YAWN….
I know, I know….it is taking tooooooo long between posts. I wish I had the time to post more often, but those of you that know what I am doing now, know that I have a lot going on, and that it pays a ‘bit more’ than blogging. I do have a few things to say and some quick advice. So let’s get started!
I know that many of you are excited because you are starting to see more and more articles that suggest the ‘ride is over’ and that the bubble is ‘deflating’. Just scan down the articles on Ben’s excellent bubble blog, and you will see that things are changing. That is nice that the media is finally starting to get a clue, but my response is ‘YAWN’. The media is a lagging indicator. This thing was WELL in the making a good 2-3 years before the media got a clue.
You are probably wondering about the title of this post ‘YAWN…’, but that pretty much sums up how I feel about things. Granted, I don’t have an ARM adjusting…I’m renting for 1/2 to 1/3 the cost of ‘owning’ with a fixed rate mortgage. I have minimal debt, I’m no longer employed in a real estate related industry, and I can honestly say I have a positive net worth with a year+ of living expenses in the bank. I would pay off my debt, but I’m getting a higher rate of return in my savings account. Those things, combined with my knowledge of what I believe is coming, allows me to YAWN at what is currently happening.
Go back and read the almost 100 posts that I have made. It shouldn’t come as any surprise to what is STARTING to happen. Lets take a look at a few things, and I will give you some advice.
Inventories are rising rapidly, sales are slowing 20-40% in many areas, foreclosures are up, and guess what, we still have a LONG way to go. Remember those 2+ trillion dollars of ARMs (adjustable rate mortgages) that are going to adjust in 2006 and 2007?!?!? Well, about 500 billion of that is supposed to adjust in 2006, and the remaining 1.5 trillion or so in 2007. Again, these are tough stats to gather and monitor, but lets just look at them as ballpark figures. Here is an old link from Nov ‘05 that had the numbers at 330 billion in 2006 and 1 trillion in 2007. I have seen it as high as 2.3 trillion for the same 24 month period, so lets just use my ’round’ numbers and understand they are not exact and that some will refi/sell/etc and not be a part of the data set anymore.
If $500 billion are supposed to adjust in 2006, and we are halfway through, lets just assume that about $250 billions dollars worth of mortgages have adjusted for people so far. We have already seen skyrocketing inventories in places like San Diego, Las Vegas, and the Tuscon/Phoenix areas. We are already seeing articles about foreclosures increasing 40-70% in some areas. What do you think is going to happen over the next 18 months when we have the remaining 1.75 trillion dollars worth of mortgages adjust??? Do you think things are going to get better or worse? Do you think most Americans are fiscally responsible?? …financially literate??
YAWN…
Some people act surprised that mortgage companies are going under or laying off lots of people. This should not come as any surprise either. Let’s see, sales volume is down 20-40% depending on the area. If there is a 20-40% decline in the amount of home purchases, guess what?? There is also a 20-40% decline in purchase mortgages. With the Fed staying the course and continuing to raise interest rates, do you think that bodes well for a large amount of refinancing? Not really. From the people I am talking with, finding people that can afford to refi their ARM into a fixed rate mortgage is the latest marketing push. The problem comes when people cannot afford fixed payments and/or have large pre-payment penalties from their ARMs. Most pre-pay penalties amount to 6 months of interest.
Lets not forget the massive job growth in the mortgage/real estate industry the past 5 years. If purchase transactions and refi’s are slowing down, do you think it might make sense for the industry to contract as well???
YAWN…
As I have shown mathematically many times before, buying a house in many areas does not make any financial sense. How long did you think that could go on??
Go grab some some old news articles from the .com era. I want you to re-read the articles, but substitute the words “preconstruction home” for IPO and “condo” where you see ‘.com’. Just as there was a mentality of “you can’t lose” with an IPO, the same mentality applies this time to ‘preconstruction’ pricing. Let me ask you this: how many of those IPOs are now ‘worth’ less than their IPO price??? Think that track home that was bought at the peak of the bubble in Vegas/Phoenix/Inland Empire won’t go down??
If you think a piece of property can’t drop below the IPO or ‘preconstruction’ price, then keep on buying. If you think there might be a shred of logic to my argument, keep reading.
Condos have become like .com stocks. For the past few years, it didn’t matter where the condo was, or how good the construction was…it went up. Just buy condos…they are great investments. The same thing used to be said for the .com stocks. It didn’t matter what they did, or if they made money…they were .com’s so they went up. …until people realized that they were WAY over-valued. A stock trading at 100x future earnings is like a property that rents for 1/3 of the mortgage payment.
Are you seeing any similarities yet??
I’m not saying things are exactly the same…but there are certain fundamentals that is/are/were lacking in both of these bubbles.
My advice is this: if you don’t own a place and you are in a ‘bubble area’, be patient. Just because that 400k condo is now 350k, doesn’t mean it is a good deal. If you have an adjustable rate mortgage that isn’t fixed for the next 7+ years, I suggest you try to refinance into a fixed rate mortgage. I see this problem looming for many people on the horizon: they bought a piece of property with little to no money down and now their mortgage is adjusting. They need to refinance, but property values have declined, and they are ‘upside down’ on their home. This isn’t necessarily a problem if you have a fixed rate mortgage and plan on staying for a while. But it is a terrible place to be when you ARM has adjusted, you are struggling with the payment, the value of your house is down, and you cannot refinance. If you can afford a 30-year fixed, do it. Buy the rate down as much as you can. The break even point is about 3 years for rate buy-down points. Refi now before property values take a dive. It will make refinancing easier and you will get better rates the lower your loan-to-value (LTV).
I have some stories and other things touch upon…but I will get to those next week. It has been a long week already, so I’m going to get some sleep.
YAWN…
I look forward to the comments and feedback.
SoCalMtgGuy
May 25th, 2006 01:07
Welcome back, Kotter!
May 25th, 2006 04:03
SoCalMtgGuy,
Frist, it’s great to have you back!
It’s questionable if the Atlanta market is a “bubble” area. My take that it is due to high levels of creative loans. Some areas are worse than others and the overall view given of Atlanta is affordable, but Atlanta comprises a 13 countywide area.
My husband and I have decided to wait it out at least until the end of the year to begin looking for a house again. We’re pretty conservative financially. We’d like to purchase a house that we can afford if one of us becomes unemployed. We’re saving our money and have enough for at least 20% down and would like to buy down the rate.
My question to you is twofold. First, although Atlanta isn’t necessarily considered a bubble area (I’ve seen conflicting news articles), would you consider areas that have high levels of creative loans “bubblicious”? Are we right to wait it out a bit? I have seen house prices drop a bit, more in some areas than others, or is that just due to interest rates rising? Second, you stated, “the break even point is about 3 years for rate buy-down points”. I’m not sure what that means. Can you explain further? Since, we’d like to pay points I’m guessing this will tell me how many points we should buy. Also, does the break even point change?
Thanks.
May 25th, 2006 04:35
I’ve read that, in an attempt to drive volumes, mortgage lenders are actually RELAXING credit standards. Given that this issue is out, and regulators are breathing down their necks, this surprises me.
Also surprising — with sbhort term rates now at 5.0%, you are getting just 0.1% to tie your money up for ten years — with a threat of inflation!
Sounds like the window to get a fixed rate loan, which should have closed already, is still open — for the moment.
May 25th, 2006 06:28
Atlanta Renter…
I think you are right to wait it out a bit. Even if you are not in a ‘prime’ bubble area, it is safe to say that there are still quite a few ‘creative’ loans out there. I would keep saving money and see what happens. I think it is safe to say that the risk of rapid appreciation and being ‘priced out forever’ are coming to an end in many places. I think you are approaching things smartly. Stay informed and be patient…
About my “the break even point is about 3 years on a buy-down point”. If you do a ‘buy down’ point (paying 1% of the loan amount to ‘buy’ the rate down), you will break even at about 3 years. So, if you spent $5,000 to buy the rate down on a 500k loan, it will take about 3 years to recover the cost of doing that. So, on a 30-year mortgage, or any mortgage where you plan on staying put for a while, it is usually worth looking at doing a buy-down point. Also note…the amount the rate is bought down for 1 point paid will vary by lender. A 1 point buy-down will usually lower the rate 40-50 basis points.
I hope this helps some.
SoCalMtgGuy
May 25th, 2006 07:20
“My advice is this: if you don’t own a place and you are in a ‘bubble area’, be patient.”
SoCalMtgGuy - Thanks for the advice. I live in a bubble area in SoCal (Redondo Beach). I am renting the top half of a house and it’s a sweet deal…ocean view, low rent, nice neighborhood. My neighbors probably think I’m a fool to continue renting because they know what I do for a living and can “guesstimate” my income. I wasn’t in a good financial position to buy until 04/05 and by that time the market was far too overvalued, IMO. I wasn’t about to get in a bidding war for a million dollar fixer-upper, so I decided to wait it out. So here I am, keeping up with what’s going on in the markets and feeling better about my decision each month. I have one neighbor in particular that’s been trying to convince me that the nicer homes in S. Redondo won’t drop in value because they are “oh so desirable”. Well, even though we haven’t seen a big downturn in prices here and homes continue to sell, I just can’t buy into this concept of desirable areas not experiencing a substantial correction. I’ll continue to read this blog, as well as Ben’s and Grim’s, and do my own research. Please keep up the great work you’ve done here. - Judicious1
May 25th, 2006 08:55
It never ceases to amaze me the way people seem to put blinders on and think that the prices will continue to increase. I am a mortgage broker in the Los Angeles area and I can see that there is trouble ahead. I think that the various Realtor associations are doing a terrible injustice to the general public by whitewashing everything. However, the consumer should investigate a little before jumping into a 40 year, $0 down, stated income, negative amortization, pay option arm. After all, you should think about asking advice from someone who has a vested interest in the industry. And these people do have bills to pay.
May 25th, 2006 09:04
wiseguy -
Do you think there have been many people in the LA area buying homes in the $800K to $1.2M dollar range using the type of financing you mentioned?
May 25th, 2006 09:08
Wiseguy…
Like I have said many times before:
People will work 40 hours a week, 52 weeks a year, for 40 years to pay off that mortgage. That is a grand total of 83,200 hours of ‘work’ to pay off their home ( +/- a few hours).
BUT, these people won’t spend 2 hours on google, or consult a financial planner to educate themselves one bit on a commitment of this size?!?!?!?!?
Be informed!!
SoCalMtgGuy
May 25th, 2006 09:13
good to see you back,a lot of people i’m talking to can’t qualify for a fixed loan…they used a stated arm to get in at 5% and 50%dti…now the rate is at 6.6% and lenders are actually doing some underwriting(if you want a decent rate and have good credit)so no dice.not to mention sonoma county has lost all of last years appreciation…sebastopol is actaully down 29% yoy according to dq news.i’m getting out asap as well.the last gasp is bringing out the worst,and best in agents and brokers.
May 25th, 2006 09:19
Tom,
EXACTLY!
If people couldn’t afford a fixed rate mortgage at all time historic lows, what are their options TODAY???
That has been my point from the beginning. We WILL revert back to the fundamentals of money down, and fixed rate mortgages or plain vanilla ARMs. Getting an ARM when rates are at their absolute lowest is not the best decision in my book. ARMs are great when rates are at their highest point. People should have locked in 30-fixed loans when they had the chance…but wait, they couldn’t afford them because the ‘funny money’ was bidding things up to unrealistic levels.
Be patient…going to take time for this to run its course. 2007/2008 is going to be ugly for many people.
SoCalMtgGuy
May 25th, 2006 09:25
Yeah the HELOCS will be key in this whole thing. But lets not forget outside factors like the friggin gas prices. They will also play a big part in all this. Your mortgage adjusts several hundred dollars and your gas bill goes up several hundred dollars. For many people living check to check that spell disaster. BTW, anybody lookin to buy a sweeet SUV. I can make ” such a deal”. I cant even give the thing away.
May 25th, 2006 09:52
SoCalMtgGuy - Thanks for the info…I don’t know how these people sleep at night.
May 25th, 2006 11:37
SoCalMtgGuy:
Thanks for the validation. For bubble markets, it’s been easier to figure out what to do since their market’s been so extreme.
To be clear on the “the break even point is about 3 years on a buy-down point”, is it 3 years for ‘each’ buy-down point? In other words, 1 point –> 3 years, 2 points –> 6 years, 3 points –> 9 years, etc? Am I interpreting that correctly? Thanks.
Atlanta_Renter
May 25th, 2006 12:27
I think people all over the country took ARMs. When they adjust, they will be forced to sell. Foreclosures are up even in Omaha, NE, a city where prices are still climbing 2% annually. But not for long, is my guess.
Does anyone want to comment on the UCLA Anderson Forecast that CA home prices will not fall, but will stay flat until 2011 or 2012, because home prices can only fall when people lose their jobs. In the past downturns, only cities in which jobs were lost did home prices decline. And there is no risk of job loss in CA, or San Diego, except those in construction, mortgage and realtor industries, and retail. The rest of the job market looks good, the economy is humming, so people will not be forced to sell their homes, and they won’t. The bubble will pop on the liquidity side ( falling sales), but no on the price side.
He did not mention rising inventory, ARMs, mortgage equity withdrawal. He did say it’s a big mystery to him what will happen in 2006 when people don’t get that $80K of real estate wealth that they got last year. (Yes, the average CA homeowner got $80,000 in real estate appreciation last year, leading to perceived wealth and real wealth if they took it out of their homes, causing spending to go up a lot.)
How can you take any economist seriously about the future of the housing market when he doesn’t even mention the word adjusting mortgage? Or the words mortgage equity withdrawal? Or foreclosure?
May 25th, 2006 12:30
I just now saw this on craigslist:
http://washingtondc.craigslist.org/rnr/164642726.html
(FYI Manassas, VA is near Washington DC)
May 25th, 2006 13:27
“Does anyone want to comment on the UCLA Anderson Forecast that CA home prices will not fall, but will stay flat until 2011 or 2012, because home prices can only fall when people lose their jobs. In the past downturns, only cities in which jobs were lost did home prices decline.”
I’m no expert, but I’ll give you my opinion. There has been an unprecedented increase in home prices in various parts of the country. Since it’s unprecedented it’s very difficult to predict the future based on the past. The current housing market was built on wild speculation and loose lending standards. I personally don’t see anything that can hold these prices up long term. Economists can give opinions, but I’m not about to risk my financial future on what they say, especially when they fail to mention important facts such as those you’ve listed.
May 25th, 2006 14:49
I was at the title company in Concord, CA today signing the papers to SELL my Walnut Creek condo(yes it actually sold when I marked the price down) . . .we were the only customers there, and when I made the appointment they said, “come in whenever you want.”. . .three years ago when I sold a rental condo, the title office was packed, and I could only get an appointment when THEY found time. . .the person I talked with said he had only two transactions this week, and was leaving early tomorrow. . .said their offices were “consolidating” and “downsizing.”. . .hmmmm there go more jobs! . . .moving to San Diego and renting a realy nice Little Italy highrise condo for $1500 a month - view of the bay, granite counter tops. . .the works. Person I am renting from is relocating, and won’t sell because he paid 500K two years ago, and comp units are now selling for 425K!!. . .says, “I will rent till the market turns around.”
May 25th, 2006 14:55
I’ve watched that video, and actually what he says about low interest rates is that while they did play a role in starting the bubble going, the thing has gotten way too out of hand to be blamed on anything but pure, speculative frenzy at this point. I’ve heard that roughly 12% of all homeowners have an ARM, and by no means will every single one of them default, so the I guess it remains to be seen what the impact is of this kind of financing.
I’m inclined to think prices will come down in CA, however, because 40% of all the jobs created in the past few years have been somehow related to real estate, and as we’ve already seen, layoffs are coming.
May 25th, 2006 15:31
Bubblewatcher -
I guess I’ll need to spend an hour watching that video. If Thornberg feels speculative frenzy is what drove this market, how does he conclude prices will not fall? I would argue if the speculation is now gone and income levels can’t support the outrageous prices then prices will “revert to the mean”.
May 25th, 2006 16:57
Hello to All,
NBC News had a video clip on the foreclosure spike that I thought was well done-
javascript:oMvsLink(’00′,’a36b7785-05ab-46b9-a728-f38d52480e4b’,'’,'’,'’,'’,'’,false,false,’Source_Nightly News’)
http://www.msnbc.msn.com/id/12975777/
Keep the faith!
invest3
May 25th, 2006 20:19
I watched the UCLA video a couple times over a few weeks back. I took something comepletely different away from it.
Thornburg said “at best prices will stay flat.”
I think the UCLA was tired of people bashing them for the doom and gloom so they did not want to stick there neck out again.
May 26th, 2006 10:57
I agree with Cbass. I believe Thornberg (the video producer misspelled his name which makes it harder to google him) has been negative on the market for a long time. I suspect that, like many of us, he believes it should have crashed in 2003. Years of being negative (and let’s face it logical) have made him a target. Would not surprise me to learn he has been threatened or had some kind of smear campaign against him. Now that his predictions are proving correct he has to be somewhat political and also cautious since he was “wrong” for so long but only due to the increase in creative financing. Also, if this market crashes as badly as I fear it will many people might point to him as the “cause.” I know I am being much quieter with my predictions as they start to come true. But if you really watch the video and read his other interviews, you’ll probably begin to see that he is more bearish than he appears. A flat market is the best case scenario.
May 26th, 2006 11:51
Am I the only person in American living in a house I can actually afford? I put 20% down. I refinanced when the rates were low, but missed the bottom by about a quarter point. I have a 15 year fixed mortgage. I actually expect to live in my current home long enough to pay off the mortgage.
May 26th, 2006 13:20
I 100% financing on a home for 240k in 2003. Stated income to boot. 30 year fixed at 5.75. I got lucky. Price shotup like crazy soon after. My comps currently are at 440k.
May 26th, 2006 14:19
I’m finally relieved to see a group of people that understand what is about to happen to all the real estate speculators in California and the country.
I have to admit that I was about to make the same mistake until I called my real estate investment professor from college (who makes millions in commercial and residential real estate.) He gave me the advice to not buy a house in California until I could afford to put at least 10% down and be able to rent it out for enough to pay the mortgage.
He also explained to me again (the first time was in college) that I would see speculators make money flipping houses and my friends “make” money when their homes appreciated, but to hold off because I would be better off in the future by paying rent and banking the money that I was saving by not putting it against a mortgage. He then went on to say that I will begin to see interest rates rise, causing less demand in the market, and an over supply of real estate - largely due to contractors (speculators) building condos and town homes so that they could “maximize the potential of the land.” He indicated that you would see contractors start to offer amazing loans on their homes so that they wouldn’t default themselves, but to not give in because most of them will be condos and they will be hit harder than SFRs. At the same time, you will see price wars happen between SFRs and new construction, each trying to get the little qualified buyers out there to buy from them.
He said that if I saved $50k to $100k that I would be able to walk into a SFR without any problem because there will be a ton of properties out there that will be available due to foreclosure.
It’s exciting to see all this come true, but it was also tough watching people make some good money speculating on the houses.
May 26th, 2006 18:20
Those of you above who thought Thornberg predicted a price bust, you’re wrong. He says a bubble pops on the liquidity, not the price side. He expects prices to revert back to 2003 prices. Those prices were justified by the capital gains tax elimination of real estate gains, and lower interest rates. After 2003, prices went parabolic, and were no longer justified. He also said home prices in the past have only dropped when people lose their jobs, and there is no indication of job losses in CA, except for construction. But that won’t be enough to cause a recession. He believes everything he says.
When I asked him at the 5/3/06 San Diego conference, at the public Q&A, what he thought of Talbott’s book, Sell Now, Thornberg got very agitated and dismissed Talbott as someone he didn’t know.
Thornberg has not changed his mind. He called this a real estate bubble, and he still does. Some of you are confused, because he defines bubble differently than what we are used to: a deviation from fundamentals, but not meaning a price drop. A pop in liquidity, so fewer sales. Flat prices until 2011.
May 27th, 2006 09:02
Thornberg and all the other “experts” are still failing to look at the real problem. That problem is relaxed lending standards. Way too many people are buying homes on stated income loans. That means that their income is not verified but stated on the loan app. That means that they are probably exaggerating their income and really do not qualify for the home. They are also using stated income on ‘exotic’ loans. I know for a fact that stated income loans are the majority of loan originations now with very few people using traditional full documentation loans. These are going to cause a huge increase in defaults, which are already on the rise. Loose lending and adjusting rates are the biggest factors in all of this. And you can’t have flat prices until 2011 if we are already seeing price reductions.
May 27th, 2006 14:10
I think Thornberg does not want to say the prices will fall, because he does not want to creat panic.
IMHO prices will fall because we have real estate bubble caused by credit bubble, that is the bottom line.
May 27th, 2006 15:43
The UCLA Anderson Forecast held a conference in San Diego, directed to the SD market, on May 3, and I attended. I also have their forecast brochure and the presentation handouts.
For SD they predict flat prices until 2011. They even have a chart in the book which shows SD prices were flat for 7 years in the early to mid 90s. This is contrary to data from OFHEO and HUD. I don’t know how they made that chart.
Like I wrote above, he admits all the problems with the national and local economy. He admits our dependence on construction, real estate, lending, and low paying tourism and retail jobs. He admits that the average Californian saw $80K in appreciation last year in his home, leading to a wealth effect and more spending. He admits that our savings rate is negative, and we are spending equity from our homes. He admits we our manufacturing is down.
But then, he draws a completely irrational conclusion: despite bubble prices, the pop will be on the liquidity side as fewer people sell their homes. There will not be a pop on the price side. He says that home prices can only drop in a recession, because historically, that’s the only time house prices have dropped.
He says you need 2 sectors to have massive job losses for a recession. We will see major job losses in construction, but the number of realtor and mortgage officer jobs lost won’t be large enough to make up the second sector of job losses. He ignored retail and restaurant completely. He ignored what will happen when consumers pull back on spending because home apprecation ceases, when they cannot make their mortgage payment because the ARM adjusted, when they lose their RE related job and cannot make their payment.
He’s not afraid of the R word: recession. The UCLA group predicted the 2000 recession. They were one of the only economists who did.
Thornberg also said the government is in for hard times, as consumer cutbacks in spending over the next year will reduce taxable sales, and the CA state budget may go in the red.
He says the downside risk is higher than the upside risk. The current situation is a great mystery, because it is unchartered waters.
Again, for SD they expect 6600 construction jobs lost in the next 2 years. They said that the recent 2% increase in Professional and Business Services will make up for any job loss in realtor and mortgage officers.
I started a topic at ocrenter’s blog, and will continue this discussion over there. That way, we can all share our ideas on that one forum. I wrote Part 1 this morning.
I will write several more parts over the next few days, take everyone’s comments, and write a summary to send to all the media. I will credit the names of the blogs along with my name. I hope to make it consise, insightful, and quantitative, so it will be respected enough to be published somewhere. Even if some newspaper writer takes it and rewords it, we can all be thrilled. Debunking this Thornberg stuff will be my greatest pleasure! He is so wrong!
May 27th, 2006 15:52
Oh, here’s the blog address for ocrenter:
http://bubbletracking.blogspot.com/
May 28th, 2006 02:55
YAWN — You mentioning for the billionth time on your Blog how successful you are at your new job, etc…. Give up the Blog if you’re such a busy guy.
May 28th, 2006 05:52
jim james - YOU give up this blog if you’re going to be so grumpy.
SoCal is explaining why he’s no longer posting every 2nd day. All of us who come here are fans of his. I even consider him a friend, so I will stick up for him!
May 28th, 2006 06:30
It’s a renter’s market
Sluggish sales, high prices and desperate investors are causing homes to lease for a fraction of what they would cost to own.
By Barbara Marshall
Palm Beach Post Staff Writer
Sunday, May 28, 2006
This spring, Michelle Lewis and Rudolph Maragh of West Palm Beach were preparing to buy a condo when they took one last look at the local housing market. And decided to rent.
The couple and their two kids leased a 2,000-square-foot, three-bedroom house in the gated West Palm Beach development of Briar Bay for $1,500 per month — about 40 percent less than the monthly mortgage payments on a comparable home.
“It was the same price as an apartment, so we might as well get the house,” Lewis, a registered nurse at Columbia Hospital, said of their decision.
Welcome to the flip side of the housing boom, where renters can afford brand-new dream homes while landlords struggle to meet their monthly mortgage payments.
According to local real-estate agents, condominiums and single-family homes throughout Palm Beach County and the Treasure Coast are leasing for 30 to 50 percent less than the monthly costs, including property taxes and sky-high insurance premiums, of owning the same property.
In Riviera Beach, for instance, three-bedroom townhomes are renting for as low as $1,150 a month. Owning one would cost about $1,800 to $3,000 a month, after a 20 percent down payment.
In West Palm Beach, $400,000 townhomes are renting in the $1,500 range. Owning one would cost nearly twice that per month.
In Lantana, a $450,000 three-bedroom condo with an Intracoastal view is available for $1,850 per month.
In Port St. Lucie, three-bedroom, $450,000 houses are renting for about $2,200, a third less than they would cost to own.
And in Wellington, $800,000 homes that would cost nearly $6,000 per month to buy are renting for about $3,000.
Deals like these changed Twanya Robinson’s mind about buying a home.
“I’m approved for a mortgage of $300,000, but I didn’t think I was getting enough house for the money” at that price, said Robinson, a controller with a downtown West Palm Beach software company and a mother of three.
Instead of buying, she rented a new 2,100-square-foot house for $1,650 per month. With four bedrooms, the house in the gated Lakes of Laguna development of West Palm Beach is big enough for her children to have their own rooms. Purchasing the house would have cost $350,000 — or about $2,300 a month after plunking down a $70,000 down payment — more than Robinson can afford.
Robinson and Lewis are among many would-be home buyers who have noticed a dramatic change in the local real-estate market — and changed their plans to follow it.
“It’s definitely turning back to a renter’s market,” said Daniel Gallien, owner of Rent 1 Sale 1 Realty in West Palm Beach. “We’re getting $400,000 to $500,000 houses renting out for $1,500 a month.”
“The only real advantage right now in purchasing is the tax deduction,” said Dave Putnam, a real estate agent with Golf Club Realty in Jupiter.
Rental ratios have reversed. Rental rates were up last year, in part due to the influx of insurance adjusters and construction workers who came to the area after the hurricanes and increased rental demand. But this year, the tables have turned.
According to many real-estate agents, potential home buyers are now in a wait-and-see mode. Before they commit to buy, they want to see whether prices will fall, and whether the region will be hit by a hurricane this year.
The result is a rising inventory of homes for sale — and, increasingly, for rent, at relatively low prices.
“A lot of sales are turning into rentals,” said Steven Saines, an agent with Illustrated Properties who specializes in Treasure Coast homes.
Discussion of the strong rental market makes some real-estate agents uneasy. Several refused to comment publicly, fearing it would further erode sales in an already slow market.
“People are walking away from sales contracts” and renting instead, said one who didn’t want his name used. That agent said he sold his own investment property and plans to rent a $2 million house for the bargain price of $3,500 a month.
Speculators in particular seem to be fueling the renter’s market. As buyers drag their feet, people who thought they could turn a quick buck by buying real estate last year have been left with empty houses and expensive mortgages. “They were hoping to flip their properties but they didn’t, so now they’re trying to rent them out,” said Putnam. Landlords leasing at a loss
Terrence McManus, president of Florida RentFinders, said now that the interest-only periods have ended on many investors’ mortgages, “they’re trying to get income out of their houses any way they can.”
McManus said that most of the landlords he works with are renting at a loss. “None of them is cash-flow positive,” he said.
Some agents are advising landlords to slash rents in order to create even a trickle of cash. “If it takes seven months to rent at $4,000, you’re better off getting $2,000 right away,” said Saines.
The situation is creating sleepless nights for investors, such as Dena Webster of Wellington, who hasn’t been able to sell any of the 14 houses that she purchased at the peak of the boom. Eleven are in Olympia, a Wellington development where houses routinely carry price tags of more than a million dollars, but where rents are in the $1,800 to $3,000 range. “I’m upside-down on every one of them,” Webster said of her properties.
To help make her monthly mortgage payments, which total $50,000, Webster has renters in four of her houses and is advertising for tenants for two more. Still, she’s taking large losses every month. “I’m not sleeping,” she sighed.
Renters such as Michelle Lewis and Twanya Robinson, on the other hand, are slumbering soundly.
May 28th, 2006 08:23
Jim James -
I’ve never understood comments like yours. It’s like the person who calls into the radio station to complain about the content. My advice to you - tune out. ‘nuf said
May 29th, 2006 06:58
I think jim james is a spy sent here from the national association of realtors to infiltrate the ranks of the housing bubble bloggers. he is not to be trusted with any sensitive information. we’re on to you jimmy….
May 29th, 2006 08:17
Thornburg keeps to a script and only varies from it at one point, at which he says that “the OC will get hammered” on prices.
That’s what he really thinks, the rest is politically motivated moderation.
May 29th, 2006 18:39
Powayseller - I bow to your greater knowledge with you having actually spoken to Thornberg in person. And if what you say is true I agree with you - no way can prices remain flat for the next five years. One point - Those loans are adjusting after all and no one (except a socialist government that I hope we are not headed towards) can prevent all the unqualified buyers from losing their homes. I feel very bad about that but if we are going to be perfectly honest those with low credit scores and NO down payment should not have been allowed to purchase half million dollar homes to begin with.
May 29th, 2006 19:14
Heh, “Jim James” is apparently a Bitter Realtor.
Hope you’ve save up Jim, and returned the leased Mercedes, because the party is over.
May 30th, 2006 04:29
SD RE Bear - I spoke with Ryan Ratcliff after the conference, and did not speak with Chris Thornberg. I do have their forecast brochures, and watched the video, to make sure I got all their points. I wish I could ask them a whole bunch of questions, because certain assumptions they made, make no sense to me. And I’d like to know why they did not consider exotic loans in the forecast.
May 30th, 2006 11:11
Reply to post 38
This article was on Ben’s blog and got a lot of attention, especially Ms. Webster and her 14 properties (needless to say, owing 14 (or more) mortgages on upside down homes makes you an FB by anyone’s definition, in fact when you look up FB in the dictionary you see her picture). It gets better. She is also a realtor and owns her own mortgage company. I wonder who the loan officer was who helped her buy these properties?
If you buy $6-8 million worth of property, to qualify for financing you either have to be making at least $2 million per year or use the limited income programs that hide the fact you don’t have the ability to repay $6-8 million. You would think someone in the mortgage industry would understand the inherent risks of borrowing so much money while not having the ability to repay. If you wonder why SoCal has to keep hitting the same themes over and over again, this is why.
May 30th, 2006 17:19
This is the best entertainment. You people crack me up.
May 31st, 2006 03:56
The people who read this blog should investigate SEC Regulation ‘AB’, which went on the books 01 January 2006. Immediately, inventory started rising and prices started to level-off.
http://www.securitization.net/news/article.asp?id=284&aid=5117
http://www.globalsecuritisation.com/05North%20America/066_070.htm
May 31st, 2006 07:07
“This is the best entertainment. You people crack me up.” (nervous laugh)
May 31st, 2006 08:00
Reply to post 38:
Apartment rents expected to rise 5%
By Noelle Knox, USA TODAY
Tue May 30, 6:55 AM ET
If you’re a renter trying to save for a down payment, or you’re just trying to move out of your parents’ home, it’ll likely get harder this year. Rents are rising faster than they have in six years.
Apartment rents are expected to increase 5.3% this year - about double last year’s increase - the National Association of Realtors says. That’s the highest jump since 2000, when the Internet boom created lots of jobs for young adults out of college. In April, rising rents were largely to blame for a sharp jump in consumer inflation.
“This is going to be the highest rental increase year since 2000, and it’s going to be a broad-based increase in rents, not just limited to a few markets,” said Hessam Nadji, who manages research for Marcus & Millichap, a real estate firm in Northern California.
“Renters are already facing higher energy prices and relatively moderate wage growth,” Nadji says. “This is going to really squeeze a lot of households.”
No one needs to tell Rosa Shephard. The $1,600 rent she pays for a two-bedroom apartment in Laguna Beach, Calif., will rise by $100 a month this Friday. It’s a 6.3% increase, and Shephard’s salary as an administrative assistant isn’t rising as much, so she’s trying to find a cheaper place to live.
“I’m trying to find a one-bedroom for $1,200,” says Shephard, 53. “It just doesn’t exist.”
There are four driving forces:
•Job growth. U.S. businesses have generated 4 million new jobs in the past two years. New hires typically look for rental property.
•Rising home prices. From 1980 to 2000, the median price of a home was 12 times higher than the annual average rent. By this spring, it was 21 times higher, Nadji said. The median-priced home now costs $223,000, making the American dream a fantasy for more renters, whose competition for apartments then drives up rents. There’s little relief in sight in such areas as Phoenix and South Florida, where home prices soared more than 30% in the first quarter of this year over the same quarter last year.
• Condo conversions. When the housing market was at its blazing peak, many investors who owned apartment buildings kicked out tenants and sold the units as condos. One out of three apartment buildings sold last year were converted into condos for sale. That took 191,400 apartments off the market, according to the NAR. In addition, the number of new apartment buildings under construction is down this year.
• Hurricane Katrina. About half the 100,000 displaced families in the New Orleans area haven’t returned. Most of them were renters, says Lawrence Yun, an NAR economist, and “that’s putting additional pressure on rental units throughout the country.”
May 31st, 2006 15:41
Judicious1,
I am not sure what you meant by “nervous laugh”.
What I meant by my “This is the best entertainment. You people crack me up.” comment was that I find the bitter realtor and other like comments very witty, etc.
I wasn’t being anything other than sincere about finding people’s comments funny..
May 31st, 2006 15:49
I actually found this posting so true with my experiences…everyone I’ve been blabbering to when asked about housing issues (as a sub-segment of massive monetary policy mismanagement, worldwide liquidity and US driven gluttony) is starting to come out and at minimum state that they see what I have been talking about - at ‘worst’ for them, that I have enough data/info to have a very very strong case for a pending problem.
My response to it at this point? Yawn. Called it early, too early, but not in any way shape or form as excited about it now as the people I’m talking to are now. I’m hitting the snooze button and coming back out in late 06 to see what the world looks like…
May 31st, 2006 17:51
“Apartment rents expected to rise 5%”
Sounds like inflation to me. That means that interest rates just aren’t high enough yet for any significant number of FBs to start feeling the heat from their ARMs.
bubble_watcher
May 31st, 2006 21:47
“Apartment rents are expected to increase 5.3% this year - about double last year’s increase - the National Association of Realtors says.”
Hilarious. Despite the sea of “For Rent” and “For Lease” signs in my area, the local papers have been screeching month after month about the imminent rent hikes, at the bidding of their masters in the RE complex. They’re not dumb enough to make the connection THIS obvious, however.
This reminds me of a headline from the Onion: “Cancer Lobbies For Decreased Cancer Funding”.
June 1st, 2006 10:00
Pen -
My apologies. I interpreted your comment as somewhat condescending. Thank you for the clarification.
Judicious1
June 3rd, 2006 10:09
SoCalMtgGuy - you said that $500 billion are supposed to adjust this year, so we are halfway through, at $250 billion.
I disagree, my guess is we are 30% through, or $150 billion. Why? First, as of June 1, we are 40% through the year. Second, the rate of ARMs increased throughout 2003, 2004, 2005. So there were few ARMs at the beginning of 2004, more in the middle, and most of at the end. The bulk of the 2004 ARMs were made after July 2004. I guess that 70% % of the ARMs were made in the last half of the year. This is my guess. Any comments?
So, we’re only 30% through 2006 ARM adjustments, and have all of 2007 to go. This will be a real mess!
Do you know why inventory is so high? ARM sellers? Speculators dumping depreciating units?
June 3rd, 2006 11:37
powayseller- inventory is stacking up because it is just not selling. Like I said before, I work in the business and people that argued with me about this last year, don’t even want to go there now. I don’t do the whole I told you so thing, because peoples livelyhoods are at stake here. We all knew this was going to happen but it is going to be really bad for alot of families. Heck, I’ve got my job to think about….
June 3rd, 2006 14:11
poway seller, I agree with your analysis of what percentage of resets we’re through for the year. And of course most people will “burn the furniture” for a few months and then it several months between first missed payment and the bank selling it’s REO. It might be ‘08 before we see maximum inventory.
wiseguy. That may well be true locally, but ISTR that Calculated Risk had a chart on his blog showing that for each of the first four months in ‘06 sales of new houses were below the ‘04 and ‘05 but were still above the ‘03 level. Inventory has soared, but we’re still seeing strong sales levels for new homes. Perhaps the current inflated number of realtors makes it LOOK like sales are at a low ebb, but I don’t think that we’re anywhere CLOSE to the month’s supply figure that we’ll see in the future.
June 3rd, 2006 15:24
On a humorous sidenote: I was reading a local (southern cal) real estate industry periodical the other day and one of the articles said that we are not in a ‘bubble’ but more of a ’souffle’. This was intended as a serious article, but seriously….when will they just call a bubble a bubble?
June 4th, 2006 18:02
Ya know for a guy that pisses and moans about the industry may I suggest getting the goooooooooogle ads off your site that promote option arms and other risky loans. Kinda makes you out for a chump.
June 4th, 2006 18:25
Actually, I think the google ads speak volumes about homes are still being purchased today.
June 4th, 2006 22:05
I pray you are right about the downpayments and other restrictions coming back, SoCal.
If you ever hear even a HINT of news about that, can you make a post?
June 5th, 2006 06:26
jc,
I think that ‘news’ will be YEARS away. It is going to take some painful fallout from all the ‘funny money’ loans for people and the industry to get back to the fundamentals.
SoCalMtgGuy
June 22nd, 2006 08:47
Great blog! You clearly have specific opinion on the market, but you support it with lots of facts rather than just shouting loudly.
However, I haven’t seen you address - even as devil’s advocate - the risk of trying to time the market, as well as the advantages of long term holds.
I respect that you’re waiting for prices to drop before buying, but aren’t you concerned about the inherent risks in trying to time the market? I agree that at some point, prices will reverse, but timing and the extent of these drops is the big unknown, steered by the invsible hand of the market. Do you worry you’ll buy before the market bottoms?
Also, assuming that buyers don’t expose themselves with ARMs, or otherwise limit their exposure to a small proportion of their loans (the 10 in 80/10, for example), a buyer has the time on his/her side. Over 10 years (from date of purchase), I would speculate that very few markets have experienced a net decline in average and median home values. Of course, to your point, it’s the 80/20 ARMs that allow many families/individuals to afford more house. The ARM adjustments will put pressure on prices, but the question is when? For someone whose objective is to own in order to have a home that is his/hers, and who can lock into a long term fixed rate, I don’t see the point of waiting, if they plan on making this purchase their home for 10+ years.
Being an investor, any drop will only benefit me. Why? First off, with my current investments, I always get into positive cash flow situations. When prices drop, rents will rise, improving the net cash flow and long term return even more. For future purchases, prices will come down to the point where cash flow is easier to get without parking a lot of cash into the property as a down payment. The ability to leverage my resources to obtain cash flow will increase. Additionally, with the massive flow of properties needing to move quickly and for cheap (pre-foreclosures, distressed properties, trustee sales), I can get a rock bottom price, fix it up, and offer a better product at a cheaper price than the guys on either side of me who can’t cross a certain lower selling point else they go negative.
That said, not all markets are as inflated as others. You mention the worst - Vegas, San Diego, Florida, Phoenix. There are many other markets where net positive appreciation is likely over the next couple of years and beyond (short term).
I enjoy your blog, and will link to it from mine!
June 22nd, 2006 20:16
“When prices drop, rents will rise, improving the net cash flow and long term return even more.”
There is no guarantee that rents will rise under current market conditions. With a continuing mass exodus out of San Diego, condos reverting back to rental units, houses being put on the market for rent, and nearly all apartment rentals showing vacancies, I do not envision a continuing rise in rents for the forseeable future.
June 22nd, 2006 21:59
Correct. In markets where population is declining, it’s a recipe for disaster. Interestingly, when a market bottoms out, the fact that there is affordable housing to buy becomes an attraction that draws people back (see Detroit).
June 24th, 2006 18:36
Hey Socal:
How about a post this month to let us know how you are doing?
Got any steam on lenders tightening?
Regards,
BB
June 24th, 2006 21:58
Johnny,
When ‘rates were good’ a while back, I recieved a ’special offer due to my excellent credit’ where I put all of my debt on one card at 1.9% until it was paid off. I’m getting about 4.8% in my ’savings account’, so no hurry to take money out of savings at 4.8 to pay off debt at 1.9%.
Using borrowed money can be a good thing for responsible people…unfortunately, too many people were irresponsible with mortgage money the past 3-5 years.
I can officially say that I have a ‘positive net worth’. I don’t ‘own’ a home, but I am putting away a decent amount of money away each month…and I have zero financial stress. Having a solid year+ of all living expenses in the bank, as well as health insurance and disability insurance give me peace of mind.
No living paycheck to paycheck for me…and I’m not a debt slave. Life is good when you don’t have 50-60% of your gross income going towards an interest only mortgage
Bubble Butt…I’ll get a post up here soon. I have been absolutely slammed lately. I did manage to meet Prof. Pigginton and talk RE with him for a little bit. Good guy.
Stay tuned!
SoCalMtgGuy
June 25th, 2006 18:56
C’mon Guy,
Time for an update!
It’s been over a month!
June 25th, 2006 21:29
Look for a new post at the end of the week. I have a day off then, and should be able to get a good post up.
SoCalMtgGuy
June 27th, 2006 11:07
Seattle Eric-
You make a valid point with regards to “special” financing. A 10-year interest only (IO)mortgage, or even a 15-year IO is the joker in this deck.
If the “accepted” Bubble-dynamics revolve around ARM’s adjusting up, causing financial stress, thus causing owners to jump ship and sell short, thus causing market values to fall, thus causing more market havoc…The 10/15-year IO may force a re-examination of historical market trends and cycles. (sorry for the run-on).
When the proverbial ARM rate adjustments come, an existing owner could simply re-fi into a long-term IO and wait it out. Which would equate to a flat RE market for a long period. Perhaps incomes will rise to allow the owner to get into a more traditional mortgage, perhaps traditional RE financing will simply die a slow death. There will be no bubble collapse, but no significant home appreciation for 10-20 years?
In 10 years, the landscape could be much different, with the vast majority of new buyers looking to rent with tax benefits & remodeling options (isn’t that effectively what IO mortgages are all about?).
As much as I would like to think that the guy down the street from me who paid $800K more than I did 12 years ago is a sucker, I now think he too may have options if things go South.
June 27th, 2006 13:03
“When the proverbial ARM rate adjustments come, an existing owner could simply re-fi into a long-term IO and wait it out. ”
This assumes:
1. Mortgage rates are not significantly higher than when the original IO loan was made.
2. The borrower can “afford” the closing costs and any refi penalties.
3. Credit conditions have not sharply deteriorated since the advent of this type of loan.
4. Real estate prices are still high enough to make the refi possible.
“As much as I would like to think that the guy down the street from me who paid $800K more than I did 12 years ago is a sucker, I now think he too may have options if things go South. ”
I strongly suspect that this guy’s only option down the road will be foreclosure; in which case, the mortgage lender and mortgage investors are the real “suckers” (in addition to the fact that the borrower’s credit record has been trashed).
July 13th, 2006 20:27
Broken record time:
Hey Socal, any chance you will do a post in July ??????
July 16th, 2006 21:31
I guess he is gone for ever !! Not good morale for the bubble believers !!!
July 17th, 2006 13:47
Nope….not gone….I just had the size of my territory practically double earlier this month. Been busy.
I will share some highlights and stories here soon. But like I said before…this is just the VERY beginning.
Just check back every few days…it doesn’t take that long.
Thanks for stopping by!
SoCalMtgGuy
July 17th, 2006 21:43
Hi SoCalMtgGuy,
What is your opinion on San Francisco, San Mateo County real estate market?
I’ve seen prices being reduced, however at the same time I see the real estate agents saying prices will not drop in this area because of the lack of housing.
July 20th, 2006 18:48
***I accidentally deleted the post I was replying to when cleaning out the spam. Here is part of the post I salvaged. Sorry to the poster***
—————
http://www.latimes.com/news/local/la-fi-rent20jul20,0,5963850,full.story?coll=la-home-headlines What say you? is theforced rising of rents while the housing prices are still too much, coupled with rising …
—————
That article is talking about 100+ rental unit complexes. I’m sure the rents have gone up because many large apartment complexes were converted to condos the past few years.
I rent a condo from an individual. I think you can find better deals with more negotiating room if you go this route. There are lots of ‘investors’ that need tenants for the homes/condos they bought.
These people will rent for a ‘lower’ amount when faced with paying the whole mortgage themselves. I have friends that rented a place in Carlsbad for about $400 less than what the landlord wanted. After sitting vacant without a buyer or a tenant, the owner decided it was better to take a few hundred less a month than hold out for a price they realized they were not going to get.
Rents will continue to rise in ‘apartment’ complexes which will read to more ‘repartments’ (condo conversions that will convert back to apartments). There was an article regarding this happening already in Sacramento on Ben’s blog.
This thing is a LONG way from being over….
SoCalMtgGuy
July 23rd, 2006 17:00
SoCalMtgGuy, could you do a post on people refinancing their ARMs into another ARM or a fixed rate mortgage? I’ve been toldl that this is pretty unlikely to occur, because
1) rates are 30-50% higher than 3-5 years ago, so unless the borrower’s income went up 30-50%, they cannot qualify. Or do they go stated, i.e. liar’s loan?
2) equity is not there; those who bought in 2004 or later have no equity, because most SD housing prices are back at 2004 levels, and many refinanced their equity out. You need 20% equity for a fixed rate mortgage, and who has that?
3) most people with adjustables don’t even know how high their payment will go until they get that new payment slip, and by then rates are too high and equity is even less as prices have fallen further.
Anxiously waiting for another post. Getting withdrawal symptoms
July 27th, 2006 19:10
SoCalMtgGuy,
You seem not to find the time to write here anymore, only occasionally on Ben’s blog. While I regret that, it is probably as well - with the soon expected arrival of the first YoY decline in median prices, the housing bust will even officially begin, and without appreciation, these option-mortgages don’t look so good anymore, neither for lenders nor for borrowers. Even mainstream media might then warn the uninformed buyer not to assume that appreciation will bail them out. What I wanted to ask you, however, is to leave your site available for readers, especially your comments to the mortgage madness. You might want to disable further writing, because maintaining a blog takes time, but your financial insight (from the inside) is the best I have read so far from the ground level of the financial side of the housing bubble. It is worthwhile to remember that is was not only buyers’ greed and naivite as in previous housing bubbles but a loss of sound financial standards on the lenders’ side that enabled the bubble to inflate so long. I have even one question for you about the coming downturn that I hope you will find the time to answer: I have read that the investor who bought a mortgage from a lender can force the lender to repurchase the mortgage under certain conditions, like a default on the payments in the first years. What are the standard conditions, and how widespread, do you think, will forced repurchasing be? Will it lead to the (deserved) bankruptcy of many lenders?
Regards,
Peter
July 27th, 2006 20:26
Peter,
I will keep this site up, and I will get a post up…..sooner than later.
I know it has been a while, but I have been all over the place. My territory with my new job is ALL of SoCal that is not LA. That is Orange County, San Diego, Riverside, San Bernadino, Palm Springs/Desert area, Temecula, etc.
I wish I could make blogging my ‘profession’, or make a business out of educating people on financial issues.
As far as your question, I don’t know how all this stuff is going to pan out. The world has NEVER lent money like it has the past 5 years and to borrowers of such shoddy credit, and at such high loan to values. I will talk to some of my friends and contacts still in the business and see if they know. I think we are still a bit premature for most people to be thinking like that. Everybody is still counting their appreciation and patting themselves on the back while holding an appraisal from 2004/2005.
I WILL get a post again soon.
Thanks for the comments, and check back periodically…it doesn’t take long to check a webpage to look for new content.
Stay tuned…
SoCalMtgGuy
August 2nd, 2006 09:00
Hilarious. Taking away the idea of cancellation of the blog has likely increased the web traffic exponentially.
You folks want to hear more doom and gloom. Why? For validation ? For advice on what to do next?
BRILLIANT !
August 2nd, 2006 18:41
Todd,
I don’t understand your posting:
> You folks want to hear more doom and gloom. Why? For validation ? For advice on what to do next? BRILLIANT !
I want to read for understanding, like many other who came here, I assume. The high ratios of hous prices (and land prices) to income seemed irreal to me, either indicating a secular shift in how Americans see their homes or something else. The something else turned out to be borrowing running wild. Without option-mortgage the housing bubble would have run out of steam much earlier, maybe 2003, with less dangerous consequences for the rest of the economy. This was the first place where I read about it.
Suicide and assistance to it is now often tolerated as an realization of personal freedom - is this a reason that society tolerates also financial suicide of the fucked borrowers?
Why do you think it is BRILLIANT, even if you meant it ironic?
Regards,
Peter
August 27th, 2006 20:23
Yawn indeed. It has amazed me for years how some have touted the ‘coming crash’ or cautioned us to ‘cover your ears, that huge bubble is about to burst’. I put those with the same ‘wisdom’ as the interest rates are about to skyrocked, which I’ve now heard since early 2001. I guess if it ever happens they’ll say they told us so. What a crock.
But the ARM scare is my new favorite. ‘What are all those poor ignorant folks gonna do when they adjust. Geez Louise Mytle, this is so stupid. There are two adjustments in an ARM loan. One is the yearly payment adjustment, the other is the dreaded ‘recast’ of the loan. I’ve been using these loans since their inception almost 20 years ago and have never had either one cause even a minor problem. This is no doubt due to the fact that I have an IQ significantly above room temperature.
The payment adjustment in the vast majority of ARM’s are limited to 7.5% annually. If for example your payment was $1K/mo. your adjusted payment would be a whopping $75/mo. higher for the next year. If that’s a problem, it’s obvious you shouldn’t have bought the property in the first place.
If recasting is on the horizon, there’s a simple solution. REFINANCE with a similar loan. I’ve done it several times over the years and not only didn’t have a ‘nightmare’ but lowered my payments in the process! Again, I’ve been doing this for almost 20 years, and will continue to do so.
As a matter of fact, I just did it for six homes in the Phoenix area that I originally purchased in 2002. Not only did I totally avoid any recasting, but I took more money out than I PAID FOR THEM IN THE FIRST PLACE. And since the vacancy rate has gone down to virtually nothing while the rental rates have shot through the roof, I’m still cash flowing nicely, thank you.
My final thought is this - If we really have so many idiots investing that they can’t figure this out, I think we’re in worse trouble than our ‘yawner’ is predicting.
August 15th, 2007 23:50
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September 11th, 2007 06:36
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