Housing Rolling Along 2

I agree with many of your points but here's a fact. The Fed is coming off of 17 consecutive rate hikes. It's fixed income investors who are pushing the yield curve into inversion not policy makers.

No doubt much of the housing boon was fueled by speculative euphoria. That's not to say that those flippers are wrong or will be severely punished. I still see the run up in RE as like the 90's stock market rally. Some areas will see sharp declines while others will hardly budge. After all how much downside can there be in a 200k home in Des Moines?

An FYI on building costs. I've spoken to two different people in Ft. Lauderdale who are building homes on tear down lots. $200-250 per square seems to be the new benchmark. Thus there's no doubt that many homes are STILL priced below replacement cost.
Quote from traderdragon2:

You are all making this way too complicated.

Homes sales are based on mortgage payment affordability. Rates are still very very low right now, and have been trending down lately. Joe average isnt even aware of all the crap we talk about, all he cares about is what his monthly payment is, nothing more.

Super low rates + insanely low lending standards + creative financing = housing boom, period, the end.

Then momentum took over and the market went way passed what it should have, and more buyers got sucked in by euphoria and dreams of making 20% a year on their homes (welcome bag holders).

Now the fed is keeping rates low as long as they can hoping even more buyers will come out of the woodwork and keep buying so we get a nice flat landing.

Only problem is, the stats are just horrible and you cant keep the rates low for 10 years straight. Everything is lining up against them. Those rates will have to eventually climb. Then look out below. Huge supply and zero affordability = price sky diving.

Im moving out of my luxury apartment for a nicer cheaper one. More and more desperate condo owners are appearing with lower rents trying to save their own asses now.

Building up a huge keg of dry powder for a big purchase in about 2 years from now. Unless there is a real fast panic, and then maybe in 1 year. But I think we go down in slow motion.
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Quote from traderdragon2:

PS: California is #1 in foreclosures now, up 96% in 2006, it will only get worse.
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I imagine that the overextended owners will need to be washed out of the market before anything much can happen.

This is a complicated issue because it brings into play the dollar, the bond holders ( china , japan etc) and therefore interest rates since they are about the only tool remaining in the Fed's bag.

I do not think that RE is a stand alone issue, it is very much a part of a larger picture.

If rates are increased then the washout will be far greater.
If rates and prices remain static then many people will die the death of a 1000 cuts.
If rates decrease, many people may be lulled into thinking that the worst is over or they may take stock of their situation.
'07 is shaping up to be a most interesting year.
 
Quote from traderdragon2:

"there are not too many more negative news events possible to drive prices down substantially below this level"


We dont need news events. That is not what is going to make the market move lower.

At least in california. Interest only loans are starting to reset, so monthly payments are going up. When the Fed finally starts raising rates, a certain percentage of the 85% of buys who got interest only ARMS are going to get hit HARD.

Too many people are just getting by here with their insane mortgage payments, it wont take too much to shake them out, and then the downtrend accelerates.
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But the truth is that it is now cheaper to convert those ARMs to cheaper fixed rate mortgages! That saves people money and reduces risk.

Besides, the FED is not in control anymore. All they can do is print money and are currently extorted by a weak dollar, poor trade imbalance and risk of housing bust if they raise rates. So I fully expect the FED to further drop rates about .5% to keep our economic expansion progressing and rebalance the trade deficit. As a separate observation I predict that people who hedged into gold are going to get slaughtered.

BTW: People have to live somewhere. So either they down size to the level they can really afford or they relocate to lower costs (non welfare/socialistic) non-handout states or they go live in Tijuana to take over a vacated Mexico. In the latter case they can always and sneak back across the boarder for free subsidies and handouts like the Mexicans do in California and sleep in the abandoned houses that are in foreclosure to live high off the hog. :D

TS
 
http://detnews.com/apps/pbcs.dll/article?AID=/20070106/OPINION03/701060367/1038/LIFESTYLE01

http://www.dsnews.com/view_story.cfm?id=727

http://business.mainetoday.com/news/070107subprime.html

http://www.mortgage101.com/partner-scripts/inman.asp?ID=60955

http://www.montereyherald.com/mld/montereyherald/business/16408889.htm


This is funny:
"last years' home buyers bought with reckless abandon, confident that home prices could go nowhere but up. Now that conditions are generally better for home buyers, many are waiting on the sidelines for a clear sign that the market has bottomed out."

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"Subprime loans, already risky to begin with, have become even riskier because unscrupulous brokers have incentives to close a loan -- earning their commission -- and none in making sure the mortgage can be repaid. Lenders also have more products to push that result in artificially low initial interest rates and don't factor in whether a borrower can keep up once the payments jump. "
 
Quote from TrendSailor:

But the truth is that it is now cheaper to convert those ARMs to cheaper fixed rate mortgages! That saves people money and reduces risk.
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How do you figure this?

They couldn't afford a fixed rate in the first place, needed a teaser rate to enter the market, and converting to a fixed on a property with a bad LTV (>80% and sometimes in excess of 100%) ratio is cheaper?

:confused:

No appreciation and rising rates doomed IO/ARM borrowers.
 
Quote from crackedback:

How do you figure this?

They couldn't afford a fixed rate in the first place, needed a teaser rate to enter the market, and converting to a fixed on a property with a bad LTV (>80% and sometimes in excess of 100%) ratio is cheaper?

:confused:

No appreciation and rising rates doomed IO/ARM borrowers.
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Well, back a few years ago ARMs were cheaper than they are now; in fact dirt cheap. We now have a yield curve inversion and the game has changed. 30 Year fixed rate can now be had for less than the cost of an ARM product. Call up your local mortgage broker to inquire if you don't believe me....

TS
 
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