Has the Housing crash arrived?

[Dale Hubbard]

You say that, but you have to realise that the one commodity that we no longer make is Land.

Its the land that has the value, over and above the house. House prices have remained consistant however the price of land has gone through the roof.

If building society were to sell at a big loss the average house price would drop significantly, however they know that they have 10 People waiting on the doorstep to snap the house up.

I purchased my house 6 years ago, and it cost me around £110,000 (GBP) it is now worth £380,000 (GBP) and has no mortgage (thank you domains)

Its a sellers market.. but I would be crazy to sell and buy a new place in the UK so instead I will mortgage 50% of the House and Buy a Big House in the Subs of Toronto later this year.

My local council are building huge estates on what was, five years ago, green belt land.

 

[jasdon11]

My local council are building huge estates on what was, five years ago, green belt land.

Near here they are building on school playing fields - reducing them substantially. No wonder kids are getting fatter!

 

[JEsports]

The problem is that a lot of small and large loan companies were giving pretty much anyone a loan and adjusting the interest rate according to there credit score. Offcourse eventually you would guess this would come back to bite them with bankruptcy and foreclosures etc being that people couldn't really afford the payment on the amount of money they were borrowing. Especially the adjustable rate mortgages.

And thats what has happened, this has come back to bite a lot of companies.

 

[copper]

you say to buy when developers start buying land, how would I know that?, what source do you recommend reading?

Here is simple way.
Go to building permits dept. which usually within cityhall.
Ask for permits issued for past 12 mths.

You'll be able to see rise and fall trend of real estate market easily just by looking at these numbers

 

[robmac]

move to the UK.......it's up, up, up

 

[hunnam]

Near here they are building on school playing fields - reducing them substantially. No wonder kids are getting fatter!

They are building tower blocks for students near me, every street has about 20 students in and developers are buying homes cheap and putting 5 students in a flat.

A bloke bought a flat across from me for £105,000 and is now selling it for £135,000 after only having it for 3 months and he only put a new bathroom and kitchen in costing £7,000!

The prices are crazy, my home was worth £88,000 in 2002 and just before christmas a house sold for £295,000 a few doors away.

 

[Duckinla]

You say that, but you have to realise that the one commodity that we no longer make is Land.

Exactly right, don't confuse places like London with places like Las Vegas. There is no more land to build on in parts of the world. Add in the exponential growth of population, and you have ever increasing prices in some areas. You think New Yorkers would be happy to pay $500,000 for an apartment? I think so.

 

[hunnam]

Wages compared to house prices in the UK are terrible, the average wage is £20,000 per year and the average property price is about £250,000 for a small flat in the middle of nowhere.

In the past 2 years there has been 9 tower blocks for students built within a 15min walk of where I live, we allow hundreds of thousands of immigrants to come to the UK when we can't even house our own. Funnily enough on tonights local news it said Newcastle council are making single mothers live in Hostels for 3 months to prove they are worthy of a property while immigrants get a home instantly.

More homes need to be built along with limits on the amount of properties 1 person can own, the boom will soon go bang and many will end up losing homes.

 

[Poker]

Just don't get caught up thinking that this Real Estate bull market won't end. Real Estate moves in cycles, just like everything else. Buying at the top is a suckers game, leave that to the herd and keep an eye on them (the herd) because once they scramble to get in afraid of missing the train, you have been given a sign of the top.

This consumer credit crunch could get much worse before it gets better.

 

[Creature]

The interest only thing hit here in the states too. That's all well and good but if you just do the interest only payment and nothing above, there is never any equity.

The equity should increase year by year. At least that's the way its been in the UK for as long as I can remember. I know that's not guaranteed.

In the UK the trick seems to have been to have bought more than one house on an interest only mortgage. The profit from the second house to be used to pay off the first or to just buy another house.

Interest only mortgages probably have a lot to answer for the high prices in the UK. If they never existed, the existing high prices would never be affordable imo.

 

[Poker]

In the UK the trick seems to have been to have bought more than one house on an interest only mortgage. The profit from the second house to be used to pay off the first or to just buy another house.

also known as a leveraged position, a position that is quickly unwound (forced liquidation) when buyers and credit drys up.

Interest only mortgages probably have a lot to answer for the high prices in the UK. If they never existed, the existing high prices would never be affordable imo.

and when those interest only mortgages cease to exist, so will the existing high prices for those homes.

 

[Creature]

also known as a leveraged position.

Interesting.

and when those interest only mortgages cease to exist, so will the existing high prices for those homes.

I've never considered that. That would be a disaster as I see it.

 

[Gerry]

The equity should increase year by year. At least that's the way its been in the UK for as long as I can remember. I know that's not guaranteed.

In the UK the trick seems to have been to have bought more than one house on an interest only mortgage. The profit from the second house to be used to pay off the first or to just buy another house.

Interest only mortgages probably have a lot to answer for the high prices in the UK. If they never existed, the existing high prices would never be affordable imo.

That is very true and that is what put so many dollar signs in the eyes of the Amercian speculator. The chance to make a few hundred K in a week's time with flipping properties.

But for those that paid "interest only" on an interest only loan in the flipping game, they lose, lose, lose if they were not able to flip in a hurry. For those still sitting on those properties, they lose on a grand scale.

Most bought on speculation while the market was on an upswing where in many markets the prices were overvalued and hyperinflated. Now those same properties and valuations are on the downswing and there may be a housing glut in some areas...those same properties will actually DEPRECIATE quicker than you can say "HELP!".

"You mean I qualify for a home equity line of credit, low monthly payments, tax deductible, and I can write it off on taxes and use the money for anything I want?"

"You mean I qualify for an interest only loan, low monthly payments, and I can buy a second home?"

"You mean I qualify for an interest only loan, low monthly payments, and I can buy a third home?"

I wish I had a home for each time a bank or a lending institution made us this offer in person or sent us this offer in the mail. Banking and lending institutions made it too damn easy for people to get in this "flipping" game. I am sure many did well. Overall, I now reading and hearing the news about the huge number of ill advised investors who did this and are now so overextended they can never recover.

With the stiffer and new law making filing bankruptcy extremely difficult (thanks to those same banks and lending institutions' strong lobbyist and PAC's groups in D.C.) this could be another return to the US Federal Government's bail out of the savings and loans scandel decades back.

Another way to look at it? Think of it in terms of domain names. With all the press about the huge sums of money being made on domain names, look how many appraisals we see for absolute laughable domain names (it is a matter of opinion, of course) or the asking price for some of these insane domain names and extensions.

But this is the same type of circus atmosphere created. The hype behind the profit. More and more want to get into the market without even knowing the market, the trends, the true value...in other words, jump into the domain name game with out knowing a damn thing about domains. No study, no analyses, no thought process. The only thing that crosses their mind is "My God! Look what this sold for!"

Stock market, real estate, virtual real estate...you can lose your ass if you don't know what your doing. Even if you know what you are doing, you can still lose your ass. Certain market conditions are out of our control in all these investment arenas.

I'm still looking for that one dumbass, I mean shrewd investor, willing to by my Cisco stock for what I paid for it.

and when those interest only mortgages cease to exist, so will the existing high prices for those homes.

Perhaps, perhaps not.

What we may see is the banks, again, realizing the stupid dumbass moves they made to entice everyone to overextend their credit...yeah, we might see those same banks now all of a sudden get hand slapped by the federal regulators.

Now, we'll see them making it much harder and much tougher to qualify for a loan...again, like it was about 15 years ago.

What does this mean for the housing market? Could get interesting. Those that are sitting in their castles and can not afford to take a lose will not sell. Those that want to hurry up and get the hell out will take anything.

Those high dollar and smug damn developers and builders who think they create gold out of a sow's ear (don't get me started on building contractors in the area I live in) and spew bullshit praise upon themselves out of every orafice will not have the market for their $750K home that cost them $200 to build using the cheapest materials and "slave" illegal immigrant labor all the while charging $150.00 minimum per sq. ft.

Those homes will come down to earth in price. And so won't those developers and builders. Time for a dose of reality in many areas of this country. Unfortunately, it won't be pretty.

Now, it will take a few years for all of this to catch up to each other and stabelize. That would be the best case scenario...a sssssssslllllllllllllooooooooowwwwwwww downward slide.

But add to this nation's troubled economy and budget worries and downsizing of many industries along with potentially massive cutbacks in the nation's manufacturing sector (ie, auto industry), the never ending need for more money to support an ill concieved way (I support the troops...I do not support the "talking heads" in DC), as well as continued budget cutbacks to fund programs and the ever increasing healthcare crisis...

yeah, it ain't pretty.

 

[Raider]

Very nice piece Doc, I couldnt agree with you more on the building contractors, I think the building inspectors who write off the shotty workmanship are equally to blame, seems the only thing they care about is if it passes code.

I happen to agree too that the harder it is to qualify for a home loan, or an increase in interest rates, will result in lower home prices, its the only way the housing market can go...am I wrong?

 

[namestrands]

Increasing the interest rates is more likely to crash the already volatile American Economy, now with venezuela and other countries trying to trade oil in Euros instead of Dollars and lets not forget the 1 Trillion $ currency reserves that china are holding in american bonds and even the japanese are holding over 900 Billion in USD.. Could you imagine were they to dump those bonds and invest in a more stable currency like Sterling or the lesser Euro.

China are now using its reserves to buy into Major American Corporations and even real estate.

How the government ever allowed this to happen is beyond me as any decision to diversify into non U.S. holdings could have disastrous consequences for the U.S. economy as it would result in a dramatic fall in the US dollar.

Forget about the house prices, start learning chinese.

RaiderGirl I can bet my home that American Interest Rates will actually fall to curb the foreclosures and the pending housing bust.

 

[Poker]

I happen to agree too that the harder it is to qualify for a home loan, or an increase in interest rates, will result in lower home prices, its the only way the housing market can go...am I wrong?

With the general public a surplus of cash leads to a shortage of sense.

 

[Gerry]

With the general public a surplus of cash leads to a shortage of sense.

That was the case we are describing and discussing. Now, where is the surplus of cash going to come from to bail out the banks and mortgage lenders...once again?

There is no surplus.

Bankruptcy? Screw it. Many will just walk away and say, "Sue me. I don't have a pot to piss in so what are you going to get". Again, it will be those banks and lending institutions holding worthless notes and crying all the way to capital hill.

Congress can enact all the good ol boy laws it wants. Enforcing them is another matter.

 

[Poker]

I'm just reiterating my points made above...we are at (or very near) the top of a realestate cycle and overly lenient credit practices are causing a ripple effect. Best to just sit on your hands and wait for prices to come to you. If you are overextended right now, I would think seriously about trying to sell as soon as possible. None of us have a crystal ball, but we all need to remember to manage risk or it will manage us and at this time there is a lot of risk accumulating.

 

[BostonDomainer]

Very nice piece Doc, I couldnt agree with you more on the building contractors, I think the building inspectors who write off the shotty workmanship are equally to blame, seems the only thing they care about is if it passes code.

I happen to agree too that the harder it is to qualify for a home loan, or an increase in interest rates, will result in lower home prices, its the only way the housing market can go...am I wrong?

I only agree with you partly on this one Raider Girl. Fact remains that a significant enough chunk of people that were buying houses in the U.S was through sub-prime lenders. With the market going through a correction phase now, higher interest rates will only increase the 30 and 15 year mortgage rates. However, rather then naturally correcting the problem, people will just go into adjustable rate mortgages like they did a few years ago. In 1993 when we had a similar scenario, people didn't leave, they switched to adjustable rate mortgages which really had no impact on home prices. That's how it was in Boston (my hometown) and other top realestate zones.

 

[Gerry]

I happen to agree too that the harder it is to qualify for a home loan, or an increase in interest rates, will result in lower home prices, its the only way the housing market can go...

That would be my guess.

From what I am reading and hearing from the publicly traded builders and developers, again they are forecasting a bleak outlook for 2007 housing market new construction. It's kind of ironic that they created their own mess but they will ride it out (for a while) from all the profits that they raked (raped) in over the past few years while riding that gravey train.

Add that to existing home sales declining and you have your downward trend as well as a buyers market. I am sure I will see it locally as the supply will be far in excess of the demand. Certain areas and locales like the hot Arizona market will continue to flourish. But that will only last until they come to the realization...we got no water! (that could be an entire thread but isn't this a domain forum? :eek)

If anyone is in the market for a new home or perhaps a second home, wait until later this summer and going into fall. Those that bought multimillion dollar beach front homes or home will count on summer rental income thinking that will be their saving grace and they will be able to ride out the storm but I hardly think that will be the case.

Someone mentioned land is a commodity that is just not being made anymore. So true. That is why we have always owned just one home at a time (the one we live in at that time) but have always put money into good land where I see the potential growth. Never over the years have I done less than 250% return on investment in less than 2 years and have seen as much as a 500% return in the same period of time (1.5 years). Only once have I taken a first offer.

It is quite similar to domain names. Yes, I can and have made a 10,000% return on a domain name. But I have never been handed checks for several hundred thousand K for a domain. And I never buy land purely for speculation. Each tract or lot we have purchased we have envisioned ourselves building a house and living there. In other words, we have to love it and consider it for ourselves to make it a yes and no situation. We have just been fortunate to have had the luck for someone else to come along and want it more than we do.

I'm just reiterating my points made above...we are at (or very near) the top of a realestate cycle and overly lenient credit practices are causing a ripple effect. Best to just sit on your hands and wait for prices to come to you. If you are overextended right now, I would think seriously about trying to sell as soon as possible. None of us have a crystal ball, but we all need to remember to manage risk or it will manage us and at this time there is a lot of risk accumulating.

Great point.

I only agree with you partly on this one Raider Girl. Fact remains that a significant enough chunk of people that were buying houses in the U.S was through sub-prime lenders. With the market going through a correction phase now, higher interest rates will only increase the 30 and 15 year mortgage rates. However, rather then naturally correcting the problem, people will just go into adjustable rate mortgages like they did a few years ago. In 1993 when we had a similar scenario, people didn't leave, they switched to adjustable rate mortgages which really had no impact on home prices. That's how it was in Boston (my hometown) and other top realestate zones.

Certain parts of the country, like Boston, will be in high demand and will see little impact from any correction. A little tick on the meter here and there. Anyone who had an adjustable rate should have locked in when the 15 and 30 year got down to 6%. But this was when they went on the borrowing and equity spree and not playing it very smart.

Other areas will be hard hit. I am really curious to see the reports out of Florida where people put their life savings and retirements on the line and got into the game. Reports of the same condo or townhouses flipping hands three times in one day, buying site unseen, even going at via ebay. Incredible. I would like to wait and see what the status is of this market in 6 months. Could be scarey, could hold up okay.

Increasing the interest rates is more likely to crash the already volatile American Economy, now with venezuela and other countries trying to trade oil in Euros instead of Dollars and lets not forget the 1 Trillion $ currency reserves that china are holding in american bonds and even the japanese are holding over 900 Billion in USD.. Could you imagine were they to dump those bonds and invest in a more stable currency like Sterling or the lesser Euro.

Even the Canadian dollar is not too far from a 1:1 ratio which is unheard of. A blessing to the canadian vacationers.

There was a time not too long ago that I was looking into some beautiful land (waterfront) in Nova Scotia. My neighbors would have been vacationers from England and Germany. Very easy hop from the UK and Europe to Halifax. That was when the USD to CAD was $1.62 to $1.00. The other night I looked and that gap had now closed to slightly greater than $1.17 to $1.00. Oh, Canada!

With the GBP and Euro where it is and the USD where it is, it is not even worth debating.

China are now using its reserves to buy into Major American Corporations and even real estate.

Off domains for a moment (like this topic wasn't) and interesting side note. A personal friend of mine is one of the world's most reknown experts on stringed instruments, most notably the Italian makes and masters of the Cello, viola, and violin. He is considered by many one of only the top 5 in the world, one of only the top 3 in the US.

His biggest client and purchaser over the past 2.5 years is a Chinese businessman from L.A. Rare Italian makers or the 18th and 19th century and their instruments are being purchased at whatever the asking price is...not lowballing. This Chinese business man is taking these instruments back to China, selling for enormous amounts of money to a booming economy and a culture that values the arts, history, and culture. This same Chinese business man is in turn buying multi million dollar properties, apartments, and homes in Beijing in preparation for the Olympics in 2008. This is big times news coming out of China now but this man has been doing this for perhaps the past 4 years.

My friend...the only thing he is complaining about is he can not find enough quality instruments available on the market to entice this buyer. My friend does not deal in junk and this business man does not. Only the best for the best.

How the government ever allowed this to happen is beyond me as any decision to diversify into non U.S. holdings could have disastrous consequences for the U.S. economy as it would result in a dramatic fall in the US dollar.

Gee, you would think that perhaps the the lessons learned from a powerful YEN buying up nearly all of L.A. and other major markets not to mention sports teams back in the late 80's and early 90's would have been lesson enough.

Forget about the house prices, start learning chinese.

I was listening to NPR not too long ago about this very subject. Currently in the US there was something like 14,000 students taking Chinese as part of the cirriculum. Meanwhile, I believe I heard that 4,000,000 students in China were studying English. (I could be off on the second number but I know the gap was quite staggering)

Locally, many of the schools, including elementary schools, have dropped French (sorry) and have taken to offering Mandarin Chinese.

RaiderGirl I can bet my home that American Interest Rates will actually fall to curb the foreclosures and the pending housing bust.

These are very valid and noteworthy points. But I am afraid that may not be the case. I fear that we may see a lot of imbalances all come into place at the same time.