Reality setting in on real estate

GlobalMacroScope ^ | September 2006 | Max Fraad Wolff

[what's up]

IMHO, it not worth a dime over $ 90,000

Oh, for Heaven's sake. And you tout yourself as expert enough for readers to visit your real estate webpage?

LOL.

[GodGunsGuts]

For many, yes. But for others, this will be a time to reap tremendous profits. It all depends on how you read the markets.

[Moonman62]

Treasury yields keep going lower, especially the past two trading days, in spite of the inflows. One factor I rarely see mentioned is that corporations are flush with cash. They are paying off their debts, and they aren't borrowing enough money to push up rates.

[Sovernity]

It is time for a good old fashioned downturn in Orange County, Californa real estate. Standing in line with 110 other suckers waiting for your number to be called concerning a builder's release of 14 square box, two story townhomes for $600,000. with taxes and association fees and assessments of $1050.00 per month is a sobering experience.

I actually saw a winning young woman burst into tears of joy and relief as she was escorted to a closing/escrow office by the spiffy real estate agents.

[WackySam]

It's like when our local city council gets a $25M property tax increase instead of a $28M increase and one of the coucil members throws a fit because of "budget cuts"

You must be a fellow Tamponian.

[Sovernity]

It is time for a good old fashioned downturn in Orange County, Californa real estate. Standing in line with 110 other suckers waiting for your number to be called concerning a builder's release of 14 square box, two story townhomes for $600,000. with taxes and association fees and assessments of $1050.00 per month is a sobering experience.

I actually saw a winning young woman burst into tears of joy and relief as she was escorted to a closing/escrow office by the spiffy real estate agents.

[goldstategop]

We may see an interest rate CUT from the Fed next time. A lot of people will scramble to refinance their mortgage to take advantage of lower payments. The sky isn't falling, whatever some people like to think.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

[Torie]

No such listing appears in realtor.com in Long Beach. But the one below does for $445,000, and it is in a middle class neighborhood. You just overstate your case, Tex-ex. The more likely scenario is price stagnation, or marginal decline, in most of the high flying zones. Granted, in real dollars, the decline would be somewhat more, over time.

[Just mythoughts]

Bubble or NOT property taxers are the winners in assessment value of real estate. How long will it take the county assessors to revalue any piece of real estate?

[GodGunsGuts]

If only it were so. The FED doesn't set long-term rates. They are determined on the open market. If foreigners reduce or stop buying US debt instruments (that is, stop subsidizing our profligate Congress), long rates will rise faster than you can say "SOLD." This is already beginning to happen with the big three in Asia. See post #60.

[Always Right]

IMHO, it not worth a dime over $ 90,000.

Show me a vacant lot in LA for under a quarter million. But you know everything. The 11 million people living in LA are clueless on what their property is worth.

[Pan_Yans Wife]

Is that a bedroom off of the kitchen? UGH. If so, I don't know why anyone would buy it.

[GodGunsGuts]

I don't know about you. But I am seeing a record number of For Sale signs, not to mention gobs of real estate agents who have now resorted to going door to door to drum up sellers (which only feeds the downward spiral). BTW, I heard prices in the Irvine area have already dropped over 10 percent. Is this correct?

[A CA Guy]

Financing is going to cause a lot of RE to collapse and we are going to see the market hurt and lots of investor's are going to go negative and POOF!

Went up the most outrageously and will come down the same way IMO. There has been a RE recession in the 80s, 90s and this one will be a doozy. Those without bad financing will be the least likely to loose their homes.

[GodGunsGuts]

In many cases, I think the homeowner can petition the county assessors to reassess their properties if real estate depreciates.

[GodGunsGuts]

All excellent points. Let's not forget the effect such a massive erasure of unrealized RE wealth will have on the stock market.

[Torie]

That is the illegal alien's quarters, formerly known as the maid's room.

[MrNatural]

..Those without bad financing will be the least likely to loose their homes..

Not sure I understand the argument here. I have a good income and can make my house payment; how am I in any danger of losing my home?

[GodGunsGuts]

Another interesting chart:

http://www.jsmineset.com/cwsimages/inventory/51706_Chart5-220906.jpg

[Polybius]

Beleive me, I've heard the argument ad nauseum and memorized it. My point, supply and demand works.

That depends on what you mean by "works".

It is amazing what can be in "demand" by the American public.

Word spread very quickly about Ponzi’s great idea and within a few short months the lines outside the door of his School Street office began to grow. Thousands of people purchased Ponzi promissory notes at values ranging from $10 to $50,000. The average investment was estimated to be about $300. (That was a big chunk of pocket change in those days.) ..........With an estimated income of $1,000,000 per week at the height of his scheme, his newly hired staff couldn’t take the money in fast enough. They were literally filling all of the desk drawers, wastepaper baskets, and closets in the office with investor’s cash. ..........By the summer of 1920, Ponzi had taken in millions and started living the life of a very rich man. Ponzi dressed in the finest of suits, had dozens of gold-handled canes, showered his wife in fine jewels, and purchased a twenty-room Lexington mansion. ........On July 26, 1920, Ponzi’s house of cards began to collapse. .......An estimated 40,000 people had entrusted an estimated fifteen million dollars (about $140 million in U.S. funds today) in Ponzi’s scheme.

The law of supply and demand often works by separating the fool from his money and Forums such as these are a way for such individuals to either be lured into folly or be steered away from it.

If something is overpriced, don't buy it, and don't take out a ridiculous loan to leverage something you can't afford.

In other words, pay attention to value. That is what I have advised in my posts.

However, approximately 50% of all housing sales in California are now being financed by interest-only ARM loans which means that a lot of people are not following such sound advice and such fools are driving prices to ridiculous levels.

Buy something small and out of the way and you'll do fine.

Not necessarily. Both of the properties I own free and clear are good properties in good locations but I bought at good value at terms I could afford without resorting to gimmick loans.

Buying "small and out of the way" is not a guarantee of good value if the price is more that you should be paying for such a property at such a location.

Unlike the doomsayers, there is plenty of real estate under $150,000. Plenty.

Don't look at price. Look at value.

Although I own two houses free and clear, I am now living in a rented house where the seaweed washed up on the beach by last night's high tide is 10 yards away from the window of this room.

It is a fantastic house being rented at a cheap price (at least for me but not for most other people in this geographic area). However, I would never buy this house as it is not a good value. It is TOO close to the ocean and the house next door was flooded at high tide one stormy night. Why buy such a risk for mega-bucks when the owner is taking the risk and I live in his house at an extremely reasonable price because that rent is all the local supply and demand can support?

The bottom line is that, when value is not there, you don't HAVE to buy. You can simply rent and let the owner take foolish financial risks.

And if you can't find it in the place you want, well, when the dreaded "crash" comes, there will be.

Exactly. There is no hurry to buy and, when the interest-only ARM's begin to explode in people's faces when the grace periods expire, there will be plenty good value to be found.

Approximately 50% of all recent California house sales fall into that description.

A Growing Tide of Risky Mortgages..........In 2004, fully 50.4% of the mortgage loans issued for purchases of single-family homes in Georgia were to pay interest only. California was second, at 47.1%.......The trouble comes when the interest-only feature expires, which is often after 10 years. If it's a 30-year loan, then the entire principal has to be paid off in the final 20 years. So the monthly payment could abruptly jump by 50% -- even assuming no increase in the interest rate (nearly all interest-only loans have adjustable rates, so the borrower can get whacked if they rise as well). .........Interest-only mortgages were designed for wealthy families who used the loans as cash-flow management tools and could, if necessary, pay off the entire sum by liquidating some stocks and bonds. ........Trouble is, the sheer numbers indicate that the loans are also being taken out by a much bigger sector of the public -- people who are struggling to get into a rising housing market and feel that they couldn't get the properties they want any other way.......... But even some parties that benefit from the rage for interest-only mortgages, like homebuilders, are wondering if the trend may have gone too far. "In most of those cases, buyers have no idea how they're going to pay" the higher payments that will be owed once principal payments begin, says William J. Pulte, founder and chairman of Pulte Homes

Buyers are now starting to say "No" to artificially inflated house prices and starting to say "No" to the foolish interest-only ARM's that make such prices possible.