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03-14-2012, 02:03 PM
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Location: On the edge of the universe
994 posts, read 1,536,934 times
Reputation: 1435
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Will it be chaotic? Maybe a bit, but not the end of the world. We're talking about housing prices falling below 10K in most areas within the next 3-10 years. How is that possible?
Take the average home price, about $140K nationwide (the median is currently around $175K but that's not as relevant as the average). Assume a family buys the house with an income of $50K and that they put a down payment of $28K for a 360 month mortgage. With an interest rate of 7%, they will pay $745.14 for 360 months totalling $268,250.40 in total principal and interest payments. $745.14 is around 18% of their gross income and let us assume that they won't or can't go over that percentage.
Now, if the average mortgage interest rate were to rise to 9%, then they can only buy a house worth around $115,800. At 11% this falls to $97,800. At 13%, $84,200. At 15%, this goes to $73,700 and so forth. It doesn't take much for housing to take a dump.
What happens if the family income falls by 20%? Even with the original numbers, they can only afford a house worth about $112,700. If the income gets cut in half, then you're looking at $70,500. If the family's sole source of income falls by 75% (not unrealistic), then they can afford at most $35,200 for a house.
If the family's household income falls by 75% and the average mortgage interest rate goes to 15%, then they can afford $18,500 of house. Now we're in used car territory...talk about a bargain.
What happens if you only go 180 months for a mortgage? Then the family can only afford $16,700 for a house. Not much difference from the 360 month loan but a better deal in the long run LOL.
Housing bubble? Housing was way overpriced for the last 40 years or so, longer than I've been alive. For all I know, the average home price could fall below $1,000, cheaper than the electronic PC trinkets people get at Best Buy. And a home is a home, irregardless of whether it costs $1 trillion or $0.01, so remember that. The math is real simple.
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03-14-2012, 02:08 PM
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Location: East Side Milwaukee
711 posts, read 1,614,368 times
Reputation: 453
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Do you own your own home or any land/buildings? You're selling them all right now, right? According to your logic it would be crazy to hold on to any of those things.
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03-14-2012, 02:09 PM
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3,670 posts, read 6,877,309 times
Reputation: 4254
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but interest rates aren't going up...if they went up as you described then no one would take out a mortgage. they would have to come back down should lenders want to make any money. while household incomes have been stagnant in the past few years (or decreasing by some accounts) an average decrease by 75% is just not gona happen without massive deflation that would make the nominal price changes you're describing irrelevant. then of course deflation/inflation affect interest rates and borrowing/lending. with significant deflation, you could have an interest rate of 0 and still make lots of money off of a loan.
basically you're assuming a lot that is never going to happen
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03-14-2012, 03:24 PM
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Location: Wisconsin
7,214 posts, read 9,035,442 times
Reputation: 7790
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What can you say? Everyone is an expert on the internet, and everyone's a millionaire.
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03-14-2012, 03:26 PM
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Location: NJ
31,771 posts, read 38,413,545 times
Reputation: 24549
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is this guy serious?
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03-14-2012, 03:28 PM
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3,670 posts, read 6,877,309 times
Reputation: 4254
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Quote:
Originally Posted by CaptainNJ
is this guy serious?
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i hope not lol...sounds like a troll |
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03-14-2012, 09:10 PM
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617 posts, read 1,144,935 times
Reputation: 720
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The FED would never allow that scenario to happen.
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03-14-2012, 09:29 PM
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Location: On the edge of the universe
994 posts, read 1,536,934 times
Reputation: 1435
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Nope. I don't own any real estate at all for this reason. The reason I posted this was to inform people here that real estate can take a dump just like stocks. It's not really as absurd as it may seem on the surface; as the NASDAQ went to 5000 people were saying it's a new paradigm, that stocks will never fall, etc...and they did fall. Same thing with gas prices, precious metals, food prices, etc...the media and blogosphere will 'agree' that prices will never fall. History shows otherwise. I'm not trying to be a troll, I just can't see how housing prices can sustain even their 1960-1970 nominal prices for long let alone the crazy prices people pay nowadays. Besides, who wouldn't want to buy a house for $10K?
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03-15-2012, 12:51 AM
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Status:
"Based"
(set 9 days ago)
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Location: Metro Detroit, Michigan
26,065 posts, read 21,116,676 times
Reputation: 25387
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I've seen plenty of houses in Michigan that were listed in the 30K range. Question is, how much is owed in back taxes? There were plenty of houses in Detroit for sale in the 1K-4K range, but who the heck wants a ghetto palace?
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03-15-2012, 09:36 AM
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Location: MO->MI->CA->TX->MA
6,991 posts, read 13,801,699 times
Reputation: 5507
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Quote:
Originally Posted by andywire
I've seen plenty of houses in Michigan that were listed in the 30K range. Question is, how much is owed in back taxes? There were plenty of houses in Detroit for sale in the 1K-4K range, but who the heck wants a ghetto palace?
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You can buy the place, strip away all the metals and lumber, and sell them for a profit if there's a place listed that ridiculously cheap. |
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