housing: a bottom is emerging

[oyarde]

What happens to large credit items when rates rise at a rapid pace?

Looking at the seventies , nobody buys them ...

[thoughtomator]

The problem with locking in for 30 years is that we really have no idea how the madmen controlling our money will make the economy lurch back and forth in three decades - just review the last three.

As far as a housing bottom goes... no chance. Shadow inventory is higher than ever, and at some point the banks will need to unload, as their accounting fraud can't make up for a lack of actual cash when the electricity bill comes due. Interest rates, of course, have nowhere to go but up.

[rockerrockstar]

Not sure its hit the bottom yet. Depends if we have a double dip or not. Also, with the politicians and the fed manipulating things not sure how things will end up. My guess is that sooner or later it will go lower. But they are doing everything they can to prop it up currently. My guess is we have not hit the bottom because the economy and jobs are not coming back fast enough. You need a stable job long enough to have good enough credit to get a loan. Many people have been devastated by the depression and it will take a while for them to get back on the housing market. We need a more stable job market and growth for years for the housing market to really rebound is my guess. If the economy continues to improve the housing market should too.

[airborne373]

Wouldn't interest rates have to rise drastically for an actual bottom to occur?

Good point.

I was involved in real estate, mostly as a large production builder. Those days are over. There is room for residential real estate to fall. Particularly in states like California, Texas and Florida which I believe to be 10 to 25% overvalued as of today. The poster is correct the commercial real estate market went over the cliff this Winter and will be sliding down all summer and beyond.

This is neither good or bad. But an opportunity for those who are awake imho.

P.S. The residential market may get a dead cat bounce plus the next few months is tax return time and housing sales will increase as a result, for a time.

[tremendoustie]

Wouldn't interest rates have to rise drastically for an actual bottom to occur?

Actually, higher interest rates would mean lower prices on properties. Think about it -- higher interest rates means people are less likely to buy.

However, I don't believe interest rates will go up significantly until inflation forces them up -- and inflation means rising prices.

So, I do think now is a good time to buy.

[speciallyblend]

the faster the banks steal the houses from folks. The better the banks are screwing the country. People are losing homes they could afford but the banks are feeing folks to the point of walking away or unwilling to help working folks!

[Zippyjuan]

What happens to large credit items when rates rise at a rapid pace?

Higher rates would increase the cost of borrowing which would mean that on the same income you could afford less of a house (or a less expensive one)- that would put downward pressure on prices. If you bought today and got a fixed rate loan you are locked in and in great shape.

One should keep in mind that if there is high inflation and high interest rates, rental rates will probably also be rising. If you buy and lock in, you avoid that risk as well.

[Liberty74]

Housing will not hit bottom until the millions of properties that are in or will be going into foreclosure are settled, the FED, banks and GSE's clear their books of the trillions worth of crap loans, and housing prices return to normal levels. In other words, not anytime soon.

Wait till the commercial property defaults start to hit...

I would also add ending the IRS which adds about 20% to the value of a home through the tax code. Basically meaning, you paid too much and your interest being paid is too much - wealth stealing going on by the government. Most people really don't benefit from the write off their mortgage today anyways. Rather, the biggest beneficiaries are those that mainly itemize - 80% of home owner deductions goes to top 20% of income earners.

Right now the government has done everything possible to prop up home values from keeping the free market bottom from actually being reached.

[Seraphim]

http://www.zerohedge.com/contributed...tracts-rise-14

More evidence - some of the anecdotal comments are also worth reading.

[Seraphim]

As stated in the OP...I do NOT think US housing has hit it's absolute bottom. But it is getting relatively close. If you play your cards right there are a TON of fantastic opportunities to be had.

[cubical]

Higher rates would increase the cost of borrowing which would mean that on the same income you could afford less of a house (or a less expensive one)- that would put downward pressure on prices. If you bought today and got a fixed rate loan you are locked in and in great shape.

One should keep in mind that if there is high inflation and high interest rates, rental rates will probably also be rising. If you buy and lock in, you avoid that risk as well.

Though if I believe gold will be appreciating, it would be much smarter to wait for housing prices to fall and pay mostly cash for the home rather than pay a higher price with a lower rate. It is simply a matter of how much you believe gold will appreciate vs home prices. I believe large credit items will fall in price and collapse in real terms.

[Zippyjuan]

There is another cost to waiting. Le't say you delayed purchasing a home for five years. That means it will also be five years later before you have the place paid off and aside from property taxes avoid nearly all other housing costs so basically renting for five more years. Say a rental for you would be $1,000 a month. That would mean $60,000 more in expenses you would end up paying by waiting for five years. Opportunity costs. The higher the rent you pay of course the higher these costs would be for you. You also face interest rate risk- if rates go up, you will end up paying more for the exact same house. Given that rates are as low as they have been, that risk is fairly high in my opinion.

[psi2941]

I would make it simpler. If you find a home you like and can afford (include interest payments, property tax, upkeep, any homeowners fees) and intend to stay in it for several years, go for it.

If you wait, you risk prices going up (or down though we may be nearing a bottom) or interest rates going up (cost of borrowing which will raise what it costs you to borrow- rates are at record lows so most likely direction will be up). If you wait until the economy is better, you will be facing more competition for purchase as well.

I live in California where my property taxes depend on what I paid for my property- not what my neighbor paid for his this year so rising property values in my area will not raise my property taxes.

And buying now vs a couple years from now means that it will be paid for a couple of years earlier than if you wait (and stay in it long enough to pay off).

With more people becoming renters, rents have been rising so the chances that you can find a place to own for perhaps not much more than you currently pay to rent may be pretty good (will depend on where you live).

Zippyjuan u make great points, that is usually/always enough for me to not logging and post something.

+1

anyways zippyjuan hit the nail in the head, however i do feel home prices in terms of real money will continue to decline until it fully swings to the other end of the spectrum.

[cubical]

There is another cost to waiting. Le't say you delayed purchasing a home for five years. That means it will also be five years later before you have the place paid off and aside from property taxes avoid nearly all other housing costs so basically renting for five more years. Say a rental for you would be $1,000 a month. That would mean $60,000 more in expenses you would end up paying by waiting for five years. Opportunity costs. The higher the rent you pay of course the higher these costs would be for you. You also face interest rate risk- if rates go up, you will end up paying more for the exact same house. Given that rates are as low as they have been, that risk is fairly high in my opinion.

60k isn't much considering the last several years home lost 30-70% not to mention you have no closing costs, no taxes to deal with, you can move without having to worry about selling(and paying fees again) and you also don't have to put down anything. If you put down 20% on a 300k home that's 60k. I would much rather put that in gold and silver and wait 3 or 4 years.

I am certain banks will go bust again and all these foreclosures on their books will be liquidated. That is when I will be buying rental properties.

[cubical]

and I am not saying its stupid to buy a home now(to live in). I think with rates as low as they are, if you can get a good deal, its not a terrible idea.

[Jordan]

What happens to large credit items when rates rise at a rapid pace?

First, "when" should be replaced with "if."

Secondly, not all that much. Look at the current spreads between rental yields and housing costs and it's very clear that there would have to be a very large increase in rates for the spread to be zeroed out. Also, supply in the real estate market is limited until markets can support prices above the cost of replacement.

This is a perfect example of an asset that can't be created out of thin air. It takes more resources to build a new home than to buy an existing home. This should be an Austrian's favorite investment!

[Zippyjuan]

60k isn't much considering the last several years home lost 30-70% not to mention you have no closing costs, no taxes to deal with, you can move without having to worry about selling(and paying fees again) and you also don't have to put down anything. If you put down 20% on a 300k home that's 60k. I would much rather put that in gold and silver and wait 3 or 4 years.

I am certain banks will go bust again and all these foreclosures on their books will be liquidated. That is when I will be buying rental properties.

You are right. People need to decide for themselves when they think a good time to buy is. For me, I think this is a rare opportunity. Remember one of the lessons of the bubble- a bad time to buy is when everybody else is buying and a good time is when nobody else is.

If the numbers make sense- whether that is buying a place to live in yourself or a place to rent out- then that is a good time to buy. If you can pick up a place at a price you can rent it out and make money then why wait? You will have that much more time to collect the revenue than waiting. If you can't get enough rent for it (and rents are high and rising due to high demand for rentals now while purchase prices have gone down) then don't.

Everybody must decide for themselves if it makes sense.

[cubical]

First, "when" should be replaced with "if."

Secondly, not all that much. Look at the current spreads between rental yields and housing costs and it's very clear that there would have to be a very large increase in rates for the spread to be zeroed out. Also, supply in the real estate market is limited until markets can support prices above the cost of replacement.

This is a perfect example of an asset that can't be created out of thin air. It takes more resources to build a new home than to buy an existing home. This should be an Austrian's favorite investment!

If you believe rates will stay low until 2014 I suppose you and I are worlds apart.

Supply is limited, but that means nothing as that is always the case. There is a glut of homes still on the market.

Tulip bulbs can't be created out of thin air either, doesn't mean Austrian economics is steering me towards them.

[Zippyjuan]

If you believe rates will stay low until 2014 I suppose you and I are worlds apart.

Supply is limited, but that means nothing as that is always the case. There is a glut of homes still on the market.

Tulip bulbs can't be created out of thin air either, doesn't mean Austrian economics is steering me towards them.

Which makes it more of a buyers market.

[Brian4Liberty]

Which makes it more of a buyers market.

Depends on the area.

[Indy Vidual]

Housing will not hit bottom until the millions of properties that are in or will be going into foreclosure are settled, the FED, banks and GSE's clear their books of the trillions worth of crap loans, and housing prices return to normal levels. In other words, not anytime soon.

Wait till the commercial property defaults start to hit...

True, but...
Property prices could bottom and head higher if the Dollar continues to fall, while Real Estate/Gold or Real Estate/Silver continues to favor PM's.

[airborne373]

http://www.zerohedge.com/contributed...tracts-rise-14

More evidence - some of the anecdotal comments are also worth reading.

imho:

The above zerohedge article reflects a "dead cat bounce" bolstered by tax season which is the buying season in housing. Combine falling prices with the lowest interest rates in our time and there is activity in the market. People need a home to live in, the real reason for buying and owning a home. This need for a roof, low interest rates, high inventory and lower prices and sellers willing to pay the majority of costs is producing a temporary bounce.

[Brian4Liberty]

It's investors. They are buying up homes as fast as they can.

[Seraphim]

This is very likely.

I still think there is one more solid plunge that will take place, BUT, it will also come with higher rates (even if only temporarily) - meaning that the lower principal but higher rate may even out the cost.

Zippy stated it pretty well, if the math adds up (especially for primary residency purposes) - do it.

This upcoming, across the board crash - is going to then be followed with money printing on a global scale like the world has never seen.

ALL real assets are going to protect you, espcially if on credit assets (a primary residency) are on a fixed rate.

imho:

The above zerohedge article reflects a "dead cat bounce" bolstered by tax season which is the buying season in housing. Combine falling prices with the lowest interest rates in our time and there is activity in the market. People need a home to live in, the real reason for buying and owning a home. This need for a roof, low interest rates, high inventory and lower prices and sellers willing to pay the majority of costs is producing a temporary bounce.

[Seraphim]

For the record...

I think hobby farm properties and agricultural land will be the best performing real estate assets of the next 20 years.

[cubical]

Which makes it more of a buyers market.

Just because there is a lot of something, doesn't make it a good buy.

[Brian4Liberty]

There are all kinds of signs that a bottom has been reached. No worries, the vast majority never see the top or the bottom until it is two years in the past.

[Jordan]

The extent to which some people go to justify bullion holdings is beyond me. What's the saying? "Never fall in love with an investment?" Yeah, that's the one.

Check it - you cannot build a new house and make money at current market prices. You can produce tons of gold for less than the current market price.

When it comes to a margin of safety, housing has it - bullion does not. Why not take a profit here in an investment that has vastly outperformed to put it into an asset class that has vastly underperformed? I'd take the chance to sell a piece of metal for more than the cost of current production to buy an asset for less than the cost of current production, especially since that asset (real estate) produces valuable cash flows.

[ctiger2]

I'm looking to buy a house as soon as prices hit 1995 levels or lower.

[Zippyjuan]

Depending on where you are, you might end up waiting forever. If you are in places like Detroit you may be able to pick up a couple of homes for the price of a 1995 home.

Based on the chart I posted in one of the earlier posts, in nominal terms the national prices would have to go down almost 34% more (chart indicates about $100k in 1995 vs around $150k today).

Just my opinion (nobody can know for certain), I don't think prices will fall another third.

What is your reason for wanting to purchase a home? To have an asset and get rid of paying rent or to get something for the rent money you are paying? Or to buy and try to later sell it at a profit? If it is a place to live, I would base a purchase on affordability- is there something you like and can afford- not what you think the prices may do in the future. The longer you wait, the more rent money you give away in exchange for nothing. If it is to sell and make money then perhaps targeting a particular price may (or may not) be a good move.