when real estate starts to fall... it tends to fall hard.

[Muggy]

Originally Posted by Check123

Real Estate is still the best place to be. Even when prices come down, people with homes still have equity.

If the market has fallen 5%, but went up 30% in the past four years, you're still ahead 25%

I had to address this post again. You're talking about a "soft landing." You should read the Ben Stein article. He is saying that "soft landings" don't exist.

Of course if the market unwinds 5% you're still ahead. But that's a "soft landing." And what Ben is saying is...

[MoMark]

Originally Posted by Muggy

I had to address this post again. You're talking about a "soft landing." You should read the Ben Stein article. He is saying that "soft landings" don't exist.

Of course if the market unwinds 5% you're still ahead. But that's a "soft landing." And what Ben is saying is...

There are lots of doom and gloom sites like RealEstateDeclinedotcom, Forsakencraftdotcom, Patrickdotnet (though that owner of that site now charges a membership ), bubblemeter.blogspotdotcom, housebubbledotcom, bubbletracking.blogspotdotcom, etc.
I saw "Muggy" on the patrick.net blog! But these sites simply compile the news articles into one easy place to read them and address all related aspects of housing, including loans, construction, home services companies like Home Depot and Lowe's who depend on people buying homes and doing work on them, etc.
Shannon is also right about how to view equity. It's not the homeowner's money. It's make-believe money until you make it real by borrowing from a lender who appraises your house and tells you that it is worth such and such, or sell your house and get it converted into cash. The problem is that it's sold to borrower's as "their" money, yet it's a loan like any other and there are only two ways to pay it back if Aunt Charlotte doesn't miraculously will you an unexpected $100 grand....by making monthly payments at a high interest rate, or, selling the house for more than the appraisal stated to repay the lender. The house would have to sell for at least 6% more than the total of the first mortgage and now second mortgage (equity loan) added together or you lose money at the sale when factoring in the cost of the realtor commission. That's not even taking into consideration that a house might have declined in value since the owner took an equity loan, or that other costs may come to the table such as unexpected repairs, etc. A 5% decline is enough to sink a lot of people already. A 10% decline, which is already happening in some markets, can put people into foreclosure as they go underwater in that they owe now more than what the house is worth. Don't forget that if a house has a 100% mortgage, or, the 1st mortgage plus the second equity loan mortgage together add up to more than a house falling in value is now worth, that owner/borrower is now stuck. He can't sell the house for less than he owes the lenders without paying the difference out of his own pocket to repay all the money borrowed. This means he can't move. If he loses his job or gets a transfer, he's in bad shape and locked in his location. If the primary loan or secondary loan, or both, are Option ARMs, then either one, or both of those loans is going to end up costing the borrower far more money every month than he can afford. All of a sudden the borrower is stuck in his home with drastically higher loan payments, and he's already likely paying $400+ a month for his SUV payment or lease along with monthly credit card bills. If you can't find a buyer to bail you out with a house that is going up in value, then you're stuck and in danger of eventually foreclosing. Foreclosure rates are already soaring around the nation and the rates of increase in foreclosure and where they're happening is frightening. Once a market becomes unstable like the current housing market, buyers are reluctant to buy into it because they have to consider that the price they pay now (the mortgage they'll owe) may leave them automatically underwater in months to a year. So they wait causing even more houses to go on the market and flood the available resale inventory. No one knows where it stops, so people stop playing and sellers are sunk. Sellers who owe so much can only hope to refinance to fixed loans before they lose the ability to do so (banks and lenders will not refinance a house in which what is owed is higher than the value of the house), or keep their jobs and somehow manage to pay the increased payments and ride the storm out. However, we just don't know when the sun will come out again, and it could be years away.

[Muggy]

Off-topic, MoMark...

Yeah, I'm on Patrick. It was the first site to list after I googled "housing crash." I consider that a "heavy hitters" forum. I don't think many members here could handle some of that information. There are some really bright individuals there. I check out Ben's blog often, that is where I think you'll find the most "water cooler" talk. Everyday people discussing the everyday housing world.

City-data is weird. It's actually almost entirely "city-opinion.com." I think a lot of people are just looking for self-affirmation when they come here. I love some of the opinions but the diversity is a little off-par.

Tell me I can grow flowers on lava! Yes you can! You just have to believe!
I'm flying! I'm flying!

[shannon94]

Originally Posted by Check123

You going to believe Ben Stein or reality?

Ben Stein is reality!!

Originally Posted by MoMark

There are lots of doom and gloom sites like RealEstateDeclinedotcom, Forsakencraftdotcom, Patrickdotnet (though that owner of that site now charges a membership ), bubblemeter.blogspotdotcom, housebubbledotcom, bubbletracking.blogspotdotcom, etc.
I saw "Muggy" on the patrick.net blog! But these sites simply compile the news articles into one easy place to read them and address all related aspects of housing, including loans, construction, home services companies like Home Depot and Lowe's who depend on people buying homes and doing work on them, etc.
...

Exactly!! Can I pour you a cup of coffee? lol Love Patrick by the way.

RealestateDeclinedotcom

I LOVE this!! Feeds my obsession I suppose!! lol Sorry for the short posts moderators..I'll try to be better...

[shannon94]

Ramifications of housing price deflation worry securitization deals:

One of the most intensively talked about worries of the recent past has been the bursting of the "housing bubble". Several people contend that the bubble has already burst. Whether it is bursting of the bubble or its oozing out, there are enough indications of a slow down in mortgage origination and decline in housing prices. The ramifications of these trends on the existing securitization deals, and the volumes in the current year, may be widespread.

First, a quick look at the "bursting of the bubble" phenomenon. The Times, Aug 29, carried an article titled Housing Bubble is Finally at Bursting Point, wherein it reported about new house sales in July 2006 having come down by something like 11 - 23% as compared to last year. If the housing market is indeed in retreat, it might have long term implications for the entire US economy, since housing has been responsible for some 40% jobs taking into account various housing-related employments. Previous periods of weakness in the property market have been associated with widespread collapses in the banking segment - for example, the S&L crisis. Currently, as the risks are diffused through the securitization process, such casualties are less likely, but there will be strain on the balance sheets of lots of MBS investors.

The Center for Economic Policy Research has come up several articles on the housing bubble. A June 2006 paper came with 10 indicators which evidence that the bursting of the bubble impact.

While the declining house prices increase the default rates on mortgages, there is yet another impact which may be felt strongly over the coming months. This is the impact of the ARM products on the default rates. The latest issue of Business Week [Sept 11, 2006] comes out with an article titled Nightmare Mortgages. The article contends that most ARMs, which were sold over the past few years on the lure of affordability, have actually taken borrowers by a shocking surprice as most of them have substantially reset their payments a year after they were originated. Option ARMs typically have a negative amortization feature - wherein the borrower pays lesser instalment than the interest on the loan, leading to an increase in the mortgage balance. Once a trigger of LTV ratios is hit, the payments are reset. Declining housing prices would only mean the triggers will be hit faster - either the banks reset the instalments or face increased losses on account of foreclosures.

Given the way ARM loans have been hard-sold, it is very likely that the picture that emerges actually will be much less beautiful than was imagined at the time of origination.

The levels of credit enhancements for RMBS transactions have come down to historically low levels in 2003 and 2004 - which was obvious as the rating agencies were getting bolder by the month with experience of past transactions. However, the past had a unilateral history of increase in house prices, which pulled down defaults and foreclosure losses. The key question that remains is - if LTV ratios worsen with reduced housing prices, would the credit enhancements modelled at the time of AAA ratings would still be enough? The future holds the answer to the question, and painfully, the answer may negative.

Links: For articles on the housing bubble on the site of Center for Economic Policy Research, see here.

Asian Securitisation markets poised for a sharp growth

Asian securitisation markets seem to be poised for a sharp growth, as most of the economies in the region

[Northern Maine Land Man]

In March of 2007, the National Association of Realtors called me about my niche market. The did an interview, sent up a photographer and featured me in the May, 2007 REALTOR Magazine. In March of 2007 very few members of the public saw a real estate decline coming. One of the questions the editor asked was, "How is this real estate slump affecting you?" I told them it wasn't. I don't do slumps. There are segments of the market that are still doing well. I see two.

We are now into an economic situation where perceptive people experience real fear. They are in the classic fight or flight mode. People are calling and looking for a "bug out destination". They want a modest home on ten or more acres in a rural setting, but near a small town where they can get essentials and they want that location to be safe.

The second hot market segment is wooded lots. In Maine you can plan on harvesting a third of a cord per acre per year forever and not diminish the total amount of wood on your property. A wooded 40 acre lot will produce about 13 cords a year. That is worth about $3,250 in firewood, cut and split. Thirteen cords of wood replaces over $10,000 in fuel oil.

Yes, the market for in-town three bedroom ranch homes is down here. That isn't what I do.