ecstatic
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Wed Dec-08-04 06:11 AM
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Worried about "Housing Bubble" |
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Hi everyone,
I'm currently under contract for a new townhome but recent articles I've seen about a potential housing bubble have me kind of worried. Is this a bad time to buy (the market I'm in is metro-Atlanta/suburbs)? If prices were to drop drastically next year, what would my options be?
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NMDemDist2
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Wed Dec-08-04 06:22 AM
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1. don't get a variable interest mortgage |
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if the dollar keeps tanking we'll have interest rates rising
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FloridaPat
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Wed Dec-08-04 06:24 AM
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2. Just make sure you have a fixed interest rate. We don't know when |
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the housing bubble will occur. Get out of debt as much as possible. It could be several years before the bubble hits. Employment is more a key to housing prices. Atlanta is a good place for employment.
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unblock
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Wed Dec-08-04 06:35 AM
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3. i think the "bubble" talk is vastly overrated |
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but buying when interest rates are on the rise isn't the best time to buy.
real estate prices normally stagnate or drop as interest rates rise simply because the financing costs are higher. no "bubble", just the down part of the normal cycle.
there are always more considerations when talking about when you're going to actually live (as opposed to an investment home), but from a purely financial standpoint, there's more downside risk than upside risk during a rate hike cycle.
i'd wait 6-12 months or so, basically until the fed appears to be done with the rate hikes.
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girl gone mad
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Wed Dec-08-04 06:45 AM
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4. If your buying to live, not as an investment... |
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and you plan to live in the home for several years, then you should be okay.
The people who will be in the most trouble are those buying for investment, variable rate mortgage holders with little or no equity and people who need to sell quickly.
There are a wide range of opinions on the real estate bubble. Some people think only the inflated urban areas will be effected, others say that there will be a flight to quality so only those elite areas will be safe. Some people think there will be no bubble because everyone who sells will have to buy or rent.
If you think logically about it, though, it makes some sense that the upper middle range houses will be most effected. Buyers won't be able to get as much home for their money once interest rates start to rise.
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soothsayer
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Wed Dec-08-04 08:52 AM
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5. As a renter, I'm hoping the bubble will burst |
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Prices are GD-ridiculous.
Good luck, tho!
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elsiesummers
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Wed Dec-08-04 11:52 AM
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6. Each situation is individual. |
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Agree strongly about fixed rate advice above - other mortgage advice: if not fixed then a low cost fixed lock in option on the ARM. Also - if fixed - try to get an assumable loan so that, if rates skyrocket, you can sell the low rate mortgage to the next buyer/owner - makes it easier to sell a home in a down market. I remember this in the late 80's early nineties - assumables helped move homes in VA when the housing market was down. I have read that assumable mortgages are coming back in style, for this reason.
If you've been doing your homework on housing costs in your area (that you should be doing anyway if you are purchasing) and you are in a stable job and not planning to move quickly - then probably not a big deal to buy now.
Example: sometimes you are better off buying a low priced place and rennovating, other times a higher priced finished place (might cost more to fix up a fixer upper). What is the total cost to you and how do you want to live?
Try to purchase at a total cost that seems on the low side of market value - then you have less risk of downside. Make sure your agent has given you comparables (a visable list of recently sold similar properties at actual selling price) for comparison. Agents are known for leading a buyer through an overpriced home after showing a buyer through a home they are about to make an offer on in order to make the buyer feel good about their purchase price and cement the deal.
Also, if not underpriced, try to purchase a place with lasting appeal to buyers, or a place where you could add curb appeal and up the ability to sell in the future.
We purchased a (cheap) apartment in NYC less than a year ago. It was low priced but needs work that many would not want to do/pay for. Between offer and closing (four months) the selling prices of this sort of apartment went up 20 to 30%!
Now at that new price level it seems that many places are just sitting on the market, not moving quickly. Several places in my building are for sale at what I think are inflated prices, but not moving.
I have read that during a crash homes often go down 20% from peak price. This actually doesn't seem that much to me on lower end of the market - but could be a huge amount of actual dollars on an 800K McMansion in a bubble area.
Enjoy your new home!
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ecstatic
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Thu Dec-09-04 07:05 AM
Response to Reply #6 |
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Thank you for that advice, it turns out FHA loans are assumable. I never even heard that term before you mentioned it.
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elsiesummers
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Thu Dec-09-04 05:36 PM
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14. Glad I helped - in a high interest rate environment a low rate assumable |
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will be golden - though the buyer will have to be qualified for your loan - so, for example, higher risk buyers may qualify for a new loan, but not your low rate assumable. In a down market, if foreclosures are prevalent, banks may tighten lending rules.
When interest rates were nuts, "Assumable Loan - 6.5%!!!" would be a typical first line in property listing.
My mother briefly sold real estate and my aunt was a high selling agent - and my parents purchased a couple of foreclosures. I used to go with my mother to check out ten or more foreclosures a week. So, I learned a bit about real estate, many years ago, just from being around it. My parents actually live in a builder foreclosure, right now, that they bought 20 years ago, unfinished.
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girl gone mad
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Thu Dec-09-04 06:34 PM
Response to Reply #12 |
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I was trying to think of the term but all I could think of was transferable, which is something else (a new concept where you might be able to take your mortgage rate with you when you move).
FHA loans are assumable - I've got one and that's a big part of the reason we dedcided to buy despite the potential for future declines in RE. RE prices are directly liked to mortgage rates.
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Dover
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Wed Dec-08-04 11:56 AM
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7. Here's a silly question.......but I couldn't answer it. |
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Edited on Wed Dec-08-04 12:08 PM by Dover
My sister in law is real worried about the 'bubble' and wants to pay off her owner financed house note in order to be out of debt (a balloon payment coming up in a few years anyway). She asked me over lunch what the procedure is for doing that and I, having never owned a home, just shrugged my shoulders. She has her amortization papers so knows the amount owed, but just doesn't know whether she needs to do this at a title company or get a real estate attorney to make sure every thing is done properly and legally.
Anyone know?
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elsiesummers
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Wed Dec-08-04 01:03 PM
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8. Maybe city/county courthouse where titles are filed could answer. n/t |
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She should contact the office that she writes her property tax check to and ask them which office holds or registers the title and for their number - then ask them for information about the procedure/process, lawyers, etc.
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edhopper
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Wed Dec-08-04 09:37 PM
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9. I am firmly convinced there is a bubble |
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that will burst in the next year, sooner if the dollar tanks. While inflation has been at about 2% - 3% the last few years, housing has gone up 20% - 30% PER YEAR! There a a few reasons for this, but it has put housing in precarious position. I've posted this before. I do not know any one (and this is all over the country, not just the metropolitan areas) who has owned their home for at least 5 years, who could now afford to buy their home. the bubble will burst, it's just a question of how hard.
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elsiesummers
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Thu Dec-09-04 04:02 AM
Response to Reply #9 |
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I looked at a home a year ago that by mapquest is 1hr 40min out of NY - large, 3 acres, but needed extensive work (gutt kitchen, new roof). At this point similar listings (one year later) are up from that time frame, list price, from 200 to 300K+.
Considering how very far that is from NYC, and how exhorbetant property taxes (4000 to 10,000/yr) are for that county, wow.
I think that, in many locations, you are right - it's bubbly.
I'm still considering a PA proerty, 3 hrs out of NYC (closer to Binghamton) priced at 225K, that, while low on land for the area (only 2 acres) is a fantastic house - w/ property taxes around 2000/yr. Would like to buy 10 acres from the farm next door.
That home has been on the market for nearly a year.
Gutt feeling: I don't think every area is a bubble but yeah, some of it has to, absolutely has to, pop, BOOM.
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ecstatic
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Thu Dec-09-04 07:02 AM
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Your info /advice was very helpful!
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MrUnderhill
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Thu Dec-09-04 10:38 AM
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13. That depends on whether you need to SELL. |
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If rates go up and home values come down... monthly payments for people buying local homes might be unchanged (in fact, that's part of the assumptions behind saying values might decline).
So if you aren't selling in the near future.... it isn't THAT bid of a deal. You have basically the same monthly financial situation as your new neighbors (assuming you took the advice and did NOT get the ARM).
And if you DO need to sell that quickly... why buy a home at all? Renting is more appropriate.
If you buy a home and values drop too far, but you have to move... you could consider renting out the property. If home-ownership costs don't change substantially... you should be able to carry the rental until valuations improve.
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taught_me_patience
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Thu Dec-09-04 11:34 PM
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Are ironically in the bluest states. California, Seattle, Boston, New York and Vegas are in the worst bubble areas. Especially So Cal!!! Pay 20% down and get a fixed loan (the 30 is really cheap right now) and laugh at the suckers who do 5/1 ARM interest only loans so they can afford a "bigger" home.
taught.
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Fri Apr 19th 2024, 03:10 PM
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