The "Hot" Housing Market: IT WAS A BUBBLE AND ITS STARTING TO BURST >>

[The Cleaner]

I'm very sorry for innocent people who are left holding the bag in all of this, but as a first time homebuyer priced out of an insanely expensive housing market, I've been awaiting this anxiously.

Maybe now we who have been priced out can consider actually owning a home.

My frustration has always been that I've beeen screaming this thing is a huge market bubble and many will stumble because of it. It mirrored the tech bubble in the 90s only it was real estate not stocks. I was laughed at for calling it a bubble; but here we are today. I only wished more would have listened...

The Housing Bubble Starts to Burst
 
Okay, enough of the gloating; while the collapse of the housing bubble was both predictable and inevitable, it is not pretty. Tens of millions of people will be hurt as they see much of the equity in their homes - money that most had counted on to support their retirement - disappear. Millions more will be forced out of their homes as they find that they are unable to meet the payments on adjustable rate mortgages that reset at higher rates. People who had worked hard and saved in order to become homeowners will see their dream disappear...

Mortgage brokers were able to entice more people into the housing market with low "teaser rates" that were often several percentage points below the market rate to which the loan would eventually reset. Many homebuyers who could meet their monthly payment on a mortgage with a 1.5 percent interest rate would be hopelessly over their heads when the mortgage reset to a 6.5 percent rate...

However, the party began to end last year as house prices started to fall. The fall thus far has been relatively modest (around 3 percent nationwide), but with prices going in the wrong direction, most new homebuyers have no equity that they could rely upon to meet their monthly payments. As a result, delinquency rates began to soar in 2006. More than 10 percent of the subprime adjustable rate mortgages issued last year (the most risky category) were already seriously delinquent or foreclosed within 10 months of issuance. This is even before any of these mortgages reset to a higher interest rate.

With foreclosure rates soaring, the music is about to stop. The investors who bought up these mortgages in the secondary market are now refusing to lend more money. Credit is drying up for both the subprime and the Alt-A market, which is a notch above subprime in creditworthiness. These two segments of the housing market together accounted for 40 percent of the mortgages issued in the last two years.

http://www.truthout.org/docs_2006/030607J.shtml

[formercia]

1. For those who cashed out early and put your money in stocks

Guess what, it's gone to. Face it, we are just a cash crop for the elites, bankers and Plutocrats.

[lectrobyte]

26. They Live!

Outside the limit of our sight, feeding off us, perched on top of us, from birth to death, are our owners! Our owners! They have us. They control us! They are our masters! Wake up! They're all about you! All around you!

What's wrong with having it good for a change? Now they're gonna let us have it good if we just help 'em. They're gonna leave us alone, let us make some money. You can have a little taste of that good life too. Now I know you want it, hell everybody does.

You'd do it to your own kind.

What's the threat? We all sell out every day, might as well be on the winning team.

[NashVegas]

60. You Bring Up An Interesting Point

That occured to me, originally, when we were discussing Venezuela kicking some corporations out, and more recently, GM/GE foods.

Somehow, somewhen, capitalism went from being a system where a vendor used resources to make goods, to sell to buyers, in exchange for cash, into being a system where the *buyers and their cash (or negative cash, ie, credit)* are considered to be the actual resource. A resource they have a god-given right to tap into.

I suspect it's at least partly the result of being in the demographics age.

[Robson]

89. Bigtime NYC Money & Wall Street Owns You

Yep the housing bubble was a given and was manipulated through lower interest rates from the Fed and absurdly lax loan qualifications from the government mortgage loan guarantors like FNMA. It was instituted to suck up dollars from the masses after the market cratered in 2001 and it will cost taxpayers on loan defaults while big money will buy up the defaults, just as they did in the S&L crisis.

The big money managers and bankers get a cut out of every capitalist dollar transacted in this country. They receive the highest average compensation in America. They hold court primarily in NYC, they own America, they own the Federal Reserve and they own you. Yeah I have a tin foil hat and frankly it should be a hard hat that is what is needed. For the most part we of the non elite are serfs that pay the predominance of taxes and are manipulated by a media and money managers that have a singular interest....making more money, containing the masses in education and wealth and controlling the USA. Corporate America pays less in taxes, outsources jobs, hires less US employees and tends to support their own with exhorbitant compensation....so what good are they to America?

Americas need higher education to understand the scam, but instead America is suffering from a lack of higher education because it has become too expensive, and globalization and illegal immigration have diminished our wages. Americans will always be manipulated and behind the eight ball unless we get education.

[BlackVelvet04]

2. I don't know why anyone would ever

get an adjustable rate mortgage. Fortunately we didn't.

[The Cleaner]

4. because you could put "zero down"

I don't ever remember a time when we had zero down loans. Traditionally you save up for a house. But these days I guess nobody saves anymore, thus the only way to get them into a house is to offer these insane "creative mortgages."

Of course, with discipline one could certainly save money for a home. But today, people are more instant gratification oriented. The zero down loans came with ARMs and theoretically the realtors should have laid out the cost structure to the buyer at the time of sale. This is particularly pertinent to the "interest only" loans that enticed so many.

"You could own this home for $500 a month!" If it sounds too good to be true, it probably is.

[BlackVelvet04]

11. You can do a 0 down loan

with a fixed rate as well.

[The Cleaner]

19. right - confusing it with "interest only" loans -

which you can only get via ARM as far as I know...

Regardless, it is this kind of creative financing - all manner of tailored mortgages - that has really gotten people into trouble. I always expected to pay a downpayment on a home, to have a fixed rate that won't ever go up or down. I guess I'm a low risk person in that sense. Many others can tolerate the higher risk that comes with creative financing, ARMs, and interest-only loans where you pay the interest for a period and then have to pay your principal at astronomically high rates that keep increasing by the year.

[shireen]

23. nope ...

Maryland has a program for first time homebuyers where they offer fixed rate interest w/ 30, 35, and 40 year mortgages with interest only payments for the first few years. http://www.morehouse4less.com/

[helderheid]

16. We bought our home 0 down and have a 30 year fixed - that isn't the problem.

[rucky]

6. they're looking a bit more attractive nowadays

I just got a commercial loan offer from a bank that will only sell ARMs in the current state of things...but I'm not going to gamble on what's going to happen in 3 years.

[Lex]

32. If you only plan on living in that house/area for a few years, ARMs make sense.

ARMs are usually fixed for the first few years (often 3 years) and then begin to adjust, usually 1 point per year. Since they start out substantially lower than fixed rates, ARMS make sense for people who know they will only be living in the area for a few years, or will only be living in that particular home a few years.

Otherwise, fixed rates usually make more sense.

[sendero]

46. When interest rates..

...are at historic lows, ARMS never make sense.

[Matariki]

51. Unless of course you can't sell the house for what you bought it for

because the housing bubble burst.

[Tesha]

50. People who move routinely as part of their job...

> I don't know why anyone would ever get an
> adjustable rate mortgage.

People who move routinely as part of their job,
say every three years by virtue of being reassigned,
can do well with ARMs because they (usually) start
out at a lower interest rate than a fixed-rate
mortgage. And if you're *CERTAIN* you're going
to sell the house before the rate goes up, where's
the harm?

Here in the Tesha family, though, we pretty much
stay put so it's always been a fixed-rate mortgage
for us.

Tesha

[demnan]

3. The problem is with interest rates

when the housing market declines, like it did in the early 1990's it is often accompanied by higher interest rates. You saw lower prices at that time but unbelieveable interest rates like 16 or 18 percent. When the interest rate is that high the cost of a fixed rate mortgage is higher than if you bought into the higher priced market over the last few years with say a 5 1/2 interest rate.

So I wouldn't gloat too much. What is happening is that the economy is about to go into the toilet to pay for the Iraq and Afghanistan wars. You will see higher interest rates, so if you can, I would buy now, before the money gets even tighter.

The easy money days are about to end. I think that is what the drop in the Chinese market signalled.

I could be wrong.

[Virginia Dare]

7. No, I think you're prediction is pretty accurate..

and the banks and financial industry have been anticipating this for several years now, which is why they rammed the bankruptcy Bill through the Republican Congress when they could. I very much hope that law can be repealed. It is going to be disastrous for many Americans in the coming year or so.

[sendero]

45. Bankruptcy...

... is not applicable to secured debt like a mortgage. Folks who cashed out with equity loans would have been screwed regardless.

The banks had been pushing for that "reform" for several years.

[LaPera]

65. But old bankruptcy laws would of gotten rid

of a lot more debt (than todays laws do) and that would help one out with their mortgage payments.

[bigscott]

8. there is nothing wrong with zero money down

I could have put down 20% but used the down-payment money to fix the house. After 1 year I refinanced my 30 year fixed PLUS ARM to another 30 year fixed. the money I spent on the house was well spent, increasing the value of the house. Zero money down is fine IF YOU CAN AFFORD THE HIGHEST POSSIBLE PAYMENT UNDER YOUR ARM. Otherwise you are gambling that the market will go up, gambling that your income will go up and gambling that interest rates will go down

[BlackVelvet04]

12. We did a zero down mortgage with a fixed rate. n/t

[RaleighNCDUer]

9. But if you buy, and borrow, now make sure it's fixed rates,

not adjustable - that's what's killing people now, finding their adjustable rates are putting their own homes out of their own income level, forcing foreclosures.

[The Cleaner]

15. Easy money days are over, yes - BUT...

I disagree that it's a good time to buy. Who wants to buy into an asset they know will only decline in value? And with prices having gone so astronomically high, they have all that much further to fall. Home prices will fall much faster than interest rates will rise.

Here in Texas, property tax is astronomical. I personally believe it is forcing some into foreclosure, and I've heard (at least around the big cities like Dallas) from others that their property taxes in the "hot" areas of the cities has gotten too out of control. It is such an issue that apparently the Texas Legislature is considering property tax caps.

Texas doesn't have a state tax, so it makes up for it in high property and sales taxes. But even in Northern Virginia where I used to live I heard stories of elderly folk not being able to make it because even if their house was paid off, the property taxes they were paying (due to ever-increasing appraisals) was climbing too high too fast for their fixed incomes.

[Rosemary2205]

30. It's expected after 40 yrs the taxes will equal the former mortgage.

This is certainly not true everywhere. So far in my locality property taxes have stayed affordable. But every financial planner I've talked to has told me after 40 years in a house you should expect your property taxes to cost you what your mortgage did.

This was roughly true for my parents. They bought a house in the 1960's near Atlanta and the mortgage was $138 a month - which is $1656 a year. Last year the property taxes were right around $1700 for the year.

[RaleighNCDUer]

5. Channel flipping on my way to the Weather Channel this AM

I caught some guy on CNBC talking about how the sub-prime collapse was a GOOD thing, because it will get all the high risk players off the field, and because they were high risk they DESERVED to lose.

And there would be no negative reation because people would have more confidence in what remains.

To me that sounds sorta like "Yeah, that tornado tore off the roof and collapsed 3 walls, but this wall that's still here is one we can DEPEND on!"

[bigscott]

10. yeah and 2 brazillian

foreclosed houses flooding the market at BELOW market rates. Banks don't like foreclosures because they DO NOT want the property - they want the money

[Jackpine Radical]

14. A good time to buy...if you have CASH!

[formercia]

29. Uncle Sam will cover their losses

It's not their money. They get their commissions both ways. It's all about moving money.

Just print more and turn inflation into equity.

[Atman]

13. We rent our primary home

Relocated to a high-priced area of CT and simply refused to pay half a million dollars for a three bedroom ranch. I knew it was all bullshit. Unfortunately, we weren't in the financial position to be house-flippers, although they are the main source of the problem, artificially inflating prices. So we decided to wait. Now if we dive in, we may get stuck with a terrible mortgage on a house that is still declining in value. *sigh* I only hope our landlords are paying their mortgage! Yikes.

.

[kwassa]

17. I don't think it is a bubble at all, just a market correction.

I don't know of any reputable economist or housing expert who ever really thought of it as a bubble. It depends a lot on the local market, as well, as conditions are not universal.

[The Cleaner]

21. Do you know the signs of a market bubble?

If you did, you wouldn't be saying that.

[Rockholm]

28. It all depends on where you are.

I was just visiting friends in your neck of the woods, Cleaner. All the teardowns and rebuilds in Highland Park and neighboring little areas. There is so much wasteland in the Megaplex that I don't get why people would destroy cute neighborhoods and put up ugly new houses.....on speculation. That would be a bubble building in your area.
On the East Coast where I am, prices have skyrocketed. We also have very high home ownership rates, very high salaries and an economy that can support the market to a large degree. People want to be in Boston, New York, San Francisco, etc. I would hazard that most people who bought a home in the last 10-15 years will do quite well when they decide to sell.
Speculators are the ones driving the market up. Have you seen that stupid show "Flip this house?" Flippers are flopping.
If you are a regular person in search of a HOME, now is a great time to buy. In my little corner of Massachusetts, inventories are down. The law of supply and demand means that prices will start to go up.

[joeunderdog]

38. I think I'd respectfully differ on a few points.

Interest rates aside, we're only about 10% from the all-time high in housing prices, so it's not that great a time to buy. Sure the prices have (ehem) "dropped", but they are higher than at almost any time other than 2 years ago. A nice house for a family of 4--2200 sq ft--will go about a half million north of boston. People are leaving this part of the country for that reason. Bad value in the housing market in Massachusetts is why this state is losing population. I keep hearing how the depressed housing market is great for buyers right now, but they forget to mention that houses have doubled in price from 7-8 years ago. It's a ruse. You're only depressed if you're a buyer.

The way I see it, a huge correction or a bubble bursting, whatever you want to call it, might make homes affordable for regular people around here. My wife and I make above average money, but the insanity of the housing prices has left us renting at $1450/month and feeling like it's the smart move right now.

[sendero]

48. I agree...

. I would not be in a hurry to buy. There is plenty of room for more price depreciation, the drop has just begun.

[NashVegas]

62. It's a Harsh World In the Exurbs, for Natives

Markets that people grew up in, and didn't go away to college and aren't making 60k + salaries, there's a crunch happening.

This is what's going on right now in my hometown:

"After considering typical local costs for principal, interest, taxes, and insurance, a household income of $88,000 is needed to afford a new home, and a household income of $57,484 would be needed to afford an existing sales priced home in Queensbury.

Using the 2003 annual median income for a 3 person household of $44,000 the maximum a house would need to sell for would be $109,200."

http://www.queensbury.net/Housing/Executive%20Summary.htm

[Zynx]

43. Incomes aren't THAT much higher in the heavily priced areas.

The fact is that for example in LA, something like 85% of people can't afford the median house price. That's very wrong. In New York, it is a similar, though lesser number. I would venture to guess in Boston it is fairly much the same case. House prices are a function of income first and foremost. Sure, location matters, but only to a degree.

[Lex]

33. I've been posting here since 2001 and nearly every month someone posts

about the housing market crashing down around our ears.

[Zynx]

44. They were finally right.

The correction in the housing market is the most severe since records have kept data.

[Warren DeMontague]

57. Well, I'm sure you know the California real estate market better than I do

but I could swear we haven't seen a terribly significant drop in prices out here.

[Warren DeMontague]

55. Yeah. That and the imminent war with Iran.

Sometimes you can't throw a stick in here without hitting a veritable gaggle of Nostradamuses.

[kwassa]

37. I read a lot about real estate

The most expert of the experts are divided; there is no solid consensus. However, none of them say "bubble", and most of the disagreement is to whether or not the market has finished dropping, or will drop a little further, and continue to fall somewhat for the next couple of years. I have seen little talk of more extreme conditions than that.

[Zynx]

42. When home prices nationwide are down something like 5% year on year

meaning a real(inflation adjusted decline) of 8%, that's pretty serious. That means that certain markets have declined considerably more since many are flat to slightly higher.

These same analysts often said there would be no price declines at all.

[Zynx]

41. It certainly was a bubble.

Certain markets far exceeded their underlying fundamentals. Median incomes across the board have been generally flat for about eight years now and home prices have surged in the same period of time. In more than 40% of the states, prices increased more than 15% two years in a row, more than 3x the normal rate of increase. Some states, the entire state saw home prices rise 20, 30, 40, or even 50%! This is all without fundamentals supporting this increase, or if they did, a much smaller increase than transpired. To simply dismiss it as several local phenomena is wrong. Markets were or still are overpriced in major areas of MA, NY, CT, NY, PA, NJ, MD, VA, FL, CA, IL, even MI, CA, AZ, CO, WA, NV, certain parts of GA, and WI(condo market). That's a pretty big list of "regional" problems.

[ChicagoRonin]

18. Is it just me . . .

. . . or would this problem been avoided if the majority of people in this country viewed house-buying as purchasing a HOME as opposed to an INVESTMENT? When I talked to my parents (father from rural Hawaii, mother from South Korea) their attitude towards buying a home was a place to settle down after marriage, live out their long years of work and rest, raise their family and see them off. During my childhood, the neighborhood was filled with a large number of older retiree couples (people from the Donna Reed generation) who all lived according to this idea. They kept their houses in good repair (without extravagant additions or upgrades), paid their taxes, and seem pretty comfortable. The majority of folks I meet these days in my own age and peer group all seem to view home-buying as a form of income-growth and speculation. No one seems to have any intention of settling down for the long-term, becoming part of the community or planting roots. That's an investment that goes far beyond the money put into the home - but I don't see that being valued these days.

[Tyrone Slothrop]

27. Not just you

I've been seeing the same thing.

And my parents actually bought their house as a place to live; they paid it off early and still live there. Which has given them a very comfortable and stable retirement.

[yardwork]

34. I think that our country's whole approach to housing is insane

I'm recently divorced and seeking a place to live for the rest of my life. I don't need more than 1,000 square feet. In my opinion, nobody needs more than that - that's plenty of space for a single person. I love my apartment, which is 820 square feet, including two bedrooms, one bathroom, a small kitchen, a dining table, and space for some easy chairs, a cabinet, and lots of bookshelves.

When I was growing up most American families lived in houses not much larger - four people easily shared 1,500 square feet with a bathroom or two. Siblings expected to share bedrooms. We played outside most of the time, anyway.

Now the most "basic" house is 3,000 square feet or more, with each person expecting their own bedroom and very own full bathroom, extra rooms for home offices, media rooms, libraries, dens, bonus rooms, wet bars in every corner, three car garages, and I don't know what else. And decks that nobody ever sits on. Nobody ever walks on the chemically-treated lawns or smells the chemically-laden roses planted and maintained by the lawn care company.

And all these enormous houses are heated and cooled with combustion-based fuels. The enormous expanses of roof bake in the ever-hotter summer sun without a single solar panel to capture one iota of that energy, while the air-conditioning gets notched up inside. Millions of gallons of rain water pour off the half-acre of concrete into drainage ditches.

My dream is to find a neighborhood of small houses for singles, couples, and families that includes modest living spaces that are actually used every day (no empty rooms full of mail-order furniture that nobody ever sits in), equipped with emerging energy technologies including passive and active solar, wind, etc., with a communal vegetable garden and small private patios with herb and flower gardens where people can genuinely relax at the end of a day's work and read or talk with their families, friends, and neighbors. Access to public transportation would be nice, too, so that I didn't have to get in my car to go to work, the grocery, or the dentist.

Isn't that really what most people want?

[La_Fourmi_Rouge]

40. This is a great post!

My Mother and father raised 12 kids in a house no larger than 1500sf. It was ample - for a family of 14 total plus the scores of friends we attracted, and our cousins and their friends. I bought my house in '89 - it was exactly 790sf and just fine with me - clean and neat and pretty. I could heat it with a candle and cool it with a glass of ice-water.

I got rid of my car in 1997, got on a bicycle, and never looked back.

I sold my pad in early 2004 and made a bundle. Then I moved to Lyon and burned most of it eating and drinking my way up and down la Croix Rousse. Best decision of my life, no question.

[Virginia Dare]

66. Don't forget the gourmet kitchens...

that nobody cooks in..:crazy:

I agree, we've gone way overboard with our living spaces.

[KansDem]

71. Look at the movies coming out of Hollywood.

My family doesn't really go out to movies much; we rent or borrow movies for our weekend entertainment. Of late, though, I've made an effort to watch some new releases (last 5-10 years or so). Just a sampler:

Click
Cats and Dogs
Spanglish
Zarthura
Jurassic Park III

What I've noticed with these movies (and others I haven't listed here) are the huge houses with huge kitchens. Nice, big homes for a small family (parent(s) with 2 kids, or so). And one or two late-model automobiles sitting in a two-car garage on a well-manicured lot.

My family of 4 lives in a 1,100 sq. ft. home built around 1952. We have 2 bedrooms and 1 bath and are currently converting part of the garage into a third bedroom (barely meeting code). When I see these movies I think "Who the hell did the producers have in mind when they created these 'typical' families?" Maybe these two-story homes with 4 bedrooms and 3 baths, and a huuuuge kitchen with one of those "islands" in the middle (for additional surface space), are standard fare for 'typical' families where they live, but for this 'typical' family, there extravagant. I think to myself "Why don't they come into my home and film a movie depicting a "typical" family, then I realize they couldn't even get a single camera into my house!

Anyway, anyone after watching a few of these movies would leave the theater thinking that's the kind of house they need to be "typical."

[Virginia Dare]

73. Good point..

there was an article in the Home Section of the Washington Post recently about how the upper crust are having their kitchens and homes made over to be exactly like Diane Keaton's in Something's Gotta Give.

[Lex]

35. Since most people now move around with their jobs

MUCH more so than have a 30 year job with one company, then of course that is why people move.

It's not that they eschew community or putting down roots, but that the job situation/economy is different than in the last generation. It's much less common to have a 30 year 'company man' (or woman) now.

Companies open and close more often and people move around more due to that.

[blondeatlast]

47. I read recently that first-time buyers in middle income brackets were looking for a MINIMUM

of 2500 sf. A MINIMUM. Cripes.

I'm with you--it's my home, and if it never gains me another dollar I will live happily ever after.

[InkAddict]

90. It's too bad that the companies in those same areas

didn't view their "homes" in the same way. In my experience (I lived in a "B" town, Midwest), the corporations involved in manufacturing and services were merged into corporations in "A" towns. Then what may have remained of that corporation was then purposely downsized, then again right-sized. All along the way, while those "A" town corporations pimped for their profits, blackmailed communities for tax abatements in order to build new structures in other burbs, and cheap foreign labor, American employees in the "B" towns were left holding the bag. How does one make a committment to that type of life-long ownership when one can't count on employment?

My FIL had one single employer, in manufacturing, for 50 years. Just try that now! Spouse and I held multiple jobs in services that have been decimated by outsourcing. I no longer have any confidence in putting down the roots you speak of that are involved with any type of home ownership. Having moved away from one home where I thought we had "roots," then struggling to save the next one from foreclosure three times as the jobs went East, I've decided there's nothing better than to ride the rails of renting until we bite the dust. I have no delusions of a retirement in place; I foresee carting a bed to the next lower-cost housing project. I hope the kids won't be forced to endure housing our final diseases.

[natrat]

20. subprime weakness translates into lower income housing weakness

read: places like san fran have seen no decline in prices while 40 miles east in solano county prices off a noticeable amount

[shireen]

22. to buy or not to buy?

i'm a first-time home buyer in Baltimore County, MD. It's been a very frustrating process so far ... the way homes have appreciated is totally outrageous. I'm trying to decide if i'm doing the right thing buying this year or not, and everywhere I've looked (other websites, blogs), I have gotten the same kind of conflicting opinions in this thread. I'm so confused!!!
:banghead:

[The Cleaner]

24. Baltimore!

I lived in Columbia for awhile, it was nice. Baltimore is known to be far less expensive than DC although I'm sure home price appreciation has gone up there too.

I would personally wait it out awhile due to market volatility. I predict this thing will go down further, all the pros are saying this too. You don't want to buy into a home only to have negative equity...meaning the home is worth LESS than you paid for it. Already I have heard in some cases home values have dropped 100K! That's substantial. Good things come to those who wait.

Damn I kind of miss the Inner Harbor now with the aquarium and all. And it's fun driving the Baltimore Beltway, then heading down I-95 and taking the DC Beltway. It's like night and day!

[Rockholm]

25. Buy.

[BlackVelvet04]

31. I would offer this advice.....

Keep looking until you find what you really want at a price you think is reasonable. We looked for over a year. This was during the feeding frenzy that was going on about 3 - 4 years ago. We refused to buy anything that we didn't love and we refused to be pushed into the frenzy of bidding wars. Our patience and persistence paid off.

We had driven into the country to look at a house I had seen on the internet, one we ended up not liking. While in the area we saw another house that wasn't for sale that we both thought was beautiful.....5 months later the house went on the market. I saw it on the internet the first day it was listed, we drove out in a snow storm to see it, put in a bid within a couple of hours and the bid was accepted within another two hours. We've been here for 3 years and even in the more depressed market today the house has appreciated $42,000.

Even if the house hadn't appreciated I would still love it and would still know it was the right house for us.

Be patient, be persistent and only buy what you love. It's your home, not just an investment. Get a home inspection. Shop around for loans. The tax break makes the home purchase better than rent and if it appreciates in value that's gravy!

[aikoaiko]

36. I'm not worried. The war will end, peace will come. things will stabilize and grow once again

Look at the other home price corrections. Its short lived, not much of a drop, and things start to increase again in the near future (a couple of years).

[WinkyDink]

68. I should live so long.

[RawMaterials]

72. This is a reflection of over all inflation since drooping off the gold

standard in the 70's it cant go on for ever. Just imagine if you bought a house
now for 250k and in 10 years it was worth 50k in our new shinny north American union dollars.
That aren't worth 1/10 of what an american $ today is.

[GreenPartyVoter]

39. I hold little hope of houses ever getting down to $100k in this area

[David Zephyr]

49. I hope you can soon purchase a home, but there is no housing crash.

There is no national crash in the market. There are some markets that were overheated. Still, others are still seeing appreciation. Indeed, inventories are reducing again, even in Southern California.

I do not know where you live or know how much of a crash you are hoping for before you will buy a home, but every year that you miss out on owning a home, you miss out on mortgage interest deductions and tax deductions from your gross income, which in some states can amount to 1/3 of one's income.

I hope that you can buy a home.

The author of the article cherry picks information to make a point that most all real estate professionals and experts would disagree with.

Nearly 3/4 of all homes in the U.S. are owner occupied where the occupants either own their home or have 30 year fixed loans. Many people confuse ARM's and Interest Only Loans. The latter accounts for a minuscule percentage in the overall market nationwide.

Builders began to back off new developments eighteen months ago further reducing inventory pressure on the market.

I believe that there will be still some slide (maybe 5% to 10% in pricing in SOME markets around the country. But the hard facts are that home prices in many areas are still appreciating, while not at the crazy 20% - 50% a year, but still appreciating.

If you are serious about buying a home, and depending on where you live, waiting for a magical and mythical bubble to burst in order to do so is a faith-based proposition at best, and an economically bad move at worst.

Where do you live? What are you expecting to buy? How much can and will you pay?

[Warren DeMontague]

52. Yeah. Houses are gonna be FREE! Especially in places like California!

Sorry, dude, I hate to burst your bubble, as it were, but you inadvertently nailed the situation in your first lines:

"but as a first time homebuyer priced out of an insanely expensive housing market, I've been awaiting this anxiously.

Maybe now we who have been priced out can consider actually owning a home."

Um, yeah. You and millions of other people. Millions and millions of other people. All waiting to buy houses. Know what that is? That's demand- as in market demand. Prices may stabilize, they may drop a bit in some places, but the idea that the floor is going to drop out and we're going to see a massive devaluation in real estate... I just don't think that's gonna happen. Particularly not in places like California; from my experience, there's always more people who want to live here than there are available places for them to live.

[ProfessorGAC]

53. It's Not Going To Happen Anywhere

It's not going to happen in Cali, and it isn't going to happen anywhere else. The prices will fall a bit on second sale homes. The appreciation the buyers expected at purchase will not materialize, but the bubble bursting is a function of the valuation curve flattening. The home will still be worth at least what people paid for it in the first place.

The problem that also exists is the oversizing of homes. Everybody having to live in a 2,800 sq. ft or larger home means each one needs a slightly bigger lot, more materials, more time, etc. So, the actual building costs are higher and the value of the home will never fall below the value inflated by sheer scale.

The sudden, "now i can afford a home as prices plummet" just ain't gonna happen.
The Professor

[Warren DeMontague]

54. That's exactly what I'm saying.

I think some folks are expecting to see prices drop to, say, 1995 levels. Only way you're gonna get that is with a time machine.

[ProfessorGAC]

56. Yeah, I Know. I was Agreeing With You

Just adding to your comment.
GAC

[librechik]

59. the average deflation in a burst housing bubble is 14%

and it is highly sensitive to location--the choicer spots NEVER deflate. (like Aspen, Vail, Manhattan, San Francisco etc)

Sad, but something more substantial is going to have to be done for lower income folks who need housing, and the folks to do it are in Congress right now. We need rent/housing subsidies and we need them fast.

[raccoon]

76. Well, thank you!

"The problem that also exists is the oversizing of homes. Everybody having to live in a 2,800 sq. ft or larger home means each one needs a slightly bigger lot, more materials, more time, etc."

[Nye Bevan]

78. I bought a condo in CT in 1991 for $178k

The previous owners has paid $240k for it and it had been worth $295k at one point.

I would not have been able to afford to pay $295k for the condo. But I could afford $178k.

Therefore, as home prices plummeted I was able to afford a home.

I am not saying that this will happen this time, as my ability to forecast real estate prices is similar to my ability to forecast stock prices, bond yields and FX rates (i.e. non-existent). But as my experience shows, it can and does happen that waiting for prices to fall can pay off.

[taught_me_patience]

64. Yeah home prices never decline in southern california

Average home in beverly hills 1990: 1.2mil
Average home in beverly hills 1996: 800k

[Warren DeMontague]

81. And, then, what was the average in 2000? 2006?

You left that part out.

And those "average" home prices in places like Beverly Hills are skewed, anyway, by the ridiculous properties at the top end of the spectrum which fluctuate wildly.

Hey, you know, if you think all of a sudden real estate prices are going to halve in the most desirable, prime markets in the country, then by all means.. keep sitting around waiting. But don't be surprised when 10 years down the road they're even more expensive and out of reach.

[taught_me_patience]

82. Are you one of the 10 million realtors is LA?

You said housing doesn't go down in California and I showed you a statistic that completely contradicts your statement. Housing has been cyclical in LA for the last 50 years. Are you saying there aren't housing cycles any more? I'm not worried about the prices of homes in LA because I'm 28 and make 75k+ and my fiance is 29 and makes 130k+. If in 5 years (when I'm ready to buy) we can't afford a home on a 250k combined income, then I'll be worried. See... what you fail to understand is that homes prices cannot exceed what incomes in the area will bear. Affordability is already at an all time low.

[Warren DeMontague]

86. No. I didn't say housing "doesn't go down in California"

I said that the people who are expecting the bottom to completely fall out of the prices are fantasizing.

I don't know from L.A., however- you guys seem to have sort of a different philosophical approach to things down there than we do up here. Silicon Valley notwithstanding, most places try not to cram every single available inch of land with development up here.

[taught_me_patience]

87. Average price falling 30% is not

"bottom falling out"? Losing 400k in 6 years is not "bottom falling out"? I expect prices to decline 20%-30% in LA over the next 5 years. That's bottom falling out to me.

[Warren DeMontague]

88. Like I said, I can't speak for Los Angeles.

Got some good friends down there, but frankly I'm not a big fan. Too damn many people as it is.

[taught_me_patience]

84. Oh yeah... the CEO of Dr. Horton doesn't agree either....

http://biz.yahoo.com/ap/070307/dr_horton_outlook.html?.v=2

NEW YORK (AP) -- The chief executive of the nation's largest homebuilder by volume said Wednesday that 2007 would "suck" for his company, providing the clearest signal yet that a recovery in the battered sector is farther off than many thought.


housing bubbles take many years to unwind, just like the last one in 1990. The trough wasn't reached until 1996!

[Nikki Stone1]

58. I agree with this article, including the idea that we are at the BEGINNING of the slide

I just wonder what the time frame is on bottoming out. Another year or so?

[GreenTea]

61. All this talk means absolutely nothing. IF...the Fed lowers interest rates!

If they don't lower rates, most people will be fucked...If rates do go down most people can hang on through the depreciation period which will last a long while....

But, inevitably home values will rise, but who knows when, How long can one hold out.

The rich are making money on both ends...as we, as always get fucked and pay for it all.

It's all about the interest rates...What the Fed wants to serve up to the rich.

[GreenTea]

63. Personally, I've been ecstatic having an ARM for the past 12 years when I bought my home...

I live in California and was able to put a huge down payment 12 years ago....I saved tons of money having an ARM when interest rates kept going down, so I was able to use much of that savings, putting it back and paying off some of the principle...I saved a shit load of money....I couldn't of done it with a fixed loan, as my ARM interest rates were going below what they would of been had I gotten a fixed...Now, even as interest rates rise, because my principle had been lowered because of the ARM I'm still able to put a little more towards paying off my principle each month...nowhere near as much, but anything helps as interest rates rise...

Even getting a fixed loan now by refinancing would suck for me, because I was able to pay much off much on my principle with the ARM that trying to refinance and get a locked fixed would cost me - I would have to pay them 5 or 6 grand in closing cost, appraisal fees, points, etc plus today's interest rate on that 5 or 6 grand through the course of the loan for a fixed...That is just money wasted to me!! That same 5 or 6 grand would again, better serve me going towards my principle while staying with my ARM, as interest rates would effect me less with that same cash going towards lowering my principle.

And since my ARM has a ceiling...I'll continue to add a few bucks each month towards my principle...so the interest rate increase won't affect me as much, I'll be able to keep my payments somewhat stable...I couldn't of been in this position starting with a fixed 12 years ago, as interest rates kept falling.

I'm happy I went with an ARM....It's been great for me!

[WinkyDink]

67. Probably why my County Commissioner wants a quick re-assessment done---to beat the bust.

That would be Northampton Cty, PA.

[matcom]

69. it isn't a burst

it's a correction. bought our home for $135k 10 years ago. 2 years ago I could have gotten about $380k for it.

today I could get about $350k for it. 2 years from now i'll probably be able to get $380k or higher.

but this IS the Northeast

[Gormy Cuss]

74. Yeah, but the bubble bursting analogy is so much sexier.

The truth is that it was a bubble in very few markets. Places like Eastern MA will rebound quickly, therefore it wasn't a bubble. Same deal in the Bay Area, where the 'slump' means that my house only appreciated by 2% in the past year, as opposed to the 12-20% appreciation in each of the previous five years. There are pockets where the bottom will fall out and the prices will not recover for five to ten years but in most of the country the change won't be that dramatic.

[LibDemAlways]

70. I currently know three people who have homes on the

market that aren't selling, and if they asked, I'd tell them why. They are vastly overpriced, and potential buyers are wising up and refusing to pluck down huge money for homes that have topped out in terms of what anyone is currently willing to pay for them. One is a fixer in a ritzy gated area my friend bought a decade ago for $470K. She's asking $1.5 million. No takers. Another is built on a zero lot line, meaning you can practically hear the toilets flush next door, and there's no back yard. She's asking over $800K. The third is in a Country Club Las Vegas community. That home cost $420K new five years ago. Asking price - over a million, now reduced to $900K and still unsold. People who are willing to be realistic about what their homes are worth in the current market will sell them. Sellers looking only to turn their homes into lotto sized jackpots are currently out of luck. In real estate timing is as important as location.

[NewJeffCT]

75. We're in a different price category, but we've gotten 4 offers on our home

We're moving from East of Hartford, CT to West of Hartford, CT because both my wife and I have gotten jobs West of Hartford within the past year and it will save us in gas now that we don't have to each drive an hour each way each day.

But, our home was offered at $400,000 and we ended up getting $392,000 for it. We bought the home new 2 1/2 years ago for $330,000. This is a fairly small (13,000 pop) exurb town in Connecticut - so, there was not a huge demand to move to this town.

The home prior to that I had bought for $120,000 in 1997 and sold it for $225,000 before moving into the home we bought for $330,000. I had sunk a good $30K into that home for new windows, vinyl siding, a new boiler, central air, etc, however.

That said, the market has definitely slowed down - prices are only creeping up, and homes are on the market longer than 2 years ago.

[LibDemAlways]

77. Ultimately the market decides what a home is worth.

The people who offered you $392,00 for yours believed that was reasonable given the neighborhood and upgrades. Sounds like you priced the home realistically and were ready to move.

None of the people I wrote about is as yet that motivated. They're all still hoping for a sucker to come along.

[RC Quake]

85. Very good points

My spouse & I bought in 2000 with the intention of living in the same home ntil retirement. We paid $225,000 then and had an offer of $850,000 about a year ago. It was not on the market. There is no way I would have sold a house that is clearly not worth 4 times what we paid for it to some poor schmuck. Of course, now it's back down to the low $700,000 just a year later. By the time we are ready to sell, maybe it will be back down to what it's really worth.

[Leopolds Ghost]

79. What I love is all these people on DU discussing the pros and cons of buying $500K houses

As if they were discussing stocks, or betting on sports.

Houses are a resource to be lived in.

Turning our neighborhoods into vehicles for yuppie speculation just hurts other people.

The fact that you can't find a better place to put your retirement money because all inflation in today's economy has been confined to the real estate sector is not our concern.

[distantearlywarning]

80. Depends on where you are.

I live in Pittsburgh, where we've never had a housing bubble to burst. We are one of the few markets in the nation predicted to increase in 2007.

We are closing on a home in April. It's a 1200 sqft, 1925 restored carriage house with 2 bd, 1 bath in a good neighborhood. We'll have a 4 garage spaces, and a little yard. We're paying 95K for it.

We're buying just a little lower than the median home price here. But they have fancy houses here too. Here's what 1/2 a million will buy you in Pittsburgh: http://www.mcnutthome.com/

[judaspriestess]

83. STATED INCOME

loans are the ones with ARMS. Many people are forced into stated income loans in order to qualify for the mortgage due to the price of the home. You can't buy a $350K house making 15.00 an hour with two incomes at that unless you have a SUBSTANTIAL down payement of 20%. Its not the rates its the prices that drive the type of loans people get.