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Old 03-30-2015, 12:52 PM
 
Location: The Triad
34,090 posts, read 82,675,254 times
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Quote:
Originally Posted by Mircea View Post
The values of all homes are artificially over-inflated by 50% to as much as 500% in some Markets.
And so is the equity market.
And so is the currency used to buy each and what we might get from each.

So long as everyone agrees to not look too closely...
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Old 03-30-2015, 04:04 PM
 
Location: Barrington
63,919 posts, read 46,578,285 times
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Quote:
Originally Posted by Mircea View Post

The values of all homes are artificially over-inflated by 50% to as much as 500% in some Markets.

Ending government created Interest Inflation and speculation will restore housing prices to Free Market levels.

Mircea
It's the cash buyers that have contributed the most to inflation in rather limited markets, across the US.

Wealthy foreign buyers are using US real estate like a lock box for their cash.They typically focus on serious high end and rarely occupy the property.

Then there's the private equity firms who have been gobbling up foreclosed homes in parts of Florida, Arizona, Nevada, Georgia, North and South Carolina. When one is able to take 250 properties off a bank's plate in one transaction, one gets wholesale pricing. They are highly diversified and count on cash flow with the goal of at least a 20% ROI. Some have or plan to spin off into publicly-traded companies.

Lastly are individual investors looking for modest acquisitions to flip or rent. Some know what they are doing and some, not so much.

FNMA/FHLMC- owned properties give individuals who intend to occupy, a window of preferred opportunity to bid. They almost always take back up bids because individuals tend to need financing and may or may not qualify after income and asset verification.

From a historical perspective, prior to the Great Depression, the "Free Market" required most buyers to have a 50% down stroke and accept the interest rate risk. The maximum term was 5 years at which time either the owner paid off the note or refinanced at current market rates. Despite this, about 50% of homes went into foreclosure during the Great Depression and banks for the most part, refused to write new mortgages or allow refinancing.

The GI Bill allowed veterans to buy a home with no money down at a fixed interest rate over 20 or more years times. It was the first modern day sub prime loan. If the veteran went into foreclosure, the US government took the hit. This alone goosed the post war economy and the growth of suburbia, cars to commute, new Maytag washers and TVs. This is turn created the need for parks and recreation and schools for the baby boom.

Back in the 80's the Savings and Loan institutions got themselves into a major real estate/ interest rate pickle that required a humongous bail out.

And then, most recently as the bubble inflated, the FNMA/FHLMC market share substantially declined because the sub prime mortgages did not qualify. Lenders had no worries because the free market, Wall Street, bought the junk and repackaged them as private label securities, sans a FHLMC/FNMA guarantee.

The independent credit rating agencies compete with each other for Wall Street credit rating business. These were the " free market" organizations that all experienced the same " glitch" and assigned many of these hybrid private label securities AAA rating and in doing so, opened the floodgates. Private and public pension plans, retirement plans and insurance companies gorged on these investment grade securities and did so without doing due diligence and instead relied on the AAA ratings. It was the investment of FNMA/FHLMC's own capital into these hybrid private label securities that brought them down- not their loan programs. Nmae a state or municipality or private pension plan in financial doo-doo , and chances are you will find they invested large amounts in the garbage.

Real estate markets everywhere are cyclical. Many countries experienced substantially larger bubbles than the US did, this last go around. South Africa and New Zealand saw the greatest inflation. Canada is another. Canada, like the US insures mortgages for a premium. Canada has many programs to enable those with low income and less than stellar credit to buy homes. What makes Canada and these other countries different is that they did not have a "free market" that bought sub prime paper, repackage them as private label securities and magically acquire investment grade ratings so that they could be sold to conservative institutional investors.

As usual, I digress when it comes to this topic.
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Old 03-30-2015, 04:11 PM
 
Location: The Triad
34,090 posts, read 82,675,254 times
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Quote:
Originally Posted by middle-aged mom View Post
It's the cash buyers that have contributed the most to inflation
in rather limited markets, across the US.
Meh. The means of payment is quite immaterial.

If anything those paying with their cash will be more careful than someone
laying off on the bet (as with a mortgage) btw... I'm a cash buyer.

Quote:
Wealthy foreign buyers are using US real estate like a lock box for their cash.
They typically focus on serious high end and rarely occupy the property.
The issue, to the degree there is one, is OVER paying for that market.
It happens a lot with transplants who don't know or are in too much of a hurry to learn.
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Old 03-30-2015, 05:21 PM
 
9,891 posts, read 11,713,661 times
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Quote:
if these two agencies were done away with. Borrowers would have to meet more stringent lending standards and housing prices would go down. IMO that would be great. Thoughts on this?
Fact: You would wipe out millions of people like the last housing bust, and cause serious financial problems for many others. Remember how millions of people were underwater, and how many turned their homes back to the lenders. Prices dropped, but financially ruined a lot of people. Banks and lenders were in serious trouble when what you think would be great happened. This in turn was a major cause of the deep recession the country went into due to this problem. And parts of the country are still in recession due to this happening.

What you think would be great, would bring back super high unemployment worse than the depths of last recession, financially destroy a lot of people, and hurt the country for years. Remember we are just starting to really recover from the last housing crash that you want to happen again.

Housing prices are not through the roof everywhere. Only in a few markets are they out of sight.
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Old 03-30-2015, 07:03 PM
 
948 posts, read 915,039 times
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House prices are high because of investors.
They started the first housing bubble.
When prices began going back up in 2011, the investors began buying up everything again and made the prices skyrocket back up again.
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Old 03-30-2015, 07:36 PM
 
18,506 posts, read 15,494,002 times
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Quote:
Originally Posted by Electrician4you View Post
Most houses for sale are "used". Shouldn't prices go down? New construction couldn't begin to have enough supply.
I was getting into the market but I'm in a holding pattern right now. I think prices are going to start coming down in the next year or two. Unless they start doing stupid loans again

Wanna hear something totally crazy. Driving to a friends house wife wanted to see these models. 820-850k starting price. 2-2300 sq ft. In Garden Grove area. I looked at these houses. Looked great until you really started to see the quality was lacking. Builder grade everything. Bottom of the barrel. Houses weren't worth anywhere near 500k much less 850k
I was talking about buying cars, not buying houses.
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Old 03-30-2015, 07:40 PM
 
18,506 posts, read 15,494,002 times
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Quote:
Originally Posted by texdav View Post
Low housing price mean less invest in a home. Its like anything it reflects low demand and no housing inflation. Over all that is not good. It also means less builders constructing houses and a aging market of homes. If one look its driven up rents to those who an least afford higher rents and certainly not a home.
Any dramatic deviations from a stable market are bad, up or down. In a stable, sane market, new house prices are slightly above the cost of land plus construction (to compensate the investor for the time and risk), and rents are high enough so that a rational investor will be roughly indifferent between real estate and stocks.

Of course the real market deviates in both directions from this, and too much deviation either way is bad.
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Old 03-31-2015, 09:56 AM
 
Location: Chicagoland
5,749 posts, read 10,350,040 times
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Quote:
Originally Posted by kinkytoes View Post

But for the middle class, it is almost impossible for most people to save all of the money they need to buy a house or even a car. This is not true even in third world countries, where people can and do save money to buy their houses.
Do you have stats re: people in other countries buying cars/houses?
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Old 03-31-2015, 05:53 PM
 
Location: Land of Free Johnson-Weld-2016
6,470 posts, read 16,353,560 times
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Quote:
Originally Posted by Mircea View Post
...

BRICS let the Globalization Genie ouit of the bottle, and there's no putting it back. As the 2nd, 3rd and 4th World progress through the levels of economic development, they will consumer increasingly more, putting extraordinary demand pressure on all commodities.

Either adapt and alter your Life-Style accepting a lower Standard of Living or learn which parts of the human body are best to cannibalize.
Your post made me laugh. Not in a bad way. I've said 1 for years, but I'm still waiting to see this happen. The government has been affecting commodity prices by preventing free trade with foreign countries. So even if there are items they could buy up, apparently there are restrictions preventing them from doing this.

Also in Asia more and more people have consumer debt. This is because of high commodity prices in their own countries. Especially for housing. This puts a damper on your statement. It also put a damper on my predictions here on CD a few years ago. I predicted prices for wood, silk etc. would all go through the roof because of pent up third world demand. My bad...

In addition to the link below, when I lived in Korea, it seemed that a lot of professionals were using cash advances and other loans to pay for school, housing etc. Kind of like payday loans. Housing prices were climbing and expectations were climbing. Reading online comments by internet users in Japan, Korea and China makes me think this has just been getting worse. Ppl there are stressed.

Debt Could Derail China's Ambitions - Bloomberg View

But if I have to eat body parts...I choose the butt. LOL a nice clean butt. With a nice chianti ffff

Quote:
Originally Posted by Mircea View Post
...
If you got rid of Fannie and Freddie then:
  • the government would no longer steal money from tax-payers to provide mortgage insurance
  • either the bank or the home-buyer or both would have to purchase private mortgage insurance...
Mircea
You are preaching to the faithful. Right now it seems the congress guys are running scared and being lobbied to death by the banks...of course they say this will be CATASTROPHIC. It is apparently in their interest to make sure everyone is in debt for as long as possible.

Quote:
Originally Posted by middle-aged mom View Post
It's the cash buyers that have contributed the most to inflation in rather limited markets, across the US.

...
Kinkytoes must disagree. I had two cash offers on some property I sold last year. They both lowballed. When I pay cash, as I do for most of my furniture and cars...I lowball people too! With cash they don't have to wait for the money and transaction costs are lower. IMO cash sales are usually for lower prices and it is CREDIT that causes fake price increases.

Think about some gas stations that charge less for cash sales. The CC companies may have lobbied and had that outlawed, so now we can ALL pay for the transaction fees...but my point is. Credit costs money and adds to the cost of the transaction. It inflates asset costs.

Quote:
Originally Posted by GoCUBS1 View Post
Do you have stats re: people in other countries buying cars/houses?
Why do I have to have stats. I've lived, worked and studied in other countries. This is anecdotal. I'm also a first generation immigrant, and this is what I've seen. If you want to discount my information because of that then feel free.
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Old 03-31-2015, 07:03 PM
 
10,075 posts, read 7,499,984 times
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Quote:
Kinkytoes must disagree. I had two cash offers on some property I sold last year. They both lowballed. When I pay cash, as I do for most of my furniture and cars...I lowball people too! With cash they don't have to wait for the money and transaction costs are lower. IMO cash sales are usually for lower prices and it is CREDIT that causes fake price increases.
I agree with this as well. I offered cash and got it for a lot less, around 50% off price (but it was a while back when most house prices went down too)

The mortgages actually inflate the price because people see lower monthly payments instead of total owed after 30 years so they end up buying more house than they can afford. This goes for any loans in general. School loans, car loans, walmart layway, payday loans, etc.
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