Real Estate bubble bust may be worse than Dot Com bubble bust

hello, non-union and immigrant labor!

i'm just glad i finally got out of the mortgage industry.

Presumably if there's a burst it will be due to rising interest rates and people with variable rate mortgages having to foreclose right? So along with the low prices will come high rates and the end result might not necessarily be that much cheaper for you.

oh yeah, and if any of you still have variable-rate mortgages, i'd recommend getting them fixed as soon as possible, if not 2 years ago.

Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.

This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.

Well, there's this quote about the dot-com bubble that they play over and over again on NPR spots, something like "Everyone thought it was perfectly reasonable for a company selling dog-food on the internet to be valued more than General Motors."

Let me tell you what I saw:

1) A two-bedroom in a "new" (read "ugly") building in a shitty neighborhood in Jersey City heights with almost no commercial stuff, but granted it had its own parking space, for $375,000.

2) A one-bedroom in a "luxury" building (read, it feels like a Ramada) that happens to have a terrace with a great view of Manhattan (read, you also overlook the holland tunnel and all the visual chaos around it) for $450,000

3) A studio apartment in a converted loft warehouse building. Granted, it's really nice, has exposed brick, a cool layout, and a nice view, and it's close to the PATH and to the waterfront. $520,000. By the way, we looked at the same one six months ago when it was still being finished, and it was $380,000, which already sounded absurd. But that was before an investment group bought it. Now they're re-selling before anyone's even lived in the thing.

If you can't afford to buy now, BE THANKFUL.

My coworkers who have just purchased condominiums in Fairfax + Arlington, I'm just like "you know my fiancee and I have a balcony view of Georgetown for less than half your mortgage payment? Right?" But they're building equity. And they plan to stick around the area for a while. At least one of them I know for sure made sure to get a fixed-rate loan. The popularity of ARMs could make a coming recession twice as drastic as it might seem on the surface.

http://calculatedrisk.blogspot.com/ is still my #1 source for the hotness. By which I mean, the data.

(Ally is really tired of hearing about this)

it's such a pain in the ass. size vs. schools vs. price vs. comfiness vs commute vs. suburban/urban/look/age. you really have to pick two or three and damn it if you don't get fucked on all other fronts in the process.

we've paired it down to two options, it's either:

a) live in suburban lame-o land with an association and a horrible commute and liveable schools, but a lot of house and fairly new house for a reasonable price that won't eat us alive. the chance our house will retain value and be any kind of unique is nil. my wife refers to these as the middle class projects. (so you can tell that i'm probably going to end up in b, which irks me just as much for other reasons...)

b) live in gentrification central with amazing public schools with bilingual immersion programs, but tiny cute homes for a fuckload that guarantees i'll never have fun money again, yet meanwhile, i can ride my bike to the grocery and mexican popsicle store and walk my kids to a great park. while i'm not going absolutely insane because my office is in my bedroom (i telecommute) and our kitchen is so small we'll never have a dishwasher and and and...

it's so frustrating. where's the magic middle? oh that's right, none of those houses are for sale.
m.

I think people are forgetting that there is a limited supply of echo boomers willing to leverage 2/3rds of their income over the next 30 years just because a couple of real estate ground-pounders are yammering on about how things never stop appreciating ever and if you can BARELY afford to buy NOW you'll NEVER be able to afford it LATER!!!

Which is mostly what I get from that SF article.

In DC, for example, you have 3 main tiers of income, in my limited experience:

1. People who sell things to the government/tell the government what to do. Contract specialists who close the deals, GSA salespeople, owners and partners in outsourcing companies, lobbyists and law firms who work with the representational branch. Profit creators skimming off taxes allocated for work the government can't be bothered to do itself.

2. People who do cost control on these outsourcing deals, like me and everybody else I work with, hired to fill a requirement and keep things on budget/on schedule etc, and some private industry worker bees who fulfill the ancillary needs of companies like mine or the other businesses mentioned in #1.

3. People who work directly for the government and non-profits in the area, holding down the fort, slugging it out year after year being polite to the people in categories in #1 and #2.

Categories 1 and 2 are totally subject to the winds of change. It's happened before and will certainly happen again, no matter how many stupid motherfuckers keep calling this area "recession proof." We aren't doing anything value-added here, we leech off the sweat of the IRS. People who lived here fifteen years ago remember. When housing gets to the point where everybody in category 3 has to go find a roommate to share an english basement 20 minutes' walk from a subway stop (or worse, leverage 3/4ths of their entire household income for the next 40 years to get a starter rowhome 70 minutes away from work), it's a fucking bubble.

I'm surprised the Bay Area, having seen a MASSIVE overbuilding situation in the dotcom boom, can seriously consider the current appreciation rate anything close to sustainable or rational.

Anyway. Back to cost control.

fuck, we need to move somewhere cheaper.
m.

http://money.cnn.com/best/bplive/winners.html

this also assumes the value of the property is stagnant. if it goes up, you've got that as equity.

as to it's popularity, the economist recently reported that 60% of new mortgages in california are interest only.

Yup, sounds about right. Many, many people are going to be very, very fucked down the line.

We're at the point where the line bet/w predatory lending and "easy mortgages" is blurred out of existence...

Money Magazine's 100 Best Suburban Hellholes to Live 2005

I think half my office lives out in that shit.

yeah, that's what my wife talks about when she mentions the middle class projects... or .... more and more common, the upper-middle and upper class projects. i'm seeing these developments spring here in nashville and parts near that "HOUSES starting at $600K!!!"... big brick palaces... ugh.

of course, that same house in the gentrificombobulated hood would be $1M easy.
m.

They should just call these places "golf course towns." It would get far more hits on CNN.com if worded that way, anyway.

since it is still hilly farmland surrounding the lake, cows will sometimes come down to the water to go bathing, so you can tootle up in your boat next to them.

see here

i know the house we almost bid on last weekend would've put us back around maybe $1600 a month and that same house on the rental market in that hood would've been more like $1800 at least. (i'm looking at craiglist.) of course, paying extra on the princple of the interest only 20% loan would throw us well over $1800.

so perhaps there is wisdom in your strategy. i think we may just need to consider living in a cheaper hood for 5 years. the schools might not be AS good, but... parents make more difference at the younger ages. there are magnet schools... but the enrollment's lottery oriented. something'll work out.

the worst part is patience.
m.

They're not. I've seen the finishes and fixtures in these places, and they're appalling. They most certainly are NOT built to last - I think a lot of the value is in the land, not the shitty house they bought. Also, the buyers are not taking into account aesthetic value, which adds to the long-term value of the house. Poetic justice, though, for those who live for "conspicuous consumption" and little else.

Seriously, you are better off buying a little fifties ranch house - those things can be lovely if fixed up properly. People have got to learn to do without so much space.

Not taking into account, or failing to grasp?

A lot of McMansions are, at least, fairly inoffensive. Avoid the extremes of contemporary fashion, when you go to sell it down the line the new owner won't have to immediately rip everything out. Find a couple of rising yuppies just as bland as you are and it won't hurt at all.

I can't believe people are willing to blow $250-350k+ on a new house and get linoleum and carpet all over the place. Engineered wood floors (or if nothing else, cork and bamboo floors) aren't that expensive and add a ton to value and sellability (saleability, sale-a-something, whatever).

Nope. My fault for being very unclear. But the opposite. It's easy to rent a roomy one bedroom place in a "hipper" neighborhood in town for around $700 a month... but purchasing similar can produce a mortgage that's around $1400/month instead. It's a factor of 3 from rent to mortgage if we're talking about renting vs. buying a house, respectively.

And after all that, Seattle still isn't in the top 10 real estate bubble states. I don't want to even think about how much a shitty L.A. suburb house mortgage is.

That makes no sense. (I'm not saying you're wrong - just that I don't get it.) How can an investor afford to buy a property to rent it out for less than the mortgage payment? Renting should always be more expensive than buying (on a macro level.)

My wife and I are in the process of selling our condo now, its been on the market for a month. No biters. Kind of sucks because there are a some nice houses in our price range in town, but they sell quickly. And we are looking for a fixer-upper, we like the old charm compared to the new McMansion shit.

We really are pleased that we bought the condo when we did 4 years ago as its gone up in value $75000 since, which gives us a great chunk to put down on a house when we step up. And our mortgage is around $600 a month, which sure as hell beats rent around here. Averages around $1000 a month for 1 bedroom.

We both have pretty bad credit as well and have been told our max purchase price is around $232000, which doesn't get you much around here. Lucky to get 1/2 acre of land...most of the houses need new roofs, updated electricity and lots more work. But all in all, i would prefer to have a mortgage rather than rent these days purely for the tax breaks.

m.

And this is certainly what most parents look for in a school.

but they get less funding. and when nearly 100% of the kids are economically disadvantaged, their parents don't always have time making ends meet to help them with their homework or to discipline them. or they've got parents who are basically fucking up hard. etc etc. so meanwhile, your kid might be one of the few in class that can read. the teacher is spending all her time with every other student or with discipline issues cause so many kids just doesn't care, or are bored, etc. there's just a deficiency.

what do you do? it's your kid's future hanging on your actions.

i personally would rather go for some middle ground. not snootyville academy. but public school in a middle class neighborhood where they will still get some diversity yet still get attention. then, on top of that, make sure my kids hang with lot's of other types of kids.

me and my wife went to ghetto schools and survived, but frankly, i KNOW i got held back. i can live with my own fate, but i want better for my kids.

i don't know if that makes me some kind of sell out to certain ideals i've always put forth. have i?
m.

It's that Elvis song. The real estate people got so mad at him after that, they had been flipping ghetto housing like crazy until he came along.

I don't think this is true. What is true is that the value of the investment property should equal the present value of future rent cashflows. Once the mortgage is paid off, the landlord will still be able to collect rent, so that means that in the short-term, mortgage payments could exceed rent payments.

school district is a fairly common problem we are having as well as we are trying to start a family as well. most of the places we have seen have shitty schools...although their is always private school for mucho $$. But we figured by the time our children are old enough to start kindergarten (in 5 years time if we have one within the year), we may be able to pack up and afford a bigger home in a better district. we'll see.

Most real estate investors (ie people who buy houses and small apartment buildings to rent) think in terms of cash flow and short terms, like five years. You always assume that there will be a mortgage payment, and that the mortgage will never be paid off. Most investors don't hold property that long. So while you may find some cases to the contrary, look at it this way: If you are an investor and you want to buy a property to rent out, the immediate question is, "can I rent it for enough to cover the cost of ownership and also make some profit?" If the answer is no, then it's a bad investment.

risky. he's banking on the fact that boom or no boom, rich kids go to vanderbilt university here... and daddy will pay for the nice "condo" that's near bars, class, and all the other rich kids.
m.

But that's only in the short-term. In the long-term the rents will even out with the mortgage costs. And if there are any long-term investors in the market, they will affect the prices you can get.

geyser, nobody is paying attention to the rent ratio. They're paying attention to the free money. Everything just keeps appreciating, it's like magic, the prices just keep going up and up!

This paper by a couple of physicists shows the whole thing coming down on top of us in mid-2006.

Calculations by The Economist show that house prices have hit record levels in relation to rents in America, Britain, Australia, New Zealand, France, Spain, the Netherlands, Ireland and Belgium. This suggests that homes are even more over-valued than at previous peaks, from which prices typically fell in real terms. House prices are also at record levels in relation to incomes in these nine countries.

America's ratio of prices to rents is 35% above its average level during 1975-2000 (see chart 1). By the same gauge, property is “overvalued” by 50% or more in Britain, Australia and Spain. Rental yields have fallen to well below current mortgage rates, making it impossible for many landlords to make money.

To bring the ratio of prices to rents back to some sort of fair value, either rents must rise sharply or prices must fall. After many previous house-price booms most of the adjustment came through inflation pushing up rents and incomes, while home prices stayed broadly flat. But today, with inflation much lower, a similar process would take years. For example, if rents rise by an annual 2.5%, house prices would need to remain flat for 12 years to bring America's ratio of house prices to rents back to its long-term norm. Elsewhere it would take even longer. It seems more likely, then, that prices will fall.

It's a renter's market because a lot of people are moving on from renting to buying, people in that echo boomer age range who all decided to settle down at once and caused a 'housing shortage' to crop up at the same time the investing populace of all ages decided condominiums were a better bet than tech stocks.

I guess I'm a bit confused by this statement. How will the market not permit widespread losses on rent? Will owners just hold out and lose money until they can get what they need? Will renters just pay whatever landlords say? There are plenty of places that were bought years ago that don't need to get the kind of rent required to cover recent mortgages.

If the demand is not there at a given rental fee to cover mortgage costs for a certain price paid, then a loss will be generated. Since so many people are buying at inflated prices (economist cites NAR figure of 23% of houses bought in 2004 were for investment purposes), the possibility seems entirely plausible.

$315,000. I put 10% down, because I can, and my coworker here says he got a deal from Wells Fargo at 5.5% 30-year fixed.

That's $1,618.20 a month according to Bloomberg.com, not including the condo fee, maintenance, closing costs and all that jazz.

Right now I pay $1250 in rent, plus electricity, and that's it. That affords me the ability to put at least $400 a month into investment accounts which will hopefully weather this bullshit.

Also the building I live in is fucking old as hell, $315K? Fuck that! Sucker even covered up the hardwood with carpet.

-- geyser muffler and a quarter (right.knewi...), July 12th, 2005.

The Economist had an article maybe 6 months ago saying the exacpt opposite -- that in MANY housing markets, right now, it's cheaper to rent than to buy. Potential rental income may be a large part of what drives value (if there is such a thing), but only supply and demand drive price.

Of course, this is for the reasons stated above -- investors buying lots of properties, property flipping, general market euphoria and/or panic.

Rental incomes are much more tied to reality, I think -- because you're not dealing with mortgage loans, people can only pay what they can actually afford to pay. And investors aren't renting, so there's not all that artificial pressure.

Also, when enough people are buying, it means those same people aren't renting, so less demand for rentals. And vice versa.

but you'll pay less in taxes if you're paying a mortgage which might more than make up for this difference; factor in the equity you gain in the condo and you could well come out ahead. but I'm not an accountant so maybe not.

I pay less in FEDERAL taxes, but the county and the state could give a shit. If I factored that in, which the bloomberg calculator doesn't, I suspect my ACTUAL monthly payment would be even more.

if you have at least 1 functioning brain cell, rent don't buy. let the stuff that comes w/ buying be some other shithead's problem.

-- carbon (identitymachine...), July 12th, 2005.

Or, in the case of Jersey City, IN the ghetto. $375,000 for a two-bedroom. Not even near the PATH. One of its selling points is "walking distance from HOBOKEN." !!!???

HAHAHAHAHAHAHAHAHAHA wtf seriously?

so i really don't blame those of you who are totally uninterested.

i guess it's just possible here. you really CAN fuck up here too, but it's possible to buy and it not be totally insane.
m.

It will almost certainly not have a great room, those things kind of skeeve me out.

And we didn't buy on speculation, either. We bought because we are having a third kid and we need the living space.

"Walking Distance To Hoboken" should be a ska song.

it's a good thing that you didn't make this recommendation a few years ago, tombot, seeing as that point there were more ska-bands in the hoboken/jersey city area than there are flies swarming around a freshly-squeezed batch of horse shit.

Does the *shudder* World Inferno/Friendship Society still exist?

apparently

As for hurricanes, we get tons of hurricane effect rain. More yearly inches of rainfall here than Seattle, allegedly.

I'm thankful I live relatively central to Seattle (renting), but I'm already seeing people thinking about this, and prices of central housing has risen dramatically compared to far-and-away suburbs. I just hope there's a motion/design/architecture present at the time to help centralize and expand those suburbs into their own useful cultural hubs, instead of letting them suffocate and becoming wastelands.. and talk about devalued property.

(hmmm, don't know if that makes sense or not.)

Point above being that there are many smart people who think that there is still a lot of money to be made in real estate in the bubble markets. There have been real estate naysayers about this bubble for at least two years, and frankly, there are investors out there who can afford to ride out the bubble even if it bursts.

I might also point out that many people in the 'burbs consider their lifestyles to be full of relevant culture--they see what they do (convenient, quality child rearing, even if it makes for a long commute) as the very definition of their culture. Church, youth soccer, Chuck E. Cheese, and all that shit is their culture. For many of them, it's now multiple-generations deep. Exurbs, suburbs, white flight, whatever--the only reason they even bother associating with the MSA is for the airport, sports teams, and a place of employment.

I might also point out that many people in the 'burbs consider their lifestyles to be full of relevant culture--they see what they do (convenient, quality child rearing, even if it makes for a long commute) as the very definition of their culture

man, do you got that fuckin' right. I never really understood the pejorative context of the insult "breeder" until i got a temp job at a huge suburban mortgage building. The place was filled with mostly middle-class women who primary defining characteristic is spitting out crotch-spawnlings as fast as they can; lots of mothers of varying educational backgrounds and of varying marital status who all had like 3 kids by the time they turned 23.

seriously, it made me realize why much mainstream american pop culture(read: things covered by the E! channel) is how it is. Kids are DEIFIED in our culture, due in part to so many folks having absolutely no identify except in terms of rearing children. These were the folks who'd come home from work, cook dinner, watch American Idol, go to bed, then come into work the next day to discuss the previous night's American Idol all the live-fuckin'-long day. They then would go home, cook dinner, and watch that night's Idol. Repeat for 30+ years.

My buddy had to sit next to them. I hid inside of my clamshell headphones.

also, i should correct myself; that Onion headline above should be something like "Home-Buying Up Among Suburban Lame-o's"

m.

Nothing at all wrong with making $75K, although in figuring ROI you want to make sure you consider all relevant factors (inflation, taxes, tax implications, any improvements, etc.) If you are thorough in figuring out ROI then you can accurate compare it to other possible investment vehicles over the same period in real terms.

That Hissing Sound

http://www.nytimes.com/2005/08/23/opinion/23harris.html?ex=1125028800&en=3852efb8d3e0f346&ei=5070

August 23, 2005
Bubble? What Bubble?
By CHRIS HARRIS

Los Angeles

SO, you've been thinking about buying that first home, but you keep reading reports that this "housing bubble" may finally be nearing its peak. Things are cooling off; better sit things out for a while, right? Well, you've never been more wrong in your life.

As an expert in the field - I've spent my entire life living in or behind homes - I can assure you that aside from any moment in the past decade, there has never been a better time to enter the real estate market. Here are two important reasons.

We already experienced the Internet bubble. The crash taught us all that a feeling of invincibility can lead to disaster. Now that we've learned this humbling lesson, there's absolutely no possible way it could ever happen again to us.

More important, the housing market is incredibly durable. Unlike sneakers with lights in them or monogrammed poker chips or - I believe - computers, houses are not some fad that people will any day now look at and say: "This is stupid. I don't want mine anymore." Housing is a basic need, not unlike shelter.

The following Q. and A. should ease any remaining concerns.

Q. Are you sure I haven't missed the boat? Housing prices have risen so much already.

A. Actually, if you look at this chart, which is based on my years of research, you'll find that prices have been remarkably stable. No less a man than Winston Churchill put it best: "Now this is not the end. It is not even the beginning of the end. But it is, perhaps [a phenomenal time for buying that starter home you've had your eye on]."

Q. Winston Churchill really said that?

A. I don't know why you're arguing with me. I used quotation marks.

Q. With my luck, the second I buy a home the market will collapse.

A. This just doesn't make any sense. There are literally trillions divided by trillions of new homeowners every week. Do you really think the entire market is geared to maximize your bad luck?

Q. I'm still not convinced.

A. Well then, look at these numbers:

Now: 58

Five years from now: 8,472

That's a nearly 15,000 percent increase!

Q. Wow. Wait, what exactly are those numbers?

A. What? What kind of question is that? This is just the kind of foot-dragging that's kept you paying rent on the same roach-infested closet for years while your home-owning friends have gotten fantastically wealthy. Did you know that we homeowners are having Champagne-and-caviar parties every weekend and not inviting you?

Q. Come on.

A. It's true. And sometimes we hire the White Stripes to play. That's right, the White Stripes. You love the White Stripes, don't you? Then buy a house!

Q. Aren't you being a little pushy?

A. What on earth is wrong with you? I'm doing this as a favor. It's not like I'm desperately trying to convince you because I myself have overspeculated in the housing market, now suddenly it's peaking, and if it doesn't continue its insane and completely unjustifiable rise then I'll lose everything. It's not that at all. Just relax.

Q. You relax.

A. I am relaxed. You're the one who's not relaxed. I'm totally fine.

And so to all prospective buyers out there, I say be confident as you pursue the American dream of owning your own home. And to my aunt in San Francisco, I love you and desperately need to ask you for a favor. Please return my calls before the 12th of next month.

Chris Harris is a writer for the forthcoming television show "How I Met Your Mother."

http://graphics8.nytimes.com/images/2005/08/22/opinion/oped2.650.jpg

http://money.cnn.com/2005/08/16/news/funny/mr_housing_bubble.reut/bubble_tshirt.jpg
A disclaimer at the bottom reads, "Not affiliated with Mr. Internet Bubble."

Chuckle.

My aunt works for Corcoran. I have to ask her about this.

HAHA! good times virus!

yeah.... if all goes well, we close at the end of this month on our first home. bubble or no, we need a place to live. and we got a good deal i think. nashville definitely has an inflated market in some hoods, but i think we bought where our house value will probably stay similar. if not, oh well.
m.

but yeah, i bet that same shack would go for a lot more in a few other markets. the bottom line for us is that i think we were able to get something we'll be able to afford, which makes the bubbble less of a worry. it would've been scary to buy too much house and then have it devalue wickedly. having to sell in 5-7 years and owe more than i could get for it would suck.
m.

http://www.observer.com/therealestate/2005/08/barbara-corcoran-resigns.html

Alan Greenspan in an unusually festive mood.

In the meantime, I'm gonna let the U.S. financial goatse.cxing ride out, and see what things are like in the aftermath.

btw do you know how many bison ted motherfuckin' turner owns? a shitload!

http://www.jacksonhole.com/index.summer.asp

...I couldn't resist.

http://americangourmet.net/ProductImages/16347.jpg

http://news.bbc.co.uk/1/hi/business/4193008.stm

One of the things everyone keeps telling me is "Big condo building going in over there, 50 apartments on that corner, blah blah." Ok, so if there's all this new construction and all these new apartments going in, I guess that means the neighborhood could get much nicer and property values could go up. But couldn't it also mean developers are rushing to cash in on the frenzy, overbuilding, and that demand will outstrip supply?

(granted, not currently bigger than dot com burst, so it seems)

http://money.cnn.com/2006/03/24/news/economy/newhome_sales/?cnn=yes

http://www.lectlaw.com/files/lat06.htm

It's just a matter of finding one...

My friend could have made $100,000 profit in a year on a place he bought if he had sold when I told him to. Oh well, at least he has a place to live, I guess.

Sales strategies in a buyers' market

• Put your home up for sale only if you have to move soon. If you have the option, wait for the market to rebound.

• Understand that real estate cycles are just that: cyclical. What comes down will eventually go back up.

• Price realistically — and stop dreaming of getting as much as your former neighbor got last year.

• Remember that buyers have more choices, so make your house as appealing as possible by cleaning and reducing clutter.

• Anxious sellers create worried buyers, so try to avoid being home when real estate agents show the property.

• Offer to pay some of the buyers' nonrecurring closing costs, like the loan appraisal, loan points, credit report, title insurance and property inspection fees.

• Get a professional home inspection before you put your house on the market.

• SUX 2 B U LOL

Source: Journal News research

"Weehouse" in snow.

Creativity at work.

Developers like Hovnanian are crowing about how they're "bullish" about the market. I guess they figure NYC and its metro area are projected to grow significantly and there's still a housing shortage. With all the new Manhattan construction aiming ultra-high-end, I guess developers are looking to Jersey City as the new place for the merely upwardly-mobile.

Still, it's hard for me to believe these units will move very fast in the short term with so many flooding the market at once at the same time that the boom is ending. In the long run these guys probably know what they're doing though and I'm sure they can afford to sit on some vacant units or reduced rents for a few years to wait out the cycle.

There are a lot of small contractors getting fucked - they made just enough money during the 'boom' to take out $400k+ in loans to build a couple of spec houses (or even better, one really big one) and now there are no buyers (in part because of the market, in part because they were dumb enough to think that the relatively-wealthy would keep moving to formerly rural areas once those spots had become extensions of the 'burbs).

http://www.youdovoodoo.com/80sbubble.htm

So I'm guessing that as more people forward stuff like this around the internet we'll probably see some deflation for a little while, followed by a slight "bounce" that will convince enough people that it's not really all over for real estate, followed by more deflation.

Does anyone have any experience or knowledge with buying foreclosed properties? It's gotten to the point in Portland, OR, that the only affordable markets for first time home buyers is either through condos or foreclosures. The other annoying this is that Portland is about the only coastal city that is not experiencing declining prices in the housing market. The whole thing is kind of depressing.

The other annoying this is that Portland is about the only coastal city that is not experiencing declining prices in the housing market.

link please? this is false based on what I've seen (SF/LA/SD/Vancouver).

false for seattle too

The Portland Tribune had an entire issue devoted to it. Also, you can just do searches on Yahoo or anything and see that prices are going down as expected in PDX. The job market is apparently quite healthy and seems to be offsetting any expected drop in median prices.

My friend did this a few years ago. Sold it after two years and a day, or whatever the minimum time is. More because of the neighborhood than anything else. But it was a good investment, though it required a lot of work.

I thought PDX housing had stabilized, at least in the under 300k market. But it's been a few months since I looked.

Yeah, prices have stabilized, but they haven't really been dropping either.

I'm wondering how difficult it is logistically to buy foreclosures. Do the banks allow inspections? Are the down payments higher? It looks like you can save 20 to 40 percent on these deals, but then again, why isn't everybody doing it? Are real estate agents and flippers scooping up all of the best stuff and leaving the public with the crap?

at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.
at least in the under 300k market.

What's your point?

My expectation at the moment is that, although I think prices will ease in the housing market by an average of maybe 15%, there won't be a total collapse of housing prices. Despite speculative froth, most people still live in their houses, so the market tends to get sluggish instead of prices collapsing. Rather, I expect inflation to continue to heat up in food and fuel prices and to spread throughout the economy more and more generally - with no offsetting increase in wages.

The erosion of the dollar will make this trend the worst in the USA, where even the prices for manufactured goods will start to inflate (finally), but the status of the dollar as world reserve currency will mean inflation will spread to the global economy, too. I look for the official inflation rate to go double digit in the USA by 2010.

Just my gut hunch.

don't worry, the amero will save us.

I believe steve shasta might be pointing out that housing has stabilized at what is apparently the new "floor" for urban real estate prices is kind of like saying the music isn't getting any quieter, at least the silent parts.

I'm missing a clause in there but the point stands that the "under 300k market" "stabilizing" is just more sticky-upwards pricing phenomena while buyers continue to wait for the bottom to drop out.

local newspapers bragging about it is a sign the bubble is still at work in your area more than it's a sign of anything else, and yeah sure go ahead and buy something to live in at a fixed rate you can afford but you had better be DAMN sure you aren't interested in real estate as an investment, because if you hadn't been around at the time, 1992 fucking sucked and this is going to only get worse. sup.

If I know anything about market psychology, the bottom will fall out within 24 hours of this thread being revived with a simple 'LOL' after prices have climbed another 30%.

Thanks for clarifying Steve's point.

Also, I'm talking about buying a foreclosed house to live in, not purely as an investment.

x-post

get an appraiser and a building inspector to look at anything. the appraiser will tell you a lower number, the real estate agent may tell you an even lower number than that (they only get paid if they move things) and the mortgage broker will cry because they really need you to take it for the posted price or they're going to miss the payments on THEIR adjustable rate.

the building inspector will be able to tell you if the thing was even built to code in the first place and may be able to give a ballpark figure on any improvements that need to be made in order to get it up to code.

It's great in Ireland... for ages it was "OH NOES House Prices are rising, the government must do something", but now suddenly it is "OH NOES House Prices are falling, the government must do something". Which is it, guys?

The other annoying this is that Portland is about the only coastal city that is not experiencing declining prices in the housing market. The whole thing is kind of depressing.

VISIT ONE NEW YORK CITY ;__;

(xpost)

yo, and the NYC metro area is STILL the land of $800K cape cods, and $500K+ piece-of-shit vermin-infested walk-ups that were crackhouses in the not-too-distant past condo conversions & luxury condos across the street from the PJ's.

shit ain't popped yet.

Yeah, I guess not. WTF - these "national" predictions don't seem to be jiving with any markets, it seems.

Well, I'm not sure what you mean by that - the national predictions jive pretty well with most places in the country.

As for NYC, I've heard a variety of explanations, all of which probably contribute - strong earnings and bonuses for wall streeters, demand is international, prices have long been too high for sub-prime loan folk, there's been a shortage for a long time, etc.

Strangely, I'm not seeing much evidence that the continued boom is spilling over into Jersey City (new condos are moving at a moderate but not especially impressive pace here), though it may be preventing a steeper decline. I guess New York is New York for most people.

in England: Mortgages eat up half the wages of some first-time buyers
http://business.guardian.co.uk/story/0,,2118670,00.html

in the US: Sales of existing homes drop to lowest level in 5 1/2 years
http://business.guardian.co.uk/story/0,,2118081,00.html

asking prices

selling prices

not the same thing

that's deep

I spend nearly half my wages on rent :( I'd be happy to spend half on a mortgage, at least then I'd own the bastard place.

at this point i don't even care if a property loses some value. i just want my rent money back at the end.

Countrywide loses http://www.latimes.com/business/la-fi-countrywide27oct27,0,4849832.story?coll=la-home-center.2 billion in the third quarter.

Whoa, that's ugly. Anyway, the link works.

Countrywide, the nation's largest mortgage lender, said it was now focusing on plain-vanilla mortgages. Those are safer and salable if far less lucrative than exotic loans had been at the giddy heights of the housing boom.

Ya think!

Rolling US Economy Into The Shitbin Thread

Thanks, I was trying to remember the title of that!

ILX, i present for your review a picture of angelo mozillo, the CEO of countrywide:

http://latimesblogs.latimes.com/laland/images/2007/05/24/mozilloreutersfacing_right.jpg

who's about going to become as ubiquitous as kenneth lay, dennis kozlowski, and bernie ebbers (though infinitely less pasty than any of the foregoing).

my bad, it's moziLo (only one L, not two):

http://images.forbes.com/media/lists/12/2007/7G33.jpg

Hahah, out of central casting or what?

his father was frank sinatra, and his mother a lobster.

Harry Belafonte called; he wants his skin back.

Are there any reliable statistics on how many foreclosures/defaults stem in part from outright fraud or malfeasance on the part of mortgage brokers? This is a part of the equation that I don't hear discussed often enough - usually this just gets turned into a debate over whether or not the borrowers should be "held responsible" for taking loans they couldn't afford, and I'm wondering what percentage of borrowers were literally swindled into taking those loans.

you'll likely never find a valid number on that, unless somebody wants to do a really intricate survey on it for their socioeconomics dissertation or something

and even then of course said research would have its methods excoriated by the banks

agreed with Tombot -- there's no method to quantify mortgage fraud on the part of mortgage brokers of which i am aware (maybe insurance companies have some in-house metrics, but i don't know if that's true at all and even if it is whether they're at all accurate for the market as a whole). it may be something that one would have to make a rough guesstimate based on (a) insurance claims related to such fraud; and (b) revelations from either private law suits or governmental actions related to such fraud.

Is housing in the US getting cheap because of this? In Australia we're long-term rooted if we don't already own something.

FWIW, the lead story in every edition of the South Florida Business Review these days is about the mortgage meltdown. The condominium market is in freefall in Miami, far worse than most other places. I don't think we'll see improvement for another 3 years.

On the other hand, the aggressive overdevelopment will eventually be okay -- maybe good -- for Miami. Foreign investors are already discussing sweeping up built condos (sometimes buying out the few people who have bought units in a given building), renting out all the units until the market turns (so, say 2010), at which point they'll -- slowly -- begin bringing them online as condominiums. It could work if the retail and infrastructure in the downtown community is rapidly developed.

For a good buzz phrase to search for, go for "predatory lending"

"Fog's getting thicker"
"And Leon's getting laaaaaaaarger"

For a good buzz phrase to search for, go for "predatory lending"

Indeed.

Foreign investors

I could see this at first, major US downturn, other countries complacent. But those foreign investors are going to be finding it harder and harder to raise the money themselves as their own countries start running into the same problems

ie, this isn't a US problem..it merely surfaced in the US first

n Australia we're long-term rooted if we don't already own something.

thats what they used to say here as well. they thought that in the UK as well. And Ireland and Spain and Denmark. And Norway. I think they still say it in Finland but not for much longer

already own something.

you might consider this as mere semantics but in all these countries home ownership has increased over the last 100 years...but

1. What about actually owned outright homes as opposed to mortgaged homes. ie who actually owns the home until the last payment is made? This has gone down over the last 100 years. So we own more homes than we used to but we own progressively less of them. Or to put it another way do we really own outright any more homes than before the 'home ownership boom' of the 20th century?

Which means...even if prices never came down...is this statement really true?

long-term rooted if we don't already own something

The way prices are here atm, yes it's very true. The cost of ownership (unless you're way out in the country) is far more than is manageable for most people who don't already own something. This, in contrast to 5-6 years ago when houses were roughly a third the price they are now.

Our problem is partly a shortage of supply, and this is not being addressed.

home ownership rates in nz have been dropping for some time. i think the intuitive thinking on buying a home still holds - for strong economic and social reasons even with the wage/house price gap as it is, tho it looks like a global correction is finally kicking in.

why is it true? if we're not really owning the houses we 'own', and every year we own 'less' than we used to (as a percantage of how much of a house we own compared to what is owed), then why does it make sense to 'own' at all? every year prices go up mortgages go up with them (logically) but percantage wise the percentage of our house that we own goes down and the percentage owned by the banks goes up. the more we buy the less we actually own!

It could work if the retail and infrastructure in the downtown community is rapidly developed.

pffft hahaha

ie, in 1926 or 1964 what percentage of houses were mortgaged? and how much actual 'equity' in each house actually existed? who is really owning the houses here? why are mortgages longer than they used to be? why do we spend the majority of our earning lives not owning them at all?

does it make sense to spend $500,000 on a $250,000 house?

thats what they used to say here as well. they thought that in the UK as well. And Ireland and Spain and Denmark. And Norway. I think they still say it in Finland but not for much longer

Australia's a bit different than these other countries though because it's riding a huge raw materials export boom at the moment, so there is a lot of money washing around in the economy. Of course, if Chinese growth stalls...

tracer OTM

the rest of you could stand to do a little reading because I'm tired of giving other people links to money blogs that have already been linked on these kind of threads five or six times each

in other words, check u refs b4 u ref yourself

but for charity's sake, here you go:

oh wait, you all can look up "calculatedrisk" and "bigpicture" on your own time. god forbid the actual news. g'night

retail is not going to be going up anywhere anytime soon

neither is australia

"It's great in Ireland... for ages it was "OH NOES House Prices are rising, the government must do something", but now suddenly it is "OH NOES House Prices are falling, the government must do something". Which is it, guys?

-- The Real Dirty Vicar, Wednesday, 4 July 2007 17:08 (6 months ago) Link

it's really more-oh, you bought a house since 2002? aha. ahahahaha.

there should be a non-homeowners association, we could all agree not to buy for the next 6 months and watch it crash and burn. because the economy seems to be completely arranged around meeting the needs of homeowners/investors. and mainly the latter.

then maybe people in their twenties could get on the ladder as opposed to needing a 40 year mortgage just to pay for amateur speculator holidays to the bahamas.

ahahahaha

bit bigger than houses this, so I wouldn't get too much schadenfreude

there should be a non-homeowners association, we could all agree not to buy for the next 6 months and watch it crash and burn.

people dont need to agree to anything. they already have less access to credit and large numbers will be losing their jobs (financial, housing, retail first, then spreads from there). jobs are usually the last to go (which shows the fallacy of pointing to employment figures as indicators of economic health, they lag behind other indicators)

people don't buy houses, banks do. i doubt there is a single homeowner on this board

and 6 months? try 5-8 years

because the economy seems to be completely arranged around meeting the needs of homeowners/investors. and mainly the latter.

actually its not. this hasn't met the needs of 'homeowners' at all. they have become more indebted every year over the last few decades (well, over the last 100 years really). they have less and less 'equity' each year, collectively, and the ones that do make good can only spend this money by selling up. it is not arranged around homeowners, it is arranged around increasing the money supply via mortgages, this is how money is created and introduced into economies.

I believe it is called the 'illusion of wealth'.

a 10 billion here, a 10 billion there, pretty soon you're talkin about real money

i take your points, alex, particularly about overall economy being affected (ireland is probably in as bad a position there as any). just having a bit of a gloat.

i don't know anyone my age (mid twenties) who can afford a house, so there's a lot of bitterness towards the people who've been driving the 'boom' of the past ten years here. it's been great for forty-somethings who could get in early and buy three/four properties to rent, i'm sure. i wouldn't mind seeing a few of those get stung.

i'm still fairly confident of being able to get decent mortgage terms in a year or two, when prices will have dropped by at least 100k for a three bed semi where i live since last summer.

if we're not really owning the houses we 'own', and every year we own 'less' than we used to (as a percantage of how much of a house we own compared to what is owed), then why does it make sense to 'own' at all? every year prices go up mortgages go up with them (logically) but percantage wise the percentage of our house that we own goes down and the percentage owned by the banks goes up. the more we buy the less we actually own!

I don't understand this. My house value goes up (long term), the longer I pay my mortgage the less I owe. Surely.

i think it was in the circumstances of interest rates soaring for people on variable rate mortgages, Ned.

otherwise, yeah i don't understand either.

has the bubble bursted yet?

I don't understand this. My house value goes up (long term), the longer I pay my mortgage the less I owe. Surely.

you personally do. there are some winners. but don't forget you pay around double the actual 'cost' of the house, the interest/rent you pay the bank for those years

collectively, we dont. how can this be? how can it be that of the total ownership of houses, so much larger a percentage of each house is mortgaged (owned by the bank) than 20/40/80 years ago? why do the banks own a greater percentage of our houses each year?

mortgages have grown longer and longer, and deposits have got smaller, we owe the banks larger sums of money for longer timeframes, we're not really owning these houses at all, and we (collectively) own smaller percentages of them each year (in the days before ownership mortgages were only ever taken out on property that was already owned, by people fallen on hard times)

like i said before, why are fewer houses OWNED OUTRIGHT than 40 years ago?

Why do mortgages take up larger proportions of wages than 20/40/80 years ago? Why does personal debt take up a larger proportions of wages than before. The last 100 years we have become immeasurably richer....as we have taken on larger and larger debt...to live in houses built in and paid for years ago

My house value goes up (long term)

is this even true?

it goes up in nominal terms but everything goes up in nominal terms. money is introduced into the economy via mortgages and then goes everywhere else from that, therefore EVERYTHING goes up in nominal terms

but it can only go up in real terms by taking larger and larger proportions of salaries. who does this benefit?

unless you think, somehow they will eventually rise to take up 100% of salary?

What has happened in the housing market in the USA was not only a speculative bubble (as it certainly was) but also a huge surge in inflation for housing costs in general. To some extent the bursting of the bubble will bring house prices down and later rental costs may come down a bit, but what we are beginning to see is the second part of the equation.

Because housing prices are fairly 'sticky' and come down reluctantly, it seems very likely to me that in the next round of inflation the rest of the economy is going to rise rapidly to meet housing costs, even more than housing costs will fall to meet the rest of the economy. The logical next step after the $500,000 house that used to cost $200,000 is the $8 loaf of bread and $6 gallon of gasoline.

Watch this space, as they used to say.

and the fed will help those food/oil prices rise with some generous rate cutting

The logical next step after the $500,000 house that used to cost $200,000 is the $8 loaf of bread and $6 gallon of gasoline.

No it isn't. Housing prices have nothing to do with what drives those things.

Also, the fact that housing prices are "sticky" only means you're going to see a slower deflation of the bubble, imho. It's possible that Americans might get used to paying a larger percentage of their budget for housing, but it defies logic to say that they'll do that while also paying a larger percentage for healthcare, food, and gas while their wages are also stagnating. Not to mention the effects of foreclosures and the increasing difficulty of getting a mortgage.

haha I just realised i misread the post as saying 'the $200,000 house that used to cost $500,000', in which case the higher bread and gasoline makes sense . and the 2nd will exacerbate the first.

Background on Australian (and NZ) housing catastrophe

Australian and New Zealand homes are the least affordable in the world, according to a US-based survey of 227 cities.

The 2008 Demographia study of international housing affordability listed 18 Australian cities in its top 50 of severely unaffordable markets.

And if they cannot be bought

Then they cannot be sold

Yep.

Debt levels here are enormous too.

like i said before, why are fewer houses OWNED OUTRIGHT than 40 years ago?

Is this true (in Britain)? I'm not disputing it, I haven't got a clue, I would just find it surprising. There seems to have been a huge shift over the last few decades, firstly away from privately rented accommodation and then away from council-owned properties towards owner occupied ones. Obviously the vast bulk of these are mortgaged, rather than owned outright, but it's not like many people owned outright in the first place, and presumably over time a lot of the people who bought their council houses have been able to pay off their mortgages.

This is why it's hell dealing with old (and thick) family members. They all had no trouble paying off mortgages, so they put INCREDIBLY heavy pressure on people my age (early 30s) to buy something and just save to pay it off as though it's the easiest thing in the world.

Other catchphrases:
- 'Renting is throwing your money anyway' <-- like we've got a choice
- 'You young people don't know how to save, you blow all your money on plasma TVs' <-- we have an old second-hand CRT, and we bought our first piece of furniture in seven years last week, so get fucked
- Housing isn't that expensive' <-- easy to say when (a) the $70,000 house you bought in 1983 is now worth $550,000 and (b) you've not even looked at the estate market in 20 years
- 'You could afford a house if you moved to the outer suburbs' <-- our lifestyle would suffer, our social life would be obliterated, at least 10 fewer hours of free time per week, petrol would kill us, car costs would escalate, we would want to hang ourselves, etc.

Therefore the housing affordability crisis is only the second most painful aspect of the housing affordability crisis.

^ Not to mention the cost of education here. I only just finished paying for my uni degree ($600/month; ~$25,000 in total).

'Renting is throwing your money anyway' <-- like we've got a choice

And it's also not always true. When things are overpriced, buying is throwing money away. The apartment we rent would probably cost almost double what we pay monthly to buy were it a condo, and I'm sure even after you factor in tax breaks and whatnot it leaves us a lot of money that can be put to other uses, including -- hypothetically -- other investments that perform better than real estate is doing right now.

I guess the caveat is that a home is a good investment for a person who lacks the time and/or knowledge and/or risk tolerance to deal with other kinds of investments - it's relatively safe and you can't live in a stock.

And it's also not always true. When things are overpriced, buying is throwing money away.

^^^^^^^^^^^^^^^^ x infinity

This is the most difficult thing to drum into the heads of our phenomenally stupid relatives. They expect that (a) we can easily find the ~$70,000 deposit we require in order to open a loan and (b) spending $600,000 on a house (on which we would certainly lose money when the bubble bursts) is magically more sensible than paying $1,400/month for a rental.

Also, renting allows us to save like bastards.

It's weird to me that people don't sit down and do the comparisons. You "throw away money" on shit like real estate taxes and maintenance fees (especially in new-construction condo buildings) too.

i'll have to come back with stats for aus and britain later!

- 'Renting is throwing your money anyway' <-- like we've got a choice

Interest on a mortgage is dead money. And in most western countries is now more expensive than rent
Paying for repairs is dead money
Insurance is dead money
Risk of prices either coming down or rising less than inflation is dead money

- 'You young people don't know how to save, you blow all your money on plasma TVs' <-- we have an old second-hand CRT, and we bought our first piece of furniture in seven years last week, so get fucked

Hope they didn't do mortgage equity withdrawal, blowing all that hard 'earned' cash!

- Housing isn't that expensive' <-- easy to say when (a) the $70,000 house you bought in 1983 is now worth $550,000 and (b) you've not even looked at the estate market in 20 years

Housing should be measured in multiples of salary, not price. Also, that would be median, not average multiple. the presence of superhigh earners distorts figures

- 'You could afford a house if you moved to the outer suburbs' <-- our lifestyle would suffer, our social life would be obliterated, at least 10 fewer hours of free time per week, petrol would kill us, car costs would escalate, we would want to hang ourselves, etc.

and i can afford to rent wherever the hell i like, and put money in the bank, not get indebted

There is a stock answer to all this probing anyway

"I find debt immoral:D"

When things are overpriced, buying is throwing money away.

Yes. Except that it doesn't look so clever when you made that call six years ago, prices still haven't fallen today (in the UK at least), the lump sum you've saved is a fraction of the gains that everyone else's shithole has made, and you're still renting instead of having paid off a quarter of the mortgage that you didn't take out in 2002. At least in the US your call is paying off before your eyes.

God yeah. Everything in our flat that needs fixing is covered by the landlord, so no surprise expenses.

The only significant problem with renting in Australia is that the rental market is so tight (as a consequence of aforementioned housing crisis) that rentals are increasingly difficult to find. This will get worse before it gets better.

xxp laxali otm

xp We couldn't afford to buy before all the prices went up. Now we can afford to buy a 2002 house, but being 2008 has obliterated that little dream for us.

Apparently renting in the UK is generally more expensive than mortgage payments on similar properties. Is this true? It's certainly the reverse in Australia.

Oops. First part was xxp, second was xp, third was to Ismael.

prices still haven't fallen today (in the UK at least), the lump sum you've saved is a fraction of the gains that everyone else's shithole has made

No gains are actually realized until they sell. In the US, in the long-long-term real estate has not historically been a very strong investment - you can get the same or better returns in almost anything. I'm not as familiar with the UK market. If you buy at the bottom of a real estate boom and sell at the top, of course you make a killing. That's true with any asset. But it's by definition impossible for most homebuyers to be smart enough to do that.

i guess that the expression "safe as houses" is about to thrown to the wayside.

the safe thing about houses is that they don't vanish into thin air when they lose value, and there's something to be said for that

i certainly understand the desire to buy a house, and the financial arguments pro/con. i've crunched the numbers myself, and i check out the prices all the time (it's kind of hard NOT to, since i pass a half-dozen real estate brokers on my way to & from work every day, not to mention the endless ads for some condo or other in the subway and PATH train stations). it can be a bit much psychologically difficult to NOT buy for some folks, given the (up-till-now) constant pressure to BUY that folks are exposed to from the media, family, and friends. it's especially tough in an already-expensive and already-übermaterialistic part of the world such as where i live (the NYC metro area).

We have ads on the telly encouraging us to move to the country. It's all fishing and horse-riding. GAH I couldn't think of anything worse.

Yes. Except that it doesn't look so clever when you made that call six years ago, prices still haven't fallen today (in the UK at least), the lump sum you've saved is a fraction of the gains that everyone else's shithole has made, and you're still renting instead of having paid off a quarter of the mortgage that you didn't take out in 2002. At least in the US your call is paying off before your eyes.

Yeh, the "I missed the bubble" feeling sucks, until it actually, finally bursts.

We have ads on the telly encouraging us to move to the country. It's all fishing and horse-riding. GAH I couldn't think of anything worse.

Here it's Erik Estrada offering you a free plane trip to look at houses in Arkansas

http://www.hotspringshomesites.com/video.shtml

FWIW, i personally take comfort in the fact that i could NOT have bought early and bought low b/c i was in law school (therefore, i was not working, had no money, had no INKLING that all one needed to get a mortgage was a pulse, and there was no WAY that my parents would've given me the money for a down payment in any event [i've been happy to discover that my father is quite a bit more knowledgeable and shrewd about finances than i ever imagined, and he had also been as skeptical all along as i had been about the sustainability of the rise in real estate prices).

also, owing lots of money for law school is by itself practically like having a mortgage (and, unlike an underwater homeowner who has every reason to play "jingle-mail" when he can't make his monthly payments to Countrywide or Citibank any more, i can't just drop my shredded law degree in the mail to the loan servicer and i don't have a zillion politicians of all stripes falling over themselves to bail me out). though i would like to buy at some point, i don't fancy adding more debt onto my back!

Yes. Except that it doesn't look so clever when you made that call six years ago, prices still haven't fallen today (in the UK at least),

unless they fall back to 2002 prices in real terms

the lump sum you've saved is a fraction of the gains that everyone else's shithole has made,

The lump sum you've saved actually exists, the gains everyone else's shithole has made are purely theoretical unless they cashed in

and you're still renting instead of having paid off a quarter of the mortgage that you didn't take out in 2002.

What proportion of a mortgage is actually paid off in 6 years?

At least in the US your call is paying off before your eyes

The uk is usually around one year behind the US in economic cycles

Apparently renting in the UK is generally more expensive than mortgage payments on similar properties. Is this true?

It most certainly is not true. It is far far cheaper to rent than it is to buy. There are many many places to rent. Historically it was cheaper to buy than rent, in order to compensate for the extra costs of owning, and also to allow landlords to make a profit. This situation no longer exists

Hardly far far cheaper. And definitely not in the long run. people have short memories.

Get a bedsit in Glenrothes for the price of a used car:

http://www.slaterhogg.co.uk/properties-sales-slarps-GLS070654-1200914206

Also this

The uk is usually around one year behind the US in economic cycles

is a major generalisation!

http://www.rightmove.co.uk/viewdetails-19000280.rsp?pa_n=10&tr_t=rent

Picked this 1 bed flat in Dalston, London E8 at £185pw. Over a 30 year stretch I guess that is, what, £150,000? The cheapest place in E8 is this

http://www.rightmove.co.uk/viewdetails-16241162.rsp?pa_n=18&tr_t=buy

at £179,000

Admittedly the rented flat is nicer as well as cheaper

And definitely not in the long run

not in the long run in terms of nominal prices, no, i'll give you that. In terms of real prices is a different matter. Or to put it another way, you better hope your £250k house DOES sell for £500k. Because if you calculate your payments, that is what you will have paid for it

Lets measure the prices of things not in nominal cash terms, but in multiples of salary. Are we going to say that they always go up in the long run in terms of salary multiples?

Actually, looking over the last few decades, you would indeed be right! Mortgages are over much longer periods

oops, cut off

Mortgages run for longer periods now (meaning bank gets paid more in interest, as longer terms suit them more than you), and mortgages take up higher percentages of salary (or multiples of salary, for they are, in effect, the same thing)

or this 5 bedroomed house in norwich at £700,000k (around £3600 a month mortgage payments?)

http://www.rightmove.co.uk/viewdetails-9604956.rsp?pa_n=1&tr_t=buy

or maybe you would prefer to rent this 5 bedroomed grade ii listed townhouse in norwich for £1300 a month which equates to, what £250,000k or something like that)

http://www.rightmove.co.uk/viewdetails-16463564.rsp?pa_n=1&tr_t=rent

of course if you didn't like the 2nd one, you could always move tomorrow, im sure i could fine you another one

Picked this 1 bed flat in Dalston, London E8 at £185pw. Over a 30 year stretch I guess that is, what, £150,000?

erm, £185 x 52 weeks x 30 years = £288,600. Not to mention that the rent is bound to go up over time in that 30 year period, whereas you'll still only have borrowed ~£170k to buy the thing in the first place, even if interest rates do go up and increase your mortgage payments.

yes, but would you like to work out how much the £179,000 house would ACTUALLY cost you over the 30 years also?

(hint, its more than £288,600)

Not really, no, I'm just saying bandying random figures about doesn't help, especially when you're over £135k out on your guesswork.

xpost

Rents may do go up, this is true. Although they have not for the last 6 years (in London at least)

also, y'know, no-one going to sell my own home out from under me, for example. it's not always JUST about the money.

my mortgage won't go up either, since there's these things called fixed-rate mortgages. swings and roundabouts, innit?

it's hard to build up equity in a rented property, i guess a mortgage forces you to save your money. and you're already used to paying rent for living somewhere- so psychologically for me i'd find it a lot easier to invest in a house than other investments.

I wasn't £135 out on my guesswork at all, i was using the figure of £150k because thats an equivalent price (ie, its not fair to compare the ACTUAL cost of £288k with the STATED cost of £179k, when quite clearly a £179k house does not cost £179k at all!

I keep hearing that rent hasn't gone up in London for 6 years, but that's not true at all in my experience. Everywhere I've lived the landlord has put the rent up every 12 months when we renew the contract!

also, in 30 years time, I can sell it again.

how weren't you £135k out? you said the rent would be about £150k when it would be nothing like that. why not do it the other way round and say the mortage would cost ~£370k (going on an interest rate of 6% over 30 years). Except you can pay extra, pay off early, whatever, you don't tend to have that flexibility with a rental agreement.

xposts again

To make up some figures, say you could buy a flat on a thirty-year mortgage paying £900 a month, or you could rent an equivalent flat for just £700 a month. The mortgage payments might vary from month to month as the interest goes up and down, but essentially they will stay at £900 a month over the whole thirty years, whereas the monthly rent is going to go up more or less in line with inflation over that period. Even if we assume that inflation stays at around just 2% over that time (which is pretty unlikely if the last thirty years were anything to go by), the monthly rent would overtake the cost of the mortgage after about 12 years and would be around £1,250 by the end of the thirty years. In this example you'd end up paying £324,000 to buy the flat and £341,000 to rent it. But what happens after that? If you've bought it outright then you pay nothing ever again, whereas if you're renting you still got to fork out the rent (£1,250 and rising) every month for the rest of your life. So surely in the long run, unless you don't expect to live very long, it works out cheaper to buy?

yes, but would you like to work out how much the £179,000 house would ACTUALLY cost you over the 30 years also?

-- laxalt, Monday, 21 January 2008 13:20 (3 minutes ago) Bookmark Link

--------------------------------------------------------------------------------

(hint, its more than £288,600)

-- laxalt, Monday, 21 January 2008 13:20 (3 minutes ago) Bookmark Link

Will it be more than £467600, though, because there will be something that's worth at least £179,000 at the end of this (this is assuming modestly that house prices don't go down in nominal value after 30 years)

erm xposts

Also rents do not go up in real terms, ie they do not take up larger proportions of salaries. In fact they have been going down in real terms for years, ie they take up smaller proportions of wage with every year

it's hard to build up equity in a rented property

equity is purely theoretical

I agree it has made sense in the past to buy a house, because housing is where money supply is introduced to the economy, and money is debased constantly through inflation, so at the beginning of each cycle it can make sense to buy at 'yesterdays prices' (ie the financial system rewards for taking on debt/risk rather than savings - from industry through investment through housing). however this constantly leads to situations where the debt is overextended and people are left high and dry. Traditionally this fell harder on industry, as they were the principal borrowers, but this has been gradually shifted onto ordinary people via mortgages and consumer borrowing, ie it is now they that drive the economy, not industry, but it is also they who are overexposed this (and last) time around

how weren't you £135k out? you said the rent would be about £150k when it would be nothing like that.

i didnt say it would be £150k rent, i said the equivalent cost to buy would be £150k

you don't tend to have that flexibility with a rental agreement.

i have the flexibility to move to Carlisle tomorrow to take a new job. I have the flexibility to move 3 streets down tomorrow because i dont like my new neighbours pitbull. I have the flexibility to move across town because the house needs work i dont have the savings for

You also have the flexibility to be kicked out of your house because your landlord's decided he wants to sell it.

Will it be more than £467600

i would hope certainly hope so! because i would have expected to save at least £100,000 over 30 years while renting

you also have the flexibility to be kicked out of your house because you can't meet your repayments after taking your lower paying job during an economic downturn, taking time off to have a baby, and retraining,

Surely the same applies there if you can't afford your rent payments!

bingo

hey, guess what, i've got the flexibility to sell my house or rent it out if I want to go and take a job in london tomorrow.

Picked this 1 bed flat in Dalston, London E8 at £185pw. Over a 30 year stretch I guess that is, what, £150,000?

um, sorry for not picking up on the clear message that you were talking about the purchase price as opposed to the rent.

xpost

What do we expect the UKs economic situation to be like in 5 years time?
What do we expect the UKs economic situation to be like in 30 years time?

I'm in the UK (not in London but one of the more expensive non-London areas) and it'd cost me £750 a month to rent a 1-bedroom flat, which is more than what my friend pays in mortgage on a 2-bedroom (second bedroom is pretty small and he's only paying a little more than just the interest so I've no idea how long the mortgage term is, but still).

We couldn't afford to buy before all the prices went up. Now we can afford to buy a 2002 house, but being 2008 has obliterated that little dream for us.

xposts xposts xposts, if I read them all before posting I would never stop reading let alone manage to log in, so the hell with it:

Rents may do go up, this is true. Although they have not for the last 6 years (in London at least)

Huh, casual watching of the local small ads website since 2001 suggests the price of a room in a shared house has almost doubled in Oxford in that time.

I need to move soon but the thought of spending £400+ a month just to rent a boxy damp-ceilinged room in a house full of student-aged kids I don't know who are going to want to stay up shouting and puking till 5am every night and think I'm weird for not talking to them makes me feel all kinds of robbed. Still no matter what the housing market does I guess rents aren't coming down any time soon.

hey, guess what, i've got the flexibility to sell my house or rent it out if I want to go and take a job in london tomorrow

it takes one day to sell a house?

you are going to rent it out, even though we have all agreed that its actually cheaper (at the moment) to rent? therefore you would be subsidizing the tenant?

Also rents do not go up in real terms, ie they do not take up larger proportions of salaries. In fact they have been going down in real terms for years, ie they take up smaller proportions of wage with every year

Sometimes rents go up in real terms, sometimes they don't. They certainly go up nominally. I wouldn't read too much into what might have happened in the last few years and then try and generalise that into what will happen in the rest of your life. When I moved to London in 1995 I was paying £55 a week for a room in a shared house. By 1997 I was paying £75. By 1999 I was paying £90. Rents might have been fairly stable recently, but they're still much higher than they were not that long ago.

Once you've got a mortgage, though, the cost of the monthly repayments does go down in real terms every month (as long as there is inflation) because the nominal price is fixed.

(multiple xposts)

um, sorry for not picking up on the clear message that you were talking about the purchase price as opposed to the rent.

i could have written what i meant more clearly there, agreed. many messages to respond to!

my rent is 25% higher than it was in 2000, but 10% lower than it was in 2002. vagaries of the market

Is your rent more or less the same as it would have been in 1978?

How much higher do you think prices will be in 2020, and why?

Why do you think houses have gone up in terms of salary-multiples? Do you think they will be a higher proportion/multiple of salary than today? What do you think this means?

Do you think houses always go up in real terms?

Is your rent more or less the same as it would have been in 1978?

It made sense to buy in 1978, because mortgage payments were lower than rent

it was sunny on monday and tuesday, therefore it will be sunny on wednesday

Lets take the 23 year period 1988-2011. How much better off would you have been by buying?

you are going to rent it out, even though we have all agreed that its actually cheaper (at the moment) to rent? therefore you would be subsidizing the tenant?

I'm fairly sure I could cover my mortgage payments in rent, yes. So I don't see how that's subsidising anyone except myself.

And who's all agreed anything, btw? You have no idea what my mortgage payments are, or the rental prices in this part of the world.

well i hope its not norwich or london;)

I'm fairly sure I could cover my mortgage payments in rent, yes

and the cost of a void month?
and the cost of the letting agent?
and wear and tear on the place?

all things the tenant does not have to pay for

How much higher do you think prices will be in 2020, and why?

Maybe 25%, nobody really knows.

Do you think houses always go up in real terms?

Does this matter? In the example I gave for costs of renting v buying, I'm assuming the person stays in the same flat for the rest of their life. I never mentioned what they would get for selling it, just that it would be cheaper in the long run to buy it than it would to rent it until they die.

25% in 12 years

down in real terms then. as you say, why does this matter? because it means that mortgages will be cheaper in 12 years than they are today? which means it would be cheaper to rent until this time occurs when the mortgage becomes cheaper than the rent. ie they are SAVING for every year that this is not the case

25% in 12 years - down in real terms then

No, you asked me how much *prices* would go up, you didn't say *house prices*.

I never mentioned what they would get for selling it

its not what they could get for selling it!! its what someone else could get for buying it, considering the fact that while the owner has been paying off some equity, the renter has in fact been saving at a higher rate due to their cheaper rent, and would actually have more 'equity' than the owner, with the exception that their 'equity' is liquid and not theoretical

haha, well if we are talking 'general prices', i think we all know that is going to be much more than 25% in 12 years

also in my norwich example, rents on that house would have to triple before it made sense again (i didnt look for one with a differential that outlandish, honestly! that surprised even me)

What point are you trying to make?

so, right, i recently sold a house. i made actual real hard cash on it. a fair whack as well. not a lot theoretical about that. i then chose to buy somewhere else rather than go back to renting, put down a sizeable deposit (i.e. fair bit of the purchase price not serviced by mortgage debt). in 18 years time i might have paid about the same as what i'd paid in rent, it might turn out to be more, crystal ball's not working at the moment, BUT i'll still only be in my early 50s and won't have to pay any more (assuming the model of not selling or moving on in the interim) and will have somewhere to live for the rest of my days should I so wish.

the recent exchanges have all come from my response to this

Yes. Except that it doesn't look so clever when you made that call six years ago, prices still haven't fallen today (in the UK at least), the lump sum you've saved is a fraction of the gains that everyone else's shithole has made, and you're still renting instead of having paid off a quarter of the mortgage that you didn't take out in 2002. At least in the US your call is paying off before your eyes.

-- Ismael Klata, Sunday, 20 January 2008 22:34 (Yesterday)

BUT i'll still only be in my early 50s and won't have to pay any more (assuming the model of not selling or moving on in the interim) and will have somewhere to live for the rest of my days should I so wish

See, this is the key point. In the short term, renting is cheaper than buying. Over the course of a whole mortgage (whether it's 20, 25, or 30 years) buying is probably going to be cheaper than renting. But over the course of the rest of your life buying has to be much cheaper than renting.

so is what laxalt trying to say is buy something when it's cheap?

and that if we project the current house price slump in 100 years' time we will all get free houses and those who had bought a house will feel very stupid indeed?

so, right, i recently sold a house. i made actual real hard cash on it. a fair whack as well. not a lot theoretical about that

correct. you converted theoretical equity into cash. at that point you had no equity at all. just cash.

the sizeable deposit was then invested again. whereupon it became equity, and theoretical again.

you are of course correct. when you have paid it all off you will indeed be an outright-owner and have somewhere to live for the rest of your days, should you so wish. and if you have picked somewhere you really love, then none of the above really matters. whether this is good financially or not becomes irrelevant, money is not the most important thing, quality of life is.

However, here we are talking about an economic crash, and next time you drive through whichever city you live in, take a look at most of the houses and flats that people have overextended themselves for. in years gone by, much of the role of this kind of housing would have been social housing, or rents from long term landlords, but with the extension of the property owning classes to all, these houses now all come with decades of debt attached, in a shifting of debt from the industrial sector to ordinary people. You may love your house and never want to sell or move, and future prices may not matter to you. For many people, they will

If someone were prepared to lend me £200,000 at market interest rates for whatever purpose I wanted, then historically I'd make more money renting and investing the money in the stock market. But the fact is that the only way I'd get a bank to consider lending me that money is to invest in property to live in. Given the choice between having (borrowed) money to invest in bricks and mortar, and having little or no money at all to invest in anything, surely the former is going to ultimately be better?

are you trying to say that people should sell something when it's expensive?
xpost

thankfully one of the benefits of home-ownership is that I have my own brick wall to go and bang my head against.

if you want my advice, i would say you should borrow money when the interest rates are low, and then invest money when the interest rates are high.

i personally think buying something cheap and selling it expensive isn't a bad idea

i also think having exposure to debt ahead of a severe recession isn't a good idea, given the UKs principal industries are retail/housing/finance

i also am less than convinced about the UKs position as an economic power over the last 5 years, and more so over the next 30

i also think its cheaper to rent until its cheaper to buy, and at that point its cheaper to buy

equity is purely theoretical

cash is theoretical!

borrow money when the interest rates are low

borrow when its only going to get more expensive you mean?

i dunno, i spent some of my cash on a Nikon D40 yesterday!

and that if we project the current house price slump in 100 years' time we will all get free houses and those who had bought a house will feel very stupid indeed?

current house slump will only last 5-8 years

at which point it may become quite cheap to buy, relatively, though it may cost you more to borrow the money

your nikon is theoretical. in forty years time it might not be worth buying.

If someone were prepared to lend me £200,000 at market interest rates for whatever purpose I wanted,

is it better to borrow 200,000 at 5% or 100,000 at 10%?

Jol out!

regardless of all these things, it doesn't make a jot of difference to the fact that the thread title is correct and that the real estate bubble will be worse than the dotcom bubble.

has it bursted yet?

i'm waiting for it to burst properly so i can cash in on the fallout

9th August 2007

for your plans ken, 2012

till then, forget about it, have some fun

treat yourself..get a D40!

ah, you and yer cameras. go buy a house ken. or a brazilian left back.

But the sell on value is terrible! It's only a good investment if you're happy to live with that camera for the rest of your life.

Have you thought about renting a camera? http://www.hireacamera.com/

you are of course correct. when you have paid it all off you will indeed be an outright-owner and have somewhere to live for the rest of your days, should you so wish. and if you have picked somewhere you really love, then none of the above really matters. whether this is good financially or not becomes irrelevant, money is not the most important thing, quality of life is[.

And, if I haven't, I will have a house which I can then sell for actual real money that I won't owe to the mortgage lender and can buy somewhere else if I need to and still won't be owing money to anyone. Or, if the financial climate at that time is such that I can whack the money into the bank and rent somewhere, then I'll do that.

I don't make investments

will have a house which I can then sell for actual real money that I won't owe to the mortgage lender and can buy somewhere else if I need to and still won't be owing money to anyone. Or, if the financial climate at that time is such that I can whack the money into the bank and rent somewhere, then I'll do that.

you might be able to sell it, as long as you have the right kind of thing, and oversupply hasn't run completely rampant by then

course, if you were going to buy outright at that point, you might as well have just saved up the money in the meantime and bought outright in x years anyway, and never have given the banks a redcent in mortgage payments

i'd rather pass another 80 quid a month on to my rent and own a house at the end of thirty years.

as long as you like where you are all that time and can cover the mortgage, big ifs i suppose. but if you can tick those boxes then i really can't see the argument for renting for the same amount of time and having nothing to show for it at then end.

and of course if you were able to sell it right now you would be able to buy it back cheaper in 2011 or so

*IF I NEED TO*. I often struggle to know what I'm doing next week, let alone in 20 years time. This isn't actually an investment for me (though making extra money is always nice), more a stable and affordable way of knowing where I'm going to be living for the next few years.

It depends a lot what you're doing with your money that you've saved by renting also.

For it to make any financial sense you need to be investing it in something else that gives a better return.

Unless you don't make investments.

yes.

putting £80 a month in a tin box, for example, BAD IDEA.

which is basically what i'm doing at the moment :(((((((((

argh need to phone bank to move money to savings account

if by tin box you mean DDR machine, then, yes, bad idea.

haha!

no i just have a lot of money in a current account at the moment earning me 65p a month.

another 18 months or so will see anough of a fall in ireland for me to climb on i think.

ailsa otm for me most of the way

why don't we all form a consortium to buy tottenham?

darraghmac the arguments aren't "buy a house vs rent" it's "buy a house vs do something else with the money you save by renting"

xposts

haha, i just got a letter through the post from Celtic inviting me to an evening of upmarket timeshare-flogging. People who have already purchased a timeshare in the resort include (first on the list!) Paul Robinson. Do you think this would be a good investment? (j/k)

i think paul robinson will drop the value of the investiment

lol

for me personally it's buy a house vs not bother my hole doing anything constructive with the money i'm saving by renting.

and i want my own place. i don't enjoy renting in the slightest.

paul robinson is 'concerned' that cerny is still in the first team.

There's an oversupply of houses threatening to run rampant, anywhere in the UK? London and Norwich really must be another world. But then I could tell that from the people claiming that renting = saving stacks of cash every month£££ just waiting a few decades in the bank for houses to become cheap enough to buy to make up for lost time without there being such a dramatic crash of the economy all round that savings are worthless too

There's an oversupply of houses threatening to run rampant,

There is of flats in London, Bristol, Leeds, Manchester, Nottingham, Liverpool though these cities may be exceptions

There is of houses too, I was amazed the last time I got the train to Newcastle just how many newbuild estates are alongside the track, I didn't see so many people though

Why are we all so obsessed with owning these crumbling little boxes?

just waiting a few decades in the bank for houses to become cheap enough to buy to make up for lost time without there being such a dramatic crash of the economy all round that savings are worthless too

dingdingding hyperinflation, this is actually a good point

i dont like debt, and i dont like risk, i just have my money in these

http://www.nsandi.com/products/ilsc/index.jsp

taxfree, rpi+1.35%

they're good if you think inflation is going to go through roof, at moment they are only 6.15% tax free, but we all know which way inflation is going

also, "waiting a few decades"....could try living life and having fun in the meantime!

what lost time? what on earth are you doing? take some drugs, go on holiday!

I do! And then I have a nice home to come back to afterwards!

not you! this spacecadet person who can only think of life as waiting until they have a home with their name on it

yes, that's EXACTLY what she said.

i have never owned a house, but most people i know in london that do own one have had to move way the f*ck out and very far away from their friends. i don't like that and they don't either. i suppose it's nice to know that it's "really yours" and throw paint around and arrange things just so. and also that you won't have to deal with idiot landlords who don't fix things. but when i think of the sacrifices re: neighborhood and proximity, as well as the locked-inness of a mortgage -- i.e. i had better not find myself without work for more than a few weeks maximum -- i sort of gulp and am glad that i don't have to worry about these things and can live pretty much where i want.

anyway this thread is supposedly about the BURSTING of the BUBBLE, more BURSTING talk please

i'm aware that she was casting aspersions on the idea of 'waiting'

The bursting of the bubble is only indirectly related to sentiment as people cannot buy houses without banks, so banks ultimately set the upper level.

As to whether sentiment will turn in 2008, its difficult to say, this thread suggests not

If you want to to look at bubble bursting i would suggest reading anything about america and changing the dates 2006 to 2007, and 2007 to 2008.

Though to be honest I think it could well be a gentle glidedown, 1% falls a month for 4 years

And as this is now about far more than just house prices (ie, JOBS!), i think the rolling UK economy into the shitbin thread might be more apposite

if realtors/banks get their way here, it'll definitely be a very slow glide downwards. it depends on how badly people need to sell. i hope to crucify some fallen old money wallah and take his eastern facing gothic mansion for a song.

i will preface by saying i don't know jack about shit -- for instance what kind of commission estate agents/lawyers etc. take for a sale -- but it has struck me that if you own, say 10% equity in your home and its price goes down by 4% (a likely outcome of a burst bubble) you end up being... totally wiped out if your agent's commission was 6%, right? talk about "throwing money away"!

the bursting sucks cause it's impossible to move right now. i'm not really suffering from mortgage woes... more like mobility woes.

i know others who are in worse straights in florida tho. the county i used to live in as a teen has banned all new house construction. meanwhile there's a few thousand completely empty homes on the market in a fairly sleepy beach retirement area. it's impossible to sell without absolutely taking a massive cut. flash to friends of my parents (who no longer live their either)... they're in their early 70s... retired... they want to move up to NC to be closer to their children and grandchildren during their golden years and boom, they're totally hosed. guess what? their retirement is bound up in real estate speculation... they can't break out with pretty much losing their collective shirts. (and we're talking monster sag here)

granted, there are worse places to be... like just straight up homeless... or even not that bad, hell, my grandma is on medicaid... it's all the state's now. but that's that. she's happy at least.

i've got old bros who work construction in that county who are totally hosed tho. no more brews and surf after a semi-hard days work.

what's funny is that it's not even to it's worst point right? when do the foreclosures start happening? who is going to take care of the outside of these houses when there is thousands of them?

i tell ya one thing... they're a lot of free houses to break in and party... i'm sure the teens are loving it. "this is my summer home vivian... the super shag bungalow... no shirts allowed!"

tracer, we paid 0.75% commission to the agents to sell our house, and less than that for our legal fees too. Some estate agents up here also offer a flat fee of around £600 for a sale, but they tend not to work as hard to market your property as a result, as they aren't working on commission.

dang that's a good deal! i don't know much but i do know that in america it's way higher than that

I paid 1% last time. They are usually prepared to drop down to that level if they think they can make a quick sale.

I could really go for a holiday and some drugs right now, it's true :(

But I'm not just waiting! Well, maybe in a way. If I live somewhere nice and I'm not chucked out of it with a month's notice I don't care if I rent or own, but either is offputtingly expensive to do right now, which means I've been putting off moving to the city I work in even though it would make my life a lot easier. And if I could afford to buy I'd sit on the decision a little while in the hope of a clearer sign of which way things are going. It was supposed to be about to burst in 2000 and it's just continued to go through the roof.

And (to repeat myself a bit) I am worried that if house prices are noticeably dented then the economy will get so bad it won't matter what you've got in the bank or what you've spent your money on. There are so many people saying "oh, I'd buy if only it were 10% cheaper" that either it must bob right back up or everyone's in trouble, surely? I realise that if it does start to go down people may get panicked out of buying but if that happens aren't we all screwed?

I stand corrected re housing surplus. Round here there are hardly any newbuilds because there's nowhere central to build and it's hard to get permission on the outskirts. Most building projects are the sort where an old house is converted into 4 new maisonettes or whatever, which is hardly enough to keep up with demand, and there are always going to be people who'd rather live in a bigger older house with a garden, so if you buy now while other houses are turned into smaller modern places it seems unlikely that you'd have trouble selling even with more housing around.

MSPs post is a very real danger of what will happen to UK (theres huge stocks of unsold flats in the UK as it is)

I am worried that if house prices are noticeably dented then the economy will get so bad it won't matter what you've got in the bank or what you've spent your money on. There are so many people saying "oh, I'd buy if only it were 10% cheaper" that either it must bob right back up or everyone's in trouble, surely? I realise that if it does start to go down people may get panicked out of buying but if that happens aren't we all screwed?

in a nutshell. couldn't have put it better myself

ie

http://trendsman.com/wp-content/uploads/2007/04/helicopterbernanke.jpg

if there's such an overstock, why does everyone also seem to agree that there's a housing shortage and that the government needs to incentivise the building of a quarter million flats per year?

Of Valley homes for sale, a third sit empty - 20,000 vacant homes pushing prices lower

Vacant homes are a big reason why Valley home prices are falling.

At least one out of every three homes for sale across metropolitan Phoenix is empty, and owners are motivated to cut prices to sell.

http://realestate.blogdig.net/archives/articles/November2007/03/Welcome_to_real_estate_hell___Phoenix_Arizona_has_20_000_empty_homes_for_sale__with_failed_flippers_unable_to_find_renters_now_desperate_to_dump.html

what happens when you build too many

why does everyone also seem to agree that there's a housing shortage and that the government needs to incentivise the building of a quarter million flats per year?

who agrees? who is actually saying this? why are building company shares the worst performing shares? why do people believe what they read instead of their own eyes?

there's been a lot of people with an interest in keeping this gravy train rolling

actually i am wrong -- the real shortage is in AFFORDABLE housing and that ends up in newspaper headlines as simply "housing shortage" full stop, i.e. there is a demand for homes people can actually buy that is not being met

this is very true.

luckily its cheaper to rent so its not all bad

I'm glad we bought a house. We've only got a few hundred quid a month between us in disposable income now, but frankly I'm happy as hell. Mortgage, kitten, comfy chair, organic veg box; domestic bliss.

so if i go to florida now i'd get a bargain house?

The ground floor flat in our building is for rent at £110 a month less than our mortgage is, and we have more than twice the space. I'd say that was worth it.

15% of houses on the irish market are for sale at the moment, apparently. this should translate to a drop in price to meet demand, but people are reluctant to sell now for 70% of what they paid three years ago.

developers, OTOH are finishing new build estates and trying to get rid of the houses before the major bump comes and nobody's buying. so you have houses going unsold for twelve months without a price drop and in the same estate a new phase of the same houses are selling new for the aforementioned 70%.

so if i go to ireland now i'd also get a bargain house?

its price goes down by 4%

Ok, look, even if goes down by 4% do you think this will be permanent? For those who can remember further back than last year I'm sure we can all think of people who were in negative equity in the 1990s. A friend of mine bought a house in the early 90s for £35k (yes, that's right) - it went into negative equity for a couple of years, everyone said "oh no" - he's now sitting on a house worth £180k with a mortgage of £30k. Even if his house loses a third of it's value (as some are speculating) then it's going to be worth over £100k and it's not going to lose that. And then it will go up again. Believe me. This is what happens - it's called the economy.

I'll take a 10-20% drop in prices if that's what it takes to get people back in the property market. That's not so bad. Sit tight homeowners if you can. It'll be fine. Renters are sitting pretty at the moment as well, there SHOULD be plenty of property to rent at competitive prices (although from what I understand it varies a great deal). The only people you are going get burnt here are people who tried to make a quick buck buying-to-let and developers putting up crappy flats no-one wants. Well, that's market forces for you. They chose that game. They have to take what's coming. If they can sit it out too, they'll be fine too.

Ok, I'm being simplistic and using handpicked examples to make my weak points but you get my general drift.

Also - wouldn't negative equity have the beneficial effect of lowering inflation?

ken,
i'd hold off for just a bit. plus, many of the more amusing places to live still have outrageous real estate prices.

wouldn't hurt to look though if you're inclined. i miss the ocean and the laid back atmosphere.
m.

insight from a Jersey City message board that probably applies elsewhere:

The problem with JC real estate market is the developers, and to some extent the owners (advised by their agent) refuse to lower the price normally. Instead they come up with gimmicks to reduce the sell price behind the scene.

For example, a condo cost $350k, instead of reducing it to $330k, they will pay for 2 years of maintainence, throwing a plasma tv etc... So the condo still sells for 350k on record even though the seller is paying 330k.

They do that to maintain the current price level and avoid the appearance of a RE drop, even though as EVERYONE knows it's already happened in JC.

Also for those looking to buy, realize you can negotiate the price much further now. If asking is 350k, in normal times you would offer 320-30k, but nowday dont be shy to offer lower along the $280-90 range. Most of the asking price in JC are WAY overpriced for the true current market price, they expect you to haggle it down significantly.

my granny cant sell her house u_u

I've been curious how this downturn will ultimately affect NYC and it environs. Manhattan and the closest parts of the boros don't have the same high levels of foreclosures as other parts of the country, but I've been hearing anecdotal evidence of buyers getting places cheaper than they thought they would, even in Manhattan.

Now we're hearing about massive finance industry layoffs (I imagine that could happen in London too?), and that will definitely slow demand. I don't think we're going to see tens of thousands of new condos sitting vacant like in Phoenix, but the bubble is definitely ending even in NYC.

"it's called the economy."

actually, i think you'll find the idea that home prices will continue to rise ahead of inflation forever is called "wishful thinking"

again i don't know a whole lot but i do know that your friend had the good fortune to get completely wiped out on his mortgage right before one of the biggest house price booms in history

Sit tight homeowners if you can. It'll be fine

this is hugely OTM- if you don't want/need to move, and if you can still afford the mortgage, then there's really no difference to you property wise.

and ken, there's no such thing as a bargain house in ireland. hasn't been since 1996 or so, when i was 15. affordable is relative.

think we'll see a uk/us split on this thread as us are further ahead on the curve

I'll take a 10-20% drop in prices if that's what it takes to get people back in the property market.

what, back only as far as 2005 prices? i wouldn't be on it.

k, look, even if goes down by 4% do you think this will be permanent?

4%! really, this is quite ridiculuous, id say between 30-40% is conservative, more for city centre flats

wouldn't negative equity have the beneficial effect of lowering inflation?

if houses were included in inflation figures how on earth would the govt have met their 2% cpi targets, or even their 4$ rpi targets?

resource and food costs going up are going to take no notice of housing costs

http://upload.wikimedia.org/wikipedia/en/thumb/d/d6/EconomistHomePrices20050615.jpg/581px-EconomistHomePrices20050615.jpg

Ned do you understand the difference between nominal and real prices?

I do think the price falls will be permanent, in real terms YES

or will they continue to rise and rise until they are 100% of our wages? and who, pray tell, would be the buyers in such a scenario? investors?

ok i'll stick with florida

will it fall and fall until they're 0% of wages?

it must stay at some kind of level in the long term..

For those who can remember further back than last year I'm sure we can all think of people who were in negative equity in the 1990s

i would hope so. we dont need to remember back any further than last year, there are americans right here on this board

it must stay at some kind of level in the long term..

yes and i think we'll see that level in 4 or 5 years time

if you got loads of money though, obv the best thing to do now is buy oil.

prolly

gold is always a safe bet

buy a warehouse, fill it with oil drums and hire a couple of armed guards

Though it will be interesting to see what kind of role the UK plays in the world economy in 10 years time when all this is over. Hopefully our strong record in finance and property will make us a prize draw and the envy of the world once again

fastest growing UK profession over the last decade = hairdressing

gold is always a safe bet

http://www.kitco.com/LFgif/au75-pres.gif
worth noting that this isn't inflation-adjusted - we're still nowhere near the absurd 1980s peak in real terms

our strong record in finance, property and bouffanting

they dont understand the difference between nominal and real here, hurting2;)

the gold bubble is gonna be/is turning out to be the funniest bubble of them all. "Well, I'm not getting fooled again! I'm sticking to shiny, useless metal!"

shiny metal that was so useless they confiscated it during the depression;)

during the great depression our monetary system was linked to gold

laxalt, what, exactly, is your diagnosis for somebody investing in property if it were to drop 20% next year? you can't see that being a good long-term investment (in my case, i wanted to get on the property ladder anyway)

only until 1933. when fdr confiscated the gold

should have bought some gold in 2002 :(((((((((((((((((((((

because, from what i can see you seem to think that i'll be paying a mortgage off for forty year while rents fall to nothing and my property will be worth nothing at the end of the term (that is if i'm not paying 100% of my wages for some mysterious reason, by year ten).

i just can't see the rationale behind this.

my advice: houses are just very expensive assemblages of stone and wood - buy one if you want/need/can afford to weather the dips and vicissitudes; otherwise don't

i.e. there's no particular reason why stone and wood contraptions should magically increase in value every year

well, everything depends, as we all agree, on firstly being able to pay the monthly $$$ for the mortgage. but after that, short of a permanent fall in house prices then it's a reasonable investment?

xpost there's also no reason why you should pay somebody else to live in their stone and wood contraption for the rest of your life! (subject to being able to get the finance together for a mortgage to begin with)

oh there is - they own it and you need a place to stay!

darraghmac, if i were an investor (which i am not, and certainly would be not during a recession) i would not invest in property if it were 20% cheaper next year

1. downturns do not last one year, they never have previously, japans housing downturn has lasted 17 years. it will not be that long, but it will not be one year either
2. i would not want exposure to debt during a recession
3. prices are probably down that much in the US already, would you buy there right now? the answer will be the same here
4. i would want the mortgage on a place to be not just less than the rent it could give, but enough to cover repairs and voids (even if i wasnt renting it out, the principle is the same)
5. i would wait until nobody talked about houses anymore, they weren't in the news, people had got disillusioned with it
6. interest rates may or may not come down, but inflation is going up and resources are getting more expensive, thats going to have to be factored into longer term rates surely, or the pound/euro will tank worse than the dollar has. there'll come a time when it all begins to ease and cheaper money/debt starts to come out again, and we all know where that ends up going! houses!

make your own decisions, i maybe a crazy person who prefers to rent and blow my money on digital cameras and not have to worry about repairs to houses but i do know the difference between nominal and real and i know that if you're going to spend hundreds of thousands of somebody elses money it makes sense to buy at the bottom of a cycle not the top, no matter how nice the awnings are

oh there is - they own it and you need a place to stay!

ARGH so is it good to own a house or not??!?!?!?

why don't they sell that house they own and then buy oil with it?

I pay a little extra principal on my mortgage every month, about 5-6% of my monthly principal+interest payment. Is there any online calculator or any easy way to figure out how much sooner I'll pay off my mortgage?

can't wait to move to florida in 3` years.

because, from what i can see you seem to think that i'll be paying a mortgage off for forty year while rents fall to nothing and my property

no, but in 5 years i would have more money than you, probably 10 as well. Then if i were to buy then, after having 10 years of not worrying about it, i'd either buy what you had with a massive deposit and therefore see my mortgage end 10 years sooner, or i'd buy a bigger and nicer place in a nicer part of town

although, in actuality, i would do neither of these things, because i prefer to live in somebody elses house and let them worry about it

(at that point it would make more sense to buy and i would probably be making a financial mistake in not buying, and you would tell me that and you would be right. but i wouldn't mind, because we are all agreed money is not the most important thing, but what is right for us to do)

http://www.floridatoday.com/blogs/brevardwatchlist/uploaded_images/Housing-develpment-740849.jpg

is that Bristol?

Haha just signed a week ago a contract for my first flat. A sucker is me.

Oil is dropping fast too, so I wouldn't search for refuge over there. My bet is aluminium.

oil will go up in the long term LOL

what else is running out fast?

is cod still running out? maybe i'll buy some cod

california as a harbinger of what is to come?

seriously, i could DEFINITELY see some variant of this OC shit playing out in manhattan -- true, there's the eurotrash market buying up every "cheap" property in sight (but maybe not, look at how THEIR markets are tanking today!). but as any NYC ILXor who's honest with themselves can attest, the entire NYC metro area has been infested with as much conspicuously-consumers as the OC or anywhere else getting "corrected." it's less intellectually excusable here given the importance of the financial industry to the economy here (i.e., the ones who have at least ALLEGEDLY been educated to think about economics, sound finance, etc).

they dont understand the difference between nominal and real here, hurting2;)

Ooh, if I want to be patronised I'll go to my local record shop dear boy.

This bloke must be kicking himself...
http://www.abc.net.au/news/stories/2008/01/09/2134611.htm

Probably not even relevant now that 600 posts have followed it but:

Apparently renting in the UK is generally more expensive than mortgage payments on similar properties. Is this true?

(...)

It most certainly is not true. It is far far cheaper to rent than it is to buy. There are many many places to rent. Historically it was cheaper to buy than rent, in order to compensate for the extra costs of owning, and also to allow landlords to make a profit. This situation no longer exists

-- laxalt, Monday, 21 January 2008 23:35 (Yesterday) Bookmark Link

Clearly this this is a contentious point so I won't dig too deeply, but is supply healthy in London and other parts of the UK? I know housing crises in different countries have occurred for very different reasons, so I'm keen to know more about the situation in the UK.

I have a friend who bought in Brentwood about a week before it boomed. She's since come back to Australia and bought a stand-alone house in a very exclusive suburb. BITCH.

Regarding the likelihood of values declining: I don't think this will happen, at least in Australia where supply is unacceptably low and all the rich bastards own 5-6 properties each. IMO it's more likely that wages will increase (largely as a result of the Aus mining boom and enormous demand from the new economic markets in Asia) and real estate values will stagnate.

^ Oh and now that Australia has wall-to-wall Labor governments (yes, we spell the party name without the U here), new land is likely to be made available. Our previous decade-long conservative cun government denied there was ever a housing crisis, and as a result everyone under the age of 40 is at a serious disadvantage.

well i went onto http://www.rightmove.co.uk and looked for a couple of examples, picked london and then norwich at random, look under sales and rents. With all these things its better to look at whats there and draw own conclusions about what you think situation is, than to read what is case (i read the whole time that we have a housing shortage, yet when i go to places i can clearly see this cannot be true)

that link will take you to places to buy and places to rent, compare like with like and see what you think. of course we will all be able to find things that back up what we think is the case - as long as you are happy with the results then that is the main thing:)

I don't know australian situation but if your jobs are in industries where jobs are not under thread and wage inflation is a possibility then that is certainly a possibility (wage inflation 'hid' the crash of the 1970s in the uk, just as real estate speculation 'hid' the recession of the early 2000s)

I know housing crises in different countries have occurred for very different reasons, so I'm keen to know more about the situation in the UK.

I don't really think the situations in all the countries are that different, after all it would be a bit strange that they all happen within 24 months of each other (who was first? denmark?), the same root cause seems to be in all of them, easy/cheap credit and speculation, the classic one-two of any bubble. i think the defining characteristic of the uk one will be buy-to-let investors who drove the market up and will drive it back down, because while it may make sense of a kind to hold on to an 'underperforming' home, i'm not sure the same can be said of multiple houses as investments, with a shorfall on each one (my landlord has 31 houses, he is behind on the mortgage on ours, and of course selling it to pay off the others isn't really going to get him anywhere, if he loses one its likely the others will fall like dominoes. they're all in the same area, if he loses his 'portfolio', anyone else selling suddenly will have 31 competitors)

leverage, great on the way up.

not so good on the way back down

With all these things its better to look at whats there and draw own conclusions about what you think situation is, than to read what is case (i read the whole time that we have a housing shortage, yet when i go to places i can clearly see this cannot be true)

It's a consequence though. In Australia there are plenty of properties for sale, but the prices are exorbitant because of the shortage. The fact that there are still loads on the market is mainly because people want to take advantage of the boom and try to push up prices.

Analysing real estate sites as a measure is deceptive. Even if houses are selling quickly, it's probably just investors buying one property and selling another. Here, that's certainly the case.

The rental market may be more indicative, because it reflects the number of people who can't afford to buy, or simply won't buy in anticipation of a downturn.

I don't really think the situations in all the countries are that different

The US has severely excessive supply; Australia has severely insufficient supply. Indiscriminate lending is the same across the globe, certainly, but differences in supply will send the US and Australia in very different directions once the whole thing pops. I can see housing in the US becoming affordable just to fill empty buildings, but that can't happen here.

Scary.

Haha just signed a week ago a contract for my first flat. A sucker is me.

-- baaderonixx, Monday, 21 January 2008 17:23

Ha ha ditto.

I knew what I wanted, I have a feeling that in Ireland we're currently going through a correction and that in the end it was a real case of "now or never". It's not a new build, it's in an established area, it's well serviced by public transport and near the shops. Essentially, I wouldn't mind living there a few years and when I'm done there is no doubt in my mind that I wouldn't get the rent to cover the mortgage (I had a large lump sum saved for the deposit, that made life easier). Essentially I used my time renting to save for my first apartment. I would rent again if I moved country but at least now I've got the roots (sort of) down.

ive no real idea about australia, ive tried to find two equivalent places in st kilda, melbourne

http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=401602153&f=100&p=200&t=ren&ty=&fmt=&header=&cc=&c=69389821&m=1&s=vic&tm=1201001385

£1390 a month to rent

http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=104559749&f=0&p=200&t=res&ty=&fmt=&header=&cc=&c=32181673&m=1&s=vic&tm=1201000608

£320,000 to buy

whats the mortgage rate there, 6.5%?

which is surely mortgage payments of somewhere between £1800-2000 per month?

(i have no idea if these two places are comparable, admittedly)

obviously those should be aus$ signs not £ signs

when i owned my flat i had a $260K loan which cost me $2000 a month mortgage, so a loan for $320K would be pushing towards $2500/mo

(i ended up renting a place afterwards that was in a better spot and a better size for $750 less per month.. and blowing what was left of my deposit on recording gear)

This assumes you're getting a 100% mortgage of course.

If the buyer had saved up a 10% deposit then we must also assume that the renter had done the same. If we are going to allow the buyer 10% of his price, then we must also give the renter the 10% he saved but didnt spend on deposit. If we are going to allow this then we must allow the renters interest that he gets on his savings to offset his rent

10% off his price, i should say

are the two places i chose in st kilda equivalent or fair, electricsound?

(i ended up renting a place afterwards that was in a better spot and a better size for $750 less per month.. and blowing what was left of my deposit on recording gear)

this is a wise person

a difference though is that the renter can take that money and invest it in a number of different places - bonds, for instance, to make a bit better than a savings acct; the homeowner doesn't have a choice

or indeed recording gear

are the two places i chose in st kilda equivalent or fair, electricsound?

pretty much - the rental place is probably slightly nicer

david blanchflower of the bank of england's monetary policy committee says that nations with high home ownership have high unemployment:

http://www.guardian.co.uk/business/2007/sep/28/money.workandcareers

well, looks like its the same in australia as the UK after all

We had a deposit of more than 10%; we put down £20k on a £150k property.

This bloke must be kicking himself...
http://www.abc.net.au/news/stories/2008/01/09/2134611.htm

I'm going to buy this bloke's house when it's affordable in real term next year.

Anyone remember when this was just about houses?

i know that some people are sick of it, and folks like tombot are already very familiar with the site, but here is yet another interesting post on calculated risk about homeowners who are ALREADY walking away from properties that they CAN pay but on which they owe more than the property is worth.

In the UK jingle mail doesn't happen, it doesn't end when you pop the keys through the mail.

Err, aren't you still liable for the mortgage even if you default - doesn't the bank sell the property then come after you for the difference? Doesn't sound like a good plan to me.

in the UK yes, hence no jingle mail

toby if you're bankrupt there's not much they can do (although i guess under this new bankruptcy law this has changed somehow?)

Yeah, I don't know much about this new bankruptcy law, but I can imagine it might have changed things somewhat. Either way I'd be really surprised if there were many people who could pay their mortgages, credit cards etc who decided to go bankrupt because of negative equity right now - it seems a little extreme, to put it mildly.

Err, aren't you still liable for the mortgage even if you default - doesn't the bank sell the property then come after you for the difference? Doesn't sound like a good plan to me.

not if the mortgage is considered "non-recourse" -- which means that the creditor can satisfy a judgment against the debtor only against the pledged property (i.e., the house) and NOT against the debtor's personal resources. it is my understanding that, in a lot of western states, mortgages are considered "non-recourse." if true, the debtor just sends off the jingle-mail -- though his credit rating will be fucked and he may end up with a big tax bill (for discharge of indebtedness income).

laxalt: I can't see the links on this tram, but I'll check them when I get into work.

Our interest rate is slightly lower than the actual rate offered by banks and lending firms. I think the current going rate is closer to 9%. Also, Australian banks, by world standards, are revolting fuckheads.

Okay, the renter is crucially in a quieter neighbourhood. Wellington St isn't a main road, and nothing bad really goes on there (I have friends who live off Wellington St).

I know a couple who just moved out of a place next door to the St Kilda Rd flat (the one that's for sale). They had prostitutes, drug dealers &c. regularly trashing the area. It's also on a four-lane road against one of Melbourne's busiest junctions.

(Both are ~15 minutes' walk from my place, incidentally.)

Oh, and we live in East St Kilda, in a 2br place that costs $1,365/mth. Last year the flat next to ours (1br; same building) sold at auction for $370,000.

so, correct me if im wrong. the place that is to rent is both cheaper and nicer than the place that is for sale? and where you are it is also cheaper to rent than buy. and you have 9% interest rates (great for savers!!)

if all this is true, how on earth are you screwed?

Rental availability is tightening because people who can't afford to buy (like us) are renting. As long as we rent we're fine.

~9% isn't great when mortgages are as high as they are now (against wages/cost of living). A small adjustment can destroy people.

And yeah, from their respective locations the rental is indeed nicer than the sale.

well at those prices theres really no need to buy ever, esp with being able to get 9% on your savings.

That's it. The real danger is rentals going up to accommodate increased demand. This has already begun to happen.

In Queensland last year, rentals were being auctioned. AUCTIONED! I think the government since legislated to prevent this.

^ and this is why I was curious to know what supply is like in the UK. If supply is excessive, there's probably a short-term path out of your woes.

woes as a renter?

well, its difficult to say. theres a lot of places to rent in the cities at least, this has kept rents low, but if investors start selling them off it may reduce supply, but i dont know who they will be selling them to

when the recession kicks in hard, which mightnt be till next year its possible that rents might actually fall. im not sure what happened last time around, and logic suggests that as prices fall rents will rise, but in a recession (and a fairly severe one) im not sure rents can rise either, guess we'll find out!

Sorry, I meant woes as a buyer.

Sounds like rentals in the UK are sound then, for the time being at least.

I'm still amazed that that US survey upthread ranks London as MORE affordable than so many Australian capitals, including mine.

If you like where you live and you currently rent, you must do everything in your power to tell people that where you live suuuuuucks sooooooo baaaaaaaad.

Self preservation.

since we all like sensationalism here on ILX, here's some fodder that actually is related to real estate and mortgages and shit.

This is an interesting article from the Economist. It talks about the long-term trend of baby-boomers retiring, and the fact that people buy more homes when they're young, but sell more when they pass 65. It's too early to know for certain how this will play out, but it does give reason to think that the housing over-supply may not be a short-term phenomenon:

Baby boom and bust

and once again lol @ boomers not going to have enough money to actually retire comfortably since they aren't going to make enough selling the house they raised their children in. later, empty nesters. I eagerly anticipate paying all your hospital bills.

should be a nice big home coming available in huntsville, al sometime this year. lucky for mom & pop they bought it back in the late eighties

My olds are complaining because the property they bought for $36,000 won't sell for $240,000. They might have to settle for $220,000!! OH NOES. Meanwhile we don't own shit.

http://www.scottstander.com/Personalities/wagnerheadmedium.gif

"Would you like to know more about a reverse mortgage? TOO LATE, HAHAHAHAHAHAHAAAAAA!!!!!!1!!11!"

PS, I keep reading the end of this thread title as "cumbubble bust".

'always goes up'

The equivalent of an average annual wage in 1944 would have bought the house outright; now it would require the sum total of about 50 average annual wages. The wonder isn't that the bubble is bursting, but that it has lasted so long.

http://www.guardian.co.uk/money/2008/jan/26/property

could be right, they have gone up in terms of salary multiples since ww2 it is true (soros' 60 year bubble again). will they continue to rise, long term, in salary multiples? im going to stick neck out and say no

otm

CLIFF DIVIN

Next week's Panorama is about UK property prices &c.

I don't mind if my house is only worth £1 if I can buy Buckingham Palace for a fiver.

not much good if you owe £1.75 on your mortgage

http://business.scotsman.com/business/Bankruptcy-hits--a-record.3737727.jp

Motherwell has the UK's highest level of debt in relation to local property prices. And Sighthill in Glasgow has the most "highly geared" homeowners w
ith people having average mortgages of 95 per cent of their property's value.

the article says that this came from experian (though i couldnt find it on their site and dont like unsubstantiated figures)

is this even anywhere near true? what kind of place is sighthill? this is truly an extraordinary figure, and backs up the theory that we are actually owning, collectively, less and less of our houses each decade. how is it possible for us to own 5% of a towns houses, and the banks 95%???

im sure this is an extreme example, but even so

channel 4 has a few more figures

The group found that homeowners in Motherwell in Scotland had the highest level of mortgage debt in relation to local property prices, owing an average of 69% of their property's value.

Glasgow Central is also considered to be a high risk area, with homeowners with a mortgage owing an average of 68% of their property's value, followed by Swansea at 64%, Hamilton, Manchester Central and Birmingham Central all at 63%.

http://www.channel4.com/news/articles/business_money/negative+equity+risk+if+prices+fall/1460347

im guessing these are inner city areas infested with plastic new build blocks and hence more recent 'owners', because these figures are not good reading otherwise!

in sighthill i would wager the town already pretty much now owes more money than there is

Any of you guys remember when there weren't enough houses and we were going to need to build 231512356 more on flood plains?

hah, that's Australia right now.

http://www.sharelynx.com/charts/USAVEHLGC3.gif

Interesting graph. Shows how asset prices are boosted by mass expansion of cheap credit. Also shows a US real estate market peak for 2001!!

It shows pretty clearly how the flooding of cheap money over this decade had distorted prices in the US (because price in gold cannot be manipulated in same way)

Be interesting to see one for UK!

hmm, the graph isn't showing for me

http://www.sharelynx.com/charts/USAVEHLGC3.gif

Also clearly shows its not actually true that house prices always go up long term*. but that it is always true that money always goes down

*also - why do we call 60 years long term? it is only 2x length of loan

Interesting long blog post tearing apart Greenspan's claim that the 'Fed is blameless for the housing bubble'.

Here's the real problem with real estate -- the tile just isn't big enough in Las Vegas bathrooms.

Its arguable that central banks are supposed to only be concerned about inflation not asset prices - though of course that argument is only made on the way up, never on the way down.

I think (and hope) Greenspan is fighting a losing battle in salvaging reputation, his name may live on in textbooks for decades to come

To be considered a premium home, "8,000 to 10,000 square feet is the new threshold," Lemoine said. It was 5,000 to 7,000 square feet just five years ago, he added.

Buyers today want two sets of refrigerators and freezers, two game rooms (one for the kids, another for adults) and showers that are at least 7 feet by 7 feet, he said, adding, "Laundry rooms now are better than kitchens were five years ago. They have stainless steel cabinets, glass tiles."

LOL. A 1m home ain't what it used to be.

Here's the real problem with real estate -- the tile just isn't big enough in Las Vegas bathrooms.

The pictures in that story: make b&w, add fake film entropy, and you have a real estate marketing reel from the late 50s.

Can anyone explain to me how inflation is supposed to erode debt? without laughing?

This is a trap, isn't it?

If the interest on a debt is fixed, then surely inflation erodes the debt? To take a fairly stupid example, if I borrowed £5,000 to buy a car and had to repay £100 a month for five years then I would end up paying £6,000 with £1,000 of that being interest. Let's say the inflation rate was zero at the time I took the loan and had been zero for several years and the bank assumed it was going to stay at zero for the next five years, but suddenly inflation kicked in at a rate of 20% a year. If my salary increased in line with inflation but the monthly repayments to the bank stayed the same then obviously it would be much easier for me to make the payments.

Yes its a trap

1. We are told - by our leaders - that inflation is low. If it is low then how does it erode the debt?

2. But it is not low. We all know food and energy prices are going up much more than cpi says. So it is high - but how do increasing energy and food costs erode the debt?

Well they do

3. If my salary increased in line with inflation

Has anyone seen wage inflation in the UK this decade? Question is a roundabout way of asking "How is wage inflation in the UK even possible?"

You are charlton Lido and I claim my spirit level.

http://www.statistics.gov.uk/cci/nugget.asp?id=10

pay growth is there even if it is lagging real inflation.

The growth in that graph is below even RPI

There was a good segment on NPR yesterday where they spoke to a bunch of former mortgage brokers. People without even college degrees making six figures with little work. A woman interviewed made half a mil in a year at age 28. One guy described it as a "river of money" that you just had to stand next to and dip into. And these people claimed they weren't even the ones committing real fraud, which, of course, was rampant.

how do hedge funds works and how do i find one that i can 'manage'?

rly tho. i blame being indie for me not just being a dbag for a few years and cashing out -- it doesn't appear to take much in the way of brains or even personal dynamism.

not 'managing a hedge fund' obv, but being a city cunt generally.

I have a hedge but no funds to manage it.

The growth in that graph is below even RPI

erm, no

http://www.statistics.gov.uk/cci/nugget.asp?id=665

Wages have been leading RPIX and CPI for some time now, even if they do lag real inflation.

the link states "Average earnings including bonuses rose by 3.7 per cent in the year to January 2008, down from 3.8 per cent in December."

RPI is 4.1 per cent

I think managing a hedge fund is a fucking hard thing to do, being a City cunt maybe less so.

whoops, wrong graph

http://www.statistics.gov.uk/cci/nugget.asp?id=19

In which case you are right. Real earnings are going to have to rise, although the lag is going to be painful. I think they will rise as the appreciation of the euro is making the UK look less attractive as a destination for the remittance sending immigrants who have been depressing wages in recent years.

laxalt, you're crazy.

As long as there is any wage inflation at all, it still erodes the value of your debt(as long as your interest payments are fixed).

Even when wage inflation is below the rate of interest on the debt?

But if other costs are rising this cancels out any feel good from the erosion of the debt.

xpost

Even when wage inflation is below the rate of interest on the debt?

Yup. Because you'd still be paying that rate of interest even if there were no wage inflation at all, so if there is some (any!) then it lowers your interest payments as a proportion of your income.

Even if your wage increases are all eaten up by increases in your costs, your interest payments still fall as a proportion of those costs, and of your income.

Ah ok - so it erodes it in nominal terms rather than real terms? In the same way that a 25k salary today is more than a 20k salary 10 years ago?

Er, no, in nominal terms it stays the same. In real terms it is eroded.

(ie you still owe £5000, but £5000 is worth less)

In the same way that a 25k salary today is more than a 20k salary 10 years ago?

I am confused? Have you got this the wrong way round or is it heavy sarcasm?

I AM confused - what is that question mark doing there?

No, I am really confused. Your sentence makes perfect sense.

laxalt is looking at it holistically, i think.

if you borrow £5000, wage inflation erodes that, yes.

but because everything else (energy, food) is inflating higher than your wages, you won't feel the benefit.

the interest-rate-against-wage-inflation-rate comparison is not that important.

I think what Jamie is saying illustrates why buying over renting is usually a good idea if you plan to be somewhere for a long time but not necessarily a good idea if you don't.

If you're going to stay in the same place for 20 years, the monthly cost of your mortgage is indeed most likely going to decrease over time as a proportion of your wages (tax increases notwithstanding), whereas rent likely will not.

If you're only going to stay somewhere for five years, however, you might be paying significantly more per month than you would in rent for a similar place, and the equity gains only seem to make up for it in a crazy boom like the one we just experienced.

Yes...my post reads a bit muddled - wasn't trying to be sarcastic.

I'm just kind of thinking about how wage inflation eroded debt in the 1970s in a high inflation environment - and then thinking about that today in a situation where real wages have been falling. yes the debt is still being eroded but lower interest rates means it erodes much slower doesn't it? so much so as to be kind of almost negative?

or to put it another way - aren't we going to need significant wage inflation to climb down from the debt precipice - but where can it come from?

Eroding slower, yes, kind of almost negative, not really, but maybe not very significant.

So the second point could be fair enough - I don't know.

I do know that I've owed about £5000 for six or seven years, and have basically only paid the interest on it, but I'm a lot less worried about it now than I was then, as my wages are 39% higher, which is partly because of a better job, but partly also wage inflation, real or not.

but while that 5000 is now smaller as a percentage - won't you have actually paid way more than 5000? and that total figure should be the one considered, not the 5000?

and if the total amount paid as a percentage of your new salary is higher than the original debt and original salary - then how was your debt eroded?

I think what I was trying to get at is - yes of course the principal of any loan is eroded even if you get a 1p raise, but the total amount paid back over the course of the loan - i'm confused how low wage inflation erodes that

2 ways of looking at it: most people don't think of it in terms of total debt but in terms of the payment every month, so if the monthly payment is a smaller proportion of take home pay then hey presto I am a winner (see also debt consolidation loans).

In pure economics term the principle owing is worth less because price inflation and wage inflation have made the debt smaller in comparison to other things money can be valued against.

the total paid for the debt doesn't really enter into it because that is money over time, not money that anyone ever actually sees as one lump.

the total amount paid back over time is still eroded because over time the money paid will be worth less and less.

xposts

The point is that even if my salary had stayed the same, I would still have paid all that money out in interest. So you should compare the total paid/original wage with the total paid/new wage.

But I do see where you are coming from now. And that is another way of looking at it, which is making my head hurt.

it all depends on the set up of your debt originally innit.

if it's a fixed-rate repayment - then your debt repayment has nothing to do with the inflation or deflation.

if it's inflation linked then obv there's no difference in real term

whether everything costs more is an entirely different issue to the debt, whether you were in debt or not, it'd cost you the same extra 30p to buy some organic pork in tesco.

It is kind of a trickm I guess. Interest is there so that the bank can get back it's capital, including the depreciation on it plus a profit. However the loan, typically is repaid as a series of repayments at a fixed amount. inflation causes these payments to be erroded in value over time, so the loan, is, in effect front loaded.

yes i was very unclear at the beginning, sorry!

i'm trying to suggest the debt is growing at the same time it is being eroded, but that this might not be seen as there is a lot of running to stand still in the paying back of debt

yes, what Ed said.

heh, the irony is, the only reason there is depreciation is precisely because the bank leant it out in first place;)

laxalt - you were clearer in the beginning - your last 2 posts have completely thrown me!

esp. this bit i'm trying to suggest the debt is growing at the same time it is being eroded...

No, wait I've got it....carry on...

I think he's just saying that your interest on the loan is higher than your rate of wage inflation.

Yes?

well the debt grows at x% each year even if some/all/morethan that x is paid

and

the depreciation of a currency is a function of the increase in money supply, right? and where does this extra money come from? from the bank 'lending' it to a person or a company

yes to hurting2 (also arent fixed loans relatively new and last for a short period only - how does it work in business?)

well the debt grows at x% each year even if some/all/morethan that x is paid

Ok wait, I think this is where things are getting confused. I don't think it's really accurate to say that your debt "grows" unless you're paying it off at a slower rate than the amount of interest, which is only usually the case on really shady loans or on credit cards in the hands of irresponsible folks. I mean your debt = the amount you owe. If you're paying it off faster than interest is accumulating, your debt is not growing.

are you basically just saying that when you take out a debt you will end up paying more than what you owed?

I don't think fixed rate loans are new at all - it's adjustable rate loans that are new.

Laxalt, I think you need to be clear about what kind of debt you're talking about. If someone has taken out a bank loan with a fixed rate of interest and a fixed schedule of repayments then the debt doesn't grow at any stage, it diminishes with each repayment. The value of the debt at the time of the loan is more than the amount you borrowed, but this amount never gets any bigger. If you're talking about a mortgage on variable interest rates then the situation is much more complex.

OK, I will have a go at this, but any actual economists feel free to step in.

well the debt grows at x% each year even if some/all/more than that x is paid

So x is the nominal interest rate. If inflation is y, then x-y = the real interest rate.

If x is fixed (which is actually common: most personal loans are fixed term and fixed rate), then as inflation increases the real interest rate falls.

The principle is also eroded.

This is ignoring your repayments, of course.

your debt may only ever be 5000 yet somehow when its all over you have paid 12000. but yes you are right, it was probably never actually higher than 5100 or whatever. if you hadnt have taken the loan you would have 7000 saved somewhere, so in terms of opportunity cost its pretty bad

xpost - yes - i meant the ones where it is fixed for a period of the length of a loan and then isnt fixed after that - i think is relatively new - used to be variable the whole length (may be wrong about this) - in the UK

The principle is also eroded.

This is ignoring your repayments, of course.

ok I think we actually agree

Right. But as was pointed out, the increase in y is going to increase the cost of everything else you purchase, so even assuming wages keep pace with inflation, you're not going to benefit from an increase in inflation.

I totally agree with everyone that says the Principal of any loan will get eroded by even minute (and in real terms negative) wage inflation. Also think is mistake to think of the principal as the real figure

i've reviewed this thread and so far i've learnt 3 important things from laxalt:
1. buy something when it's cheap
Monday, 21 January 2008 14:14 (2 months ago) Bookmark Link

2. people should sell something when it's expensive
Monday, 21 January 2008 14:18 (2 months ago) Bookmark Link

3. when you take out a debt you will end up paying more than what you owed
Thursday, 10 April 2008 12:23 (5 minutes ago) Bookmark Link

(xpoost) No, your debt wasn't £5,000 (if that's what you borrowed), it was whatever you were contractually obliged to pay back to the bank (i.e. the debt plus the interest). At the moment you received that five grand you had a debt of five grand plus whatever interest had been agreed with the bank. With each repayment you made after that the value of your debt went down.

your debt may only ever be 5000 yet somehow when its all over you have paid 12000. but yes you are right, it was probably never actually higher than 5100 or whatever. if you hadnt have taken the loan you would have 7000 saved somewhere, so in terms of opportunity cost its pretty bad

In some cases I agree, but you have to figure in buy vs. rent costs. Rent is likely to increase over time, whereas a fixed monthly mortgage payment will not.

But if Jamie is only paying the interest on his loan - what exactly is this contractually agreed figure?

Unless you have negative real interest rates, then your debt is not going to be eroded in the terms laxalt is thinking.

So from his point of view, if current debt levels are unsustainable, then inflation is not going to make it any better.

But he's basically making the unstartling point that you pay back more than you borrow. This isn't really news, is it?

(I spelt principal, principle. Doh!)

Rent is also eroded by debt!

oh wait, somehow I missed the part where he said he was only paying interest. I'm confused.

oops. my sentence got mangled

meant to say rent has been decreasing in real terms

I do know that I've owed about £5000 for six or seven years, and have basically only paid the interest on it...

...
-- Jamie T Smith, Thursday, April 10, 2008 11:55 AM (43 minu

But if Jamie is only paying the interest on his loan - what exactly is this contractually agreed figure?

That's a different question - that's not a fixed term, fixed rate loan, that's someone who has borrowed money indefinitely.