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Re: Do you live in a housing bubble? [MattinSF] [ In reply to ]
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It always strikes me as funny how people refuse to learn from the past. Its a different market now, dividends aren't important. There is only so much land, it can't go down for long, it will bounce back and go up.

We marveled at how rich Japan was and then their market crashed.

Our market was different, till it started to crash. So much of our economy has been financed with debt and yet we think its different with us. For the last 25 years the interest rates have decreased. Which means it is cheaper and easier to borrow money and buy stuff. What will happen when it gets tougher to borrow money?

The Japanese real estate market has declined for 14 CONSECUTIVE YEARS! And yet they have the same amount of land they had 14 years ago.

It was reported in the newspaper that in Washington DC 58% of all mortgage loans are interest only/about 38% for MD & VA. These loans will get more expensive as the interest rates go up, which they will. How many people will be able to stay in these houses that they can't pay for? As the interest rates go up less people will be able to qualify for the loans to pay for the house. As these problems mount banks will require more money down, taking less risks.

If your real estate has gone up in value lately it will go down in value. Don't sell and you won't have a loss, just like if you don't sell you won't have a gain. Its all imaginary money until its in your hands or your writing the check.

$350k in 12 months is certainly very gloomy(and highly doubtful), but I hope you put money down and aren't in an interest only loan. I remember one friend having to write a check to sell his place 7 years ago, he was not happy about that.
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Re: Do you live in a housing bubble? [MattinSF] [ In reply to ]
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Home prices in the Madison (WI) area have increased to the tune of 8%-10% a year for about the last 12 years. While that sounds mild compared to the insanity of certain parts of the country I guess that in my mind it becomes a real problem because for most Americans their income just isn't keeping pace. For most of us the gains in income are offset by increases in taxes, health costs, energy costs etc.. How will the coming generations afford a home unless their boomer parents die and leave them a house or large inheritance? I suspect that many of the posters on this forum pay more in income taxes annually than I earn so maybe this isn't seen as a problem by most of you. My wife and I found an older, 4 bedroom house in a quiet small "city" of 10,000 for $80,000 9 years ago. Yes it has increased in value by about 30% but so has every thing else here and our dreams of a small place in the country are all but gone due to the sky rocketing cost of land and the fact that 1/2 the state of Illinois has purchased second homes in Wisconsin. The number of buyers jumping on the interest only mortgage traps should scare everyone IMO. This housing market will have to correct itself at some point and the economy will suffer as a result.
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Re: Do you live in a housing bubble? [MattinSF] [ In reply to ]
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Santa Monica, CA. I felt like a schmuck when I bought my house 4 years ago b/c I was convinced we bought at the top of the market. Shows you what I know. Prices would have to go down 50% now before I'm in the red. Not bloody likely, I think.


__________________________________________________
What a drag it is getting old. -- Stones
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Re: Do you live in a housing bubble? [Joe M] [ In reply to ]
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An interesting thread on the subject, particularly in CA.

http://forums.kiplinger.com/showthread.php?t=1869&page=1&pp=15

~Matt
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Re: Do you live in a housing bubble? [MattinSF] [ In reply to ]
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Real estate is a great long term investment but a short term crap shoot.

This is nothing new. I've seen huge crashes in the early 80's and early 90's. Seems to go in ten year cycles so we're overdue. The surest sign that a crash is coming is when everybody is jumping into the market and feeding the frenzy.

I read a very interesting article about how a potential killer flu (oriental bird flu, SARS, ect.) and if one of these takes hold how it dramatically would crash the economy and real estate prices. Very realistic possibility. Other factors such as rising gas prices, demographics, etc will effect house prices.

A big crash is coming. It's just a matter of when.
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Re: Do you live in a housing bubble? [dire wolf] [ In reply to ]
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"...Not bloody likely, I think. " Famous last words...

While you may be right about the 50% drop in value... I think the real issue is this...

What if you have 50% drop in value AND an increase of payment by 30% because of increasing interest rates. This is the case that will happen for those that have variable rate mortgages. It not just about market value decreases.

What happens when you have a combination of significant decrease in market values combine with a cash flow crunch (i.e, higher interest rates plus loss of capital/asset liquidity)... You get an inability for the Real Estate markets to supply liquidity into the system. As this occurs, regional economic stress becomes very relavant. And, if the cycle works it way toward regional liquidity cruch because of loss of capital reserves... you have heavy regional unemployement. This means you now could have a home worth less than half the amount of the mortgage and with a significant increase in payments... all the while you are either unemployed or with no chance of pay increases. This is called a hyper-disinflationary economic environment... the anti-thesis to hyper-inflationary economic environment.

This is precisely what happened to the energy income dependent regions of the US. In particular the Western Part of Texas... during the "oil bust" of the early 80's (resulting in the collapse of the Savings and Loan Industry). Another analogy could be made using the more recent Silicon Valley Real Estate market decline. This list is long...

You may be right... but, history doesn't seem to indicate that it is not possible to see drops as much as 50% or greater in instances where Real Estate values are hyper-inflated. So, feeling like a schmuck will only come when you need to sell your house at a loss....hopefully, you will not be one of those individuals. The key to surviving these hyper-disinflationary markets is to have job security - you need a source of cash flow for a period of time that will allow for markets to adjust.

FWIW Joe Moya
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Re: Do you live in a housing bubble? [Joe M] [ In reply to ]
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El Paso, $200,000 for 2500sqft in a nice area (upper valley)...guess some are getting screwed here! :-)
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Re: Do you live in a housing bubble? [Francois] [ In reply to ]
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Ah look at this way... you won't see a 50% drop in value....

Second owner homes here only 3 months ago wer going for about 50-60 dollars a sq. ft. in a nice neighborhood...

The house I own now went for $120 per sq. foot in 1980.

Sold 4 yrs. later for $80 per sq. foot...

Sold 2 yrs. later for $40 per sq. foot...

I bought it for about $50 per sq. foot about 17 years after it was built.... 1997.

Market price only 3 months ago... about $65 per sq. foot. - I know because I bought my neighbors house.

There are homes going up for about $140 per. sq. foot right down the street... that's over a hundred percent increase in 3 months! Same house in San Diego would go easily for about $500-$600 per sq. foot.

There is no way that will be maintained... I'd say the screwing is about to happen. In my world, that will occur when the price of oil drops back below $45 per barrel and long term interest rates climb back to about 6.5-7.5% range.

Joe Moya
Last edited by: Joe M: Jun 6, 05 21:39
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Re: Do you live in a housing bubble? [Joe M] [ In reply to ]
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that's why i just closed last week on my re-fi -- switched from fully adjustable to fixed. 3% was fun while it lasted. but you're right, some people are going to be SOL.


__________________________________________________
What a drag it is getting old. -- Stones
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Re: Do you live in a housing bubble? [dire wolf] [ In reply to ]
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Yup, refinance to a fixed also... just don't see the interest rates will remain so low.

Jay
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Re: Do you live in a housing bubble? [Joe M] [ In reply to ]
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What really sucks is for a single guy like me, with a decent job, can't afford to buy a place (at least in San Diego). I don't want a condo with no closets/storage place (ie, too many bikes) and with houses at 500K median, forget about it...

It's enough to bring a guy down ;(

if nothing changes dramatically in the next 6 months, it may be time to head back east.


TheBikeRacer.com
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Re: Do you live in a housing bubble? [MattinSF] [ In reply to ]
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One of the things going on here in S Fla, is folks can't afford to sell. We bought our 5 br for new for $300k two years ago. Now the new 3 br in our area are starting at $600k. One of my neighbors put his house (same model as mine, but crappy lot, not on lake) onthe market for $570k. There is no "starter home, sell and move up in five years" anymore. Plus the taxes on a new home would kill us. For us to sell, we either have to move out of state or move into a trailer.
I talked to a real estate agent who said that people are starting to move here from Ca. and buying houses sight unseen via the internet.
It's crazy. One guy in Ft/ Lauderdale put a sign in his yard Sunday night. When he got home from work Monday, there was 30 messages on his machine, several with offers.
As long as there is demand like that, I don't see how the bubble can burst. But how are these people paying for it?
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Re: Do you live in a housing bubble? [Landshark] [ In reply to ]
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"I don't see how the bubble can burst"

Just keep watching... Joe
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Re: Do you live in a housing bubble? [Dan Os Fan] [ In reply to ]
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Yes, indeed it is funny how people don't learn from the past. Euphoria, denial about the market crashing, and the fact there there are plenty of speculators out there are all indicators. It's difficult to teach something about the market to optimistic people. It was difficult in the past, is difficult at the moment, and will be again in the future :)

�The greater danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.� -Michelangelo

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