| Prices of real estate are overblown |
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Rolo
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quote:
Originally posted by forexdaytrading
Chasing prices has never been a very good investment strategy. It is pure speculation.
Why, then, is AVOIDING prices not speculation?
"Expect me when you see me."
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Thu Sep 22, 2005 1:27 am |
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diego
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Wait- I'm confused. I'm not being smart/sarcastic or anything, but could you rephrase the question? If I understand what you're asking, it seems (to me) that there's a slight misunderstanding on exactly what types of properties we're talking about buying, and with what type of money. I associate speculation with risk.
As I said earlier, I'm not so savvy about this stuff, but I feel as though buying "investment" properties with "investment income" is different than buying a home and stretching to make the payments. I took Forextrading's response to be directed towards the "over-extended home buyer" scenario.
On the other hand, it sounds like you have been talking about buying property as an investment. I assume that you do this with money that you can afford to gamble on a making return with... I'm not saying it's a bad or good investment, just that you're not going to be homeless without those funds.
A lot of people in SoCal seem to be very over-extended ("house poor") with "creative mortgages" (interest only, variable, 50 year, etc). This doesn't leave much margin if there's even a small market correction. This is a tenuous situation at best, and these people can end up (literally) homeless. Granted, if you can afford 20% down and a standard 30yr mortgage that's locked in at a good rate, it's a steal when rates go up...
Nevertheless, negating more esoteric concerns like opportunity costs, it seems "safer" not to go this route.
I'd love to learn more, so I'm all ears/eyes. Thanks!
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Thu Sep 22, 2005 1:55 am |
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vectorz
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I wouldn't read into any news articles until beginning of next year. You're going to hear articles touting both sides of it being up AND down... like a roller coaster for the next 4 months at least.
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Fri Sep 30, 2005 5:25 am |
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forexdaytrading
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quote:
Originally posted by Rolo
Why, then, is AVOIDING prices not speculation?
This is not about chasing or avoiding prices. This is about insisting on investing in something when there are endless fundamental reasons why that something is WAY overvalued. Unfortunately, most people have no clue about the true or instrinsic value of anything. Their justification for investing in real estate is a "ends-justify-the-means" scenario. "Look at what PRICES have done! If I don't invest now, I risk losing out on a big move next year!" Silly, faulty, investing logic.
Even though I am not an Oscar Wilde fan, he does have an interesting quote that describes investors in general. It goes,
"A cynic is a man who knows the price of everything but the value of nothing." (Just replace "A cynic" with "A real estate investor in 2005" - just kidding)
Everyone right now is chasing prices. In a way, that's good. Why, you ask? Because it will eventually lead to a crash. In a crash there is much suffering, but even more opportunity.
Good luck to you all.
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Fri Sep 30, 2005 6:57 pm |
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vectorz
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Very well put. We give the main demographic waaaay too much credit. We automatically assume all 'investors' (people who've purchased homes in the past 5 years) are all educated and wise people. Most people just aren't that smart. They're just jumping on the bandwagon, and following trends. Lemmings comes to mind.
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Fri Sep 30, 2005 8:27 pm |
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BiometricVision
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Well said, just remember that this is not a "housing bubble" but rather a "lending bubble" that created the increases in a homes value and speculators investing in such. The market always seem to get the "most" people at the "least" likely time. When interest rates begin to rise, all those ARM's & interest only loans will ride right along, and when that credit becomes debt, values of homes will decline by 30-40%.
Did you know if interest rates only rise 2 % that the people with ARM's & interest only loans monthly payments will increase by a huge percentage. The "lending bubble", alias "housing bubble" will come crashing down when rates begin to rise. If you are in a fixed rate mortgage you won't get hurt as bad. The value of your home will just drop 30-40%. It will come back someday in years to come, but will it be worth the wait ?
Last edited by BiometricVision on Sun Oct 02, 2005 10:47 pm; edited 1 time in total |
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Sun Oct 02, 2005 8:26 pm |
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tss4
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quote:
Originally posted by BiometricVision
Well said, just remember that this is not Did you know if interest rates only rise 2 % that the people with ARM's & interest only loans monthly payments will increase by 75%
While the main points of your post are valid concerns, this statement is completely false. You should take a moment to do the math.
If I had an ARM at 5.5% and financed $600k, my monthly payment would be $3406 . If the interest went up to percent to 7.5%, the new payment would be: $4195. That's no where near a 75% increase (try more like 23%). And that was with a pretty extreme case where 600k was financed.
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Sun Oct 02, 2005 9:09 pm |
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BiometricVision
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You must be referring to a 30 ARM, I was referring to a 15 yr.
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Sun Oct 02, 2005 10:46 pm |
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diego
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From my perspective, that scenario is fairly realistic. 600K is about right for a "starter" single family home in SoCal, and I don't know anyone on a 15yr... nevertheless, the point is well made- a 1.5% increase led to a 23% increase in montly payment. Yikes!
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Mon Oct 03, 2005 12:06 am |
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tss4
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quote:
Originally posted by BiometricVision
You must be referring to a 30 ARM, I was referring to a 15 yr.
I don't know anyone that has a 15 year ARM. Most ARMS or interest onlies are for 30 years.
For a 15 year ARM you would pay $4902 at 5.5% and $5562 at 7.5%
That's a 13% increase. You would actually have to extend the term to cause the payment to go up at a faster rate.
For a 40 year term, your payment would be $3094 at 5.5% and $3948 at 7.5% which is a 27% increase.
Anyway you slice it until you get to mortgages greater than a million dollars or start from an interest rate well higher than what we currently have, a 2% increase in yout interest rate leads to what are certainly appreciable payment increases (<30%) but not any where near 75%.
Last edited by tss4 on Mon Oct 03, 2005 11:02 am; edited 1 time in total |
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Mon Oct 03, 2005 1:25 am |
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Rolo
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quote:
Originally posted by diego
Wait- I'm confused. I'm not being smart/sarcastic or anything, but could you rephrase the question?
All I am saying is that AVOIDING buying (because you think prices will go down) is no different than one buying because they think prices will go up. Both are speculating. Speculating means "observe and learn" and is not gambling. There is necessary, managed risk, and there is unnecessary, unmanaged risk.
Regardless of the situation, if one is "stretching" or "over-extending", etc., then it is most likely a bad move on that premise alone.
"Expect me when you see me."
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Mon Oct 03, 2005 4:03 am |
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vectorz
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quote:
Originally posted by tss4
And that was with a pretty extreme case where 600k was financed.
600k is extreme? You can't buy an outhouse for 600k anywhere in the hot markets such as California, New York. It's actually way under average.
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Mon Oct 03, 2005 6:14 pm |
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vectorz
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quote:
Originally posted by diego
From my perspective, that scenario is fairly realistic. 600K is about right for a "starter" single family home in SoCal, and I don't know anyone on a 15yr... nevertheless, the point is well made- a 1.5% increase led to a 23% increase in montly payment. Yikes!
600k in socal? Perhaps in Rialto or Compton, but that's waaay low anywhere else.
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Mon Oct 03, 2005 6:15 pm |
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tss4
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quote:
Originally posted by vectorz
quote:
Originally posted by tss4
And that was with a pretty extreme case where 600k was financed.
600k is extreme? You can't buy an outhouse for 600k anywhere in the hot markets such as California, New York. It's actually way under average.
New York and California are too of the worst markets. So yes they are two of the rather extreme cases. When you can tell me that 600k is typical for the average amount financed in Mississippi then 600k can be considered typical. Besides I live in one of the two markets you mentioned and 600k is actually higher than most people finance (the financed amount and the purchase amount are different).
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Mon Oct 03, 2005 7:34 pm |
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