what's going on with real estate?
- Thread starter lasner
- Start date
Stocks are fungible, real estate isn't. Stocks are very liquid, houses are not. Houses are homes first, the investment part is just icing on the cake. You can't live under a stock certificate. So really the primary motivation for owning RE is for shelter. It is very unlike stocks anyway you look at it. And I am fully aware that some markets are overheated, and values will undoubtedly drop, but that's always been the case. The sky is not falling
Maybe nationwide...
Just like I hear all the time that ther is no NATIONAL real estate bubble, that isn't consistent with any of the hot areas. Real estate CAN NOT be judged on a nationwide basis IMHO. It's a regional market, always has been and likely always will be. Any generalization is foolish if you ask me.
Check the stats on types of mortgages in the "hot" areas. You might be surprised to find that fixed loans are about 50/50 or less with ARM/IO/hybrid loans.
Yes, it does MATTER what interest rates do in areas with high concentrations or hybrid style mortgage products outstanding.
People can and do walk away from underwater property. If you have zero down, a 3-4K plus monthly nut to carry and can rent the same house for $1300-1500 per month... people walk in a hurry. It happened here in the late 80's early 90's.
need for shelter = constantly high rela estate prices is not an equation i can endorse. what people don't understand is that in most countries houses are shared with three generations. yes houses are shelter, but there is definitely room for more people under one roof, that is to say people will always need shelter, but how many people live under the same shelter is often a function of a community's economic health, lending opportunity, real estate liquidity, debt levels, preception of RE as an investment, etc
can't buy the no new land and shelter is a necessity arguments as a driver for price.
can't buy the no new land and shelter is a necessity arguments as a driver for price.
Quote from Arnie:
Stocks are fungible, real estate isn't. Stocks are very liquid, houses are not. Houses are homes first, the investment part is just icing on the cake. You can't live under a stock certificate. So really the primary motivation for owning RE is for shelter. It is very unlike stocks anyway you look at it. And I am fully aware that some markets are overheated, and values will undoubtedly drop, but that's always been the case. The sky is not falling
I take back what I said, maybe real estate will implode quickly. Just take a look at how quickly it explode it didn't take long for prices to double. What's stopping the market from tanking just as quickly.
Quote from Arnie:
Stocks are fungible, real estate isn't. Stocks are very liquid, houses are not. Houses are homes first, the investment part is just icing on the cake. You can't live under a stock certificate. So really the primary motivation for owning RE is for shelter. It is very unlike stocks anyway you look at it. And I am fully aware that some markets are overheated, and values will undoubtedly drop, but that's always been the case. The sky is not falling
What you say in a normal market is true, but the past couple of years have been anything but normal. The past couple of years real estate has been looked at primarily as an investment vehicle and not as housing.
Higher interest rates mean lower supply of money (debt) to purchase homes, which means less demand for homes. Lower demand could likely mean lower prices, which leads us back to my original point that many families will likely end up with large negative net worths (even if their mortgage rates are fixed).
Also, as the other poster mentioned, my understanding is that "alternative" mortgage products are very common in the regions with the most speculative activity. I work for a mortgage company, and customers with variable rate mortgages are already starting to feel the squeeze.
Too many god-dammed renters in this forum.
Will real estate see double digit annual appreciation every single year from now to eternity? No.
Could Real Estate see a 50% decline in prices in some of the hot markets? Yes.
Over the long-term, will real estate appreciate faster than inflation? Yes.
There are some markets in NYC, Southern Cali, and Miami that are out of whack and will probably see a correction in prices as interest rates rise and idiots with I/O mortgages are forced into default. However those areas are highly desireable and will once again begin to appreciate faster than the average. Lenders who are offering ridiculous zero-downpayment, 125% financing loans will go bankrupt. Lenders who offer traditional 15 and 30-year mortgages will be fine.
Speculators who have been making a fortune flipping condos will be burned. But any true real estate investors will do fine.
What is it with idiots tring to call a top in real estate? You guys have been wrong for the last 15 years - yet you priciest. In 5 years or so when prices do decline slightly. You'll be on here saying something foolish like, "I told you so." Well congratulations, I'm glad it took 20 years of appreciation for you to finally get it right. Yet the people who did decided to own vs. rent during that same time period will still be ahead and will always be ahead.
Will real estate see double digit annual appreciation every single year from now to eternity? No.
Could Real Estate see a 50% decline in prices in some of the hot markets? Yes.
Over the long-term, will real estate appreciate faster than inflation? Yes.
There are some markets in NYC, Southern Cali, and Miami that are out of whack and will probably see a correction in prices as interest rates rise and idiots with I/O mortgages are forced into default. However those areas are highly desireable and will once again begin to appreciate faster than the average. Lenders who are offering ridiculous zero-downpayment, 125% financing loans will go bankrupt. Lenders who offer traditional 15 and 30-year mortgages will be fine.
Speculators who have been making a fortune flipping condos will be burned. But any true real estate investors will do fine.
What is it with idiots tring to call a top in real estate? You guys have been wrong for the last 15 years - yet you priciest. In 5 years or so when prices do decline slightly. You'll be on here saying something foolish like, "I told you so." Well congratulations, I'm glad it took 20 years of appreciation for you to finally get it right. Yet the people who did decided to own vs. rent during that same time period will still be ahead and will always be ahead.
Real Estate is not a national market. its a local one. however markets that are close by have some effect on each other.
historically whenever California gets too expensive, people flock to neighboring states like Utah, NV, AZ. However this time, NV and AZ are already too expensive. So my bet is that Utah will see significant inward migration over the next few years.
Because of the current inverse yield curve, it looks like we're heading for a recession which leads me to believe that interest rates may not increase much from todays levels. However interest rates do not determine the direction of a trend. They only help or hinder one.
89% of all new loans in San Diego were had an adjustable interest in 2005. Even if rates do not increase much, a 1% increase could mean a 15-25% jump in mortgage payments to the average homeowner. add the principal payments ammortized over 27 or 25 years instead of 30 and they'll probably be stretched over the limit. Since most people got in with 100% financing they will have no equity in their homes if prices drop 10-20%.
On top of that the 100% financing loans are becoming more and more difficult to qualify for and will probably go away in 12 months. This will make it more difficult for people to qualify for homes and the pool of buyers will drop.
San Diego is already at 11% affordability so we're past the peak pricing phase in the cycle.
DOM has increased significantly as has inventory. Condos in my area have already dropped 15% from december 2004 which was the peak.
I expect prices to drop 30-45% locally depending on the area. Condo conversions will be the hardest hit, as will luxury homes.
i know of a couple who are school teachers will a combined annual income of 110k who just bought a 1.1million house. Instead of trading up their old home, they pulled out equity and rent it out for a slight negative cashflow.
When prices drop, not only will they lose the equity in the home, but also in their rental property. Any bets which house will go into foreclosure first?
There are a number of homeowners who believe that prices will continue to appreciate 20-30% forever. "This time its different" they all say.
I sold all my California properties by summer 2005 and I started buying SFHs in the end of 2004 in Salt Lake City. Prices were stagnant in SLC from 1999 to 2004. In 2005 they jumped around 12-15%. I've seen a 20% jump in my homes and I'm currently buying more. They're currently break-even with 100% 5/1 ARMS because i'm doing lease-to-own instead of pure rentals.
I expect SLC to continue to grow in population and home prices for the next 3 years. At that point i'll probably start to sell them off and start moving my money back into CA. CA will be very badly hit this time around. the low interest rates let the prices inflate over what they probably would have if rates were at 6% instead of 4%.
if anyone wants more info, email me at niravmd@gmail.com.
good luck and happy investing.
historically whenever California gets too expensive, people flock to neighboring states like Utah, NV, AZ. However this time, NV and AZ are already too expensive. So my bet is that Utah will see significant inward migration over the next few years.
Because of the current inverse yield curve, it looks like we're heading for a recession which leads me to believe that interest rates may not increase much from todays levels. However interest rates do not determine the direction of a trend. They only help or hinder one.
89% of all new loans in San Diego were had an adjustable interest in 2005. Even if rates do not increase much, a 1% increase could mean a 15-25% jump in mortgage payments to the average homeowner. add the principal payments ammortized over 27 or 25 years instead of 30 and they'll probably be stretched over the limit. Since most people got in with 100% financing they will have no equity in their homes if prices drop 10-20%.
On top of that the 100% financing loans are becoming more and more difficult to qualify for and will probably go away in 12 months. This will make it more difficult for people to qualify for homes and the pool of buyers will drop.
San Diego is already at 11% affordability so we're past the peak pricing phase in the cycle.
DOM has increased significantly as has inventory. Condos in my area have already dropped 15% from december 2004 which was the peak.
I expect prices to drop 30-45% locally depending on the area. Condo conversions will be the hardest hit, as will luxury homes.
i know of a couple who are school teachers will a combined annual income of 110k who just bought a 1.1million house. Instead of trading up their old home, they pulled out equity and rent it out for a slight negative cashflow.
When prices drop, not only will they lose the equity in the home, but also in their rental property. Any bets which house will go into foreclosure first?
There are a number of homeowners who believe that prices will continue to appreciate 20-30% forever. "This time its different" they all say.
I sold all my California properties by summer 2005 and I started buying SFHs in the end of 2004 in Salt Lake City. Prices were stagnant in SLC from 1999 to 2004. In 2005 they jumped around 12-15%. I've seen a 20% jump in my homes and I'm currently buying more. They're currently break-even with 100% 5/1 ARMS because i'm doing lease-to-own instead of pure rentals.
I expect SLC to continue to grow in population and home prices for the next 3 years. At that point i'll probably start to sell them off and start moving my money back into CA. CA will be very badly hit this time around. the low interest rates let the prices inflate over what they probably would have if rates were at 6% instead of 4%.
if anyone wants more info, email me at niravmd@gmail.com.
good luck and happy investing.