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No. of Recommendations: 0
Not concerned
Appreciation will be flat: modest market shift
Prices will decrease somewhat: not too concerned
Prices will decrease significantly: concerned
Defaults/forclosures spike, inventory spike, prices drop

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How many boards are you going to post this poll on?

IP
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I think it all depends on interest rates. If the 30-year rate stays low, I think growth will slow, but prices will continue to rise. If (all) rates rise gradually (say, .5%/year or less), I think we'll see an extended stall, then see prices start rising again once rates stabilize. If (all) rates rise more quickly (say 1%/year or more), I think we'll see a substantial drop in prices.

Note that the rate curve is relatively flat right now. If 30-year rates go up, but 1-to-5-year rates don't, I wouldn't be surprised to see prices continue rising.

Puss
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I think defaults and foreclosures will increase significantly and find a new higher steady state (as apposed to spike), inventory will increase, transactions will decrease and prices will drop (at least in real terms) but not necessarily drastically.

Increased demand was created by a variety of things (something like a perfect storm) including government encouraged looser lending standards & greater loan variety (less down, variable rates, etc.). I don't see this looser lending standards / increased variety changing. So I don't see this factor, which results in higher rate of home ownership, as a spike but rather obtaining a new higher level. Again one in which a higher number of foreclosures also exists.

Interest rates climbing is certainly a negative for housing prices but the real factor is affordability not just rates. Higher monthly payments decreases affordability, higher income increases it. To the extent that we are not in a recession people will hold onto their homes.

Prices are sticky. People want to get what their neighbor got for their home and preferably more (because of course for "insert reason" my house is worth more). They tend to not sell rather than lower price and / or not lower price to the clearing price but rather what the clearing price was a couple months ago. Likewise landlords will tend to hold rather than realize a loss / pay taxes / get less than they could have gotten 3 months ago.

That is of course unless they don't have a choice. In a recession more people don't have a choice so prices are less sticky and tend to decline quicker.

On the demand side their will of course be overproduction issues (due to long lead times) and possibly multiple home owners going back to one home. However, I suspect the builders are more prepared for this risk than the past (higher proportion of homes built by corporations, increased experience and professionalism in decisionmaking) and am unsure wether the increased incidence of multiple home ownership will decline significantly. I just don't know how big a factor this will be nor feel confident in any postion I might take.

There are other factors leading to the perfect storm (multiple home ownership, stock market wiplash, etc.) but again I'm not sure if they were as important nor wether they are changing significantly for the worse.

All in all I feel if we go into recession housing prices will drop significantly countrywide for the first time in history. If we don't they will probably just stagnate / decline slightly in real terms until we either grow out of it or a recession hits.

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That being said I plan to sell two of my three rentals this spring. This is becasue I expect to be able to get a higher return in the market than I can get holding them or exchanging them for other properties.

I will also probably be selling my personal residence and not buying another right away. However, that is due to personal circumstances (want to lift roots and have some adventure) not because of my opinion on future real estate prices.
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I will also probably be selling my personal residence and not buying another right away. However, that is due to personal circumstances (want to lift roots and have some adventure) not because of my opinion on future real estate prices.


Going to live aboard your sailboat?

IP,
friends with many who have done so
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Going to live aboard your sailboat?


Wife won't agree to that, yet!

My wonderful, beautiful, amazing wife did however agree to cruising the western states for 6 months in a motorhome. (I'm not stupid, I immediately closed the deal.) After 6 months if she really liked it, and I'm going to do my best to see that she does, maybe she'll agree to trying cruising the Caribbean in a boat for another 6 months.
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Actually, I think you left out a category, which to me is:

"Short-term, I don't care, I am going to ride out any potential instability."

Essentially, we 1031 exchanged a significant part of our assets from fast-appreciating single family rentals into cash-flow positive 4-plexes in a retirement community last year.

It is not at all obvious to me that rents in the multi-unit rental market will follow the same course as SFH prices. A crash in the SFH market will tend to be self-sustaining. The reason is that lenders will tighten up on mortgages and start requiring higher down payments. One of the reasons people rent apartments in a multi-unit building is that they have no down payment.

Interestingly enough, foreclosures and defaults in the SFH market do not lead to a glut of rentals and a reduction in rents. Banks do not rent out foreclosures. The houses sit vacant. Same for new homes from builders, if they don't sell, they sit vacant.

In fact, foreclosures and bankruptcies increase the demand for rentals in the multi-unit markets, as families who have lost their homes (and have seen whatever down payment they once had evaporate) look for places to live. Their old single family houses have been removed from the rental market by forclosures.

Long-term, I expect housing will resume its upward trend.
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My wonderful, beautiful, amazing wife did however agree to cruising the western states for 6 months in a motorhome.

Excellent! I spent my 12th year in a 17' motorhome traveling Europe with my parents and 16YO brother. Quite the experience. My parents upon retiring sold the house and moved into their 27' motor home for the next decade. You are talking to a bunch of gypsies.

Unfortunately, I am the only one in my immediate family with the seafaring stomach, or the desire to use sail. Sometimes I feel like I'm living with a herd of Tim the Toolman Taylor shouting "MORE POWER!" I hate using motors when sail is an option. That said, one of our best vacations was chartering a 40' sailboat to do the US Virgins and BVIs for 8 days. That was great.

Be careful going outside of the BVIs or US Virgins as piracy is still a very real situation further south.

IP,
having lived in St. Croix for 8 years
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Uhh, I don't see any responses that predict increases in real estate values. Your bias has created a pretty lousy poll.
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IP,

where do the friends with boats live? Is it offshore move or Marina del Rey?

regards.
hopper
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http://piggington.com/

Remember Nasdaq 2000?
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last link today I promise:

http://anotherfuckedborrower.blogspot.com/
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where do the friends with boats live?

The Caribbean. I did read an article a few years ago about Baltimore's Inner Harbor. At that time it was much cheaper to live in the marina on your boat than have an apartment in the city. Talk about a great waterview!

IP
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IP,

I'm with you there. Why create noise and fumes when you can sail. Motoring is a way to get from here to there, sailing is the experience!

Wife likes to sail but the idea of cruising in a boat for an extended period is just a little too much for her (small space, foriegn countries, storms, etc.). Just too unfamiliar.

You have given me a great thought however. Somewhere during that 6 months I need to rent a boat and cruise the carribbean for a week or two.

Thanks!
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Give me a jingle if you want to discuss the islands in particular. Off the top of my head, I'd say don't miss St. John or Virgin Gorda, but our exploration was far from all inclusive. St. Croix is wonderful as well, but quite a sail away from the rest of the pack and thus probably not worth it for a week or two trip.

Personally, I'm not a fan of St. Thomas, though it's quite the tourist trap. Then again, I'm not much of a shopper, which IMO is what the island is known for. I confess to be biased against large crowds due to cruise ships, however, and prefer my beaches empty. If your wife is not all that high on living on a boat, perhaps spend a week in a villa first/last. Check out www.vrbo.com for rentals. There is nothing quite like an ocean view and a private pool. May is my favorite time of year there, with late April/early June a close second. Take hurricane season very seriously.

IP,
detesting mingling with the unwashed public, but refusing to pay too much of a premium for my luxury of seclusion
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I'm concerned, this based really just on what's going on with my life and those near and dear to me. People are being laid off, jobs are getting scarce, and very nice condos (this in SoCal) are sitting for sale at reasonable (for here) prices. Many people have interest-only mortgages. If the economy does not start to pick up, I don't see how the real estate market can thrive over the next few years.

6
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I guess, as with so many things in real estate, it's a matter of location, location, and location. I live in the sunbelt. It's pretty rural and small townish here. We have lots of building; companies and people are moving into the area; and the housing appreciation rate is a few per cent per year. No bubble in sight. Don't know anyone with an interest-only loan.

Probably, on your poll, I would be "not concerned." But your original question only gives two options: Do you think we will have a modest shift where prices stay flat or a more significant change where you see prices dropping 10% or more and an increase in mortgage defaults and foreclosures?

I can't imagine either of those options happening here.

--SirTas
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http://piggington.com/node/166

Look at the chart. It's a bubble. It is in the process of popping. No financial bubble has ever not popped. The fallout will be much more severe than the Naz pop. Investors bought tech stocks on 50% margin and got burned bad. But they are buying RE at 100% LTV, I/O, neg. am. no doc, etc., locked in for 30 years. The multiplier effect as it reverberates through the economy will be devastating.
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Look at the chart. It's a bubble.

For San Diego perhaps so. Your graph tells us little about any other area. You can't extrapolate real estate issues from one specific area to reflect national concerns.

For the Philadelphia area, I expect a slowdown and some of these hairbrain realtors who have talked their clients into way overpricing their houses are going to have angry clients for a while. I don't see much if any decrease in pricing however.

IP
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"Uhh, I don't see any responses that predict increases in real estate values. Your bias has created a pretty lousy poll."

Wow, there's still someone out there who thinks RE can go up from here? Flat out amazing. Remember Naz 2000.
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Wow, there's still someone out there who thinks RE can go up from here?

Well, I guess all the people out there who are buying houses this month (and there are quite a number of them!) don't think prices are going to fall, otherwise most of them are crazy to buy. And a proportion of them must have faith that prices will continue to rise.

But there are other problems with the wording of the poll. For example, it presumes that a respondent is 'concerned' if prices will decrease:

Prices will decrease significantly: concerned

I think prices will fall. I'm not 'concerned' about that, though. So, I cannot answer the poll.

Cheap houses good; expensive houses bad.
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Sorry the poll was lousy. I could have chosen better words. In any event, yes, I am very biased. Mostly this is due to me approaching closing 600 transactions this year as an small escrow firm ...of which I would venture over 80% were I/O loans and worse. Oh, and another small detail....the clients debt loads were very heavy, not including housing expenses. Say, like, debt to income ratios of well over 50%.

Prime Example: just closed a client's transaction where they paid over $8500 in closing costs (NOT including a prepayment penalty on the existing loan we paid off.) Their comment: "so do you think we should refinance again when this two-year LIBOR arm (again with another pre-payment penalty)comes to adjust?"

Theses folks are already under water. Do you think the property is going to increase in value another 10-15% or so to cover another no-out-of-pocket refinance in 24 months? Do you believe they are going to pay off credit card debt, plus two SUV payments and reduce their lifestyle? Of course not! They will do one of three things: bankruptcy or foreclosure or short sale.

Increase in prices? I just don't see that happening. Only if rates stay below 7%, inventory STAYS VERY LOW and lenders continue on the path of destructive qualifying behavior, will you see pockets of increases. So, no, I think prices will decrease. The psychology of the market will exacerbate the problem and people will walk away from 100% loans. I believe our country is in for some difficult financial times. I hope I'm wrong, but I really don't think so.

Living under your means as a way of life is the furthest from scores of peoples minds. My business proves it. This market is way different than the last adjustment in Washington State in 1990. You didn't have all these hybrid loans and you also didn't have half our local Realtor base never experiencing a challenging market.

If real estate is due for a significant adjustment, it will affect the entire economy, construction jobs will be lost and ALL allied and affiliated service sectors, including mine, will suffer. If the perfect storm is approaching, let us swallow hard and get through it.

The hardest hit areas in my opinion: New England area, Florida, Texas, obviously California, Nevada, Colorado among others.

Please tell me my bias is only a dream.

Tim Kane
Legacy Escrow Service, Inc.
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Oh, and another small detail....the clients debt loads were very heavy, not including housing expenses. Say, like, debt to income ratios of well over 50%.

So, what happens then? They just get crapper rates?

I just got done working my ratio to get a 6.5% fixed rate...what does a 50% ratio get you?

6
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Hi sofaking,

My point was that back in the horse-buggy days of mortgage qualifying, you were qualified on debt-to-income ratios. Not FICO scores. Rarely would you (and me)get a mortgage approval (without other circumstances such as a large down payment etc.) if your front end debt exceeded 33% of gross income and 38% of total debt load, including housing payment. Today, you can get a loan if you are breathing--including FICO scores are under 600, although at rates higher (much) than traditional 30yr fixed programs.

I don't think I'd do to well as a loan officer due to the fact that I just couldn't sleep at night knowing that I made major bank off of someone who was foolish enough to refinance again and again. I other words, I ethically couldn't be a loan officer on many of the transactions my wife and I close.

Your scenario:

In your situation, make certain that you are credited with any rebate the loan officer is receiving as a YSP (yield spread premium). Just a minor 1/8th or 1/2 point YSP to the broker from the lender reaps them huge profit, in many cases much more than the 1% loan origination fee itself. Look for any YSP premium on your settlement statement stipulated as a credit to your broker from the lender for selling you a higher interest rate than you could receive otherwise. It is usually placed in your settlement fee column along with loan origination fees, recording fees etc....EXCEPT it is not placed into the fee column!! But it is there, look for it.

I can't tell you how many times loan officers ask us how we handle the YSP issue (in other words, "what do we say" if a client asks about it on the settlement statement.) It makes loan officers sweat. And it should if they are truly working for the client's best financial interest.

Good luck to you.

Tim
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