Pop Goes the Bubble

Washington Post ^ | 9/28/205 | Jefferson Morley

[nh1]

Those scenarios are true, but it's the people who buy right before the drop who get hurt.

It happened to me. I bought a house in 89, paid $180k for it. I had to have it, I was paying rent, real estate was going nowhere but up. It was a stretch. Banks were offering 95% loan to value, interest rate buy downs etc. But nothing as creative as what's available now.

Three years later I needed to refinance, the property assessed at $135k, and on top of it banks would only loan 80% loan to value. They said it was a declining market. I had to bring over $30k to the closing.

It hurt for a while, took years to be worth what I paid for it even with improvements.

Now, I could probably sell for $400k.

So... I guess the moral is, you don't lose if you don't sell, but buy at the right time and it's a much better investment.

[Casloy]

Funny, that doesn't fit my mental image of a bubble popping. My bubbles always reduce to zero.

If you bought a house in 2004 for 500K and you put 10% down, a drop of 10% in it's value means you have absolutely no equity. If it drops any further you are now sitting in a house on which you owe more than you can sell it for. Admittedly, not a major catastrophe if you plan to live in the house for a long time. But, if you are a small investor and now your investments are going south, you may try to sell quickly, further driving prices down. This is exactly what happened in the late 70's in Washington DC. A lot of people went belly up.

[Pelham]

Thanks for posting these articles. It's always interesting to see the reaction they get. From peak to trough of the last cycle, 1989 to 1994, prices fell as much as 50% in my part of southern California. This time the cycle looks more extreme on the upside, compared to the inflation rate, wages, percent of income devoted to housing. Nice tract houses here now trade hands for just under $1,000,000. Apparently some 25% of recent sales are for investment or speculation, and nearly 60% of recent loans are 100% financing, ARMs, negative amortization. Some of these buyers have to have price increases or their strategy won't work. A simple plateau in prices and they will be putting these houses on the market, which increases supply, weakening prices- but then that can't happen, real estate always must go up. Ask a true believer.

[Heyworth]

But in CA everyone is mortgaged out to the value of their house within the last 6-12 months....

Not everyone. I bought in 2000, 5% down on a 310K house. It's now worth 750K-ish. I've got a 30 year fixed mortgage at 5 1/8th and I've only taken out a 30K equity loan, and that to do improvements. My mortgage is less than my rent used to be, much less what rents are these days.

[MD_Willington_1976]

I bought a house for $107K, the mortgage paymet is 250 more than my previous rent, which I can afford...is that bad or good..I don't know, all I know is that for the first 5 years I lived in the USA, the rent I spent would cover ~ $40k worth of that $107k...

[operation clinton cleanup]

The risk is far more for adjustable rates and interest only loans.

Much like speculating in Internet stocks in 1999. The buy low time has past, sell high time is here!

[gogeo]

With appreciation like the article says, I would be looking for a bubble also. Most markets haven't seen that kind of appreciation, though.

[FreedomCalls]

Funny, that doesn't fit my mental image of a bubble popping. My bubbles always reduce to zero.

Are you saying that Priceline.com's stock price fall from $990 a share in 1999 to $23 in 2001 and now to $19 a share (a 98% loss) was not a bubble popping because its share price right now is not zero?

I call call Priceline.com a burst bubble.

[TheSpottedOwl]

Well, I'm starting to smell a rat. The people next to us run a construction business, and they told my bf that there will be people living there. He's going to get on the phone with one of his buddies and find out what's going on.

[TXBSAFH]

But what of the guy who bought two years ago.

[SamAdams76]

Real estate prices in Sydney, which rose by about 175 percent from 1994 to 2004, have fallen 10 percent since then and some expect the market to fall farther. "Sydney is undoubtedly the basket case of the national property market," says the Sydney Morning Herald.

Basket case? I'll gladly take a 165% return in 10 years.

[Lekker 1]

Uh, No, that is not at all what I am saying. I said nothing of Priceline.

[chris1]

You forgot closing costs. I think people who have bought within the last year or two are going to hit the most.

[FreedomCalls]

Uh, No, that is not at all what I am saying. I said nothing of Priceline.

You spoke in general of bubbles. Need I remind you what you said? Quote: "Funny, that doesn't fit my mental image of a bubble popping. My bubbles always reduce to zero."

Priceline was a bubble. It's present price is not zero. Therefore your statement "bubbles always reduce to zero" is not correct.

[Lekker 1]

Therefore your statement "bubbles always reduce to zero" is not correct.

Wrong. My statement, "MY bubbles always reduce to zero." is 100% correct.

[FreedomCalls]

My statement, "MY bubbles always reduce to zero." is 100% correct.

So you have a long experience in losing all your money many times over in bubble purchases. OK. I don't think you are really all that qualified to give advice on investments with that kind of a record.

[Lekker 1]

Well, you finally said something accurate. I am definitely not qualified to give investment advice nor would I ever claim to be. furthermore, I would never attempt to give investment advice.
My quote was, "Funny,[the Sydney Real Estate situation] doesn't fit my mental image of a bubble popping. My bubbles always reduce to zero."

Does the real estate situation in Sydney (10% drop) fit YOUR mental image of a bubble popping?

[krunkygirl]

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