"It's something to keep in mind . . . "
That may be the greatest understatement of all times. Why? Because when those all those Option ARM loans and ARM loans were written with 2.5% (or lower)teaser rates. The loans written about two years ago are going to reset at the current contract rate. Which, in many cases, is higher then the LIBOR rate. [Yada, yada]When the higher rates start to click in, people all over the U.S. will be howling in pain. Then their howls will turn into screams of agony. Because the greater percentage are going to be in the first stages of foreclosure. With the nasty option ARMs, the amount of aggregated and unpaid interest will be added to the total bill. Thousands and thousands of dollars. Together with penalties, late fees, charges, attorney fees, together with other costs. Get ready for a huge fire sale.
I am an attorney in VA/DC and help companies convert from apartments to condos...we were half-joking the other day that if 2000-05 was all about conversion, then 07 will be all about representing the lenders in forclosures...
Soemthing else to consider. My wife and I are thinking about gettign a new house in a few years. I occasionally go online to the local real estate association website once ot twice a month. Just to see what is out there. We would like to move now but want to pay off our student loans first. I did a search for a specific town and size of house. I get 20 to 30 hits and I looked at them online. 2 were obviously repos. There has been a lot more repos in the past few months.
Well, here we are two years later, and I fear of what is to come. We put the unit on the market in April 2005 with no luck thus far. We first started the price out high, but by the summer we had came down to our exact purchase price.
What developers were doing this in 2003-2004? Did they see the market peaking and just want to get out??? First I have heard this early.
Real estate investments are not for weenies. Good luck to these condo folks. If they're lucky, they'll get to keep the one they're living in.
I'm not as up on this as I should be (considering my wife and I are planning to buy a house in Nov. or Dec.). what is a No Doc loan? Is that just a "no income verification" loan?
Our plan is first house/last house, 30 yr. fixed, with between 15 and 20% down. I'm thinking we should be on firmer footing than most, as long as 1) we watch our monthly and 2) both keep our jobs.
However, I also put another amount, equal to about half my interest payment, into an S&P 500 index fund. It is automatically deducted from my account. I am doing that in lieu of my mortgage principal, as I believe that over time, the S&P will beat the mortgage interest.
Furthermore, the mortgage is less than 50% of the house's current value. It was about 55% of the value when we moved in two years ago, but I figure the house has appreciated somewhat, if nothing else than the fact that it has a new roof and boiler and basement floor and a bunch of other stuff we financed out of pocket to repair / upgrade.
Best real estate investment advice I received as a young man was you make your profit when you buy it.
People who don't know what they are doing should not speculate in real estate. This talk about a market crash is also absurd. The appreciation will just slow down. Foreclosures are up because home ownership is higher than ever, and it has been very easy to get a loan in recent years.
If they cannot sell the condo, they may be able to exchange it for another property. I've done that for clients in several states for many years. There will be someone, somewhere who wants a condo in Chicago and will exchange either real or personal property for it. There may be a doctor out there who would offer 20K in future medical services in exchange for the equity. Unless the loan is already upside down relative to value, there are ways to get out of the investment. They should also consider a lease-option to give a lessee some incentive. They could take a personal note from someone with good credit as a down payment. With no cash down, the tax benefits to that investor may be worth owning the condo.
Or, they own the bank. I have heard about scared mortage companies coming up with 40 year mortages with at the 30 year mark a baloon payment. It ain't over till the fat lady sings and never underestimate the creativity of the printing press operators.