I am a loan officer working for a broker in a Washington DC suburb and the same thing is happening in the DC market. Baltimore is not as overheated as DC/Northern Virginia. A lot of non-English speaking hispanic borrowers are getting lied to and are taking these Option loans and also buying properties right now. There will be a lot of foreclosures in from Option Loans and subprime loans in the next 24 to 48 months.
Housing Rolling Along 2
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It is biased to only wish to use the income to price ratio. It was those same stupid charts that kept many people with money on the sidelines when they could have locked in a thirty year at nine vs a thirty year at 5 1/4. Or whatever the exact numbers are.
Then when you combine the legit buying power with the change in the tax code and voila seriously rational increase in prices.
Sure blame the last 10 percent on idiots with neg ams but if you had cash and you sat on the sidelines because of the dopes on t.v. calling it a bubble back in 2001... Well you missed a once in the lifetime levarage3d taxfree cash multiplying bonanza, where you could have conservatively seen 100,000s of thousands of dollar gains and bought boughts and cars with the profits after you sold.
Then when you combine the legit buying power with the change in the tax code and voila seriously rational increase in prices.
Sure blame the last 10 percent on idiots with neg ams but if you had cash and you sat on the sidelines because of the dopes on t.v. calling it a bubble back in 2001... Well you missed a once in the lifetime levarage3d taxfree cash multiplying bonanza, where you could have conservatively seen 100,000s of thousands of dollar gains and bought boughts and cars with the profits after you sold.
Most of these stories have been about residential properties, which is understandable as it will effect many who are reading this thread. However does anyone have comparable stats on the commercial real estate market. This market is effected by some different inputs but I was wondering if it too was considered as overheated as the residential side of the business.
Anyone with some knowledge in this area would be interesting to hear from.
Anyone with some knowledge in this area would be interesting to hear from.
Someone should frame this article for future reference...especially this quote "...as long as my property is appreciating, I personally don't care too much what my mortgage balance is.'"
This is the perfect picture of a bubble with a nice bow on it (and the possible "pin" that likely will pop it)...pets.com and tulips all rolled into one...OWP
http://www.heraldtribune.com/apps/pbcs.dll/article?AID=/20060101/BUSINESS/601010363
"You know those cheap mortgages that everybody's been getting to speculate on housing? Lenders who started making those teaser-rate loans a few years ago are getting ready to charge real-world payments on them. Starting in 2006 and accelerating into 2007, as much as $2.5 trillion worth of the fancy mortgages called 'hybrids' are coming to the end of the free-lunch part of the deal."
"'We don't have enough data to know how big a problem this will be,' said David Berson, chief economist at Fannie Mae, the nation's largest mortgage packager."
"With possibly $2.5 trillion in household debt that is going to be repriced higher 'the household debt-service ratio is bound to climb to new highs,' Paul Kasriel, chief economist at Chicago-based Northern Trust, wrote last month."
"Even before the reset gets under way, households were devoting a record 13.75 percent of their after-tax income to servicing debt, including mortgage debt. 'There will be an end to it. I think it is going to be related to further increases in interest rates,' Kasriel said. 'Asset bubbles are characterized by cheap credit. Usually what bursts a bubble is higher cost of credit, because that is what inflates the bubble, is cheap credit.'"
"Prices in Sarasota-Bradenton-Venice have risen 93 percent, a rate roughly triple the national average. But the feverish activity seems to have dried up. In July, only 1,626 existing single-family homes were available for sale in the Sarasota market, it was a 10.4-week supply of homes. In December, though, the picture had changed dramatically. Sales had slowed to a rate of 100 per week while listings rose more than 170 percent."
"Starting in 2003 and accelerating into 2004, lenders in 2003 began adding enticements to make ARMs an offer that consumers would find hard to refuse. 'You had lenders with large origination machines running full tilt, and they decided to keep those machines running, so they started to push more heavily,' said Keith T. Gumbinger."
"Lenders started by adding the interest-only feature to basic adjustable-rate mortgages. Other marketing features gradually found their way into the market. 'No doc' loans, now quite common. Lenders started covering for lack of downpayments by making 'piggyback loans.' 'Everybody goes away pretty happy,' Gumbinger said. 'With the exception that there is a property out there that is mortgaged to 100 percent of its price.'"
"Now, lenders are pushing an exotic mortgage that is so leveraged it makes straight adjustables look tame. The option ARM gives the borrower a set of optional payments to choose from each month, ranging from minimal to hefty. 'It sounds like a product that some derelict accounting firm would come up with, but it makes sense for some workers,' said Mark Vitner, Wachovia Bank's senior economist."
"Not covering the interest on a loan is referred to in the industry as negative amortization, 'neg am' for short. In the meantime, the borrower is 'paying juice on the juice,' adds (mortgage broker) Jason Thurber."
"Sarasota's John Barron is typical of the new crop of homeowner-investors. He and his wife are sitting on big profits at their two 2004 purchases close to downtown Sarasota. But the couple made their big moves using ARMs that are about to be reset. If they don't act soon, their monthly bills will rise by hundreds of dollars per month."
"They used two separate three-year, interest-only, adjustable-rate mortgages to buy the homes within the past two years. And there's more, Barron said. 'Besides the two ARMs, we also took out a home equity line on the Seventh Street house to put down a deposit on the Fifth Street house. There was no cash that we had in our pockets to put down on the Fifth Street house. All we had was our shining credit record. And the faith that the banks have in this real estate market that allows you to borrow 100 percent.' If they don't sell, with interest rates rising, the couple will have to refinance the loans."
"At Washington Mutual in Sarasota, 25 percent of current applications are for option ARMs, says senior loan consultant Mike Bangasser. Bangasser acknowledged, 'Granted, your mortgage balance is going to go up under this scenario, but as long as my property is appreciating, I personally don't care too much what my mortgage balance is.'"
"There is one more ingredient to add to this layer cake, and it is one that barely occurs to most borrowers today: What if someday, loans were difficult to get? 'Consumers have become so accustomed to very liquid mortgage markets, where credit is available for almost any circumstance, that they are not aware this is unusual in the market,' HSH's Gumbinger warned. 'Borrowers think they can always refinance. That is not always a safe bet.'"
This is the perfect picture of a bubble with a nice bow on it (and the possible "pin" that likely will pop it)...pets.com and tulips all rolled into one...OWP
http://www.heraldtribune.com/apps/pbcs.dll/article?AID=/20060101/BUSINESS/601010363
"You know those cheap mortgages that everybody's been getting to speculate on housing? Lenders who started making those teaser-rate loans a few years ago are getting ready to charge real-world payments on them. Starting in 2006 and accelerating into 2007, as much as $2.5 trillion worth of the fancy mortgages called 'hybrids' are coming to the end of the free-lunch part of the deal."
"'We don't have enough data to know how big a problem this will be,' said David Berson, chief economist at Fannie Mae, the nation's largest mortgage packager."
"With possibly $2.5 trillion in household debt that is going to be repriced higher 'the household debt-service ratio is bound to climb to new highs,' Paul Kasriel, chief economist at Chicago-based Northern Trust, wrote last month."
"Even before the reset gets under way, households were devoting a record 13.75 percent of their after-tax income to servicing debt, including mortgage debt. 'There will be an end to it. I think it is going to be related to further increases in interest rates,' Kasriel said. 'Asset bubbles are characterized by cheap credit. Usually what bursts a bubble is higher cost of credit, because that is what inflates the bubble, is cheap credit.'"
"Prices in Sarasota-Bradenton-Venice have risen 93 percent, a rate roughly triple the national average. But the feverish activity seems to have dried up. In July, only 1,626 existing single-family homes were available for sale in the Sarasota market, it was a 10.4-week supply of homes. In December, though, the picture had changed dramatically. Sales had slowed to a rate of 100 per week while listings rose more than 170 percent."
"Starting in 2003 and accelerating into 2004, lenders in 2003 began adding enticements to make ARMs an offer that consumers would find hard to refuse. 'You had lenders with large origination machines running full tilt, and they decided to keep those machines running, so they started to push more heavily,' said Keith T. Gumbinger."
"Lenders started by adding the interest-only feature to basic adjustable-rate mortgages. Other marketing features gradually found their way into the market. 'No doc' loans, now quite common. Lenders started covering for lack of downpayments by making 'piggyback loans.' 'Everybody goes away pretty happy,' Gumbinger said. 'With the exception that there is a property out there that is mortgaged to 100 percent of its price.'"
"Now, lenders are pushing an exotic mortgage that is so leveraged it makes straight adjustables look tame. The option ARM gives the borrower a set of optional payments to choose from each month, ranging from minimal to hefty. 'It sounds like a product that some derelict accounting firm would come up with, but it makes sense for some workers,' said Mark Vitner, Wachovia Bank's senior economist."
"Not covering the interest on a loan is referred to in the industry as negative amortization, 'neg am' for short. In the meantime, the borrower is 'paying juice on the juice,' adds (mortgage broker) Jason Thurber."
"Sarasota's John Barron is typical of the new crop of homeowner-investors. He and his wife are sitting on big profits at their two 2004 purchases close to downtown Sarasota. But the couple made their big moves using ARMs that are about to be reset. If they don't act soon, their monthly bills will rise by hundreds of dollars per month."
"They used two separate three-year, interest-only, adjustable-rate mortgages to buy the homes within the past two years. And there's more, Barron said. 'Besides the two ARMs, we also took out a home equity line on the Seventh Street house to put down a deposit on the Fifth Street house. There was no cash that we had in our pockets to put down on the Fifth Street house. All we had was our shining credit record. And the faith that the banks have in this real estate market that allows you to borrow 100 percent.' If they don't sell, with interest rates rising, the couple will have to refinance the loans."
"At Washington Mutual in Sarasota, 25 percent of current applications are for option ARMs, says senior loan consultant Mike Bangasser. Bangasser acknowledged, 'Granted, your mortgage balance is going to go up under this scenario, but as long as my property is appreciating, I personally don't care too much what my mortgage balance is.'"
"There is one more ingredient to add to this layer cake, and it is one that barely occurs to most borrowers today: What if someday, loans were difficult to get? 'Consumers have become so accustomed to very liquid mortgage markets, where credit is available for almost any circumstance, that they are not aware this is unusual in the market,' HSH's Gumbinger warned. 'Borrowers think they can always refinance. That is not always a safe bet.'"
Could you imagine buying real estate in San Diego in 1998. Selling it in 2003. And then getting to the above mentioned Sarasota Bradenton area, 3 months before the massive increase. All the while dopes in the media were telling you hundreds of reasons for not buying real estate.
Initially it was prices have increased but interest rates are going to sky rocket. Then it was the Stock market will collapse and suck all the money out of real estate. There was crisis after crisis and reason after reason.
Initially it was prices have increased but interest rates are going to sky rocket. Then it was the Stock market will collapse and suck all the money out of real estate. There was crisis after crisis and reason after reason.
I can't see how any bear can possibly make money of the long haul. They're always looking for any bad news to justify a losing position.
And as for this thread, the homebuilding and housing sector whalloped the major indices and interest rates didn't do squat.
Could you imagine buying spec. homes in Las Vegas, the hottest market in the country, only to find right after you bought that your builder is cutting prices on new construction by $100K because demand has slowed. All the while dopes in the media were telling you hundreds of reasons for not buying real estate.
Yes. Or better yet selling in 2005.
Anyone that missed out on the boom just was not paying attention. However, in my opinion this is now over. Is there still money in the property game ? Sure. However just like the stock market bubble things going forward will require work and some smarts - for averagge returns.
The days of shooting fish in a barrel are over.
Anyone that is continuing to predict the same conditions in residential real estate over the next 2-3 years is blowing smoke ...
The last downturn in real estate was precipitated by the crash in commercial real estate...late 1980's. Everyone thinks it was residential, but it wasn't. After the Tax Reform Act, a lot of deals no longer made sense. On top of that, commercial developers all had the same idea at the same time so you had way more project's than could be supported coming on the market at the same time. (Hmmmm, does Las Vegas Condo market come to mind?). So, what happens in cash crunch? Sell bonds, sell stocks, sell commodities, sell everything, 'cus you're broke!
http://www.bullandbearwise.com/FOMOOutChart.asp
all aboard the FREE MONEY FED TRAIN!!
whoooo whooooo
Record printing liquidity injection
Thanks Greenie$$
all aboard the FREE MONEY FED TRAIN!!
whoooo whooooo
Record printing liquidity injection
Thanks Greenie$$