Quote from pitz:
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Quote from Dumb Money:
They'll all rent. And rents will go up.
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But there will be all these vacant houses, which will eventually revert to rentals, so that's not supportive of the rental market either. Too much capacity in the overall housing market means rents can only go one way -- down.
Real mature on changing my name. Can't you carry an argument without resorting to that? Next will you tell me I'm rubber and you're glue? With the exception of a few markets that are significantly overbuilt, there will be one family or person displaced for every vacant house. They gotta live somewhere. And for the homes to be rented out, they have to be purchased first.
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When rates went down, rents when down because the demand for rental property was low.
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Hmmm. I thought an abundance of new properties in the market caused that to happen.
Depends on whether you mean "and abundance of new rental properties (available) in the rental marketplace" or "an abundance of new properties (in general) available in the real estate market". Rental rates tend to be more driven by supply and demand for rental property, not the overall market. If supply for rental properties is tight, and a whole bunch of McMansions are constructed and relatively cheap (for a McMansion), it wouldn't effect the rental market much because that isn't a viable alternative for the rental market participants.. Fact is, that demand (for rentals) went down because buying (owner occupied) was a good substitute and that lowered the demand for rentals. There was also more new Landlords being created all the time because of the real estate craze.
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So if rates go up, rents go up.
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Sure, in the long run, as eventually excess housing supply dries up as existing stock disintegrates and population perhaps grows. But this is a gradual process, and won't happen overnight, especially since theres millions of vacant homes and its still quite economic to continue construction on more at current prices.
So you agree that when rates go up, rents go up? Then the question becomes, will rates go down or up from here? I think they'll move up.
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Seems like if you really believe that mortgages are going to go to 10% or 15%, the smart move would be to buy a house for yourself now. Even if you believe that housing prices will come
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No, that would be dumb. Why? Because at 10-15% mortgage rates, the valuation of existing houses would drop like a rock, and you could pick something up for almost nothing. Any good investor knows that its best to buy interest-rate sensitive assets when interest rates are high, in anticipation of future lower rates, rather than buy interest-rate sensitive assets when rates are low, in anticipation of future higher interest rates.
Yes. But these aren't bonds. View it from the perspective of monthly payments. When rates went down, the valuations did move up, but not enough to compensate for the rates. Even though home prices were way up, they were still....on a monthly payment basis...less expensive for the average Joe. This is why so many people demanded new housing, even at higher prices. Agreed? Then (at least to me), this implies that if rates go up, prices of homes will drop (as you say), however from a monthly payment perspective, the price drop won't be enough to offset the higher rates. That means in hindsight, folks will be glad if they buy now, which is my argument. I especially believe this in light of the inherent stickiness of real estate. People don't like to sell at a loss, and if they sell, they have to live somewhere. This keeps demand up, and supply low even in uncertain times. [/B]
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down further, if you don't buy, you're subjecting yourself to ever rising rents in that scenario. Its not all about what the house costs...its also about what your monthly payment is.
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Exotic loans are what created much of this mess; what really matters is the return on investment that is being provided by a house purchase, and that has little to do with what the monthly payment is. People need to focus on the basics of investing, and that is, don't 'invest' into something that doesn't provide a return of less than your cost of capital. But unfortunately, too many people couldn't even get that right, aided by things such as neg-amortizating loans, teaser ARMs, option ARMs, and a belief that short-term mortgage money would remain 'cheap' forever.
[/B] What is the return on investment of renting? I agree with you here, but for a different reason. I think that people were receiving no return from renting, and saw that homeowners were receiving enormous returns from owning. And in some cases, there were people making infinite return rates because they invested nothing. And those people...understandably...wanted a piece of the action. I don't think their downfall was a misunderstanding of ROI. Instead, they didn't insure themselves against the downside. Businesses go under all the time for this reason. Lots of traders lose their ass because they don't cover the downside risk. And there isn't even a margin call on a home purchase. During the mania, I knew, and most homeowners here knew, that rates wouldn't stay low forever, so if we refinanced, we locked in the rate. Unfortunately, financial literacy is the snake oil of our era. Instead of Shysters selling snake oil out of the back of a covered wagon, todays equivalent are the payday loan people, the credit card providers, and mortgage companies that would help the applicant lie their asses off to make the deal go through without explaining the "what if".
In summary, I still say this is a damn good time to buy a house from the monthly payment viewpoint. I don't think that prices will drop enough from here to justify waiting around because then you run the risk that interest rate increases will offset that lower home price. And as rates increase, rents will go up, exascerbating the loss. Mark my words, the right now the story of the day is people losing their houses. And that is sad. But for the cycle to go full circle, the landlords have to have their day from a cash flow perspective. That day will be here, and then the story of the day will be about how fast rents are rising and how screwed people are because of it.
SM
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How much will real estate go down?
- Thread starter lasner
- Start date
Quote from Smart Money:
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Quote from Dumb Money:
They'll all rent. And rents will go up.
--------------------------------------------------------------------------------
But there will be all these vacant houses, which will eventually revert to rentals, so that's not supportive of the rental market either. Too much capacity in the overall housing market means rents can only go one way -- down.
Real mature on changing my name. Can't you carry an argument without resorting to that? Next will you tell me I'm rubber and you're glue? With the exception of a few markets that are significantly overbuilt, there will be one family or person displaced for every vacant house. They gotta live somewhere. And for the homes to be rented out, they have to be purchased first.
--------------------------------------------------------------------------------
When rates went down, rents when down because the demand for rental property was low.
--------------------------------------------------------------------------------
Hmmm. I thought an abundance of new properties in the market caused that to happen.
Depends on whether you mean "and abundance of new rental properties (available) in the rental marketplace" or "an abundance of new properties (in general) available in the real estate market". Rental rates tend to be more driven by supply and demand for rental property, not the overall market. If supply for rental properties is tight, and a whole bunch of McMansions are constructed and relatively cheap (for a McMansion), it wouldn't effect the rental market much because that isn't a viable alternative for the rental market participants.. Fact is, that demand (for rentals) went down because buying (owner occupied) was a good substitute and that lowered the demand for rentals. There was also more new Landlords being created all the time because of the real estate craze.
--------------------------------------------------------------------------------
So if rates go up, rents go up.
--------------------------------------------------------------------------------
Sure, in the long run, as eventually excess housing supply dries up as existing stock disintegrates and population perhaps grows. But this is a gradual process, and won't happen overnight, especially since theres millions of vacant homes and its still quite economic to continue construction on more at current prices.
So you agree that when rates go up, rents go up? Then the question becomes, will rates go down or up from here? I think they'll move up.
--------------------------------------------------------------------------------
Seems like if you really believe that mortgages are going to go to 10% or 15%, the smart move would be to buy a house for yourself now. Even if you believe that housing prices will come
--------------------------------------------------------------------------------
No, that would be dumb. Why? Because at 10-15% mortgage rates, the valuation of existing houses would drop like a rock, and you could pick something up for almost nothing. Any good investor knows that its best to buy interest-rate sensitive assets when interest rates are high, in anticipation of future lower rates, rather than buy interest-rate sensitive assets when rates are low, in anticipation of future higher interest rates.
Yes. But these aren't bonds. View it from the perspective of monthly payments. When rates went down, the valuations did move up, but not enough to compensate for the rates. Even though home prices were way up, they were still....on a monthly payment basis...less expensive for the average Joe. This is why so many people demanded new housing, even at higher prices. Agreed? Then (at least to me), this implies that if rates go up, prices of homes will drop (as you say), however from a monthly payment perspective, the price drop won't be enough to offset the higher monthly payment. That means in hindsight, folks will be glad if they buy now, which is my argument. I especially believe this in light of the inherent stickiness of real estate. People don't like to sell at a loss, and if they sell, they have to live somewhere. This keeps demand up, and supply low even in uncertain times.
--------------------------------------------------------------------------------
down further, if you don't buy, you're subjecting yourself to ever rising rents in that scenario. Its not all about what the house costs...its also about what your monthly payment is.
--------------------------------------------------------------------------------
Exotic loans are what created much of this mess; what really matters is the return on investment that is being provided by a house purchase, and that has little to do with what the monthly payment is. People need to focus on the basics of investing, and that is, don't 'invest' into something that doesn't provide a return of less than your cost of capital. But unfortunately, too many people couldn't even get that right, aided by things such as neg-amortizating loans, teaser ARMs, option ARMs, and a belief that short-term mortgage money would remain 'cheap' forever.
[/B] What is the return on investment of renting? I agree with you here, but for a different reason. I think that people were receiving no return from renting, and saw that homeowners were receiving enormous returns from owning. And in some cases, there were people making infinite return rates because they invested nothing. And those people...understandably...wanted a piece of the action. I don't think their downfall was a misunderstanding of ROI. Instead, they didn't insure themselves against the downside. Businesses go under all the time for this reason. Lots of traders lose their ass because they don't cover the downside risk. And there isn't even a margin call on a home purchase. During the mania, I knew, and most homeowners here knew, that rates wouldn't stay low forever, so if we refinanced, we locked in the rate. Unfortunately, financial literacy is the snake oil of our era. Instead of Shysters selling snake oil out of the back of a covered wagon, todays equivalent are the payday loan people, the credit card providers, and mortgage companies that would help the applicant lie their asses off to make the deal go through without explaining the "what if".
In summary, I still say this is a damn good time to buy a house from the monthly payment viewpoint. I don't think that prices will drop enough from here to justify waiting around because then you run the risk that interest rate increases will offset that lower home price. And as rates increase, rents will go up, exascerbating the loss. Mark my words, right now the story of the day is people losing their houses. And that is sad. But for the cycle to go full circle, the landlords have to have their day from a cash flow perspective. That day will be here, and then the story of the day will be about how fast rents are rising and how screwed people are because of it.
SM
Quote from mgabriel01:
In california --- the 20 year old cinderblock ranch with 1900 sq feet that was build for 60K ---- and rocketd to 500k in 2007 --
is back to 350K after a 30% drop
so the people being hurt by that are ?
speculators
fools
carpetbaggers
and of course...... anyone who took a HELOC to 95% LTV
(but you shouldn't do that anyway if you are using that money to buy a plasma and a new escalade)
escalade and plasma,, i thought those were are God given rights...lol.
But seriously, I did some investigating. If you contact a savvy lender or banker for that matter and work some numbers out, there are still 95% LTV value loans out there and surpsrisingly low rates, very low rates actually.
All I know is I bought my home 5 years ago here in florida and there is no way in the world me nor any of my neighbors would sell our houses now at 2003 prices. That alone becomes self-fulling and helps keep the prices up.
It will be region specific downturns and recoveries in my humble opinion
Eddiefl
Quote from pitz:
Exotic loans are what created much of this mess; what really matters is the return on investment that is being provided by a house purchase, and that has little to do with what the monthly payment is. People need to focus on the basics of investing, and that is, don't 'invest' into something that doesn't provide a return of less than your cost of capital. But unfortunately, too many people couldn't even get that right, aided by things such as neg-amortizating loans, teaser ARMs, option ARMs, and a belief that short-term mortgage money would remain 'cheap' forever. [/B]
ARMS are exotic????.. Hmm they have been around since the early 70's. FHA has had 3-year ARMS since 1979. Just because you dont hear about it, doesnt make it exotic. Most commercial loan have a type of adjustable rate feature or have ballons attached... And I aint talking about pretty little yellow ballons either.
have a good weekend guys,, time to hit the Beer garden..
EddieFl
Quote from lasner:
You can always refinance...if rates are at 15% and housing prices drop like a rock the high mortgage rate will bring the monthly price up....but you can always just refinance in a year or two when rates come down....
But that's providing that within a year or two they do come down.
What if they don't?
What's your exit plan then?
Do you know what the fuck you're talking about?
Quote from $preader:
But that's providing that within a year or two they do come down.
What if they don't?
What's your exit plan then?
Do you know what the fuck you're talking about?
Dude you're fucking retarded.....when interest rates are 15% real estate will plummeted. Your mortgage will still be the same.
Say you have a 150,000 house at a 5.5% mortgage. rates go to 15%.
The value of the house will go down to meet the mortgage. 150k house at 5.5% is $900 mortgage at 15% it's $1900.
The value of the house will drop to meet the mortgage. At 15% mortgage rate that 150,000 house has to drop to about $80,000 to be a $900.
When mortgage hit that 15% it's a perfect time to buy.....eventually they lower and you refinance.
But then again maybe people are retarded enough to spend $1900 for a $150,000 house
Quote from lasner:
Dude you're fucking retarded.....when interest rates are 15% real estate will plummeted. Your mortgage will still be the same.
Say you have a 150,000 house at a 5.5% mortgage. rates go to 15%.
The value of the house will go down to meet the mortgage. 150k house at 5.5% is $900 mortgage at 15% it's $1900.
The value of the house will drop to meet the mortgage. At 15% mortgage rate that 150,000 house has to drop to about $80,000 to be a $900.
When mortgage hit that 15% it's a perfect time to buy.....eventually they lower and you refinance.
But then again maybe people are retarded enough to spend $1900 for a $150,000 house
Seeing as you're the self-declared leading authority on the housing market and interest rates why don't you build into a property portfolio and offset it with positions in the STIRs?
As you previously posted,you actually "work in sales".
Sounds to me like you NEED this property market to tank,maybe then you'll be able to buy that studio apartment you've dreamt about.
It will go down even worse than the 'theory' would predict in an environment of high interest rates because high interest rates would put a lot of additional supply on the market by way of foreclosures that would not exist when interest rates are low.
Just like there was valuation overshoot to the upside when interest rates went down, I think its fairly likely there will be overshoot to the downside when rates go up. That is to say, essentially, that RE will be a tremendously good deal when interest rates are high. Especially for people with excellent credit ratings and access to reasonable downpayments.
Just like there was valuation overshoot to the upside when interest rates went down, I think its fairly likely there will be overshoot to the downside when rates go up. That is to say, essentially, that RE will be a tremendously good deal when interest rates are high. Especially for people with excellent credit ratings and access to reasonable downpayments.
Interest rates and housing prices are directly tied to one another as previously stated. Rocketing interest rates means plummeting house prices. The inverse is true too, which is what we saw in this housing bubble.
If you have a ton of cash on hand, then you are begging for high interest rates.
But high interest rates now will kill whatever is left of the housing market because everyone with a heart beat who wanted to buy a home already has. Many of them have been foreclosed on or will foreclose shortly.
THESE BUYERS will be out of the market for a decade since no one will loan them money now so the buyer pool just got a lot smaller. Couple that with higher interest rates and record breaking debt in the US, and housing is in huge trouble.
You have a large population of people with horrible credit now, heavily in debt coupled with tight credit markets, and high interest rates = no home buyers for a long long time.
I think prices have a good chance of crashing below market value.
If you have a ton of cash on hand, then you are begging for high interest rates.
But high interest rates now will kill whatever is left of the housing market because everyone with a heart beat who wanted to buy a home already has. Many of them have been foreclosed on or will foreclose shortly.
THESE BUYERS will be out of the market for a decade since no one will loan them money now so the buyer pool just got a lot smaller. Couple that with higher interest rates and record breaking debt in the US, and housing is in huge trouble.
You have a large population of people with horrible credit now, heavily in debt coupled with tight credit markets, and high interest rates = no home buyers for a long long time.
I think prices have a good chance of crashing below market value.
I think prices have a good chance of crashing below market value.
If you lived in Texas in the mid-late 1980s, or in many parts of Canada that had high prices during the resource booms of the 1970s and early 1980s -- you could easily buy houses for less than their construction and material costs for most of the 80s and a good chunk of the 90s. Building new houses was pretty much an exercise in insanity, or something reserved for the quite wealthy who could afford to pay top dollar for something 'new'.
Illiquidity is usually a sign of a market top or a declining market -- whether it be the stock market, or the RE market -- and since home sales keep falling, that's a sign that things have considerably further to fall.