Why are the prices of houses falling in CO? (Denver: renting, insuring)

[elemental]

Guys and Girls, when the market crashes in the northeast, we are seriously in for it. I thought the market here for those selling was bad and it is. I then compared it to how bad it will be in the northeast whenever that bubble decides to burst.

Here's a quick summary.

My uncle is a RE agent with a major firm. He sells in a largely ethnic area consisting of latino, hindu, haitian, etc. The banks are hitting these people for points you've never heard of plus making 110% loans with nothing down. Now how can you qualify for a $550k loan when you make $57k per year? You can't, unless your fico is over 750. These people are getting in so far over their heads, it's incredible and I believe some of the blame has to fall with the unscrupulous mortgage bankers charging 6 points(included in the mortgage of course) and giving out loans in excess of 50% of their net income. Yes, people are greedy too, but when the market says rent for $2500, take a ridiculous mortgage or get out of dodge, some people make the wrong choice. Point is, the prices are so ridiculous, it HAS TO BURST!

Then we're in for a recession....

Originally Posted by formercalifornian

Here we agree. It's not realistic anymore, and some people will do very well with a $0 down loan. I bought my first house with an FHA, low down-payment, 8% loan, but I was only borrowing 1.5x my household income. Now, people need to borrow 4-10x that depending on the area of the country, and saving up at least a 10% down-payment is an extraordinary hardship. But, I stand by my contention that continuing to feed the real estate monster by allowing people to borrow huge amounts of money with little down-payment isn't sustainable over the long haul and will eventually lead to decreasing prices in many locations. Incomes simply cannot catch up over the short-term to bring things back into balance.

[Card Shark 2]

Prices are falling anywhere the market was over-blown. They started leveling off but then took a nose-dive since so many are losing their homes due to bad loans. It is hurting anyone who owns a home, anywhere in the US.
Here in Northern Nevada, home prices are declining big time. Many from CA were moving in and investing here and now they have stopped and are in serious trouble. I am an investor but I move slow and rent my homes out. I am not in to flipping in less than 3 years. Those that try to flip in one year are in real trouble now.
Not only is it a buyers market it is a renters market too. Lots of choices and rents are coming down.

I just came back from C. Springs and was shocked at the prices of beautiful homes, less that $100 a sq ft. I am truly ready to buy at that price. But if I do I am in it for the long haul. Prices won't fix themselves until late 2009. The market in CO is flooded with homes for sale just like NV.
If you don't have to sell, wait. People think there home is better than anyones elses and list it any way. In a market like this, only the cheap ones sell, because deals are everywhere.
Sharon
Wife of a CA & NV RE Broker

[tccat63]

We live in a selfish and self centered plastic society. Yes, still today people are getting loans almost 100 % I know of some one getting one I also know of people getting 80 /20 loan.
Amazing huge lies when they tell you that they are getting more picky on who they lend their money too.
But who is the ultimate looser is our own economy that is paying for this foreclosure epidemic.
Is Green span a nice guy? I am not so sure if I trust him any more either or maybe is just a puppet from the puppet show!

[jazzlover]

Hate to tell you, folks. This is just the beginning. Let's see--we are seeing record foreclosures in an economy that up until now had what was considered pretty much full employment. (I am reminded of a bumper sticker that made the rounds in the early '80's: "Why worry about a recession? I've failed during booms.") The fed tried to paper over the problem by lowering interest rates--that with the dollar already at record lows. Can we say inflation? Energy prices are reaching record levels--even when indexed for inflation--this with no current major supply disruptions and refinery capacity operating at reasonable levels (87%, as of this morning--most oil people I know consider anything over 85-90% to be "full utilization," accounting for necessary maintenance windows, etc.). Though the government inflation statistics don't reflect it (because they exclude food and energy costs), core living costs have risen approximately 35% this year, according to figures quoted on CNBC--an uncharacteristically candid report from a network usually disposed to take the "Pollyanna" view of things. According to some commentary on CNBC this morning, that increase has pretty much "eaten up" most of the average American's discretionary income. And all of that inflation of energy prices hasn't even worked into the general prices of many goods and services yet--that will probably be the a first quarter 2008 "surprise" for American consumers. (Another report I read predicts that food prices will continue to inflate at double-digit levels through all of 2008.)

As for Colorado, when all of that spam hits the fan (my guess is sometime in the first quarter of 2008), the real estate market will REALLY start to tank, and that will take construction in Colorado down with it (construction is already tanking in many parts of the country). When that happens, Colorado's over-reliance on that industry will become woefully apparent, and the job losses will be staggering. Meanwhile, the tattered remnants of American's discretionary spending won't be enough to support Colorado's bloated recreation industry--and the summer tourist season will be a disaster, too. If some oil shock were to happen between now and then, the tourist season might just go comatose. The only bright spot will be in the energy industry, but all of the expansion that might occur there will never be enough to sop up the job losses in construction, recreation, and real estate speculation. The boom will be over, and lot of people, natives and transplants alike, who have been living off of it will get to see what a Colorado bust is like.

Once again, I will be tarred as the "prophet of doom," but there is a "perfect storm" brewing in the US economy, and--unlike some other recessions/depressions--Colorado may just get hit by the eye of this one.

[formercalifornian]

I don't think you're a profit of doom, Jazzlover. I'm worried, too. My spouse and I are back in the housing market after a year of exurban renting, and we're exclusively shopping neighborhoods within walking distance of his workplace and light rail.

I don't know if real estate prices will tank, but I do know that my family's best bet against the inflationary pressures that I believe to be headed our way is limiting our exposure to the goods are services that will be hit worst. Therefore, we'll be buying a small, energy-efficient house with just enough room for a vegetable garden and selling our second car. A big house on a huge lot in the country just isn't worth the long-term risks to our financial security.

Plus, like livecontent, I've always been a simplifier at heart, and now that I'm getting older, I just don't care what other people think anymore. Those who would look down their noses at our frugality, which tragically includes some of our extended family, won't be funding our retirement.

[CosmicWizard]

formercalifornian wrote:

I just don't care what other people think anymore. Those who would look down their noses at our frugality, which tragically includes some of our extended family, won't be funding our retirement.

I applaud your attitude! This was my approach to life for many years. Then I became more materialistic. Now I'm gradually shifting back toward voluntary simplicity.

blessings....Franco

[Mike from back east]

The current situation has a lot of people in high places quite concerned. One speaker I heard at a recent investor meeting said that Wall Street is in a state of panic, that a lot of money has gone to the sidelines to watch and see what happens.

I sure haven't the background to make heads or tails of this stuff, best I can do is rely on the columns of smart people. There is one today in the WaPo by Samuelson, who I consider one of the smartest guys. Here's the link:
http://www.washingtonpost.com/wp-dyn...121801633.html Gist of Samuelson's story is: "Despite all the bluster, evidence of a widespread credit crunch is scant. Though credit standards have tightened, bank lending is still increasing. Many U.S. companies have paid down short-term debt, and corporate cash flow is running at a respectable $1.2 trillion annual rate. This insulates many firms from strains in credit markets. The obvious danger is another wave of large losses that would cripple investors, particularly banks. The Federal Reserve acted last week to forestall that possibility by creating a new lending procedure by which banks can borrow from the Fed. This provides an escape valve if the interbank market remains too unforgiving. The Fed seeks to maintain confidence without bailing out lenders from bad decisions. It's also trying to avoid recession while cutting inflation. The difficulty of reconciling all these worthy goals may well explain the great perception gap."

In a bit of a contrast to Samuelson's perspective, another smart guy in the WaPo, Richard Pearlstein, thinks we're in the biggest mess since 1929. His column on the mortgage mess is at: http://www.washingtonpost.com/wp-dyn...120402186.html

I find that reading both of these guys gives a pretty decent education, along with the other things I read and listen to.

So, for all of these reasons given by all the smart guys, seems that housing prices are falling back to earth after the incredible 2002-2005 run-up that was fueled with outrageously low interest rates courtesy of the Fed. The run up in home prices seems to be a bubble, much like the dot-com bubble. Now the housing bubble is deflating and taking the credit market down with it, with collateral damage to the main stock markets.

[Charles]

Still, I'd rather be a homeowner in a Colorado, Texas, Oregon, etc. where median house prices and median incomes are a heck of a lot more in line than they are on the coasts. I doubt home prices in Colorado would fall nearly as far as they will in California. Glad I don't live there anymore; It's nice to rise in California and fall in Colorado.

If anyone wants to feel better, visit the LA forums and browse any thread that is titled something like "Looking to buy a home in LA..."

[BigCheeze]

Boy do I agree with you Charles, the wife and I left Ca several years ago and have never looked back.

The problem with things like 80/20, ARM and the like is that they were originally designed for high income, high credit people who were looking to simply buy stuff as a short term investment. Now because of the way the market went crazy, because of all the paper money that people thought they had, the normal income and normal (or below) credit people are getting home loans on houses they can't afford. I'm sorry, but a family of 4 making $85,000.00 a year simply CAN NOT afford a $350,000.00 house, let alone a $500,000.00 house.

While the banks are of course to blame (because if they didn't make those kinds of loans, the price of houses could have never gotten that high), those people who signed on the dotted lines have no one to blame but themselves. My wife and I refused to buy a house while we lived in Ca because they were simply over priced, and basic math and common sense told us that if we were to do what ever we had to in order to buy a decent house we'd be screwed if either anything happened to the market or one of our jobs. Where as of right now even if I (the one who makes the most) were to lose my job we wouldn't lose our house or our cars, and almost nothing in the market can change that.

Hate to quote Forest Gump but.... "Stupid is as Stupid does"

[CosmicWizard]

Charles....I'm basically in agreement with you. I came to CO from the other coast ( Virginia Beach, VA ). While the home prices there have deflated only slightly if at all, selling a home takes much longer, and buyers are adding contingencies to the contracts now. Compare that to May 06, when we put our home on the market and received a full price offer with no contingencies 2 days later. On top of that, we bought a much nicer home in a much nicer neighborhood for LESS than the selling price of our Va Bch home. Since we purchased our CO home it has appreciated ( on paper anyway ) by over 15% during the 18 months we have owned it. So far, so good! Nonetheless, I do worry about the future. I'm a worry wart by nature. For the sake of us all, let us hope that Jazzlover is far off the mark with his dire prediction.

blessings....Franco