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karim0028
06-08-09, 11:31 AM
I see all that blabber on the MSM talking about real estate essentially saying "buy now because rates are low" and for some reason that doesn't make sense to me at all... Am i the only one?

Housing is a leveraged asset, rates go up house prices have to go down... People can only afford so much monthly payments..... Rates are about as low as they have been in 30 years, i only see them going up in the near term...

I guess, i dont understand if im missing something, if you want to buy what would stop you from buying when rates are 10-20%? Either in cash or with a 20% down payment... It will have to be the same monthly payment range bc your income hasnt changed (math hasn't changed)... But your overall debt would be less... Then sell when the interest rates come down...

Am i missing something? I cant believe all the idiots out there believing that rates will stay this low for ever???? This plain and simple defies logic, unless there is a glaring hole I'm not seeing...

BiscayneSunrise
06-08-09, 12:26 PM
Since housing is still overpriced, real estate will likely not go up in real terms when inflation strikes.

In fact, housing prices will likely look like bond prices. As interest rates go up, prices go down.

So, if one waits a while longer, you may be able to capture a house for a lower price. Granted, if you are paying a higher interest rate you monthly payment may be the same but the difference is you can always pay down your debt. You can't re-negotiate your purchase price.

karim0028
06-08-09, 01:40 PM
Since housing is still overpriced, real estate will likely not go up in real terms when inflation strikes.

In fact, housing prices will likely look like bond prices. As interest rates go up, prices go down.

So, if one waits a while longer, you may be able to capture a house for a lower price. Granted, if you are paying a higher interest rate you monthly payment may be the same but the difference is you can always pay down your debt. You can't re-negotiate your purchase price.

Thats what i keep thinking... I mean monthly payments rarely change, but everyone seems to think that paying interest is bad, but in the end its the same monthly payment with the added benefit that you can pay more monthly and get rid of a smaller balance....

Prices have to match monthly income and the interest rate is a big part of it.... Any way i cut it leveraged assets have to lose value when money itself has more value (via the interest rate it produces sitting idle)....

MSM keeps telling everyone to jump in with both feet and that sounds like the dumbest thing ever... Just wondering what that 200K house will be worth with rates at 15-20%...

Even people here are asking if they should buy now; bc prices look cheap....

If prices go down people might be able to buy cash, but even then, all money competes for the best return and if i can get a 15% return in a treasury or bank why would i buy a house unless i get a great deal?

I keep turning that in my head and the only answer i get is; i wouldn't unless i were planning to live in it and it were cheaper than renting... And so far i don't believe it is....

I am really looking for peoples input here, bc i'm wondering if there is some aspect of this that perhaps im overlooking.... If we have rampant inflation, unless incomes rise with inflation, people just get poorer and still cant afford a mortgage payment......

don
06-08-09, 01:49 PM
The American consumer has been conditioned to think only in monthly payments, not total costs. Historically, increasing interest rates will reduce prices, maintaining housing market viability. The MSM propaganda on home prices is the housing equivalent of the old car salesman pitch. "What price (monthly payments and nothing else) do I need to bring this baby down to and have you drive it home tonight? (Pay no attention to that 7 year lease agreement)" ;)

ax
06-08-09, 01:52 PM
The American consumer has been conditioned to think only in monthly payments, not total costs. Historically, increasing interest rates will reduce prices, maintaining housing market viability. The MSM propaganda on home prices is the housing equivalent of the old car salesman pitch. "What price (monthly payments and nothing else) do I need to bring this baby down to and have you drive it home tonight? (Pay no attention to that 7 year lease agreement)" ;)

That's right. Hyundai will send you $333/month for the next 6 months if you buy a car! How's about just taking $2k off the price ?

karim0028
06-08-09, 02:22 PM
So, i gather you guys agree, bc i feel that real estate is still way over priced based on these low interest rates..... There is no way in hell these houses would be even cash flow positive based on the price vs rental market rate...

In phoenix a 230K house will rent for 1200.00...

don
06-08-09, 04:06 PM
So, i gather you guys agree, bc i feel that real estate is still way over priced based on these low interest rates..... There is no way in hell these houses would be even cash flow positive based on the price vs rental market rate...

In phoenix a 230K house will rent for 1200.00...

Agree, and I assume rents are falling in Phoenix, like in most of the country. Something I've never seen before. The teeter totter of home ownership and rentals is broken this time around. The 12% of people between the ages of 30-45 (that's from memory, I think it's right) that have moved back home is a major component of that phenomenon.

Basil
06-08-09, 05:18 PM
So, i gather you guys agree, bc i feel that real estate is still way over priced based on these low interest rates..... There is no way in hell these houses would be even cash flow positive based on the price vs rental market rate...

In phoenix a 230K house will rent for 1200.00...


Karim,

I have been looking at it very much the same way as you. As things now stand, I can make a down payment of around 50%, but my thinking is that I might as well wait. Even if I could only do 20%, I would wait. As others have noted in other threads, the RE bubble breaks down far more gradually. I have heard many reports of a building "shadow inventory" and can attests to this in my own area, as many have pulled their houses from the market when they can't get "what it's worth." This shadow inventory combined with higher interest rates and more job losses is going to drive prices way down IMHO.

I have also been able to negotiate my rent down by about 9% and have heard of several others who have been able to do the same, so renting is now even more attractive than buying. My personal opinion is that prices will also experience downward pressure from inflation in other areas, as people will have less to spend on housing because they are spending more on other necessities. This will kill housing prices in 2010 and 2011.

But, given the potential weakness of the dollar, where should I put the cash while I wait?

wa salaam

Rayhan

P.S. I have a bad sinus infection, please excuse all errors.

karim0028
06-08-09, 06:54 PM
My personal opinion is that prices will also experience downward pressure from inflation in other areas, as people will have less to spend on housing because they are spending more on other necessities. This will kill housing prices in 2010 and 2011.

But, given the potential weakness of the dollar, where should I put the cash while I wait?

wa salaam

Rayhan

P.S. I have a bad sinus infection, please excuse all errors.

Hey Salam Basil,

The inflation in other areas is what im seeing as well and feel it is going to be a big impact.... Heating bills are getting more expensive, filling your gas tank will get more expensive, etc, etc...

This should keep a lid on house prices right along there with property taxes & interest rates as they ratchet upwards... Its all about disposable income and how you dispose of it....

As to what to do with cash, not sure, buy gold :) All i know is that i see housing as still being overpriced... Too many people still chasing it down, thinking their going to "miss the ride up"....

I think i will buy when everyone else is saying "housing sucks"; when you have to hussel to sell a property and get someone to take it off your hands(good old days of owner financing and stuff like that) and they are not doing that yet.. Too many people chasing it for my tastes....

touchring
06-09-09, 02:07 AM
This should keep a lid on house prices right along there with property taxes & interest rates as they ratchet upwards... Its all about disposable income and how you dispose of it....


You guys may want to study what happened in Malaysia post Asian financial crisis. The real estate market collapsed and 12 years later, prices, except for the Manhatan equivalent of the capital city, Kuala Lumpur central, prices never came back to 1996 highs. For the suburbs, prices are just over half of 1996 values despite improvements in recent years.

There was massive oversupply and at one point, rent plunged to break even levels - enough only to pay for tax, repairs, fees, etc expenses, forget about the mortgage.

jtabeb
06-09-09, 10:53 AM
You guys may want to study what happened in Malaysia post Asian financial crisis. The real estate market collapsed and 12 years later, prices, except for the Manhatan equivalent of the capital city, Kuala Lumpur central, prices never came back to 1996 highs. For the suburbs, prices are just over half of 1996 values despite improvements in recent years.

There was massive oversupply and at one point, rent plunged to break even levels - enough only to pay for tax, repairs, fees, etc expenses, forget about the mortgage.


Thanks! I think we are all so worried about currency devaluation and are "emotionally attached" to buying a house (since we were not able to during the bubble years) that we miss the forrest for the trees or put the cart before the horse.

Bottom line ( I think you are saying anyway) is YES currency will be devalued BUT... ASSETS (housing) will deflate FASTER than currency is depreciated. So net-net, you are not Gaining anything.

touchring
06-09-09, 11:20 AM
Thanks! I think we are all so worried about currency devaluation and are "emotionally attached" to buying a house (since we were not able to during the bubble years) that we miss the forrest for the trees or put the cart before the horse.

Bottom line ( I think you are saying anyway) is YES currency will be devalued BUT... ASSETS (housing) will deflate FASTER than currency is depreciated. So net-net, you are not Gaining anything.



Also, I think we can't categorize all assets together. Some assets might deflate slower than currency is depreciated, some faster. Real estate that is sought after by the rich and short in supply tend to do better than currency over the long term.

Real estate in HK actually went up this year - http://www.nuwireinvestor.com/articles/hong-kong-real-estate-showing-positive-indicators-53071.aspx

flintlock
06-10-09, 06:11 PM
I'll throw in a little anecdote. Today I was installing a flat screen TV at a soon to open hot dog restaurant. Got to talking with the general contractor on the job. Seems he used to be a builder and developer. Said he still owned dozens of lots and some homes he can't give away. He said the bank is not pushing him and said just to hang on to the property for now, they don't want it.

grapejelly
06-10-09, 06:15 PM
spoke to a competent guy I am working with who said he knows a very senior guy at BofA. That guy said BofA is the largest housing owner in the US and that they don't want to dump their REOs because prices would plummet.

I think that this is common thinking and responsible for a big overhang of REOs right now.

jtabeb
06-10-09, 06:40 PM
spoke to a competent guy I am working with who said he knows a very senior guy at BofA. That guy said BofA is the largest housing owner in the US and that they don't want to dump their REOs because prices would plummet.

I think that this is common thinking and responsible for a big overhang of REOs right now.

What happens when/if that supply comes "loose"?

ThePythonicCow
06-10-09, 11:11 PM
What happens when/if that supply comes "loose"?

Can we think of that overhang of REO homes as a large number of calls ... anytime Bank of America could actually sell one of them at the price they want, they can "call" up one of these homes from the overhang, basically for free.

A low put/call ratio (more calls than puts) is bearish. This overhang would seem to guarantee no significant upswing in "real" inflation-adjusted housing prices until the overhang is worked through, or rots out.

cjppjc
06-10-09, 11:17 PM
Can we think of that overhang of REO homes as a large number of calls ... anytime Bank of America could actually sell one of them at the price they want, they can "call" up one of these homes from the overhang, basically for free.

A low put/call ratio (more calls than puts) is bearish. This overhang would seem to guarantee no significant upswing in "real" inflation-adjusted housing prices until the overhang is worked through, or rots out.


Rots out is right. You can't keep a house vacant for years and not expect damage. Imagine all the ways water can get in.