Housing Bubble Bursting?

[The Warrior Monk]

Ain't missing a thing, just started a 750K project 4/1.

I understand diversification but I don't understand how real estate professionals think they can do better in other investment vehicles. Do you really think you understand precious metals and commodities as well as real estate?

Maybe the real estate professional understands the RE runs in cycles and chose not to invest after huge increases for 8 straight years, increasing rates, flat demand, and the continuning increase on the supply side (I'm describing my market of course). I'm waiting for a shakeout before I get back in...in the meantime, global, tobacco, select tech, and oil stocks for me; they've outpaced RE big-time in the time frame I've held them.

 

[DTB]

Maybe the real estate professional understands the RE runs in cycles and chose not to invest after huge increases for 8 straight years, increasing rates, flat demand, and the continuning increase on the supply side (I'm describing my market of course). I'm waiting for a shakeout before I get back in...in the meantime, global, tobacco, select tech, and oil stocks for me; they've outpaced RE big-time in the time frame I've held them.

Does that mean your ability is limited to only riding the cycle, as a layman would?

Are your stock advisors going in to RE- not REITS- when stocks are down? I sure hope not. This would be when their expertise would really shine.

You have settled for the average appreciation rate of real estate as your yardstick. I agree if that's the measure of success, I'm not interested.

I am finding emerging pockets in my area at least weekly, are you not seeing the same?

Another component of being a real estate professional is having the contacts to assemble an organization- $$, legal, tradespeople- to take advantage of the opportunities.

Note: the word appraiser was intentionally not used and real estate professional inserted in its place.

 

[The Warrior Monk]

Does that mean your ability is limited to only riding the cycle, as a layman would?

It should be noted that we're no longer talking about a bubble, but rather whether one can make money in an up or down cycle...that's a different discussion.

Are your stock advisors going in to RE- not REITS- when stocks are down?

I don't use an advisor. It doesn't take much to beat the market.

At this point in time, I can make much more (and have been) in stocks plus have much more liquidity than real estate.

I am finding emerging pockets in my area at least weekly, are you not seeing the same?

The entry level in my market is very high...probably around $200K for a bottom-of-the-barrel, unhabitable, tiny home that cannot be financed, and requires an armored car and bullet-proof vest to get to.

The numbers for one area may also not apply to another area. For example, I believe that Mike S. mentioned that he has a deal where he bought the property at $20K-$25K. I wouldn't even consider that in my market unless it fell in my lap.

 

[Randolph Kinney]

Ain't missing a thing, just started a 750K project 4/1.

I understand diversification but I don't understand how real estate professionals think they can do better in other investment vehicles. Do you really think you understand precious metals and commodities as well as real estate?

Mike, investing is a personal choice. There is a universe of investment vehicles to choose from. Real Estate is one choice you can make. Does that mean the other choices will not make money or give a superior return on investment over the next year, 2 years, 5 years or however long the favorable conditions exist?

You should widen out and diversify. Real estate is not the only game in town for investment.

You are confusing investing with your job. Your job is real estate, that's all you do. It consumes all of your available time. Time you don't have to study or take in knowledge of the rest of the investment choices.

You should understand that all investments are tied together. They are not independent from one another. Deflation was the last war the FED was fighting when they cut the FED funds rate to 1%. The FED has shifted policy to fight inflation now. Look at the chart for price of gold below.

 

[Mike Simpson]

"...If I may, I'll point out that if any of us really knew what is going to happen, not many of us would continue appraising..."

On this issue we agree...I haven't appraised for more than a year & a half now.

No one really knows with certainty what's going to transpire...we just THINK we do.

I was surprised to find this thread still alive & have read the ensuing posts with some amusement since I last checked this topic. In the interim...I've been conducting research & working on a rehab property--rather than looking for news stories to support my beliefs & debating here (which is a monumental waste of time). I know what I know, and no one's likely to change my viewpoints at this point in my career--I'm quite capable of reading the data & drawing my own conclusions. As one poster put it...I've been putting my money where my keyboard is (and I've been profiting from it for quite sometime now).

I believe; citing one's successes investing in real estate a viable argument, especially in the light of this incessant and negative news receiving so much play on the Forum for so many years now.

In the past...I've attempted to understand the doomsayer's...where they're coming from, but must confess I no longer care. Our time is better spent doing more intelligent things than bickering back and forth regarding who's wrong & who's right. The market's will wash all that out...as they've been doing all along.

Back to the mines,

-Mike

 

[Brad Ellis]

Moh,

Your questions/points,

"1- The borrowers of 100% financed loans didn’t have money to put down to get a fixed amortized low rate loan.
2- Borrowers and the lenders agreed that the 80/20 was the only way to get the transaction closed although the loan was adjustable with negative amortization and the possibility of increased loan payment in near future was very obvious.
3- Both borrowers and the lenders made an assumption that the property values would be increasing in the way that borrowers would be built up equity to pay those neg amortized and adjustable rates.
4- That assumption and hope was not based on the borrowers increasing salary, promotion, or any other income but just property increase and equity built up.
5- Since that assumption and hope are on the verge of extinction, the most recent borrowers of 100% financed loans are going to be the canary in a coal mine.
I don't see how those borrowers with 100% financed loans since mid 2005 are going to handle rate increase of their adjustable loans if the property values just stop increasing. Whers the money comes from to pay for the loan payments. If they had money a year ago or could save it a year ago, they would have it then to put down and get a fixed rate."

1. Yes, I agree that this is what happened most of the time.
2. The 80/20 loan is not a neg-am product anywhere I know of. It is simply 100% financing- combined LTV. It does not assume any negative amortization and the higher rate on the second is somewhat offset by the savings of PMI- not required on 80/20s. But, yes, future payment increases are/were clear in these deals where the second was adjustable.
3. No- there is not a neg-am component in these.
4. No- exactly the opposite is true. These ARE predicated not only upon futuer income expectations but upon current income- see my closing sentence.
5. Not true at all- many opt for 80/20s, interest only loans and the like due to their own financial circumstances.

Moh, you seem to be assumng that the lending universe out there is somehow blind, stupid, foolish and the like. I'll assure that is not the case. Everyone involved knows all that you assert and probably a lot more. While some will default, most will not. It is factored into pricing and hedging.

You are probably not aware that most lenders underwrite these types of loans based upon CURRENT income and DO consider the borrower's ability to repay even after rate increases on the adjustable portions.

Brad

 

[JSmith43]

bottom-of-the-barrel, unhabitable, tiny home that cannot be financed, and requires an armored car and bullet-proof vest to get to.

NYC? Perhaps NYC and Chicago should stop disarming law abiding citizens so the criminal elements are subject to an armed citizen lottery effect.

Is the intended victim armed and dangerous or is this another easy roll? You've got to ask yourself. Self, do you feel lucky?

 

[Steve Owen]

the higher rate on the second is somewhat offset by the savings of PMI- not required on 80/20s.

I didn't know that... but, of course, I'm not an expert on the lending side. So, Brad, why is it that a product that loans out at approximately 100% LTV does not require PMI? Is the second so profitable that the industry is willing to take on the risk for that reward? Just curious.

 

[Randolph Kinney]

You've got to ask yourself. Self, do you feel lucky?

I believe that tag line applies to the 100% financing, interest only, and neg-am loans and the holders of same.

 

[moh malekpour]

Moh,
You are probably not aware that most lenders underwrite these types of loans based upon CURRENT income and DO consider the borrower's ability to repay even after rate increases on the adjustable portions.
Brad

Brad,
With all due respect, I cannot agree with your closing statement unless you convince me on your No 4 answer:
(4. No- exactly the opposite is true. These ARE predicated not only upon futuer income expectations but upon current income- see my closing sentence.)
Where was that current income at the time of purchase and where the future income comes from? I hope, the future income expectations are not based on the appreciation of the mortgaged home itself or winning a lottery ticket or the heredity or gift from the rich parents? Please tell me, if the borrower who was working for 5, 10, 15 or 20 years but was not able to save a penny to put down for a fixed rate at the time of his/her purchase and was advised to take 80/20 loan, how he/she is going to be able to save after purchase with 2 loans outstanding while the 2nd loan increasing rapidly and the price of everything including the gas is going up.
I know most of the first time homebuyers are ex renters who used to live on paycheck by paycheck. Please don't tell me that they are all young doctors who just graduated and got a job or people with IRA or 401 K savings who couldn't or wouldn't withdraw their wealth at the time of purchase and are going to withraw if they were short of loan paymen. Wise people who are edjucated or savvy enough to have IRA or 401 K are not going to engage in this kind of risky loans and if there are any they are exceptional.