If there are more and more postings like these, then more and more hysteria will poke holes in the NAR opinion that there is a housing shortage. We are looking at identical conditions in 2005, 3% down, speculation, rental homes as investments, Wages not moving up. If things go south, "sell it for what you paid". We sold out home we had for 14 years and we sold it 18 months ago for $245K. I cry my self to sleep because we were hoping to take our appreciation and buy something bigger, but the prices outpaced our savings. Had we held onto the home, it would have sold for $289K today. I am hoping that we are in the identical situation as 2005. I am hoping for a crash, we rent and are sitting on dry powder. Will it happen? or will I be priced out of a home and my kids and I live in some single wide?
Here are the numbers: Watch what happens to payment when rates rise and home prices dips.
Bought today 1/6/16 $280,000 Purchase @ 4% 30year Payment= $1419.00
Bought 8/6/16 $260,000 Purchase @ 5% 30year Payment= $1396.00
Bought 4/7/17 $230,000 Purchase @ 6% 30year Payment= $1379.00
Bought 9/7/17 $199,000 Purchase @ 7% 30year Payment= $1324.00
The difference is $56,000 Down vs. $39,800 Down. Interest Rates will not effect your affordability.
Why has there not been a buying activity for the Market? For the past year, anytime there has been a correction in the market, there is a buying opportunity followed. Since Monday, there have been 3 severe declines totaling more than -1000 points for the Dow. Even when job reports come out, and it's "good" the down goes further in the red today. There is only one time that I know of when this happened and that was the first quarter 2008? Can housing be tied to any of this?
TOL is down 12% as of Monday
LEN is down 11%
XHB is down 8%
TOL exec sells 41000 shares, Lumber prices decline, seems to foretell, about 12 months in advance, changes in the rate of new home sales. It is another sign of economic troubles about to befall not only the lumber market but also the rest of the economy. Sam Zell, chairman of apartment mega-landlord Equity Residential, said, â€œThere is a high probability that we are looking at a recession in the next 12 months.â€ But he said this only after heâ€™d unloaded a ton of commercial real estate: in total 23,262 apartments in five states. The deal was announced at the end of October 2015. Another 4,728 apartments are to be dumped next year. Housing and Rates are inverse.
It's all there
Can someone help shed some rational on this. Housing has been increasing because:
-Oversees Investors CHINA
-Millennials moving out of their parents house
-Low interest rates
-Strong economy and low unemployment
-Housing starts low.
-China is pulling back from US Housing according to the (WSJ)
-Millennials have too much student debt, and no down payment, let alone a full time job (FORTUNE)
-Mortgage applications plunge after rate hike (CNBC)
-China slowing economy is pulling down the US economy (BOSTON GLOBE)
-Housing Demand and Housing Starts are surging today, Housing Demand and Starts surged from 2003-2006 then crashed (BROOKINGS / NY TIMES)
The only difference is Subprime Mortgages and Mortgage backed Securities. Homes are being bought with PMI and 3% down, and speculation will allow them to refinance out of the PMI, only if values continue. But even today, HELOC's are starting to reset for people who bought and held during the Bubble 1 and this is added debt to an already stretched family who held onto their home, 56% are potentially resetting with higher, fully amortizing monthly payment.
Ponder this, Who is buying Bay Area Housing? China? Soros? Facebook? Maybe a combination of each but maybe, just maybe its a speculator millennial who is working in the tech sector. Imagine you are a Harvard Grad, just completed an intern at Google, now looking for a tech startup. You receive an offer from SnapChat, $150-200K and Stock worth $400K, but you need a place to live and no your not going to commute from Livermore. So you get a mortgage based on your education, your employment and your potential asset of $400K. But something happens, there are valuation concerns and over the next 2 years, the tech sector looses it's luster and even the owner of SnapChat goes in-front of the camera stating his company is "over valued", next thing is that employment ebola sets in and people start loosing their jobs. Now that grad is working at Sneaker Shack or Home Depot just trying to put grub in the refer. Hopefully they can refinance and live off the equity until that next awesome tech job comes calling, maybe they can dump the home for 30% over sale price and live off the diff in a cottage on the ivory coast while consulting through dial-up? Bottom line is that when the lights go out in these million $ crap shaks throughout SF, many techies are reaching for a shot NyQuil just to sleep, because being highly leveraged in a fight or flight industry isn't bliss. Add to it a 2016 10% drop in NASDAQ and it's a double shot. I bet you, they are thinking exactly what you are writing.
The #1 reason why people are contributing to this discussion is because they want to own a home, make the payments and not loose it!!! For some real bad bad reason, we bought at the peak of 2005. No big deal, but our loan sucked because we did a 5:1 arm. The goal was to sell when opportunity in the job presented it self. Well it did, the house could not sell and the rent we wanted would cover half the mortgage. The dam thing sucked out our cash. Finally short sold the thing, we needed a buyer who's low ball offer would be accepted by the bank. Unbelievable to think that your "house" could drop 35-40% in 6-8 months. We lost the down payment we saved, subsidized mortgage payments, we even contemplated walking away and looking back, we would have saved about $25K if we did. Now we rent and have been renting and saving and renting. Some say, "you'll never see that rent money again", Heck, loosing $200K is much worse. So do we do it all over again, or wait, because our rent is now going beyond what we planned? I think I'm going to give $19.00 to the Wounded Warrior Project and stop my bitching.
Does anyone know what the "Wile Coyote" reference mean. Below is an example, it's mentioned in a number of Economic Blogs. I just didn't watch that many cartoons as a kid. This is from Mark Hanson (who worked for Fannie Mae, Freddie Mac, FHA, VA) .
Already passed the â€œWile E. Coyote momentâ€ and simply awaiting gravity, like we are seeing play out right now in Houston, leading-indicating South FL, and several other key regions;
Oh! (that's quite a visual)
Housing will slow, then it will stop, then it will drop;
Regardless of what others think, even if subprime lending is over, and there are shortages of houses and there is strong demand for homes, the global economy is facing situations that may Trump the mortgage meltdown that "lead" to the recession. In the Bay Area, there are money making tech companies, then there are venture capital supported companies. Both are slowing. Google's spin off, is not making money. Apple is down nearly 35% over the past 52 weeks. IPO's are delayed. Then there's banking. Negative interest rates mixed with defaults in energy sectors. Then there are the 8 year car loans and college loan collapse. China banks keeping the buying power of their dollar down, money fleeing emerging markets, a 7 year supply of cheap oil sitting on barges looking for a port, and finally the 20 foot wall spanning the south west which will be built in 2018. Foreclosures in LA, ND, AL, LA, TX are growing. The BayArea does not self sustain itself. Speculation has driven up prices where cost to income ratios are beyond 2008. Employment usually drives home prices and China is not buying the RE that it did. This is the first time in a ling time that Gold is up week over week 15%.
What causes a person to default on a home loan? Usually income, but worse, it's when one person sells their home, then another and another, then people fear that values will not increase and sales slow, then homes sit, then homes go into default. Then people dump their homes because they are never going to refinance out of that $350 monthly PMI. This is all due to employment/income. Not all SF homes are paid for by cash, not with a 20% down, nor by investors. Tech can move anywhere in the USA, and it will flee if it needs to. In 2005-2006 there was exuberance, and confidence. Very few economists were predicting the "crash", If so, we only read about it now. The USA Today under every hotel door headlined "housing shortage". The global economy is worse, in 2008 interest rates were 5.75%. Today there is no where they can go. Housing will drop by 2017 and will crash by 2018. People will be pitching in and co-habitating, trimming costs. People will feel a big pinch, and regardless of their industry, Tech, Banking, Manufacturing, Sales, Services, Construction etc. every one will be effected.
I am afraid your right BACH. Economists who claim to predict the 2008 economic collapse tout the heck out of the 8 ball wisdom prediction in every book they publish. There are very very few web pages that date back to 2005-6. One cannot go back and verify. The things I write about are basically Buying Opportunities for folks who can afford to dollar cost average into their retirement acct. For someone wishing to swoop up a home for 40% less than the current price is a pipe dream. In 2024 it will happen again, when the average US home is at 650K then drops to 480K That same home sells for 275K now. Looks like I will be living in the garage for longer than expected.