit Insurance Corp. said.

The FDIC said home prices jumped at least 30 percent above the rate of inflation last year in an unprecedented 55 metropolitan areas -- all in California, Florida and the Northeast, the Washington Times reported.

History clearly shows that housing booms don't last forever, said study authors and FDIC economists Cynthia Angell and Norman Williams. The manner in which they end matters for mortgage lenders and borrowers alike
more...
I've heard people make 200 grand in 2years!!!

[leftchick]

1. Flaws = FRAUD like

Mispeak = LIES. These criminals will never be held accountable.

[lovuian]

2. Sorry Leftchick I had a dupe

and changed it to this !!! Sorry!!!

[leftchick]

25. I am glad you told me...

I was very confused when I read this just now! :crazy:

[BrendaStarr]

24. c. 3% of houses on my block have been empty for months

In our area there has been rampant buying of second and third and fourth homes by the well off.

Well, if they don't resell them they will have to rent them, yes?

Yet, I realized a few weeks ago that 3 of the nearly 100 homes (counting both sides of the street) have been vacant for 4 (1 house) to 7 (the other 2 houses) months or even longer (we moved to this area 7 months ago).

While the newspapers tell us we have to accept exhobirant rents because of a scarcity in houses for rent, this is what I find.

These people could get 1300-1800 a month for these domiciles easily. They are not condemned and 2 are more than decent, and, in fact, are very nice houses.

Then one day I was checking on a house that had been empty for a few months when we moved from another neighborhood 7 months ago. Was it? yes, it was still empty, the lawn untended. Perfectly good house, but no one living in it.

I think we are being Enroned in the housing crisis.

I can't wait till Cheney spouts his nasty talking point about this.

Sign me a disgruntled "Granola eater".

[Phoebe Loosinhouse]

3. Litmus test for real estate bust

The really simple test for a bust is this:

you watch the real estate in your neighborhood go up and up and up and up and you're happy because you have all that "equity" which you can now tap to go run out and buy boats, motor homes, plasma tv's,
new cars for your 17 year olds and that world cruise you've always wanted. You talk about having equity to "play with" . DING DING DING DING DING. Whether you realize it or not - when you used that term "play with" you acknowleged the imaginary quality of your equity - it's no more real to you than the little green houses are in a Monopoly game.

In contrast to you, your neighbor did not go out and tie themselves up in an equity line. They too were happy to see the values go up and up and up and up. But they don't have a vested interest in believing in the illusion like you do - and one day when the house down the street sold for some ungodly amount they said "that's insane." And soon others joined in this opinion. And it was , and it was over.

Also ask yourself this question: can Joe and Mary Average Shit afford to buy the Joe and Mary Average Shit house? If not - problems.

Also look to see if affluent people are buying homes that previously you would have thought they wouldn't be interested in and see if affluent people are staying in homes you would have thought they would have moved out of by now. That means the real estate food chain has been disrupted- the move up process has choked.

Also see if the rental rates are keeping up with the purchase prices - otherwise you have a lot of so-called "investors" with a negative cash flow.

[tammywammy]

4. That's what I never understood about home equity

Don't you have to pay back the money you get from refinancing? And if you default on that, say you lose your job, then doesn't it make it easier for them to foreclose on your house?

All I know is that when all this home equity crap commericals started years ago, my parents said they'd never do anything like that. Yeah, sure they refinanced their house a few years ago, but they didn't take the money, they just went from a 30 year to a 15 year loan. My parents are pretty money savvy, with the only debt being one car and the house, so if they wouldn't do it, they must have good reasons.

[Phoebe Loosinhouse]

6. Yes, it is a loan and you do have to pay it back, with interest

The term is "eating your house" when you draw on equity to pay present expenses.

I think if you want to use use real estate as a part of estate planning, it would be a lot wiser to leave the equity safely in place and if neccessary get a reverse mortgage in your retirement years and then you would really put the equity to good use when you need it.

[RaulGroom]

9. Cash-out refinance can make sense

For example if I were going to buy a rental property, it makes more sense to refinance my home and use the cash to purchase the property than to take out a loan against the rental property, because I get to deduct the interest if it's a loan on my house rather than a loan on an income property.

But yes, to use home equity to pay operating expenses is bad.

[Phoebe Loosinhouse]

11. There are lots of time when it makes sense

But I have a real concern for all these new investors who are buying at the height a market to buy "investment" real estate and using the equity in their principle residence to do it. There are recent figures that state close to 25% of all real estate transactions now involve investors. Many of them are new and don't know what they are doing. So much new interest in this field has driven up prices due to demand and competition. Many of the end figures do not compute. As I said, a lot of them don't know the reality of rehabs, repairs, vacancy rates, tenants, liability issues, tax ramifications,etc.

This has skewed the market.

[shanti]

12. what if you shovel it back into your home?

i refied last may. 5 grand went to the refi, 10 grand went to paying off bills, another 10 grand went to remodeling and improvements (much needed after 30 years of no improvements!), and the other 5 grand went to miscellaneous things. i didn't overdo it and my refi was still much less than what i could've gotten for it on the market. i'm not planning to sell it either.

[tammywammy]

20. Okay, so

did you have a 30 year and refinanced into a lower interest rate at 30 years and use the equity to pay off debt and remodel?

Like my parents, this is the house they plan to retire in. They refinanced from a 30 to a 15 with a little higher payments, but years knocked off. Now, could they have taken money and payed off the car for instance, and it wouldn't have hurt them, because they're not planning on selling any time soon.

But if they were "real estate investors" refinancing and paying off debt is a bad thing?

[LivingInTheBubble]

27. If you arent planning to sell it...

..then you have just done the equivalent of taking out a large loan.

The increase in equity is only real if you realise it.

[FloridaPat]

17. You can subtract expenses against income on rental property.

Also depreciation.

[tammywammy]

21. Okay, so you're using the equity to buy a property

but, you're not planning on selling the original property any time soon. So that's okay? And I do know that interest on a house mortage is deductable on income tax. So this would be a good instance on using home equity, but just paying off credit debt would be bad?

And I'm sorry if these are stupid questions, but I've never own a house, but I see all those commercials for refinancing and paying off debt, and I don't understand how that would be good.

[radwriter0555]

7. When you sell the house, you pay back a lump sum, otherwise the money

borrowed is stretched out over 30 years... and on 100K, it's only a couple hundred a month.

Many people consolidate credit card and car debt into the lower priced loan, stretching it out, essentially, over that 30 years.

If you're selling soon, it's a REALLY good way to get cash and lower the high interest debt load.

For example, I wanted $5K to update and spruce up the house for the sale. So I added that amount to the $3K I needed to pay off the 12% emergency loan I needed for my dog's operation, and to the $6K in credit card bills and about $3000 for two trips abroad. I still have a lot left over, collecting money market interest rates, having refinanced the house adding on an additional $30K at 4.9% interest. I knew I was selling within a couple months, so I went with a super low rate with a balloon payment in two years, but no penalty for selling. So I borrowed the money VERY cheaply and am paying it back long before the variable kicks in.

[tammywammy]

22. I read what you wrote

and I still don't understand it. Can you explain like I'm a 10 year old? :)

This is what I'm getting
you had: $5K remodeling + $3K dog + $6K credit card +3K vacation, you consolidated it into the refinance and paid it back faster and with less interest than you would have originally. And in the end, you knew that you could sell the house for a good price (that it was appreciating in value and not depreciating). Is that it?

[radwriter0555]

5. in September 02 I bought this cottage for $210k and sold it yesterday for

$525k.

Granted I put about $35K into it and a LOT of sweat equity making it really, really lovely.

But shoot.. it's an 1100 sf cottage in mid city Los Angeles, decent neighborhood, nothing REALLY special...

Hella profit. I'm counting my lucky stars and moving to France.

[saigon68]

8. Ayez un voyage sûr. Félicitations

[lovuian]

10. I think your very typical of what is going on in California

It may keep going cause you can't make anymore land!!!

[Phoebe Loosinhouse]

13. Actually, they make new land more than you might think

rezoning, building on land-fills and brown zones, filling in wetlands, selling local state or government property to private developers, eminent domain condemnations, there's lots of ways to make new land.

By the way, that phrase "yep, they're not making any new land' has been used by real estate agents in loud checked coats since time immemorial.

[lovuian]

14. LOL!!! I know your right!!! heres another one Location Location

Location!!!

[reprobate]

15. $315k profit in under three years? That's crazy.

No market can sustain that kind of inflation rate. Nature will see that this is fixed, and a lot of speculators will be in great pain.

[fortyfeetunder]

16. If you think that is crazy

A house in my neck of the woods, about 2200 SF

The estimated sales price...based on what I saw in the newspaper
(new)1986: 99,000; 2000:365,000; 2005:525,000

That was the second house in the area that sold for that much.

[pokercat999]

26. I built a house in Central VA in July 2002 for a total of

about $229K. I'm putting it on the market this summer for about $477K and I should sell it within 40 days or less. I'm moving to Charlotte, NC area where I can buy a new and bigger house for under $300K. I'll end up with completely out of debt with 2 new cars paid in full and about a $100K mortgage. I don't really think the housing market in these "hot" areas is going to bust. Many "experts" I talk to suggest a gradual slow down and perhaps a small decline in the 3-5% range and then a leveling off and calm market for many more years. This of course is based on not having any major national disasters like a depression or major war etc.

I'm lucky enough to have job mobility so I can move and reap the rewards of having lived in this hot market. If I tried to relocate in the general area I would have to buy an even more expense house.

What is really tough is for first time home buyers getting what I have in the past considered a $100K home but paying $300K for it.

I'm just on the "edge" of the really hot, hot, hot, Washington DC market where my house would sell for about $750K! Location really is about 99% of a property's value.

[NorthernSpy]

28. call me working class, but...

... none of this housing boom/bust/investment/profit stuff ever makes any sense to me.

From my point of view, a house is something you try to acquire so that you won't have to live outside. It's a shelter and a home. It just seems kind of unnatural to think of it any other way.

[ThoughtCriminal]

18. We're trading down

Taking the inflated profit and buying a cheaper house for cash. We decided that not having any debt is more fun than an impressive house.

[Gregorian]

19. A bit of perspective...

From old newspapers I found under floors-

In 1929 a house on the San Francisco penninsula was $1000. (The same price as a car.)

In 1959 that house was $12,000.

In 1999 that house was $750,000.


If you ask me, it seems to be following the same curve as the population.

[jfs1000]

23. Alas

I am stealing some of that equty with a home credit line, and paying it right off quickly. Here is how it is even insane at my poor ass level:

Bought 1000 aquare foot condo in Connecticut suburb for 106000 in 2002. Three have sold since I "upped" the neighboorhood. One a month later for 110000. And two about a year ago for 120000 and 125000. They say it is worth 135000-140000 now. Peanuts I know for ya rich ass's, but I am going to tap that equity to pay off some crazy high interest credit lines at 19 percent (those predatory credit card people like MBNA who preyed on my wife whe she was laid off. Got me through tough times now i am gonna stiff them on the interest.)

Anyhow, I figured I would use it, and pay off some of these crazy credit lines I have. I'll never run them up again, and I am just going to to keep the same payment levels. So 400 a month will got to 5.0 rate instead of 500 a month to 19.9.

But, we can't sell our home and move up, because every house we look at is $300000. WAY OUT OF A 28 year old underpaid journalists price level.

Frustrating.

[Massachusetts]

29. Metro Boston still high (Real Estate that is)

People are buying Ranch houses in the town where I live, tearing them down and building McMansions.

[valis]

31. It's like the tail end of a Ponzi scheme.

People know is gonna crash, but they hope they'll still not be the ones who lose everything...

[Mizmoon]

30. I can't decide what to do

my family has outgrown our half of the duplex we live in and own. We're thinking of buying a house a few doors down and renting both apartments in the duplex out.(we've been landlords for years so we know how to do it right)

Of course, we bought our house for $125,000 fifteen years ago. The new house that is a few doors down that we're considering is listed at $419,000 and it needs about $15,000 worth of work. We can't leave the school district right now ... we can't stay cramped in this tiny place ... paying that much makes me nervous ... but for all I know that place will be worth $750,000 in five years. We are within very reasonable commuting distance to NYC.

what's a gal to do? You're basically trying to predict the future and we all know how well that can go ...

[freestyle]

33. Do you have space for an addition?

If so, borrowing to add on could work much better than buying in this market. Construction materials and wages have not jumped nearly as much as the housing market.

[Mizmoon]

34. Yes, we could

Here's the catch: there has been such a building boom and such demand that to get the extra space we need, another bedroom and a family room, will cost about $75,000. Maybe even more.

I realize that's much cheaper than a $400,000+ house, but all we'll have to show for our $75,000 is two rooms. Somehow that doesn't feel right. In the other case, we'd have a whole house for our money.

But as you can imagine I'm terrified that we'll buy and the value will plummet a year later.

Hubby thinks we should just buy the house. We need the space badly and we'll be just seven houses away from our rental property. That kind of leaves the decision in my hands. Uck I hate being a grown-up. :)

[Tracer]

32. How high can it go?

My neighborhood abuts a lake and was originally a summer camp-like area.

Since my town has become thorougly McPalaced (a step up from McMansions), the neighborhood has become a mecca for tear-downs of the old cottages, and is now filled with smallish, but nice, colonials and capes that sell in the $500,000 range.

One of the last remaining cottages on my street is now up for sale. This is a 4 room, 500 sq. ft. camp cottage on a tiny lot. The price? $289,000.

That's extremely high - even for a potential tear-down.

[Phoebe Loosinhouse]

35. I think the downside might have officially begun today

1. GM and Ford both got downgraded to junk bond status.
2. Big downsizing at IBM (I know most of it in Europe, but it still shows the softening of their market)
3. Greenspan made noise about Fannie and Freddie being restrained in size because they were too consolidated and had too much effect in and of themselves to the economy. Also some blather about derivatives which is beyond my level of sophistication.
4. Co-incidentally, Fannie Mae employees today were told they could NOT buy and sell any Fannie Mae stock. That is very, very, bad in my eyes. Fannie Mae is already making billions in restatements of income and this makes me think that there must be more bad news on the way and they are afraid of insiders tipping off the broader markets. This could be big. This mean the housing bubble could burst in a much scarier, larger way than anyone imagined.

Tracer asked "how high can it go?" As long as there is a pool of ready willing and able buyers it can go higher. But if that buyer pool starts to dry up because of lack of financing or raises in interest rates or economic or job instability, then the game of musical chairs has ended. Some of the more fortunate posters in this thread may have gotten out in good time. And if you bought your house as shelter and can afford your payments and keep your job and plan to stay awhile, you'll be fine. There will be a downturn, then flatness and then the cycle upward will start again. But the last bubble in New England took over ten years to make the correction before they were off to the races again. In the meantime, all of that equity literally evaporated.