Posted on 03/14/2005 9:33:12 AM PST by Destro
LOL - The problem is so few live in fly over country - which is why its flown over!
40% of all new mortgages are adjustable rate mortgages. The pin that breaks this housing bubble may very well be the rising interest rates that are to come. Thus far, the Fed has steadfastly refused to raise interest rates to reasonable levels. With 50% of American government debt being held by foreigners and with the dollar on a slide that shows no sign of ending, this policy cannot last forever.
It's coming.
I did not know that. My dad viewed adjustable rate mortgages with disdain - remembering the 70s?
How exactly do you sell a house for less than you owe on it?
Bottom line: people will always need a place to live. Conversely, people don't always NEED to buy internet stocks. So comparing the internet stock market bubble to a (speculative) housing bubble is apples/oranges.
If Fleckstein did his research, he'd see that naysayers like him were lamenting the "disasterous" housing bubbles of the 50's and 60's as well, saying stuff like: "the economy can't sustain the cost of a house going over $5,000."
By taking a serious bath on it.
"How exactly do you sell a house for less than you owe on it?"
You have to come up with equity to sell. That being said, the CC company's debt is behind the mortgage, as the mortgage is secured and the CC is unsecured. So if there is really no equity in the house I guess you probably wouldn't have to sell.
If you are totally insolvent, this bankruptcy bill probably wouldn't effect you. If you are trying to restructure and get things back in order it will be far more difficult.
I bought a walk-up co-op unit in Yonkers NY last year for $48,500, I have put about $7,500 in improvements since. The same type unit closed last week for $140,000. My unit could go for about $165,000. Anyone who says there is no bubble is crazy. The only problem is that the record levels of immigration keep the demand through the roof, no pun intended.
It is simply impossible for young people starting out to even consider home ownership without a huge hand from the parents or moving far away.
Its a shame. Although flyover country may be sane and rational, most of the people in this country live in or near big cities where the prices are insane and irrational.
There are 2 relatively new factors that make real estate more valuable that in was in say 1997. Congress passed a law allowing you to exclude $500,000 in capital gains(for a joint return, $250,000 for a single filer) on your house if you lived in it at least 2 of the last 5 years. Congress also eliminated the rollover requirement.
Also, extremely low mortgage rates have allowed people to borrow say, $250,000 at 6% for the same monthly payment as a $204,000 mortgage at 8%. The largest increases in prices have occurred in those bluest of locations where zoning restrictions and excessive regulations have restricted new supply.
But you don't own the house. The bank does. They have to approve the sale.
Well, if the choice is between a sale at market price or a sheriff's sale because the homeowner has to move, I can guess which decision the bank will make.
I think you touched on it - people are buying houses that are priced beyond their means (even though the house is not worth the price) because of easy credit. The artificialy low rates thus subvert the market - or something like that...
Depends on the price. But I will say this, either in large quantities in a community is going to have an inpact on prices - and banks.
And what if the bank decides to just hang on to all those homes and rent them out? I'm just wildly speculating here, of course.
I don't know.... it's just as likely to have the opposite effect.
Note how housing sales have risen to even higher levels as rates have begun to rise? It's likely to be a bunch of people trying to "buy now before it's too late and rates go up!"... this MAY sap demand significantly later on (essentially compressing buying on the front-end of a rising rate cycle).
The bankruptcy legislation COULD do something similar as hundreds of thousands of people who were trying to fight off going bankrupt give up "before it's too late".
I recall housing prices dropping 30% in Northern Jersey (where I lived) after the last real estate run up. In other places, prices may just flatten, but you can have a bubble. People are speculating on houses in my area now, getting 2nd homes and leveraging assets to move up. A real estate bubble can be real...
Good post...monthly payments are everything. If rates go up, people can't afford as much of a house. The impact is greater on the upper end for statisical reasons (fewer buyers in the higher end moving down).
There's no question that there CAN be regional real estate bubbles. But it's almost impossible on a national level (for the reasons sfrepub cited and more). Areas like the DC suburbs, much of California, etc cannot maintain the growth rate they've been seeing, but the numbers haven't been so out of whack nationally.
It's supply and demand. And unlike stocks, the demand for housing CANNOT go to "zero", it can hardly decrease at all... especially since they are "durable", but not eternal.
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