Greenspan says US housing boom is over

Reuters ^ | 5/18/06 | Reuters

[doc30]

NEW YORK (Reuters) - Former Federal Reserve Chairman Alan Greenspan said on Thursday that the "extraordinary" boom in the U.S. housing market in recent years is over.

"This has been quite an extraordinary boom," Greenspan told a Bond Market Association dinner in New York. "The boom is over. I think we can safely say that with a strong degree of confidence."

Greenspan said there was a "high degree of froth in the system," and that it was clear that home equity extraction and the turnover of home sales was waning.

[little jeremiah]

I've got friends in SCal trying to sell, they may wind up foreclosing. I thought you couldn't walk away from it without it dragging behind. But I know little about the details.

[LouAvul]

I thought you couldn't walk away from it without it dragging behind.

That was my understanding. It would go on your credit history but the bank couldn't require you to make good the note.

Maybe some more savvy Freepers could tell us.

[RobRoy]

My brother is a mortgage broker. He made an interesting statement regarding forclosures:

Imagine you are a bank with two customers paying you their monthly mortgage. Both homes are worth $400,000. Both are several months in arears. However, one has $150,000 in equity and the other is on an interest only loan and actually has NEGATIVE equity.

Which one are you gonna foreclose first? ;)

[doc30]

That is an interesting example. If given three guesses and the first two don't count, well, the home with the most equity would be foreclosed upon. Need to repay that loan with profit, first. But it doesn't mean the other home won't be foreclosed upon.

[doc30]

And IIRC, in California, you can do that with no serious repercussions. The bank cannot make you pay.

X-wife had financial trouble. In FL, the bank can go after you for any deficieny from a foreclosure sale so the banks aren't under as much pressure to make sure the foreclosure sale covers the mortgage. The only way to avoid it is bankruptcy.

[RobRoy]

>>If given three guesses and the first two don't count, well, the home with the most equity would be foreclosed upon. Need to repay that loan with profit, first. But it doesn't mean the other home won't be foreclosed upon.<<

True. But in practical application, it means one guy stays in his house longer, possibly MUCH LONGER than the other guy. And he is out zero dollars.

Meanwhile, survival often means having staying power to ride out the rough times. The guy who stays in his house longer, by defintion, can ride out longer. For some, it will be enough to stay through the crisis into better times where the problem can be handled. For an airplane, running out of gas three miles from an airstrip is much better than running out a hundred miles away.

[LouAvul]

In FL, the bank can go after you for any deficieny

Also Oklahoma. It's called a "deficiency judgment" IIRC.

But in Cal there is no such avenue for lending institutions. People can merely walk away. That's why, when the market adjusts (it's called "equilibrium"), many people who have found themselves upside down in their mortgage will walk away.

This always happens. But it's in varying degrees. Sometimes worse than others.

[RinaseaofDs]

Why is this man saying anything at all? I'm sure Bernanke's pleased . . .

[idsujmxzcg]

Oh come on, you can have them come to California to snap up a nice 75 year old 900 square foot 800k mansion with 10k a year in property taxes.

Your not kidding. CA real estate is still white-hot. A little anecdotal evidence for that:

A month ago we put our 1400 sqft, 64 year old single story, stucco exterior home in Menlo Park CA on the market. It was neat and clean, but nothing special. We held open houses all week and accepted offers the following week. We had 9 offers, all above asking and it went for 15% above asking price, no contingencies. The sale price appreciated 115% in the 9 years we owned it. This was just last month. We feel extermely fortunate, but it sure feels like a boom to me.

[muawiyah]

Only parts of the Northeast had high percentages of increase. Still, turns out that my area (Springfield VA) which was just about the hottest in the country only increased 8% per year from 1978 to 2005.

You still had to clean up the place, put in a new kitchen, and chop down your front yard Dawn Redwood to get that.

[A CA Guy]

I know, it's crazy. My 2300 sq home is valued right now at over 30 times what I paid for it.

I also have to wait a very long time before I get near the age of 55 (when you are allowed to move and take your old basis with you) and it isn't worth my moving because I would have to increase my property tax 1200% a year for the privilege of moving. I can't see paying almost +10k in extra property taxes.

We had crashes twice in the 80s and 90s when homes went up far less than this run.
Expect a big crash IMO. It also appears this could be global and we could see a global crash in RE.

My friends say if I would get married and have one of those expensive divorces like some of them have that moving would be no problem... AAAck!

[gleeaikin]

"I also have to wait a very long time before I get near the age of 55 (when you are allowed to move and take your old basis with you)."

WAKE UP AND SMELL THE COFFEE. This is the OLD law. Under the new law passed, I think in '97, you can sell your house after you live in it for two years and NOT pay capital gains on your PROFIT of up to $250,000. Listen to your friends, get married, if you and your wife sell a house you have lived in for two years out of the last 5, you can avoid paying capital gains on your profit of up to $500,000. This is one of the reasons the market has gone so crazy the past few years. As people found out about this they started buying houses, living there for two years and then selling. There are large numbers of people who want to cash out now.

Regarding foreclosures, they are a pain in the neck for banks. Often they will renegotiate a lower payment to keep an otherwise good homeowner in the house. ALWAYS contact your bank if you are in difficulty and see what you can work out with them.

[A CA Guy]

Hi, that is great advise for someone who either wants to bank some investment property assets by living in their second home for two years or to retire and cash out.

My point was not about a sale for cashing out and avoiding income tax, but about the effects a sale would have on PROPERTY TAXES for someone under 55 compared to someone over 55.

I pay near 1k a year in property taxes.
If I sell my home and buy the same exact home elsewhere, my taxes will go from under 100 a month to well over 1,000 a month.

That is because if you are under 55, you have to start with the new cost of your home as the basis for your property tax. (I am way under 55)
If you are over 55 you can bring over your old tax basis up to sale price of that home in CA.
For the most part you can go from one country to another as well because of agreements between counties.

I dated an estate and tax gal and I have great friends who happen to be some of the premier estate and tax lawyers of CA, so for the most part I get to hear a lot about the dry stuff regarding laws and how the well informed can avoid taxes legally (to some point). :)

I enjoy and like my house, but with the existing laws I have to like somewhere else at a cost of 1k a month more to live every month. I'm too practical for that.

[A CA Guy]

Hi, that is great advise for someone who either wants to bank some investment property assets by living in their second home for two years or to retire and cash out.

My point was not about a sale for cashing out and avoiding income tax, but about the effects a sale would have on PROPERTY TAXES for someone under 55 compared to someone over 55.

I pay near 1k a year in property taxes.
If I sell my home and buy the same exact home elsewhere, my taxes will go from under 100 a month to well over 1,000 a month.

That is because if you are under 55, you have to start with the new cost of your home as the basis for your property tax. (I am way under 55)
If you are over 55 you can bring over your old tax basis up to sale price of that home in CA.
For the most part you can go from one country to another as well because of agreements between counties.

I dated an estate and tax gal and I have great friends who happen to be some of the premier estate and tax lawyers of CA, so for the most part I get to hear a lot about the dry stuff regarding laws and how the well informed can avoid taxes legally (to some point). :)

I enjoy and like my house, but with the existing laws I have to like somewhere else at a cost of 1k a month more to live every month. I'm too practical for that.

[A CA Guy]

That was meant to say from one county to another, not country.

[gleeaikin]

I guess that must be a specific law for your jurisdiction. Where I live you get a 50% reduction for being a homeowner over 65. You also get a homestead exemption which has not kept pace with inflation. Taxes are increased annually based on market value, not basis. I am currently fighting increased assesments on two properties. Do you mind telling what state you are in? What does age 55 have to do with it?

[A CA Guy]

You are absolutely correct. Every state has different things going on.

We start at close to 1% of the purchase price due to Prop 13 with Howard Jarvis in the old days.

I have relatives who are in a part of NY where the property taxes start at 4% and the same goes if not worse for Texas I hear.

All depends on local laws, that is why I said there had to also be county agreements to allow people to bring the basis from Los Angeles to another county as an example.

It's always complicated though, just as what you described regarding yourself.

[TeddyCon]

Ditto!

[A CA Guy]

55 was the age number they decided was the time that the basis should be allowed to be carried over.

I think that was picked because by age 55 you are going to have a hard time getting a new job and progressing your career. For most that is going into the twilight of their employment years and I guess people figured people with income years declining would need the help to keep homes.

Last I read G, only 15% of California people can afford the home they live in today if they had to buy it from scratch with their current income.