Housing Prices

[rlfreeze]

I was reading the thread on baseball card prices and someone mentioned that they should have bought land. That 10 years later they would be a millionaire. This got me thinking. I recently purchased a new house. A little over a year ago. I now have enough equity in my house to nearly pay for my initial mortgage. I would be unable to buy my house today. Prolly wouldn't even be able to buy a house within 50 sq miles of where I am currently at.

My sister-in-law and her fiance will most likely be unable to buy a house here in Southern California (S. of LA in the Temecula Valley). I know that there will be more and more people that will be in this situation, but they continue to build new houses (6000 currently scheduled in my area).

When is this market going to top out? Don't get me wrong, I love the money that I am making from this market, but I will also be unable to upgrade in say 5 years if this continues.

Is this happening everywhere in the country?

[gottimd]

I am currently looking in the market near me and its virtually impossible to afford a place unless you live out "in the sticks". Right now, we are renting an apartment in a very nice area, and the following are the average asking prices:

2 BR Condo = $450K
Townhouse = $650K
House = $800K+

I am sick of rent and just throwing money out the door, but I hope to be able to get an 80/15 mortgage with 5 down. Either way, its a ton of money. You are lucky you already own. People who bought in our area, bought for about half of those prices, so they are making a killing.

[JonInMiddleGA]

I think it's overall still pretty good but there's hot & cold spots too.

Case in point (micro-version) : The little town I'm in has houses that have been on the market for 2+ years, priced reasonably to their fair market value, but nothing here is moving except starter homes thrown together in a few weeks.

Meanwhile, 20 miles away, a house we passed up about 11 years ago for $125k just went back on the market ... for $950k (it'll prolly end up selling in the high 700/low 800 range). Imagine how sick to my stomach that news made me

[Flasch186]

unless youre in a bubble market, buy buy buy. DONT OVER EXTEND ON CRAZY MORTGAGES THOUGH. most people's pay raises wont keep up with the rising interest rates on those 1 year option arms...stay away from Ameriquest mortgage. they love pounding people on their loans. But I highly reccommend the following:

find a new neighborhood, be one of the first homes in it, not the biggest but definitely not the smallest.

4 BR minimum, buy it and be in it until the neighborhood is about 80% -90% done...then do it again.

If you dont, the rises that occur in these neighborhoods happen so exponentially that you wont be able to keep up if you stay put.

Be willing to drive a 15-20 minute drive in some areas can save you 50-100K and if'n thats the case, most likely the area youre moving to will boom too.

Keep in mind, job growth, interest rates, whats going on in your surroundings but

IMO

if youre not on the train now run and catch up or youre going to be in trouble.

[kcchief19]

Originally Posted by Flasch186

unless youre in a bubble market, buy buy buy.

Generally sound advice. Real estate investment is a high-risk endeavor, but as a regular homeowner it is one of it not the best thing you can do to invest for your future. The build up in equity like JIMG and rlfreeze can be rare unless the entire market is on fire, but in a normal market the payment on your principal and appreciation in the value can help you quickly build wealth.

Originally Posted by Flasch186

DONT OVER EXTEND ON CRAZY MORTGAGES THOUGH. most people's pay raises wont keep up with the rising interest rates on those 1 year option arms...stay away from Ameriquest mortgage. they love pounding people on their loans.

Great point for anyone buying a house -- right now is a terrible time to get an ARM. Despite ridiculously low mortgage rates, ARMs have been through the roof the last few years because home prices have been rising so fast. ARMs have allowed people to afford a bit more on their home at the beginning and then either move again or lock in at a still pretty low rate. But unless you are planning to buy a home and then buy again in a year or two, an ARM can get you in a lot of trouble. You could go from paying 4 percent interest to 7.5 percent interest in a heartbeat. If you plan to stay in a home for a longer period of time, you're better off locking in now at 6.5 percent than paying a low initial rate in year one and then paying 7.5 percent for the rest of the time your in your home. And mortgage rates will likely be at 7.5 percent in the next 18 months or so.

I can't speak to Ameriquest, but there are a lot of fly-by-night mortgage outfits and bad mortgage deals out there right now if you don't know what you're doing.

Originally Posted by Flasch186

4 BR minimum, buy it and be in it until the neighborhood is about 80% -90% done...then do it again.

True in some areas, but not everywhere and not for long. We are on the brink of a major shift in demographics that will turn the housing market on it's ear. Right now, the dominate demographics for buying homes are families. In the next 5-10 years, that will slowly change as the baby boomers retire. The number of households that are retirees or "active adults" will begin to outnumber family households. These buyers will be affluent and we will want to unload their two-story, four-bedroom homes for slightly smaller, more luxurious homes with first-floor masters. I've spoken to a consultant for a lot of national home builders who says that in 2009 the housing market for two-story, four-bedroom homes will be glutted and it will be tought to move them. That's why Del Webb, Pulte, Hovnaian, KB and other big home builders are ramping up their active adult production.

There will definitely be some bubble markets, but there won't be a national housing bubble. San Jose is the poster child for a bubble market, but the next wave of bubbles are expected to be in locations where investor ownership has been rising. This is particularly in parts of California, Las Vegas and some of the Sun Belt and in particular parts of Florida. Investor purchasing in these areas have accelerated home prices faster than they should be and the deman and buying power simply isn't there to sustain it.

The appreciation rlfreeze mentioned isn't standard. Most places have been seeing a 5 percent increase in home values the last few years, although last year was an aberration where prices jumped almost 10 percent. But here in Kansas City, the average existing home costs about $155,000 and the average new-home costs about $240,000. We're one of the more affordable housing markets, but even at those prices buying a new-home is getting more out of reach for a lot people, especially since you have to "drive til you qualify" to find a home you can afford. I have a 35-mile drive to work and we bought a home that was three years old; we couldn't afford a new-home in the neighborhoods we liked. This house wasn't our choice; we would have preferred to live in traditional neighobrhood rather than a convention suburban neighborhood, but that choice isn't quit here yet. We're starting to get some new traditional neighborhoods (front porches, pocket parks, walkable, mixed-used, alleyways), but they are still a bit out of our price range.

[Galaxy]

Isn't the housing market starting to tapper off, and in some markets, repress?

I'll be interested to see where it is in 10-15 years, when the Boomers need the equity of the homes to fund the retirements, and the post-Boomer market is not as large or as wealthy (wouldn't be at the peak earnings time).

[Flasch186]

some markets yes...some markets pointed out in this thread are exploding.

[cubboyroy1826]

The housing market in California is definitely sick. A couple of my friends in the mortgage industry in California say 80% of the mortgages they do are stated income because people wouldnt ratio otherwise. I know in the city of Chicago they are building 400k condos like crazy. I have a couple of clients i did loans for who put 5% down and 6 months later were able to refinance and remove the PMI. Being a mortgage broker i get asked constantly about the Option Arms that are advertised for 1.5% interest rate. These programs have their benefits for the right person but far too many of my brethren give these loans to people who a) dont understand it or b) are just using it to afford more home. The real benefit of the Option Arms is it frees up extra cash which should be used for some type of investment. Many people see the savings as extra money to buy a new car or some other non appreciating item. Basic ARMs are not bad once again for the right client. As for Ameriquest, run Forest run.

[Flasch186]

if you can save your money and wait for those loans to go through the roof...repos everywhere. Its a shame so many peoiple barely staying afloat, who thought it was so great that they could get a 2500 square foot home for an interest rate at 3.25%, will be wondering how they can get themselves out of their deep-er hole when the rate is 9 6 years from now. Better hope for some promotions.

[Solecismic]

I'm hoping we finally sign a contract to build a new home this week. Been searching for land for about a year now.

Being self-employed, I have to do stated income. But we're going to stick to a conventional 30-year mortgage at these rates. We have a 15-year on our current home, and it's nice seeing equity progress every month - and not having to depend on the bubble.

[Flasch186]

Originally Posted by Solecismic

I'm hoping we finally sign a contract to build a new home this week. Been searching for land for about a year now.

Being self-employed, I have to do stated income. But we're going to stick to a conventional 30-year mortgage at these rates. We have a 15-year on our current home, and it's nice seeing equity progress every month - and not having to depend on the bubble.

How much land at what price. Just curious?

[MrBigglesworth]

Overall, I wouldn't invest in a house now if you are JUST looking at equity appreciation as a means of making money in the short term. Things may be going up for the next couple of years, but there is a strong possibility that prices will "correct" to 75% of what they are right now in many of the "localized bubbles" that Greenspan talked about the other day.

Real estate has been keeping the economy afloat for a couple years now. Our government running record deficits hurts that, because the Asian countries that hold our debt may stop buying treasury bills. Interest rates could go through the roof, which means that prices will plummet, especially with the high appreciation of late.

[Flasch186]

Originally Posted by MrBigglesworth

Overall, I wouldn't invest in a house now if you are JUST looking at equity appreciation as a means of making money in the short term. Things may be going up for the next couple of years, but there is a strong possibility that prices will "correct" to 75% of what they are right now in many of the "localized bubbles" that Greenspan talked about the other day.

Real estate has been keeping the economy afloat for a couple years now. Our government running record deficits hurts that, because the Asian countries that hold our debt may stop buying treasury bills. Interest rates could go through the roof, which means that prices will plummet, especially with the high appreciation of late.

Plummet only in certain areas AND in specific situations. I think a flattening or slihght hiccup more likely....Those that will get hurt are those who time their sales poorly.

[MrBigglesworth]

Originally Posted by Flasch186

Plummet only in certain areas AND in specific situations. I think a flattening or slihght hiccup more likely....Those that will get hurt are those who time their sales poorly.

Here is another thing I am worried about:



I think we are at the top, or near the top. There are still localized areas to buy, but most people now are looking where appreciation has been strongest, which are the places that are most likely to go down.

[Ksyrup]

As tempted as I am to take a decent profit on our 4 year old house, I don't see us being able to do anything more than a lateral buy, so instead of doing that, we're sticking where we are with a 10 year 4.75% mortgage and riding it for another 8 years or so. The idea of being able to put down $200K+ on the next house more than makes up for another 8 years treading water here. And btw, you can get a decent 4 BR house for less than $250K here.

[Galaxy]

Originally Posted by Flasch186

if you can save your money and wait for those loans to go through the roof...repos everywhere. Its a shame so many peoiple barely staying afloat, who thought it was so great that they could get a 2500 square foot home for an interest rate at 3.25%, will be wondering how they can get themselves out of their deep-er hole when the rate is 9 6 years from now. Better hope for some promotions.

The "McMansions" and people spending the money on the bigger homes, who really can't afford them, will be screwed. My question is, what will happen with the Boomers, the people driving this, hit retirement, and alot of them don't have enough saved, who think the homes will be the equity, when all the other Boomers will be in the same position? The younger crowd won't be as rich, and much smaller in numbers, and likely smarter from watching the Boomers. Are most of the Boomers (who don't and save ahead) screwed?

[Desnudo]

Originally Posted by Flasch186

if you can save your money and wait for those loans to go through the roof...repos everywhere. Its a shame so many peoiple barely staying afloat, who thought it was so great that they could get a 2500 square foot home for an interest rate at 3.25%, will be wondering how they can get themselves out of their deep-er hole when the rate is 9 6 years from now. Better hope for some promotions.

That leads to the bigger question, what will people be using to stay afloat when their house worth $200,000, that they paid $800,000 for, when there's a downswing?

[MrBigglesworth]

Originally Posted by Desnudo

That leads to the bigger question, what will people be using to stay afloat when their house worth $200,000, that they paid $800,000 for, when there's a downswing?

As long as they don't lose their jobs (and they have a fixed rate mortgage), they could theoretically ride it out. They'd ideally be paying the same payment with cheaper and cheaper dollars as time goes on. It would just be impossible for them to sell though, since they might have to make up a difference of $100k or so.

[Flasch186]

tis is truly an extreme and not very likely at all, anywhere unless regional factors multiply a downturn's effect (ie. factory closings, base closings, etc.)

[QuikSand]

What is positively absurd (and an undercurent to all of this) is the fact that while the Fed has increased short-term interet rates pretty substantially over the last number of months -- about a total of two percent with each increase all put together -- the interest rates on long-term debt (treasury bills in particular) have remained almost completely constant. That is practically unprecedented.

Since most people tend to think of housing affordability in terms of monthly payments, interest rates play a huge role in setting prices. Continued low mortgage rates have certainly helped to fuel the continued boom.

[cartman]

I get a sinking feeling that we are heading to an economic "perfect storm". With the housing prices rising at a rate much faster than inflation, this has already gotten the attention of the Fed. The obvious strategy to cool the situation down is to raise interest rates. This will cool down the speculative buying, but also have an impact on those with ARMs, especially those who signed deals that didn't have any limits set on how high the interest rate could rise over the life of the loan.

Another potential slam is that the credit card issuers are going to raise the minimum payment to be 4% of the loan, up from 2%. For those who have high balances, but were getting by paying the minimum, this could also push them into default.

The final piece is that the amount of liquidity in people's savings in the US is at historical lows. The average household only puts around 1% of income into savings each year, compared with 8% in Western Europe. This leaves the equity in a home as the primary source of "savings" in the US.

If push comes to shove, and a combination of higher interest rates and higher credit card payments lead to a choice between bankruptcy or selling a home, a high number of these happening over a relatively short period of time (12 to 24 months) will cause quite a bit of turmoil in the financial markets.

[Rizon]

I purchased my home in 97, and right now units in the same area are going for 548% of what I paid for mine. Yes, that's five-hundred and forty-eight percent. INSANE.

The market is starting to show signs of slowing down though (at least in the Bay Area CA). It's either going to flatten out or tank (scary).

If you bought a house here years ago, you can move back east or to NM/AZ and buy a home twice the size for half the price and make out like a fucking bandit.

[gottimd]

Originally Posted by Rizon

If you bought a house here years ago, you can move back east or to NM/AZ and buy a home twice the size for half the price and make out with a fucking bandit.

Fixed

[Solecismic]

This is something to worry about, that's for sure. But our current home is up only about 25% in the last five years, so I don't think there's a bubble out here necessarily.

[Bubba Wheels]

http://pf.channel.aol.com/realestate...stateofmarket6

Where the bubble may burst first.

[Ksyrup]

Originally Posted by Rizon

I purchased my home in 97, and right now units in the same area are going for 548% of what I paid for mine. Yes, that's five-hundred and forty-eight percent. INSANE.

The market is starting to show signs of slowing down though (at least in the Bay Area CA). It's either going to flatten out or tank (scary).

If you bought a house here years ago, you can move back east or to NM/AZ and buy a home twice the size for half the price and make out like a fucking bandit.

Property is hot in Antarctica, huh?

[gstelmack]

Originally Posted by cartman

Another potential slam is that the credit card issuers are going to raise the minimum payment to be 4% of the loan, up from 2%. For those who have high balances, but were getting by paying the minimum, this could also push them into default.

The credit card issuers are being forced to raise their minimum payments to a point where at least SOME principal is being paid off, to get rid of the perpetudebt they've been placing some people in by keeping the minimum payment below the interest payment.

[kcchief19]

Originally Posted by MrBigglesworth

Here is another thing I am worried about:



I think we are at the top, or near the top. There are still localized areas to buy, but most people now are looking where appreciation has been strongest, which are the places that are most likely to go down.

Is at the top? Almost without question. But the expectation is not that home values will decline but that they will increase at slower levels. As you can see by the chart, nothing short of a depression causes a drop in housing values. Home values nationally will almost certainly continued to increase, only at slower levels.

Muddling home prices has been a rapid escalation in land prices, taxes & fees, and materials and other costs. All of these impact new-home prices, which have an effect on existing home prices.

Cost inflation will ease somewhat, as higher mortgage rates will decrease demand which will decrease the demand for lumber, cement, steel, gypsum and other products. I'm not sure much will drag land prices, but inflation in that area should cool a bit. I'm not sure what we can do about taxes and fees -- impact fees average about $15,000 nationwide and $100,000 in parts of California.

The market won't really cool until mortgage rates top 8 percent. Even then, unless mortgate rates go sky high, we should have a fairly steady market. Some of them demand stoked by low rates will be gone, but we will continue to create new households at a record rate and the number of households in key homeownership demographics will continue to grow.

Those of you who have seen your home values double in the last five years -- that won't last. It is possible that you might lose some of it. But even if a bubble does hit you area, it won't be drastic unless you live in area that has high home prices and goes through a calamitous economic event that drives up unemployment.

Quik -- I'm also perplexed about the strength of mortgage rates in an environment where the Fed is raising rates. Mortgage rates are very closely tied to 10-year Treasury rates since most mortgages are packaged and solid in 10-year Treasury rates. Demand has remained solid for Treasurys, which has helped keep the yields down. I don't know enough about the bond market to understand why bond rates have remained low, other than a lot of investors hedging their bets with guaranteed bond returns rather than risky stock investments in an unstable market. If the stock market makes a run and the bond market plummets, Katy bar the door.

[kcchief19]

Originally Posted by cubboyroy1826

The housing market in California is definitely sick. A couple of my friends in the mortgage industry in California say 80% of the mortgages they do are stated income because people wouldnt ratio otherwise. I know in the city of Chicago they are building 400k condos like crazy. I have a couple of clients i did loans for who put 5% down and 6 months later were able to refinance and remove the PMI. Being a mortgage broker i get asked constantly about the Option Arms that are advertised for 1.5% interest rate. These programs have their benefits for the right person but far too many of my brethren give these loans to people who a) dont understand it or b) are just using it to afford more home. The real benefit of the Option Arms is it frees up extra cash which should be used for some type of investment. Many people see the savings as extra money to buy a new car or some other non appreciating item. Basic ARMs are not bad once again for the right client. As for Ameriquest, run Forest run.

For someone who is a savvy investor and knows what to do with their money, ARMs can still be a good deal even in this market. What I worry about are people who use ARMs right now to get a lower initial monthly payment to get into a house and won't be able to afford it in two years when their payment goes up $500 a month.

Mrs. kcchief19 and I are pretty fiscally conservative with the household budget. We put down 20 percent so we wouldn't have to pay to PMI and we later converted our 30-year fixed to a 20-year fixed when rates dropped -- we ended up with a payment about the same amount.

For Joe Homeowner, ARMs right now really only make a lot of sense if you don't plan on being in your home for more than a couple of years. The benefits you receive by saving money in the short-term will be wiped away when rates go up later. The foreclosure rates is almost 50 percent higher for ARMs than fixed-rate mortgages, and that will likely go up in the next couple of years. Last year, ARMs were hot -- almost 40 percent of new-home loans were ARMs. Last I heard, that number has been cut in half now.

[Cringer]

Discussions like this make me realize there are areas were I need to know a lot more about.

All I know is we got our house cheap two years ago. Something about this neighborhood that takes a house a while to sell. God forbid people by older homes that are in a neighborhood with houses that are not exactly the same.

Wish we had some money for a down payment right now, because there is a great house a couple blocks over that has been on the market a while and keeps getting reduced.

[Arles]

Originally Posted by Bubba Wheels

http://pf.channel.aol.com/realestate...stateofmarket6

Where the bubble may burst first.

Here's another study based on house value by market:

http://money.cnn.com/pf/features/lists/home_valuations/

To those worried about real-estate "bubble bursting", I would just recommend using your 401K as history has shown the stock market and real estate are rarely ever both down. In Phoenix, our house has just been appraised 170% of what we paid about 2 years ago. Yet, most studies have shown that Phoenix is pretty much at fair value.

One thing I haven't heard much about is how many families are buying houses instead of renting. With the boom in mortgage brokers, online banking and overall "bank competition" rates are crazy low for buyers. This is flooding the market with people that may normally be renters because of the payments. Now, some may be overextending on the house, but I would bet that most have ended up with a payment similar to what their rent was and should be able to make that payment.

I think the fact that home-ownership is at an all-time high is good news for those worried as rarely do home-owners move back to an apartment perminently. This means that the market for houses will continue to be buoyed by residential buyers and not just investors.

[Cringer]

frickin' Richland, WA is on that list but not where I live.... I demand a new list.

[MrBigglesworth]

Originally Posted by kcchief19

Is at the top? Almost without question. But the expectation is not that home values will decline but that they will increase at slower levels. As you can see by the chart, nothing short of a depression causes a drop in housing values. Home values nationally will almost certainly continued to increase, only at slower levels.

Hold on now, the chart shows two distinct times when home prices obviously dropped in real terms: late seventies and late nineties. I think those changes were also enough to make them drop in nominal terms as well (I think the CA market dropped 15% nominally in the early nineties). But in any case, you can see that this is the largest bubble in the past 100 years, and if it declines to the inflation adjusted baseline (as it has all throughout the past 100 years) prices will definitely drop drastically not only in real terms but probably drastically in nominal terms as well.