WatchI have been searching everyday waiting for an article on the October 4th changes to FHA mortgages which will collapse the housing market and I have yet to see one.
Here is what is happening…
FHA now makes up over half of the home purchase mortgages in the entire country right now.
The new rules effective for all new FHA loans (including Reverse Mortgages) October 4th, 2010 increase the annual MIP (MIP = Mortgage Insurance Premium) from .5% to 1.25%.
Here is how it breaks down:
Old Rules:
$200,000 FHA loan @ 4.5% (current 30 year fixed rate)
Payment = $1,298 ($1,013 PI, $202 TI, $83 MIP)
New Rules:
$200,000 FHA loan @ 4.5%
Payment = $1,423 ($1,013 PI, $202 TI, $208 MIP)
Same house, same mortgage, same rate, same everything and the payment goes up 9% on October 4th.
Housing prices will have to drop an equal amount for the same person to qualify after October 4th.
Add in some terrible housing data regarding foreclosures, inventory, etc., etc. and you have a recipe for another BIG decline… OUCH!
The worst part is, a big drop in October will signal a bigger drop through year end because downward momentum begets downward momentum.
Why isn’t anyone picking up on this huge new change in FHA loans… Where are the bloggers?
Matthew Copley
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Phoenix, AZ
Home prices need to fall MUCH further. Vehicle prices need to drop much, much further. Anyone who counts their home as part of their net worth is making a mistake. No matter how old you are, you will still need a place to live unless you can move in with your kids. If you want to cash in on your home, sell when you are aged, put the money in the bank and rent. Until then, your home is dead money. We need to get back to the days when moms could stay home and take care of the kids. America has lost the "family" because everyone is forced to chase the dollar in order to provide housing and transportation. The government needs to stop propping up the auto and housing industries. Let the market determine their values. There is too much noise about closing FANNIE and FREDDIE. They will eventually be shuttered and much heftier down payments will be the rule of the day. All those bargains investors bought 2 years ago? They will be back on the market as foreclosures. There are many middle-class people in the early stages of screw it because they are so far upside down. This thing is going to take years to unwind. All the while, prices will continue to decline. Most wealthy people accumulated their money from saving and investing, and not in real estate. Do you know any multi-millionaires who achieved their riches in residential real estate? And I'm talking about the ones who have liquidated and have the CASH in the bank.
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MIP = Mortgage Insurance Premium
(Please People: When authoring an article, please do not assume everyone knows real estate lingo (i.e. what "MIP" stands for). It's always better to define your term when you first use it. Just in case. Thanks!)
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iwog says
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47 male
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Please, with all due respect, enough with the "highly suspect" nonsense.
I've advertised my rentals on this very site. Everything about real estate is public including the purchase price. Even if I wanted to fake real estate data, I'd have no idea how to accomplish it since anyone can pull up my homes online and comparable rents on Craig's List.
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APOCALYPSEFUCK says
see there ... found somethning positive in the grim outlook ahead. Addaboy. I agree with your vision, incase you wondered.
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I just had to register to hop in on this discussion. Long time lurker though...
I'm hailing from the DC / MD / VA area, and we have our own housing issue. Well this area has LOTS of issues, but we can start with housing. Houses are ... similar to anything else that's bought and sold. Pricing is determined by supply, demand, and emotions. This area is odd... you have a steady job market, an influx of college educated youngsters, and a relatively stable core of "older people". The problem though... the younger college-educated folk don't make enough to support a house. Even if you stack 3-4 of them together and they all go in together on one ( a HORRIBLE idea unless you're married, by the way), it's still a tough battle. Opposed to this population are the "lived here for years" folks who have seen their housing values increase 5-6 times over the years. They don't see any issues with the housing situation and hold steady to their bubble prices.
And so this area sees a good bit of deadlock. Both sides are rather stubborn and up against fairly solid walls. More and more college grads stack into the area, landing 55-60k per year jobs, but what's that do against a 450k rowhouse in DC or a 300k "starter" house in PG county?
As for me, I sit on the sidelines counting my hours til I can leave this hellhole we call DC. In the 6 years I've been here, I've managed to save upwards of 650k by renting the entire time with one of my good friends. I guess a 195k / year salary doesn't hurt either huh? We all make concessions and trade-offs, I'm trading a few years of my youth and enjoyment for financial security later on.
For housing prices, my views are so skewed now it's not even funny. My economic training screams that prices simply have to fall here, since the median AND mean house is 4-5x the median and mean household income. However, prices have come down an impressive 9% since peak and are headed back up.
As a side note, what do you guys see happening. I know for a fact that the gov't spending can't continue as it has been with no respective increase in tax receipts. I say this fully knowing that a cut in spending would impact my job in a hurry. Will our great leaders inflate us out of this mess through increasing the money supply (seems to be the trend in this country), or will our great leaders impose austerity requirements on us (the "Greek" method)? What do you kind folks see?
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San Francisco, CA
whats the "TI" stand for in a FHA loan?
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You are missing something. You are not comparing apples to apples as the up-front premium is going down substantially (from 2.25% to 1%). The up-front premium is typically added to the loan amount so the loan would no longer be $200,000, it would be $197,455. At 4.5% annual interest this lowers the payment to $996.74, just over $16/mo less than in your example. So instead of a 9% increase there will be an 8% one.
Also, if you put 5% or more down then the monthly premium is .85% and it is .9% for 3-5% down. It is 0.5% now.
I'm not saying your point is incorrect, just that your numbers are off.
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Austinhousingbubble says
Luckily for me it's the renters money. I haven't thrown any of my money in for a long time and have taken it back out anway. The renters don't seem all that lugubrious either come to think of it. They need to live somewhere so they are actually pretty happy to have well maintained houses in good area's.
I'm 54 with no health problems, take no medications and have no bad family history. I spend 1-2 hours every day windsurfing, surfing, or playing squash. Barring a black swan event the odds are pretty good to make 70. Thanks for your concern.
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I think it is wise that the MIP is increasing. With the low downpayment requirement (i.e. no equity at time of purchase), it is wise to have a pool to handle failures in the event prices continue to slide. I assume (but don't know) that this is also what the one time "funding fee" of 2.15% when you generate an FHA loan is slated to handle? If the government is offering "easy money", I hope at least they are (1) verifying wages / job history and (2) building in protection in case of another negative equity situation and/or rising unemployment comes to pass. I definitely don't think the increase in MIP, alone, will be responsible for another slide in prices.
I suppose this puts me in the category of those who believe prices will slide in certain areas a little more. At least in my neck of the woods I think we haven't hit bottom. Seattle area held on a little longer than other parts and started declining about a year after other areas where all the sub-primes and ARMs were most prevalent. They say prices are at 2004 levels around here now. Some people around here (like some Zillow and RedFin reps) have been calling for a 10% decline over the next year. I'm not sure it will go down that fast...but I'm counting on some decline and then sideways for quite some time. I sure as hell wish I would not have bought in 2007. At that time, I didn't see it as an "investment"....I didn't think I'd make money....I only saw it going sideways for DECADES. That would have worked out for me. I was looking to live there, not make money flipping it. However, since I am in a home worth less than I paid, I'm certainly glad that that the measures of government backed money do come with at least some protection pools of money built in so we don't repeat with another surge of home ownership driving up prices. It seems like a good balanced move by the government ---> boost demand a little (ok, a very, very little) and protect supply.
There was also a lot of talk on this thread about whether real estate is a good investment. For me, in this unsure market, I would be hesitant to enter the real estate market as a landlord unless I was very wealthy and could pay cash. I think only those with lots of cash (buying outright) have a guarantee to make money. I could only swing a 20% downpayment on ONE rental property....and like @dhmartens, I'd wonder if the expenses would kill me. I don't really agree with IWOG's budgeting schedule for the repairs. In theory, yes, that would work IF you were very wealthy and had so many rental properties that you were putting that $125 X 10 or more properties....then yeah the funds would readily be there as various issues came up. IWOG's budget looked more like an amortization of capital expenditures or a depreciation schedule than what a real life experience is like. Admittedly, he is correct OVER TIME....but you have to be able to survive the short term. To his credit, I think he pointed out that in the "beginning", your experience might be different. But the larger points made by @dhmartens and others were not lost on me: that is the small investor would have some risk in the market...FOR SURE.
Finally, I'm wondering who TheLastWord and AF are. Who knows how to check the IP addresses and compare. I do enjoy some of the back and forth drama between the regulars here. At first I was taken aback but I sense it is more just good natured?
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iwog says
Great. Let's see links to all your purchases that show the exact purchase price, exactly how much you are ACTUALLY renting them for (that means they are currently occupied and you are getting rent), and a list of all repairs, maintenance, and other expenses for each property. Right here, right now. Not "I already did" or "They're public records and you can find them". Right here, right now. Otherwise, stop blowing hot air.
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gameisrigged says
Why would I do that? Seems like a lot of work just so some internet troll doesn't call me a liar. I figure you're going to act like an ass either way so there's nothing in it for me.
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Skokie, IL
iwog says
There are no listings in the Chicago area where the asking price would leave anyone a profit if they tried to rent out the place. Your claim that housing is not overpriced clearly implies a major disconnect between asking and buying prices.
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47 male
Lafayette, CA
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My claim is only that the homes that I'm buying are not overpriced. I also believe that California housing in general is not overpriced, and that the high end areas of California are very much in line with other large metropolitan areas all over the world.
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StillLooking says
You said that in another thread, but after I repeatedly asked you for any examples you dodged me every time. I'm not in the landlord business, but I did a quick search and it looked to me like there were several properties that would rent out OK in the suburbs.
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Skokie, IL
tatupu70 says
Show me one.
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I'm still waiting for the slew of properties you know about...
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Skokie, IL
http://www.zillow.com/homedetails/2681-Sheridan-Rd-Evanston-IL-60201/3377662_zpid/
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47 male
Lafayette, CA
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StillLooking says
I know you were trying to answer tatupu, but that really does come of as a desperate attempt.
Wasn't there a $600,000 home that would work?
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47 male
Lafayette, CA
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These are probably different homes, but I have a feeling finding positive cash flow wouldn't be that difficult.
$2000+ per month rents
http://chicago.craigslist.org/nch/apa/1954686057.html
$217,000 home
http://www.zillow.com/homedetails/545-Wesley-Ave-Evanston-IL-60202/3541890_zpid/
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47 male
Lafayette, CA
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Here's a nicer one for $259,000.
If this rents for $2000 a month, it cash flows just fine.
http://www.zillow.com/homedetails/1508-Monroe-St-Evanston-IL-60202/3541660_zpid/
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Skokie, IL
iwog says
It is not likely to rent for $2000.00, my very rough guess would be $1500-1700.
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Really?--this looks pretty comparable
http://chicago.craigslist.org/nch/reb/1955221659.html
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Santa Monica, CA
robertoaribas says
Hey man, I get that there are some places that are way expensive to live, but Tempe, AZ ain't one of them. Why don't you move out of the Apartment already. Hell, house in Tempe are practically given away as Cracker Jack prizes.
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Scottsdale, AZ
robertoaribas's website
IWOG claims that many homes in the bay area are NOT overpriced??
Well, he is a crazy duck, but in many cases, I agree with him. Furthermore, most of Phoenix is not overpriced anymore. However, that fact in and of itself does not stop prices from dropping. When you have too many foreclosures, too few new jobs created, the supply/demand imbalance leads to price drops, even when the fundamentals say its a fair price.
It doesn't matter how much it costs to grow strawberries, when your grocer has a ton of them, they are going on sale. Inventory is growing. In a balanced market, it doesn't really grow much except for seasonal patterns. Foreclosures MUST be sold, in a normal market, during a slowdown, people just wait and stay in their homes. 12+% people not paying their mortgages, and California right in there as a leader on this statistic does not bode well for a market, even if it is fairly priced.
Realityless check: you are a tool. I own my home, 2300 sq ft with a pool, plus a rental, and have tons of cash in the bank thanx housing bubble!
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47 male
Lafayette, CA
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Not according to Craig's List. In fact I have an entire page of apartments that I'm looking at that rent for $1500-$1700 each in that area and the CHEAPEST 3br apartment I can find is listed for $1450.
All the SFR homes rent from $2000 up including the one I linked on the exact same street that is listed for $2150.
You're welcome to check, but I'm guessing $2000 + is the going rate for those homes.
http://chicago.craigslist.org/search/apa/nch?query=evanston&srchType=A&minAsk=&maxAsk=&bedrooms=3
Here's a typical small 3br, 2ba SFR for $2000.
http://chicago.craigslist.org/search/apa/nch?query=evanston&srchType=A&minAsk=&maxAsk=&bedrooms=3
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Skokie, IL
tatupu70 says
This is a different neighborhood where asking prices are much more optimistic. And I don't believe this one would fetch that. THere are too many three bedrooms looking for rent under $2000.00
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Skokie, IL
iwog says
If you are responding to me you are showing houses near NWU which have major high asking prices.
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47 male
Lafayette, CA
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StillLooking says
I didn't find any 3 bedrooms at all in the $1500-$1700 price range that were single family homes. They were all condos, duplexes, and apartments.
I didn't do anything to the data other than to filter it with "Evanston"
Am I missing something?
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Skokie, IL
iwog says
You are using asking prices on a single family house. Most would rather sell than rent so they can't put low asking rent price on a single family house.
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47 male
Lafayette, CA
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StillLooking says
I think we're going around in circles. I found plenty of homes in areas with $250,000 property sales renting for $2000 and higher.
I tested your hypothesis that these homes rent for $1500-$1700 and didn't find ANY in that price range. Not one.
It's true that there aren't many recent sales to research, however I'm satisfied that there's not a huge disconnect in Evanston, IL. I'm 95% sure I could find a house or two that would meet my investment requirements with interest rates at 4.5% for a 30 year loan.
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Skokie, IL
http://www.zillow.com/homedetails/9715-Woods-Dr-UNIT-605-Skokie-IL-60077/87702496_zpid/
These are renting for $1700/month
The asking price is in the 350 grand area.
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Lafayette, CA
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StillLooking says
That's a high end condo constructed 2 years ago.
Everyone understands that there are plenty of expensive homes that would not be good investments at today's rents.
I think your assertion however was that there weren't any in any market. Your exact words were "There are no listings in the Chicago area where the asking price would leave anyone a profit if they tried to rent out the place"
I'm not 100% sure you're wrong, but I'm 98% sure.
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iwog says
Why would you do that? To prove you aren't full of it, that you aren't playing fast and loose with the facts in your claim that you are making a huge profit on your rentals. Ha, ha. I KNEW it. You can't put your money where your mouth is. "Seems like a lot of work"? What, you can't post the prices you paid for your rental houses and how much they rent for? How much "work" is that? You are on this forum all day posting charts and graphs and writing long essays about your take on the housing market. You research rental rates on craigslist and post them here. But it's too much "work" to post the price you paid for your rentals and how much you rent them for? I'll make it easy for you - just post that much, forget the expenses for now. Just how much you paid for each house, how much each house rents for, and whether each house is occupied. Surely you can remember that just off the top of your head, right? You didn't forget how much you paid for the houses, did you?
Here is your claim:
"I’ve advertised my rentals on this very site. Everything about real estate is public including the purchase price. Even if I wanted to fake real estate data, I’d have no idea how to accomplish it since anyone can pull up my homes online and comparable rents on Craig’s List."
But when push comes to shove, you refuse to actually share ANY of that information with us. All you can do is call me a "troll" and an "ass". You obviously don't want us to have that information, and your claim that "anyone" can get the information doesn't pan out.
You just lost all credibility, Iwog. I don't think you're a liar; I think you exaggerate and leave out crucial details to make your claims sound more impressive than they actually are.
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gameisrigged says
Wow, you're one nasty piece of work aren't you!
All the information is in archives, just do a search of "Carey Dr." Patrick was kind enough to feature my rental at 1159 and it's currently rented for $1900 as advertised. The other homes you will find in archives rent for $2000, $1850, and $1800 per month, but that really isn't necessary since ANYONE can easily come up with average rents by searching Craig's List. All the sales prices are on Zillow. It's all there. You're either too lazy too look or just anxious to continue trolling.
I've now officially been cussed out for sharing personal information AND cussed out for NOT sharing personal information. That has got to be some sort of a record.
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You better live a long time.
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Austinhousingbubble says
See, this is what I cannot understand. These predictions of doom, if they came true, would make the Great Depression look like a mouse next to a dinosaur.
How can any of you be so damn sure that the real estate market AND the rental market are going to collapse on a scale greater than the greatest deflationary depression in history? Because there's no wage inflation during a recession? Isn't that all that's left?
I submit that there was no wage inflation during the Great Depression either, but real estate investors who bought right after the crash did just fine.
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Whoah, no doom intended. Quite the contrary; I merely find the idea of another real estate bubble in our lifetimes highly unlikely. I see that as a good thing, as I find bubble economies to be ultimately counterproductive.
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iwog says
Again, all you can do is try to deflect by calling me nasty names. What a pathetic strategy.
O.K., so you posted the rents; I don't understand why you can't just post the purchase price for each one. You DO realize that I can't just search Zillow for "Iwog's house", right? I would need to know the address. And then I wouldn't know which rent you listed corresponds to which purchase price?
If the information is "all there", why would you make me go through an exhaustive search of the forum when you know perfectly well how much you paid for the houses, and could easily just tell me? The excuse that people "objected" to your sharing information doesn't wash, my friend. You just shared all your rental prices, why are you keeping the purchase prices a secret? The only reason I can think of that you would want to play games like this is that you're afraid that if we actually see the information, it will become obvious that you have exaggerated and/or left out information about your situation.
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Dublin, CA
Cvoc13's website
iwog says
DEMOGRAPHICS, Global Price pressures on BASICS, Food and OIL, We are NOW a DEBTOR NOT a Creditor nation. My god so many reasons why don't you RE EVALUATE from scratch that is how I came to my estimates.
I am not just saying crash or down with prices to say it, or join in.
I posted on CCT blog 12.31.06 about the coming recession and was pretty close to spot on, I was low on my UE numbers and my interest rate calls, as I did not want to sound out of my mind, even though I thought I was being easy on the then to come crash.
Everyone said I was nuts to think we would see prices roll back 2000 prices and UE go to 8+% and OIL 120 (then highest was 65 or so ever seen) So to think Oil would go that high seemed impossible.
Just like housing prices going 30-50% lower from here does now... NOT SO nuts now, as that happened (not the housing YET) Housing is in a MULTI DECADE decline. USA that is.