Posted on 10/26/2005 2:55:33 PM PDT by ex-Texan
From Contrarian Chronicles
You can see how the housing bubble is bursting in places like Columbus, Ohio, where builders and lenders threw common sense away and enticed people to buy homes they couldn't afford. * * *
To some degree, the housing market is a compendium of local markets, unlike the "centrally located" though all-encompassing stock market bubble. There is no Nasdaq or Dow Jones housing index. For that reason, as the housing bubble unwinds, it won't be quite so obvious to folks around the country unless it's happening in their community. * * *
Buy Now, Foreclose Later
It's worth making a point here: On average, people across the country have a good deal of equity in their houses. But I think that average is misleading. There are people with huge amounts of equity, and there are people with virtually no equity. It's the people with no equity (otherwise known as "marginal buyers") who find themselves in trouble, wind up "upside-down," and are forced to sell. It's those marginal sellers who start the price dislocation (after the supply of marginal buyers has been exhausted). The story Ohio describes this process: "Foreclosures damage entire neighborhoods. They affect families such as the Alonsos, homeowners who pay their mortgages on time, yet find themselves stuck with houses losing value."
(Excerpt) Read more at moneycentral.msn.com ...
You know that interest-only loans have to be a major indicator that the supply of marginal buyers is exhausted or nearly so.
Good post. Here in Oklahoma City, there are endless developments of large houses. I can't imagine where all they people work that can afford these houses and their new cars.
Not if you've read anything Fleckenstein has ever written in the past ... ten years. He's a broken record, never has anything new to say & solely uses his column to promote his short positions in INTC & the homebuilders - it's a pump & dump pure & simple (and if you're truly pretending you don't know better than you're just another con in on his game)
" Not if you've read anything Fleckenstein has ever written in the past ... ten years."
You are so right. A bum. Negative, always. A bum.
Bubble?????? You mean that 2700 sqft pug ugly monster they just put up behind me here is Roseburg, OR is not worth the $700,000 they are asking California transplants to pay??
I never heard of Feckelstein until now, and I certainly wouldn't go to Seattle to buy stocks, but anyone who can't see that many people are buying a LOT more house than they could keep if things turn a little sour has their head in the sand or they are realtors.
Zero down financing has supported the housing price rise through increased demand by broadening the market in general and letting people be able to buy "more" house. It takes about 5 years of payments to get to where you would have been, equity-wise, with a 20% down payment assuming the market doesn't devalue.
When the marginal buyers have reduced market access through tightening down payment rules or interest rate rises, house values will begin to drop. Marginal buyers with adjustable rate and/or interest only loans will find themselves in a pickle at that point, and a significant portion will be foreclosed. Then, the rest of the price bubble will burst due to more homes on the market chasing fewer qualified buyers.
It doesn't look too pretty to me in the short term. I'm going to wait a year or two before I do any more investing in real estate.
Here in Indianapolis they just keep building homes and condos on any bare ground they can find. They give the condo developments pretty names, price the condos at $300-400K and then sell them to people as a short term investment based on the future appreciation. They lure people in with interest only 5 year loans and little or no down payment. It is going to be a rude awakening for some of these people when the loan comes up for renewal and the rate is much higher a the value of the property is less than what they paid for it. The houses on the otherhand go for much more, sit on postage stamp lots and are not particularly well built. Again I have believe that the value is going to drop on many of these houses because of build quality and over building.
There was a very young but very wise financial advisor on MTP a couple of month ago who warned of this. She said that if you can't afford to pay anymore monthly than the interest on the loan then you are buying more house than you can afford.
A $700,000 house in Roseburg???
I live in Tualatin and live in a 2350 sq ft house we bought in March for $300k.
bump
***nobody listens to me anyway***
Now this is wisdom.
Coastal properties around Newport and Lincoln city are still going nuts. An ocean view alone seems to carry a $500K value.
Fleck is a hack. Short selling hedge fund manager.
Well, I bought my over-priced, 25 year old, 1,200 sqare foot half of a duplex on the east side of San Francsico Bay last December. I used a 0% down, interest-only, variable rate financing package. 6 months after I bought my unit, an identical one down the street sold for 20% more than I paid for mine. There is my 20% equity right there, and it is probably even higher by now. Home sales in this area set another record in September. If this is a crashing market, I would love to see a booming market!!
Admittedly, the SF Bay Area is such a popular place to live (liberals love company, I guess - I would leave this area in a heartbeat if I could), coupled with the fact that the the environmentalist wacko's make it VERY difficult to start new housing developments around here, probably means that demand for housing in this area is artificially high. This will not change anytime in the near future, unless our socilaist environmentalists suddenly become capitalists (fat chance)!! Hence, I can see where our area might be the exception to the rule.
If the real estate bubble is going to pop in the USA, it will pop in the SF Bay area last. No signs of that happening yet, and there are a lot of eager people (who are currently renting) fervently hoping that prices WILL collapse in this area soon. They have been waiting for a LONG time!!
I am told that if the bubble starts to pop in in the SF Bay area, it will start popping further out first (Stockton, Tracy, etc...). I am closer in, where real estate is even more desireable, and as such my area will not be the first to "pop". I am constantly watching home sales in the "furthest out" communities for signs of "popping". If I see such signs, I will sell before my "closer in" area starts to "pop". In addition, I have now built up some good equity, so I could actually take a certain amount of price deflation, and still have my house be worth more than I paid for it.
Housing values in the entire SF Bay Area would have to collapse drasticly overnight for me to be in deep trouble, and from everything I have seen and read, that won't happen. In the worst case scenario, most around here see a flattening of home prices, or a small and gradual price decline.
In other words, I am concerned, and I am monitoring the situation VERY closely. But I am not yet seeing a reason to panic. However, things may very well be different in your region. Every part of the country has it's own quirks.
California still has ridiculously rising housing prices. Soon no one will be able to buy a home here at all. It is just incredible!
Did you see East Valley in Phoenix doubled the homes for sales from 7k to 14k in one month?
With this knowledge you should play the stock market. You'd make millions.
I was just going to post something to that effect. We just got back from visiting our son and family in Maricopa, AZ, South of Phoenix, the building boom is nothing short of amazing. His neighborhood is not completed and almost every house has a contract, it's absolutely mind-boggling.
Yep, lots of CA folks moving in--JUST DON'T MAKE IT LITTLE CA!!!
BTW, we're not talking old, shuffleboard playing codgers here, we're talking young marrieds, professional kids, er, young adults. These youngsters have a plan in mind and they are on the move--in more ways than one.
Good news for me, I plan on retiring in the next 5 years. Buying property at distressed levels is fine with me.
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