Can there be too many homeowners?

[ckramer]

More than 69 percent of American households own their homes. Further expanding the rate of homeownership, which is a policy shared by the housing industry and politicians alike, is leading to an increased focus on subprime borrowers -- those with less-than-perfect credit.

But with affordability for first-time home buyers already quite low, will the current initiatives aimed at creating even more homeowners backfire?

An index of affordability for first-time home buyers shows a disconnection between the prices of starter homes and the income of first-time buyers. With the number 100 indicating that a median-income first-time buyer has exactly the income needed to buy a median-priced starter home, the current first-time home buyer index of 74.7 is cause for concern.

Bankrate.com

[luaneryder]

1. In a few years all those ARMs

will be taking a toll on homeowners who have taken on more debt than they'll be able to manage. Crisis coming.

[Chico Man]

2. Can they not sell the house and go back to renting?

And if the house sells for more then they bought it, would this not be a good investment?

Sure, they no longer own a home, but they just made some money.

[axordil]

3. If only...

That's assuming the real estate bubble doesn't burst.

[Chico Man]

6. And this was supposed to happen when?

[axordil]

37. If I knew that

I'd be rich. And probably Republican.

J/K. But the cost of a house is better measured by the amortized payments than the purchase price, and so if interest rates keep going up, where is the purchase price going to go?

And there's this too:
over at this thread


edited to add link

[Kolesar]

5. The sellers have to eat a 6% or 7% commission

I sold my house after 9 years, and the commission ate up a third of the accrued value due to appreciation. That hurt.

[Chico Man]

7. That is not mandatory

Still , I don't see any sort of meltdown on the horizon. I have an ARM, and if rates go way up in 4 years, I'll sell, expect to make a fairly handy profit (at the very least break even), and then move to an apartment somewhere fun (like NYC or something).

The sky is not falling ,everything is going to be ok.

[elsiesummers]

41. You don't want to sell because rates went up - will be more difficult

If you think you'll be staying in your present location do one of two things: (1)lock in a fixed rate now OR (2)put yourself on an accellerated payoff plan (like an extra 10 to 20K a year toward principle.)

If rates go up, say two and a half percent, and at that point your ARM will be too much for you, then many others will be in the same boat and it will be a difficult time to sell property (but a good time for cash buyers to buy out distressed owners at cut rates).

Real estate truely does not always appreciate (especially in the short term). If you are in your home for the long term, and can afford your payments, then this doesn't matter.

[hughee99]

54. I would strongly suggest a fixed rate

I took an ARM initially but refinanced with a fixed rate last year so I wouldn't have to worry about the future. If you have an extra 10-20K to put toward pricipal now, you may do better to invest for a few years rather than put it toward an paying principle. If you can find a relatively stable investment, you may find you make more over the next few years, and will have the option to take that money out (if necessary) and apply it toward priciple at a later date. Just a though.

[elsiesummers]

63. Fixed rate - agree - but take a look at mortgage payoff

You can find mortgage payoff calculators at www.hsh.com, or try googling and you will find one.

Or - do a spreadsheet. There is a curve in the amortization which shows diminished returns after a certain point (for us it was after the first 50K is payed down). Then it becomes more about getting rid of the mortgage payment entirely.

I understand the idea you are suggesting, about finding an investment that pays off better (higher stable interest rate) than payoff - and believe me, I've mulled this one a bit.

Sure you should fund your 401K to the matching level, first, before embarking on mortgage payoff. Maybe also take full advantage of 401K and of IRAs (though I think the amount of IRA contributions is going to go up under Bush, so it is less important to max this early).

We have a 5.25% 15 year fixed rate loan for $137,600. We put 20% down (a building requirement - coop). 5.25% is pretty low so there is the possiblity of earning more interest (though guarantees are tough to find). As you can see, the amount of the loan is low enough that the interest tax write off is minimal.

I have tips, gold and some foreign currency cds - I like these investments but they all have more risk. With high PE's do not see the US stock market as a safe bet. Have considered outright ownership of treasuries (still an option since they won't lose value if held to maturity - but you lose liquidity). Bond funds are a bad idea with rising interest rates. Have also considered REITS and but they don't seem wise when a housing crash is possible. Am currently considering Resource Sector equity funds (though the idea of investing in a fund that has Halliburton in it's top ten investments tough to swallow).

Bottom line - if we pay off the mortgage over 4 and 1/2 years (and we are part way there - have payed down to 94K) then over the fifteen year life of the loan we will save $50,000 of interest ($342/mo).

Best of all, after 4 and 1/2 years we will be mortgage free and will have an additional 1100 a month to put into other investments.

As for liquidity, unless my goal was to save cash to buy real estate post crash, I can't find a better way to invest. Meanwhile - an untouched home equity line of credit provides liquidity at an ARM style rate.

Just my two cents.

For high earners with enormous mortgages, the tax consequences could change POV about mortgage payoff.

[Chico Man]

79. Depends on where you are

http://www.boston.com/news/local/rhode_island/articles/2004/11/28/ri_capitalizes_on_hub_prosperity/

[drdtroit]

85. "and then move to an apartment somewhere fun (like NYC or something)" ...

You'd better have a few big bags of money if you intend on moving here to the Apple!

[Chico Man]

88. OK Mr Money bags

But I thought NYC was cheap :)

I was thinking of you know, upper west side. John Lennons place, actually.

[piece sine]

59. in DC

those of us lucky enough to have purchased ten years ago have seen a sream of radical value increases in our Dupont Circle area properties. For 2 years in a row (based upon appraisals and sales on my street) I experienced a 100% increase over my original puchase. I haven't sold, so it's all relative, and I feel this house is my home, but I can't ignore the new price ceilings people would reach toward if they could buy my house.

Even if the market flattens-out tomorrow at current levels, I'm still set for life.

[cornermouse]

9. Renters typically cover the house payments for the owner.

The main difference is that when you rent, you end up with nothing but a bunch of receipts. If you buy, you end up owning property.

[Chico Man]

10. Not really, unless you buy with cash

Mortgage interest is a killer.

If you buy a multi-family or something like that as an investment, that is a totally different story.

Buying a home to live in is not the best investment in the world, (not better than renting, actually) unless the location of the property will create rapid appreciation - hence the saying, location location location.

[cornermouse]

14. Sorry, but you're wrong.

[Chico Man]

16. Look at a mortgage interest calculator

If you are renting, take the $100 or so you put into equity per month ($900 of that sraight to the pocket of the mortgage company) and invest it in something else. Take the $900 and give it to your landlord instead of the big mortgage company.

People do not make or save money on property by paying the mortgage (unless they are paying double, or triple payments). They make and save money by making wise purchasing decisions primarily based on the location of the property. Sorry, but that is a fact.

[cornermouse]

19. You're thinking short term.

The same mistake corporations have been making. After 20 years, the property is paid off and you can sock your salary away for the next 20 years or so without house payments. If you rent, you're still stuck paying the payments for the owner with no end in sight.

Also, I bought several acres just outside of town. Currently raising critters, eventually town will spread out to where I'm at. I can wait.

[Chico Man]

25. I wouldn't exactly call that a mistake

Short term investments that are successful can turn into very successful long term investments. It all comes down to the risk you are willing to take. In any market, risk = reward.

If I have to rent because mortgage rates are unafforable (a scenario I seriously do not see happening) I will do it in an interesing place (like NYC, for example) where buying is not an option anyhow.

Living in a house for 30 years is not something I see myself wanting to do for a long time. There will be the time when I want my kids to have a settled education, but even this is only 12 years.

I want to use the housing market to grow, and sitting on a property for a 30 year mortgage paying minimum payments is low risk, but as far as I can tell, low reward (in may senses of the word).

[cornermouse]

28. Okay.

Out in the country. Until the town grows out here. Cows (fairly low maintenance comparatively speaking) have calves, which after raised on grass can be sold for $700 or so each depending on size and market prices. Consideration is how many cows per acre. Pigs have more babies more frequently, but, well... they're higher maintenance and they're pigs. Chickens, lots of space for garden if you like that. And then theres the fact that I'm a farmer's granddaughter and I like where I live.

[Chico Man]

30. You are talking about buying property for a farm (a business)

I buy property that has a house to live and sleep in. I drive to work on the highway. If I lose my job, I want to make sure that there is a good chance I'll be able to find another.

My whole outlook would be very different if I was looking for land to grow crops and animals on.

[cornermouse]

51. lol. What makes you think I don't have a job?

It takes me an hour for a one-way trip.

And are you, by any chance, thinking that I don't have a house to live in???

[Chico Man]

56. We are talking property

I did not insult you. I do not buy property for raising crops nor to work on. This is an entirely different market. More of a commercial market, would you not agree?

That is not to say that you, personally, do not work nor own a home. Drawing a connection between the two is a stretch.

I simply do not choose to even attempt to make money off of the land in that style. I lack experience in that area. You, as a farmers grand-daughter, may intrinsically have the skills neccecary to successfully raise cash animals and cash crops.

[mountainvue]

66. Then do a 10 or 15 year

mortgage.:)

[Chico Man]

91. Id rather keep the payment low and put the cash into other investments nt

[LastLiberal in PalmSprings]

33. 20 year loans are being replaced by 30 year loans

It's like the ARMs -- an effort to get the payments down to where lower income applicants will be approved.

I've spent about half my adult life in apartments and the rest in one of the four homes I've owned:

1. A townhouse in South Carolina which appreciated a little over a long time;
2. A multi-unit 1908 bungalow in L.A. that doubled in price in three years;
3. A large single family home in L.A. that we bought just before the bubble burst. For various reasons we weren't able to continue making the payments while waiting for prices to rise again, and there was absolutely no market for us to sell the house. It went into foreclosure, where it sold two years later for one third of what we paid for it. (For the record, a year before the bubble burst it appraised at $90,000 more than our purchase price.)
4. After ten more years in apartments, I now live in my current house, a fixer-upper at the end of a dirt road in the Mojave Desert. I doubt appreciation will exceed inflation by much, but it's got a nice view and the nearest neighbors are about 600 feet away.

FWIW, here's what I've learned:

Location is a huge factor in whether you will come out ahead. Ideally you want to find an area just before everyone else does.

Owning and living in a duplex or triplex was the best deal for us. The rents covered the mortgage and taxes, and because of depreciation we never paid income taxes.

Houses require maintenance. When something breaks in an apartment, you call the supervisor and he fixes it. Maintenance is just a cost of doing business for the landlord, and is factored into the rent.

When something breaks in your house -- the water heater, furnace, refrigerator, etc. -- and has to be repaired or replaced, you get to pay the bill. That can get real expensive, real quick.

Plus, in most apartments I've lived in I only paid for electricity and telephone. Heating, cooling, water and trash pick-up were all included in the rent. Obviously that's not true if you own a house. Getting a $200+ electric bill during the winter is quite a shock to the system, especially when you'd been paying $40 a month in an apartment.

O.k., so here's the other side of the coin: If you choose a house in a good neighborhood and stay a long time, you will develop a community which greatly enriches your quality of life. My nephew has done this. Because of the transient nature of apartment dwellers, there is less emphasis on creating a true community.

In the end, it comes down to what you want to do right now. Each has benefits and drawbacks, and you can never predict the future. Just choose.

[Sunny_Sunshine]

24. I don't compute that

I pay $600 in house payment but the house next door which is identical to mine except that it is a rental and they get $1,100 per month. The house on the other side, also identical, is for sale for $129,500 but has been on the market for months. I think it is way over priced and if they get $100,000 they will be lucky.

[Chico Man]

26. It is not just the mortgage

Taxes, maintenance, and all of the other things that go into owning a house are left out of your equation.

And how much of that $600 is going towards principal?

[mountainvue]

68. Depends on how long you' ve

been in the mortgage and the term. If you're closer to the end of the term, then almost all of it is going toward principal.

[Chico Man]

80. How much have you already paid towards interest?

And how many years has that money been diverted to something less profitable?

[sandnsea]

31. Sssshhh

You're letting the cat out of the bag. :spank:

The main reason people should buy instead of rent is that they will either have a home when they are old and unable to work, OR they will be able to sell that home and have retirement money. Human nature says they may well not invest that other $100 a month you're talking about. Otherwise, I agree with you completely.

[Chico Man]

36. Hi sandnsea

I actually didn't think of that... when the rubber meets the road and I'm ready to retire, it sure will be nice to either live out my old age in a place I own completely or I could sell and move to a fancy shmancy retirement community and live like a senior citizen college student.

Until then, I'll try many different ways of growing money to get ready for that - and I think we can both agree that simply going from renting to mortgaging is not the best way to do this over the long haul.

:hi: and thanks for the :spank:

[mountainvue]

65. You pay most of the interest at the begining of

the loan. As it amortizes, more goes toward the principal until it is paid off.

[DoNotRefill]

84. Let's say...

your mortgage and rent payments are identical, and you live in the same place for 10 years. It's much MUCH better to be paying on a mortgage than to be paying rent, as long as the market doesn't crumble. And rent is normally based upon PITI+. Landlords don't rent property to LOSE money.

[Chico Man]

89. Still depends

Define "much better"

Are you talking profit? Savings? Peace of mind? Saved time?

It is 50/50. If the property is a good property, then sure, it would beat out the rental. But if the property were a dud, a rental would beat it our every time.

[deadmessengers]

21. Yes and no

The thing is, if a rental property is financed with a fixed-interest loan, the rental income will usually cover it. Over time, as tenants turn over and rental prices go up (as they have, pretty consistently), the rental income will exceed the monthly PITIM (principal, interest, taxes, insurance, and maintenance) - basically, the landlord's overhead. Then, of course, you have the appreciation of the property.

So, mortgaged homes can be profitable, interest or not. As a matter of fact, due to leverage, mortgaged rental homes can have even a higher expected return on investment than a house owned outright.

[Chico Man]

23. You are talking about rental properties, right?

The original posting was arguing that owning is simply better than renting, even if you were to live in the home and not sub-rent it.

[PunkPop]

35. I'm not sure about the 'best investment in the world'

but buying your home to live in just seems to make better sense.

To get the same amount of space and quality of life that my current house and neighborhood offers, I would probably pay the same amount in rent (if not more) as I do my current mortgage. But the fact that I'm buying my house means I can sell it and take any appreciated value as opposed to renting where I would just end the lease and walk away with nothing to show.

Edit to add: My mortgage payment includes taxes and insurance so these are not "hidden" costs.

[Chico Man]

38. I think it is pretty easy to walk away from a house with nothing to show

It is not the simple fact that one is a home-owner as opposed to a renter.

It makes sense to buy property that will provide a significant ROI over time. This is the same reason one might want to but a certain stock.

They are all investments. I could make X dollars in the stock market and I could make Y dollars in real estate.

[mountainvue]

64. Mortgage interest is a tax write off. n/t

[gottaB]

74. if you forego the standard deduction n/t

[physioex]

67. I agree but.....

You have to take into account maintenace, property taxes (homeowners fund the city), less mobility (I move on average once a year due to work), insurance and things of that nature. Don't get me wrong, I am for ownership and do plan to purchase a house. But owning a house isn't the ultimate solution as you might think.

[AP]

11. Unfortunately, a lot of people have been subsidizing their consumption of

things that aren't worth what they cost by taking out second mortgages.

Someone posted here that there are now three times more mortgages in this country than there are properties. People keep taking out loans against the equity they built up and against the increased value of their homes.

So it's going to be hard for a lot of people to sell their houses for more than they bought them for.

[demigoddess]

57. we refinanced this year and the guy at the signing said that it was very

rare to find people refinancing without taking their equity out of the house. A house is good investment because it forces you to save and it appreciates but if you keep getting home equity loans you are then living on and spending your savings. Land under a house will always be worth something, the house needs to be taken care of to appreciate, but some people let their houses go to pot. then they are worth nothing.

[tanyev]

47. You are assuming that there will be

interested and qualified buyers?

[louis-t]

49. Unless they keep taking equity out.

Forclosures up 24%. Going to increase. The only thing keeping the Real Estate mkt. going now is 0 down loans with seller paying closing costs. Only need $500 to buy a home. It is cheaper to buy a home than move into a rental.

[Chico Man]

52. Depends on the market (nt)

[mountainvue]

70. I had a buyer get $1500

back at closing last week.

[sendero]

61. That's the problem..

... these folks often walk into their home with substantial negative equity. Little or no down payment, loan origination and other fees folded into the loan, it takes years for them to simply not be upside down.

Personally, I think this over-relaxing of loan requirements is going to lead to a real estate crash when large numbers of these unqualified buyers start defaulting, throwing tons of properties on the market and depressing prices.

I'm all for everyone owning a home. But there is a right way and a wrong way to get there. What is happening now is doomed IMHO.

[BiggJawn]

81. Or, they could have MY experience....

I bought a house on one of these "first-time Homeowner" programs. It was a "fixer-upper", and I bought it for 35 kilobucks and put another 30 kilobucks into replacing the mechanicals and part of the roof.

2 years later, I got a chance to "further my career", so I put the place on the market and moved.

2 years after THAT, I was at the point where I could not afford to pay rent AND service the Mortgage (to the tune of $1200 a month. Hey, the career didn't go THAT much further)) anymore so I had to "let the house go"...

3 different Realtors couldn't even find a buyer to take it off my hands for the pay-off ($68,000) This was after the first Realtor blowing a lot of smoke up my ass about how he could get me $140,000 for the place, and the second guy "forgetting" to put it back on the market for 4 months after an offer fell through...

Filed bankruptcy and bought a new truck to replace the 14-y-o beater coupe that was dieing on me..

homeownership is a racket, IMO...Fuck it. Better my daughter has to settle-up with a landlord than try to unload some house I laid dead in for a month...

[tk2kewl]

8. thats why my loans are fixed rate

I bought a house 10 years ago with a fixed rate and later turned it into a rental when I bout my current home at a fixed rate.

The only reason for an ARM is if you're certain you want to sell in the short term.

[Chico Man]

12. You can go with an ARM if you are willing to take the risk

What if rates are actually lower in 5 years?

[tk2kewl]

15. I don't know anyone who sees rates going down in todays environment

not with the weak dollar and increasing national and personal debt

[Chico Man]

20. I agree, but that is why ARMs are so low right

The high risk actually means huge savings over the short time period. I am actually saving $40K over 5 years. That, to me, is worth it, and if I have to sell and move back to renting because rates are unmanageable (which I don't actually see happening), so be it.

[tkmorris]

22. You are saving $667 a month with an ARM?

You must have a huge mortgage to be saving that much.

[Chico Man]

27. Yes, I am saving that much over my previous mortgage

Not all of that is just due to the fact that I am went with an ARM, but a large portion is. I think I saved at least 2% on the rate by going ARM.

[RawMaterials]

32. what about when you cant sell because no one can afford your

house. because interest rates go up to fast, think the late 70's.

[Chico Man]

34. I'm looking ahead, I do not see that happening

Especially in Rhode Island! The real estate market in New England is a bit different than, say, Oklahoma.

I'd say, if you can buy property in Rhode Island, do it! If the location is right, it buffers the risks you speak of.

For this location, the demand is great, and the supply is very low.

My house is actually very affordable compared to the monstrosities they are building over the border in MA. We are talking $500,000 - $900,000 single family homes. These are the people who are at risk (especially the working class owners). They will be looking to "downgrade" to my single family ranch if this were to ever happen.

[mountainvue]

72. Interest only? n/t

[Chico Man]

77. Why don't you get into this market

http://www.boston.com/news/local/rhode_island/articles/2004/11/28/ri_capitalizes_on_hub_prosperity/

[VegasWolf]

39. ARMs are only low because the prime rates are so low thanks

to awol's mismanagement of the economy. You may to to young
to remember the 18% home interests after the RayGun years
and his trickle down economics. I've been fortunate in
that I've made over 750K buying and selling my personal
homes over the last 5 years. I've made slightly less
than that in the stock market, so for me anyway, a home
has been the best investment. Unlike you, I see very
bad times ahead. The deficit is a killer economically
and that is part of the reason for 18% rates after RayGun.
In addition, with the changing of the OPEC bias to the
euro, the dominance of China as the number 1 nation in
the world, outsourcing of manufacturing jobs, I'm moving
my assets out of this country and into euros. I'm not
about to lose all the money I made in the Clinton years.

[nashville_brook]

62. you are a good person to ask, then

is now a good time to make one last real estate deal? we could make 80 right now if we sold, but we;d have to take on a slightly bigger mortgage, but we'd be getting 10 acres of land and a house that's off the grid solar. my gut tells me to go for it. plus, it's owner-financed.

[Chico Man]

78. Location

"The strategy has not only lured new residents and businesses south of the border, but has also helped to make Rhode Island's economy the best performing in New England. Rhode Island largely skirted the last recession. It also began its recovery more than a year before the rest of the region and regained all the jobs lost in the downturn in early 2003. Since then, almost every passing month has pushed the state's employment levels to new records.

Massachusetts, in contrast, still has nearly 200,000 fewer jobs than prior to the recession. New Hampshire is still short nearly 4,000 jobs."

http://www.boston.com/news/local/rhode_island/articles/2004/11/28/ri_capitalizes_on_hub_prosperity/

[drdtroit]

87. Location, WORD!

I was fortunate enough to purchase my co-op in an emerging neighborhood in NYC 5 years ago. I refinanced earlier this year with a tiny cash-out and was it appraised at 325% the purchase price (before totally renovating the space)! I could rent the apartment for approximately 4 times my mortgage payment and there would be no shortage of people lining up to do it.

Location, location, location.

[BernieBear]

40. Rates Rising

I don't know how old you are, but I'm old enough to have lived through the late 70's and early 80's and rates in a very short time (just over a yeara) went from reasonable to 12% - 15%. For a Mortgage. At that rate your payments would probably double from where they are now. We've had the lowest interest rates in 40 years - FOURTY - for the past 5 years. This has been extrodinary. Don't let yourself be caught thinking that rates can't rise fast. The only way we can get out of the deficit we're in is to inflate and inflate a LOT. That's why gold is going up, it senses that.

Now, I'm a conservative person when it comes to mortgages, becausee I find that I often live somewhere longer than I expect to. When rates were that high, I rented. At 9% I bought with 30 year fixed, at 7% I refinanced, at 6% I sold in California took my 100% profit and moved to Georgia where I bought 3 times the house for half the money at 6% fixed for 30 years. But I could live here for a long time. Large house, unfinished basement that opens to the backyard so there's plenty of room for additional space, maintenance free 1/3 acre in a gated community.

It's a personal thing.

Often your mortgage is the door that opens to allowing you to itemize and that can save you in taxes because then there are additional itemizations you can take that you wouldn't be able to if the mortgage interest didn't put you over the threshold.

Lot's to think about, interesting thread. Thanks, BernieBear

[Chico Man]

90. ARM is capped

And can only go up so many points per year. This is to prevent another 70's or 80's real estate explosion.

[mountainvue]

71. Then depending on your index and margin,

your rate should go down as well as long as the fixed part of the ARM is up.

[customerserviceguy]

13. Yes ARMs could be a problem

but most people refinanced to lock in lower rates over the last few years. I'm more worried about the people who kept refinancing in order to continually borrowed to deal with their credit card debt. I worked in the title insurance industry, I used to see people refinance the same house every six, nine, or twelve months, they'd always up their loan amount. Some of it was for loan costs, but surely there was some in there to deal with installment debt, too. Then, they'd go out and have a ball with the newly-cleaned off VISA card. That party's over.

[Chico Man]

18. Credit card debt is a whole different story

If people do not understand the principles of compound interest, then they have to learn the lesson, possibly the hard way.

[mulethree]

17. Was hard to find data on how many ARM's sell

http://www.mbaa.org/marketdata/data/03/1-4_originations.html

Does not seem to include home-equity loans, I bet a high percentage of those are adjustable.

[mountainvue]

73. All HELOCS are adjustable.

They are tied to the prime rate. Most second mortgages are fixed.

[RPM]

60. woo hoo!!!

I got a fixed rate.... will accumulate cash and scoop up cheap property!!!

:-)

actually - the mess will be quite deep when that happens... Great Depression II will not be fun.

[Worst Username Ever]

4. It is supply and demand, just like everything else.

As long as there is a bigger demand for housing that supply, houses will continue to appreciate. If there is a huge jump in supply (tons of forclosure, people selling off for other reasons, investment properties being cashed in, builders building too many homes) then homebuyers have a wider choice and everyone else has to lower their price until they can sell it.

The thing about real estate is that it is difficult to have too big of a bubble, at least on a national level. If someone sells their house, they either have to buy another one or else move into an apartment, therby supporting someone else's real estate investment. If everyone sold their homes and just moved in with their parents, then we would have a problem with home values.

[CAcyclist]

53. Your last sentence -it's happening

The housing market could contract dramatically with the following scenarios, which are already happening in my area:
people who lived in apartments and duplexes finding rooms to rent in other people's houses to save money (I'm looking right now for a room),
grown children moving back into their parents' house (several friends have done that),
people who are already renting out rooms now renting out their living room,
people converting garages into bedrooms,
people converting sheds into in-law units,
people building inlaw units in their backyard to rent out (California recently liberalized a law allowing this),
and finally, what happened a lot in the 80's - people living in their cars.

I foresee a painful crash in the housing market.

[elsiesummers]

69. Things that could go wrong with housing

Interest rates go up 2%. This causes both a lack of new sales at existing prices, pushing price down or slowing market, and also causes more defaults.

Early warning signs of crash (delinquent loans increase) cause lending institutions to tighten lending rules, precipitating crash.

Job loss or income stagnation (already happening) could become worse, especially on regional levels such as plant closings.

As number of foreclosures or distressed sales increase and they become the most recently recorded sales they pull the market value of all homes in their area down.

Once the mass psychology that real estate is an overvalued or crashing investment takes hold, and many houses are listed too high because that is what is owed, then real estate, especially in some more buoyant regions, may become the pariah of investments - only to be purchased at a discount/distressed price.

[RawMaterials]

82. Not to worry everyone bought thouse huge SUV's

to live in just like trailors. you can park right out side of your work downtown,or in you expensive parking garage.

[Ilsa]

29. I saw alot of people lose money on real estate in the eighties.

They were leverage too high with higher interest rates, little equity, and then a market that depreciated. Banks and people and taxpayers footed the bill for alot of losses.

But I have no idea if that (an over-supply and crash) could happen again. Have low mortgage rates means you build your equity faster. If other investments deliver a higher rate of return, then the mortgage is a good way to go as it might free up capital.

[BernieBear]

42. 80's real estate in Houston

I lived in Houston in the early 80's and you couldn't GIVE houses away. Literally. Rates skyrocketed, which of course depresses the amount someone can afford and no one, literally no one was buying. And yet the city was growing - people were moving into Houston at the rate of 2,000 a week.

You can get caught on the razor's edge. If you have an ARM, I would hope you have 30% equity in your house. I think that much is a good way to go even with the 30 year fixed I have.

The only thing worse than being upside down on a car, is to be upside down on a house. That is BAD. I had friends who just foreclosed. One friend was a local anchor on TV, owned a townhouse, drove a Mercedes, made good money. She lost her contract and could not - could not - sell the place. So she foreclosed. And that affects your credit forever.

Just my 2 cents! :bounce:

[VegasWolf]

43. Yes, I was in Austin at the time, you could buy a house for 50 cents to a

dollar in Houstin, it was after the oil prices fell
so dramatically.

[BernieBear]

45. Yep

Every Monday morning planes full of real estate investors from California would fly into Hobby or Intercontinental and then if someone was LUCKY they'd pay 50 cents on the dollar, sometimes it was less than that! Now those guys made out like bandits. But that's investing - buy when everyone else is selling and sell when everyone else is buying.

Oh well, living in California made up for it. The house appreciated every month. In less than 4 years we doubled our money AND left another 30% on the table which is how much it's appreciated in the two years since we left. Meanwhile our new house in Atlanta is worth about what we paid for it 2 years ago.

BB

[VegasWolf]

55. Me too, first california then las vegas. The home market has been

good to me.

[demigoddess]

58. I have lived in two places that you could not sell a house for awhile

markets bounced back but it took about 10 years each time. The big problem with Reagan was that he sold people on the idea that the bad economy in the 70's was from democrats spending too much actually it was a result of all that spending on Vietnam and it took a while to bounce back. Now bush has us in a similar position. It will probably take 10 years or more to bounce back even if we can replace him and congress.

[Chico Man]

76. 00s Real Estate in Rhode Island...

Its all about location. I was in Houston in 2000 and there were lots of run down places. Seems like in a place like Texas, there will always be a real estate nightmare happening in one way or another.

R.I. capitalizes on Hub prosperity
State's economy being transformed

PAWTUCKET, R.I. -- Along the Blackstone River in this old mill city, residents marvel at something few thought they would ever see in Pawtucket's faded downtown: half-million dollar condominiums. But the condos are not only here, they're selling, snapped up as bargains by buyers fleeing Boston's red-hot housing market.

That's what Ranne P. Warner, a Boston developer, counted on when she invested some $17 million to renovate a riverfront mill into Pawtucket's first downtown housing development in 30 years. Her success, in turn, cleared the way for another multimillion-dollar condo project downtown, while growing numbers of professionals and artists are sparking other investments. Among them is a $12 million shopping center in the northern part of Pawtucket, the city's first major commercial development in 20 years.

Pawtucket's revival is just one example of how the Boston metropolitan area is reaching into Rhode Island and helping to transform its economy from one of New England's slowest growing to one of its fastest. After years of trying to carve an economic identity separate from Greater Boston, Rhode Island officials are instead embracing the metro area, promoting their state as an integral part of a region stretching from Manchester, N.H., to Rhode Island's south coast.

http://www.boston.com/news/local/rhode_island/articles/2004/11/28/ri_capitalizes_on_hub_prosperity/

[shrike]

86. That stuff in RI started back in the '80s when I lived there

Not surprised it's still happening -- RI has a lot to offer: top-notch universities, beautiful historic housing, great restaurants (at least when I was there), a few funky clubs (though not many), some great beaches.

Native Rhode Islanders, however, regarded their state as a toilet. Go figure.

[w4rma]

44. Can there be too few homeowners? I say there are too few. (nt)

[Iris]

48. Why?

79% is a good figure. There are lots of times in life when it makes sense to rent.

[gottaB]

50. I'd say because the banks own all the property, not the home dwellers

As for renting, it's not a bad time to rent in many markets.

[Yavin4]

46. Bottom Line Is This

Only buy a home if you can afford to do so. I understand the investment aspect and the tax savings, etc. However, people are rushing into buying without the means to pay the mortgage. Also, people foolishly believe that these historically low interest rates will stay in place forever. They won't. Next year, all interest rates, short and medium term, will be a lot higher.

Finally, you can only sell your home for a profit if there are buyers for it. If everyone sells their homes all at the same time, the market will be glutted and collapse.

[PatriotGames]

75. I am sure we will see quite a few foreclosures in the next 10 years.

[DoNotRefill]

83. Why on earth would people go with an ARM....

when interest rates are so low?

I've seen plenty of people with bad credit get 30 year fixed mortgages within the past two years.

On top of that, the way the dollar is tanking, money will be "cheaper" in the future.