Real Estate Crash thread

[Shredhead]

If I had money tied up in luxury second homes I would be getting the hell out.

If you were stupid enough to buy in one of those places, sure. But if you have something in a really nice place, there are always going to be people with money.
You make your money when you buy it, not when you sell it.
I'm looking in the islands right now. If I don't make any money, so what. It's not like I'm killin it in the stock market. At least I'll have a really nice place to go to, that I enjoy.

[yonskion]

^^^^^If you are serious about the Islands. My family has some of the finest properties avaliable Big Island and Maui....PM if you are for real.

[doublet]

If you were stupid enough to buy in one of those places, sure. But if you have something in a really nice place, there are always going to be people with money.
You make your money when you buy it, not when you sell it.
I'm looking in the islands right now. If I don't make any money, so what. It's not like I'm killin it in the stock market. At least I'll have a really nice place to go to, that I enjoy.

Good point. Having a place you are excited about and aren't relying on to produce cash flow is much different than having leveraged luxury real estate hoping to make a bunch of money on it. I think anyone hoping to make a bunch of short term gains on luxury real estate is fooling themselves.

I'd still kill for a place in Jackson.

[liv2ski]

I read a piece this morning on Option ARMs that stated the subprime meltdown over the last few years was nothing compared to the Option ARM shit storm that will happen over 2009-2010.
http://www.msnbc.msn.com/id/28035238
"The first wave of home foreclosures that hit in late 2006 and early 2007 followed the resetting of subprime adjustable mortgages with two- and three-year "teaser rates" written during the height of the lending boom earlier in the decade. But pay-option ARMs — which often don't "recast" for five years — have a longer fuse. Unless defused by aggressive public and private foreclosure prevention programs, the bulk of these loans will explode to higher payments in 2009 and 2010.

The scope of the problem was highlighted in September in a study by Fitch Ratings, one of the bond rating agencies that assesses the risk of defaults on mortgage-backed investments. Of the $200 billion in option ARMs outstanding, Fitch estimates that some $29 billion will recast in 2009 and another $67 billion in 2010. That could cause delinquencies on these loans to more than double, Fitch said.

To make matters worse, only 17 percent of option ARMs written from 2004 to 2007 required full documentation. Many of the borrowers who took out these loans also took out a second mortgage, which means they likely have little or no equity in their home, according to the report. That means many could owe more than their house is worth when the loan recasts to unaffordable payments."

Throw in unemployment at 9-10% at that time and this is going to get real ugly IMO. Good time to sell if you don't have a shit load of equity and a long (10+yrs) ownership window for prices to come back to 2004-05 levels??

[yonskion]

This is serious. This has been building since 03 when then Golden West Financial aka World Savings then Wachovia now Wells??? Bailout recipient started with the "Kool Aide". This loan product was copied then marketed hard with many banks. Come on you remember pick a' payment loans marketed heavy with GM's Dietec and Country Wide, usually attached to the MTA index. Not the GWF...COSI These products are the root of the funny business.
anyone with 70% CLTV could qualify no questions asked in to a negative amortizing loan. Banks paid 3 points to the brokers...now let me see I'll get my calculator 3% x $500,000.00 = http://www.tetongravity.com/forums/s...t=bailout+time

I read a piece this morning on Option ARMs that stated the subprime meltdown over the last few years was nothing compared to the Option ARM shit storm that will happen over 2009-2010.
http://www.msnbc.msn.com/id/28035238
"The first wave of home foreclosures that hit in late 2006 and early 2007 followed the resetting of subprime adjustable mortgages with two- and three-year "teaser rates" written during the height of the lending boom earlier in the decade. But pay-option ARMs — which often don't "recast" for five years — have a longer fuse. Unless defused by aggressive public and private foreclosure prevention programs, the bulk of these loans will explode to higher payments in 2009 and 2010.

The scope of the problem was highlighted in September in a study by Fitch Ratings, one of the bond rating agencies that assesses the risk of defaults on mortgage-backed investments. Of the $200 billion in option ARMs outstanding, Fitch estimates that some $29 billion will recast in 2009 and another $67 billion in 2010. That could cause delinquencies on these loans to more than double, Fitch said.

To make matters worse, only 17 percent of option ARMs written from 2004 to 2007 required full documentation. Many of the borrowers who took out these loans also took out a second mortgage, which means they likely have little or no equity in their home, according to the report. That means many could owe more than their house is worth when the loan recasts to unaffordable payments."

Throw in unemployment at 9-10% at that time and this is going to get real ugly IMO. Good time to sell if you don't have a shit load of equity and a long (10+yrs) ownership window for prices to come back to 2004-05 levels??

[Jim S]

sorry if this is a repeat

A friend sent this to me this week. FUCKING PRICELESS!

Should be a hall of famer!!!!

[Danno]

Just got the appraisal for my refi. My home has appreciated approximately 25% in the past 3 1/2 years! No crash here.

[cramer]

where do you live.

[Danno]

Boulder.

[rideit]

Yeah, but who the hell would want to live in Boulder?

[Dantheman]

Just got the appraisal for my refi. My home has appreciated approximately 25% in the past 3 1/2 years! No crash here.

What it appraised for and what you could sell it for are two very different things.

[cramer]

What it appraised for and what you could sell it for are two very different things.

Depends on how many homes on the market there in foreclosure. Where i just bought (oakley, ca) that would be a correct statment. 80% houses listed on mls are foreclosures. A quick google seems boulder doesnt have a big foreclosure rate. I didnt dig that deep though. Appraisal is a pretty good guage at what your house is going to sell for in a market where most are private sellers not trying short sales, etc i would think.

[Danno]

Yeah, but who the hell would want to live in Boulder?

me! And that's all that counts.

What it appraised for and what you could sell it for are two very different things.

True, though that is much less the case these days, appraisers are being much more conservative. Regardless, the comps in my neighborhood are very good indicators, a home on my block just sold last month for basically the same price as mine was appraised.

[khakis]

I don't think your appraiser is very good if he/she doesn't take into account the local market. Mine definitely took a chunk out of my house's value based on number of REO/short sales for sale in my neighborhood.

[DJMingus]

Having had numerous refi appraisals on my Boulder houses I have never seen one that was not VERY conservative... in my *very limited experience* appraisals are generally low not high.

Right now though the RE market is plenty different than the last fifteen years I imagine.

[DJMingus]

Just got the appraisal for my refi. My home has appreciated approximately 25% in the past 3 1/2 years! No crash here.

That's good news Danno... I have been assuming a flat market at best lately despite the spray from RE agents.

[MashedPotatoes]

I read a piece this morning on Option ARMs that stated the subprime meltdown over the last few years was nothing compared to the Option ARM shit storm that will happen over 2009-2010.
http://www.msnbc.msn.com/id/28035238\

won't this be at least somewhat mitigated because the indexes for many of these loans are at historic lows? if you at least payed the interest the reset isn't going to be nearly as painful as it would've if rates had stayed in the 5% range.. right?

[Danno]

That's good news Danno... I have been assuming a flat market at best lately despite the spray from RE agents.

yeah, I was pretty stoked that the home 3 doors down sold for what it did. Zillow.com was off by $35k on my home value, if you use that site.

Of course, all bets are off if you're not in Boulder, I know outlying areas are not doing nearly so well.

[smitchell333]

Boulder quarterly appreciation from http://www.ofheo.gov/hpi_city.aspx
Year Quarter % appreciation
2008 3 2.38
2008 2 2.51
2008 1 4.47
2007 4 2.67
2007 3 3.02
2007 2 2.00
2007 1 1.27
2006 4 1.60
2006 3 0.
2006 2 2.65
2006 1 2.22
2005 4 4.34
2005 3 5.24
2005 2 5.14
2005 1 5.13

[liv2ski]

won't this be at least somewhat mitigated because the indexes for many of these loans are at historic lows? if you at least payed the interest the reset isn't going to be nearly as painful as it would've if rates had stayed in the 5% range.. right?

So many of these loans were done on the 1 Yr Libor Index + 3% = 5.625% today. Nice rate but, people that took those loans out have been paying at a 1% rate for the last 5 years. Once the loan has negatively amortized 110%, 125% or 5 years is up, the payments are recast based on the current rate, the remaining years, the current loan balance (way bigger than when they started). That payment compared to the 1% payment is a huge jump even at today's historically low rates.
Just think what will happen to those rates when foreign investors limit their purchases of US Bonds because the bailouts have added trillions to the national debt. There is much speculation that bond yields will go way up due to our huge deficit. But enough happiness for one day. Carry on.

[rideit]

Boulder definitely has some neighborhoods that will retain value. Ahh...the Rio...hangovers...Moe's...slutty campus hippie chicks...I kinda liked Boulder.

[MashedPotatoes]

So many of these loans were done on the 1 Yr Libor Index + 3% = 5.625% today. Nice rate but, people that took those loans out have been paying at a 1% rate for the last 5 years.

well, choosing to pay 1% for 5 years maybe not the best idea.

OTOH, if your Option ARM is indexed against treasuries, you're paying sub 5% right now and going lower. if you were responsible with your loan you're in pretty good shape at least fot the short term..

http://www.moneycafe.com/library/mta.htm

[cramer]

well, choosing to pay 1% for 5 years maybe not the best idea.

it would have been 7 years ago and you sold your house 3 years ago, hehe.

[liv2ski]

well, choosing to pay 1% for 5 years maybe not the best idea.

OTOH, if your Option ARM is indexed against treasuries, you're paying sub 5% right now and going lower. if you were responsible with your loan you're in pretty good shape at least fot the short term..http://www.moneycafe.com/library/mta.htm

Nope all Libor and a few COSI from World/Wachovia. Euros don't like treasury indexed loans so that product was 90% Libor index based. The majority of the people that took those loans paid at the 1% payment rate and have racked up huge negative amortization. With falling values, those loans are going to blow when the people discover that they can't refi out of the recast payment. There are just so many reasons out there for values to get hammered in 09, wish I could talk the wife into unloading a property or two. I will need to look into shorting the best segment of the Case Shiller indexes.

[Shredhead]

^^^^^If you are serious about the Islands. My family has some of the finest properties avaliable Big Island and Maui....PM if you are for real.

Sorry, wrong Islands. Hawaii would be nice, but I can fly my own plane to the Bahamas. Hawaii would be a push in a single.