Your housing market overvalued?

[Jagdaddy]

If you don't mind sliding down the mountain.

My professional advice: don't buy on Green Mountain. Seriously.

link


Now send me $77 (usually $49).

:p

Well I guess I'll just have to settle for the getting rich option then, although I was thinking more near the "mountain" than on it.

 

[NewYorkBuck]

Thanks for the insight. It will be interesting to see if this mess is actually big enough to teach the greedy and stupid some basic fiscal responsibility the hard way. It might just start turning the nation around if it does. As for me, I'm in downtown Denver, and while it's getting overbuilt IMO, it will still decline or flatten far more slowly than the burbs around here, which are foreclosure central. Should my wife and I start a family in the next couple of years and head towards the burbs, I suspect we'll have lots of affordable options . . .

Jag - financial bubbles have existed throughout history soley because of the human condition - people just cant help getting caught up in the frenzy of "easy money." Most recently - how many people were saying the same things at the end of the internet boom? No more overnight 23 yr old millionaires or day-trading geniuses for sure. We were going to make sure now that any time we invested in a stock, it was going to be on sound fundamentals with a good business plan. Right.....and what did we do right after the air was let out of the internet bubble? Just put it right back into another bubble in the form of real estate. Yes, unlike internet stocks real estate is a tangible asset, but one huge difference is most internet stocks were not bought on the margin w huge amounts of leverage. Almost every house is. Even more importantly, at least the internet boom in the end created huge amounts of value. Conversely, putting in a granite counter top creates no value other than one time to the guy who put it in.

Its funny - as smart as we think we are, its amazing how susceptible human beings are to making the same mistake over and over. This bubble collapse will cause huge losses, economic strife, congressional hearings, new regulations, and plenty of finger pointing. What it will not do is prevent the formation of new bubbles.

 

[MililaniBuckeye]

Hawaii's housing market has historically been way over-valued. Right now, Oahu (and all of Hawaii) is in it's cyclical "correction" phase, which basically means the ridiciuous 10-20% per year increase is housing prices has flattened out for now. It will probably be like that for the next year or two, and then, regardless of what the rest of the nation does, prices will likely start to increase again.

I bought my house (new) in Dec 1998 for $243,000. It's 1150 sf, 3 bedrooms, 2 full baths, 2-car garage, and a "yard" that takes all of 15 minutes to mow (think it's around 1500 sf). Last summer it was appraised for $525,000 (116% increase in 6 1/2 years), and the only "improvements" I had done was a re-seeded lawn, painting the garage walls, and installing a drop-down ladder into the garage attic. Once I repaint the house this summer it'll go up another $20,000 or so in value. Few places in the country appreciate in value for no reason like Hawaii (especially Oahu) does.

And it'll only get "worse" as more and more people try to move here and the housing market runs short of zonable land. I'm going to guess that in about 4-5 years my house will be worth around $600,000, and if it is I'm selling and moving either back to Ohio or to Arizona.

 

[FCollinsBuckeye]

This bubble collapse will cause huge losses, economic strife, congressional hearings, new regulations, and plenty of finger pointing. What it will not do is prevent the formation of new bubbles.

You just gave me a great investment idea. Thanks NYB!

 

[Jagdaddy]

Jag - financial bubbles have existed throughout history soley because of the human condition - people just cant help getting caught up in the frenzy of "easy money." Most recently - how many people were saying the same things at the end of the internet boom? No more overnight 23 yr old millionaires or day-trading geniuses for sure. We were going to make sure now that any time we invested in a stock, it was going to be on sound fundamentals with a good business plan. Right.....and what did we do right after the air was let out of the internet bubble? Just put it right back into another bubble in the form of real estate. Yes, unlike internet stocks real estate is a tangible asset, but one huge difference is most internet stocks were not bought on the margin w huge amounts of leverage. Almost every house is. Even more importantly, at least the internet boom in the end created huge amounts of value. Conversely, putting in a granite counter top creates no value other than one time to the guy who put it in.

Its funny - as smart as we think we are, its amazing how susceptible human beings are to making the same mistake over and over. This bubble collapse will cause huge losses, economic strife, congressional hearings, new regulations, and plenty of finger pointing. What it will not do is prevent the formation of new bubbles.

Yes, but the Depression, for example, affected the spending habits of an entire generation or so (e.g., that old great aunt who stole sugar packets from Bob Evans every time you took her out for breakfast). That was of course a thus far unique deal, but I'm cautiously optimistic that maybe some of the lunacy will moderate. The kids who made insane amounts of money "on paper" in the INET boom and then lost it still aren't really in bad shape in most cases, but "regular" people with kids getting foreclosed on are, and both those people and their kids just might learn some old fashioned values the hard way. It's going to be tough though for the folks who were dumb enough to get in over their head but smart enough to learn their lesson who will struggle in a much tighter credit market.

Of course, my hopes will probably be dashed by all of the do-gooders, media, and shysters who will, for different reasons, tell the once-burned that it wasn't their fault and that the lenders are at fault for letting them overextend themselves. I've yet to see a newspaper article blame overextended homeowners, rather than subprime lenders, for the current and looming mess.

 

[Thump]

I bet house-flippers are starting to shit their britches.

 

[Taosman]

I bought my house in Taos, 2 years ago at $249,000. It jumped to $300,000
in 3 months. Now, it's worth $325,000. Taos is a vacation haven for Texas and California. A resort town, winter and summer. My location just on the edge of town and my spectacular view of the Sangre de Cristo Mountains adds to my house value. Prices here show no sign of dropping, just slowing somewhat. I love this town! And my little house!

 

[sandgk]

Its funny - as smart as we think we are, its amazing how susceptible human beings are to making the same mistake over and over. This bubble collapse will cause huge losses, economic strife, congressional hearings, new regulations, and plenty of finger pointing. What it will not do is prevent the formation of new bubbles.

How very, very true.

Plus ca change ...

 

[CleveBucks]

As a potential house buyer, I think 2008 and 2009 will really be years to make sellers cry, and trust me Im going to bring tissues to every house I put an insanely low bid on. On the flip side, sometimes I wish I was wrong on this, because this housing phenomenon has enourmous impact on my business. (Some may say it IS my busieness.) Oh well - with any boom, there is always a hangover. Given the size and scope of this one, dont plan on getting off the bathroom floor anytime soon.

NYB,

What do you see the 30-year mortgage market looking like in the next 18-24 months? 20% down is not a problem...

 

[NewYorkBuck]

Hawaii's housing market has historically been way over-valued. Right now, Oahu (and all of Hawaii) is in it's cyclical "correction" phase, which basically means the ridiciuous 10-20% per year increase is housing prices has flattened out for now. It will probably be like that for the next year or two, and then, regardless of what the rest of the nation does, prices will likely start to increase again.

Mili - of all of the overinflated areas of the country - Hawaii may indeed be the worst. I believe the price to income ratio there reached 13 at one point (where the historical national average has been 2.1!). The only good thing about that is when it deflates, Hawaii is not a big enough demographic to really effect the economy. California on the other hand......

 

[NewYorkBuck]

NYB,

What do you see the 30-year mortgage market looking like in the next 18-24 months? 20% down is not a problem...

Cleve - Im not in the business of predicting interest rates short term, but long term my gut is up because we are going to have to keep raising rates to sell our debt offshore. However, much much more important is the direction of the housing market, which I believe is markedly down over the next 24 months. (A 50 bp rate swing is nothing on your P&I compared to a 20-30% sell off. Further, you can never change your housing price, while you can always refi your rate.) I would definitely advise you to stay where you are or rent over the next year or two. I will temper this with the fact that the areas that are going to get hit the hardest (NY/NJ, Ca, Fla, Hawaii) are of course the areas that ran up the most. Im not really sure how much Ohio ran up, but at best the market will be flat. Over the next two years, the prime buyer with $ will be king. Credit will be so tight that lenders will be falling over themselves to lure in the really quality borrowers. Think 20% down, 720+ FICO, 28/36 front and back ratios. If you are one of these people, you are definitely going to be a guy banks will cater to to get in the door, as there will be almost no mortgage business anywhere else. Further, since there will be such little funds now chasing so many houses, you will really be able to bargain to your price. My advice to you is start tracking places you might want to live and watch the prices while you stay where you are. Look for places that have stayed on the market a while. Dont fall in love with any one place and lowball the shit out of the seller. Dont bargain - walk away if they dont take your price - this is a buyers market now. If the realtor comes back with - "The seller will be insulted with that offer", quip back like I do - "Well, fortunately for me, I'm trying to do a business deal - not make friends." I feel sorry for no one - the sellers have been squeezing the shit out of the buyers for five years now. Now its the buyers turn......

 

[CleveBucks]

NYB, thanks a lot! I've been tracking prices in a few areas for over a year now. Ohio's market hasn't seen the run-up of many others, so it probably won't see as big of a crash either.

 

[Jagdaddy]

Oh, I almost forgot to make a Captain Obvious prediction: Class action lawsuits against the sub-prime lenders who "tricked" people into overextending themselves will be the next big thing in litigation. It will be interesting to see whether only private attorneys bring these or whether somebody in the public sector wants to be the next Elliot Spitzer (who's the A.G. of California anyway?).

 

[NewYorkBuck]

Oh, I almost forgot to make a Captain Obvious prediction: Class action lawsuits against the sub-prime lenders who "tricked" people into overextending themselves will be the next big thing in litigation. It will be interesting to see whether only private attorneys bring these or whether somebody in the public sector wants to be the next Elliot Spitzer (who's the A.G. of California anyway?).

SO on point Jag. Only a matter of time for that to happen. Make take - yes - misrepresentation is one thing - ignorance and laziness taking care of your own finances is another. Me thinks that 90%+ of the cases were ppl just wanting money to spend now. As they say - a fool and their money.....

 

[gbearbuck]

Oh, I almost forgot to make a Captain Obvious prediction: Class action lawsuits against the sub-prime lenders who "tricked" people into overextending themselves will be the next big thing in litigation. It will be interesting to see whether only private attorneys bring these or whether somebody in the public sector wants to be the next Elliot Spitzer (who's the A.G. of California anyway?).

You're assuming there will be companies left to sue...:tongue2: :tongue2: :tongue2: :tongue2: :tongue2: :tongue2:

The writing is on the wall... I went down to Athens a couple of weekends ago for an alumni function. It seems at least half of the younger guys are into the "real estate business" (flipping houses, renting, investment properties that are still being built, etc.) due to the fact it is "easy money"... easy come, easy go... I was the outcast of the group when I suggested they be careful as the housing market is like any other market, it doesn't go strait up or down, however it can and will go in both directions.

It reminds me of the old saying "when the old lady across the street that typically invests in CD's wants to purchase the new IPO/internet stock/commodity/anything else aggressive run for the hills, we're at the top"...