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Re: Interest only morts all the rage
Old 06-11-2005, 12:34 AM   #21
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Re: Interest only morts all the rage

It's just academic for us, we're not moving. We can watch the carnage from the sidelines.
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Re: Interest only morts all the rage
Old 06-11-2005, 07:36 PM   #22
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Re: Interest only morts all the rage

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I'm having a hard time believing the value of my house will get cut by even 25% when the bubble pops. When I bought in 2000 everyone was convinced it was the top of the market then. Since then it has appreciated over 100%, (maybe more).
I hope you are right for your own shake. Why is it so difficult to believe that an overheated real-estate market could drop by 25% when you said that it has grown by more than 100% since 2000?
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Re: Interest only morts all the rage
Old 06-11-2005, 07:41 PM   #23
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Re: Interest only morts all the rage

Because it might just decide to go sideways for 10 years. If you like living there, then selling and moving somewhere you like less isnt a bargain. Selling and renting into a 10 year sideways market might see your rents catch up with home price increases and no dips to buy into.

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Re: Interest only morts all the rage
Old 06-12-2005, 07:16 AM   #24
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Re: Interest only morts all the rage

If the bubble pops you better believe home prices will drop 25% and that is if the correction is mild and not long lasting. What will happen is that a sellers market turns into a buyers market. Buyers become picky and wait for better deals and many sellers try and hold out a year or 18 months for prices to firm up. Many sellers will list their homes at unreasonable prices in denial of the new conditions. They will sit and hold out as long as they can. Those sellers that must sell to relocate for employment take a 10% hit right at the beginning of the downward price curve. If they have owned the home less than say 5 years they will take more of a loss than is reported because brokerage fees and deferred maintainance costs add to the problem. Their actual losses will be above 15%.

As housing market inventory grows beyond 2 years at current sales rates and the seller hold outs begin to face reality the fall in prices, a reported drop of 15% - 20%* after about 12 months is common as the second selling season ( April - August) arrives. Inventory continues to grow with 'for sale' signs seemingly on every block. The newspaper by now will have stories of buyers waiting for further drops in price and homes having recent upgrades representing the few recent sales.

Then the 18 month holdouts must begin to accept reality and the prices will reach a 25% drop. The McMansions for $1,000,000 plus will be hardest hit and will drop to 30% + and the inventory will be at a mulitple year rate of curent sales.

This is what happened in Austin a couple years ago and was considered quite mild with full recovery three - five years hence. Be prepared for such drops over a 12-18 month period. The lower end housing market will drop in 18 months - 24 months as forclosures rise and this happened before anyone used interest only ARMs.

I would expect the next 'mild' localized downturns to have a greater impact than the mild one Austin experienced due to the 100% increases on both coasts in the last 2 years and the 'creative financing' of the mortgage market.

You are in denial if you think recent price run ups will protect your equity. The hit will be harder and a 5 year + timeline will be necessary to turn the market to neutral or a sellers market. A decade may be more likely during the next bubble correction and the prices may never return to the peak in our*remaining years.

Take heed my friends in California, D.C., NYC, Miami, et. al.

I perdict a 50% drop in some areas. Woe be to those who drew out equity for life style reasons or who bought a second home with the money from HELOCs.

The least severly hit and quickest to recover will be resort and rural retirement destinations in smaller towns.
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Re: Interest only morts all the rage
Old 06-12-2005, 08:10 AM   #25
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Re: Interest only morts all the rage

Quote:
Originally Posted by Ol_Rancher

The least severly hit and quickest to recover will be resort and rural retirement destinations in smaller towns.
I don't agree with a lot of what you posted, but I sure hope your last
sentence is correct.

JG
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Re: Interest only morts all the rage
Old 06-12-2005, 09:40 AM   #26
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Re: Interest only morts all the rage

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I perdict a 50% drop in some areas.
That's why I've been a seller since ~2000.

I lived the +50% drop (north of Boston) between '91-'94. Took 12 years for my upside down mortgages to flip right-side-up. Very localized. Nieghborhood to nieghborhood, based on foreclosure activity. Banks take no chances; houses are boarded-up for "protection". Imagine what that does to the value of the nieghboring houses! But that's why national and even city wide statistics never show the drops I saw locally. Interesting really ...

Can't wait for the next buying opportunity ... where there's chaos, there's opportunity.

Enjoy!
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Re: Interest only morts all the rage
Old 06-12-2005, 10:46 AM   #27
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Re: Interest only morts all the rage

Ol Rancher:

Does your crystal ball work only for Real Estate, or
can it also be used for stock market?
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Re: Interest only morts all the rage
Old 06-12-2005, 10:59 AM   #28
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Re: Interest only morts all the rage

Ol Ranchers scenario is one that could play out, probably in areas where prices have run up but the underlying value proposition isnt there. Thats what happened in sacramento CA from 1990-1996. Lots of new mcmansion construction but no stores, restaurants, employers commensurate with the price structure and comparable to areas like san francisco and the bay area. Prices there have shot up again, but the 'quality of life' infrastructure followed the price increases this time.

I'd be wary if you live in an area thats seen fast price growth but still has plenty of buildable land, and a weak supporting cast of QOL services. I live in such an area. However I bought here when I could pay ~ home construction cost plus a small cost for the land. Even if all the price appreciation went away and we dropped back to basic developed land cost plus home development cost, I'm still above water.

I'd predict for built out areas with good QOL service levels (manhattan, SF bay area, etc) that prices may not drop much but might go sideways a long time. Although overly valued homes in those areas may not hold up, ie the $500k 900 square foot fixer uppers in the so-so neighborhoods.

Guess we'll see...
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Re: Interest only morts all the rage
Old 06-12-2005, 01:47 PM   #29
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Re: Interest only morts all the rage

San Diego County has very little buildable land, we are grading hills just to make room for more. But if what you say is correct, that should protect us somewhat. Where I see people having big paper losses is Riverside county, the Temecula/Murietta area specifically-everyone there works in San Diego and commutes 1-2 hours each way. Plenty of flat land out there, building more all the time, yet despite the long commute (45 miles to my 12) their home prices have almost matched ours (sq. footage is larger on average, but still!).
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Re: Interest only morts all the rage
Old 06-13-2005, 06:47 AM   #30
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Re: Interest only morts all the rage

Quote:
Originally Posted by riskaverse
I own a house in San Diego - it makes up about 1/3 of my net worth.* Although I believe there is a housing bubble, just as I believed there was an internet bubble in the stock market, I'm having a hard time believing the value of my house will get cut by even 25% when the bubble pops.*
Believe that's what exactly happened in late 80's early 90's in places like SD, LA, Orange county, Boston etc. Similar fall in prices in Houston Dallas but not sure when.

Ol Rancher, agree with what you've written. Parents live in LA area, they've seen selling house prices in their neighborhood stagnant for >12 months. There's only so much that people can "afford" or buy, even with an interest only mortgage. I'm thinking maybe a large percentage of the persistent rise in prices in So Cal are because of people getting into the market (read starter homes, farther out) and investors buying "cheaper" properties, so that established neighborhoods are beginning to level off.

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Re: Interest only morts all the rage
Old 06-13-2005, 09:46 AM   #31
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Re: Interest only morts all the rage

Believe that's what exactly happened in late 80's early 90's in places like SD, LA, Orange county, Boston etc.

I was in SD during that time and didn't see it. I had some friends who bought at the very top and at new devleopments at the very outskirts of the city who saw maybe a 10 to 15% drop. As I remember the biggest complaint was they couldn't refi, because the appraisals wouldn't come in high enough. They had to sit tight on their 8% mortgages for a couple of years or get creative mortgages (which they usually did). I do remember the newspapers making a big deal about it. I still know a couple of them - own million dollar homes - pay taxes on 250K value and have refinanced 3 or 4 times. They got great interest rates, but I don't know about equity, for some reason they never seem to mention that. Probably have better use for the money somewhere else.
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Re: Interest only morts all the rage
Old 06-13-2005, 10:04 AM   #32
 
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Re: Interest only morts all the rage

Dunno about San Diego, but the Boston market sure bubbled in the late 1980's.* My property lost 60% of its value from 1989 to 1992.

Quote:
Originally Posted by P.S.
Believe that's what exactly happened in late 80's early 90's in places like SD, LA, Orange county, Boston etc.*
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Re: Interest only morts all the rage
Old 06-13-2005, 11:54 AM   #33
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Re: Interest only morts all the rage

Wasn't in SD, but just reporting what heard from parents through friends thereof.* Maybe not your neighborhood or price range...
I would only amend my prior sentence by adding D.C. and Fairfax County, where I was growing up at the time.* Remember spending Sunday afternoons with my mom mapping the forclosure announcements.
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Re: Interest only morts all the rage
Old 06-13-2005, 12:44 PM   #34
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Re: Interest only morts all the rage

The free Sunday WSJ has an interesting article about the consequences of a real estate crash.

Unsurprisingly they think that it'd be far worse than a stock-market crash.

I think loose mortgage money, especially IO, is far worse than a housing bubble. When that's finally throttled down then I think the housing bubble will deflate. Let's just hope that interest rates rise gradually instead of overnight!
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Re: Interest only morts all the rage
Old 06-13-2005, 01:49 PM   #35
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Re: Interest only morts all the rage

Quote:
Originally Posted by tozz
...the Boston market sure bubbled in the late 1980's.* My property lost 60% of its value from 1989 to 1992.
I experienced that too in Boston. I think history might repeat itself even worse than before. C'mon a 3 family house (2 bedroom per apt with no offstreet parking and no back yard) selling for $1 mil?!?! Who is buying this stuff? You would have to triple the high rents just to break even!!!
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Re: Interest only morts all the rage
Old 06-15-2005, 05:44 PM   #36
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Re: Interest only morts all the rage

Nope, no housing bubble:

http://moneycentral.msn.com/content/...7.asp?GT1=6657

:P

It almost sounds reasonable, just like Dow 35,000....
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Re: Interest only morts all the rage
Old 06-17-2005, 12:07 AM   #37
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Re: Interest only morts all the rage

Logically, it seems like a RE "bubble", but prices are still determined by supply and demand, and here in NYC, there is little supply and lots of demand. Unless NYC becomes an unattractive place to live, I don't see this changing.

We bought our 2 bed co-op in October 2001, after about a 15% dip in the local RE market due to some well known events.. Paid 700k, spent 60k to fix it up. Current value is about 1.4m. We took out an adjustable mortgage, but paid it off quickly, saving some money. Even if prices did drop 20-30 percent, we'd still be up a lot from our purchase price. I've thought of selling, but then we'd have to rent, and pay brokerage costs. "Timing the market" doesn't usually work well. Yes, we could sell it and retire somewhere cheaper, but we want to live in NYC and retire here. I don't believe that our property will increase much over the next few years. But I don't believe there is a bubble. Housing was undervalued relative to other assets in 1995, because people kept their money in stocks. That has now reversed.

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Re: Interest only morts all the rage
Old 06-17-2005, 01:24 AM   #38
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Re: Interest only morts all the rage

Sure its all supply and demand.

Now consider if a 1br apartment at 73rd and columbus ends up costing you $3M. A 3500 square foot house on a half acre in Montclaire NJ ends up costing $1M.

What does it cost you to have a driver pick you up at home in Montclair and drive you to your office over 10 years? I dont think its $2M.

So along with supply and demand is an associated cost factor that idles alongside commuting times and costs.
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Re: Interest only morts all the rage
Old 06-17-2005, 05:20 AM   #39
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Re: Interest only morts all the rage



Interest only loans, hmmm. Wasn't that invented by the mafia? "Da vig is 4 hunnert. Have it by Toisday erelse!"




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Re: Interest only morts all the rage
Old 06-17-2005, 10:12 AM   #40
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Re: Interest only morts all the rage

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I experienced that too in Boston. I think history might repeat itself even worse than before. C'mon a 3 family house (2 bedroom per apt with no offstreet parking and no back yard) selling for $1 mil?!?! Who is buying this stuff? You would have to triple the high rents just to break even!!!
Reminds me of the last 2 I sold ... a single family for 180k which rented for $1100/mo. And a duplex which rented for $600/unit/mo sold for 202k. Forget taxes, water, insurance, maintenance and vacancy; these people can't get rents that will cover the pricipal and interest on thier mortgage.

What are these people smoke'n?
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