Timing! (OT)

[Ray]

Just so you can all realize how good it is NOT to be dealing with real estate right about now....

We bought a condo a couple of months ago, moved in, and got our old house ready to sell. We knew the market was slowing, but was still pretty good in our town. We got it on the market last week. This week the real estate market seems to have collapsed. Oh, frickin' YAY!

I shouldn't complain - we've made out like bandits over the years on our homes and we can weather a relative disaster a lot better than lots of folks. (Then again, I'm the only person I know who managed to break even on Microsoft stock!) But this was gonna leave us without a house payment if we even got CLOSE to what the realtors all thought we'd get a couple of months ago. At this point, that feels like a HIGHLY optimistic scenario. Sheee-it.

Oh well - consider yourselves lucky if you're timing doesn't suck quite this badly.

-Ray

[Ken Robb]

maybe you should rent it until the market improves? Use the rent to pay your mortgage on the condo?

[Ray]

maybe you should rent it until the market improves? Use the rent to pay your mortgage on the condo?
We'll have to see just how badly this goes. Renting is a possibility, but not a very likely one. We currently have a mortgage on the house and a bridge loan for the condo. I think worst case, we'll sell the house for way too little and continue to carry a relatively small mortgage on the condo. The whole deal was to reduce hassle - not consistent with being a landlord!

We'll see,

-Ray

[1centaur]

A year or so ago there was a long thread here on buying a house and I was in the distinct minority saying housing was a very risky investment at that point. I was told that housing is not an investment. I said it is if you need to sell it.

Housing prices in the US were then and are now a very frequent topic of conversation in the investment firm at which I work. The large US homebuilders uniformly are unwilling to suggest when the slump will be over, and consensus thinking is that homebuilding activity might pick up very late in 2008, or not. A recession is very possible sometime around then, which could push off home appreciation until 2011 (but which will make 5/1 ARMs far more affordable for those with good credit - locking in a 30-year now may not be wise if you pay fees/points).

Right now mortgage lenders are extrapolating from the problems with 2006 subprime lending and making it harder/more expensive for just about everyone to finance a home, including making the appraisers far more conservative (lowballing, basically) than they were just a few weeks ago. If we go into a recession soon, it will be because bankers mistake price volatility for a genuine credit deterioration and self-fulfill the fear. There's a saying in the hedge fund world: markets will hurt you but your bankers will kill you. That's a concept worth remembering.

Bottom line: housing prices are likely to go down more than people expect over the next 18 months at least. If you buy, buy to stay and live somewhere because you love it and don't check Zillow until 2012.

[Ray]

Which is why I hope we can get out of this one relatively quickly and relatively close to whole. The condo we're gonna keep until we can't walk the stairs anymore.

-Ray

[saab2000]

My condo in Grand Rapids closes tomorrow. :banana:

Yeah, I am prolly buying at a questionable time, but I will be happy to have a good place of my own. And my lender is a VERY reputable financial institution.

Gonna ride this one out.

As long as I have a job I can afford it. Didn't overbuy.

[CNY rider]

snipped..... If we go into a recession soon, it will be because bankers mistake price volatility for a genuine credit deterioration and self-fulfill the fear.

.

Love discussing this topic, so take this in the spirit that it's offered.

1. I'd argue that we are now in a recession. The statistical manipulations the government uses may cover it up a little longer but I think in retrospect it will be agreed that we entered recession summer 2007.

2. You must be joking about the quote above. Bankers and hedge funds have been the key drivers of the mispricing of risk and the decline in credit quality. How else can you explain "liar loans" i.e. walking into a home purchase you can't afford, with no documentation that shows any ability to pay? Only now is the market starting to assign real value to the instruments of destruction like CDO's and CDS's that were "marked to model" in the fantasy world of the U.S. housing market over the past 2 years?

[CNY rider]

Check this out, and then duck when the big guy gets here:


"So, today the monetary base in the North Atlantic economies is 7% higher than it was yesterday--an annualized growth rate of 2100% per year.

This is indeed a significant liquidity event..."


"The Fed, in an effort to get the funds rate back down and meet the spike in demand for cash, lent $24 billion through its open market operations. It did so through two operations: A 14 day "repo," the name for an operation that adds reserves to the banking system and alleviates upward pressure on rates, and an additional $12 billion through an overnight repo. It is common for the Fed to do the two types of operations, but analysts said the amount added was relatively high, exceeding what it would have injected to cover expiring repos."

Both of the above from the Calculated Risk blog.

[1centaur]

Bankers and hedge funds have been the key drivers of the mispricing of risk and the decline in credit quality. How else can you explain "liar loans" i.e. walking into a home purchase you can't afford, with no documentation that shows any ability to pay? Only now is the market starting to assign real value to the instruments of destruction like CDO's and CDS's that were "marked to model" in the fantasy world of the U.S. housing market over the past 2 years?

CDOs and CDS are not "instruments of destruction" anymore than any other security. "Real value" is not a term that can be defined in this context. Every credit cycle ages and lenders ignore risks more than they should. Not every hedge fund is created equal, nor every banker. This is all shorthand for a much longer discussion we could have that would bore most of the people on this forum.

Fair to say, however, that fewer people understand the risks in structured products and derivatives than are buyers of such. That helped get us in the subprime mess. This credit cycle is correcting as they all do.

[93legendti]

My condo in Grand Rapids closes tomorrow. :banana:

Yeah, I am prolly buying at a questionable time, but I will be happy to have a good place of my own. And my lender is a VERY reputable financial institution.

Gonna ride this one out.

As long as I have a job I can afford it. Didn't overbuy.

No, you're buying at a good time. Generally, unless you are selling and not rebuying, the timing of a purchase/sale does not matter that much (note myqualifiers). Depending upon how long ago Ray bought his condo, the price probably was reduced to reflect the current market. So hopefully, any money he "loses" on the sale of his home is balanced by money he "saved" on the condo purchase.

The value of a home is a paper number dependent upon a buyer who buys NOW, rather than later, minus an agent's 6% commission, less taxes, title insurance and a few other costs. Most appraisals/valuations are guesstimates and too many people get stuck with a figure in their head that they think their home is worth.

True story:
Q: Sir, how much is your home worth?
A: $1.5 million.
Q: Have you had it appraised?
A: No.
Q: How did you arrive at that figure?
A: I would not take a penny less for it.

Average homes in the area were worth $400,000 at the time.

[1centaur]

"unless you are selling and not rebuying, the timing of a purchase/sale does not matter that much (note myqualifiers)"

Many people MUST sell their homes at a time not of their choosing (divorce, death of a spouse, moving for a job), and many people don't have extra cash lying around to top up the down payment on the new home they might buy if the down payment on the last home got wiped out via 5 to 1 or 10 to leverage. Timing of a home purchase changes the RISK that the buyer will be able to maintain his home equity over an ensuing period.

Yes the rising home prices over the last 50 years have meant that longer-term house owners likely have built up equity and a sale now may not be top ticking the market but still leaves them in a comfortable situation (unless they used second mortgages to extract equity for consumption and now are getting nailed). Japan's many years of house price declines suggest that rising home prices are not a fait accompli but an artifact of certain circumstances. If the US dollar were to go into long term decline, or US tax laws changed regarding mortgage deductibility, we might not be as sure of our pretty steady home appreciation as we have become.

[Ray]

Depending upon how long ago Ray bought his condo, the price probably was reduced to reflect the current market. So hopefully, any money he "loses" on the sale of his home is balanced by money he "saved" on the condo purchase.
We did pretty well on the condo and were 'lucky' enough to be able to buy it and bridge until we sold our other one. We had a couple of realtors do a market analysis and they were very close together in terms of what they thought we should list it for and what we'd likely get. Based on that, even if they were a bit optimistic, the equity we'd 'built' (lucked into) over the years would allow us to come out of the whole deal with no mortgage on the condo. The timing of the whole thing as the market seemingly weakens by the day, however, raises concerns that we may end up well below the low end estimates on the house, which will require we continue to borrow some on the condo. Which we can handle - but we were specifically hoping not to have to.

As I said, though, I'm not complaining. We've made out like bandits on real estate so far. We started with a $70,000 house in the mid-80s in Seattle and we're getting ready to sell a house worth nearly half a million and the increases in value of the three we've owned in those years have meant we've never had to borrow more than about $90,000. And we didn't do anything but live in the damn things and take reasonable care of them. So if we end up getting $20-$50,000 less than we'd expected for this place, we'll be mildly bummed, but we still did crazy well. And we may not do that badly - we've gotten some pretty interested lookers.

And our condo is really well located and with the combination of the glut of baby boomers that are or will be looking for smaller places over the next 10-20 years AND the sure to be increasing desirability of a very short commute and energy efficient building, I suspect it will go up in value quite a bit too by the time they have to carry us out of here into the nursing home. So we might even have something to leave our kids. And, in the meantime, no lawn or other outside maintenance means that much more time for riding and other good stuff.

Life is good even when it pisses you off,

-Ray

[93legendti]

...Life is good even when it pisses you off,

-Ray

Sig worthy!

[Elefantino]

I am not an economist.

However, my son used to work for a local mortgage company (a boiler room) that sold these "liar loans" … there is, or was, great money to be made. Lots of young 20-somethings in the office driving BMWs paid for by screwing people.

In the process of working a refi for a double-wide, my son realized that by loading his inflated fees on the back end he was likely screwing these people out of their home.

He walked away. I was proud of him.

Would that there weren't so many greedy people in the world.

[zap]

Anyone notice the increased spread for jumbo mortgages recently? This might accelerate the housing slow down in more expensive areas.