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Are we experiencing a "home price" bubble like the

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Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
many people have become dependent on tapping their homes to fuel their spending.


This is the bubble I fear. I also have recently appraised several properties for not so young people that were taking out 20 and 30 year loans...duh, at 65+ is it reasonable to expect that you will pay off the mortgage at age 95? These people will HAVE to sell, and if the bubble pops, they will HAVE TO SELL NOW (then now, not now now) and likely lose much, if not all of their equity. Personal bankruptcy is high and credit card debts can no longer to expunged. Mortgage bankers report 30 year high in foreclosures.
I cannot imagine the general price and the building market will not have to take a hit in the near future. Also a real wildcard is energy costs. A mere 10 years ago a 2,000 SF house was rare as hen's teeth in my area. Today, few houses smaller than that are being built and no small number are over 3000 SF. With property taxes at least $100/mo., insurance ditto, and utilities averaging 200-300/mo. You have to make $500 or so just to live in a home let along make a mortgage payment. Only one person has to lose their job and the mortgage cannot be paid. Gas prices are now very dependent upon weather. Gasoline prices are very dependent upon Arabs being happy or not. Electric prices are varying wildly with weather, gas prices, and deregulation.
 

Austin

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Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
I noticed something in the article that is very significant. The whole financial scheme in this country from the stock market to social security to home prices, etc., is predicated on a continued compound rate of growth in GDP. It has been estimated that the population in this country added something like 36 million people in recent years which is necessary to sustain this growth in GDP. There use to appear to be no end in sight to either population or GDP growth.
Something fundamental has occurred recently that shoots the whole growth cult right in the old foot. It is something you have to see to believe, and that is a drought. I live in Southside Virginia with rivers all over the place, so you might say “so where is the problem?” The problem is that the water table is so low the rivers are down to about 6% of their normal flow. Our state is on emergency water restrictions, yet we had 6 inches of rain in recent weeks. Where did the water go? Answer is: into the underground water table thus giving us a measure of the limits of potential water supply. Yes Virginia, there is a limit to the water supply and we know what the limit is now. I have two ponds on this farm and the water level dropped in both about a foot during the summer for the 1st time in history. It rained 6 inches and filled them back up and now they are dropping again which shows that the water table is replenishing itself with no outflow other than surface runoff.
Every major high growth city in the entire region is on water restrictions due to dry reserviors. Two small towns just north of me had their reservoirs run dry this summer. The Dan River runs right through the middle of this city and the water flow is only 8% of normal.
What is the summary: Our region has reached it limit of population growth potential. Local leaders are discussing for the first time the hard truth that we may well have reached our limit.
 

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
The pro-bubble/con-bubble arguement reminds me of
the historical easy/dear credit arguement during the
1800's between the farmers and bankers.

The country has been given a great gift of low
interest rates, let's hope they don't blow the
savings.

elliott
 

Dale Smalley

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Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Florida
I remember when Mr Greenspan started dropping the rates he commented on how much equity America had in their homes. To get the money back into circulation they droped the rates to encourage us to take out that equity and buy stuff or probally just be able to pay our bills untill the recession is over.
 

Judy Whitehead (Florida)

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Joined
Jan 20, 2002
Professional Status
Certified Residential Appraiser
State
Florida
There was an interesting article in the Tampa Tribune this morning which was originally in the Wall Street Journal, stating that those mean old mortgage brokers and real estate agents were "leading people to believe they could afford homes that they couldn't actually afford" and "talking them into adjustable rate mortgages that rapidly adjusted upward" and were causing lots of people to lose their homes....

They even quoted one couple as stating that they didn't think the lenders would loan them money unless "they could afford it." In other words, no one was looking out for the buyers' interests. I didn't see a mention of an appraisal, but it is possible the properties could have good appraisals and these people were sadly led into mortgages that they couldn't afford. There was also an interesting sideline about foreclosures being up, although apparently Florida is lagging behind the rest of the nation.
 

Jim McGrath

Junior Member
Joined
Jan 25, 2002
Professional Status
Certified Residential Appraiser
State
Florida
so you might say “so where is the problem?” The problem is that the water table is so low the rivers are down to about 6% of their normal flow. Our state is on emergency water restrictions, yet we had 6 inches of rain in recent weeks. Where did the water go? Answer is: into the underground water table thus giving us a measure of the limits of potential water supply. Yes Virginia, there is a limit to the water supply and we know what the limit is now. I have two ponds on this farm and the water level dropped in both about a foot during the summer for the 1st time in history. It rained 6 inches and filled them back up and now they are dropping again which shows that the water table is replenishing itself with no outflow other than surface runoff.
Every major high growth city in the entire region is on water restrictions due to dry reserviors. Two small towns just north of me had their reservoirs run dry this summer. The Dan River runs right through the middle of this city and the water flow is only 8% of normal.
What is the summary: Our region has reached it limit of population growth potential. Local leaders are discussing for the first time the hard truth that we may well have reached our limit.

Austin, it's worse than that in Florida. Even with Tropical storms, Hurricanes, and all the water table is dropping every year, as more people move to Florida. Most water is drawn from the Florida Aquafier which runs through the middle of the state, and a few counties (very few) use surface water. As water supplies drop in dry weather, and more people are moving here and using more water, the Florida Aquafier drops in level and many areas are having salt water intrusion in their wells. Once the salt water moves in from the Gulf or the Atlantic, even sustained heavy rains won't displace it. Those wells are lost forever, and many residents as well as cities and counties draw their water from wells. This has been going on for over ten years, and gets worse every year.

The developers continue to build and develop like there is no tomorrow, and if they don't change, there will be none here in Florida. In my opinion it is the most serious long term problem the state faces, but it is recieving little or no press. The chamber of commerce dosn't like to hear it and won't mention it, as the developers control the chambers.

Jim
 

Austin

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
Jim: An interesting little side note to this water problem: The governor of Virginia (a Democrat) outlawed washing cars, watering lawns, filling swimming pools, etc., even if the person was using a private well or lake to do so. There are two exceptions to this new law: 1. The area in Northern Virginia around Washington, DC, where all of the Federal Bureaucrats live is exempt because for some strange reason their water supply is mysteriously more than adequate. 2. Golf courses can only irrigate after dark. Why after dark you may ax? Obviously so the rest of us can’t see them doing it. Can you believe that?
Another little tidbit of information concerning this water situation. Our normal annual rainfall is about 35 inches. For he last three years it has only been about 24 inches, so the drought of this amount and duration gauges our water potential. A slight decrease in annual rainfall for about two years and population cannot be sustained. We cannot survive without a hurricane every year coming through the state. There is something I have always noticed about people in general, and that is when faced with crisis situations they go into a state of denial. The vast majority of people cannot face adversity. A case in point is the present war against terrorism. Intellectually everybody knows we have no choice but to either wipe them out or retreat to within our borders; two hard choices. Both choices are not politically correct, so what do people do? The answer is to idle in a state of denial until the next crisis forces a decision on them. All western democratic societies run this way. They are crisis driven meaning they are incapable of taking action until they are forced to do so, then they exterminate everything and everybody in their path, i.e., the American Indians, the Confederate States, the Japananese, the Germans etc., and in North Carolina the non-designated appraisers that are not politically connected.
 

Jim McGrath

Junior Member
Joined
Jan 25, 2002
Professional Status
Certified Residential Appraiser
State
Florida

Another little tidbit of information concerning this water situation. Our normal annual rainfall is about 35 inches. For he last three years it has only been about 24 inches, so the drought of this amount and duration gauges our water potential. A slight decrease in annual rainfall for about two years and population cannot be sustained. We cannot survive without a hurricane every year coming through the state. There is something I have always noticed about people in general, and that is when faced with crisis situations they go into a state of denial. The vast majority of people cannot face adversity. A case in point is the present war against terrorism. Intellectually everybody knows we have no choice but to either wipe them out or retreat to within our borders; two hard choices. Both choices are not politically correct, so what do people do? The answer is to idle in a state of denial until the next crisis forces a decision on them. All western democratic societies run this way. They are crisis driven meaning they are incapable of taking action until they are forced to do so, then they exterminate everything and everybody in their path, i.e., the American Indians, the Confederate States, the Japananese, the Germans etc., and in North Carolina the non-designated appraisers that are not politically connected.

Austin, down here they will limit the whole county to sprinkling for an hour two days a week. Meanwhile they are approving 1200 to 2500 unit subdivisions on a weekly basis. If the whole county only sprinkles for the two days, in maybe six months they can save enough water to add 10 new houses. If we all went without any water we still could not save enough to accommodate half the new homes being built.

A small 300 unit subdivision generates a $5,000,000 profit for the developer, imagine what they are making on the large ones. The building is too profitable to stop, water or no water.

Jim
 
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