Housing bubble - when will it burst?

[lawrocket 3]

One of the reasons why I didn't mind leaving Los Angeles was because housing was so expensive. Much less expensive here in Fresno, but I've been banking on the housing market taking a dive before buying.

Then I see this article about the even greater explosion of housing prices in LA.

My thoughts are that this simply cannot last. Still, I thought that a year ago, and it keeps growing faster and faster.

How long will this bubble last? Is there a market correction pending? Or, is this just gonna keep on building?

At this rate, I'll NEVER have a house, even in Fresno...

My wife is hotter than your wife.

[jdhill 0]

Housing prices will not come down until interest rates start to go up... at best they will level off... many financial planners will tell you to buy what you can now (with relatively cheap money), with cheap money... and stop paying someone else's mortgage.

J

All that is necessary for the triumph of evil is that good men do nothing. - Edmund Burke

[SkyDekker 1,121]

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Housing prices will not come down until interest rates start to go up... at best they will level off... many financial planners will tell you to buy what you can now (with relatively cheap money), with cheap money... and stop paying someone else's mortgage.

You do want to think a couple of years ahead though. When interest rates start to rise, the value of your house will start to decrease. The next time your mortgage comes due, your payments will be quite a bit higher. You may want to think about what you can afford in that light as well.

[benny 0]

As long as we continue to populate the world at the rate we do and as long as there is a constant source of available land (ie, until we begin to colonize the moon or mars) the cost of housing will continue to rise. My question, where are the jobs that allow people to pay for these houses?

Never go to a DZ strip show.

[lawrocket 3]

Well, part of the problem is this:

When the money is cheap, property is expensive.
When the money is expensive, property is cheap.

Typically, it's pretty much a wash. The PROBLEM I see is that when the property values go down, so does equity. Who wants to buy a house for 425k, put in 60k over 3 years, and then find out the house is only worth 350k in five years when he or she has to move? It's what happened in the 80's, and destroyed many, many people.

My wife is hotter than your wife.

[billvon 2,394]

>My question, where are the jobs that allow people to pay for these houses?

San Diego for one place. I had no problem buying my first house here, based on my income.

[SkyDekker 1,121]

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Well, part of the problem is this:

When the money is cheap, property is expensive.
When the money is expensive, property is cheap.

Typically, it's pretty much a wash. The PROBLEM I see is that when the property values go down, so does equity. Who wants to buy a house for 425k, put in 60k over 3 years, and then find out the house is only worth 350k in five years when he or she has to move? It's what happened in the 80's, and destroyed many, many people.

Very true, compounding the problem is that money is currently so cheap that many people are leveraging themselves into eternity. When the interest rates go up, it is not only the mortgage people have to worry about. It is also the car loans, payments on the lines of creadits and loans made for home improvements, big screen tvs, vacations etc.

The next 5 to 10 years could prove to be devestating for many people who think they are living the highlife on borrowed money right now.

[PhillyKev 0]

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My thoughts are that this simply cannot last. Still, I thought that a year ago, and it keeps growing faster and faster.

How long will this bubble last? Is there a market correction pending? Or, is this just gonna keep on building?

Interest rates will slowly rise, but along with that the economy will also improve so the home purchasing will be about the same. My guess is When the avg. 30 yr. fixed mortgage rate hits 8% it'll burst.

[lawrocket 3]

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The next 5 to 10 years could prove to be devestating for many people who think they are living the highlife on borrowed money right now.

Exactly. And when the need to pull the equity out of the house to help cover those bills, the equity in the house will simply not be there. Recipe for disaster.

That's why I haven't gotten a house yet. I could afford one (a small crummy one) but it doesn't appear that it will help me in the future as a stepping stone.

And for those like you and me expecting a baby, the future is now.

My wife is hotter than your wife.

[Michele 1]

Here's part of an email blast I sent to my list (110 sellers...)

.....Snip...

That may be changing, however. With interest rates starting to creep upwards, buyers are beginning to feel the pinch. While we are still at incredibly low rates, what I am starting to see are people who, 4 months ago, could afford your house, are now dropping out of the market.

Secondly, there is talk all over the news stations that the housing bubble may be bursting. As a friend of mine put it, "once the news gets it, it already has happened."

Do I think it's burst? No, but I can't say I don't see a slow leak. What this will mean in 2, or 4, or 6 months, I don't really know. Will the leak continue to be slow? Will it burst? Will the market stabilize, and become more balanced between buyers and sellers? The last option is what I think will happen, based on my years of experience in real estate.

If you've been putting off selling your home for that last 2% equity, now may be the top of the market. With the combination of strong economic numbers, interest rates rising, inflationary pressure increasing and the Feds responding to that pressure, and the summer sales season fast approaching, this continues to be an unpredictable market.

...Snip...

Since this is what I do everyday, here's my .02...

As the interest rates creep upward, we will see fewer buyers. As fewer buyers are able to afford homes, the prices will stabilize. As the homes remain on the market, we will start to see price reductions because a seller MUST sell (relo, illness, et cetera). Those price reductions will feed to the buyers, and then the other sellers in the area will also have to lower pricing, because appraisals will now begin to have difficulty meeting the high market explosion.

As we see the beginnings of inflation (gas prices, fruits and veggie price increases, bond market activity), the Feds will counter that by increasing the interest rates, which will in turn affect the mortgage interest rates.

Thus the cycle continues.

The 2000 census had an estimated 10,000,000 (10 million) (adjusted) resident growth for the Los Angeles area. Affordability is, right now in my market, somewhere about 27%. 27% of 10mm is 2.7 million....where will we put them all? (I don't think I agree with those numbers - I think it's more like 1/2 of that, but still...)

I don't think it's going to "burst" ala the 80's and again in the 90's. The financing is very different than when interest rates were 18%. We are not seeing the amount of seller carry-backs, or buy-downs, or "creative" financing that we did then. We are, however, seeing more 0% down, 105%, ARMs, NEGAMs, and so forth, so there will be issue with those in the future if the interest rates spike too fast too soon.

I think that, by summer 2005, we will see an interest rate increase to about 7%. That's a full 2% (on average) than we are at right now.

If there is any way to purchase something, I think now is the time. If you have property to liquidate, now is the time.

(and if you need a referral, pm me. ).

Ciels-
Michele

~Do Angels keep the dreams we seek
While our hearts lie bleeding?~

[nanook 1]

Kind of reminds me of a mild form of the "Tulip Mania" of the 17th century in holland. I just wish an affordable house here wasn't so small

maybe not so Tulip-esque after all. Just read Michele's post.

_____________________________

"The trouble with quotes on the internet is that you can never know if they are genuine" - Abraham Lincoln

[lawrocket 3]

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If there is any way to purchase something, I think now is the time. If you have property to liquidate, now is the time.

For me that doesn't really work. I'm busy paying off consumer debt, and should have that done by November. I also hope to be making a lot more money by then. With this office just getting off the ground, I'm looking ahead to making more (so is my wife).

Then I'll be able to afford something with a bigger down payment. For me, that is what it is all about.

Coincidentally, my lady just took her real estte license exam. So, she will stat knowing a bit more about it, too.

You rock, Michele.

My wife is hotter than your wife.

[PhillyKev 0]

I know what you're saying happens to be pretty accurate right now. Not meant as a bust on you, but I just think it's funny because it fits here. I've never heard a RE sales agent NOT say that RIGHT NOW is the best time to buy or sell, no matter when it is

[headoverheels 291]

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The next time your mortgage comes due, your payments will be quite a bit higher. You may want to think about what you can afford in that light as well.

Fixed rate loans are still common here in the US; they don't come up for renewal.

[Michele 1]

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Then I'll be able to afford something with a bigger down payment. For me, that is what it is all about.

There are ways to get about a large dp...for example, do something on an 80%/20%, or 75%/20%/5%...or a primary loan and a second td. Then, once the consumer debt is cleared completely, begin to make larger payments towards the 2nd...you can take advantage of the low rates and leverage to make it work for you. There are about a bazillion ways to finance a loan...it just depends on your own comfort level.

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Coincidentally, my lady just took her real estte license exam. So, she will stat knowing a bit more about it, too.

If she runs into questions, I'm always here to help. And you know, Jer, as a lawyer, you don't need a RE license to practice (although it's helpful...).

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You rock, Michele.

As do you, Jer.

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I've never heard a RE sales agent NOT say that RIGHT NOW is the best time to buy or sell, no matter when it is

The truism is, if you're paying someone else's mortgage, and creating their wealth, instead of paying yourself and creating your own wealth, then you're a dummy. I'm a dummy, as I currently rent. If I were in a position to take advantage of my own advice, I would rather, without doubt, pay myself via a mortgage than pay a landlord.

And I've been known to tell people to NOT buy - they were not stable enough financially to do so with a safe margin for error. I've also told people to not sell - the equity gained would not be profitable. Of course, that's not been recently, either.

Ciels-
Michele

~Do Angels keep the dreams we seek
While our hearts lie bleeding?~

[lawrocket 3]

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If she runs into questions, I'm always here to help. And you know, Jer, as a lawyer, you don't need a RE license to practice (although it's helpful...).

Well, we've got a few clients whose RE agents messed up. We want a good idea about the standard of care and that sort of thing.

On top of that, the real estate issues are mroe complex than law school could hope to teach. It's great knowledge.

My wife is hotter than your wife.

[Michele 1]

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On top of that, the real estate issues are more complex than law school could hope to teach. It's great knowledge.

Wow. A lawyer who actually understands agents who're any good actually have a serious knowledge base. Another reason I like you.

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Well, we've got a few clients whose RE agents messed up. We want a good idea about the standard of care and that sort of thing.

I am more than happy to help you if you need it. Answer questions, explain the perspective, et cetera. The RE tests don't really cover all of that.

Ciels-
Michele

~Do Angels keep the dreams we seek
While our hearts lie bleeding?~

[nightjumps 1]

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How long will this bubble last? Is there a market correction pending? Or, is this just gonna keep on building?

The world population doubled three times last century. I don't think there's going to be a slow down in folks making babies any time soon.

[slug 1]

The housing market will go thru cycles just like interest rates, stock market etc.

If a person buy's now at the "Peak" and there is a adjustment in the housing market a homeowner will be facing a paper loss, that they will only incur if they are forced to sell during the "downturn". If the homeowner can wait long enough the house will recover it's value.

The warnings about market timing IMO also apply to the housing market. The kicker is that we're seeing ads on T.V. for Fannie May loansfor first time homeowners. So the chain is getting longer.

The other "challenge" the housing market is going to face is the aging of the Baby BoomersIn the next 10-15 yr's there may be more sellers than buyers when the old folks move into condo's or nursing homes.

No one can predict the future, except I'm guessing that rents will continue to increase 3-5%/yr regardless of the housing market. WAG

R.I.P.

[SkyDekker 1,121]

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The next time your mortgage comes due, your payments will be quite a bit higher. You may want to think about what you can afford in that light as well.

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Fixed rate loans are still common here in the US; they don't come up for renewal.

I don't think there are many people with a fixed rate for the entire term of their mortgage.

[Michele 1]

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I don't think there are many people with a fixed rate for the entire term of their mortgage.

Actually, there are. Most folks do a fixed term, either 15 or 30 years. It's by far the most common loan that I come across - prolly like 80% of my work is with the fixed loan.

There has recently been an upsurge of "alternative" lending, but that's still a small percent of the general total.

That's one of the lessons learned from the 80's and 90's...balloon payments suck.

Ciels-
Michele

~Do Angels keep the dreams we seek
While our hearts lie bleeding?~

[SkyDekker 1,121]

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Actually, there are. Most folks do a fixed term, either 15 or 30 years. It's by far the most common loan that I come across - prolly like 80% of my work is with the fixed loan.

I understand that the term of the mortgage is fixed, but is the interest rate fixed for the entire term of the mortgage as well. Will the rate not change for the entire 30 years of the mortgage?

>

well, look at that, another difference between US and Canada. I stand corrected.

[Ron 7]

OK my head hurts now...

Should I buy a house or not?

I have the VA behind me.

House or Townhome?

I only have about 6 grand saved up for the DP, but I don't need one with the VA...And I think I avoid the PMI as well.

"No free man shall ever be debarred the use of arms." -- Thomas Jefferson, Thomas Jefferson Papers, 334

[Jimbo 0]

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I understand that the term of the mortgage is fixed, but is the interest rate fixed for the entire term of the mortgage as well. Will the rate not change for the entire 30 years of the mortgage?

Most folks I know have a fixed rate mortgage. Even adjustable rate mortgages are usually fixed for quite a few years and have a cap on how high the interest rates climb.

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I only have about 6 grand saved up for the DP, but I don't need one with the VA...And I think I avoid the PMI as well.

Ron, there are so many offers out there right now, many of them geared at those who have a steady income, but no real savings. Michele already mentioned it, but 80/20 and 80/15/5 loans are available. Two mortgages, one for 80% of the value, the second for 20% (would have normally been your downpayment), but at a slightly inflated interest rate. The 80/15/5 is 80% primary, 15% secondary, and 5% down. Hell, you can even finance an additional 3% to cover your closing costs.

My opinion, there's no better time than now to buy a home.

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Jim

"Like" - The modern day comma
Good bye, my friends. You are missed.

[Remster 24]

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Actually, there are. Most folks do a fixed term, either 15 or 30 years. It's by far the most common loan that I come across - prolly like 80% of my work is with the fixed loan.

I understand that the term of the mortgage is fixed, but is the interest rate fixed for the entire term of the mortgage as well. Will the rate not change for the entire 30 years of the mortgage?

>

well, look at that, another difference between US and Canada. I stand corrected.

Yep.. and the bastards get to deduct the interest off their morgage on their income tax...

Remster