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Yes, plus everyone is forgetting that borrowing is still cheap, and the inflation is rising. This is a perfect storm of economic boom in coming years. Usually RE investment is the best hedge against inflation. So expect more and more people dipping their fat fingers into it, either directly or through REITs. What could go wrong with places like Raleigh-Durham that's attracting people in droves? You can grab a bunch of rentals while borrowing is cheap and continue generating income. One thing for sure at least for this area - rental prices will continue to grow.
This is pretty much how the financial crisis started. Then the cards started to collapse, rents didn't get paid, and bam you have an ocean of homes now on the market.
Homes were their most affordable relative to middle class income roughly in 2012 IIRC.
The unemployment kicker was basically a landlord bailout. It's almost comical (if it weren't the truth) that the bailouts went to the wealthy and not the middle and lower class. Thanks to government $$ and stimulus keeping the market going. Things were looking pretty bleak 12 months ago though.
This is pretty much how the financial crisis started. Then the cards started to collapse, rents didn't get paid, and bam you have an ocean of homes now on the market.
Homes were their most affordable relative to middle class income roughly in 2012 IIRC.
The unemployment kicker was basically a landlord bailout. It's almost comical (if it weren't the truth) that the bailouts went to the wealthy and not the middle and lower class. Thanks to government $$ and stimulus keeping the market going. Things were looking pretty bleak 12 months ago though.
That's not how it worked in 2008 though. There is a difference between what's happening now and what happened then. Subprime lending isn't a thing right now - not like the times leading up to 2008 crash at least. People who can't afford a house, aren't buying it right now. Thus the affordability crisis. It's actually people with money who are buying properties. Right now for people with money to invest, RE has the best potential.
That's not how it worked in 2008 though. There is a difference between what's happening now and what happened then. Subprime lending isn't a thing right now - not like the times leading up to 2008 crash at least. People who can't afford a house, aren't buying it right now. Thus the affordability crisis. It's actually people with money who are buying properties. Right now for people with money to invest, RE has the best potential.
[chsuuhhh] Come in Hatch. This is Golden Voice of Reason. Standby for deluge of links showing that subprime lendees weren't the driving force behind 2008. Over. [chsuuhhh]
I feel so lucky I didn’t listen to anyone when I asked last April. We went live just before the end of the initial 3 week lockdown. Had 2 showings with 2 offers. Sold immediately for asking. We bought low when there was still panic and no one knew what was going to happen with real estate. Not easy to sell high and buy low.
I feel so lucky I didn’t listen to anyone when I asked last April. We went live just before the end of the initial 3 week lockdown. Had 2 showings with 2 offers. Sold immediately for asking. We bought low when there was still panic and no one knew what was going to happen with real estate. Not easy to sell high and buy low.
To say the least. This is exactly why I'm leaning toward dumping cash into renos on our place rather than buying another place that has what we want (finished attic for mancave/office and a better functional kitchen).
Sure I could maximize (for the moment) the return on this place....but then I'm dumping all that into a DP on the next place.
In general if you are buying homes as rentals, the cheaper the home the more it will appreciate on a % basis but not total dollars. To maximize your total return, one should buy more, lower cost homes with their investment dollars.
However, if your home is where you live, you'd probably have been bettered served to stretch to buy the home you'd like to grow into vs a first timer one.
As an example, we bought our home for 175k and today's it's worth about 100k more. However, a coworker bought a 600k home and it's now worth 900k. Similar %, way different dollar amounts.
Yup, I wish we had spent more. We easily could have, but tried to be financially conservative. Now we might not upgrade. We are odd ducks, spouse and I aren’t hard core FIRE movement people but we are more in that group than the keeping up with the Joneses crowd. It’s not the end of the world that we didn’t initially buy the bigger house, it is nice to have a very affordable mortgage payment w/a 3% rate. We are in an amazing location that I wouldn’t want to give up anyway.
That's not how it worked in 2008 though. There is a difference between what's happening now and what happened then. Subprime lending isn't a thing right now - not like the times leading up to 2008 crash at least. People who can't afford a house, aren't buying it right now. Thus the affordability crisis. It's actually people with money who are buying properties. Right now for people with money to invest, RE has the best potential.
A common misconception.
The bulk of the increase in defaults came from folks who were the top 40% of credit scores - subprime defaults increased of course but not nearly to the degree those who had decent credit did.
I do agree the bond market is better (maybe) - what did it in back then wasn't that there were defaults, it's that the defaults weren't priced into the price as the subprime mortgages were priced like their prime counterparts. Although with all this search for yield, junk buying has been on a binge as of late.
Some light reading, if you don't like graphs:
Quote:
We found there was no explosion of credit offered to lower-income borrowers. In fact, home ownership rates among the poorest 20 percent of Americans fell during the boom because those buyers were being priced out of the market. Instead, we found credit was expanded across the board. Everybody was playing the same game. But credit expanded most drastically in areas where house prices were rising the most, and these were markets that were beyond the reach of lower-income borrowers.
The overwhelming majority of mortgages were going to middle income and relatively high income households during the boom, just as they have always done.
---
But what caused the financial crisis was that middle- and high-income borrowers – including speculators who bought up homes to sell for profit – began defaulting at unprecedented rates. We had a crisis because non-subprime borrowers defaulted, where previously they very rarely had.
In 2003, 71 percent of delinquent mortgages were held by subprime borrowers. But by 2006, subprime borrowers were holding only 39 percent of delinquent mortgages. Not only that, there just aren’t enough low-income borrowers to bring down the financial system, it’s too robust for that.
[chsuuhhh] Come in Hatch. This is Golden Voice of Reason. Standby for deluge of links showing that subprime lendees weren't the driving force behind 2008. Over. [chsuuhhh]
The bulk of the increase in defaults came from folks who were the top 40% of credit scores - subprime defaults increased of course but not nearly to the degree those who had decent credit did.
I do agree the bond market is better (maybe) - what did it in back then wasn't that there were defaults, it's that the defaults weren't priced into the price as the subprime mortgages were priced like their prime counterparts. Although with all this search for yield, junk buying has been on a binge as of late.
Some light reading, if you don't like graphs:
Didn't dive completely through the link you've provided so maybe they cover this...but if I may ask.
From the quote you've provided....what does income have to do with FICO score? High income folks can have bad credit scores just the same that lower income people can have higher credit scores.
My credit score when I was making 50K a year coming out of college is higher than my credit score is now making more than that.
ETA - to be clear, maybe the story linked goes into it. But the snippet you provided talks about "middle and relatively high income households" when income literally isn't factored into a person's credit score. Those could have been middle to high income households with credit scores in the 600s.
ETA2 - Yup, the first two Q and A's in the link, the interviewee is clearly using subprime to talk about income levels. Now I am not arguing for or against the point you are making wheelsup. But that link doesn't back up the point. Income level <> Subprime (which is anyone below a prime credit score which I think is around 680)
Stats around Credit Score and defaults would be the appropriate metric to confirm your point.
Last edited by GVoR; 04-16-2021 at 11:25 AM..
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