Real Estate Market / Inflation / Recession / Depression (mortgage, loans, foreclosures)

[formercalifornian]

Originally Posted by jjman

My wife and I are looking to buy our first home soon. We have loads of cash in the bank, and excellent credit, but banks and mortgage lenders have looked at us like we're crazy when we say we'd like to put at least 20% down. Everybody involved in the real estate industry still insists on the notion of housing as an investment (we consider it an inflation-hedged asset). People are still getting ridiculous loans, which indicates to me that things aren't that bad yet (note, I'm not saying thing won't get worse, just providing a data point). These mentalities are very slow to change.

Also, we've looked at a lot of houses, and there is definitely a huge amount of inventory, but it appears that the good houses are selling fast. Many of the houses we've had on our list to look at are gone within a week or two, and we haven't even gotten a chance to look at them. The houses that have been sitting around for months and months are simply bad houses. Many of these are short sales or foreclosures. My theory is that people who lose their houses because they can't afford them are not very smart people; these folks made bad decisions when purchasing and when upgrading their homes, and now all that remains is a crummy, undesirable house. I think there were many people who were not prepared for the responsibility of homeownership, in terms of making the payments and maintaining their homes. Again, not trying to make any sort of statement, just presenting what I've encountered as a potential home buyer.

I guess a good question to ask is why I'd buy a house now. Well, since I think of a home as an inflation-hedged asset, we're ready financially and emotionally for home ownership, and prices are already depressed quite a bit, now seems like a decent time to purchase for me and my wife (unless you're a doom and gloomer...I'm bracing myself for the inevitable torrent).

JJ...are you planning to purchase in CR?

[Bob from down south]

Originally Posted by jjman

My wife and I are looking to buy our first home soon. We have loads of cash in the bank, and excellent credit, but banks and mortgage lenders have looked at us like we're crazy when we say we'd like to put at least 20% down. Everybody involved in the real estate industry still insists on the notion of housing as an investment (we consider it an inflation-hedged asset). People are still getting ridiculous loans, which indicates to me that things aren't that bad yet (note, I'm not saying thing won't get worse, just providing a data point). These mentalities are very slow to change.

You can imagine the looks I get when I tell people I plan to put 100% down. Lots of houses in Colorado Springs are showing back up on the market after a few weeks in "pending" status. That usually means no-go on that easy financing people keep alluding to. People like you and I who need the loans least can still get them.

Originally Posted by jjman

Also, we've looked at a lot of houses, and there is definitely a huge amount of inventory, but it appears that the good houses are selling fast. Many of the houses we've had on our list to look at are gone within a week or two, and we haven't even gotten a chance to look at them. The houses that have been sitting around for months and months are simply bad houses. Many of these are short sales or foreclosures. My theory is that people who lose their houses because they can't afford them are not very smart people; these folks made bad decisions when purchasing and when upgrading their homes, and now all that remains is a crummy, undesirable house.

Perhaps that's true in the entry-level price ranges in CR. My experience in Colorado Springs is that there are massive numbers of good properties in the mid to upper price ranges sitting and not moving. Nice properties at cut-rate prices move...slowly.

Originally Posted by jjman

I guess a good question to ask is why I'd buy a house now. Well, since I think of a home as an inflation-hedged asset, we're ready financially and emotionally for home ownership, and prices are already depressed quite a bit, now seems like a decent time to purchase for me and my wife (unless you're a doom and gloomer...I'm bracing myself for the inevitable torrent).

Only you can decide if seeing similar houses moving for 10-20% less this time next year will make you look back and kick yourself for not waiting. And as far as a house as an inflation-hedged asset, the long-term trend supports that viewpoint, but of course buying now, before prices revert to the mean trendline, means that you will see returns significantly below parity with inflation, particularly if liquidation occurs in the short term. If your holding period is long enough (say 15+ years) you shouldn't be bruised too badly. OTOH, if a sale is likely within the next 5-10 years (the normal holding period for first-time buyers over the last decade or two has been less than 5 years), this may well prove a painful learning experience for you and your wife.

Caveat Emptor, baby.

[jjman]

Yes, we're looking in CR. Also, I neglected to mention that our plan is to purchase well within our means, and pay off the house quickly, so that we CAN hold on the house as long as necessary, even if we don't live there and rent it out as income property (it's very difficult to plan 5 years down the road, much less 15 years). If houses in the Denver area do indeed drop another 10-20%, we have bigger problems to worry about than losing 3 months of salary in equity. Believe me, I have scoured the data, and tried to be as negative as possible (which includes reading this thread regularly!), and Denver-area housing just hasn't come down a whole lot (at least the types of homes we're looking at).

[jazzlover]

People are assuming that there will be only a 10-20% decline in real estate values with this downturn. In a true real estate "bust" (and I lived through one), that was not the case. Most every property declined at least 30% from the peak, and many exceeded 50%. Many people also assume that the "turnaround" will come in 1-5 years. With what I see, 10 or more might be a lot more realistic. I fully expect some areas will never recover--at least not in my lifetime.

I have said it so many times I'm blue in the face--this is not going to be a "mild" correction. I think it may be the largest decline in real estate values that anyone now alive has ever seen. I have had umpteen chances to buy properties already at 10-20% discounts from the peak--and I have the money to do it. I've passed--because I think this market still has plenty of downside potential and a long time to go before it comes back.

[formercalifornian]

Originally Posted by jjman

Yes, we're looking in CR. Also, I neglected to mention that our plan is to purchase well within our means, and pay off the house quickly, so that we CAN hold on the house as long as necessary, even if we don't live there and rent it out as income property (it's very difficult to plan 5 years down the road, much less 15 years). If houses in the Denver area do indeed drop another 10-20%, we have bigger problems to worry about than losing 3 months of salary in equity. Believe me, I have scoured the data, and tried to be as negative as possible (which includes reading this thread regularly!), and Denver-area housing just hasn't come down a whole lot (at least the types of homes we're looking at).

Out of curiosity, where in CR have you been looking? My rental's neighborhood seems to be picking up a bit. Most of the foreclosures have sold, but the traditional sellers are still sitting on their properties. I suspect pricing issues.

We just bought in Centennial, and we're very happy with our choice. I'm also aware of the risks, but owning suits us at this stage of our lives, and we stayed well within our financial comfort range.

Good luck finding a property!

[jjman]

Originally Posted by formercalifornian

Out of curiosity, where in CR have you been looking? My rental's neighborhood seems to be picking up a bit. Most of the foreclosures have sold, but the traditional sellers are still sitting on their properties. I suspect pricing issues.

We just bought in Centennial, and we're very happy with our choice. I'm also aware of the risks, but owning suits us at this stage of our lives, and we stayed well within our financial comfort range.

Good luck finding a property!

Castle Pines North.

[Biopace]

"Area housing may be recovering" - Area housing may be recovering - The Denver Post

[Bideshi]

Originally Posted by Biopace

"Area housing may be recovering" - Area housing may be recovering - The Denver Post

The sunshine machine keeps pumping out the Pollyanic wishful thinking. The housing bust has only started.

[CosmicWizard]

Bideshi wrote:

The housing bust has only started.

Maybe. Maybe Not. Time will tell. We'll see.

[formercalifornian]

It's really hard to tell what's going to happen at this point. Indicators are all over the place, which makes me very nervous. I just bought a house. I have no idea whether or not that was a good decision from a purely financial stand-point. I do know that I'm happy to own again after two years of renting, and my spouse and I stayed well within our comfort range.

People around me seem to be going about business as usual. Restaurants are full at dinner-time, and Target lines are just as long. Are we in denial? Who knows. I think most people are confused about what the future holds. They're not sure what to do, so they maintain the status quo.

Personally, my family has pulled back a bit, but not drastically. We bought a smaller and less expensive house than we might have bought a couple of years ago, but we did buy new furniture for the living room and had the old re-finished. After ten years of kids, it was time! We needed to replace the second car, but instead we decided to move closer to work and sell the clunker. We can nurse the good car along for a few more years. We still eat out (mostly because our kitchen is in total disarray because of the move), but I'm planning & planting a large garden. We've canceled a few of the kids' activities, but they were already over-scheduled and it was crazy to drive to our old neighborhood to let them continue anyway. We've increased the amount of money we put into savings/investments, and we're watching that money carefully.

All that said, things in our household are really good. My spouse just landed a promotion and a generous raise. We carry no debt, and we have a very healthy bank account. We bought our house for cash, our car is in good condition, and everyone is healthy. I don't know why I feel anxious, but I can't shake this feeling that times are going to be rough for awhile.