Housing Market Bust

[PhoenixOrion]

Saw in the news that there's a large portion of mortgages up for adjustment this coming fall due to ARM's going from 'fixed' stage to their 'variable' stage.

So what can homeowners in areas like California and Nevada do? What are their options?

I was thinking that they can't really refinance their ARM loans as no lender would give them a loan when their homes are now 'undervalued.'

Am I right here with my train of thought? It seems that the option of a foreclosure wouldn't be good either for both the homeowner and the lender.

 

[imported_Tick]

1) Wait and go into debt
2) Houseing market recovers
3) Idiots realize they shouldn't spend more money than they have.

 

[PhoenixOrion]

Here's my train of thought:

1. variable rate goes up
2. homeowner can't afford the new monthly payment
3. homeowner can't refinance the original loan of $1M because the property is now worth $500K.
4. homeowner forecloses
5. lender is now stuck with a property that may still undergo devaluation (and lender already bought property at the higher value, right?)

sounds pretty bleak and a losing situation for both parties. it just seems that there has got to be some other creative options out there that people have been doing all these years to circumvent these kinds of situations. I guess I'm thinking too simply and situations like these I tend to see 'foreclosure' in the end and nothing else.

 

[Capt Caveman]

Yes, it's a pretty ugly landscape right now. Add the tightening up of mortgage qualifications and it makes it even hard to unload a property due to the shrinking number of qualified buyers. It's going to get worse before getting better.

 

[fisheerman]

I think you are going to see a boom in the 40 and 50 year mortgages so people can qualify for more dinero.......

-fish

 

[PhoenixOrion]

Originally posted by: Capt Caveman
Yes, it's a pretty ugly landscape right now. Add the tightening up of mortgage qualifications and it makes it even hard to unload a property due to the shrinking number of qualified buyers. It's going to get worse before getting better.

You're right, haven't thought about that part yet. Homeowners can try to sell the house to avoid a foreclosure...........I've heard of stories that people sit on their properties for a while coz nobody's buying. Even if they get the sale, it'll most likely be sold for a loss. Homeowner then has to cover the difference to pay the lender.

 

[waggy]

unfortantly many people are going to go into forclosure. Since for many that is the best option. To many got those great ARM loans and is now screwing them.

we have 2 houses in town that have been on the market for over a year. granted both are way to high. the house next door the guy baught 2 and half years ago to flip. he paid $170k put in 30K into it and listed it at $250k. This is in a area where the orginal $170k was 20K to high. he has had it on the market almost 2 years. He now has it on the market for $204.

Every time he comes over to check the house (has not lived in the house) he is complaining about how shitty the town is.

heh trying to flip a house out in the country (we have maybe 300 people in town) is just a dumb idea.

 

[PhoenixOrion]

Originally posted by: waggy
heh trying to flip a house out in the country (we have maybe 300 people in town) is just a dumb idea.

there goes the real estate saying "location, location, location"

 

[waggy]

Originally posted by: PhoenixOrion

Originally posted by: waggy
heh trying to flip a house out in the country (we have maybe 300 people in town) is just a dumb idea.

there goes the real estate saying "location, location, location"

oh yeah. not everyone wants to live in a town where you have to drive 17 miles to buy milk.

granted house's are far cheaper out here. I paid $150k for my house. if i lived in 2 of the nearest big towns (Rockford or dekalb) it would be $250+ easy.

 

[Capt Caveman]

It'll be interesting to see how the much the market goes down today after the Countrywide news.

 

[PhoenixOrion]

Originally posted by: Capt Caveman
It'll be interesting to see how the much the market goes down today after the Countrywide news.

linky to the news?

 

[lokiju]

Whatever they do, it needed/needs to happen at some point.

How long could everyone expect their little 3/2 to stay valued at $500,000 plus in places like CA?

A lot of foreclosures are gonna be happening though, that's for sure.

Maybe one solution would be to offer these people a very long term loan to refinance to as an alternative to being foreclosed on? IIRC in places like Asia in the cities where it cost to much to afford a home for the average person, they do up to 100 year term loans and the debt is inherited to the family, which is really crappy IMO. But that might work to buy people enough time to hopefully find a solution to their issue.

 

[Capt Caveman]

The announcement was made late in the day yesterday, so I don't believe the full effect has hit the market.

http://news.yahoo.com/s/ap/200.../countrywide_mortgages

 

[PhoenixOrion]

Originally posted by: Capt Caveman
The announcement was made late in the day yesterday, so I don't believe the full effect has hit the market.

http://news.yahoo.com/s/ap/200.../countrywide_mortgages

hmmm, this plus fed discount rate cut...........i think i can make a bold prediction: recession within the next 5 years????

 

[Xavier434]

Originally posted by: Tick
1) Wait and go into debt
2) Houseing market recovers
3) Idiots realize they shouldn't spend more money than they have.

The future for most people is this right here and foreclosures. We are seeing both of those right now quite a bit. So many dumb people out there bought houses without giving themselves breathing room financially. Then all the sudden..BAM! Taxes go up, they can't sell without losing a lot of money, and it's all downhill from there.

I'd say a good rule of thumb is to do what most rental places do before allowing a tenant to sign a lease. They look to see if the household monthly net income is a minimum of 3 times the rent. That amount of money leaves most Americans with enough to pay all of the bills and still have money left over for savings and rainy days.

 

[PlatinumGold]

Originally posted by: PhoenixOrion

Originally posted by: Capt Caveman
The announcement was made late in the day yesterday, so I don't believe the full effect has hit the market.

http://news.yahoo.com/s/ap/200.../countrywide_mortgages

hmmm, this plus fed discount rate cut...........i think i can make a bold prediction: recession within the next 5 years????

within? or during?

seems to me we are on the verge of a recession right now, i don't expect things to look up very quickly.

 

[FoBoT]

wait

 

[Fritzo]

That's why I would NEVER go with a variable rate loan. Never have, never will. They never turn out pretty.

 

[dullard]

Options:
1) Pay the mortgage as it is written. This means they have to dramatically cut back on spending elsewhere (economy suffers). Wait out the problems, and then be just fine.
2) Try to sell the house. This is possible for people who do it early, but it'll get tough if the problem gets much worse.
3) Try to refinance. This is probably not very easy to do at this point as you mentioned above.
4) Bargain with the mortgage company to see if there are terms that can be changed to allow the home owner to keep paying (such as limiting the increase in interest, allowing for a few skipped payments, etc). Hopefully, this will buy enough time for the housing market to recover.
5) Foreclose. If you truely can't afford the payments and if your house is truely going down in value, this may be your only option. And it seems that many people are taking it. Foreclosure rates are increasing quickly. Note: they were at historical lows, so the increase in forclosure rates is just going back to normal (so far).

 

[Turin39789]

More importantly, I'm going to be a first time home buyer, probably in two years, should I try to buy sooner/nowish or just wait until it's a good time for me?

 

[waggy]

Originally posted by: Fritzo
That's why I would NEVER go with a variable rate loan. Never have, never will. They never turn out pretty.

yeap.

I don't like the idea of my interest changing.

 

[Xavier434]

Originally posted by: Turin39789
More importantly, I'm going to be a first time home buyer, probably in two years, should I try to buy sooner/nowish or just wait until it's a good time for me?

The real estate and the economy overall is rapidly changing right now. Buying a house is a really big deal and while I understand that you want to take advantage of the market when the time is right, you are better off waiting until the dust settles more or else you will risk making a big mistake.

Just keep watching the market and pop this same question every few months or so. Where you live makes a big difference too. If you are in a smaller town where the prices have not been changing drastically over the past 2 years then you probably have less to worry about. Also, before you buy, get both a lawyer and real estate agent. It's worth it.

 

[tfinch2]

I for one welcome this housing market bust. I'll be looking to buy in about a year with good credit and 20% down.

 

[PingSpike]

A lot of people are going into foreclosure because that makes the most sense when you have no 'skin in the game'. If you put zero down, when the market goes south you just walk away and the bank takes pretty much the entire hit. If you had 20% into it, YOU would be losing money.

Sure, your credit gets ruining...but with the amounts of money some of these houses sold for its worth having shit credit to escape.

 

[waggy]

Originally posted by: PingSpike
A lot of people are going into foreclosure because that makes the most sense when you have no 'skin in the game'. If you put zero down, when the market goes south you just walk away and the bank takes pretty much the entire hit. If you had 20% into it, YOU would be losing money.

Sure, your credit gets ruining...but with the amounts of money some of these houses sold for its worth having shit credit to escape.

is it? what are the odds on getting another home loan in todays market? or even 5 years?

its going to kill you in higher % on everything. from cars to CC's.

bu ti soppose its cheaper then a 1 million mortgage where the house is worth $500k