[Eug Wanker]

Sweet. I hope some of those price slides come to Canada too. Right now, we're just seeing a minor slowdown in increases.

[mindwaves]

yay! Another 15-20% decrease and I might be able to afford a condo! haha...

[torsoboy]

Originally Posted by what_the_heck 

Woohoo. If you buy now, you'll bite your ass later.

-t

I'm not sure what this means... are you saying that prices are going to drop further and then you would feel bad for buying now? It seems like those that bought last year are the ones that are probably feeling crappy now.

Oh, and there goes the theory that home prices can never go down. But I'm sure no one will ever say that they said that now that they are heading down.

But the point is, this is great news for those looking for a home. Maybe towards the middle of next year I'll be able to move to a different place.

[villalobos]

yeah, was gonna buy a house here in NJ, but renting instead to see where the market is going. Some houses have been on the market for months now. I have seen some prices dropping, up to $100,000 (from 500k to 400k....). Good time for me, not for people who bought last year.

[awcopus]

In the process of buying a home right now in Astoria. Found a great deal ($300 per square foot in a $500 per square foot neighborhood) for a 2BR in the neighborhood my family loves. Within short walking distance of French, Vietnamese, Thai, Greek, Russian, Lebanese, Japanese, Italian dining, a brand new mega-screen movie theater plus the American Museum of the Moving Image, bakeries and cafes aplenty, awesome food shopping, two parks, Home Depot/BestBuy... the subway to Manhattan is 3 minutes away door-to-door, and we'll be 5 stops from the Apple Store on 5th Ave (6 stops from my wife's workplace).

Anyone familiar with this area knows how hard it is to find an affordable home here. We hit the jackpot thanks to Craigslist.

Speaking from experience now, the best time to buy is when you can afford to own a place you love in a location you love.

[macroy]

Originally Posted by torsoboy 

I'm not sure what this means... are you saying that prices are going to drop further and then you would feel bad for buying now? It seems like those that bought last year are the ones that are probably feeling crappy now.

Oh, and there goes the theory that home prices can never go down. But I'm sure no one will ever say that they said that now that they are heading down.

But the point is, this is great news for those looking for a home. Maybe towards the middle of next year I'll be able to move to a different place.

I think the theory is that in the long run, real estate tends to increase in VALUE. Prices will always fluctuate. But that is the entire market... and real estate is very specific. You'll have places that have declined in value for decades, and others that have trippled in just a few years. Its all relative.

For instance, I heard homes over the 2 million range have not been affected by this "correction". And again, 2 million is still relative - that means a nice condo in NYC, or 10000 sq ft mansion on 20 acres somewhere in Texas.

I personally don't believe in a real estate " bubble" as compared to a Stock bubble. You can end up with "nothing" with stocks. With real estate, you at least still have a roof over your head. Now, for those that bit off more than they can chew (i.e. bought a house they really can't afford) - that's a different story, but that more of a financial management issue than real estate - IMO.

[indigoimac]

Originally Posted by BRussell 

With so many people leveraged into homes they can't afford, with silly interest-only and other crazy mortgages that assume fantastic growth to be feasible, I think a lot of people are going to get into trouble. It feels like the 1999 stock market.

This is the smartest thing I've read in the lounge in months!

"Exotic" mortgages are a disaster waiting to happen, no reasonable financial advisor would ever recommend one, and people just snatch 'em up, think, think, think before signing the dotted line, if you can't afford it, you can't afford it, don't overextend 'cause you will be the only one to lose in the end.

/rant

[DeathMan]

Originally Posted by macroy 

I personally don't believe in a real estate " bubble" as compared to a Stock bubble. You can end up with "nothing" with stocks. With real estate, you at least still have a roof over your head. Now, for those that bit off more than they can chew (i.e. bought a house they really can't afford) - that's a different story, but that more of a financial management issue than real estate - IMO.

You end up with worse than nothing if you are injured, or lose your job, and can't unload your house for more than you owe on it. You end up with bankruptcy. And bankruptcy will be the end result for a lot of people (the aforementioned creative financers) who lose their ARM rate and won't be able to afford the new payment, or even afford traditional payments. These people have no choice but to sell, and they'll still be upwards of $50-100K in the hole. If they're lucky they'll avoid bankruptcy by finding someone to buy the bank loan, negotiating pennies on the dollar, and avoid bankruptcy. At least the bank will get some money out of the deal.

There is definately such a thing as a Real Estate Bubble.

[Eug]

Originally Posted by macroy 

I personally don't believe in a real estate " bubble" as compared to a Stock bubble. You can end up with "nothing" with stocks. With real estate, you at least still have a roof over your head. Now, for those that bit off more than they can chew (i.e. bought a house they really can't afford) - that's a different story, but that more of a financial management issue than real estate - IMO.

A large part of the bubble is created not by people just buying for themselves, but by people who buy to flip. ie. They may not even live in those houses. It's this type of speculative buying that can send prices soaring sky high, and it's the loss of these speculative buyers that can send the prices crashing down to earth.

[analogika]

Originally Posted by DeathMan 

There is definately such a thing as a Real Estate Bubble.

So this thread is over the six-month limit, but I felt it was worth raising just for hindsight's sake.

[Eug]

Heh. Ironically, since my last post, I've purchased a detached home and sold my townhouse. Prices are high here (Toronto), but at least I did well on my deals. Got my house under asking price, and sold my townhouse for over asking (multiple offers).

And in the meantime, housing prices in Canada are still hitting records. In fact, during the summer a house that was listed for 1.295 million went for 1.9 million. That's a complete anomaly, but still... Actually I went to see the place just for kicks. It's not that nice outside, and needs a lot of work. The location is nice, but not *that* nice. I wonder what the buyers do for a living.

Price increases have been slowing here, but nonetheless prices have still been hitting records regularly, cuz they're still increasing. I do think they have to hit a plateau soon though, because they're going way beyond affordability for many now. Some of the financial institutions have been hit by the asset-backed commercial paper fiasco too, but it's not as if that has a humungous direct effect on the real estate market here. IOW, the banks have exposure to this stuff, but the actual bad loans are from the US. The Canadian mortgage market has remained stable, since they never adopted any of the seriously wonky lending practices that were popular for a while in the US. For this reason, mortgage defaults in Canada have not increased AFAIK.

[villalobos]

Yeah, things HAVE settled a bit here in NJ, but most houses remain out of reach for the average people, if you wanna live in a ok area that is.
I was thinking the other day about the real estate agent system. I think the agent of the buyer should be paid a flat fee, regardless of the selling price : right now BOTH agents have a vested interest in seeing as high as possible of a selling price, and that has contributed to the bubble I think.
In the mean time, I am still laughing at that first crook of an agent, that was trying to scare my wife and I into buying quickly, "at the 2006 prices, because soon enough everything will be sold at the 2007 prices". What a total crook.

[Eug]

Re: The flat fee real estate listing. This has been introduced in Canada (and probably in the US too, I dunno) in certain areas. Well, sort of. The selling agent is a company which provides less individualized attention, but charges a flat fee of one or two thousand bux or whatever, plus 2.5% for the buyer's agent. That way it doesn't alienate the buyer's agents who are used to getting half the 5% usually charged.

For an $800000 home, this thus means say $22000 ($2000 + $20000) instead of $40000 (which is 5%).

This works, but the only problem here is that some real estate agents tend to boycott them, because they're scared of them, which means less people are likely to view your home. Well, it's not the only problem, as sometimes these flat-fee listing companies don't do a heluvalot to ensure the listing looks/sounds great.

I personally went with a traditional listing agent. It's true that a lot of traditional listing agents suck too, but the guy I went with worked very hard for the sale of my friend's condo. He did the same with mine: I had over 30 scheduled appointments by prospective buyers in a single week, and probably around 40 visits over 2 days for the open house.

BTW, I don't agree that the selling agents necessarily always push higher prices. The selling agents are keen to sell. If the pricing is lower, there is a much higher chance that the buyer will agree. So, some selling agents are often anxious for their client to agree to the sale, even if the price is just mediocre, because it guarantees their commission.

[ghporter]

This does seem like one of those exceptions, where awakening a zombie thread is worthwhile.

I think there will be deflated bubbles on a market-by-market basis. Here in San Antonio it's been beneficial to have those values keep increasing because our taxing authorities don't have to jigger the numbers or play much with valuations to get more tax money out of us. My rather modest $150K home has appreciated quite a lot, particularly since the builder is building the same floorplan in a different development and asking over $200K for it...which means I pay a bit more in tax, but I also manage to earn equity.

And I've known quite a number of people who either looked into or were in real estate, and it's pretty amazing how little actual education is needed to become a certified realtor. Lots of "nuts and bolts" sort of "this is how you handle this kind of transaction" stuff, but almost nothing about how houses are built, what improvements are needed in what kind of area-and which ones are right out-and worst of all, NOTHING about how the housing market as a whole works. This helps feed the "churn and burn" fire. People who flip houses with minimal improvement are making people like me not so happy because THEY are a part of the bubble problem that is totally artificial.

[analogika]

See, the odd thing is that all we're getting in the news over here is that the "U.S. real estate market is collapsing", since it's already killing/killed a number of banks and is dragging/has dragged down a couple of European banks who invested unwisely with them.

The stock markets are not making this out to be a regional thing AT ALL.

[turtle777]

Originally Posted by what_the_heck 

Woohoo. If you buy now, you'll bite your ass later.

Originally Posted by what_the_heck

But look at the US: almost unlimited supply of land, and still, some markets go up like crazy. This is dumb, makes no sense, and makes it clear even more: current real estate prices are speculative, and not based on a real value.

Wow, my crystal ball worked for once. I was right.

I don't think we're over it yet though. My gutt tells me this is going to drag on until mid of next year at least. The times for double-digit real estate growth are over for most parts of the US, only a select few will still see high growth in the mext years.

-t

[Eug]

Originally Posted by analogika 

See, the odd thing is that all we're getting in the news over here is that the "U.S. real estate market is collapsing", since it's already killing/killed a number of banks and is dragging/has dragged down a couple of European banks who invested unwisely with them.

The stock markets are not making this out to be a regional thing AT ALL.

Yeah, the banks, etc. weren't paying attention. Corps from all over bought dodgy asset-backed commercial paper, and are paying for it now. And by now I mean today:

Originally Posted by Analyst types

The asset-backed commercial paper woes that have plagued Canada might emerge full-force in the United States Friday, when a mountain of paper is due to be rolled over.

“You guys in Canada were the first ones to have some shaking out of this circumstance. Now, is now being talked about in the U.S.,” influential investment newsletter writer Dennis Gartman said in an interview Thursday.

“This month-end roll over has a lot of people concerned. If there is a place in the capital markets where a very real leak can spring, it is here.”

Friday's session marks the end of the month, a significant date for all capital markets entities and a big one for commercial paper. The paper is slated to be “rolled over” or reissued on Friday, which means new buyers will need to be found for the holdings. The global asset-backed commercial paper market stands at around $1.1-trillion (U.S.), and estimates peg the U.S. market at between 60 and 70 per cent of that total.

That said, some of the banks are guaranteeing the stuff they're exposed to, and the US federal government today announced help for homeowners for these less than ideal mortgages.

P.S. I may have dodged a bullet. I was negotiating with various mortgage companies, and one of the (several) companies was one that turns out to have a fair amount of exposure to that stuff. No, they don't have a lot of bad mortgages, but they had stuck almost $0.8 billion of their assets in asset-backed commercial paper. However, so far they've sold off appox. half of that (with zero loss), and they have enough breathing room to weather the storm even if some of that remaining paper drops in value.

But like I said, it doesn't really affect me. The bank which owns the mortgage company I eventually went with doesn't have significant exposure to this stuff, and is big enough that even if it did it could deal with it, considering it has about $0.4 trillion in assets.

[Trygve]

Originally Posted by awcopus 

NYC's real estate market is strong because it is a global destination. Everyone in the whole world wants to live here.

Really? NYC is one of the last places I'd ever consider living... sure, I'd opt for NY over Kinshasa, but I canthink of hundreds of other major world cities I'd prefer over NY.

[Eug]

Originally Posted by turtle777 

Wow, my crystal ball worked for once. I was right.

I don't think we're over it yet though. My gutt tells me this is going to drag on until mid of next year at least. The times for double-digit real estate growth are over for most parts of the US, only a select few will still see high growth in the mext years.

Good call.

P.S. I'm impressed by just how much the big banks can lose in just one quarter - $20 billion between two banks.

Citigroup - 9.8 billion

Citigroup Inc. stunned Wall Street Tuesday by reporting that it had suffered a $10 billion quarterly loss - the worst ever in its storied history.

The financial giant also announced a writedown of $18.1 billion related to soured mortgage investments and major cost-cutting initiatives that included a 41 percent cut to its dividend and plans to reduce in its payroll. At the same time, it said it was receiving a $12.5 billion infusion from investors in Kuwait, Singapore and the state of New Jersey.

Merrill Lynch - 10.3 billion

For the quarter, Merrill posted a loss from continuing operations of $10.3 billion, or $12.57 a share. On a net basis, the company reported a loss of $9.91 billion, or $12.01 a share. The results were the worst in the company's 94-year history.

Merrill's losses were driven primarily by a $11.5 billion writedown the company took on its subprime residential mortgages and collateralized debt obligations - an investment vehicle that buys and sell bonds. The company also reported a $3.1 billion writedown on hedges with financial guarantors.

[Don Pickett]

Originally Posted by Eug 

Good call.

P.S. I'm impressed by just how much the big banks can lose in just one quarter - $20 billion between two banks.

Citigroup - 9.8 billion

Citigroup Inc. stunned Wall Street Tuesday by reporting that it had suffered a $10 billion quarterly loss - the worst ever in its storied history.

The financial giant also announced a writedown of $18.1 billion related to soured mortgage investments and major cost-cutting initiatives that included a 41 percent cut to its dividend and plans to reduce in its payroll. At the same time, it said it was receiving a $12.5 billion infusion from investors in Kuwait, Singapore and the state of New Jersey.

Merrill Lynch - 10.3 billion

For the quarter, Merrill posted a loss from continuing operations of $10.3 billion, or $12.57 a share. On a net basis, the company reported a loss of $9.91 billion, or $12.01 a share. The results were the worst in the company's 94-year history.

Merrill's losses were driven primarily by a $11.5 billion writedown the company took on its subprime residential mortgages and collateralized debt obligations - an investment vehicle that buys and sell bonds. The company also reported a $3.1 billion writedown on hedges with financial guarantors.

This is what happens when you get around financial lending rules and leverage at 100:1, or more. Banks can't even get 90 day loans, which means those with money think there's a good chance the bank won't be around in 90 days. And the reason this is global is because all those loans coming back on the books means no one has any money to lend. There is a GLOBAL credit crunch.

The scary thing is that we're not even to the worst of it yet. The largest number of resets comes in the first two quarters of 2008. I wouldn't be surprised to see house values down 30 to 35% by the time this thing is over, and, maybe, even more.

And, whomever said "real estate always increases in value" seems to have forgotten how that quote ends: in the long run. If you hang onto your house for 30 years, there's a good chance you can sell it for a lot more than you paid. However, the idea that you house should double in value every year is absurd, and is one reason a lot of fools are being separated from their money.

[Atomic Rooster]

Originally Posted by what_the_heck 

Funny thing is:

Japan has VERY limited amount of land and space, so a price increase makes sense.

But look at the US: almost unlimited supply of land...-t

Mostly mountains and desert and not near any water or place to work.

[Don Pickett]

Originally Posted by acowpus 

NYC's real estate market is strong because it is a global destination. Everyone in the whole world wants to live here..

Yes, and no. NYC's market tends to be somewhat cushioned from upsets because, as you said, a lot of people want to live here (population up ~200,000 since 2000) and because of rent control/stabilization, which means people get to keep their apartments even when things get bad. But look at the prices for studios and one bedrooms in Manhattan. Saw a one bedroom somewhere downtown (can't remember where, somewhere in the Village) for ~$350,000. Two years ago it would've been ~$500,000.

[turtle777]

Originally Posted by Don Pickett 

The scary thing is that we're not even to the worst of it yet. The largest number of resets comes in the first two quarters of 2008. I wouldn't be surprised to see house values down 30 to 35% by the time this thing is over, and, maybe, even more.

Asian and European stock markets crashed today, down between 5% and 7% - the largest drop in one day since 9/11.

US markets will follow tomorrow. This is huge. This is beyond just some correction, we are headed for some serious recession that might take years to work out.

Thanks, US, and your greediness. Your loose lending standards and financial irresponsibilities are once again leading the pack

-t

[Don Pickett]

Originally Posted by turtle777 

Thanks, US, and your greediness. Your loose lending standards and financial irresponsibilities are once again leading the pack

-t

Don't mention it. Wait 'til you see what we have planned for the environment!

[imitchellg5]

Since October last year, every month foreclosures in Denver have gone up 80-90%. Very scary.

[turtle777]

Originally Posted by imitchellg5 

Since October last year, every month foreclosures in Denver have gone up 80-90%. Very scary.

Yep, and the majority of the subprime loans have not even reset yet

It'll be "fun" to watch this whole mess unfold in the next 18 months...

-t

[Don Pickett]

Originally Posted by turtle777 

Yep, and the majority of the subprime loans have not even reset yet

It'll be "fun" to watch this whole mess unfold in the next 18 months...

-t

The word "subprime" is a misnomer. This isn't a subprime problem. This is a mortgage problem, because the lending standards were relaxed across the spectrum. The homes listed on the Irvine Housing Blog aren't subprime. They're just people who lived way beyond their means for too long.

[OldManMac]

Originally Posted by mindwaves 

yay! Another 15-20% decrease and I might be able to afford a condo! haha...

You should be able to afford that condo now. Condo sales have been hit even harder than housing sales, and they're almost begging people to take them.

Edit; Now buyers are suing their brokers and agents, claiming that they've overpaid for some houses.

http://www.nytimes.com/2008/01/22/bu...ss&oref=slogin

[Eug]

The word "subprime" is a misnomer.

Yes. Whether or not these US loans are truly subprime or not is not really the point. The key here is that even if there is a relatively stable middle-income buyer in the US with a reasonable credit history, the banks were far too lax in loaning money so that these people would still be given way too much money way too easily. This doesn't really qualify as "subprime", but it's still potentially risky lending, especially when the market is inflated, to a certain extent by speculators no less. So, while subprime mortgage defaults are thru the roof, in this environment with these practices, "prime" mortgage defaults have also increased.

Interestingly, in Canada there has been no significant fallout from this directly... because this market simply doesn't exist to the same extent in Canada. The banks are much more conservative here. Yes, there is fallout from asset-backed commercial paper, but much of that is due to our banks' exposure to the US real estate market, and not because of repackaged Canadian subprime mortgages. Indeed, prices in Canada are still rising, and are expected to continue to rise through 2008, albeit more slowly.

There still is significant indirect fallout in Canada however, in that any downturn in the US economy will in turn lead to the same in Canada, since Canada's biggest customer for exports is the US. So it's an interesting mix. Canadian real estate sales still show good growth, but Canadian stocks are getting hit because we're so dependent on the US.

Originally Posted by OldManMac 

You should be able to afford that condo now. Condo sales have been hit even harder than housing sales, and they're almost begging people to take them.

Edit; Now buyers are suing their brokers and agents, claiming that they've overpaid for some houses.

http://www.nytimes.com/2008/01/22/bu...ss&oref=slogin

That's an interesting article. Personally I think the real estate market should be heavily overhauled. It's in the interests of the broker to sell at as high a price as possible, whether they're on the buyers' side or the sellers' side. There's just something wrong with that. Personally I think the commissions should be capped, esp. on the buyers' side. This is indeed happening with some firms, who charge a flat fee. Unfortunately, other companies avoid these brokers like the plague, afraid they are setting a bad precedent, so it's actually quite difficult to use flat fee firms like this.

On a personal note... As I mentioned, I bought a house last summer, for what I thought was a high price in absolute terms, although it was significantly less than asking price. It was hard to valuate, because it was an expensive house in a less expensive neighbourhood. I was afraid that the appraiser would say the price was too high because of that, even though it is an excellent house in an excellent location. In the end the appraiser said the house was worth what I paid. Not worth more, but not worth less either, so that's OK.

You'll note though that I paid significantly less than asking price. I'm thinking if it were a different and more unscrupulous agent, s/he could have pushed the buyer to buy at closer to the asking price. It sounds like this could have happened with that New York couple in that article you linked. Now, I don't necessarily feel sorry for them, but I wouldn't be surprised if their complaint has some justification either.

[Eug]

Interesting contrast in housing markets...


USA: reportonbusiness.com: U.S. home sales fell by 13% in 2007

For the year, sales of single-family homes were down by 13 per cent, the biggest drop since a 17.7 per cent plunge in 1982. The median price for a single-family home dropped 1.8 per cent to $217,000.

That was the first annual price decline on records going back to 1968. Lawrence Yun, the Realtors' chief economist, said it was likely that the country has not experienced a decline in housing prices for an entire year since the Great Depression of the 1930s.


Kanuckistan: globeandmail.com: Cold outside, but no chill in sales

The real estate market maintained a torrid pace in 2007: Across Canada, resale house prices set a record last year with a 20 per cent increase over 2006.

House prices, which rose 10.8 per cent in 2007 from 2006, are expected to go up at a more modest rate in 2008, according to the Canadian Real Estate Association.

At Toronto-Dominion Bank, economist Beata Caranci says there is little concern that the Canadian housing market will start to mirror the slump in the United States. Still, she expects the central bank to cut rates by a more aggressive 50 basis points at its next scheduled meeting on March 4th and possibly another 25 basis points when it meets on April 22nd.

In an economic commentary, she predicts that national house prices will rise 5 to 7 per cent in 2008, compared with a U.S. market that will likely absorb losses of 5 per cent or more.

[Eug]

Originally Posted by Eug 

No, prices. Your rule has already been broken in North America in recent times. I mean I already mentioned a friend whose home value declined a couple hundred thousand dollars in just a few years, back in the 90s.

BTW, this is what Forbes suggests could contribute to a real state price decline, with my uneducated comments:

1. Bird flu soars <-- I'm not sure I buy this one
2. Another terrorist attack <-- Plausible
3. Taiwan declares independence <-- Probably won't happen in the near future
4. War <-- Probably won't happen on American soil in the near future
5. Oil at $120 a barrel <-- Not anytime soon, but it doesn't have to reach $120 a barrel. $99 would be bad enough.
6. Recession <-- Helped push the last real estate crash
7. Interest rates spike <-- Helped push the last real estate crash
8. Currency crisis <-- I don't think there will be a US currency crisis, but I do think the Chinese yuan comment is a reasonable one. Unpegging the Chinese yuan would affect the US economy.
9. Bank crisis <-- Gotta wonder...
10. California slides into the sea <-- Heh. If you read the text they just mean repeated natural disasters would affect home prices in those areas, not that California would actually slide into the sea.

Hmmm... Forbes had the right idea. So...

War - Not on American soil, but a huge drain nonetheless.
Oil - $90+ = ouch.
Recession - Very close now
Interest rate spike - Not really a spike, but they did increase.
Currency crisis - Not a true crisis per se, but a huge drop.
Bank crisis - Subprime my friends, subprime.

[Judge_Fire]

A week ago the Economist speculated on an interesting 'generational housing bubble', that could pose a risk in the US real estate markets after this current crisis. What do you think?

[ghporter]

The "subprime" issue is the cause of both the enormous rise of the U.S. housing market and the deflation of the housing bubble. A lot of unregulated, unmonitored (and probably unethical if not plainly illegal) "mortgage brokers" were able to get people who realistically could not afford any home loan into loans they could start paying on. But there's a reason most lenders have some specific income percentage standards-if you're on the edge of affording a mortgage payment, you're on the edge of not affording it in case of even a very minor unexpected expense. I'm personally hoping that the investors that put lots of money into these bottom-dwelling mortgage brokers' businesses wind up losing their shirts. I also hope that the whole "mortgage broker" industry disappears and is replaced by a well-regulated, tightly controlled system of finding the best financing deal for people who really can afford a mortgage in the first place.

My first house was bought with a fairly expensive mortgage, but it gave me the experience to know how to watch my accounts and what to watch for. I actually had a balloon mortgage in the mid-80s, but watching the way the markets were going, it was obvious that the ratcheted-up payments that were coming were not going to be affordable, so we sold as fast as possible (and at a loss). If it takes "creative" means to afford getting into a loan, that should tell you that you can't really afford it in the first place. It was a long time before we bought again, and our current mortgage is not just affordable, but quite so. Now as long as Countrywide doesn't actually tank (and BoA's purchase of Countrywide is virtually assured to prevent that) we're golden in that regard.

[Eug]

Originally Posted by ghporter

I also hope that the whole "mortgage broker" industry disappears and is replaced by a well-regulated, tightly controlled system of finding the best financing deal for people who really can afford a mortgage in the first place.

I am very glad I dealt with a mortgage broker for my recent house purchase. They bent over backwards to get me a good rate, and I'm very satisfied with my mortgage contract. It's significantly better than I would have been able to get had I negotiated the mortgage on my own. The difference here though is that I'm not a subprime customer, and under the terms of my contract, my lender is quite well protected. ie. It's a traditional 5-year fixed rate mortgage with a significant down payment, but with a better rate than I could have gotten myself. It's a win-win situation for both the lender and for me.

Basically what I'm saying is that mortgage brokers can do what you're asking, but only if they're only allowed to operate within the confines of reasonable mortgage lending practices by the banks, etc. The mortgage brokers were not of primary blame in this US real estate meltdown IMO. The ultimate blame goes to those willing to come up with these crazy lending practices in the first place. Mortgage brokers don't make these crazy mortgages up. It's the lenders that do.

[ghporter]

I'm not saying that every broker is slimy. But there have been enough brokers in the States have been absolute slime that they've tainted the business. And the are NOT regulated here. Not at all. No special oversight, no monitoring of where they get their clients, how well they screen them, nothing. And the lenders aren't even required to see the qualifications the brokers say their customers have. That is a recipe for financial disaster-which we seem to be getting a big ol' plate of right now. The concept is great, but the execution needs a lot of work here-it's way to easy to abuse it.

[Eug]

Originally Posted by ghporter 

I'm not saying that every broker is slimy. But there have been enough brokers in the States have been absolute slime that they've tainted the business. And the are NOT regulated here. Not at all. No special oversight, no monitoring of where they get their clients, how well they screen them, nothing. And the lenders aren't even required to see the qualifications the brokers say their customers have. That is a recipe for financial disaster-which we seem to be getting a big ol' plate of right now. The concept is great, but the execution needs a lot of work here-it's way to easy to abuse it.

Again that's a problem with the lender's practices IMO. If what you say is true, those lenders should be slapped upside the head.

[ghporter]

Originally Posted by Eug 

Again that's a problem with the lender's practices IMO. If what you say is true, those lenders should be slapped upside the head.

I concur, except that there's usually about three layers of brokers between the actual lender and the borrower. Without mandatory disclosures the actual lender usually has to take someone's word for the borrower's qualifications. That's the regulatory problem-a hugely important loan like a mortgage can be arranged by people who have no legal responsibility to provide accurate information to the lender, and all they manage to do consistently is cash in on the process. If the lenders stopped selling to brokers who didn't provide information that could help, but there are plenty of cases where the brokers just lied to get the deal to go through.

[Eug]

Yes it's a regulatory problem, but more so for the lenders IMO, and more importantly it's also a stupidity problem of the part of the lenders.

For the lenders not to require due diligence from themselves is idiotic, regardless of how well the mortgage brokers are regulated.

[ghporter]

I agree. I think there's some sort of "I assume everyone is held to the same standards I am so I assume there is due diligence on the broker's part" going on in a lot of cases. Assumptions are a bad thing in financial circles.

[Spliffdaddy]

posted: Aug 23, 2006 , 09:56 PM

Originally Posted by Spliffdaddy 

Right now is a bad time to buy a home. Wait another year.

Interest rate increases have stopped - and might actually begin to slide down a bit. The 'Fed' doesn't exactly announce such things, but all the signs (and hints) are there.

Housing prices have peaked. This is the worst time to buy a house. Last one left holding the bag loses. Home sales are down in most markets. Prices will begin to plummet as sellers get tired of waiting for buyers. The hardest-hit areas will be the ones that had huge increases in housing prices for the last few years.

The real estate speculators have already cashed-out. Leaving a lot of new home owners with mortgages that will soon exceed the value of the home - as its value will begin to plummet. Fortunately, most home owners didn't buy their house in order to make a profit.

Seriously, this is not a good time (in most areas) to buy a house. Wait about 6-12 months and you'll pay 20% less for the same house.

My crystal ball was working well

[Eug]

Interesting...

I was just reading about Freddie Mac/Fannie Mae's limit of US$417000, and that any mortgages above that would be considered jumbo mortgages (or superjumbo mortgages).

That's interesting because I didn't realize the number was so low in the US. Traditionally, the mortgage lenders here tend to allow mortgages up to at least $500000, and some up to $800000 IIRC, which would mean that the cutoff for the so-called jumbo mortgage is noticeably higher.

In recent years, this has become necessary, as modern bigger detached homes with big yards in nice areas locally are often over a million bux now. Even with a 25% down payment, that means over $750000 just for the mortgage. While most people can't afford this, lots of people can.

Furthermore, it's quite easy to sell a million dollar home here for this reason. Million dollar homes in 2008 in certain regions is (unfortunately) the norm, not the exception to the rule. The exception to the rule at this time is the 2 million dollar home.

Will this change? Possibly of course, but in large cities with limited land and lots of wealthy residents, the change may not be as inevitable as some think it may be.

[Eug]

Sheesh. No wonder the real estate market went bust in the US.

'My House. My Dream. It Was All an Illusion.' - washingtonpost.com

Ortiz, who speaks little English, said she didn't know much about the U.S. banking system. So when a Mary Kay saleswoman, Maria Esperanza Salgado, came to her door and said she could help her buy a house, Ortiz said, she believed her.

Salgado had a business card with a blue Realtor logo identifying herself as a "sales assistant" to real estate agent Jorge Aguilar. Salgado is not licensed with the Virginia Real Estate Board. Aguilar said Salgado "was a very good sales promoter." He said he paid her $500 for every referral she brought him, although board regulations prohibit paying commissions or referral fees to anyone but a licensed real estate agent. Salgado said he gave her only "gifts." Aguilar said Salgado no longer works for him.

When Ortiz protested that she and her husband didn't have good credit and had only a few thousand dollars in savings, Ortiz said Salgado, whom she had known for less than a year, promised to help her.

Ortiz said she and Salgado came up with a plan. They would buy the house jointly, using Salgado's credit rating. Salgado also would pay half of the $11,000 down payment. The agreement is spelled out in court papers Ortiz has filed.

In a year, when the house had increased in value, as they assumed it would in the hot market, Ortiz would refinance. Ortiz said they had planned to take out $70,000 in equity, half of which she would pay Salgado for her share of the down payment and for allowing Ortiz to use her credit. Salgado would remove her name from the title, and Ortiz would own the house outright, according to the court documents.

But on the day of the closing in August 2005, Salgado's brother Saul Salgado Hernandez showed up to sign the papers. Ortiz said that she was surprised but that she figured Salgado knew what she was doing. She said she did not understand any of the papers in the thick stack of documents that she signed, not even the one that said she and Hernandez were married. "I signed the papers," she said. "I didn't notice." She also discovered that the woman handling her mortgage was Aguilar's wife.

[ghporter]

See what I mean about a lack of regulation and oversight? Predatory practices aren't (or weren't) limited to victimizing people who didn't speak English, either. Ms. Ortiz was right to be confused by all the mumbo-jumbo involved in banking terminology because it IS a different language from English, but Ms. Salgado seems to have used that as a weapon to victimize Ortiz. And unfortunately, the act of victimizing Ms. Ortiz wasn't and isn't illegal because that industry is not properly controlled.

[mrtew]

Originally Posted by Cody Dawg 

I think it depends on the area. Real estates sales will not "crash" in nice areas: Hawaii, San Diego, coastal California, Manhattan, and coastal areas in Florida. They are destination locations with tourism to prop them up. Florida has the added bonus of being a place where people want to retire or want a vacation home especially since we have no federal income tax and homestead protection for homes. We have the beach, theme parks, warm weather, and lots of golfing...it's pretty darn nice here despite the occasional hurricane. In my area in Palm Beach Florida we have what I would term a flat market right now, but prices are not dropping in response to the end of the buying frenzy that characterized the last couple of years.

I totally agree with this.

[turtle777]

Originally Posted by mrtew 

I totally agree with this.

Are you kidding me ? Well. I guess it depends on how you define a crash.

No drop in FL house prices ?

Miami : -16% in 12 months
HousingTracker: Median Home Price & Inventory Data for Miami, Florida

Jacksonville: -12% in 12 months
HousingTracker: Median Home Price & Inventory Data for Jacksonville, Florida

Cape Coral: -20% in 12 months
Height of bubble to now: -43% in 25th percentile, -35% in 50th percentile, -37% in 75th percentile
HousingTracker: Median Home Price & Inventory Data for Cape Coral, Florida

Tampa: -12% in 12 months
HousingTracker: Median Home Price & Inventory Data for Tampa, Florida

Foolish is who thinks the prices have bottomed already.

-t

[Eug]

Originally Posted by mrtew 

I totally agree with this.

mrtew, Cody's post was from two years ago.

Originally Posted by turtle777 

Are you kidding me ? Well. I guess it depends on how you define a crash.

No drop in FL house prices ?

Miami : -16% in 12 months
HousingTracker: Median Home Price & Inventory Data for Miami, Florida

Jacksonville: -12% in 12 months
HousingTracker: Median Home Price & Inventory Data for Jacksonville, Florida

Cape Coral: -20% in 12 months
Height of bubble to now: -43% in 25th percentile, -35% in 50th percentile, -37% in 75th percentile
HousingTracker: Median Home Price & Inventory Data for Cape Coral, Florida

Tampa: -12% in 12 months
HousingTracker: Median Home Price & Inventory Data for Tampa, Florida

Foolish is who thinks the prices have bottomed already.

Heh. I was a little inconsistent with my price predictions... 25% would not be a surprise, but 30% would be. But close enough.

Originally Posted by Eug 

I would not be surprised to see a drop of say 25% vs. current prices in the coming years in some areas. That would still mean an increase of 20% vs. 5 years ago, which agrees with your statement of real estate becoming more valuable... in the long run.

Originally Posted by Eug 

In truth, I'm not 100% convinced (yet) that there will be a real bust, where prices drop 30% or whatever. I'm not ruling that out, but it could be that prices may just plateau (or even decline a bit esp. when factoring in inflation). However, that's not a real crash/burst bubble.

I definitely wouldn't be keen to invest in the US real estate market in the coming years though.

Oh and just as a reminder... Forbes did pretty well in their analysis 2 years ago methinks.

Originally Posted by Eug 

BTW, this is what Forbes suggests could contribute to a real state price decline, with my uneducated comments:

1. Bird flu soars <-- I'm not sure I buy this one
2. Another terrorist attack <-- Plausible
3. Taiwan declares independence <-- Probably won't happen in the near future
4. War <-- Probably won't happen on American soil in the near future
5. Oil at $120 a barrel <-- Not anytime soon, but it doesn't have to reach $120 a barrel. $99 would be bad enough.
6. Recession <-- Helped push the last real estate crash
7. Interest rates spike <-- Helped push the last real estate crash
8. Currency crisis <-- I don't think there will be a US currency crisis, but I do think the Chinese yuan comment is a reasonable one. Unpegging the Chinese yuan would affect the US economy.
9. Bank crisis <-- Gotta wonder...
10. California slides into the sea <-- Heh. If you read the text they just mean repeated natural disasters would affect home prices in those areas, not that California would actually slide into the sea.

[imitchellg5]

We had some condo's go in across the street last July, and only one building is occupied. They used to start at $350k, right now they are starting at $275k. A little depressing, unless you're in the market

[Eug]

As I mentioned before, I bought a house last summer. I kept on waiting for indications of a crash in Canada, and the indications just never came. So finally, I just bit the bullet and bought. (How's that for alliteration?)

The house was not cheap, but since then housing prices in Toronto have continued their rise. So, even if the rate of price increases slow dramatically, and in 5 years price drops up to 20% start, I'm not going to be suffering too badly. (As I've mentioned before though, the market up here isn't anywhere near as screwed up as in the US, so we can't be sure a big drop is necessarily coming any time soon.)



Looking at the numbers though, I do expect prices here to start to least stagnate somewhat within a few years.

P.S. Even though I was a buyer, I did benefit from the price increases over the past several years. Why, cuz I had purchased a condo many years ago, when the home prices were well under that blue trend line. Furthermore, the downtown condo market is probably the hottest, so I got good coin from selling the place, which of course helped out for the house purchase.

I also find it interesting that housing prices still haven't hit 1989 levels here (after correcting for inflation). Yeah, house prices are expensive now, but not that expensive when taking that graph into account. There is "only" about a 10% premium on housing prices compared to what they should be, assuming that blue trend line is actually in the right ballpark in terms of accuracy.

[turtle777]

See,s like you guys already had your crash in the early 90s. 37% is quite a bit.

-t

[mrtew]

Originally Posted by Eug 

As I mentioned before, I bought a house last summer. I kept on waiting for indications of a crash in Canada, and the indications just never came. So finally, I just bit the bullet and bought. (How's that for alliteration?)

Yeah I just bought a house in Canada too.... really close to the border of one of the hardest hit American cities too. It's scary but I'm hoping that it blows over in the U.S. before it starts dragging Canada down too much.

Originally Posted by Eug 

mrtew, Cody's post was from two years ago.

Yeah I know.... I'm hilarious. I crack myself up by posting old, horribly wrong predictions like that!

Originally Posted by turtle777 

See,s like you guys already had your crash in the early 90s. 37% is quite a bit. -t

I'm pretty sure that the US had a recession in the Early 90's too. I don't think it can prevent one 15 years later!