<p>This is the third downturn I’ve seen since I first bought real property in California in the mid 70’s. The first one wasn’t so much of a downturn as a stall; the second ('91) actually saw values dip and flatten before rising again. This one looks more like '91 to me, and I’d expect about the same result. </p>
<p>I like to think of the real estate market as a wagon on the end of a spring being pulled by a boy walking down the street. It lags and lags and lags, until the spring gets taut, and then it speeds up. Once its momentum has taken it past the boy it slow and stops until he catches up and passes, then the process starts all over again. The net result is that the wagon can’t actually go any farther than the boy can walk - the boy representing growth in income. But it can and does take the trip in a series of uneven accelerations and decelerations. Over the short term it seems chaotic; over the long term it’s quite rational.</p>
<p>Barrons always likes when I chime in with the crashing and burning Boston real estate market so here goes:</p>
<p>According to Zillow, my humble home has also lost almost $300K in funny money value, in the last 18 months. We aren’t selling, but too bad we didn’t two years ago…we could have bought a palace in NC and had tons of money in the bank (OK, no jobs, but that’s another story).</p>
<p>The bust in some of these urban areas is 100% for real. I can’t believe how much prices have plummeted…I didn’t think it was possible for them to crash to this extent.</p>
<p>Let’s hope it gets no worse. The fall in my area seems greater and more sustained than 1991. Prices seem to still be falling as inventory looks overwhelming. CA is capable of quick turnarounds.</p>
<p>Isn’t the housing market one of the lynch-pins of the economy? Massive foreclosures, poor housing starts, and over-inventory effect jobs and manufacturing in every sector that supports housing (and that ends up being a lot!). By '08, will we be once again hearing, “It’s the economy stupid!”?</p>
<p>Even though Zillow is based here its accuracy is highly suspect. That said as usual local results will vary. For Seattle area news is still pretty good. The cutback in mortgages will have a negative impact beyond what was expected but the overreaction will slow and go back to a balanced approach in 6 months or so. I sure would not sell now if I had a choice or go to some of the creative fianancing of the early 80’s such as contract sales.</p>
<p>Where we live actual selling prices for the same house are down about 25% since the peak. Foreclosures are up something like 700% yoy.</p>
<p>People stretched to get into housing that they realistically could not afford because they were told repeatedly “real estate always goes up”. Some people were greedy. Some people used home equity loans irresponsibly. Some people got mortgages fraudualently. Some mortgage brokers changed applications after borrowers signed them or misrepresented the terms. It’s a whole mixed bag as to who is to blame.</p>
<p>But the median price home shouldn’t be out of reach of all but the top 15% of households, and thats where it had gone the last few years. Something had to give.</p>
<p>And it’s not quite like a 10% stock market correction, most people who bought in the last few years were highly leveraged and when you have a 2 year supply on the market real estate is not very liquid. People are having a hard time getting out even if they want to.</p>
<p>my bf’s brother sold his house in Thousand Oaks a few years ago and moved to Seattle. He must have made a bundle of $$.</p>
<p>They moved again to a better school district in Seattle earlier this year. But still haven’t sold their first Seattle home. I saw the online link for their house. 4 bedroom, deck, built in 1905, no garage. Asking price is 720,000!</p>
<p>their yearly real estate taxes on that house are nearly as high as my entire mortgage for the Year. YIKES. I can’t fathom carrying 2 mortgages as he is doing (he works for Amgen and makes good $$) but this has to be hurting them bad!</p>
<p>Is an owner with a conservative estimate of one million dollars in home equity safe if they don’t intend to sell for at least seven years? Speculative responses welcome:)</p>
<p>We had a settlement on our house in Virginia on Monday. We did very well. Not as well as the realtor anticipated, but I always thought she had overpriced our house.</p>
<p>On Thursday we bought a condo in downtown Madison overlooking Lake Monona, <a href=“http://nolenshore.com%5B/url%5D”>http://nolenshore.com</a>. We went to visit with our realtors, and made an offer for $10,000 less than the asking price and asked for another parking space and some of the furniture in the model unit we bought. It was accepted on the spot. Prices in Madison are substantially less, a lot less, than they are in the DC area.</p>
<p>My wife started a management position with the State of Wisconsin a week ago and she can walk to work. I’m a relatively short bus ride away. UW gives free buses passes to their employees. </p>
<p>A good six months. My wife finally moved out here and was offered a very responsible position; my son graduated and will officially be off the dole in December; we sold our house at a tidy profit; and, we bought a condo in a brand new building with a great lake view.</p>
<p>This underscores my dislike of Wall Street and everything they stand for. They come in and push a product to the point of becoming worthless and then run like rats when the problems start to come out. No stability, no recourse, little or no regulation. All this hot money is dangerous as we saw in the Dotcom boom and bust and then this mortgage boom and bust–both brough to you by your friends on Wall Street. Greed>>>>>common sense and honest business on that street.</p>
<p>Don’t worry Barrons. The Wall Street bailout is coming (very soon). As long as it was just the common folk losing their houses, the Fed didn’t care. Now the banks and Wall Street are swimming in mortgage investments that should never have been made. Wall Street is also up to their eyeballs with billions and billions of loan commitments they thought they could place with institutional investors, but guess what, the institutions don’t want that junk. So the rate cuts are coming. After all this is capitalism. We have to bailout the well conected. ;)</p>
<p>My thoughts exactly. Hedge funds aren’t going away because normal people don’t even know what they are. And the rich get richer. The last stock market crash was only sure to happen when the little old lady next door started investing.</p>
I bought my first house during the Carter years and distinctly remember 17% interest rates on home loans at the time I needed one. I felt fortunate to assume a loan and do some other juggling to end up with ‘only’ a 12% loan.</p>
<p>It’s not nearly so bad now. The problem today isn’t with the loan rates, the lenders, or the government - it’s with the people who over-extended themselves. They seem to always want ‘bigger, better, fancier, more’ and are willing to leverage to the max with short-sightedness in order to obtain it. A lot of these people aren’t only over-leveraged for their house, but also their giant RV, their cars, their Hawaiian and European vacations, etc. They can try to blame the mortgage companies, the credit card companies, the store credit, the equity loans, etc. but really the fault lies with the borrower. Naturally, anyone leveraged to the max is at risk. They have no buffer zone for how they’ll handle their debts when they’re between jobs, if they get sick, etc. It all boils down to poor fiscal responsibility on the part of the individual.</p>
<p>I’m not worried about the predictions of the ‘bubble-bursting’ at all. I’ve heard it all before (ditto with the stock market). Is it realistic that the RE market would have ups and downs? ‘Yes’. Is it realistic that it would only appreciate month on month for year on year? ‘No’. Is it reasonable that in many areas of the country the trend of RE will continue up in the longer term? ‘Yes’.</p>