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Re: Sizing the Housing Bubble
Old 07-22-2006, 01:04 PM   #181
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Re: Sizing the Housing Bubble

Quote:
Originally Posted by justin
CA Assoc of Realtors is probably scared of losing half its members to "reductions in force" when the market volume slows down.
Yes, that's right. Later in same article:

"The state Dept of RE recently reported that the total number of agents in the state passed 500,000 in May for the first time. That's one agent for every 55 adults in the state." Appleton-Young, the CAR economist: "We're expecting a fairly significant shakeout."
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Re: Sizing the Housing Bubble
Old 07-22-2006, 04:37 PM   #182
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Re: Sizing the Housing Bubble

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Originally Posted by Alex
The* 'Affordability index' does not factor in existing home equity or size of down payment.* *2/3 of families in this country are homeowners* - 90% of all homesales are from exisitng homeowners. These people have equity $$$ for large downpayments.
I thought I read somewhere recently that 1/3 of homeowners have less than 5% equity in their homes.

This is intesting:
http://www.oftwominds.com/blogmay06/wealth-effect.html

If the numbers are right, it suggests that 1/2 of the $5 trillion of asset inflation was sucked out in home equity loans and spent on "stuff".

I was also reading somewhere that the oldest baby boomers are now retiring - as they retire, many will go from 2 houses to 1, then from 1 to 0 when they leave this earth - supposedly creating excesses in housing supply.

All this tells me it is NOT the time to add to your real estate exposure.

But I am NOT convinced selling what you have make sense - just seems like "selling and renting" is more risky than holding your current positions.

It will be very interesting to see how this pans out.
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Re: Sizing the Housing Bubble
Old 07-22-2006, 04:39 PM   #183
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Re: Sizing the Housing Bubble

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Originally Posted by Delawaredave
I thought I read somewhere recently that 1/3 of homeowners have less than 5% equity in their homes.
That'd probably be a little low. Many loans are originated with more than 5% down, although lately the 100% two mortgage deal has been common. But its probably not that low, since most people move every 5-7 years theres not a lot of room for building equity, unless they move from a high priced area to a lower priced one and their 10% in equity turns into 20%.
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Re: Sizing the Housing Bubble
Old 07-22-2006, 06:08 PM   #184
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Re: Sizing the Housing Bubble

did you know that 40% of households own their property outright with ZERO mortgage? The percentage of homeowners with first mortgages has hovered around the 60 percent mark since 1988, and the percentage of owners with second mortgages has remained constant at 5 percent. The only increase has been in the percentage of consumers using equity lines of credit, where 8 percent now have a credit line versus 6 percent 10 years ago.
Nearly one in five homeowners between the ages of 18-34 has no mortgage debt. Half of all homeowners between 55-64 years of age have zero debt against their houses. And, perhaps less surprisingly, more than 80 percent of seniors 65 years and older are mortgage-free.
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Re: Sizing the Housing Bubble
Old 07-22-2006, 11:49 PM   #185
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Re: Sizing the Housing Bubble

OK, so let's say the housing market is really two markets: the entry market and the upgrade market.* *Obviously, affordability matters to the entry market.* *And the entry market feeds into the upgrade market over time.* *So, I think we can all agree that making homes so expensive that nobody can afford to enter the market is a Bad Thing for the housing market.

So, Alex's thesis seems to be that the upgrade market should continue to be healthy since there's so much equity out there, so people can just keep swapping homes and home prices will continue to rise.

Obviously, that equity swap thing has been going on forever.* *That defines the upgrade market.* So, for the rate of prices to rise faster than they have historically, the amount of available equity would have to be larger than it has been historically, right?

Unfortunately, that's not the case.* *In fact, the opposite is true.* *The LTV for existing home owners had been pretty constant until 1992, when it increased significantly.* *I.e., there is less equity available today than ever before.

Also, the debt-to-service ratio has increased steadily since 1992.* *Meaning that home owners are paying out a larger percentage of their incomes for housing than ever before.

These two trends are not good for the upgrade market.

Article
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Re: Sizing the Housing Bubble
Old 07-23-2006, 07:33 AM   #186
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Re: Sizing the Housing Bubble

I'm suprised that many people own home outright.* Must be either very elderly and/or people that don't live near me....

With such high ownership outright, plus fixed rate folks - suggests the "ARM readjust crisis" articles are exaggerated.

Seems easy to find lots of data to support all the possible outcomes....

http://www.foreclosurenet.net/forecl...y.asp?ID=51294

"However, Duncan points out that 34 percent of all U.S. households own their homes with no debt, and another 48 percent-50 percent of homeowners have a fixed-rate mortgage. That means that 82 percent-84 percent of households are not interest-rate sensitive."
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Re: Sizing the Housing Bubble
Old 07-23-2006, 09:17 AM   #187
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Re: Sizing the Housing Bubble

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Originally Posted by Delawaredave
I'm suprised that many people own home outright.*
Dave,

Don't be surprised.* If you truly belive the LBYM mantra, you can redirect what most folks would spend on "toys" to eliminate your mortgage.

Example?* We are in our 4th home since we married in '69.* The one we are in now is considered our "terminal home", which we built in 1994.* It had a traditional 30-year mortgage, but through some careful LBYM planning, we paid it off in late 1999 (5.5 years).* After we did that, we took the money we used for the mortgage and redirected it to our retirement saving/investments.

This went a long ways in planning our "dream" of ER (next year, at age 59 for both of us).

No mortgage, no car payment, no CC debt.* Yes - it can be done.* The question is do you want to live a lifestyle beyond your income and be a "slave" (both to your employer and debt companies) or do you want to live life without financial worries?

If you've read this forum long enough (especially the content from the folks that have already ER'ed), I belive the answer is obvious...

BTW, our home is just that; it is not part of our retirement financial plan, but it is there as an "emergency fall-back" if our plan (validated by two separate fee-only advisors) does not pan out for the next 30+ years (any less than that, it dosen't matter!!!* )

- Ron

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Re: Sizing the Housing Bubble
Old 07-23-2006, 01:33 PM   #188
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Re: Sizing the Housing Bubble

Quote:
Originally Posted by Delawaredave

With such high ownership outright, plus fixed rate folks - suggests the "ARM readjust crisis" articles are exaggerated.

"However, Duncan points out that 34 percent of all U.S. households own their homes with no debt, and another 48 percent-50 percent of homeowners have a fixed-rate mortgage. That means that 82 percent-84 percent of households are not interest-rate sensitive."
The thing to be careful about here is that houses, like commodities, are priced at the margin. Example: If you have 85% of households not interest rate sensitive, that means you have 15% that are....and let's say a third of those people have to sell to bring finances back into order, prices will significantly dip if there are not enough people around to buy the 5% of all houses that have to be sold. And I'll speculate many of those people are speculators gambling on the margin.

in the crude oil market the margin is about 1 million barrels per day of crude in a 75-80 million barrels a day market. A supply margin of 1-2% can be wiped out in a blink and the very next "barrel", not million barrels, sets the new price.
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Re: Sizing the Housing Bubble
Old 07-23-2006, 01:40 PM   #189
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Re: Sizing the Housing Bubble

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Originally Posted by wab
...Also, the debt-to-service ratio has increased steadily since 1992.* *Meaning that home owners are paying out a larger percentage of their incomes for housing than ever before.

These two trends are not good for the upgrade market.

Article
Yes the upgrade market was normally fuelled by the buyer's ability to carry a higher mortgage with higher earnings. If all the equity has already been sucked out, those higher earnings have been tapped out.

Plus the upgrade market is dependent on those new purchasers upgrading at the bottom of the chain. No new purchasers eventually causes the upgrade house of cards to collapse.
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Re: Sizing the Housing Bubble
Old 07-23-2006, 02:19 PM   #190
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Re: Sizing the Housing Bubble

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40% of households own their property outright with ZERO mortgage?
This sure seems to conflict with the other statistics we hear every day (e.g. 70% live paycheck-to-paycheck). I'd believe this stat for people on the ER forum (maybe 65%) but for Americans in general?
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Re: Sizing the Housing Bubble
Old 07-23-2006, 02:45 PM   #191
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Re: Sizing the Housing Bubble

I seem to have observed that in most cases people's interpretations of the housing bubble (or potential, who knows what it will/would look like) depend highly on their own situations.

Some realtors insist all is well, there is slight overstock in the market but that is normal for this time of year yadah, yadah, yadah, no one really seems to listen to realtors and they seem to be in much disregard, unless of course they are one or are related to one.

Home owners insist all is well and things will keep getting better and their house prices will rise.

Talking heads simple follow the latest news and what some other pundit has said recently.

Renters and people waiting to buy think the market is in a tailspin and there will be a crash and an excellent buying opportunity.

So, me thinks it will pay to simply wait and see.

SWR
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Re: Sizing the Housing Bubble
Old 07-23-2006, 06:10 PM   #192
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Re: Sizing the Housing Bubble

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Originally Posted by TromboneAl
This sure seems to conflict with the other statistics we hear every day (e.g. 70% live paycheck-to-paycheck). I'd believe this stat for people on the ER forum (maybe 65%) but for Americans in general?
it is an easily verified fact http://originatortimes.com/content/t...=1514&zoneid=5
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Re: Sizing the Housing Bubble
Old 07-23-2006, 06:43 PM   #193
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Re: Sizing the Housing Bubble

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Originally Posted by ShokWaveRider
I seem to have observed that in most cases people's interpretations of the housing bubble (or potential, who knows what it will/would look like) depend highly on their own situations.

SWR
And those of us without a mortgage and with the intent to live in the house for the next 5-10 years don't really care all that much
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Re: Sizing the Housing Bubble
Old 07-23-2006, 06:45 PM   #194
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Re: Sizing the Housing Bubble

Quote:
Originally Posted by Alex
The first sentence may be key here:

Quote:
Nearly 40 percent of all residential properties in the United States, owner-occupied and rental units, are not mortgaged but are owned free and clear.
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Re: Sizing the Housing Bubble
Old 07-23-2006, 07:06 PM   #195
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Re: Sizing the Housing Bubble

According to an article in the San Jose Mercury News this week housing prices increased 9% year over year and 2% from last month but sales were down. *This has been the trend for a year or so. *Incidentally rent prices were up 9% also.

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Re: Sizing the Housing Bubble
Old 07-23-2006, 07:12 PM   #196
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Re: Sizing the Housing Bubble

Quote:
Originally Posted by Scrooge
The first sentence may be key here:
for single family homes only - roughly 33% have zero mortgage. See page 26 of 368 from linked report.
http://www.huduser.org/datasets/rfs/censr-27.pdf
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Re: Sizing the Housing Bubble
Old 07-23-2006, 07:14 PM   #197
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Re: Sizing the Housing Bubble

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Originally Posted by mikew
Just some random thoughts of what I have seen in Japan.
[...]
According to our realtor, when anything interesting does come up it sells within hours but that only happens a couple of times a year.
Our area, closer to Tokyo, is developing pretty fast, but even here the prime properties are few and far between, and you have to be on a realtor's "serious clients" list to have any hope of being notified of one in time to grab it. Anything that makes it to the public listings has already been picked over pretty thoroughly. I suppose this may be generally true whatever the state of the market.

With the Bank of Japan having ended their zero interest-rate policy, mortgage rates are starting to rise. Of course now long-term fixed-rate loans are the most popular, but I was surprised to read in the paper the other day that even up to a year ago, 90% of the loans originated were floating-rate or fixed only for a very short term (3 years typically). The reason this surprised me is that even a year ago it seemed pretty obvious that interest rates had nowhere to go but up, and and they were likely to do so sooner than later, so the choice of a fixed-rate loan seemed the obvious choice. For some people, who expected to be able to pay off the loan soon, then the floating-rate loan made sense, but even young people with no such expectation were taking out floating-rate loans. Of course, now there is a booming business in re-financing to fixed-term loans, so those people will end up with higher fixed rates than they could have had a year ago, and pay extra paperwork fees on top. I just hope their affordability calculations were not dependent on the lower rates.
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Re: Sizing the Housing Bubble
Old 07-23-2006, 07:40 PM   #198
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Re: Sizing the Housing Bubble

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Originally Posted by AltaRed
The thing to be careful about here is that houses, like commodities, are priced at the margin.* Example: If you have 85% of households not interest rate sensitive, that means you have 15% that are....and let's say a third of those people have to sell to bring finances back into order, prices will significantly dip if there are not enough people around to buy the 5% of all houses that have to be sold. And I'll speculate many of those people are speculators gambling on the margin.
This is a great point. Home prices are established only by those who sell. Something like 5% of homes sell each year, so if only 5% of home owners get in trouble, those owners/sellers will have a huge effect on prices.
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Re: Sizing the Housing Bubble
Old 07-23-2006, 09:38 PM   #199
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Re: Sizing the Housing Bubble

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Originally Posted by bpp
With the Bank of Japan having ended their zero interest-rate policy, mortgage rates are starting to rise.* Of course now long-term fixed-rate loans are the most popular, but I was surprised to read in the paper the other day that even up to a year ago, 90% of the loans originated were floating-rate or fixed only for a very short term (3 years typically).* The reason this surprised me is that even a year ago it seemed pretty obvious that interest rates had nowhere to go but up, and and they were likely to do so sooner than later, so the choice of a fixed-rate loan seemed the obvious choice.* For some people, who expected to be able to pay off the loan soon, then the floating-rate loan made sense, but even young people with no such expectation were taking out floating-rate loans.* Of course, now there is a booming business in re-financing to fixed-term loans, so those people will end up with higher fixed rates than they could have had a year ago, and pay extra paperwork fees on top.* I just hope their affordability calculations were not dependent on the lower rates.
Our mortgage is resetting this month. Our banker is still recomending a 2 year fixed rate. His reasoning is that even during the bubble the rate only went up to 4% (I am not sure how long that rate was fixed). Also the BOJ is limited in how much they can raise rates. One reason is they are worried about crashing the economy again. The other is that the govt deficit is 7% of GDP. (US is 2%)

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Re: Sizing the Housing Bubble
Old 07-23-2006, 10:37 PM   #200
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Re: Sizing the Housing Bubble

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Originally Posted by mikew
Our mortgage is resetting this month. Our banker is still recomending a 2 year fixed rate. His reasoning is that even during the bubble the rate only went up to 4% (I am not sure how long that rate was fixed). Also the BOJ is limited in how much they can raise rates. One reason is they are worried about crashing the economy again. The other is that the govt deficit is 7% of GDP. (US is 2%)
I wonder about the possibility of inflation. And are you sure your banker is looking out for your best interests instead of his?

Anecdote: a relative in the banking biz strongly urged us last year not to let the bank talk us into a floating-rate loan. He said they were pushing them with the expectation that rates would be rising soon. We were already planning on a fixed-rate loan anyway, but it was interesting to hear that perspective from the inside.

That said, I expect you are in a pretty good position to make an informed decision regardless.
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