Housing Market Bust

[tfinch2]

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.

If you put 20% down, more than likely you can afford the house you are purchasing, you aren't getting tricked into ARMs, and you probably aren't facing foreclosure right now.

 

[dullard]

Originally posted by: waggy
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

You have to realize that people being foreclosed on right now probably aren't going to be getting a new home in today's market or even in 5 years. They are in debt up to their eyeballs and just got burned. It will be best for them to take a decade off to get on their feet. And by then, their credit could very well be returned back to normal.

These same people are probably already at the highest car rates and CC rates. So nothing will change there.

You do have a point though. Getting foreclosed to save $10,000 is different from getting foreclosed to save $100,000.

 

[Exterous]

Originally posted by: 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.

:thumbsup:

We're in a similar position and there are alot of properties around here that people have been trying to sell for a while and are at very nice prices - thats assuming I get to keep my job during any part of an upcoming recession. There are downsides to being the highest paid hourly employee during these times. I feel like I have a massive bullseye on my back

On a side note - this is why I have to change the radio or tv station in disgust when I see the ARM loan commercials or the "flexible pay" options (no minimum payment - as in you can jsut skip a payment or 5)

 

[sao123]

30 yr fixed mortgages dont seem to have this problem...

then you just dont sell until the market recovers.

 

[dullard]

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?

Always, always wait to buy a house until it is a good time for you. In your case, wait. Don't rush into this quagmire just because you think you might get a deal if you aren't ready yet.

The more difficult question is if now is a good time, should you still buy now. And the answer to that would depend on many things.

 

[purbeast0]

so does this mean it's going to be a buyers market?

<--- noob

 

[FP]

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.

Mine has turned out just dandy. I have a 7-year interest only ARM and wouldn't change a thing. It has allowed me to put my money in other investment vehicles for exactly times like these. If I had been paying a 30-year fixed I would now be out about $15,000 in lost equity. Instead, that $15,000 is sitting in stocks, bonds and high-yield savings.

Most ARMs have a cap (mine is 4%) that they can adjust up to. Additionally they can only adjust so much per year. Mine is currently at 5.25% and fixed for the next 5 years. Worst case scenario I would be looking at a 9.25% rate in 10 years. I can easily afford that now so I am not worried. Especially when interest rates were hovering around 16% back in the early 80s.

Instead of throwing money into something that is declining I am putting that money in a safer place.

I'll never understand why people are so afraid of leverage.

Never say never.

 

[Johnlee]

IMO it's not a bust. The market is balancing itself. It wasn't healthy, especially here in SoCal. Appreciation at 13% a year? Just crazy.

The worst part about the ARMs is that lenders are now being OVER-regulated to "make-up" for the crap loans the wrote for the last 5-7 years. Sure there needs to be more stringent regulations when it comes to lending money, but this is ridiculous. People with equity and decent credit can't get loans. I've seen it the last month or so. Not good.

I've seen people who started with teaser rates of 2.45 2 years ago and next month it's jumping to the Libor plus 2. On an 850k condo, they are screwed.

 

[UpGrD]

I bought my home 3 yrs ago with a 5yr ARM @5.5%, Last year I saw the coming storm got a 30yr fixed @6.5%.
Any moron (of which I include myself) should have seen this coming. I have a hard time feeling sorry for these people. They bought homes that were overvalued in areas that are volatile, with unrealistic temporary rates. I'll say the same thing that I told my sister when she lost her home because of this. What the "F....." where you thinking.

 

[Johnlee]

I bought my home 3 yrs ago with a 5yr ARM @5.5%, Last year I saw the coming storm got a 30yr fixed @6.5%.

Good boy. You are the poster child for what everyone "should" have done.

 

[Exterous]

I would say its almost worse that the lending companies didn't see this coming.

Wait, wait - let me get this straight - you're saying that giving out a bunch of ARM mortgages to people who don't understand the downsides, can't afford higher interest rates and have a history of not paying off their debts on time could have potential consequences? No!

 

[Pantoot]

Just to be clear, the problem isn't the ARM loans, it is people using the teaser rates to trick themselves (or the underwriters) into thinking they can afford the house.

 

[memo]

Are ARMs a fairly new type of mortgage that was created recently (within the last 5-10 years)? I'm wondering why this hasn't happened before (or has it)? Was there some kind of weird market circumstances 5-10 years ago that made loan rates so low back then, or were the lenders swept up in this exciting new kind of mortgage?

 

[Exterous]

Originally posted by: Pantoot
Just to be clear, the problem isn't the ARM loans, it is people using the teaser rates to trick themselves (or the underwriters) into thinking they can afford the house.

I would agree - and several people have posted showing this - that ARM loans could be good for some situations - but I would argue that far too many people don't understand the consequences of their decision (Hence the "who don't understand the downsides".)

 

[Johnlee]

It wasn't the people offering those programs. Hell, it wasn't even the brokers. It was the large lenders. The borrowers aren't without fault, of course. You're right in that young couples with 150k combined income thought they could "afford" a 750k house when, in reality, they should've been shopping for something around 400k.

Hell, I was offered an interest only loan 3 years ago on a duplex that was a great deal. I COULD have afforded it then, refied, and probably owned a nice duplex with still quite a bit of equity. I was too conservative. But it's better than the other end of the spectrum.

 

[dullard]

Originally posted by: Exterous
I would agree - and several people have posted showing this - that ARM loans could be good for some situations - but I would argue that far too many people don't understand the consequences of their decision (Hence the "who don't understand the downsides".)

I was one of them. I even typed up that whole argument in another thread this morning. If you use ARMs to your advantage, they are wonderful tools. But just like with any tool, you can easilly harm yourself if you aren't careful.

An ARM is perfect if you get a house which is much less house than you could afford and/or if you put the ARM savings to work for you. You can invest the ARM savings and make a killing or you can put the ARM savings back in the house and make a good return.

Unfortunately most ARM buyers do the exact opposite. They use them to buy a house that they cannot afford, and they don't invest the ARM savings.

 

[T9D]

The market does really suck. I have a condo up for sale. I have it way below value. Cheapest 2 bedroom in the city. And it's nicely remodeled. Cheaper than some 1 bedroom places. And it's STILL not selling. I can't believe that.

I just need to dump the thing. I bought it as an investment and lived in it for 2 years. I dont want to live in it anymore. I just want out of the area. I'm living out at my summer home right now and remodeling it. But I dont want to live here all year. I need to get that other place sold so I can figure out where I want to live permemantly.

The good news is that I'll make a good profit on the condo no matter what. Would have been nice to make more though. I have over a year to sell it. Because after that I have some land I did a contract on. And I'll have to come up with $98,000 for the guy to pay it off. I have the land up for sale too. But I dont know, not looking good for that. But I can wait that out if I sell the condo. I have another condo I'm renting out and wouldn't lose money no matter what if I sold that either, so I'm all good there, I can wait that out too so I can make more on it later. Or just sell low now and make a little profit now.

I always dont get to far ahead and buy with cash or some equity loans. So I'm always in pretty good shape no matter the market. But I got caught a bit on that land. I bought it to rehab a house on part of it and live in it. Then the county changed what they told me and gave me trouble on rehabing it. Then I get different people telling me different things at the county. Bunch of crap. I didn't feel like fighting it and getting a lawyer and stuff. Neigbors up there were also a bunch of pricks about it and I wouldn't want to live next to those kind of people anyway now that I know how they are. One guy knew a buddy at the county and got him to cancel out the signatures on my approvals. Can't believe people I swear. So I sold off the small house part. Thank God. I would have been screwed if I didn't. Now I just need to sell the large land piece. Which is still major cheap. Someone will buy it some day. I always buy the cheapest on the market and get great deals. So even if the market goes down by the time it does I have a lot of room. But I have to come up with that $98,000 next year. So just sell my condo and I'm in good shape. I have a ton of room to drop it. Worst worst case senario I rent it out and just write an equity check next year. And just keep living at my summer home for a while.

Damn market though wish it was a little faster and better though. But I'll make it work ok just have to be a little creative for now. I still didn't get to far ahead. Nothing I couldn't ever get out of and couldn't still make a profit on

Let me tell you though. I've still learned from all this to be even more careful than usual. And NEVER do anything that involves the County or City. To much hassle anyway. The fact that it happened right as the market went bust is all bad timing. But I'll be all good. Glad I dont have anything I'd ever have to walk away from or any property worth less than I bought it for. I'll be safe no matter what . But what a pain market right now

 

[jandrews]

av1001, in all fairness what does undervalue mean? I get confused when people use terms like 'less than its worth' or 'undervalued' when the market dictates value. Sure, if you buy something for 200k then 2 years later it is appraised for 150k you paid too much for it. Then again in 5 years it might be 250k so what is the real value? I am guessing the value of a property is the current market rate. Right now I would say things are going for the 'real' value since things have been so inflated the past few years. It is all very confusing, opinions/insight?

 

[PingSpike]

The trouble with ARMs is that people don't understand them and don't want to understand them. This is the nation of "how much will it cost me a month to finance that $400 Dell computer?" They want that tiny number to trick themselves. Then when it resets they shit a brick. And its not even the lender that always tells the lie. Hell, when we bought our house last month, the sellers agent said a couple years ago some one was buying a house with an ARM from her and the lender was begging them to use a fixed rate instead. She said that on the day of closing the lender offered to redo the paperwork for fixed rate. Nope, they wanted that low monthly payment, and now she sees the house is in foreclosure.

For people that look at the numbers and say "if it gets real bad, I can still get by...if it doesn't, I'll be ahead" and make a decision based on that they can be a great option. I personally can't deal with the uncertainty so it wasn't for me. But I think there's to many people that just won't look far enough into the future and want to believe the impossible is possible.

 

[JS80]

if you bought in 2005 you are up like 20-40% in CA so selling 10-20% "below current market" they are still up a boat and will not result in a short sale.

 

[chuckywang]

It's all about money, Dick!!

 

[T9D]

Originally posted by: jandrews
av1001, in all fairness what does undervalue mean? I get confused when people use terms like 'less than its worth' or 'undervalued' when the market dictates value. Sure, if you buy something for 200k then 2 years later it is appraised for 150k you paid too much for it. Then again in 5 years it might be 250k so what is the real value? I am guessing the value of a property is the current market rate. Right now I would say things are going for the 'real' value since things have been so inflated the past few years. It is all very confusing, opinions/insight?

Undervalue for what the last one sold at. The last condo there was sold at $30K more than I have it at just a few months ago in spring. And the condo right next to mine which isn't as nice is still on the market at $36k more than mine. Now yes the market dictates what it's worth I agree. But I priced it way below what the market has even really come down to yet at the moment. So I think it's fair to say it's undervalue at this time. We'll see what the market does. If it doesn't sell and goes lower I can still lower it more and still make money. But for now I'm still even way below the current prices. This seems a fair assesment no?

In the two years I've had it at one point I was at double what I paid for it. And I paid cash. So I have a whole lotta wiggle room on it. But i've already accepted and adjusted the price for below the current market even. I'll keep adjusting to whatever the market dictates.

 

[Squisher]

Originally posted by: jandrews
av1001, in all fairness what does undervalue mean? I get confused when people use terms like 'less than its worth' or 'undervalued' when the market dictates value. Sure, if you buy something for 200k then 2 years later it is appraised for 150k you paid too much for it. Then again in 5 years it might be 250k so what is the real value? I am guessing the value of a property is the current market rate. Right now I would say things are going for the 'real' value since things have been so inflated the past few years. It is all very confusing, opinions/insight?

In the worst case scenario, you took out a 5 year loan that had low payments for those five years, but requires a balloon payment at the end to pay off the loan. Not a bad deal if the worth of the house doesn't drop. If the loan was for $205K, normally you have to fork over let's say $200K at the end of five years, but that's ridiculous. Who can save $200K in five years? What the people were planing on doing was going out and refinancing a more conventional loan after the five years using the house as collateral. But, now that the house is only worth $150K the bank will only loan you $150K and you owe $200K.

In another loan scenario involves the interest going up at the end of the five years and the people again were planning on refinancing to get around this and can't now because of the under-valuing of their house. They now have to eat the 50% increase in their monthly house payment

 

[Vic]

Too much FUD.

While I don't recommend ARMs for the typical customer, they can be very beneficial for the savvy person in the right market environment. Just because a loan product exists does not mean that it is right for everyone. I don't like minivans, for example, but that doesn't mean I would press for legislation to have them removed from the marketplace.

Next, suppose you bought a house a 3 years ago, it appreciated 10% each year, and then is down maybe 5% off that peak now, then you're still up 28%. OMG what a terrible investment!

Finally, the biggest losers here and the biggest fault (if fault is necessary) belongs to those buyers who were most greedy. There was an irrational expectation that home values would continue to appreciate at a rapid rate forever. In the last couple years, a large percentage of people buying homes were talking about nothing but the profits they were going to make. Many would refuse to take fixed rates even if their loan officers tried to talk them into it.

So really, everyone, quit talking about what most of you obviously don't know anything about. It was bad enough during the boom, it's worse now. If this downturn should teach your typical consumers anything about the housing market, it's that they really don't understand it, and that in the future they should approach with greater caution, more actual education, and less arrogant overconfidence. Sadly, I don't see that happenning.

 

[PingSpike]

Originally posted by: v1001

Originally posted by: jandrews
av1001, in all fairness what does undervalue mean? I get confused when people use terms like 'less than its worth' or 'undervalued' when the market dictates value. Sure, if you buy something for 200k then 2 years later it is appraised for 150k you paid too much for it. Then again in 5 years it might be 250k so what is the real value? I am guessing the value of a property is the current market rate. Right now I would say things are going for the 'real' value since things have been so inflated the past few years. It is all very confusing, opinions/insight?

Undervalue for what the last one sold at. The last condo there was sold at $30K more than I have it at just a few months ago in spring. And the condo right next to mine which isn't as nice is still on the market at $36k more than mine. Now yes the market dictates what it's worth I agree. But I priced it way below what the market has even really come down to yet at the moment. So I think it's fair to say it's undervalue at this time. We'll see what the market does. If it doesn't sell and goes lower I can still lower it more and still make money. But for now I'm still even way below the current prices. This seems a fair assesment no?

In the two years I've had it at one point I was at double what I paid for it. And I paid cash. So I have a whole lotta wiggle room on it. But i've already accepted and adjusted the price for below the current market even. I'll keep adjusting to whatever the market dictates.

I think his sentiment is that a lot of people consider their house 'undervalued' when its current value is less then the amount they paid for it. (I don't know the details of your specific case)

People don't say gasoline selling for $2.75/gal is undervalued because it sold for $3.00/gal a couple months ago. But they do just that with houses!