Chief economist for Mortgage Bankers Assn sells home in order to rent

[cute fuzzy bunny]

http://news.yahoo.com/s/latimests/i...3YDW7oF;_ylu=X3oDMTBiMW04NW9mBHNlYwMlJVRPUCUl

He expects huge reversals in real estate bubble areas and is selling his DC area home in order to rent.

Wow.

 

[HFWR]

I feel pretty secure with my current situation, but if the "value" of my home doubles in the next year, I think I'd sell...

 

[cute fuzzy bunny]

I'd love to sell and rent, if I didnt actually have to move and if I could find a rental that would take three people, three dogs and three cats...

But then again I 'called' the end of the bubble in the bay area 5 years ago (so much for that), then end of the bubble in the sacramento area 2 years ago, and feel like its topped out where i live now. So far I missed on those first two predictions, maybe this thing still has legs.

However I was feeling last year like I felt when the nasdaq hit 4000. When it hit 5000 and I thought 4000 was well beyond insanity, it was definitely time to get the hell out. Now that prices have gone up another 25-30% in most of the region, maybe thats nasdaq 5000 for the housing market...

What stuns me is the fairly public disclosure by one of the last people you'd want to have shouting about getting out...

 

[laurence]

I just finished reading an article talking about "option ARMS" that allow you to pay less per month than you actually accumulate in interest, i.e. you owe more at the end of the month than at the beginning. It sets an artificially low interest rate of 1% for one month and then it goes up to 5.5% or therabouts for 5 years, then balloons to make sure you pay off the loan in 30 years. This allows your payment for 5 years to be set at that 1% rate. The article went on to say that the majority of loans funded now are ARMS, and most of that subset are these option ARMS. It makes sense, most people don't know how much their car cost, just what the payment is. Could be that as long as lenders can creatively finance people into houses, the market will still rise. But when the 5 years are up, what then? Re-finance?

 

[Dreamer]

I had a relative in the DC area that sold their home last week. They paid $102,000 for their home in 1986 and just put $15,000.00 in it to spruce up and sold it for $405,000.00!

They were definitely in the right place at the right time. I have heard that housing prices are up in my area, but nowhere near those prices!

Dreamer

 

[cute fuzzy bunny]

Laurence, that sounds like a very near relative to the 'interest only' mortgages that I heard were about to become more common than a regular mortgage. In those, you pay ONLY interest the first few years, then you have some catching up to do. Generally your first payments are about 20% cheaper than a regular mortgage.

The pitch is you can afford more home up front, without a higher payment. Later when you are making more and inflation is making those mortgage dollars worth less, the higher payments wont feel so bad. In the meanwhile the bank makes a lot more on the interest. Sounds pretty good, no? Unless of course inflation doesnt take off, wage increases arent anything to write home about, and/or the bottom drops out of the RE market in your area. In that case you'll probably get to experience first hand the joys of the new bankruptcy laws...

 

[vic]

I had a relative in the DC area that sold their home last week. They paid $102,000 for their home in 1986 and just put $15,000.00 in it to spruce up and sold it for $405,000.00!

That means the home including improvements appreciated 6.8% per year (assuming same appreciation for 19 years). Not bad but I guess most of the growth came in the last couple of years??

Vicky

 

[Nords]

Hey, can he be the chief economist for a mortgage group if he doesn't have a mortgage?!?

Good article. It's interesting that they quoted several others who were similarly omniscient, only way early. By three years or more...

I think they're calling the top by focusing on valuation & P/Es. Bad move. I think they need to focus on all the easy credit sloshing around plus two-career couples bidding up the houses in areas near "good" schools. The payment ratio for a two-earner couple today is about what it was for a single wage earner in the 1980s.

So I'll call the top when we see 8% mortgages and rising unemployment. Although for the last year we've been looking at a sign for "Mililani Hillside" homes that's literally carved into the side of a cliff. Just a few more permits and they'll be ready to start excavating (blasting?) the road up to the top of the bluff, and then they can start building! Which will be easy to do, since I think that most of the homes have already been presold. I just wonder how they guarantee that the whole thing won't be sliding back down onto Kam Hwy.

 

[cute fuzzy bunny]

We get that a lot here in CA. They do end up sliding down but its because they're building into hillsides made of unconsolidated soil and the rain/mudslides take the homes and the pilings they're built on down hill.

We had an amazing set of them off of route 50 between sacramento and lake tahoe. Some yahoos had built a half dozen homes up on a hill by digging in. About 2 years later we had record rains. All six homes slid down about 600 yards to the edge of a runoff river below. Unless you looked closely, the homes looked nearly perfect. When you stopped the car and looked real close, they were all crumpled and misshapen slightly. Last I heard the people 'abandoned' them and the state was trying to charge them a fortune to tear them up and remove the debris.

The following year we had bad rain again and the hill on the opposite side of the river completely moved - thousands of tons of earth - shifted forward about 1/4 mile in a matter of seconds. Blocked the road and dammed the river for several days. Fortunately nobody was on the road at the time; if they were, they'll be seen again in a few hundred years perhaps.

Damn fool place to build.

You see it all over the bay area and the LA area...homes dotting little hills...all with a ticking clock...

 

[Martha]

I would call a real estate bubble when:

--people start buying homes for investment, solely to flip, not to live in

--when rents are not keeping up with housing prices

 

[wildcat]

Berstein's Four Pillars - conditions necessary for a bubble that can be applied to current real estate environment:

Liquidity - easy credit; low int and banks opening the vault to any and all people

Amnesia for last bubble

Abandonment of time-honored methods of valuation - usually caused by inexperienced investors, how many people and mags now talk about real estate? Last time I checked a lot more than usual.

Investors begin buying assets simple b/c they have been going up - very true in certain markets

Fuel for the fire is usually borrowed cash or margin, i.e. home loans with very little down and owners who will have a hard time paying or flippers who work off leverage

 

[Michael]

The fed tried to bump up interest rates to engineer a soft landing, but China kept the US long bond rates down (mortgage rates track the long bond rates). This is likely to continue for awhile yet, since Chinese leaders fear a revolt if unemployment creeps up too much. They have to keep their currency from going higher against the dollar to keep their factories humming, and they have to keep US interest rates down by buying long term treasuries to accomplish this.

 

[cute fuzzy bunny]

Here ya go Nords...
http://news.yahoo.com/s/ap/laguna_b...oYDW7oF;_ylu=X3oDMTBiMW04NW9mBHNlYwMlJVRPUCUl

A look at the future. Dont buy that real estate. Dont buy any real estate downhill from it either.

 

[Nords]

A look at the future.  Dont buy that real estate.

I should clarify that we were just eyeballing the sign, not the property it's advertising. They're actually going to carve an access road up that cliff and then "stabilize" the land around it. Yeah, you bet. I bet the road plan is the part that's been holding up the permits.

As for Laguna Beach, ye gods. It's amazing that no one was killed or at least drenched in high-velocity sewage. Which insurer pays off under CA's no-fault laws-- the one for the house that was speeding or the one for the house that was blocking the intersection?

Hey, do you think the homeowners have any photovoltaic panels that they want to get rid of?

 

[cute fuzzy bunny]

I'll bet they have all sorts of parts for sale, pipes, appliances, etc...just no windows.

I read a funny thing once about a guy with different companies for his homeowners/liability and car insurance who hit someone standing in his driveway while backing his car up. I think those two insurers spent more money trying to 'tag' the other company with the liability costs than the settlement was worth.