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The New U.S. Housing Crisis

By Patrick following x   2018 Apr 29, 3:10pm 755 views   9 comments   watch   sfw   quote     share    


https://www.fool.com/investing/2018/04/25/the-new-us-housing-crisis-is-about-more-than-a-lac.aspx

While many people still think that the last housing crisis in the United States was largely due to banks offering too many subprime mortgages, it's now clear that wasn't actually the case. Instead, recent research pins the blame on house flippers and speculators, who pumped markets up, then defaulted in large numbers when they were unable to turn a profit on their investment properties. ...

A stagnant construction market with limited resales pushes prices upward for whatever homes do come on the market. That's great for sellers looking to exit home ownership, but it's bad for buyers looking to enter the market. Couple that with the presence of speculators and flippers in the market, and you have a recipe for another housing crisis.

At this point, in many markets across the country, the only way to buy a home is to overpay. That's not too terrible if the economy stays strong and your wages rise. If, however, the economy slows, or your personal situation gets worse, or wages stagnate, committing too much of your household income to a mortgage can lead to you defaulting.

What should you do? The simple answer to this puzzle is to only buy a house you can comfortably afford. That may mean getting less than you want, or waiting until the market changes or your finances improve.

For some people, that means not buying yet. It may be a bitter pill to swallow, but it makes more sense than risking your financial future by over-leveraging yourself. If you can't afford the kind of home you want, bide your time, and save your money. Being able to put down a large cash deposit puts you in a stronger position with sellers, and might help you win a bidding war.

Before buying a home, make a realistic budget that considers the 28/36 rule: No more than 28% of your gross monthly income should go to housing expenses, and no more than 36% of your total should be spent on all debt.
1   clambo   ignore (4)   2018 Apr 30, 7:12am   ↑ like (0)   ↓ dislike (0)   quote        

I personally know some people who defaulted deliberately on a house in Salinas. They also live here illegally.

Besides the flippers and these who just decided they would default there were brokers who were willing to sell anything to anyone.

The story of a strawberry picker getting a mortgage to buy a $700,000+ house is well known. He asked the broker (in Spanish) "how can I possibly pay this back?" 'Don't worry about it."

The international capital markets flooded the USA with money for mortgages. The USA is unique in the world; we were the only country that had bonds sold based on our property mortgages. Low interest rates attracted gigantic capital to the higher yields.
2   Hassan_Rouhani   ignore (3)   2018 Apr 30, 8:25am   ↑ like (0)   ↓ dislike (0)   quote        

clambo says
I personally know some people who defaulted deliberately on a house in Salinas. They also live here illegally.


Ha! I know a couple of US citizens who deliberately defaulted on a condo in San Diego immediately after buying a house in a new development.
3   lostand confused   ignore (0)   2018 Apr 30, 8:34am   ↑ like (0)   ↓ dislike (0)   quote        

Satoshi_Nakamoto says
Ha! I know a couple of US citizens who deliberately defaulted on a condo in San Diego immediately after buying a house in a new development.

My old boss did that, they got a very low down home in a very distant place. Then in 2006-2008 meltdown, their house crashed. So they decided to dump it, not before buying a beautiful property very close to bART and very reasonable price-pretty much close to what they paid for their old house. They dumped the old house on the bank and never looked back and still live in the new house which has appreciated gazillions.
4   HEYYOU   ignore (17)   2018 Apr 30, 10:18am   ↑ like (0)   ↓ dislike (0)   quote        

Bet those that only pay 10% of listing price in cash never have a housing problem/making their payments.
5   pkennedy   ignore (0)   2018 Apr 30, 10:24am   ↑ like (0)   ↓ dislike (0)   quote        

The only reason flippers or speculators couldn't sell is because..... buyers couldn't obtain the loans.

It has nothing to do with greed, it's when people fail to qualify for any type of loan, for whatever those reasons might be. When credit dries up, or goes away, that's the cause of the crash.
6   bob2356   ignore (1)   2018 Apr 30, 11:04am   ↑ like (0)   ↓ dislike (0)   quote        

Patrick says
While many people still think that the last housing crisis in the United States was largely due to banks offering too many subprime mortgages, it's now clear that wasn't actually the case. Instead, recent research pins the blame on house flippers and speculators, who pumped markets up, then defaulted in large numbers when they were unable to turn a profit on their investment properties.


What an idiot. Flippers and speculators were a big chunk of people taking subprime mortgages. Lots of sub prime mortgages. Something like 60% of houses sold in 2007 were NOT owner occupied. Check out The Big Short sometime for a pretty interesting look inside the whole mess.
7   SunnyvaleCA   ignore (0)   2018 Apr 30, 11:40am   ↑ like (0)   ↓ dislike (0)   quote        

buy a house you can comfortably afford. That may mean getting less than you want



I don't think buying a "starter house" is a good idea because buying and selling are so full of friction and costs. Suppose you buy a "starter home" and 5 years later decided you really want, need, and can afford something better. So you sell one house and buy the other... and pay huge commission to the real estate cartel, financing fees for a new mortgage, reset your Prop 13 taxes, etc. There's also the cost and effort of moving. Financing a house purchase while not having finished paying the first house off can be tricky too. All the effort and costs you put into customizing your first home are thrown away; and if you didn't upgrade and customize your first home then you might as well have rented it.

Some people think that the starter home is a good way to ride the housing "value" elevator to riches. If you really believe the market is going up forever, then the starter home isn't the right way to do it: buy the most expensive thing you can possibly afford. (Or, more realistically, stop thinking houses in this market are smart investments and either rent or move out of the area.)
8   MrBark   ignore (0)   2018 Apr 30, 4:00pm   ↑ like (0)   ↓ dislike (0)   quote        

SunnyvaleCA says
reset your Prop 13 taxes, etc.


This, but I can't complain. I have a $380k mortgage on a home valued at around $675k. My property tax is assessed at $2,400 per year ($220k assessment). If I wanted to "step up" to a nicer home, that's putting me somewhere around $800-900k. Is it worth more than tripling my property taxes to get a house that's just a little nicer than the one I'm currently in? Hell no. That said, this is a huge part of keeping mobility low and prices high.
9   bob2356   ignore (1)   2018 Apr 30, 9:43pm   ↑ like (0)   ↓ dislike (0)   quote        

SunnyvaleCA says
I don't think buying a "starter house" is a good idea because buying and selling are so full of friction and costs. Suppose you buy a "starter home" and 5 years later decided you really want, need, and can afford something better. So you sell one house and buy the other... and pay huge commission to the real estate cartel, financing fees for a new mortgage, reset your Prop 13 taxes, etc. There's also the cost and effort of moving. Financing a house purchase while not having finished paying the first house off can be tricky too. All the effort and costs you put into customizing your first home are thrown away; and if you didn't upgrade and customize your first home then you might as well have rented it.


What is the big frigging deal about selling or buying a house? If you aren't stretched to the max it's certainly not rocket science. Moving isn't either. I've done dozens of moves. Usually using a self service mover and local packers for interstate or broker it myself for international moves. .

If you are doing so much better financially after 5 years you can comfortably move up then it's no big deal. If you aren't then you shouldn't be moving anyway.




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You're being set up to spend your life paying off a debt you don't need to take on, for a house that costs far more than it should. The conspirators are all around you, smiling to lure you in, carefully choosing their words and watching your reactions as they push your buttons, anxiously waiting for the moment when you sign the papers that will trap you and guarantee their payoff. Don't be just another victim of the housing market. Use this book to defend your freedom and defeat their schemes. You can win the game, but first you have to learn how to play it.
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