In a diversified portfolio of investments. Don't get me wrong, I think land & real estate are amongst the best investments, but right now I don't see UK (or US) houses as a good place to have a large chunk of my cash. If I had only 10% of my net worth in a house, I wouldn't care about a 20% fall or multi-year stagnation, but it's more like 50% of my assets so it just doesn't make sense to own it unless it's appreciating healthily.
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housing crash
- Thread starter silk
- Start date
In a diversified portfolio of investments. Don't get me wrong, I think land & real estate are amongst the best investments, but right now I don't see UK (or US) houses as a good place to have a large chunk of my cash. If I had only 10% of my net worth in a house, I wouldn't care about a 20% fall or multi-year stagnation, but it's more like 50% of my assets so it just doesn't make sense to own it unless it's appreciating healthily.
Quote from moo:
A-ha... this is very interesting. No wonder the bubble is the worst in California then. I thought home speculators were taking huge risks, but they seem to have very little risk in this kind of system.
Then why do the banks want to give out these highly risky loans? Even they are unable to spot the bubble?
Their attitude is they are making money now and most loans are sold on the secondary mkt.
Many of the the savings and loans that keep the loans in their portfolio do not offer interest only loans.
I find it sickening when theses loans are marketed as being for a
"sophisticated borrower".
Quote from monee:
Their attitude is they are making money now and most loans are sold on the secondary mkt.
I guess so... They are spreading the risk around by selling that junk everywhere. I wonder who are the losers that end up with it? Who have major concentrations of mortgage risk in their portfolios?
Probably every major financial institution in the world, banks, insurance companies, hedge funds, etc. The whole pile of mortgage junk is so huge, it must be everywhere. Trillions of dollars of loans can't be hidden.
And with derivatives the risk can be spread even more. No wonder Buffett calls them "financial weapons of mass destruction".
Quote from monee:
Their attitude is they are making money now and most loans are sold on the secondary mkt.
Many of the the savings and loans that keep the loans in their portfolio do not offer interest only loans.
I find it sickening when theses loans are marketed as being for a
"sophisticated borrower".
"Aw heck. Us poor folk in the red states are gettin our cumm'upannce on all those commie pinko liberals in the blue states at last."
"I just bought a new 4000 s.f. house for me and mammy with nothing down and a speshul loan becauze the banker said I was a "sofisticated investor." All I gotta do is pay the interest and I can sell it out at a profit in a few years and get a bigger house! So what if it is in a new development one hour away from the city where I work (without traffic). And because I am so smart and such a good credit risk, I actually borrowed 120% of the home value and took that extra cash to buy a new 'vette which I pimped out in the custom shop. Ain't the boys down at Big Daddy's gonna be impressed with me! Rollin in the benjamin's baby... rolling in the benjamins... Maybe I should leverage myself and buy a spec condo I can flip... who said those new yawkers are smarter than us?"
To the guy with the primo house in the central city who wants to sell however - are you sure that you will be able to re-establish your position? I don't know if I'd be selling central cities if I lived there even if I could at a profit. I know its contradictory to what I posted above but not entirely.
Two points:Quote from Cutten:
In a diversified portfolio of investments. Don't get me wrong, I think land & real estate are amongst the best investments, but right now I don't see UK (or US) houses as a good place to have a large chunk of my cash. If I had only 10% of my net worth in a house, I wouldn't care about a 20% fall or multi-year stagnation, but it's more like 50% of my assets so it just doesn't make sense to own it unless it's appreciating healthily.
(1) the home you live in is more than an investment - are you planning on renting a comparable home once you sell yours? Even so there are differences between renting and owning, some positive and some negative. This is clearly a personal choice.
(2) In the US at least the tax system is structured to heavily favor home ownership (mortgage deduction) so unless you are sure that home prices will actually decline significantly it may not be best to sell from an economic point of view.
The benefits of ownership through tax savings just don't work anymore in SoCal. It used to be the payment should be a maximum of about 40-45% above comparable rents. Now I see ratios in the 100-130% range.
The 600K home I just looked at would have a total monthly outlay of with PITI, association, maintanance of about $4800/mo. the only amounts which are deductible are about $4k of that total
I can rent the house next door for $1900-2200/month
Even net of tax, I'm paying an additional $1700/mo. for the right to call someplace home with a bit of downside risk. Not a good investment in my mind.
A friend tried to refi his place this past month only to find out comps are down 8% from the last refi he did 1 year earlier.
Houses are not selling around here like they were just 1 year ago.
The 600K home I just looked at would have a total monthly outlay of with PITI, association, maintanance of about $4800/mo. the only amounts which are deductible are about $4k of that total
I can rent the house next door for $1900-2200/month
Even net of tax, I'm paying an additional $1700/mo. for the right to call someplace home with a bit of downside risk. Not a good investment in my mind.
A friend tried to refi his place this past month only to find out comps are down 8% from the last refi he did 1 year earlier.
Houses are not selling around here like they were just 1 year ago.
Its not clear to me if you are saying that the home next door is worth 600k to make the comparison fair but anyway I dont follow your math. My marginal tax rate is 39% so thats about $1600 of the $4k per month that you said is deductable leaving around $2400 net. Doesnt seem like that renting is that much cheaper to me unless your marginal tax rate is low.Quote from crackedback:
The 600K home I just looked at would have a total monthly outlay of with PITI, association, maintanance of about $4800/mo. the only amounts which are deductible are about $4k of that total
I can rent the house next door for $1900-2200/month
Even net of tax, I'm paying an additional $1700/mo. for the right to call someplace home with a bit of downside risk. Not a good investment in my mind.
Quote from moo:
A-ha... this is very interesting. No wonder the bubble is the worst in California then. I thought home speculators were taking huge risks, but they seem to have very little risk in this kind of system.
Then why do the banks want to give out these highly risky loans? Even they are unable to spot the bubble?
Really most "banks" and mortgage companies are not holding loans...they are reselling them to Wall Street, maybe retaining servicing.
That said, typically loans in excess of 80% LTV require mortgage insurance, paid for by the borrower. So the "bank", or the end holder of the mortgage is really on the hook for "only" 80% of the appraised value of the house at the time the loan was made. The insurance company is on the hook for the balance.
Borrowers who can't be "sold" to the insurance companies are typically required to have more money up front, and pay much higher rates.
Really there are alot of factors at work here. The default rates even for the riskiest borrowers are not that high. I think that is because people need to live somewhere, and in large parts of the country rent it higher than the mortgage payment ie, most of the Midwest for example. CA is a different case.
In my experience people default LAST on the house. The first thing they default on is the credit card(s), maybe the car, even things like utilities, before the default on a mortgage. This normally happens when they can't pay of course, which typically is a result of job loss, NOT the fact that the price went down. The mortgage is the last thing in default...and at that, most lenders will bend over backwards to extend various forebearance programs to help the borrower get back on his feet, if that is at all possible.
All things being equal, a rental property is much worse to be in if you can't pay in the sense that it is much easier in most states to get a non-paying tenant out of a property than to get a non-paying borrower out of a house. The point here being that if one feared job loss, and a high possibility of mortgage default, he's better off owing than renting in the sense that he can hang on longer.
Just a few thoughts: but those that think people will simply bail when and if the prices come down are mistaken. People struggle to keep the house as long as they can pay the payment. Even in the CA debacle in the early 90's, most people kept the house eventhough it was down 30-40%, most paid their mortgages. But again, those that didn't were not sued for deficiency due to the "one-action rule".
OldTrader
Quote from crackedback:
The benefits of ownership through tax savings just don't work anymore in SoCal. It used to be the payment should be a maximum of about 40-45% above comparable rents. Now I see ratios in the 100-130% range.
The 600K home I just looked at would have a total monthly outlay of with PITI, association, maintanance of about $4800/mo. the only amounts which are deductible are about $4k of that total
I can rent the house next door for $1900-2200/month
Even net of tax, I'm paying an additional $1700/mo. for the right to call someplace home with a bit of downside risk. Not a good investment in my mind.
A friend tried to refi his place this past month only to find out comps are down 8% from the last refi he did 1 year earlier.
also, the real estate system penalizes those who sell.
brokers usually take up to 6% in commission fees. an 800k sale will cost you $48,000.