Real Estate Crash thread

[RootSkier]

What kind of moron ever thought the Vegas market could hold out?

Where I am, in MT, there is currently a serious biotech boom going on, one federal and one private, it is a big retirement/second home community, and the market never got as crazy. I think we are looking at a slight slowdown but no major crashes here.

[RootSkier]

The company I work for has been around since before the boom, but the # of employees peaked around '04. Lots of refi's then and the buying boom. All those 3 year ARM's are going up and now there are 4 of us. My soon to be project is to go through all the files and try to get all those people into something better for them.

I only know enough about lending to be dangerous. What exactly happens at the five year (or whenever) stage of an ARM? How much will interest rates go up, and how much are people paying now? Are there other costs that come due?

We have two mortgages (separate houses), one at 5.875 and one at 6. I would be shitting if my rates were going up but my property values weren't.

[Theodore]

I only know enough about lending to be dangerous. What exactly happens at the five year (or whenever) stage of an ARM? How much will interest rates go up, and how much are people paying now? Are there other costs that come due?

We have two mortgages (separate houses), one at 5.875 and one at 6. I would be shitting if my rates were going up but my property values weren't.

ARMs are set up so that the rate, in your case 5.875 and 6, stay the same for a set time period. 2 or 3 years is most common. These are reffered to as 2/28 or 3/27 ARMs. Fixed for 2 or 3 years, then variable with the market for the remainder of the mortgage.

Different ARMs go off of different indexes for their rates. These can be t-bills, CD's, COFI, or LIBOR. In recent history(last decade or so) the COFI has been the most steady.

When the "fixed" period is over, they start adjusting. This usually means up, especially now, since most people bought or refi'd a few years ago when the rates bottomed out. They usually adjust every 6-12 months on a set formula for the new rate. A lot of them have limits or caps. This limits how much they can adjust in 1 period and also limits the lifetime adjustment.

For instance take a 2/28 ARM with 3/1/6 caps.

That means the first time it adjusts, it can't go up or down more than 3%, each adjustment after that can't move more than 1% and over the lifetime of the loan it can't vary by more than 6% of your original rate.

No other costs should come due. Only thing that should change is taxes. If your loan has a prepay clause in it and you prepay, then you pay a penalty for that, usually a sizable one at that.

Looking into a fixed rate might not be a bad idea with the market cooling off. Might want to talk to a local broker and see what they can offer. This should be free, and more knowledge never hurt no one....

Hope this helps.

[ak_powder_monkey]

bwah!

although i think you need serfs.

thats where china comes in, I'll be a globalized baron although I'll feel bad for taking away all the good serf jobs from americans

[Theodore]

thats where china comes in, I'll be a globalized baron although I'll feel bad for taking away all the good serf jobs from americans

Slave master. Wait til the boys on teh ihatewhiteguys.com forums find out about this...

[RootSkier]

Looking into a fixed rate might not be a bad idea with the market cooling off. Might want to talk to a local broker and see what they can offer. This should be free, and more knowledge never hurt no one....

Thanks for the info. Ours are actually fixed. I wanted nothing to do with an ARM.

I guess my question was bad, though. What happens with an interest only ARM at 3 or 5 years? At some point, don't you have to start paying the principal? At that point, wouldn't your payment go up dramatically?

[Tippster]

30 year fixed at 5 1/8. I'm happy.

According to the analysts we interviewed the crashes will be in the smaller markets, with NY, Boston, LA, DC, SF etc. still seeing gains, altho more modest than before.

Since I don't plan on moving out of my house until I retire I don't care, really. We're already up 30% in 3 years, which helps with the Home Equity line we'll need eventually for renovations, but other than that I don't need my house to make a shitton of moolah.... my first one did that!

[Theodore]

Thanks for the info. Ours are actually fixed. I wanted nothing to do with an ARM.

I guess my question was bad, though. What happens with an interest only ARM at 3 or 5 years? At some point, don't you have to start paying the principal? At that point, wouldn't your payment go up dramatically?

Just asked my processor since he knows more than I. He said most are 10 year interest only. At that point you are essentially looking at a traditional 20 year amortized loan. Essentially you are paying $ for the sake of paying $ to live in a house. You make no headway into your debt at all. The shorter the term a mortgage is amortized over the less interest you pay, but the higher the payment(obviously).

So, those poor bastards who got into a house for the sake of getting a house and have their financial picture set using their interest only loan are in for a painful wake up call when they start eating into the principle.

[LeeLau]

Vancouver market is insane. Up 80% in 5 years. I'm on track to be mortgage free in 3 years - I want that financial security. Planning on dumping other RE holdings and taking my profits. Maybe go buy some Dynafit Comforts or something.

Its just too nuts.

[Theodore]

I would too. When I finally buy a house here in the next couple years I plan on paying it off ASAP. I HATE having debt.

[mr_gyptian]

Benny's got the schadenfreude machine working again I see.

So I'm guessing the ex got the house, Benny?

such a dick.

unless you live in a metro area that has had a ridiculously hot R.E. market you won't even know this is happening. Just ignor the NYT "The sky is falling" headlines and you'll be fine.

[iceman]

such a dick.

I'm rubber, you're glue...

Seriously, haven't you been hearing Benny talk about this a lot lately? I figured some gentle ribbing was in order, he didn't take offense, why should you?

[truth]

The economists I’ve talked to say that the bulk of adjustable-rate mortgages don’t start to trigger until next year. That’s when the nail-biting begins."

...or in my case, the bargain hunting. Bring it on. I'm in full vulture mode.

[mr_gyptian]

I'm rubber, you're glue...

Seriously, haven't you been hearing Benny talk about this a lot lately? I figured some gentle ribbing was in order, he didn't take offense, why should you?

I actually have to salute your comedic timing.

I do however like his chicken little rantings lately. he's posting like Frank Thomas was batting during his divorce.

[spindrift]

I do however like his chicken little rantings lately.

So, I take it that you do not believe that a huge number of American households will be really, really hurt by even a minor slowdown in the housing market - which is all but inevitable? And that you further believe that the weakening of the US dollar (considered simply in this case as price inflation) will not compound this to make for more pain?