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Triggers for a Housing Correction

By BayArea following x   2018 Mar 4, 6:49am 3,171 views   62 comments   watch   sfw   quote     share    


Hi guys,

Given that there is no subprime lending crisis like there was over a decade ago, any housing correction would come elsewhere.

What are the possible triggers:

Interest rate hikes - heard of plans to raise rate 4 times in 2018

New tax plan - in Jan and Feb I’ve seen absolutely no slowdown or concern with reduction in tax benefits

Recession or stock market correction

War

Natural Disaster - massive earthquake would certainly shake things up in the Bay Area (no pun)

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23   bob2356   ignore (1)   2018 Mar 4, 6:13pm   ↑ like (0)   ↓ dislike (0)   quote        

Strategist says
bob2356 says
You forgot the real 2008 problem. Overpriced housing with overstretched borrowers. Many markets are/have returned to that with creative financing creeping back


That was 2008, this is 2018. Homes are more affordable now, and those 2008 lending conditions do not exist anymore.
Home prices being overpriced or underpriced are in the eyes of the beholder. My eyes say, home prices are underpriced.


I for one am far from a housing bear. I've been buying steadily for 6 years now. But I'm getting out of Vegas for sure, it's getting frothier by the day. Moving into markets that are undervalued and not changing much.

So people are putting almost nothing down and paying PMI because they enjoy paying extra? Non bank mortgage lenders with pretty loose criteria are growing like mad because people have such secure credit and financial situations? Housing in most major markets have blown way past traditional rent to purchase ratio's because they are underpriced? How does all that work?
24   bob2356   ignore (1)   2018 Mar 4, 6:17pm   ↑ like (0)   ↓ dislike (0)   quote        

BayArea says

But what's interesting is that we've seen plenty of vacant homes in our neighborhood bought with foreign money where the owner is banking on the equity growth. The ones that bought in the last several years are making a killing on their unoccupied homes (at least on paper). It's amazing, truly.


How did you determine the citizenship of the buyers of "plenty" of houses? That's amazing, truly.

The foreign buyer boogey man keeps popping up time and time again. Yet the percentage of real estate owned by foreigners has remained the same for decades.
25   MrMagic   ignore (9)   2018 Mar 4, 6:29pm   ↑ like (1)   ↓ dislike (0)   quote        

goat says
Sniper says


I've also looked at all my neighbors and many have refied and done cashouts on houses they've been in for decades.


How do you find this out? Do you have access to non-public data?


Deeds and mortgages are public records available online at the county clerk's office.
26   BayArea   ignore (0)   2018 Mar 4, 6:49pm   ↑ like (1)   ↓ dislike (0)   quote        

bob2356 says
BayArea says

But what's interesting is that we've seen plenty of vacant homes in our neighborhood bought with foreign money where the owner is banking on the equity growth. The ones that bought in the last several years are making a killing on their unoccupied homes (at least on paper). It's amazing, truly.


How did you determine the citizenship of the buyers of "plenty" of houses? That's amazing, truly.

The foreign buyer boogey man keeps popping up time and time again. Yet the percentage of real estate owned by foreigners has remained the same for decades.


Because I know the realtors personally who sold the houses. Got it Bob? Still amazing?
27   Strategist   ignore (1)   2018 Mar 4, 6:55pm   ↑ like (1)   ↓ dislike (0)   quote        

bob2356 says
I for one am far from a housing bear. I've been buying steadily for 6 years now. But I'm getting out of Vegas for sure, it's getting frothier by the day. Moving into markets that are undervalued and not changing much.


I'm certain any home buying strategy will work well as long as home prices keep going up. I'm biased towards high end California properties, but looking into Hawaii too. I don't have a ton of money, but I have a bunch of vacant lots in the Puna district of Big Island Hawaii. I was there all of last week, looking into building something. Airbnb is booming like crazy out there. I could easily build 4 plexes on some of the lots and rent it out to vacationers. Building cost if you use a contractor is $150.00 per square foot. Don't expect good quality California type of construction.
Just imagine.....four 800 sq ft cabin like homes in a heavily forested 1 acre lot, walking distance to the ocean. You will easily get $125 per night per cabin for 15 days a month. That's roughly $80,000+ per year, with a construction cost of almost $500K. Add $80,000 for the lot, and your total payback ends up being 7 years. Do this on two or three lots, and you churn out one helluva profit plus appreciation. It's best to manage it yourself, or someone you can trust.
I talked to contractors, home owners, airbnb landlords, those in the middle of construction, and those who recently completed construction. The numbers very conservatively matched what I stated.
Imagine living in Paradise and making a good living at the same time.
28   WookieMan   ignore (0)   2018 Mar 4, 7:13pm   ↑ like (0)   ↓ dislike (0)   quote        

Sniper says
Not going to happen.


Cool. Then we're all fucked. An entire generation won't be buying houses. I feel bad for older people because then there's not a chance in hell they can sell the complete garbage they built in the 90's, when they were what, 35 years old and so much more advanced then Millennial's who are just now starting to hit 35 on the front end.

So the values on the old folks homes will plummet, stocks will plummet and unless someone's retirement is all in cash (which $ value will also crash), they'll be broke in pretty short order. Sounds like the future is pretty bleak for old people and young people combined. Good thing we were raised so well.

Sniper says

Deeds and mortgages are public records available online at the county clerk's office.


Deed and mortgages are public record and generally searchable, so correct. How would you determine on a mortgage or deed document if it's FHA or not? Just searched some I know are FHA in my area, there's no indication of down payment or type of loan. If you have a link to the site in your area I'd love to see the different public documentation displaying down payment and type of loan (fannie, freddie, fha, private, etc).
29   HowdyThere   ignore (0)   2018 Mar 4, 7:14pm   ↑ like (0)   ↓ dislike (0)   quote        

Strategist says
Nope. Interest rate hikes have happened lots of times before. Rising rates does not cause a housing correction.


Rising interest rates are looking to be a significant factor in popping the Toronto/Vancouver markets.
30   Strategist   ignore (1)   2018 Mar 4, 7:25pm   ↑ like (0)   ↓ dislike (0)   quote        

HowdyThere says
Strategist says
Nope. Interest rate hikes have happened lots of times before. Rising rates does not cause a housing correction.


Rising interest rates are looking to be a significant factor in popping the Toronto/Vancouver markets.


Rising rates, especially steep increases in a short period of time, can slow a housing market. A housing crash or a correction will require a severe recession.
31   MrMagic   ignore (9)   2018 Mar 4, 8:00pm   ↑ like (0)   ↓ dislike (0)   quote        

WookieMan says
How would you determine on a mortgage or deed document if it's FHA or not? Just searched some I know are FHA in my area, there's no indication of down payment or type of loan.


The deed shows the purchase price, the filed mortgage shows the financed amount. Doing the quick math, I see they put approx. 3% down.
32   MrMagic   ignore (9)   2018 Mar 4, 8:00pm   ↑ like (0)   ↓ dislike (0)   quote        

WookieMan says
Cool. Then we're all fucked. An entire generation won't be buying houses. I feel bad for older people because then there's not a chance in hell they can sell the complete garbage they built in the 90's, when they were what, 35 years old and so much more advanced then Millennial's who are just now starting to hit 35 on the front end.


Yes, we are fucked.

Millennials will be renting for a lot longer.

The U.S. housing market continues to move ahead, but a generation of homebuyers is being left behind.

Homeownership rates have fallen across all age groups since the housing collapse in 2009, but the biggest drop has been among the millennial generation.

Burns predicts the homeownership rate will continue to fall through 2025. Which means that millennials will be renting for a lot longer than their parents' generation did.


Today, with mortgages harder to get and memories of the housing bust fresh in buyers' minds, the homeownership rate among 25–34-year-olds has fallen to just 39 percent.

https://www.cnbc.com/2016/09/09/millennials-will-be-renting-for-a-lot-longer.html
33   WookieMan   ignore (0)   2018 Mar 4, 9:08pm   ↑ like (0)   ↓ dislike (0)   quote        

Sniper says

The deed shows the purchase price, the filed mortgage shows the financed amount. Doing the quick math, I see they put approx. 3% down.


Are you looking around your house or some other area? While the search itself is most certainly simple, you're not aggregating enough data to come out with any true trend searching on a clerks or recorder of deeds site. I'm in a small town, but for me to search all 800 or so residential addresses to figure out the mortgage and purchase price based on these records would take probably 40 hours or so of work and probably much more. Also assuming that data is accurate. That's just my one small town and does not represent a trend by any means, anywhere else in the country.

It's fine you live in an area with primarily FHA loans, but that doesn't translate across the country. You're also in NJ which is high property tax and I believe income tax. So why would anyone with a brain sink a huge down payment into a home in that area? Leverage is king in a high COLA area when you can dump and run if you don't want to pay your mortgage.

Not going to give away my work life here, but haven't seen an FHA loan closed in 3 years on 60 properties roughly. Again, this doesn't represent a trend either, but there are two sides to the market. Be wary of any media or publication that "tells" you what is going on with the market. FHA buyers are the offers of LAST resort on almost any property. Their offers aren't worth the paper they're printed on unless it's a desperate seller or a ghetto.
34   just_passing_through   ignore (0)   2018 Mar 4, 9:46pm   ↑ like (1)   ↓ dislike (0)   quote        

Strategist says
You will easily get $125 per night per cabin for 15 days a month.


Given my 8 month experience leasing out a condo on Maui via VRBO (and shared knowledge from friends who've done so) that sounds reasonable. If you're not on the water I wouldn't raise that estimate much though. (days or price)

Hawaii is one place you can do good business year around with phenomenal business during the high season. I wish I could pick up a beach condo here in San Diego for short term rentals but it would sit empty half of the year...

Airlines are in a price war with respect to HI lately as well.
35   MrMagic   ignore (9)   2018 Mar 4, 10:49pm   ↑ like (0)   ↓ dislike (0)   quote        

WookieMan says
Are you looking around your house or some other area? While the search itself is most certainly simple, you're not aggregating enough data to come out with any true trend searching on a clerks or recorder of deeds site.


I first looked around at my neighborhood and neighbors, just for the hell of it to see where everybody is at. All the actually deeds and mortgages are recorded, so it's easy to pull them based on name, lot/block, or whatever.

WookieMan says
Also assuming that data is accurate.


It's the hard copy deeds and signed mortgages, they're accurate.

WookieMan says
That's just my one small town and does not represent a trend by any means, anywhere else in the country.


My town is small too, and I've been following the real estate sales for four years, since I moved here. I've been watching certain areas where we looked originally, watched what some flippers were buying and selling, and other houses of interest. No, it's not 800 houses, but all the ones that have sold in this area of the town in the last few years, so it's an accurate cross section.

WookieMan says
Not going to give away my work life here, but haven't seen an FHA loan closed in 3 years on 60 properties roughly.


Why do you base everything going on across the country on what's going on in your neighborhood? You seem to think if it's not happening in your backyard, it doesn't happen anywhere.

WookieMan says
You're also in NJ which is high property tax and I believe income tax. So why would anyone with a brain sink a huge down payment into a home in that area?


They're not, that's what I've been saying. They don't have the money. I finally saw one house that sold two weeks ago where the guy put down 20%. That's a rareity.

WookieMan says
Leverage is king in a high COLA area when you can dump and run if you don't want to pay your mortgage.


Is that the criteria and plans when buying today? Put down the minimum so you can cut and run and fuck the bankers? Sounds like some questionable morals. I guess people in your world aren't buying houses to secure their future and families and have a nice place to live long term. Strange on how things change with different generations.
36   ThreeBays   ignore (0)   2018 Mar 5, 12:29am   ↑ like (0)   ↓ dislike (0)   quote        

Sniper says
I track a bunch of houses sold in my area and look up the mortgages. By far, the majority are all going 3.5% down, FHA loans. Hardly any are putting down any substantial down payments. Plus, these new loans carry PMI for the life of the loan, unless they refi down the road.

These people are underwater the minute they walk into the house. Plus, the appreciation in the area has been marginal at best, so they're not playing the high leverage game to maximize their equity. Prices have moved sideways for many years.

This tells me that people are really stretched financially, and aren't saving money. Any downturn in the housing market, and all these people are screwed and underwater.

I've also looked at all my neighbors and many have refied and done cashouts on houses they've been in for decades. So any downturn and all these people will be underwater on houses they've lived in for a long time. Plus, if they are planning on using equity for retirement, they're fucked!


Here in the Bay Area, I've been tracking sales near my home and I haven't seen so much competition in years. Prices are on track to climb over 15% this year. Buyers are very well qualified, that bid far over asking with no loan contingencies.
37   Malcolm   ignore (1)   2018 Mar 5, 7:33am   ↑ like (0)   ↓ dislike (0)   quote        

The State’s Keep Your Home commercials are literally running in every commercial break this morning.

“Julio can get up to $100,000 for mortgage assistance.’
38   dr6B   ignore (1)   2018 Mar 5, 8:10am   ↑ like (3)   ↓ dislike (0)   quote        

FortWayne says
We really should not allow foreign money to own American land.

Impossible to define what is American money vs. foreign money these days. Foreign company will incorporate in Redneck Paradise, NV and will buy as much as they want.
A more realistic solution would be to have minuscule or no taxes on ONE house per family (declare homestead and have to live there), but much, much higher tax on next property someone owns. May be a cap on tax exemption for the homestead as well so that some Hollywood type would not be able to avoid tax on $100M mansion.
39   Strategist   ignore (1)   2018 Mar 5, 9:41am   ↑ like (0)   ↓ dislike (0)   quote        

just_passing_through says
Airlines are in a price war with respect to HI lately as well.


Southwest is starting flights to Hawaii this year. That will really bring down prices with cut throat competition. Awesome.
40   rootvg   ignore (0)   2018 Mar 5, 9:52am   ↑ like (0)   ↓ dislike (0)   quote        

bob2356 says
You forgot the real 2008 problem. Overpriced housing with overstretched borrowers. Many markets are/have returned to that with creative financing creeping back.. When, not if but when, the economy goes south there will be a crash. Bonus points, the deficit will soar to 2t or higher. Good to have the party of fiscal responsibility in charge.

When Trump gets his second term, we'll have another downturn. For sure. The lesser of the Millenials will get shit hammered by it.

My wife and I are preparing now, given that the Fed says we could see even more rate increases this year than the predicted three. I'm thinking five.
41   rootvg   ignore (0)   2018 Mar 5, 10:08am   ↑ like (0)   ↓ dislike (0)   quote        

ThreeBays says
Sniper says
I track a bunch of houses sold in my area and look up the mortgages. By far, the majority are all going 3.5% down, FHA loans. Hardly any are putting down any substantial down payments. Plus, these new loans carry PMI for the life of the loan, unless they refi down the road.

These people are underwater the minute they walk into the house. Plus, the appreciation in the area has been marginal at best, so they're not playing the high leverage game to maximize their equity. Prices have moved sideways for many years.

This tells me that people are really stretched financially, and aren't saving money. Any downturn in the housing market, and all these people are screwed and underwater.

I've also looked at all my neighbors and many have refied and done cashouts on houses they've been in for decades. So any downturn and all these people will be underwater on houses they've lived in for a lon...

Fortunately, we are in a situation where we can work almost indefinitely. My wife and I were just talking about that. If someone left us with $4M net worth after taxes today, I don't think very much in our lives would change. Yes, we would be debt free with not a financial worry in the world but we would still work. I would work for sure although possibly incorporate a certain hobby I have into the business. Screw the Cessna. I want a Mooney!

https://www.controller.com/listings/aircraft/for-sale/23975309/1992-mooney-m20j-mse
42   rootvg   ignore (0)   2018 Mar 5, 10:13am   ↑ like (0)   ↓ dislike (0)   quote        

BayArea says
Hi guys,

Given that there is no subprime lending crisis like there was over a decade ago, any housing correction would come elsewhere.

What are the possible triggers:

Interest rate hikes - heard of plans to raise rate 4 times in 2018

New tax plan - in Jan and Feb I’ve seen absolutely no slowdown or concern with reduction in tax benefits

Recession or stock market correction

War

Natural Disaster - massive earthquake would certainly shake things up in the Bay Area (no pun)

There has to be a correction here...soon. The last one didn't take us down anywhere near what we need to heal the market.

It'll be a combination of rates and the new tax law. That's a slow burn.
43   rootvg   ignore (0)   2018 Mar 5, 10:15am   ↑ like (0)   ↓ dislike (0)   quote        

Sniper says
WookieMan says
Are you looking around your house or some other area? While the search itself is most certainly simple, you're not aggregating enough data to come out with any true trend searching on a clerks or recorder of deeds site.


I first looked around at my neighborhood and neighbors, just for the hell of it to see where everybody is at. All the actually deeds and mortgages are recorded, so it's easy to pull them based on name, lot/block, or whatever.

WookieMan says
Also assuming that data is accurate.


It's the hard copy deeds and signed mortgages, they're accurate.

WookieMan says
That's just my one small town and does not represent a trend by any means, anywhere else in the country.


My town is s...

If you live in the SF Bay Area and are dealing with the economic conditions here, morals aren't a priority. They just aren't.
44   WookieMan   ignore (0)   2018 Mar 5, 12:00pm   ↑ like (0)   ↓ dislike (0)   quote        

Sniper says
Why do you base everything going on across the country on what's going on in your neighborhood? You seem to think if it's not happening in your backyard, it doesn't happen anywhere.


I wasn't talking about my backyard. These are sales in the metro Chicagoland region that I've had a hand in, in some way without being specific about what I do. These are 90% owner occupied properties as well. Some of them are over the FHA loan limit for sure, so those don't qualify. So I'd say it's 70% that could have easily qualified for an FHA loan (condition and price). There were FHA offers on these for sure, but sellers just don't want to dick with them and they weren't necessarily the best offers.

I work with brokers is about as far as I'll go, and they HATE FHA loans with a passion. I honestly haven't even kept up with what the FHA guidelines are because I see so few of them and brokers avoid them like the plague. They close for sure, but for another 1.5% down, you're into conventional territory without the hassle of a FHA appraisal/inspection which nitpicks some pretty stupid shit just to get a loan.

Also 9 out of 10 times a listing broker will let the FHA offer sit there in hopes they'll get something else. This does translate across the country. So that's I guess why I'm surprised your area has a high percentage of FHA loans. Maybe in different parts of the country they're more prevalent, I'm just not seeing any FHA loans around me since it's nominally more difficult to save up say $4,500 additional on a $300k house and not use an FHA loan and have a much better chance of closing.

All this said, FHA loans aren't necessarily bad. Smart people can use them to their advantage.

Sniper says

It's the hard copy deeds and signed mortgages, they're accurate.


Of course. I think almost any county either has to or has been reporting this stuff for a while. Deeds and mortgage recordings don't necessarily give the full picture of the financing used though is kind of what I was getting at. There can be credits that wouldn't be shown in the mortgage but were used to pay for other things. May not show up as X% of equity, but that's money received that's not accounted for on a deed or mortgage document. The credit can be up to 6% of the purchase price on FHA. So it doesn't lower the loan amount, but does lower the cost of ownership. They could sink the savings back into extra principle payments and easily be at 10% equity in 12 months if they wanted.

Sniper says
Is that the criteria and plans when buying today? Put down the minimum so you can cut and run and fuck the bankers? Sounds like some questionable morals. I guess people in your world aren't buying houses to secure their future and families and have a nice place to live long term. Strange on how things change with different generations.


I wouldn't call it a criteria, people are just aware that there's an out now more then they would have in the past. I'd venture to guess almost everyone knows someone that short sold, foreclosed or did a deed in lieu. These people that went through this process are likely 45 and older, so apparently we're learning from the best. I'm personally not saying it's right or wrong as each situation in those circumstances could have had valid reasons to do what they did, given the economy was fucked, by who other then themselves. Not my place to judge though. People are more aware now is what I was getting at.

And no, people in my world aren't trying secure their future and their families by owning their primary residence. Anyone that talks to me about equity in their primary residence I almost always immediately tell them to put $0 in that column. When your home becomes an investment, you're much more likely to lose in the end thinking you're going to have something there at retirement. Almost ZERO people buy their house and pay it off. Factor in refinances and most people are going to have little equity anyway. Get a house that is cheaper then rent in your area, that you like and understand that you should only plan on getting your principle back, maybe, when you go to sell. Consider the interest and home repair/updates your rent.

I think previous generations have taught others some fallacies about housing and it somehow being an investment. Sure, it's works out in a few cases. But most the time it doesn't. Fact is, if I could buy a $300k house with an FHA loan and if the payment was cheaper then rent in the area, why would you put more down? You're better off in most cases taking the difference of 16.5% on the down payment and investing that elsewhere with much more predictable returns.

I'd bet good money that 90% of people that buy a $200k house with an FHA loan versus 20% down conventional, invest the 16.5% down payment ($33k) difference in index following funds, will end up with more money in the end all other things being equal (jobs, income, etc). Do this for 30 years until the house is paid off. FHA buyer will almost always end up ahead investing that $33k in stocks versus sitting in their house. And they still got the same house! You can write off the MI and the extra interest on your taxes, so the difference in payments isn't that far off either. Consider it a margin loan payment that you're getting for really, really cheap.

My long rant aside. You're likely right that if there are more FHA borrowers out there, it's likely to do with the fact that they can't save up the down payment or have poor credit. But just because FHA is used (which I'm personally not seeing a whole lot of) doesn't give the full picture. Even in lowly IL, the buyer profile is extremely solid for the most part as far as finances and down payment go.
45   bob2356   ignore (1)   2018 Mar 6, 11:16am   ↑ like (0)   ↓ dislike (0)   quote        

How much good money would you like to bet? I would bet that 99% of people taking FHA don't have 40k for a 200k house so the idea of them putting it the stock market is just fantasy. That's why they are taking FHA in the first place. I notice you skipped PMI in your calculations. As well as what percentage of people buying a 200k house are actually using MID ( not many). How about income tax on investments? Want to compare interest paid on a 30 year vs 15 year?

Your analysis lacks a lot of factors.
46   NuttBoxer   ignore (2)   2018 Mar 6, 11:18am   ↑ like (0)   ↓ dislike (0)   quote        

BayArea says
Given that there is no subprime lending crisis like there was over a decade ago


I still see lenders for ARM and zero down mortgages. So there are still people gambling against future equity they may, or may not ever get.
47   bob2356   ignore (1)   2018 Mar 6, 11:25am   ↑ like (0)   ↓ dislike (1)   quote        

BayArea says

Because I know the realtors personally who sold the houses. Got it Bob? Still amazing?


Sure right How many realtors do you know personally and how much time do you spend discussing each of their sales? Uh huh. How many did you say plenty was again? Out of how many?
48   Ironworker   ignore (0)   2018 Mar 6, 11:50am   ↑ like (2)   ↓ dislike (0)   quote        

Bay Area is turning into a shithole.

Traffic, crime, terrible service everywhere, dirty bathrooms in public parks, drugs, angry Neighbour’s, tired overworked overmortgaded people, expensive daycares.

It’s only a question of time people will realize that it’s just not worth paying lifelong for huge mortgage, slave and hustle for it and than die. I see most of my friends living like this and slowly getting tired of it.

Life too short for it. You won’t take it with you. Smart are leaving already.
49   WookieMan   ignore (0)   2018 Mar 6, 4:33pm   ↑ like (1)   ↓ dislike (0)   quote        

bob2356 says
Your analysis lacks a lot of factors.


Nope. They're all there, just jumbled up. I'll try to clarify.

WookieMan says
My long rant aside. You're likely right that if there are more FHA borrowers out there, it's likely to do with the fact that they can't save up the down payment or have poor credit


Clearly I understand MOST FHA buyers don't have the funds to throw 20% at a property.

WookieMan says
All this said, FHA loans aren't necessarily bad. Smart people can use them to their advantage.
WookieMan says



I'd bet good money that 90% of people that buy a $200k house with an FHA loan versus 20% down conventional, invest the 16.5% down payment ($33k) difference in index following funds, will end up with more money in the end all other things being equal (jobs, income, etc). Do this for 30 years until the house is paid off. FHA buyer will almost always end up ahead investing that $33k in stocks versus sitting in their house. And they still got the same house!


I may not have originally put everything in proper order in the comment. I got ranting, but I don't think what I'm stating in the last quote is incorrect by any stretch. There's a reason there's a LOAN LIMIT on FHA loans. Rich people could use them to their advantage. If anyone thinks it's about poor people (loan limits), get real. The median family income is 50 something thousand. How the fuck are they even saving up $3,500 plus closing costs on a $100k house. It's not happening. My $200k example makes perfect sense and makes even more sense as the loan value goes up.

My argument was that I'm not seeing that many FHA loans (if any) in my anecdotal experience (which is likely more then most) in my metropolitan region. I was never arguing most FHA borrowers could put 20% down (they can't). Most should just pony up the extra 1.5% (total 5%) to get rid of the dumb ass appraisal "inspection" that is looking for missing hand rails, window screens and drain covers.

That said, if you're near the max loan amount ($625k-ish in high COLA's) AND could technically afford or have 20% down, FHA has it's advantages at only 3.5% down versus 20%. You're borrowing the rest of the down payment, but can diversify it into stocks outside of your home. Hell, you could hold the remaining 16.5% in cash and wait for the right opportunity. You would have to sell or refinance the house to recapture that 16.5% additional down back. That's assuming the value of your house doesn't go down. I'll take liquid cash, not tied up in my primary house 9 out of 10 times.

I don't know, I guess let's play it out, $25k tied up in my house and I get to keep the other $105k and invest as I see fit in much more liquid assets on a $625k FHA loan. Or throw close to $130k into a house to slightly lower a payment for someone at that price point? The cost to finance that $105k is roughly $550/mo (with PMI). You're still paying down principle and this big a loan is almost certainly using the MID unless this person makes zero money somehow and pays next to nothing in property taxes. So you're getting to keep your $105k at probably closer to $350-$400/mo. That's cheap borrowing costs.

You can easily hit $400/mo on $105,000 invested in other more liquid assets. You should easily be able to beat it in index funds over the life of a 30 year loan. And that's just it, my scenario isn't realistic for most people, but it doesn't make what I'm saying invalid. A wealthier person, that's good with money, is much better having a higher house payment and putting the rest of that down payment into other investments. If you're good with money, have solid employment stability, I'm not sure how anyone could disagree with this idea.
50   Hircus   ignore (0)   2018 May 16, 7:54am   ↑ like (0)   ↓ dislike (0)   quote        

Strategist says

Just imagine.....four 800 sq ft cabin like homes in a heavily forested 1 acre lot


Have you considered building tree houses? I noticed they tend to have very high occupancy rates over there, and change premium prices. And, it makes sense why - a tree house sounds awesome for the family Hawaii vacation.

Where did you get your occupancy rate + price data? I started looking at airbnb / vrbo calendars, but worry about mistaking owner occupied / maintenance days for occupancy. I just stumbled upon airdna.co, which looks pretty awesome, but I haven't forked out the dough for it yet.
51   mell   ignore (1)   2018 May 16, 7:59am   ↑ like (0)   ↓ dislike (0)   quote        

Ironworker says
Bay Area is turning into a shithole.

Traffic, crime, terrible service everywhere, dirty bathrooms in public parks, drugs, angry Neighbour’s, tired overworked overmortgaded people, expensive daycares.

It’s only a question of time people will realize that it’s just not worth paying lifelong for huge mortgage, slave and hustle for it and than die. I see most of my friends living like this and slowly getting tired of it.

Life too short for it. You won’t take it with you. Smart are leaving already.


Agreed. You can still live decently on the outskirts by ocean beach but most of inner SF literally has turned to shit. Only a matter of time.
52   Patrick   ignore (0)   2018 May 16, 8:14am   ↑ like (1)   ↓ dislike (0)   quote        

FortWayne says
We really should not allow foreign money to own American land.


Australia and Canada allow foreign ownership, but have been raising the surcharge on foreign purchases, up to 20% now in Canada I think.

That's not a bad idea. Discourages the Chinese speculators/launderers (lol, there must be a good "Chinese laundry" pun in there") and also provides revenue.
53   Hircus   ignore (0)   2018 May 16, 8:15am   ↑ like (0)   ↓ dislike (0)   quote        

just_passing_through says
Given my 8 month experience leasing out a condo on Maui


Glad to hear it's still going well for you, I remember you mentioned that condo a while back.

What's your typical visitor length of stay? Like, 1 week? I'm trying to gauge how many times a month I'd have to clean and prep the place. Like Strategist, I'm leaning towards the Big Island because it's so cheap over there and it puts me at ease getting my feet wet with less $ at stake.
54   mell   ignore (1)   2018 May 16, 8:16am   ↑ like (0)   ↓ dislike (0)   quote        

Patrick says
FortWayne says
We really should not allow foreign money to own American land.


Australia and Canada allow foreign ownership, but have been raising the surcharge on foreign purchases, up to 20% now in Canada I think.

That's not a bad idea. Discourages the Chinese speculators/launderers (lol, there must be a good "Chinese laundry" pun in there") and also provides revenue.


Agreed instead of raising taxes on the citizens, levy a foreigner non-resident surcharge.
55   Patrick   ignore (0)   2018 May 16, 8:17am   ↑ like (0)   ↓ dislike (0)   quote        

Another interesting idea: the Chinese property market is wobbly, having been overheated for so long. When it goes down, the Chinese speculators in US, Aussie, and Canadian property may get wiped out and stop buying here, or sell.

Or perhaps it could go the other way for a while, as powerful Chinese panic and do whatever they can to buy foreign assets out of the control of their government.
57   edvard   ignore (2)   2018 May 16, 8:30am   ↑ like (0)   ↓ dislike (0)   quote        

We've come full circle. I was on this site a loooooonnngggg time ago, as in back in around 2006-2007 or thereabouts. The crash came, I lost my job for 4 months, got a job ( finally ) and watched the market. A few unexpected and annoying things happened:

1: Foreclosures got bought up by investors quickly meaning the bottom of the housing market was kept elevated
2: Prices fell, but gradually
3: People were scared of buying and homes around us sat unsold for 6+ months or more.
4: And then at some point in say- 2010-11 interest rates fell
5: We bought at that time. The house we bought was about 45% of what it had been at the height of the boom

We are now right back to where we were 10 years ago. Prices are now unsustainably high.
I suspect we're in for a recession in one year or less. As such that will be the trigger for housing prices to stagnate and fall.

Wash, rinse, repeat...
58   FNWGMOBDVZXDNW   ignore (2)   2018 May 16, 8:51am   ↑ like (0)   ↓ dislike (0)   quote        

I'm also inclined to think that the buzz of the tax cut and optimism will wear off, and we will be left with a recession with a housing correction. There would obviously be a stock market correction preceding the housing correction, so anybody who remains long in stocks with no cash reserves will not be able to benefit from the low house prices, because they would have to sell stocks at a low point to do so.
59   edvard   ignore (2)   2018 May 16, 8:58am   ↑ like (0)   ↓ dislike (0)   quote        

I don't think the tax cut has anything to do with it. The market is simply at its peak and due to a natural correction.
60   Hassan_Rouhani   ignore (2)   2018 May 16, 9:01am   ↑ like (0)   ↓ dislike (0)   quote        

FNWGMOBDVZXDNW says
correction preceding the housing correction


Why is it "obvious" that corrections will happen in this particular order and not in reversed like the last time around?
62   NuttBoxer   ignore (2)   2018 May 16, 11:23am   ↑ like (0)   ↓ dislike (0)   quote        

BayArea says
Given that there is no subprime lending crisis like there was over a decade ago


Maybe you missed this article, from two years ago

https://www.zerohedge.com/news/2016-06-15/subprime-mortgage-back-its-2008-all-over-again

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