Consumers Figure The Homes Will Still Be Here
The Chicago Tribune reports from Illinois. “Every evening, Pat Wendelken goes online and peeks at the posted mortgage interest rates. She winces at what she sees. ‘I watch the rates going up every week,’ said Wendelken, who must decide soon the best way to finance a home she and her husband are building in Elgin. ‘I’m wondering where they’re going to go.’”
“‘I don’t think consumers are aware of what’s happening,’ said Dan Green, a loan officer in Chicago. ‘It’s just starting to become front-page news. Forty-five days ago, I was quoting 5.8 percent to people, and now I’m saying 6.6 percent.’”
“‘They don’t seem to be really moved by the fact that rates are going up. They figure that rates will come down again,’ said Oak Park agent Norma Rixter. ‘And the inventory [of homes for sale] is so high, they figure the homes will still be here.’”
“And at lower prices: Rixter and others say that after a disappointing spring season, sales have picked up somewhat in the past few weeks, though that’s likely due more to reduced asking prices inspiring buyers to make offers.”
“‘We’ve had 12 properties go under contract in the past week, and that’s double what we were seeing recently,’ Rixter said. ‘But 20 houses came on the market at the same time.’”
“Naperville appraiser Chip Wagner, whose firm compiles a monthly analysis of home sales around the Chicago region, said about 44,000 single-family homes were for sale here last July. It was about the same April 1. But on June 13, there were more than 58,000.”
“‘What really jumps out at me from the previous quarter is that we’ve seen the average listing price drop almost $27,000 in the region,’ Wagner said. ‘At the same time, we see all these new listings. That’s a scary number to me, 58,000 is a 9.2-month supply [of homes for sale]. I was taken aback when I saw it.’”
“In Chicago, developer R. Donahue Peebles, CEO of Coral Gables, Fla.-based Peebles Corp., dropped a $250 million mixed-use hotel project he was planning downtown. It was to have a hotel, retail, furnished corporate apartments and residential condominiums.”
“In the past two months, ‘The cost of money and the amount of leverage available for the deal started to work against us,’ said Peebles.”
“Peebles could only obtain a loan for 75 percent of the total development cost and interest rates are up almost 1 percent since he started planning last winter. Instead of only needing $25 million in equity on hand he now needed $62.5 million. Meanwhile, his profit margin would have been cut from about $50 million to about $36 million, he said.”
“Coupled with a less than prime location and a competitive luxury condominium market here, Peebles said, ‘We saw enhanced risk and depressed return.’”
“‘The last time I saw a collapse in the real estate markets like this was in 1998,’ said Dennis Trimarchi, CEO of Trimarchi Management, a real estate investment firm, adding that he believes the market will ‘work itself out in six to nine months.’”
From USA Today. “Home foreclosures in Minneapolis doubled in 2006 and are on pace to double again this year. The number of vacant buildings is rising in working-class neighborhoods with high levels of subprime loans. Some families are simply walking away from once-secure homes.”
“‘People are upside down; they owe more than their house is worth,’ says Glennis Ter Wisscha, deputy director of Neighborhood Housing Services of Minneapolis. Homeowners ‘can make it at the (initial) teaser rate, but the adjusted rate is going to go up $400, $800, $1,000 a month.’”
“‘This isn’t about the economy; it was a preventable problem, and that’s what makes me so angry,’ says Prentiss Cox, associate law professor at the University of Minnesota. Noting foreclosures have risen even as the state’s unemployment has fallen, he blames the problem on bad loans and bad regulation.”
“Dominic Tizzano, a single father of four in Willoughby, Ohio, is struggling to stave off foreclosure. Tizzano took out a subprime mortgage several years ago using a ‘2/28′ loan, on which interest rates adjust after two years, and every six months thereafter, up to a cap.”
“His lender says he can’t refinance into a fixed-rate loan until he clocks a year of on-time payments, a big task, because his monthly bill has jumped from $982 to $1,248, and he’s still not near his 14% rate ceiling.”
“‘I wasn’t a genius at it at first; I kind of got forced into doing this,’ says Tizzano.”
“Homeownership is ‘an American dream, but it’s also (become) an American right. This has led to wrong on both sides,’ says Lou Tisler, executive director of the Neighborhood Housing Services of Greater Cleveland.”
“‘They can walk out, look at an (ad), make a call and be in a house in 30 days,’ Tisler says. ‘We see them again in six months, when they’re in way over their heads.’”
From Minnesota Public Radio. “When Al Ynegis bought a house in Apple Valley three years ago, he knew what he was getting into…sort of. Ynegis says he knowingly signed up for an adjustable-rate mortgage, which would make his mortgage payments increase over time.”
“‘But I didn’t know it was going to adjust this much,’ he says now.”
“Ynegis started out paying about $1,645 a month. But in three years, his mortgage payments have climbed to $2,500 a month. That’s a figure he can barely afford.”
“‘I’ve seen four clients today, and everyone is losing their home. So it’s 100 percent today,’ says bankruptcy attorney Barbara May. She practices in Roseville and is known as a ‘fixer;’ she only sees clients who have been turned down by two other bankruptcy attorneys.”
“A lot of her clients’ problems stem from having an adjustable rate mortgage they can’t afford. ‘I haven’t had a case this year where someone wasn’t in trouble in their mortgage,’ May says.”
“Bankruptcy can only do so much for people facing a foreclosure situation. May says people are always coming into her office asking, ‘How can I save my house,’ or ‘What bankruptcy can I file?’”
“But those clients often mistakenly believe a bankruptcy attorney will help them magically afford their homes.”
“‘They can’t file a bankruptcy to generate money,’ May says. If you file Chapter 13 bankruptcy before you reach the point of a sheriff’s sale, where the lender buys back the mortgage, you can work out a plan to repay back payments on the house.”
“So, if you’re $10,000 in arrears, you can arrange to pay off that sum over five years’ time. But ‘Nobody does, nobody does, because what happens is people in this position never follow through with their commitments,’ according to Mike Aymar, a local mortgage broker who’s seeing a growing number of customers facing bankruptcy and foreclosure at once.”
Uh-oh. I’m agreeing with a law prof…
“‘This isn’t about the economy; it was a preventable problem, and that’s what makes me so angry,’ says Prentiss Cox, associate law professor at the University of Minnesota. Noting foreclosures have risen even as the state’s unemployment has fallen, he blames the problem on bad loans and bad regulation.”
It’s not even about bad regulation so much as it is about good old-fashioned greed. Greed on the part of the buyers to get into a house, greed on the part of the brokers to earn a commission, and greed on the part of bond investors looking to earn a little more spread on mortgage bonds. Everyone involved needs to learn a painful lesson without the government stepping into “help” them out of their self-inflicted mistakes. Besides, fraud and predatory lending are already illegal; insofar as there are serious abuses in the mortgage industry, shouldn’t the good professor be asking why existing laws aren’t properly enforced?
I can’t agree on one point… I seriously doubt “unemployment has fallen” on a real basis. Too many statistical inclusions and exclusions, plus some the modeling assumptions are extremely suspect.
“Homeownership is ‘an American dream, but it’s also (become) an American right. This has led to wrong on both sides,’ says Lou Tisler, executive director of the Neighborhood Housing Services of Greater Cleveland.”
Wrong Louie!
Got to earn the right.
Hey Lou,
Exactly when did the “right” to own a home become enshrined in law?
It’s not just realtors,mortgage brokers and appraisers who are liars, check out the fools in the poverty racket.
Great! Since owning a home is now a Constitutional “right”, where’s my 40 acres and a mule? Strike that –where’s my 40,000 sft McMansion and H2?
A lobster in every pot, and a BMW in every garage!
I stumbled on that word, too. A “right?” No. Health care should be a right of citizens, perhaps, but not home ownership. Used to be you worked hard to get there, but I guess there’s some sense of entitlement out there now that didn’t used to be there.
The part of the quote that was left out was “…an American right in some people’s minds.” meaning that there are many people who have gone through our counseling programs that believe that instaneous homeownership is their right, which we do not support. Therefore, when walking out of our classroom, they see an ad on a telephone pole that says “We can get you into any home in 30 days” competes with our philosophy that says “We can get you into a home when you are financially ready.”
“‘I don’t think consumers are aware of what’s happening,’ said Dan Green, a loan officer in Chicago. ‘It’s just starting to become front-page news. Forty-five days ago, I was quoting 5.8 percent to people, and now I’m saying 6.6 percent.’”
Does Dan think the Fed will not work hard to keep a lid on rates? Or does he merely lack confidence in their ability to maintain it? Or is he assuming the market will decide for itself?
so why are my MMF accounts stubbornly stuck at 5.05% ?
Because your MMF’s are short term rates; these people are borrowing at long term.
Well, that’s the theory, anyway, which means that things like 5-year (or longer) CD rates should be going up now. Well let’s see about that! I certainly haven’t noticed that from my bank(s).
I assumed that since my funds with Emmigrant Direct are used for home lending that they would go up accordingly. They seem to tie the rates to the fed moves and not reality.
I assumed that since my funds with Emmigrant Direct are used for home lending that they would go up accordingly.
Silly Mo. That’s profit for them, not you.
Try SHY or treasuredirect.com , depending on your horizon.
whoops. Make that savingsbonds.gov, then Treasure Direct.
You can cut out the middle man by going directly to uncle Sam.
Treasure -> Treasury. Man, I have treasure on the brain today.
“They seem to tie the rates to the fed moves and not reality.”
Well that’s the whole point in banking. The rates they give on savings or short-term CDs are close to overnight lending rates that are controlled by the Fed and now 5.25%.
Long-term rates live independent life based on the demand-supply situation in all kinds of debt, with the 10-year treasury being a benchmark.
Roughly speaking, savings account rates correlate with the Fed funds rate, while mortgages correlate with the 10-year treasuries. During times of inverted yield curve your savings account might have rates higher than your mortgage.
“‘They don’t seem to be really moved by the fact that rates are going up. They figure that rates will come down again,’ said Oak Park agent Norma Rixter. ‘And the inventory [of homes for sale] is so high, they figure the homes will still be here.’”
Smart consumers might figure that higher rates will lead to lower home prices…
Lets see, they can buy at 300K and 6%, for a payment around $1800. Or maybe if rates go to 7.8% the prices might fall to 250K. Either way the payment is the same. What makes more sense?
Pretty easy choice. If rates fall, you can always refinance. If prices fall you’re stuck.
Don’t buy until this crowd works their way through housing bubble denial.
———————————————————————————–
REAL ESTATE
Luxury optimists
Owners of million-dollar homes expect values to keep growing: study
By Amy Hoak, MarketWatch
Last Update: 6:58 PM ET Jun 18, 2007
CHICAGO (MarketWatch) — Many homeowners living in luxury are also upbeat about the future value of their homes — even as many markets are cooling, according to a survey released Monday by Coldwell Banker Previews International.
Of the 301 U.S. homeowners surveyed, 56% of them said they expected the value of their home to increase at least somewhat during the next year, while 10% expect it to increase significantly. Fifty-eight percent think the value of their primary residence will increase at least somewhat over the next five years; 36% believe it will increase significantly during that time.
http://tinyurl.com/2fo7z8
Crazy article.
“Most of these people are in their prime earning periods of their lives,” Gillespie said. “They’re baby boomers and they’re at the point in their life when they’re thinking about retiring and purchasing a second home.”
Ok. So where is it in the baby boomer guide that says you need to buy a second home? Better yet, a second home for retirement? How about just staying where you are, and/or downsizing your living space and expenses in preparation for retirement?
“The increasing popularity of adding a kitchen to a bedroom area aligns with the desire for some to have better floor plans in their new homes, Gillespie said. It’s likely that many of these baby boomers are anticipating their parents living with them in the future, and are either moving or remodeling to address those new needs.”
Yeah, right. Sure they are. And I thought that it was interesting that there was no mention of square footage when talking about these million dollar homes. But then again, maybe that’s subject matter for another article.
BayQT~
I equate a kitchen in the bedroom area with a mother-in-law suite when trying to sell. If it’s on your list, great - this house is for you. However, those who would have such items on their list are rather few and far between so it would likely end up making a house very difficult to sell.
Absolutely! And they also cost much more. LV has properties that have casitas. My sister’s house (in LV…bought in 1996) has what is called a “Jack & Jill” bedroom suite where my Mom stays…2 bedrooms with a bathroom only accessible via one of the rooms. One of the rooms she uses as her living room and they’ve put a small refrigerator in there, as well. It’s a great set up for Mom.
Anyway, I digress….sorry.
BayQT~
Many homeowners living in luxury are also upbeat about the future value of their homes
Yes, and in other news… the turkey expects the farmer to come out to the farm every day and feed him, even on thanksgiving…
Living and working in the Twin Cities, I see the thousands of new built and unoccupied homes for sale at prices no one can afford (300-400K). The 100-125K small bungalow and townhouses sell and turn over relatively fast yet. Not many 72 inch flatscreens sold to these houses I suppose.
New cars, trucks, boats, limos are all appearing for sale on peoples lawns and noticing more and more in my area people have “traded down” to older, smaller vehicles.
This will obviously put a stake in the heart of Detroit and some of the Japanese auto makers (since some of them went BIG in vehicle size and expense). I expect a crappy Christmas this year unless the propaganda machine is turned on like the phoney CPI numbers.
Christmas is going to suck.
Look at MEW, there is typically a six month lag between MEW and retail sales… Well MEW is down quite a bit since last Christmas.
and I too am tired of the phoney CPI. Exclude food and energy… gee, the two things that are out of hand!
Got popcorn?
Neil
The party is over, the hangover is just starting to take hold. Look at the reset schedule coming late this year…POW! Grinch in full effect this Christmas, and I for one would think it would be better to have it about family and friends and being together and doing things rather than strictly about all the freaking plastic you can buy the kids that they are bored with in 3 weeks no matter.
“says bankruptcy attorney Barbara May. She is known as a ‘fixer;’ she only sees clients who have been turned down by two other bankruptcy attorneys.”
At Ben’s HBB: “…it gets better & better everyday!
…”says bankruptcy attorney Barbara May. She is known as a ‘fixer;’ she only sees clients who have been turned down by two other bankruptcy attorneys.”
At Ben’s HBB: “…it gets better & better everyday!
“His lender says he can’t refinance into a fixed-rate loan until he clocks a year of on-time payments, a big task, because his monthly bill has jumped from $982 to $1,248, and he’s still not near his 14% rate ceiling.”
So much for the theory spouted that the banks would just happily rewrite the loans. I wonder what would happen if he walked into his loan officers office and dropped the keys on the table and said “No Refi ? Keep the @#$! house”
He can refi with another bank. Uh, or can he, with his current credit score? And this poblem is to be blamed on who?
“he can’t refinance into a fixed-rate loan until he clocks a year of on-time payments, a big task”…
So he got this loan “several years ago”, and he needs a full year of on-time payments? Could he not do that the first year, or did the journalist word this all wrong??
I imagine he means “a year” as in the most recent 12 consecutive months of timely payments, with one late payment starting that count anew.
That’s what I was worried about, him missing payments all along. Ugh. If he can’t make regular payments for 12 consecutive months, especialyl at the earlier lower rates, then he quite possibly is not financially cut out to own the house he’s in.
But how can someone tell themselves “I can’t afford this, time to sell while I can and go rent”? A few yeah, some on this blog, but not many people I know. It’s almost a pride thing. The worst part is that by holding out longer, he’ll doom himself financially if that house depreciates.
Better choice than being a debt slave on upside down house sinking in value each year. What fool would do that? Of course the “slave master” wants those payments as their salary, holiday bonus is “banking” on labor’s paying to continue with the payments.
“So much for the theory spouted that the banks would just happily rewrite the loans.”
I think it depends on if the bank sold a derivitave on the house, if he has any equity, what the market is doing in his area?
If he is upside down, they’ll work with him. If a hedge fund is going to end up withthe house for $.30 on the $1, they’ll work with him.
If he has equity and they think they resell the house for what he owes, they’ll milk him for every penny of crazy high interest rate for as long as possible.
The last time I saw a collapse in the real estate markets like this was in 1998,’ said Dennis Trimarchi, CEO of Trimarchi Management, a real estate investment firm, adding that he believes the market will ‘work itself out in six to nine months.’”
Funny how they always think that a rebound is just around the corner. There was an article on MSNBC today titled, “Housing Industry Still Looking for Bottom,” again, a suggestion that the bottom is soon to come.
I don’t remember a collapse in 1998 (was there a collapse?), but I recall one in the late 80s that tok a lot longer than 6-9 months to recover.
They have been right around the corner for the last 1 1/2 years. We live in the Lehigh Valley (Allentown, Bethlehem, Easton) part of PA. Prices have jumped over 100% in 5 years. The local NAR CHEERLEADERS (MORNING CALL) local paper try and say our prices went up because of commuters from NJ & NYC. It’s funny because our geographic location hasn’t change. They ran an article in January about how since 2006 we barely had any influx of people moving here, yet all the ad’s from them say how it’s a commuters dream. Who wants to drive 3-5 hours round trip a day and spend $500-1,000 a month on gas? These McMansion commuters are watching their homes not sell anymore and they paper says the average days for selling only went up 32 more to 52. That’s funny because I live in the East Penn SD (ONE OF THE BEST) and there’s homes sitting for 6 months to 1 year that are priced well under 200k and nobody is buying. The reason nobody is buying is because the real locals would never pay double for a home that sold for 85k in 2000 and 185k in 2005. It’s insane, I stopped my subscription to the paper because they are so biased. Our local duel income earnings are around 70k but the average home is 200k, it was 100k 5 years ago.
If we listened to the MORNING CALL and used their theory, I would continue to work in the Lehigh Valley and buy a home 2 hours away. In Central PA(2 hours a way) you can buy an all brick ranch on 1-2 acres with 3-4 bedrooms for around 85-100k, why not? Because who in the hell want’s to pay for a home you can barely use? Why they don’t run an article showing how families are being torn apart because Mom & Dad have too work 8-11 hours a day then add in a 3-5 hour commute and you’re left with 8-10 hours a day a home (eat, sleep, get back on the road). What kind of life is that?
So are you saying the MINISTRY OF THE TRUTH ain’t so truthful? Welcome to the club.
Got 10% down?
I recall one in the late 80s that tok a lot longer than 6-9 months to recover.
Yeah-’June ‘89 to June 1999. That’s er…..a decade.
Obviously, Trimarchi hasn’t been around very long in the RE biz.
I agree. In fact, it’s obvious that most of the REIC spinners haven’t been around very long and don’t realize what a crash or “correction” even looks like. It won’t be a matter of months, it will be years.
You pegged it. These clowns are using convoluted logic. If the last time any of these metrics, pick a metric any one - defaults, DOM, etc., was at the end of the last downturn they think we must be near the end of this downturn. What they are missing is that this one is so bad that the numbers this early in the downturn are already eclipsing those at the end of the last. It will be interesting to see how their logic twists as this train wreck proceeds.
I’m single and I would go 4x salary on a home but this chick wants some sap with four kids to…
“Lynette Briggs, who teaches classes for first-time buyers at the DuPage Homeownership Center, said the rate changes would be felt first in areas that already are nearly unreachable for lower-income families.”
“Look at someone who makes 80 percent of the median income, with a family of four, just under that $60,000 income range,” she said. “What they could have afforded a few weeks ago at 6.25 percent might have been a home for $238,000 or $240,000. That $238,000 was already a struggle in DuPage, where the median is more like $357,000.”
Well, two kids (family of four), but we get the point. Four times income is getting a bit tight. You can do it, but you better enjoy driving old cars and eating cheap food if you have all those mouths to feed and clothes to buy.
Two kids, correct. My bad.
“You can do it, but you better enjoy driving old cars and eating cheap food if you have all those mouths to feed and clothes to buy.”
You can count the number of couple who live lean like that on one hand.
Alpo and catsup or perhaps mustard is very tasty. Don’t care too much for Mighty Dog ‘caus it gives me gas and my farts smell like my bulldog. One way to beat the high costs of gas/commuting.
“You can do it, but you better enjoy driving old cars and eating cheap food if you have all those mouths to feed and clothes to buy.”
You can count the number of couple who live lean like that on one hand. ”
My opinion is that the mindset would have to change….that is, you don’t have to *own* property, you don’t have to furnish your home to compete with friends and neighbors, you don’t HAVE to have the newest/most popular car of the times. You can live a good, comfortable, fulfilling life without buying into the trappings. Saving for retirement doesn’t mean you have to live like a miser, but you do have to be forward thinking. It is possible to “live in the now” without ignoring the future.
Yes, I do practice what I preach…my apartment is furnished in Ikea, a few of my grandmother’s pieces of furniture, 1/2 of daughter’s bunkbed set for my guest bedroom, consignment store (reasonably priced) pieces…you get my point.
Yep, living below your means. That’s the ticket. And kids don’t need a whole bunch of stuff to have a good and happy life.
BayQT~
BayQT~
Living Below Your Means: Control vs. Competence
http://www.bankrate.com/brm/news/pf/20010202b.asp
Living below your means — or LBYM — also can mean life with a lot less stress. It would be nice to not worry about where the money will come from if the car breaks down or the dryer conks out. It would be great not to have to juggle bills each month to figure out which can be paid and which have to wait for the next paycheck. It would be great to not live from paycheck to paycheck.
Trying to make this work can leave you feeling like a salmon swimming upstream. Our entire culture makes it easy for you to get into hock up to your eyeballs.
“This is the first full-blown generation in which we have a credit card economy,” says Richard Boyum, a psychologist at the University of Wisconsin at Eau Claire. “We used to have layaway — you didn’t get something before you could afford it. We’re one of the few cultures on the planet where getting ahead is more important than getting by.”
Paul Minsky, a California psychologist who specializes in money issues, says not being in debt may make you look incompetent.
“The issue isn’t so much that not being in debt represents safety, security and freedom, but rather that your expenditures represent your competence. We, basically, are a very secure people, so the fear of insecurity that a nest egg would stave off is less prominent than the fear of not having made it. Being competent is demonstrated in our culture by the things you buy. The fear of missing the train is much greater than the fear of getting run over by the train.”
BayQT~
“Naperville appraiser Chip Wagner, whose firm compiles a monthly analysis of home sales around the Chicago region, said about 44,000 single-family homes were for sale here last July. It was about the same April 1. But on June 13, there were more than 58,000.”
58,000 is just SFH’s. Add condos in and it’s easily 80,000+
“‘I don’t think consumers are aware of what’s happening,’ said Dan Green, a loan officer in Chicago. ‘It’s just starting to become front-page news. Forty-five days ago, I was quoting 5.8 percent to people, and now I’m saying 6.6 percent.’”
Tsk, tsk…
Built my first house with a boatload of sweat-equity in 1981.
Shelled it up with a completed first level for $46k, and finished off the rest as the cash came in.
My initial mortgage interest rate?
14.25%-30 yrs-fixed.
Course all these GenX’er gotta have it all right now with their $400k quasi-McMansion, two-car garaged, granite countered “starter homes”.
Cry me a river.
Gen Xers?? You gotta be kidding me. The only people I personally know buying these overpriced white elephants are no-impulse-control Boomers and their spoiled, trustafarian offspring. I’m 39 and total number of option-ARM’d 2-car granite-countered McMansions so far = 0.
no-impulse-control Boomers
All my boomer aged friends have either been cleaned out in divorce court or shit-canned from their jobs for the sin of bein’ a 50YO male.
This crowd ain’t buyin’ McMansions
But hd74man,
Being broke and unemployed is no longer an impediment to mortgaging your slice of the Amerikan Dream(tm). Tell your friends to call this guy.
A lot of these McMansions are being bought by couples with little kids. Just look at the $10,000 jungle gym/swingset/play areas in the back yards, and the motorized riding toys in the driveways.
hd74man indicated problems for being a 50-year-old male.
I can testify. I resigned from my position of school director after 14years with the school. Five Regional Directors in 7 years as Center Director. Loved 4 of 5. All younger. One arrogant and hunting for something to kill. Had 3 Field Operation Supervisors. Liked 2 of 3. Above me, but clueless in some areas. Two of three appreciated my experience. The other was a hired assassin. I hold the record for tenure in the center director position. Held on for a long time. The rotation of supervisors was quick but tiring. Three bosses with dissimilar goals is hard to suffer
through. Well-intended never directly correlates with intelligence. Thank God not dealing yet with any divorce issues.
We have grandparents buying Condos and houses for their grand children starting College. House around the corner from us went for $515,000.00 Four nineteen year olds moved in. This has been going on for years now and the area is going down hill fast, lots of “yard parkers”. We are trying to get the heck out of town.
Where do you live, wmbz?
BayQT~
PMI house price promjections. They’re still drinking the kookaid about DFW:
http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/062007dnbushomepricerisk.1b391a0c.html
INDY is already coming down
crash by year and % of housing stock
15% oil patch 86
20% 1989 NE
15% 1990 Mid Atlanitc
15% 1992 CA ,NV ,AZ
Midwest was never in the game in the 80’s
may be off ,but you get the idea
crash by year and % of housing stock
15% oil patch 86
20% 1989 NE
15% 1990 Mid Atlanitc
15% 1992 CA ,NV ,AZ
Midwest was never in the game in the 80’s
may be off ,but you get the idea
test
It was a big one…
8.9 on the Rixter scale~
“‘They don’t seem to be really moved by the fact that rates are going up. They figure that rates will come down again,’ said Oak Park agent Norma Rixter. ‘And the inventory [of homes for sale] is so high, they figure the homes will still be here.’”
Let me point something out;
If you buy a 500k mortgage and put 20% down, that’s 100k out of pocket and a payment of $2398+- at 6% for 30 years.
If that house [mortgage] drops to 400k, you put the same 20% down that’s 80k [a 20k savings] and rates are 8% payments are $2348 for 30 years
House values drop, rates go up, and you save 20k up front AND $50 per month. 1% taxes is another $1000 per year in savings, insurance is considerable less, all for the same home.
If you don’t have the downpayment it works the same [except I want you to get bent and never buy a home]
Since almost everyone is a payment buyer, how is higher rates a bad thing? Values will drop to keep the payment the same. If rates go to 11% you put 60k down and the house sells for 300k, with the same payment. Are you getting it yet?
If you recall the early 80’s it didn’t work the way you described. Prices came down a bit but not by nearly enough to make the payments the same.
Many sellers offered either 2-5 year financing at 11-13% or a buy down for several years. A sister in Indiana got 13% seller financing in 1980; we expected rates to go down. In 1983, she got a 15.5% ARM. Now that is pain.
In 1978 the house would have been about the same price as in 1980 but interest rates would have been about 9%.
In 1983, she got a 15.5% ARM. Now that is pain.
Can’t speak from direct experience, but maybe some of the older regulars here can comment. Some questions:
–Didn’t mortgage rates plunge shortly thereafter (thanks to Volcker’s success in taming inflation) which would have drastically lowered aforementioned ARM payments?
–If rates hadn’t plunged so quickly in the early-’80s, isn’t it likley that house prices would have dropped more substantially, in order to maintain affordability?
–Didn’t ‘old-school’ inflation back then ALSO include some wage inflation (albeit not perfectly 1:1 to prices)?
After all, this was the Time Before Exotic Mortgages. Less transmuting of bullshit into gold back then.
Why is everyone getting a 30 yr mortgage. If you want your equity to build up you need to buy only what you can afford to buy on a 15 yr. I’m glad I did. It’s amazing how fast the principle went down. By Sept. it’ll be paid for and we paid a lot less for it in interest and principle than a 30 yr. loan.
The other thing that amazes me is why on earth when interest rates have been so low for so many years would anyone get an ARM over a fixed. If it’s because they don’t qualify for payments on a fixed, they shouldn’t be buying.
Exactly!
30 yr fixed is the standard, 15 if you can handle the little “extra” a month and that’s it.
3- 20% down for homeowner, 10-20% down for investors has worked all these years. Throw in all these ARMs , I/O, neg amort, etc and look what we got. Gee, can’t figure out why no body tried this type of financing before?
Reminds me of homes in N. Little Rock aong the river. Was poor blacks, taxes were raised, blacks forced off property, developers came in, built fancy riverfront homes, yuppies said what a lovely view…. of that tornado! BOOM, gee, can’t figure out why rich white folks never built on that land before….ummm?
there’s a reason why a lot of things have never been done before, the big one being that people were smart enough to think it thru to the end BEFORE jumping off the bridge.
I’m still not getting how if the payment is the same, a higher rate would not be better. Less down, less taxes, bigger tax deduction. I’d rather have a 300k home at 11% than the same home at 500k and 6%. extra equity payment goes farther, dump the added tax and insurance savings back into the equity and it’s paid off in 16 years instead 30. Your savings account gets the initial downpayment differential, and it makes 9%. Nine percent doubles your investment every nine years. You have a paid for home and 80k in the bank at the end of 18 years. The 500k example at 6% has nothing except 12 years left on the mortgage. Help me out here, how am I wrong?
Turdly, you make some great points I hadn’t thought of before. Realtors must be pushing interest-rate fear as a way of getting folks to buy now instead of staying on the sidelines.
What I’m trying to figure out is how rising US debt and the falling US dollar will affect the story you tell…
Now that the dollar is less competitive, the Fed has to keep interest rates high enough to keep foreign investors buying US debt (maybe this is the real reason for all of the “inflation” talk?). Given growing US debt due to the war and the increasing competitiveness of Europe and Asia, there will be a strong tendency for the dollar to fall even farther and therefore for the Fed to raise interest rates even more. This will make it impossible to adjust rates down to jumpstart housing. So we should expect rates to be quite a bit higher in coming years. This will depress activity (and incomes) throughout the economy and make housing prices even more likely to fall.
Does this make sense? It’s easy to get pulled into the “buy before rates rise” mentality, so I want to be sure.
I’m still not getting how if the payment is the same, a higher rate would not be better. Less down, less taxes, bigger tax deduction. I’d rather have a 300k home at 11% than the same home at 500k and 6%. extra equity payment goes farther, dump the added tax and insurance savings back into the equity and it’s paid off in 16 years instead 30. Your savings account gets the initial downpayment differential, and it makes 9%. Nine percent doubles your investment every nine years. You have a paid for home and 80k in the bank at the end of 18 years. The 500k example at 6% has nothing except 12 years left on the mortgage. Help me out here, how am I wrong?
Higher rates on the same price results in a higher monthly.
Therefore, higher rates -should- mean lower prices.
Tell that to the seller who is rapidly heading underwater.
Chapter 13 bankruptcy is a tool to use to stop foreclosure and stop the sheriff’s sale. I have had numerous clients that have been able to refinance for a lower rate, use some equity and resolve their mortgage problems. Many clients have also been able to sell their homes and resolved the foreclosure problems as well. This is especially true with the soft real estate market right now. With homes on the market for 6-12 months, debtors who tried to sell before things turned sour weren’t able to, therefore the Chapter 13 gives them time, stops the foreclosure, and basically gives them 5 years to find a buyer, or else helps them keep their homes. Therefore, to say that they all fail and never follow thru with their repayment plans is a bunch of garbage. Granted, many chapter 13’s fail, but the majority fail due to a loss in income- the debtor loses a job, major medical, or get hit with an ARM that doubled their payments! It is hard to find a client who just ‘gave up’ and refused to try.