Posted on 10/13/2005 10:46:00 AM PDT by ex-Texan
Sellers forced to set lower prices as hot housing market levels off
An oversupply in housing that has been troubling other southeast Michigan communities has hit Washtenaw County in full force.
The result has been stagnant home values for the past two years. There's also evidence that values may be depreciating slightly as competition forces down prices.
Experts say the poor Michigan economy, coupled with a flood of new houses, has created the strong buyer's market.
"The inventory is greater than Ann Arbor really has ever seen,'' said Elizabeth Brien, a leading agent with the Charles Reinhart Co., a real estate firm dealing with properties throughout Washtenaw County. "And I think it's going to continue to grow for awhile.''
According to the Ann Arbor Area Board of Realtors, listings for single-family houses are up 21 percent through August 2005 compared to 2004, while the number of units sold has fallen slightly.
It's a bitter pill for home sellers who daily see stories about the super-heated home appreciation in other markets around the country. The national average for appreciation was 14 percent in 2004. Washtenaw County last year averaged just 1.5 percent appreciation, and is on pace for virtually no gain this year.
Through August 2005 the median sale price of a home in Washtenaw County was $227,500, compared to $230,000 that time last year.
Sellers face hard choices
A tough real estate market could damage other sectors of the local economy, as many people have been counting on gaining wealth through home appreciation. With access to equity so easy through lines of credit and refinancing, rising values have been counted on to pay for consumer spending.
Martin Bouma, a Keller Williams agent who has 68 residential listings, said about 15 of his clients are "very anxious.''
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"Because (as the article says) the economy is in the tank."
Well, the inconventient truth for the bubbleheads is that there hasn't been a hot real estate market in Michigan, so there's nothing to "cool off." Maybe certain lakefront areas and second home communites. Other than that, Michigan is flat and has been flat for quite some time. Nothing there to gladden their bubblicious little hearts, no matter how hard they try.
Bump.
She has a $430K interest only loan that she used last year to buy a $430K condo, 100% financing..I tried to explain that her monthly payments will rise substantially in four years.'"
The condo is worth about 200,000 and who ultimately owns the loan? yep, you and I.
It's not going to happen like that. As the market corrects, these houses will be bought by those who were pushed out by the high prices. If you are expecting to buy "flippers" for 50¢ on the dollar, it's not going to happen in the "bubble" markets.
I said in a thread yesterday that prices in Michigan had been flat to falling for the last 3 years. It has been frustrating for some people but could hardly be called a crisis. It's hard to pop a half inflated balloon. Prices in Michigan doubled in many areas from depressed values in the early 90's and peaked between 2001 and 2003. I haven't done all the formal math, but if I take a property I have owned since 1994, and discounting home improvements increasing value, this growth outpaced 3% average annual inflation by about 25%. So you could say that 25% was the real return or appreciation over 11 years. About 2% annually. That is a lot less than many other asset classes.
Obviously things occasionally break way below the trend line, like in the Great Depression, so anything could happen. But I don't expect too much downside in Michigan in the short and medium term. The usual bubble markets (Cali, FLA, NE) are poised for a bigger hit. And like any market in correction, the people who bought at the top will be the most disappointed. I just don't believe we are on the brink of disaster.
I would bet my house that there are a few more adults living in the house then she has let on. How else do you explain the three taxi cabs that started parking in the street shortly after she moved in? ;-)
interest only first 5 yrs
interest only first 5 yrs
We sold a house in the UP of Michigan a year ago for 12.5K and were glad to get it off our hands for that much. My husband inherited the property and held onto it for 2 years before concluding it was a money pit.
But it is also the highest leveraged asset people own. So it they see even a 2% annual growth, it is more like a 10% or more annual growth based on the investment. Generally, if a home appreciates 2% a year you pretty much break even versuses renting. If housing increases 4% a year, you make out pretty well.
$43K maybe? Nobody making $30K would qualify for a $430K mortgage.
The real estate bubble is bursting in Ga. as well, simply because we are trying to sell a house.
We are always too late in the "hot" investments.
In 2000, we invested $40K in a red hot tech stock IPO.
Lost it.
This year we bought a much bigger and more expensive house with the idea of making money on our other house and on the sale of this one in two years.
Well, there goes the real estate market.
I'm not surprised!
I advise folks to steer clear of any type of investment they see us getting into cause it is sure to tank!
That is true of course, but I do not think relevant to the point I was making. It doesn't matter if I am 100% leveraged or free and clear, the return on capital value of the house has not been such that I'd call it a bubble.
You left out the most important part of my post which was a reply to another Freeper. I post it below to clarify:
The national economy is really many regional economies. Nobody really studies regional economics in college but that is the most important subject books do not cover. California may be booming while Indiana is fading. I believe the bubble has already burst [in] sections of California. But, then what do I know?My best buddy is moving to Nevada and will buy near Lake Tahoe. He was working for the holding company that owns Coldwell Banker and Century 21 and was running the entire western region of eleven states for them: Take the hint folks . . .
But your naysaying post simply reinforces my position. If you do your research, you will discover that some counties in California briefly experienced falling prices in 2003. But no one foresaw the use of interest only loans by mortgage lenders. Suddenly, with very easy money, the price of real estate took off more than ever.
Since 2003, the real estate bubble was inflated dramatically by interest only loans, ARM loans and 95% financing. About 67% of California buyers cannot qualitfy for mortgages using conventional financing. Since 2003, 47% of the new jobs in California are real estate related. That happy economic boom has been inflated beyond all expectations by real estate speculators. Absent speculators buying two and three homes, and, absent desperate buyers opting for interest only loans, the real estate bubble would have *BURST* in 2004. But greedy profiteering took over.
When the bubble finally pops early next year, the economic fall out will be global. Not local. Not just California and not just the U.S. The economic impact will be global. The impact may be worse than anything you can imagine.
About my buddy:
He left that position with that major holding company. He had piled millions in the bank in the meantime. He took another position working for GMAC finance and banked more money. He rode the housing bubble and the finance bubble for all it was worth. He left GMAC before GM stock began to tumble and began a start up company.
In the meantime, he paid off his mortgage on his home and bought a nice piece of property at Lake Tahoe. Paid cash for it too.
The average income earning Freeper who agreed with my post might have avoided highly risky mortgages. Those who thought I was wrong will regret their choice of financing. The few who could afford to speculate (making barrels of cash) can drive happily to the bank today.
Interest only mortgages will kill the goose that laid the golden egg. Speculators again triumphed, and average income earners will pay the piper. Nothing changes in this world.
Maybe it was a negative arm and she was only paying 2% interest, but then after 5 years she owes 600K
probably a low a.r.m for a few years
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