This isn’t really a difficult proposition. Have wages and economic development kept pace with the increase in real estate prices? If they have, the prices will be sustained. If not, the market will rationalize.
Most local media, especially print media, derive a large portion of their ad revenue from 2 sources - real estate agents and car dealerships. Read any report from last year while the US market was still on the precipice, and it’s the same story everywhere - other places are in trouble but “IT’S DIFFERENT HERE!”. I’m sure Toronto is no different.
I bought my first house with ~10% down and made sure to open a home equity line of credit. I am lucky that prices are pretty stable in my area (though two of my neighbors apparently are on a fire sale this month). I paid down my HELOC and kept it open so I have an emergency cushion. If I can’t equity out of my house by selling, then I’ll get it through the HELOC and if things get really bad, walk away. However, I’m not going anywhere any time soon unless I start a family. My plan was to move to a more affluent suburb and keep my townhouse as another rental property.
One third of new homeowners. BFD. Housing prices don’t go up every year, and no one should be shocked that they don’t. We’ve had this condition, or something like it, every time housing prices have decreased. The only difference this time is that so many people took out loans with 0% down. That’s just stupid for the homeowners and the banks. Let the market wash it out, as it eventually will.
While I have no doubt that there is no place on earth immune to market cycles, there are other factors involved - for example, the ease of obtaining credit.
My impression is that the downturn in the US was made worse by the widespread availability of subprime loans.
No dount there will be a downturn - it is inevitable that it will happen sometime - but the difficulty is predicting when. While what you say about reports last year is no doubt true, it is equally true that here there was widespread “a downturn is inevitable” reports more than five years ago here - I was strongly advised not to buy back then but to wait for the “inevitavble market correction”. I’d still be waiting, had I taken that advice, and prices must have risen by 30-40% since. Even accounting for inflation, prices would have to tumble a lot for that advice to have been good.
In my immediate neighbourhood there is plenty of talk about the downturn (what with the situation in the US, such talk is inevitable), but prices appear to still be rising. Lots of indicators that the market is past its peak though.
Phoenix got hit hard with these idiots. Bunch of rich folks from California started moving out here and bidding high on homes with 0% down, because they’re comfortable with high monthly payments.
That’s actually how I got my current townhouse. We were the only bidders willing to put money down, and the buyers had already gotten screwed once by a 0% deal where the financing fell through.
I don’t know how it is for everyone, but with my insurance co., the house is not insured up to its market value, but rather up to its replacement value–the amt. of money it would take to re-build the house–which, at the time I bought the house (newly built), was about 1/6 less than the sale price.
Yes, that’s my experience as well. Replacement cost, not market value. An insurance agency would have to be nuts to insure for the latter, unless they charged ridiculously high premiums.
Assuming that your mortgage wasn’t gotten on the assumption that you were going to refinance, and that your lifestyle didn’t assume that you could keep taking equity out of the house. People with fixed rate mortgages are fine, so long as they don’t have to move.
Similarly, If your 401K goes down, and you’re not planning on retiring soon, don’t panic. It is a great buying opportunity. This is what dollar cost averaging is all about. I figure the optimal situation is for the market to really suck until just before I retire, and then zoom upwards. During downturns a lot of people get in trouble by forgetting the basics, panicking, and selling at a loss to put their money in safe investments, and thus miss out on the rebound.
I can see 20 - 30% of homes underwater, but I don’t see 90%, even in Southern California. That would imply a lot more turnover in the past few years than I think happened.
My condo (in a good area of a desirable town on the North Shore) doubled in value over the first eight years I owned it, and I took a good chunk of the equity out in refinances.
Then the slump came along and prices have been declining for the last year-plus. When I wanted to refinance recently, to reduce my current 30-year to a 20-year loan, I had to put in about 22K in order to meet the 80/20 loan-to-value ratio.
No problem, though; I’m still above water, am now building equity faster, and lowered my interest rate enough so that the monthly payments are with a couple dozen dollars of what they were under the 30-year.
That depends on what rental prices are for a comparable property, and what the after tax cost of inhabiting that house was (after you deducted the interest payments from your taxes).
If I walked away from my house today, I would still be ahead of the game vs. renting anything comparable over the same period of time.
You guys are gettin me curious. Does anyone know of a good online home value calculator - one that doesn’t require a name and address? That’s what I got when I tried to Google.
I’m in a little two-bedroom, one-bath that was built in the late twenties or early thirties. I got it in the bubble, but about three years before it peaked. FHA first time buyer loan with little down but a pretty good interest rate. Owed about $150k to start with, probably owe $130+ today.
During the bubble I got realtor’s cards every time a neighbor’s house sold, so I expect the sales value of the house got up to $220k or so. One of the neighbors contends that it got up to $300k, but I doubt that. The lots are of varying sizes in my area, and mine’s one of the smaller ones. Also, I don’t have central heating and air and most of the rooms only have one electrical outlet.
I don’t think I’m upside down, but haven’t checked lately. The realtor cards, they aren’t coming any more.
I’m not going to move and can make the payments. I was shocked, back when I went house shopping, at how large a monthly payment they thought I was qualified to make. We didn’t go near their suggested amount and it was still about 40% of my net monthly income. It’s down aroung 30% now, and I wish it was still lower.
How can it calculate the value without an address? Try Zillow. You can enter an address in your area and get values for any home near it. Yahoo has something similar. In my area, I can get recent sales data from my newspaper’s web site.
On one hand I agree with the BFD comment, but then again it is new homeowners in the last **five ** years. And that seems like it would be a fairly large number as many people have become new homeowners within the last five years. I realize that many people plan on staying in their home until it is paid off, but does anyone have the statistics of how often people flip from one home to another? I also wonder if this number includes those people getting second mortgages and refinancing, etc. All of those people would have also used the new inflated value of their homes to access the equity.
I do think eventually the market will wash it out and if I was in this situation (thankfully I am not!) I would just weather it out and eventually the situation will correct itself. But if you are counting on your equity as retirement funds then I think you are a bit screwed or at the minimum putting off your retirement.
OK, I retract my BFD comment, and I’ll admit I didn’t check your cite. I was assuming they were talking about the last 1 or 2 years. I wouldn’t call someone a “new homeowner” who bought a home 5 years ago. But still, there really is nothing we can or should do to prop up housing prices. They got out of line, and things are now correcting.
Even without dropping home prices, mortgage policies over the past several years have encouraged people to borrow what their home is worth. We certainly aren’t new homeowners (been in our house ten years already!) but when we bought we had the opportunity to finance 100% of the house, and roll in the closing costs. For us, because we built and signed a contract to build six months before closing in an increasing market, we would have ended up with equity anyway (we put some money down - 10% maybe? Not enough to avoid PMI). My brother in law, in the boom heyday, took out one of those 120% mortgages to pay off his new wife’s debt (surprise!). He got lucky and the house appreciated to cover it before he needed to sell - that plan didn’t work so well a second time though.
I see this as the next housing crisis-millions of elederly boomers are going to be trying to sell their houses. And in areas (like NE, which are seeing a population loss), there will be NOBODY to buy them! I can see cities like hartford, providence, and the Boston suburbs emptying out-and house resale prices crashing! Add to that-the insane amount of expensive local governemnt 9my town went nuts building new schools), you will see taxpayer revolts.
We Americans have been living large on dropping incomes-and housing values are going to ollow!
Thanks for the site. It looks like I owe about what the house is worth.
As to the address - the address for Zillow was fine. The sites I was getting from Google all had name, address, phone number required fields that were obviously in registration format - with a box to be unchecked saying that you wanted a follow up contact. Not so cool.
We bought our home 10 years ago, and “used the equity as an ATM”, as the saying goes – to the point where we had no equity and a sub-prime mortage that ballooned well beyond our ability to pay.
Long story short…we owed $680k (which our lender thought was a reasonable value when we re-fi’d into the stupid mortgage). Put it on the market last month for $600k. Got an offer for $532k.
