You haven’t been around long enough.
I bought a condo in NH in the late 80’s and sold it in 1999 for less. I know folks who had to bring their own cash to the closing to cover the mortgage since the selling price was so much lower than the remaining mortgage.
Real estate is a great investment in the long run, but like any investment ther are risks. If your timing is bad, or you bought at the peak of a bubble, you might end up losing money on a house.
Yeah, I remember this in about 2000. I remember chatting with some recent college grads and mentioning I always kept 20% of my holdings in cash in case of emergency, to which they just guffawed. Cash? Who on earth would hold cash in a market like that? They simply had no recollection of the market ever going down.
The rest is history. I remember a welll-known, briskly-selling book of the time called “What if we never go down again?” Oddly, it doesn’t appear to be listed on Amazon anymore.
And of course, the increase in people with interest only or adjustable rate mortgages makes it even riskier. This newspaper story describes some of the possible consequences of these loans. When interest rates rise, and people have no equity, or even negative equity in their homes, defaults are inevitable. This article from a San Francisco journal says that in the first months of 2005 61% of all home loans were of this type. That is extremely disconcerting.
People are depending on rising home prices to build equity. As long as home prices increase, you can pay the interest only and get away with it. A decline in value is going to drive a lot of these people into default.
I don’t think it’s just SE Michigan. The realtors I’ve spoken with refer to the market as “transitional.” Here in southern California, quality, well-priced homes still are selling in about a week, sometimes for 2-3% over asking price.
Other houses (ones with more, uh, character) are staying on the market longer, and on occasion, dropping the price. I don’t think the bubble has or will burst (not sure there even is a bubble), but right now, things are definitely a bit strange.
It isn’t just speculation. I owned a house in Louisiana in the late '70s ($40k ) When I finished grad school and moved, the interest rates had just started to soar. While we found a buyer, and didn’t lose any money, we had to finance him until the interest rates went down again - which took about 5 years. Happily the guy paid every month on the dot. But people I knew who had to sell after me wound up with a mortgage bigger than the value of the house, and walked away from it when they got a new job someplace else.
In the bubble a lot of people are putting less down than ever, and were getting interest only loans. With interest rates going up, they may not be able to afford their new monthly payment. If the market tanks, they may not be able to get out either.
The paper here in the Bay Area says that sellers are keeping their house on the market longer waiting for spring when more buyers come, and buyers are trying to wait them out. We’ll see what happens. An elderly neighbor has her house on the market, because she wants to get out before the bubble bursts, and is in no hurry, and so is willing to wait until she gets her price. We’ll see what happens.
It sounds to me like a good time to hold. I got a great deal on my house 3 years ago by buying it off market at the bottom of a brief price dip. Since then it’s nearly doubled (as my real estate tax assessments keep reminding me). If I hang on to it through all this then the burst should still leave me above where I began. Right? I wouldn’t want to buy now. Just everyone talking about it might be enough to make people so nervous (like I would feel reading this thread if I were buying right now) sales start to slack, and next thing you know, it’s too late to bail. Sounds like a mass, unplanned Ponzi scheme, doesn’t it?
No, both the Prius and the iPod are consumption goods. Bubbles only occur on investment goods. People buy them on the expectation of selling them later at a higher price for profit. This assumption of profit is factored into the purchase price which means people pay more for the good than they should. Here’s a good article on the Hong Kong housing bubble in which prices fell by almost 2/3rds in a year.
I think it’s going to become a buyer’s market soon. The economy in Michigan has been in the toilet for a few years now, and the auto industry is cutting its workforce again. I expect that pretty soon there’s going to be a lot of people around here who need to sell their house quickly, and they’ll be forced to sell at a loss. The market for condos has already crashed; in SE Michigan you almost need to give a condo away. (I’m certainly not surprised. I’m supposed to pay a mortgage, plus rent – oops, an “association fee” – for what’s basically a large apartment? I don’t think so :dubious: )
Kids these days. you don’t remember the 1990-92 housing crash? I’ve lived through several housing boom and bust cycles in Tokyo, Hong Kong and now Shanghai.
Phase one, turnover drops (where we are in the US). Phase 2, prices start to drop. Phase 3, banks start to repo. Phase 4, prices plummet and there are almost no transactions. Phase 5, buyers decide the price is sooooo low, it’s worth buying, and slowly turnover picks up, then prices gradually start to rise.
It’s gonna be 2-3 years in the US for this bubble to bottom, and it’s gonna be as nasty as the stock market was.
This is just a nitpicky hijack, but . . .
Real estate isn’t necessarily a good investment in the long term. That article I read about the Dutch housing market indicated that it grew at a rate of like 5% when you figured it over 500 years. But it was like 2% until 1981. It’s been much bigger since then, but 25 years isn’t necessarily “long run”.
If you look at housing data, I think traditionally prices have risen at about 4-5%, but that’s just prices. When you figure in upkeep, and taxes, houses are not necessarily a good investment.
However, “real estate”, in general, I’m not commenting on. . .there’s more to real estate than housing.
The Muttrox family is counting on it. We’re hoping to pick up a bigger house cheaper after these interest only and ARM idiots realize they can’t afford them. With luck, they’ll be defaulting right around the time we need more room for the kids…
I’m glad I bought where I did a year ago. We bought in a neighborhood that wasn’t and isn’t so good but is close to everything. Since we have bought they have announced the opening of quite a few restaurants, which have since opened, a new supermarket, and a streetcar line to the Metro. What may happen in my neighborhood is that appreciation from the neighborhood getting better will offset the decline in bubble prices.
I’ve worked in real estate for twenty years. My office handled the sale of a 60 unit condo complex in 1987, with the units selling for $100-$120K.
In 1995, somone was looking for comparable solds to sell their unit for $120K. Our response was “Is that for two of them?” Most of them were selling for around $80K.
The past two years, the units have been selling for around $160-$180K.
Real estate ebbs and flows. We’re on the end of a great housing bubble, which will probably pop by next year.
I’m hoping for that as well. A couple more years and hopefully I’ll be out of grad school and can find a job. Buying a house will be much easier if the bubble pops.
Real estate speculators (mostly from California, it seems like) are doing a number on prices here in New Mexico.
FWIW, I’m starting to think along these lines myself. A year or two from now, if I still have a stable job, I might decide to visit my Realtor friend’s office and say “I want to buy a house.” I’m kinda hoping that prices will have fallen by then.
We bought our first house in 1991. Prices then began to decline for several years, before slowly going up again. We sold the house 10 years later, for about $10K more than we paid for it, after we spent $8K developing the basement. Including having to landscape it and do other work, we essentially sold it for what we paid for it. Which is a pretty big loss on our investment, considering inflation. Had our money been in the bank over that period, we would have come out much farther ahead.
When considering whether real estate goes up or down, you always have to factor in inflation. If house prices climb slower than inflation, then in absolute terms they are declining.
As for the real estate bubble, there may or may not be one. You’ll notice something about the places where real estate prices are really crazy - they are all places where, through either geography or zoning laws, there is no space to expand the city. So there’s a fixed supply with increasing demand, which is driving up prices. In areas where cities can grow, the price increases are much more modest.
Housing busts are generally not as severe as stock market collapses, because in the end a house is still a real asset, and people still need places to live. But they can certanly happen.
Here’s more on bubble houses:
Part of why houses aren’t like stocks is that a lot of people think like this.
You’re at least the third in the thread. If there’s a lot of sentiment like that, it puts some upward pressure on house prices.
Now, I’d think they really will come down if a pretty good recession comes along and folks like you, asterion and muttrox have shitty jobs, or no jobs.
But, if companies around DC, Boston, New York continue to pay what they currently pay, and you don’t have a ton of growth of housing supply, it’s hard to see it really bursting.
Hey, have you been talking to my boss!?
You get to live in the house over that time, too. How did the interest on your mortgage compare to the price of renting a similar house?