Housing Bubble Bursting?

[JSmith43]

My predictions above are like an illegal "comp check", no supporting file, I didn't even do any special research, let alone share the scope of my reasoning. Limiting conditions are minimally noted.

No stink-en regulation for economic pundits:icon_smile:

 

[Randolph Kinney]

I wonder if the difference in our local real estate markets compared to our national market can be likened to comparing our national real estate market to the world real estate market? Does that makes any sense to do that kind of comparison?

If it does make sense, then I suppose one can say the local market had a hard landing but not to worry, the national market is having a soft landing. If you own multiple properties in multiple markets, you might have a similarity to the national market.

 

[Brad Ellis]

Roger,

LOL!

Randolph,

Yes, I agree. Everything can be put into that larger context. I especially enjoy the HGTV program on House Hunters International. Having been in the international business world for almost 15 years, I remember well the prices of some markets and am always amazed at how they have also gone up. Guess that cheap money fuels housing price increases all over.

As to owning in multiple markets, I surely see that to some degree. 16% of all homes are second/vacation homes, per NAR, with another 26% as pure investment properties. Probably some of the investment properties are out there in some other market than the owner's home area, so what perhaps 20% of the total if we toss in the vacation digs (just surmising).

Brad

 

[Randolph Kinney]

Brad:

16% of all homes are second/vacation homes, per NAR,

Now that is strange. I was just reading an article that said, "Sales of second homes increased by 16% in 2005 to a record 39.9% of all U.S. housing sales, the National Association of Realtors said Wednesday."

40% of all home sales for 2005 in the US were bought as a second home. Is that real? Is that the correct percentage?

Quoting from the article again:

Sales of vacation homes rose 16.9% to a record 1.02 million, while sales of homes owned for investment purposes increased by 15.7% to a record 2.32 million, the real-estate trade group said, reporting on two surveys.

The article is making a distinction between a second home, a vacation home, and then showing data for homes bought for investment.

If 40% of 2005 total home sales were second homes is real, doesn't that paint a potential problem, unless they were all cash transactions?

Additional emphasis from the article:

Vacation homes were most popular in the Midwest, accounting for 33% of sales. Home owners in the South bought the biggest share of investment homes: 38%.

I suppose we are shifting gears for the demand side of real estate. The demand for second homes, vacation homes and homes for investment has been a significant part of total home sales.

 

[moh malekpour]

Brad,
If short and long term interest rates keep on going up the way that are behaving recently and hit the housing prices real hard say causes decline of 10%-20% (soft alnding per your opinion) and a massive foreclosures mostly on those properties with adjustable and hybrid loans, what would lenders and banks do? Are they going to take the loss, lick their wounds and admit that they made a mistake to offer those loans? Are they going to ask taxpayers to bail them out because Fed regulators didn't stop them from engaging those exotic loans or they are going to blame a third party like appraisers? Who is going to hold the bag? This is just a hyphotetical scenario but it could happen. Lenders and banks got to be on a deffensive guard now. Am I worng or am I wrong?

 

[Randolph Kinney]

Second home boom 'dangerous'

Second homes now account for 40-percent of the market. Steve Kerch says we've entered 'dangerous territory' because some people won't stick to 'the basics of real estate investing.'

http://www.marketwatch.com/tvradio/playerfull.asp?siteid=mktw&dist=nwhreal&clip=kerch45&guid=%7B09499CF6%2D67FD%2D4BCA%2D88F2%2DD9C6F40F1008%7D&type=audio

It may be the numbers are lumped together; vacation home with second home makes 40%.

 

[Randolph Kinney]

Millions Are Facing Squeeze

More than $2 trillion of U.S. mortgage debt, or about a quarter of all mortgage loans outstanding, comes up for interest-rate resets in 2006 and 2007, estimates Moody's Economy.com, a research firm in West Chester, Pa.

Now the initial periods are coming to an end on many of these loans, leaving borrowers to face resets of their interest rates that can cause monthly payments to shoot up between 10% and 50%.

http://www.realestatejournal.com/buysell/mortgages/20060315-hagerty.html

 

[Dee Dee]

San Antonio News

Real Estate Investors Make Themselves at Home Here

http://www.mysanantonio.com/news/metro/stories/MYSA041406.1A.homeinvestors.1d14acdd.html

Some real estate agents say out-of-state investors — mostly from California, Arizona and Florida — now account for half their clients, while traditional families were their bread and butter up until the beginning of the year.

Realtors and home sellers may welcome the added sales from investors, but not everyone in San Antonio is thrilled by the attention.
Builders fear neighborhoods full of renters or a slew of investor-owned resales that might compete with their own businesses as they complete subdivisions over the next few years.
To prevent such scenarios, builders have instituted caps on what they'll sell to investors, rules to limit the amount of rental property allowed in a subdivision, and even contracts requiring owner occupancy.

 

[Steve Owen]

What does worry me is the potential for damage to the appraisal profession that can occur - and many would say is occurring - as a result of good appraisers getting run off by the hacks instead of the other way around. I can do other things to make money, but I still like this job and the life it affords me and I really don't want to have to do those other things. When I see/hear appraisers being compared on an equal ethical basis with car salesmen that hurts - especially to the extent that it's true. It never used to be like that and it shouldn't be like that now. That's why it matters to me and that's what keeps me coming here.

That's about where I am.

 

[Steve Owen]

My argument is the elasticity of demand is greater for stocks than for shelter. It's a combination of economic theory piled onto Maslow's psychological theory that ranks relative needs.

In addition, the elasticity of supply is greater for stocks as well, since it's tough to build houses and even tougher to make new land, although, we could go the New Orleans/Holland route in some costal areas, fill in wetlands, etc. A lot tougher than splitting stock or rolling out a public offering of stock.

I'd agree with that.

In terms of what is going to happen to real estate, I pay a lot more attention to overall economic changes than a lot of appraisers do. Right now, unemployment is low, the economy is generally warming, and interest rates, even though increasing, are generally low. Particularly pertinent to RE is population growth, which should cause increased demand. On the other hand, much of that population growth is in lower income brackets, consumer confidence is down, the war drags on, the deficit increases, and interest rates continue to increase. So, what does all this mean in relation to what is going to happen to housing markets? As soon as I know, I'll clue you in.