USA_Economy

Are You Upside-Down?

http://www.fool.com/personal-finance/home/2007/04/25/are-you-upside-down.aspx Dan Caplinger April 25, 2007 A lot of people can't escape from their homes. Many homeowners stretched themselves to the limit to buy the most expensive properties they could afford. When home values were rising, the strategy made them look like geniuses, as they could sell at a huge profit or cash in on their equity through mortgage refinancing and home equity loans. But now, as prices have fallen dramatically in many formerly hot areas, some homeowners owe more on their mortgages than their homes are worth.   Homeowners at a loss It's simple math. Just as cars and trucks immediately lose a big chunk of value as soon as you drive them off your dealer's lot, you aren't likely to get back what you paid for your house if you turn around and sell it shortly thereafter. With most mortgages, you don't make an appreciable dent in your principal for years. Meanwhile, many real estate agents still charge 6% of the sales proceeds as a commission. So if you bought a house for $500,000 and find yourself needing to sell it, you'll need to find a buyer willing to pay $530,000 just to break even. The one-two punch of paying real estate commissions if they sell and having to accept prices that are lower than what they paid could leave homeowners who maxed out their mortgage debt with a big shortfall at closing. And your lender will insist that you pay up.   Sometimes you have to sell Unfortunately, there are many situations where selling your home is the only solution. When couples divorce, it's common that neither spouse can afford to maintain the family home on a single income. People who own starter homes and choose to have children may find themselves too cramped to live comfortably. A death in the family can leave surviving family members struggling to make mortgage payments, pay taxes, and handle maintenance costs. Changes in your job situation can also leave you with an unsolvable dilemma. On one hand, you may not be able to afford your home on a reduced income. Yet you probably won't qualify for a similar mortgage, forcing you to consider rental property as the only viable alternative.   Paying up The upside-down phenomenon mostly results from large mortgages with small or no down payments. If you made a traditional down payment of 20% on your home, you may lose most of that equity if you have to sell, but you won't have to pony up anything extra at closing. Similarly, if you decided to make a smaller down payment and instead invested your savings, you could always sell your investments to cover any shortfall. It's the people who lack both of those safety nets who face the toughest decisions. If you're in this situation, don't panic. Contact your lender and explain the situation. It's generally in your lender's best interest to avoid foreclosure, so you may be able to negotiate new terms that you can live with. However, don't expect to find easy answers. The best way to avoid these tough decisions is to avoid the situation in the first place. It may mean you aren't able to buy the home you want as soon as you'd like, but you'll be able to sleep better knowing that you haven't left yourself vulnerable to the whims of the housing market.   For more tips on homes, including help with mortgages, dealing with real estate agents, and negotiating the best deal, be sure to look at the Fool's Home Center. If you want more specific advice tailored to your own situation, check out the Fool's personal finance service,   TMF Green Light. You'll find answers to lots of tricky financial situations. Give it a try for 30 days on us.   Fool contributor Dan Caplinger has been watching the value of his newly-bought house fall steadily on Zillow.com over the past couple of months. He doesn't own shares of the companies mentioned in this article. The Fool's disclosure policy keeps you warm at night.

Housing Bubble - Will it burst?

 Date: Tuesday, August 17, 2004 @ 08:00 AM EDT
Topic: Economy - Bad       

    Please forgive my sarcasm on the "Real Estate Bubble"
Since the post depression era real estate has remained stable!
So Is it full speed ahead?
Are we headed for a crash?
The housing bubble may burst!
It might inflate!
Rates might skyrocket!
Housing prices may plummet!
Two-thirds of Americans own their homes!
American's spend just under 40% of their income on housing and housing related expenses!
Approach home buying with the attitude of a savvy stock investor. We've long preached the benefits of buy-and-hold investing. The same approach translates well to the home-buying market.

The Office of Federal Housing Oversight recently released its house price data for the first quarter of 2004. U.S. home prices rose 7.7% over the first quarter of 2003.   

The median price for an existing home rose to $170,000 in 2003, up 15 percent from just two years earlier. Yet housing actually grew more affordable during that period as the typical mortgage rate fell to 5.74 percent from over 7 percent. The average monthly payment on a median-priced home was 17.8 percent of median family income in 2003, down from 18.4 percent in 2001, according to the National Association of Realtors.

“Our own sense is there will be a slowing of price appreciation but no widespread price corrections,” said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies.

A government report issued last month startled many analysts, showing that home prices rose in the fourth quarter at an annualized rate of more than 14 percent, the biggest one-quarter jump in nearly 25 years.

David Seiders, chief economist for the National Association of HomeBuilders, predicts sales will drop only 2 percent this year from last year’s 7.2 million, which was a third straight record year.

How exactly should you play this one?

I say on your mark. Get set. Buy, sell, hold, build, borrow, or refinance.
I have been dealing with real estate for a long time and I use a simply approach in good times and bad times "KNOW YOUR MARKET"

    John Michael is the author of many guides that can help you become more successful as an investor. See http://www.thecreativeinvestor.com/ChanPart-JohnMichael.html

Housing Market Problems

 Date: Monday, April 16, 2007 @ 03:09 PM EDT
Topic: Economy - Bad

       

Many people have been saying that there is a bubble in the housing market. If there is I think we are very close to the pop. Primarily due to supply and demand.

2.4 million foreclosure on the horizon =more supply

http://money.cnn.com/galleries/2007/real_estate/0704/gallery.paly_the_subprime_blame_game/index.html
This may cause the ball to just start rolling, with many borrower with over 80% financing, they may be stuck due to depreciation in there house, and be forced to foreclose or stay. = more supply

new home builders still  building= more supply
lenders going out of business and guideline changes for getting a loan has change so significantly, 10-25% of those that could buy, now cant= less demand

http://money.cnn.com/2007/04/05/real_estate/rates.moneymag/index.htm?postversion=2007040516
Interest rates should move up soon. They have been the lowest they ever have been for four years, Greenspan has received some blame for making them too low, a new president means new economic policy. Higher rates less people can afford= less demand

http://www.freddiemac.com/pmms/pmms30.htm
Even if rates do not go up, profit margins will be increased by lenders, due to buy backs and correcting themselves from the recent loan free for all = less demand.

http://biz.yahoo.com/ap/070409/american_home_mortgage_out_of_the_gate.html?.v=2

www.lenderimplode.com
These factors add up to a possible scary scenario. Hope this does not mean anything.  Must See graph http://www.speculativebubble.com/images/homevalues1.gif

-Loan Officer/ REALTOR in Sacramento CA.

Worst RE Markets

   

Worst RE Markets...

    Date: Wednesday, July 20, 2005 @ 09:27 AM EDT
Topic: Economy - Bad

       

I am not one to usually pass these on, but thought it was appropriate for TCIers...the article is self-explanatory. I would be interested to see comments and thoughts from those in these respective markets...





    The 13 Riskiest Housing Markets
By Dave Lindorff

If your hometown is on this list, the value of your house may be in jeopardy.

The real estate bug bit Karen Brodie a few years ago. She left her desk job as an accountant with Fidelity Investments in 2001 and teamed up with a cousin to buy a single-family house in the Boston suburb of Dorchester for $98,000. After spending $50,000 to upgrade the house, the pair sold it a year later for $278,000. Now Brodie and her cousin have expanded their operation to include two pricier three-unit buildings in Dorchester and two three-family units in Rhode Island. With the Dorchester properties now up for sale, the pair could turn a profit of between $500,000 and $800,000 in little more than a year.

Across the country, thousands of people like Karen Brodie are chucking their day jobs to become real estate investors. And why not? The nation is experiencing a boom in property values that has seen the median price of an existing home rise 10% in the past year; 37 areas saw prices jump by at least 15%. Thanks to leverage, which lets you buy a property for a fraction of its cost, you can double your money in a flash.

But soaring prices and the emergence of a generation of wet-behind-the-ears real estate investors stoke fears that the boom is turning into a bubble that will burst. At worst, argues Brodie, 40, home prices in her region could experience "a short correction." But, she acknowledges, "a bubble is something I think about."

Because of the localized nature of real estate, it's hard to argue that there is a national real estate bubble. But a recent report by mortgage giant Fannie Mae says conditions in many markets "mirror past conditions that preceded regional housing busts." And Federal Reserve chairman Alan Greenspan says he is detecting "little bubbles" in certain parts of the U.S. For example, from the first quarter of 2004 to the first quarter of 2005, median home prices soared 46% in Bradenton, Fla., and 33% in the Riverside-San Bernardino area, east of Los Angeles.

Another reason for concern: the growing number of houses bought as investments. Nearly one-fourth of purchases over the past year were investments, and "they're concentrated in a few markets," says Marco Van Akkeren, an economist for the PMI Group, a residential mortgage insurer. He notes, for instance, that 44% of home purchases in Las Vegas over the past year were investments. Markets with a high proportion of investor-owners tend to be risky because investors often have little or no equity in their properties, and they're quick to sell at any hint of a downturn in property values.

So how do you know if your housing market is built on thin ice? There's more to it than simply identifying the areas with the strongest gains in home prices. Job growth, population, median income and affordability all play roles in determining which markets are vulnerable to price declines.

Working with PMI's Housing Risk Study, we pinpointed the 13 most treacherous housing markets. We describe them below.


1. Beantown Bubble

In PMI's view, Boston is the riskiest housing market in the nation. PMI assigns a 53% probability that Boston housing prices will decline over the next two years. The city is at risk despite falling home prices between 1992 and 2001 and a relatively modest annualized appreciation of 7% since then. The problem, says Lawrence Yun, regional economist for the National Association of Realtors (NAR), is that the Boston area has lost 200,000 jobs since 2000 and that housing prices remain high, with a median home selling for $398,000. But David Lindahl, a veteran real estate buyer who runs a local investors' club, looks at the bright side of a possible price decline in Boston. That would mean, he says, "buying opportunities in the foreclosure market."

2. Big Apple Bailout

Like Boston, New York City suffered through a housing slump in the '90s. But while job losses were the big problem then, now it's out-migration. "People from New York, especially baby-boomers, are moving out," says Yun. If the trend accelerates, it could cause a problem, particularly for the high end of the real estate market. Meanwhile, prices remain extremely high. The median price for existing homes in the metropolitan New York City area (which includes parts of Connecticut and New Jersey as well as Long Island and Westchester County) stood at $435,000 at the end of the first quarter of 2005, up 18% over the first quarter of 2004. PMI puts the risk of a price decline in New York City at 31% and says it's even money that prices on Long Island, where affordability is becoming a concern, will sink within two years.

3. Lauderdale lunacy

Prices of existing homes in Fort Lauderdale rose 32% over the past year, putting the median price at $321,000. PMI puts the risk of prices falling at a relatively tame 23%, but signs of aggressive buying by investors warrant Fort Lauderdale's inclusion on our list of the riskiest areas. "Fort Lauderdale is very vulnerable," says Kenneth Simonson, chief economist for the Associated General Contractors of America, a builders trade association. "There are lots of reports of speculative buying." NAR economist Yun suggests that there's been so much appreciation that retirees, the traditional buyers of Fort Lauderdale real estate, may be priced out of the market. Europeans remain a source of demand, but that could quickly vanish if the euro continues to weaken, as it has recently.

4. Capital craziness

It's not the amazing performance of the Washington Nationals (formerly the Montreal Expos) that is driving up home prices in and around the nation's capital. It's increases in federal spending, which support a strong job market. The median home price in Washington, D.C., and the nearby Maryland and Virginia suburbs jumped 23% over the past year, to $369,000. Even a modest decline in government outlays could tip the housing market on its side. PMI rates Washington's chances of a slump in housing prices at 19%.

5. Motor City Mayhem

What's Detroit, of all places, doing on a list of the riskiest housing markets? After all, home values rose less than 1% over the past year, to a median value of $151,000. Yet PMI estimates the odds of a price downturn at 38%. It's all about jobs -- at the struggling automakers in particular. General Motors hammered home the point in early June with the announcement that it would eliminate 25,000 jobs by 2007. "With job growth in Detroit flat to negative, and with GM and Ford struggling, prospects for housing look weak," says Simonson. Still, even in a tough real estate town such as Detroit, some investors see opportunity. Sonny Gandee, 25, a self-proclaimed "day trader in real estate," says he's confident that the Hispanic population will continue to grow, so he is focusing on Detroit's Mexicantown neighborhood. Gandee netted $250,000 over three years by investing in properties there, renting them out with minimal rehab, then selling.

6. LA-La Land

Real estate investing is serious stuff in Los Angeles. Two years ago, Marsha Haywood left her $2,000-a-month job running a drug- and alcohol-rehabilitation home for women in order to get into property. Since then, she's acquired four houses before construction. Haywood sells on completion and expects a profit of roughly $35,000 to $100,000 per unit. "You need to play it like a game," says Haywood, 57. Speculation of this sort, plus explosive price increases -- 32% last year and 16% in 2003 -- have some wondering whether prices in L.A. represent one of those bubbles that Fed chairman Greenspan has in mind. Another risk: Local authorities could loosen permit restrictions, opening the door to a substantial amount of new supply. PMI rates L.A.'s risk of a property slump at 40%.

Ripe for a Fall?

These seven areas are also vulnerable to falling housing prices. They are listed in order of risk, with the riskiest first.

7. San Francisco.

How do you make New York look cheap? Easy. Try buying in the City by the Bay. After increases of 13%, 21% and 30% in the past three years, the median home price in San Francisco is $689,000 -- the highest in the nation. The high price of land and tough restrictions on what may be built on that land are major factors. PMI sees a 40% chance of falling property values over the next two years.

8. Sacramento, Cal.

Affordability is a key issue in the hottest market in northern California, where prices have climbed 27% in the past year and an annualized 19% over the past five. A state-budget crisis puts jobs at risk in the Golden State's capital. Odds of a price decline: 40%.

9. Providence.

The New England city that was founded as a home for religious dissenters faces some of the same issues as Boston: no population growth and stagnant job growth. Over the past three years, home prices in Providence have risen at a rate similar to Boston's. PMI puts Providence's housing-price risk at 39%.

10. Minneapolis-St. Paul.

Housing prices in the Twin Cities have climbed an annualized 9% over the past three years. Still, PMI places the odds of a downturn at one in four. With Northwest Airlines, a major area employer, facing problems, job growth and payrolls are stagnating.

11. Denver.

Housing prices in the Mile High City have risen modestly the past four years, including a gain of just 2% over the past year. Job growth has also been moderate. But a concentration of employers in the troubled telecom sector leads to a risk of a home-price downturn, which PMI puts at 21%.

12. Miami.

A surge of buying by retirees, Europeans and South Americans is boosting prices in Miami. Prices skyrocketed 28% over the past year, to $316,000 for the median home. But there's less risk in Miami (PMI rates the chance of a price decline at 18%) than in Fort Lauderdale, just 40 miles to the north, because tourism, services, trade and transportation remain strong.

13. Tampa-St. Petersburg.

The adjoining cities on Florida's Gulf Coast have been popular landfalls for hurricanes of late, but the area is also a popular destination for retirees. Prices haven't risen as high as in Miami or Fort Lauderdale, but the median home price jumped 16% over the past year and an annualized 12% over five years, to $173,000. PMI places the risk of a housing slump at 14%.

http://biz.yahoo.com/special/re05.html

   

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