If/When We Will Run Out Of Rich People
Readers suggested a topic on the current market. “The Great Depression, the Savings and Loans scandal, and the Financial Crisis of 2008 all had a common thread - rapid real estate price escalation and speculation. Is this a a hallmark of coming economic collapses? And if so, why or why not?”
A reply, “I guess my question is whether there have been occasions of rapid RE price escalation and speculation WITHOUT an economic collapse following. IMHO, I think real estate going up in value is a hallmark of a part of every economic cycle. As the economy gets better, more lenders are willing to lend, more borrowers willing to borrow, and so assets that are acquired with leverage go up in value…until they don’t.”
And one said. “Does it seem to others besides me that the disconnect between Housing Market Recovery happy talk and the grim underlying situation has reached a similar gap to that achieved in 2007, just before the SHTF?”
The Independent. “A small garden in the affluent west London area of Chelsea has sold for £84,000. In what appears to be a symptom of steepening property prices in London and the looming prospect of a UK housing bubble, a foreign buyer bought the plot at an auction despite it having no rights of way, or planning permission for development, the Evening Standard reported.”
“The lawn garden measures 55ft (17m) by 40ft (12m), was sold for over the average price of a home fewer than 300 miles away in the northern city of Durham, according to the newspaper. This means the land was valued at £1.68 million per acre. By selling the plot, its previous owner is believed to have made £31,000 in profit in just eight months, after it was acquired for £53,000 last September.”
“It was sold by Savills, whose director of national auctions, Christopher Coleman-Smith, told the newspaper: ‘The new owner can do what he likes with it. I suppose he could put up a marquee when the flower show comes around. Little bits of London like that are in scarce supply, and in 20 years time who knows what it might be possible to do with it?” It is the latest example of a tiny slice of London real estate selling for a huge sum despite not having planning permission to build on it.’”
The Times Picayune. “Home buyers and sellers are making deals in a peak market in the New Orleans area right now with a dwindling number of houses for sale in the city’s historic core and top prices for condos in the French Quarter and downtown areas, analysts said. French Quarter condos are selling for more than $500 per square foot — that is, if a buyer can actually find one, said Geoff Lutz of G. Geoffrey Lutz Appraisal Services. Only about a dozen hit the market each year, he said.”
“In the city’s other major condo market, the Central Business and Warehouse districts, condos are priced around $350 per square foot, and the number of sales are down ’substantially’ from last year, Lutz said. ‘This is not because there’s no demand,’ Lutz said. ‘It’s because there’s just no supply.’”
The Kansas City. “The Kansas City housing market is on a fast track this spring with sellers in the driver’s seat, so real estate agents are telling buyers they better move fast or the houses they want will be gone. ‘It’s taking potential buyers longer to find a home, and when they do find it there are multiple offers,’ said Kathy Minden, president of the Kansas City Regional Association of Realtors. ‘It’s clearly a seller’s market.’”
“‘The biggest concern we have now is the lack of inventory. It’s really scarce,’ said Ellen Bradbury, a real estate agent at Reece & Nichols. ‘As a result, homes come on the market, and they go fast with multiple offers. It creates an anxiety-ridden atmosphere. There aren’t any homes. That’s why my sales have dropped.’”
“The numbers reflect how challenging the hunt is this spring. There were 10,593 existing homes listed in the area in March, down 2 percent from a year ago and almost 19 percent lower compared to March 2012. As a result of that shortage, sales were actually down 9 percent in March over last year.”
From SNL Financial. “Dallas, Detroit, and San Diego might be drastically different markets, but Realtor associations in all three leveled the same primary gripe: a lack of inventory. ‘There’s plenty of interest, but the problem is there is a lack of inventory. People want to buy, but there is nothing for them to buy,’ Embry Webb, president of the Detroit Association of Realtors, told SNL.”
“In Dallas, Bill Head, director of communications for the MetroTex Association of Realtors, said there are 19,268 active listings, compared to 42,952 in 2007 before the crash. ‘It amazes me, because if you look at where the pricing structure is, it would certainly seem to be an ideal time to sell,’ Head told SNL. ‘Several homes in my neighborhood went on sale at a price that (a) I couldn’t imagine the home selling for and (b) I just didn’t see any way that that property could appraise for that price. And literally within a matter of two weeks, those homes were off the market.’”
“While the Dallas market remains affordable for the typical household based on the median price, Head said prices continue to ride higher, in contrast to San Diego and Detroit, where Realtors report a moderation in price increases. In San Diego, real estate agents think the market might be stabilizing, but prices are so high that first-time buyers are struggling to find entry. But that does not necessarily mean the market is in a bubble again.”
“Rich Toscano, a financial adviser with Pacific Capital Associates in San Diego, launched a blog in 2004 presciently predicting a housing crash based on overvaluation. He maintains a graph that compares home prices to a blended value of rent and per capita income. The index is now at the peaks seen in 1979 and 1990, but it is still well-below the most recent bubble. ‘People say to me, ‘Are you worried about it?’ And I think, ‘It’s expensive, but it’s always been that way,’ Toscano told SNL.”
“At the same time, he does not think there is much more room for prices to sustainably rise. ‘I wouldn’t say there couldn’t be more upside, but what I would say is that whatever upside there is, I would expect to be given back eventually, at least in relative terms,’ he said.”
“Real estate agents in the San Diego metro area seem to agree with Toscano that prices are starting to stabilize and that the days of double-digit annual growth have likely passed. Still, for buyers interested in the lower end of the market where homes are more affordable, bidding wars remain fairly common. Jim Klinge, a real estate broker in the metro area told SNL via email that the most recent low-end buyers he represented lost several bidding wars before nabbing a home.”
“On Klinge’s blog, which gained national fame during the housing crisis for its candor and brash style, the agent reports hyper-local statistics on supply and demand. For now, the fundamentals suggest San Diego’s housing market is strong. ‘What really matters is wondering if/when we will run out of rich people,’ Klinge wrote.”
‘There aren’t any homes. That’s why my sales have dropped.’…The numbers reflect how challenging the hunt is this spring. There were 10,593 existing homes listed in the area in March’
Speaking of liars, I ran across this:
‘This interview series focuses on the people in Santa Fe’s real-estate industry. Olga Chávez is a broker associate with Barker Realty.’
‘How long have you been in these parts?’
‘In Santa Fe my entire life. My father’s family has been in Las Vegas and Bernalillo probably close to 400 years and my mother’s family is very similar.’
400 years? Shouldn’t they pretty much own everything.
“There’s plenty of interest, but the problem is there is a lack of inventory. People want to buy, but there is nothing for them to buy…”
Sure, show us the line up of fools eager to overpay. Your sales are going down because prices are starting to head down. It’s that simple.
Probably said “for a hundred years”…..but the other person heard “four hundred years”. Otherwise they would have been on the Mayflower with Columbus!
The area is rife with Navajo, Hopi, Spaniard defendants, Apache and many other tribes passing though.
You really need to un-narrow your mind…a lot.
I’m not defending her, I’m defeating you.
Álvar Núñez Cabeza de Vaca may have been the first Spanish explorer into what is now New Mexico in 1527 as he made his way back to Mexico after being shipwrecked in Florida.
Francisco Vázquez de Coronado y Luján commanded a Spanish expedition that crossed the entire state between 1540-2. He made it as far NE as what is now Kansas.
Don Juan de Oñate y Salazar founded the first Spanish colonial settlement in what is now New Mexico, in 1598. He was of Spanish and converso Jewish descent. He married a woman who was a descendant of the last Aztec emperor.
In 1975 hen I told people I was moving to New Mexico, several wanted to know why I was moving out of the USA.
‘I’m not defending her, I’m defeating you.’
Is that you Elisabeth Warren?
most areas are 10-15% off the 2005 peak- what’s the rent to buy ratio in your area?
‘What really matters is wondering if/when we will run out of rich people,’
San Diego will never run out of rich people. However, they are likely to run out of Realtor®s soon, as a dwindling pool of rich people supporting a shrinking volume of home sales transactions does not bode well for their industry.
What was it that made all those people in San Diego rich? It was not like that 30 yrs ago, nor were home prices down there crazy like now.
It’s all a lie.
People here can barely afford to rent the places they live in, and it is much more expensive to buy.
San Diego tough for renters trying to buy
SNL Report: Help from folks, programs essential
May 09, 2014
San Diego tough for renters trying to buy
By Zach Fox, SNL Financial staff writer
Housing prices have enjoyed substantial, double-digit growth over the past year, leading to affordability issues in some major metro markets that could cap prospects for future growth.
From a renter’s perspective, San Diego might be even less affordable than San Francisco, which famously boasts the nation’s most expensive real estate.
Getting into homes takes help
Prices in San Diego shot up 19.4% year over year in January, according to the latest data available from the S&P/Case-Shiller home price indexes. With prices so high, real estate agents said first-time homebuyers need to adjust their expectations.
Young renters can only make the leap to homeownership in San Diego with help from a government down-payment assistance program or their families, said Leslie Kilpatrick, president of the Greater San Diego Association of Realtors.
“I think we’re seeing more and more of that,” Kilpatrick told SNL. “This generation of parents is realizing the difficulties their children are facing in buying a home.”
A recent study by HSH, a provider of mortgage interest rate data, details how much income a household needs to afford the typical home in a given market. HSH calculated the minimum income needed to purchase a median-priced home in a given market. The study assumed a 28% front-end debt-to-income ratio and a 20% down payment and only covered principal and interest.
The results of this study raise an interesting question: How many renters in each market could afford to buy the typical home?
Can San Diego renters swing it?
While it may not be possible to come up with a definitive answer, SNL explored the question using the HSH study, recently released U.S. Census Bureau data detailing renter incomes, and corresponding Census data on housing units. By one measure, San Diego had the lowest ratio of income-eligible renters—meaning they earned enough to buy a median-priced home—to housing units among 25 major metropolitan areas.
…
Until there are headlines screaming how bad prices going up 19 percent in one year is you will know the mania is not over.
And when there is such a recent obvious example, the idea that right thinking people aren’t screaming from the rafters that this is a mania is amazing. Doubly amazing because the same thing is going on in the stock market with tech stocks also with a less recent example of that lunacy.
The human mind is an amazing thing I guess. When this next crash happens, and the disappointment from the lack of hope and change also sets in in roughly the same period, we are in for a serious national depression from both a financial and psychological standpoint.
“mania…depression”
Is there some other end to a mania, like OK that never happened?
“Is there some other end to a mania, like OK that never happened?”
For the time being, yes.
“I guess my question is whether there have been occasions of rapid RE price escalation and speculation WITHOUT an economic collapse following.”
If you have ever taken a good look at Robert Shiller’s real estate price history graph, the thing that stands out is that this current real estate price runup is historically without precedent, basically on a higher order of magnitude than previous periods of rapid RE price escalation.
So this time truly is different, and there is no historical episode in the U.S. for comparison.
One might compare to similar episodes in other countries (e.g. Japan leading up to its real estate collapse that began around 1990) or bubbles in other asset classes (Tulipmania, South Sea Bubble, Great Stock Market Crash of 1929, etc).
On a more optimistic note, there also seems to be a historically unprecedented resolve among central banks to artificially prop up housing prices, if they deem this a worthy policy objective.
It is unclear to me whether Janet Yellen’s warning on housing merely amounts to more runway foaming, or is she signalling another round of housing stimulus to prop up prices on their permanently high plateau forever?
Fed Focus
Janet Yellen’s big concern: Housing slowdown
By Annalyn Kurtz
May 7, 2014: 2:54 PM ET
Janet Yellen: No obvious stock bubble
NEW YORK (CNNMoney)
Federal Reserve Chair Janet Yellen is upbeat on the U.S. economy for the most part, but there’s one sector that causes her some concern: Housing.
“One cautionary note, though, is that readings on housing activity — a sector that has been recovering since 2011 — have remained disappointing so far this year and will bear watching,” she told the Joint Economic Committee in prepared remarks Wednesday.
The housing sector was a key part of the economic recovery last year but has since fallen short of economists’ expectations.
Building permits — a gauge of future home construction — fell 2.4% in March, and existing home sales were flat. Economists had expected both these indicators would improve more, especially after blizzards and a cold winter put the housing sector largely on hold.
Yellen cautioned that the warmer weather may not be enough to turn things around.
“The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery,” she said.
…
“Yellen cautioned that the warmer weather may not be enough to turn things around.”
LOL! The fed reserve chair…
Here’s a data point: debt-to-income ratios since the 1950s. I couldn’t find anything before 1950. Here’s the chart, on the first page of this PDF: http://www.frbsf.org/economic-research/publications/economic-letter/2011/january/consumers-economy-household-debt-weak-us-recovery/
• Real estate prices are highly correlated with household debt. “Peak debt” could be described in terms of maximum debt-to-income (DTI).
• I’d like to see a chart of absolute household debt going back several decades.
• I think that chart shows the start of the final stage of the housing bubble, just before 2000.
• Education and housing are big sources of debt. Government intervention in these areas have dramatically increased the debt load on the citizenry.
Okay, so what does this say about real estate prices going forward? I guess it depends on what the peak sustainable DTI is. And what societal attitudes towards debt are and become. I think it’s safe to say that peak DTI was overshot. But the concept that housing is the path to riches might also have been nicked in recent years. Through a myriad policies, both major and minor, the government and central bank have been able to engineer a house price rebound that rivals the increase at the peak of the bubble.
Some notes:
• DTI, while pretty constantly increasing, is relative to wages, which go up and down.
• This entire scheme would fall flat if there weren’t government guarantees on all that private debt.
• This is just one measure of DTI. I’ve seen conflicting measures of household debt.
‘One of the striking features of the U.S. economic downturn that started in 2007 is that it was preceded by the largest increase in household debt in recent history…After a steady increase from 1950 to 2001, the household debt-to-income ratio skyrocketed from 2001 to 2007 by more than it had in the prior 45 years.’
Let’s repeat that:
‘the household debt-to-income ratio skyrocketed from 2001 to 2007 by more than it had in the prior 45 years’
‘Perhaps the most stunning auto sales evidence comes in the recovery. Relative to 2005, auto sales in high household debt counties were 50% lower in every quarter after the end of the recession, except for a brief blip associated with the “cash for clunkers” program. By contrast, low household debt counties experienced a robust recovery of auto sales. In the third quarter of 2010, low household debt counties had auto sales that were as high as or higher than pre-recession levels.’
‘The pattern in residential investment in Figure 3 is similar. The decline in residential investment in high debt counties began even before the recession began and there has been no recovery. Residential investment in high household debt counties remains 40% to 60% below pre-recession levels. In contrast, low household debt counties have almost completely avoided a decline in residential investment.’
‘The emphasis on residential investment and durable consumption as measured by auto sales is particularly important given evidence from Leamer (2007). He shows that nine of the last 11 recessions were preceded by drops in residential investment and durable consumption. Furthermore, rebounds in residential investment and durable consumption are among the strongest leading indicators that an economic recovery is imminent. Given Leamer’s evidence, Figures 2 and 3 suggest that high household debt areas are likely to remain in a recessionary environment well into the future.’
‘House prices are an important factor. High household debt counties experienced much larger price declines than low household debt counties during the recession. In fact, previous research demonstrates that the debt-to-income increase from 2002 to 2006 can explain more than 60% of the variation in house price declines across U.S. counties from 2006 to 2009 (Mian and Sufi 2010). It is likely that the large increase in debt burdens had both a direct effect on the economy and an indirect effect due to the subsequent sharp declines in house prices in highly leveraged areas.’
‘What does the evidence on high and low household debt counties suggest about the reasons for the weak recovery? One explanation commonly offered for the weak recovery is hangover from the financial crisis of the fall of 2008. In this view, for a variety of reasons, banks that were embroiled in the crisis are not lending even to businesses that have strong investment opportunities. But it is hard to imagine that businesses in high debt counties have many good investment opportunities when residential investment and durable consumption remain 40% to 60% below pre-recession levels.’
‘Overall, the county evidence strongly suggests that credit demand is weak because of an overleveraged household sector…The evidence is more consistent with the view that problems related to household balance sheets and house prices are the primary culprits of the weak economic recovery…Our view is that the depth and length of the current recession relative to previous recessions is closely linked to the tremendous rise in household debt that preceded it.’
OK, on this:
‘problems related to household balance sheets and house prices are the primary culprits of the weak economic recovery’
You can’t have higher and higher house prices without higher debt levels. So if we’d let these stupid prices fall, people could get out from under the debt (foreclosure, walk away, whatever), and make new housing arrangements at much lower price entry points, it would fix this whole darn mess. On the other hand, this research suggests if we don’t let prices fall and all that goes with it, we’re stuck.
‘the household debt-to-income ratio skyrocketed from 2001 to 2007 by more than it had in the prior 45 years’
Wasn’t that the period when Alan Greenspan tried to rescue the economy by holding the interest rate pedal to the metal?
And have his successors done anything differently?
Wasn’t that the period when Alan Greenspan tried to rescue the economy by holding the interest rate pedal to the metal?
Bingo.
Another interpretation of Alan Greenspan’s tenure at the Fed: He did more than anyone else in the history of his institution to turn America’s relatively wealthy households into debt slaves for Wall Street’s Megabank, Inc. Thanks to Alan Greenspan, the Wall Street whales will never again have to go hungry for lack of plankton.
“Wall Street whales will never again…”
Sure they will go hungry again They will experience a generation of plankton who hate debt, just like before.
A lot of the problems surrounding household debt and the lack of a recovery can be traced to the bankruptcy ¨reform” act of 2005, which made it much harder to declare Chapter 7 bankruptcy, and therefore much safer to lend to people with questionable credit.
It’s Bushes fault. Just say it.
You say it first.
A lot of the problems surrounding household debt and the lack of a recovery can be traced to the bankruptcy ¨reform” act of 2005,…
I call BS on this. It’s housing prices and people borrowing too much for houses priced too high. The easy credit on the front end, not the inability to get out from under anything in bankruptcy.
To paraphrase Clint Eastwood from The Unforgiven, “Bankruptcy’s got nothing to do with it.”
Bankruptcy being made more difficult has nothing to do with people’s inability to get out from under debt?
Then there is the role modern bankruptcy laws have played in the explosion of student debt burdens and increase of higher education costs, escapable only by death, if that.
Bankruptcy has nothing to do with paying 500% premiums for rapidly depreciating assets like houses.
However, it does have something to do with student loans that are non-dischargeable in bankruptcy.
Law school is a perfect example. These days schools referred to online as TTT (third-tier toilets) charge almost as much as Harvard and their graduates have no chance whatsoever of being a lawyer.
There has been a massive explosion in student debt post 2008. This is a permanent white elephant hung around your neck. They even garnish SS payments to pay this off!
While I grant your point about houses, education is a different game and this one is a bigger disaster in my opinion. It will play out effectively forever.
Bankruptcy has a lot to do with people getting out from under debt, though. And if you want the system to reset to a different, lower price level, easier access to Chapter 7 bankruptcy can help that happen, while restricting Chapter 7 impedes the price reset.
Yes, the student loan explosion is a perfect example. The harder it is to remove a debt by bankruptcy, the easier it is to blow a credit bubble.
Price is the problem. Debt is the symptom. Irrecoverable losses is the end result.
A couple of weeks ago I was talking with some current college students and told them that once upon a time student loan debts were dischargeable in bankruptcy. They all expressed astonishment. One had already had a classmate die, and, for a time, had been surprised that that particular student debt had been discharged.
Then I told them how the explosion of nondischargeable student loan debt has directly caused rising education costs, and they all looked puzzled. I said it had something to do with supply-and-demand, and left it at that.
“One had already had a classmate die, and, for a time, had been surprised that that particular student debt had been discharged.”
The only certainties in life are death and taxes. In particular, if you die before your student loans are paid off, they are discharged.
There’s a vestige of the days when student loans were dischargeable in bankruptcy in the CA legal system to this day.
Back then, new doctors would often declare bankruptcy the week after graduating from medical school. This would wipe out their student loans and give them a “fresh start”.
The legal system to its credit forbid this in CA. The CA bar would deny entrance into the bar - even if you passed your bar exam - if you had a recent bankruptcy or were delinquent in your student loan debt payments.
Ben Jones: You can’t have higher and higher house prices without higher debt levels. So if we’d let these stupid prices fall, people could get out from under the debt (foreclosure, walk away, whatever), and make new housing arrangements at much lower price entry points, it would fix this whole darn mess. On the other hand, this research suggests if we don’t let prices fall and all that goes with it, we’re stuck.
The central bank and government can hold up the price of a highly desired item (real estate), sucking money out of the rest of the economy and drawing spending forward via debt.
Why they would do this is left as an exercise to the reader.
Too bad that quantitative easing fosters more destructive household debt buildup instead of beneficial household saving behavior.
“Too bad that quantitative easing fosters more destructive household debt buildup instead of beneficial household saving behavior.”
At the offices I visit regularly the lowest paid workers drive the newest cars.
I’m feeling silly ,so you get my song .
Those prices are to damn high ,
their about to reach the sky ,
But, I will be a running
when I see the bubble coming ,
those prices are to damn high .
Prices are totally fake ,
our civilization is at stake .
There has been a wealth extraction
without proper reaction ,
Those prices are to damn high .
Those rents are to damn high ,
my income can’t comply ,so
I will be a running
when I see the landlord coming
Those rents are to damn high .
The price for a doctor is a joke
it’s about to make me choke
were headed for doom
and housing bubble gloom
a Doctors to damn high .
The stock market is rigged
but there is no other gig
Survival isn’t assured
I’m giving you my word ,
The stock market is to damn high .
hahaha
i got this far
“It creates an anxiety-ridden
atmosphere. There aren’t any homes. That’s why my sales have dropped.”
The thought of having to live in KC if it ain’t free, makes me anxious.
The thought of paying 500% premiums for a depreciating asset give me greater anxiety.
Maybe this explains why drug use of all types is highest in CA.
Maybe this explains why drug use of all types is highest in CA.
The explanation works as well in reverse. You don’t have to be drug-addled to pay a 500% premium, but it certainly helps.
it just strikes me as excessive that someplace not particularly atractive can’t at least offer peace of mind in terms of home prices for homebuyers
“Dallas, Detroit, and San Diego might be drastically different markets, but Realtor associations in all three leveled the same primary gripe: a lack of inventory.”
It’s starting to dawn on me that this inventory shortage may reflect more than manipulation or owners reluctant to put their homes up for sale at lower-than-2007 prices. The additional factor is those artificially suppressed rates that were used in recent years as an implicit homeowner bailout. Now that rates are climbing, these folks have no hope of ever locking in such a low rate again. The resulting frozen housing market inventory situation may last nationwide for years to come, given that rates are unlikely to trend any lower from the recently-reached 50-year (or longer) low point.
‘these folks have no hope of ever locking in such a low rate again’
I’ve read articles that mentioned people in this situation. It’s the same with the millions underwater and not having enough money to take to the table. But they also won’t be buying a house.
This week it was reported that over 40% of sales were cash. Who is doing this? Rates aren’t an issue. I don’t know many regular Joe’s that could do that, and even if they had the cash, would probably borrow to buy a house. I’d suggest it’s speculators. So if we have over 40% of current purchases being speculators, this could get interesting.
People don’t flip houses on the way down, for long.
“But they also won’t be buying a house.”
Nor will they be selling a house, as staying put will prove cheaper than selling and purchasing another place using a higher-rate loan. Which gets back to my point about frozen shadow inventory.
‘Nor will they be selling a house’
Some things might change that; downsizing, finding themselves underwater with no hope of getting back to air, losing a job, needing to move for whatever reason.
It must be a terrible feeling to reach that moment when you realize the mortgage you are repaying will never again go above water and your losses will follow you right up until the day you sell or die.
“It must be a terrible feeling to reach that moment when you realize the mortgage you are repaying will never again go above water and your losses will follow you right up until the day you sell or die.”
That’s reality for millions of home-debtors and more are added to that seething $hitpot of suckers every day.
“The market can stay irrational longer than you can stay solvent.” –John Templeton
“So if we have over 40% of current purchases being speculators, this could get interesting.”
Sounds like a historically high level. Normally floods don’t stay at the high water mark forever, but perhaps it is different with housing, and we have entered a new era of dwindling sales transactions, with an ever-increasing share of all-cash speculative purchases.
Agree….I wasted a year trying to buy in 2011/2102 and it was hopeless competing with 100% cash flippers and specuvestors. I’ve retired in the meantime, cashed out my pension and 401K, and could pay cash for a house now (also sold my last place in 2007 thanks in large part to this blog and still have the proceeds)…but no way in hell I will buy into a bubble and/or put a large portion of my assets into a house. IF I buy again it will after this bubble pops and will do the traditional 20% down with a mortgage for the rest.
will do the traditional 20% down with a mortgage for the rest.
Would you really take out a mortgage in your retirement?
And why the 20% downpayment? Wouldn’t it be more financially advantageous to use a smaller downpayment and let the mortgage to into default when you and your wife are gone?
I retired at 55 so a mortgage is not unreasonable as hopefully I’ll be around a few more years, might even live to pay one off (a 15 year mortgage anyway
I could pay cash but there would be a BIG tax hit if pulled a six figure sum out of retirement accounts all at once. A 20% down payment means no PMI and a much better chance of an offer being accepted…though when I bought in 1997 it was with 0% down and a GI Bill loan. Could do GI bill again when the time comes since I paid the last loan off in full but will probably go with a conventional as that will usually trump a VA/FHA offer if there are a few bids. It really sucks that some sellers won’t accept an offer with a VA loan, it happened to me and I later learned that the deceased former owner of the house had been a career military man but a GI Bill loan was not good enough for his children.
“A 20% down payment means no PMI and a much better chance of an offer being accepted…”
If you go that route (as I have twice previously), my suggestion is to at least make sure that prices have bottomed out, so you don’t see your 20% downpayment soon wiped out by reverse leverage.
Good luck!
Thanks! that is my intention, if I try to buy again it will be after the 100K+ markup of the last few years is erased and I feel I have a chance of an non 100% cash offer being accepted, will NOT put myself through the frustration and disappointment of my last try again. At that time there were plenty of places I liked for about $250K and if I’d bought with $50K down the mortgage would have been about $1000/mo vs. the $1500/mo I pay in rent…but my offers were all ignored. But I’m in no hurry, I like the place I’m renting OK and the location is ideal.
One mild suggestion: Wait until the Chinese housing collapse is in full swing and financial panic is freezing out prospective buyers before starting your search for a place.
I’m very dubious that these “cash” purchases are truly just cash. I think many are borrowed money in one form or another, just not borrowed from the bank through a mortgage on the house to be flipped.
Agree, most of the specuvestor/flipper “cash” probably was borrowed one way or another…but if you are a trying to buy with less than 100% cash it makes no difference, your bids will be ignored unless the seller is one of the rare individuals that wants to sell to an individual or family actually buying a place to live in, who might be an asset to the town and neighborhood, etc, I have heard of a few cases though unfortunately it did not happen to me.
I’d suggest it’s speculators. So if we have over 40% of current purchases being speculators, this could get interesting ??
And if true, It could be a form of shadow inventory…Although they may have some rate of return, if they are speculators then its just a matter of time before they turn it over..They have no vested interest to hold on to it other than to make some money…
Yes, investors buying the market . Have I seen this before . I notice the property flipping programs are coming back .
It was fits and starts for 40 years on the way up to the biggest credit mania in history. It’s a flight of stairs going down, not a straight line. Each bounce a diminished reflection of the last perhaps.
“Yes, investors buying the market.”
There’s an investor born every minute.
“I notice the property flipping programs are coming back.”
One of these programs should be called “This way to the Egress!”
“At the same time, he does not think there is much more room for prices to sustainably rise. ‘I wouldn’t say there couldn’t be more upside, but what I would say is that whatever upside there is, I would expect to be given back eventually, at least in relative terms,’ he said.”
What is missing from this analysis, in my somewhat-informed opinion, is the recognition of the degree to which the historically-high share of speculative demand is driven by investors trying to capitalize on the Fed’s housing reflation stimulus program that started in January 2012 and has run its course by now. Since this program is currently in the process of winding down, I am wondering what reason the speculators will have to keep them from soon shifting from the demand (purchase) side of the market to the supply (sales) side, especially given that prices are already at a high premium relative to fundamental U.S. household purchasing power and appreciation is already slowing?
To put this in simple terms, bubbles tend to crash because so much of demand is due to speculators who are only there to capture abnormally high returns. Once the high returns slow to a trickle, as is currently happening, speculative demand can drop from historically high levels to zero in a heart beat. And to make matters worse, the sudden drop in demand is accompanied by a simultaneous huge supply shock due to the speculators trying to get through the exit door of the burning theater before the building collapses on them.
So in short, the sudden vaporization of demand and glut of supply which accompanies the end of a mania has a natural tendency to result in a price crash, not a permanently high plateau.
So….you think mania can be explained and predicted by logical fundamentals.
In a way, yes. There is a logic to a bubble, the logic of getting in on the gains before the music stops. The irrationality is pretending that it isn’t a race and pretending that what goes up can’t come down.
And there is also the logic to the bursting of the bubble once the great appreciation stops. It is all very logical when viewed from a high level. It is an overall logic that depends on the illogical beliefs of the many individuals participating during the run up. The race for the exits when the jig is up is most logical.
“The race for the exits when the jig is up is most logical.”
But only the top-hats have a seat in the lifeboat waiting for them when the bilge pumps eventually fail.
Logical fundamentals worked well to explain the 2007-2008 financial collapse, when “subprime was contained,” at least according to Ben Bernanke, and “nobody could have seen it coming.”
This time may be different, due to all manner of bailout apparati either in play or in the waiting to buoy the market from ever realizing the next leg down.
The real estate market in the past was protected from absurd bubbles that were followed by crashes by the regulations that were put in placed on lending ,that came about because of the Great Stock Market Crash of 1929 .
Faulty lending has a huge effect on raising prices .
True, and it changed very quickly in the 2000’s. When I bought in 1997 in a flat market the bank checked me out very carefully before approving the loan and I had no problem with that…but banks often kept the loans on their own books then so they made a serious effort to avoid writing bad ones and practiced some self regulation too.
“Real estate agents in the San Diego metro area seem to agree with Toscano that prices are starting to stabilize
There’s that “prices are falling” word again.
My God realtors are liars.
Check records of these sold houses many sellers took a huge lost on their investment. So when you see a home that sold for $1m and think wow those folks made out think again, they probably paid $1.3m or more back in 05′ 06′.
The new rational of buyers is, if the house they bought for $1m was originally sold for lets say $1.3m, then they got a good buy, I think as a long time buyer and seller of real estate, this is dangerous interruption of investing?
And as prices sink another 30%, what will be your excuse then? And the 25% slide after that?
Has the reality dawned on you that there isn’t a house on the planet worth more than $250k?
‘The North County coast is returning to a more traditional market, reflecting a change that’s occurring in much of San Diego County, said Garrett Lund, broker for The Lund Team Inc.’
‘Lund is seeing fewer speculative buyers and more people holding onto properties. He cautioned that real estate is difficult to forecast, but said it’s still a safe investment for people to lock into and hold for the long term.
“People were just buying to instantly make money,” Lund said. “Now people are buying to set up ‘Here’s where we’re comfortable.’ And I think that’s the right way. I think we’re in a good, stable market.”
‘Lund said prices have plateaued in some geographical areas and he expects only a marginal gain in prices — unlike the 20-plus percent increase last year. There are fewer investors than in the past few years due to price increases, but investors and owners who held onto their properties as rentals during the recession are coming onto the market as sellers, Lund said.’
“When I go on the MLS I can see on the occupancy a lot of tenant-occupied properties, so that also indicates the market is getting better because they’re now able to move these properties where they probably weren’t able to a couple years ago,” Lund said. “We are starting to see that especially in some of the big areas like Carlsbad and Encinitas, where they can unlock that equity or move it to the next property.”
“Although I’m starting to see more come on the market and we are starting to see some ‘down arrows’ on the MLS, which indicates there is some pricing correction, but it’s not substantial. They’re still coming on too high, anyway,” Lund said.’
http://www.sddt.com/news/article.cfm?SourceCode=20140506cze&_t=North+County+coast+returns+to+a+more+traditional+market#.U2-UnFeu_oM
“People were just buying to instantly make money,” Lund said.
LOL! Why wouldn’t the seller just hold on and make more money?
Thats priceless.
With deliberate misreprentations like this, Realtors have no room to whine when a fresh round of suckers they ripped of want to hang them from lightpoles.
Can one of you explain to me why these 100% cash offers are more lucrative to sellers than buyers with 20% down and financing? Either way it seems like they’re going to get their money… Sorry if it’s such a stupid question!
A cash offer isn’t subject to appraisals. There isn’t a loan involved; so a lender may say, the roof is bad or something, which would have to be worked out between the parties involved. So it basically the speed and lower chance of the deal falling apart makes cash more attractive for sellers. This is especially true with foreclosures or short sales which may have lots of problems and the sellers don’t want to spend much.
Totally makes sense. Thanks Ben!