WP: It's on the House: Everybody Paying for Everything w/ Home Equity

[DeepModem Mom]

It's on the House
Now Everybody Is Paying for Everything With Home Equity

By Margaret Webb Pressler
Washington Post Staff Writer
Sunday, May 8, 2005; Page F01


....(Gabe) Klein is like millions of Americans whose attitudes about homeownership have been transformed by the unprecedented growth in property values and the ability to tap that value today. It used to be that a mortgage was more or less forever. Rising equity, in turn, was considered the untouchable foundation of a retirement nest egg.

But the old psychological barriers to tapping home equity have crumbled in the past 10 years, and now, especially for younger homeowners, home equity is viewed a bit like found money. A whole generation of homeowners is able to live in a way their parents never dreamed of back when homes appreciated a percent or two a year and cashing out equity meant robbing from your retirement....

***

But there are trade-offs in this equity free-for-all. Clearly, the economy has benefited from our more liquid approach to homeownership, as consumers have taken money from their homes and streamed into home centers, garden stores, furniture retailers, car dealers and even travel agents. And mortgage brokers say most people are spending their equity prudently: reinvesting in their own homes, buying second homes, paying off more expensive debts and the like.

But could consumers become addicted to this wealth, and forget about the inherent risks? How will people react when the real estate market changes and there just isn't as much money to play with?...


http://www.washingtonpost.com/wp-dyn/content/article/2005/05/07/AR2005050700198.html

[Cooley Hurd]

1. This is a very bad trend...

With the new bankrupcy bill, their homes go on the block if they default, don't they?:shrug:

[LiberallyInclined]

9. it depends on the state-

that's why O.J. moved to Florida.

[FloridaPat]

19. Homes and bankruptcy still belong to state laws. However, since

more people get shoved into chapter 13 and don't make their payments, the credit card companies can then go after their homes - just like before the bill.

[Massacure]

2. Then when the bubble snaps, Joe America gets screwed over.

[teryang]

3. "I don't see how I could lose money"

Famous last words.

"It's a new world."

When did I hear that before? The popping of the tech bubble?

[boredofeducation]

18. 25 Percent of homes were bought by "Investors"

25 Percent of homes sold last year were bought by "Investors". I have seen these investors buy homes for 200K that they could only rent out for 1400 a month. That is very low rent for property that expensive. Technically the investor is losing money even if he did pay 100 percent cash for it. The investor would be losing money if he financed the whole deal. Investors are speculating on the forever appreciating Real Estate. Real estate does go up over long terms, but if these investors are holding for short terms, they are going to get burn. I read in the paper that a couple bought an Manhatten apartment for 1 Million and were renting it out for $3,000 a month, the owners owed a 5,000 a month mortgage on it. They were losing 2K a month. All in hopes that the apartment would go up even more. That is just insane. These are also probably the same people who said ""I don't see how I could lose money"" during the Tech bubble.

[cosmicdot]

25. "Seeking Nest Eggs, Investors Buy Nests"

By WILLIAM NEUMAN
Published: April 17, 2005, Sunday

was this the article?

http://query.nytimes.com/gst/fullpage.html?res=9A01E2DA103EF934A25757C0A9639C8B63

[patricia92243]

4. Or we can use our home equity this way:

Senator George Allen (R-VA) on Meet the Press, May 1.

On private accounts, he suggested that AMERICANS MIGHT HAVE TO SELL THEIR HOMES TO SURVIVE IN RETIREMENT.

But, he thinks allowing your own home to be your investment would get around that. Although, IT WOULD FORCE YOU TO SELL IT WHEN YOU RETIRE IN ORDER TO FEED YOURSELF.

http://www.sundaymorningtalk.com/smt/2005/05/sen_allen_...

[punpirate]

5. Today is the modern-day analogue...

... of the Roaring Twenties. The commonality between the two is extreme debt (private, public and corporate combined these days). Banks failed because they loaned more than they had then, and now, they are loaning money that they get from foreign investors. When, not if, those foreign banks and investors decide that US investment is no longer a safe bet, the dollar will slide precipitously, and it all starts to unravel rather quickly.

The housing bubble is operating in exactly the same way as did the stock bubble of 1929. Then, people bought stock on margin (~ 10% down) on the expectation of neverending inflation of value which would pay for their loans. Housing purchase today is operating in exactly the same way. One can say, but a house is real property, and stock is just paper. However, what's the real value of that property if one can't afford it and it can't be sold, except at an extreme loss.

That situation sounds a lot like November, 1929. All it will take for it to happen is for the money flow fueling it to slow down.

[SoCalDem]

15. Our town BOOMED, and then went BUST a few years back...

It's boomed again, but back then, people literally walked away from homes that they owed more on than they could sell for..

A person I knew bought a "dream home" for about 200K (back in 80 something) and when they declared BK after job loss when the only offer they received was for $159K...

Lots of people out here are using their houses like an ATM...need a new car?? tap the equity..

We finally did a refi a few months back, BUT it was to upgrade this house so when we sell in a few years (we've been here 23 years) we can get a decent price for it.. Our roof leaks,we need a storage bldg, it needs new paint inside and out, and a mini-kitchen make-over..and we want to update the YUKKY fireplace:)

So even though we did tap equity, it's for improvements to the house...

[orwell]

21. You mean...

home physically depreciate?

Who would have guessed?

So people are constantly willing to pay more for something that is worth less in real terms. That sounds prudent.

[boredofeducation]

23. Building Depreciate, Land Appreciates

Usualy buildings depreciate and the land appreciates. Take a look at what vacant building lots sell for, usually it is as high as homes. Land is in limited quantities is certain areas, after all the land is used in a given area, builders buy small homes, tear them down and build larger homes.

[earth mom]

22. I lived in So Cal when the housing crash occurred.

My dad had a "modest" tract home there. Prices crashed in the late 80s/early 90s (can't exactly remember when) and it took forever-years and years-for the prices to get back to the same level. That's why I was SHOCKED when I saw that in just the last few years houses in his old neighborhood-houses that are just as modest as his home was mind you-have doubled and then some and are going for $500K and up! It's insane! I think it will crash again, but who knows when....

[boredofeducation]

24. The question is when and how much

Real Estate is just like any other market, it has big gains and pull backs. The question is always when will this happen and how much of a pull back. Since Real Estate is local, unlike other investments, some areas may stall, some may go down, some may even still go up. Some are expecting a 10-30 percent pull back, depending on the location. Also I have seen a lot of "bad areas" get rapid aprreciation, I believe these areas are the ones that will get hit the hardest. Since these are also the areas that have the "cheaper" homes and have the most 0 Percenters (people who put nothing down on the home). These areas also have the most forclosures.

[dArKeR]

6. "spending their equity prudently; paying off more expensive debts"

Such as what? Gambling debts like Billy Bennett or drug debts like Drugy Limbaugh or just out of control spending on credit cards? Humm, "purdent."

[Lorien]

12. For me, my "out of control spending" was due

to $8,000 in medical bills from an emergency and nearly eight months of unemployment. I cut up my credit cards and used home equity instead. Not all of it, mind you; I have $265,000 in equity, and $15,000 in a home equity loan which I plan to pay off when I sell the home in several months. Not everyone's debt comes from frivolous spending.

[UpInArms]

7. oh.my.god

money to burn
found money
equity burning a hole in their pocket
homes as piggy banks
they won the lottery
like Monopoly money
it's like wizardry


Remember the old adage, if something sounds to good to be true, it like isn't.

:eyes:

[warrior1]

8. That's the last

thing I would do.

Pay cash for everything.

[OneBlueSky]

10. a lot of people are going to lose their homes . . .

when their property value drop below the mortgages they're carrying . . . ain't gonna be pretty . . .

[boredofeducation]

17. The 0 Percenters will get hurt big time

The people who put 0 percent down on their homes are going to get hit big time. They bought in an inflated market and have no equity. If something happens, job loss, health, or other problems, they have no equity to tap if the Real Estate market drops. Also they either have to live there until the maket goes back up, or sell for a loss or go through Foreclosure. Homes are being sold at grossly inflatted prices, expecially in the NY/NJ area. Also I heard of the same for California and Las Vegas. Banks are loaning money like it was candy, almost anyone can get approved for just about any amount.

Also Investors are over speculating the market, they are buying homes in hope of selling for a lot more. Investors are expecting 50-100-200K profits. I asked an investor if he thought the prices could ever go the other way, losing 50-100K, he said impossible, Real Estate only goes up. He is kinda right, it does go up over a long term, ie 10 years. I guess he doesn't remember the 80's or doesn't want to remember them. But he also stated that he bought Enron Stock in 2000 and got screwed real bad and lost 50K. In 2000 all the Stock Analysts were touting Enron as the stock everyone has to have. I realized this guy was not an investor, but a fool.

[Rex]

11. I'm surprised the super rich let commoners have fun with money

Leave it to the Washington Whore Post to make it sound like everyone is wealthy and no one suffers homelessness.

[llmart]

13. "the economy has benefited???"

If it has benefited so much then why does the economy suck for the past 4+ years since Bush/Cheney stole office?

I guess without the easy home equity credit, the economy would be in total collapse.

[FloridaPat]

27. Yes, you've got the picture. The last 4 years has been borrowed.

[boredofeducation]

14. Home Appreciation, too high too fast

The rate of home appreiciation has gone up in my opinion, too much, too soon. Some homes appreciated more in a year than they did in the past 15 years. In Willingboro NJ, homes use to sell for 80K throughout the late 1980's to the early 2000, appreciation for this area throughout the 1990's was less than 1 percent, one of the lowest in the state. Today the homes are now selling for 180's and higher, homes under 150K get 10-20 bids in the first few days. Some get bids from people(investors) who never even stepped inside the property. It is also a great market if you are about to loose your home, I have seen homes that are about to be put up for auction by the Sheriff being sold at 50-80K above what is owed to the bank. It's a sellers' market.

As the old saying goes; "Buy when everyone is selling, and sell when everyone is buying"

I am waiting for the Real Estate downturn, it will happen, just don't know when. I have cash in hand and will be looking for bargains.

[cliss]

16. Ha ha, oh I love this statement,

"mortgage brokers say most people are spending their equity prudently: reinvesting in their own homes.."

And now the truth about the Fox who is guarding the hen house: I've read that mortgage companies LOVE it when people take out 2nd mortgages for home improvement. If the borrower should default, all the money is locked up in the house, and the lender gets to take the upgraded goods. It's pretty hard to collect on trips or consumer junk. But the remodeled home is worth more, so the lender now has an asset that is worth more.

BEWARE.

[orwell]

20. Assets...

can be "repriced".

Debt will not.

That is why the Federal Reserve is the nation's primary, relentless, inflation machine.

You figure it out...

[yorkiemommie1]

26. we're retirement age

at least my husband is. our mortgage ( small tract house in beach area of Southern Cal. )will be mostly paid off this summer, and that's it. We're too chicken and unknowledgable to venture forth.

I see lots of remodelling on this street alone, though.