I think the real estate market may have finally peaked

[al_bundy]

Fatwallet has had a housing bubble thread for the last two years and lately there has been a lot of anecdotal posts from around the country about how houses aren't selling at listed prices and sellers have to drop their asking prices

A few weeks ago the NY Times reported that in NYC there is price pressure and people don't want to pay 10% over last year's prices

On Jim Cramer's Mad Money, he said that 3 home care companies had bad earnings. One is in lawn care and the other two are in something else about making your home look nice. He also warned people to start selling Home Depot and Lowe's to lock in profits

Prices of building materials are increasing and this may hurt home builders soon

I don't know if prices will fall of a cliff like some are predicting, and I doubt it will happen because I don't think people will willingly walk away and take the bad credit hit. And every local market is different so we may see appreciation in some markets and depreciation in others. But I think that prices may have finally peaked and there will be a small correction or several years of a flat housing market. I think the mania and euphoria is finally over.



EDIT
a lot of people see australia as a leading indicator and things have started to cool off there as well

and earlier this week they had an executive from ML on CNBC and he said some of the firm's wealthy clients have cashed out of RE and into bonds

On Squawk Box on CNBC this morning they said that the Chinese wanting to buy UNOCAL is an indication that they are branching out of the bond market. less money going into bonds mean rates are going to go up

[monkey42]

I just bought a house a few weeks back, so based on that, prices will drop. Its a skill I have.

[Duran]

Fatwallet has had a housing bubble thread for the last two years and lately there has been a lot of anecdotal posts from around the country about how houses aren't selling at listed prices and sellers have to drop their asking prices

On Jim Cramer's Mad Money, he said that 3 home care companies had bad earnings. One is in lawn care and the other two are in something else about making your home look nice. He also warned people to start selling Home Depot and Lowe's to lock in profits.


Jim Cramer is a hack, and Fatwallet has had that thread forever. Not that I don't believe the housing market might be at it's peak, they are just not the sources I'd use as evidence.

[X]

On Squawk Box on CNBC this morning they said that the Chinese wanting to buy UNOCAL is an indication that they are branching out of the bond market. less money going into bonds mean rates are going to go upThat's a bunch of crap.

The reason the yield of the 10 year T-note went down so much today is because there is such high foreign demand for it. The Chinese aren't the only players and they don't have a lot of alternatives anyway.

[DodgingCars]

I think the more telling signs as that the 5-year or so price increases have been around the world. Britain, Austrailia, France, Spain, Belgium, etc., and these countries (especially Britain and Australia) are starting to see their prices dropping. Some market have already slowed. I just heard that price increases in Orange and San Diego Co. are about a 1/3 of what they were last year (something like 7% to last years 21%).

Other indications are that too many houses have been built and there simply won't be enough demand. Estimates show that the demand should be about 1.6 million houses, but 1.9 million were built last year and 2 million are in the process of being built.

I think the bubble is coming, but some markets will be hit first -- probably California and NY first.

[DodgingCars]

Other signs we're in a bubble:

Increasing # of investors/speculators.
Increasing # of "creative mortgages."

Or the simple fact that these price cannot stay this high. It's getting to the point where about 5% of LA residents can actually afford to buy.

[BigPete]

Just give me 2 more years and I'll have my $50k down payment sitting in the bank waiting for the bubble to burst.

[al_bundy]

That's a bunch of crap.

The reason the yield of the 10 year T-note went down so much today is because there is such high foreign demand for it. The Chinese aren't the only players and they don't have a lot of alternatives anyway.

the market went down today and people usually flock to bonds in a down stock market. It's not like the whole world has to stop investing in T-Bills. Just a small percentage is big enough to send rates higher.

[al_bundy]

I think the more telling signs as that the 5-year or so price increases have been around the world. Britain, Austrailia, France, Spain, Belgium, etc., and these countries (especially Britain and Australia) are starting to see their prices dropping. Some market have already slowed. I just heard that price increases in Orange and San Diego Co. are about a 1/3 of what they were last year (something like 7% to last years 21%).

Other indications are that too many houses have been built and there simply won't be enough demand. Estimates show that the demand should be about 1.6 million houses, but 1.9 million were built last year and 2 million are in the process of being built.

I think the bubble is coming, but some markets will be hit first -- probably California and NY first.


forgot to mention, but a lot of people see australia as a leading indicator and things have started to cool off there as well

and earlier this week they had an executive from ML on CNBC and he said some of the firm's wealthy clients have cashed out of RE and into bonds

[X]

the market went down today and people usually flock to bonds in a down stock market. It's not like the whole world has to stop investing in T-Bills. Just a small percentage is big enough to send rates higher.We will see. Just like we have over the last couple of years when the experts said the same thing.

The problem is there aren't many better places to put a lot of money and the Chinese aren't going after Unocal just as an alternative investment.

[DodgingCars]

We will see. Just like we have over the last couple of years when the experts said the same thing.

The problem is there aren't many better places to put a lot of money and the Chinese aren't going after Unocal just as an alternative investment.

I like the one quote I heard, "No one knows if a bubble exists until after it bursts." or something like that. I think it's true. Though, I also like this other (paraphrased) quote: "If this many people are arguing over whether there is a bubble or not, there probably is."

[The Bus]

and earlier this week they had an executive from ML on CNBC and he said some of the firm's wealthy clients have cashed out of RE and into bonds

Bonds are a great buy. When bond prices go up, rates go down, and rates have nowhere to go but down from these 70-year historical highs.

Wait a second...




a lot of people see australia as a leading indicator and things have started to cool off there as well


That market was a lot more overheated as well, though. See, for example:
http://www.fantasticdamage.com/blog/CFN505.gif




On Squawk Box on CNBC this morning they said that the Chinese wanting to buy UNOCAL is an indication that they are branching out of the bond market. less money going into bonds mean rates are going to go up

Rates go up... prices go down... Why is this a good time to get into bonds again?



Directly from Barry Habib:

The mini-rally we’ve enjoyed the past two days is undergoing a bit of a pause this morning, but the party isn’t necessarily over quite yet. As could be expected, profit takers are grabbing their recent gains and pulling some money off the table, and this morning also brought slightly better than expected news in the form of a modest decline in the number of weekly Initial Jobless Claims.

At this point, Bonds have only given up yesterday’s mid-day gains, so rate sheets shouldn’t look much different this morning over yesterday's. It’s not unusual to see Bonds move around a little after a nice move higher, and we’ve got dual support just underfoot at the 25 and 200-day Moving Averages. With a slim economic calendar this week, these levels of support will act as our barometer. If we are able to hold ground and close above these levels, it shows Bonds may have some legs to potentially improve further. If we close below these levels, it may signal further price weakness ahead.

Another look at the health of the housing market today, as Existing Home Sales were reported basically in line with expectations at 7.13M units. In our recent exclusive interview with Frank Nothaft, Chief Economist of Freddie Mac – he noted that housing is experiencing the lowest levels of inventory available in 30 years, which definitely indicates that demand for housing is still plenty strong.

Federal Reserve Chairman Alan Greenspan and Treasury Secretary John Snow will be hitting the airwaves this morning, testifying before the Senate Finance Committee on China. Topics of discussion will be their “undervalued” currency and China’s interest in purchasing Unocal, one of the largest US oil refineries. Traders will be tuning in to the proceedings for any comments of note from Greenspan or Snow.


Now, Barry Habib is about as bullish as you can find someone on the housing market, so take his words with a grain of salt.

I think "the housing market" is just the latest thing that newspapers can carry stories on. Slow news week? Run that housing market bubble story we've been holding onto for the past 10 months...



I'll put money on this statement: You will only see any major drops in nominal prices in investment and vacation homes and certain metropolitan markets (CA, NY, DC, a few others). The "bursting" of the bubble won't affect 95% of homeowners.

[rexinnih]

C'mon bubble burst. Poppa needs to buy a house.

[grrrah]

Just give me 2 more years and I'll have my $50k down payment sitting in the bank waiting for the bubble to burst.

my advice is don't wait.

I put $0 down, and have to pay the dreaded PMI. Within a year, hoping the bubble doesn't burst too bad, I will have the 20% equity, can stop the PMI, and already have a place at a better price. After 5 months, I am almost at the 20%.

Based on the bidding wars going on right now(during the winter season too), there isnt a shortage of buyers around here.

[tronmaster]

Hopefully it hits Hawaii soon, the prices here are going sky high. Price of paradise...

[pyro383]

The housing "bubble" started in 95 and after 02 they stated it wasn't a bubble because they have never seen the market sustain this type of growth it isn't typical. Prices are going to have to level off soon ie 5-10yrs because of 2 things. Kids can't afford to own and companies can't afford to pay for kids to own.

[al_bundy]

if prices have really peaked or are about to peak then I don't think interest rates have to go up. in many markets prices are at the point where you need to get an ARM or an IO loan at current low rates just to be able to make a payment.

I think what's going to happen is just what greenspan wanted to happen. The market will flatten out with maybe a slight deflation in prices and a minimum amount of foreclosures as people are able to refi into decent rates.

[Duran]

The housing "bubble" started in 95 and after 02 they stated it wasn't a bubble because they have never seen the market sustain this type of growth it isn't typical.

That's the same crap the "experts" spewed about the stock market and the breaking of the business cycle in the 90s. We saw how that turned out.

[Oraphus]

that stupid thread at fatwallet has been going for the last 3 years. Most of the people on there are idiots and talking out of their ass. If they would have invested their money in to realestate instead of posting.."it'll drop any second now" they could have made a lot of money during this time.
The prices are leveling off in certain places where they were way overinflated to begin with. See Vegas, Arizona, etc.
Other places, like Bay Area CA, are still going strong though.

[al_bundy]

i've been reading it since it was in the 30's but I did notice that the tone changed in the last month. For the last two years everyone was posting stupid newspaper stories about people bidding up prices or links to stupid books about how the world is going to end. In the last month people started posting links to stories and anecdotal evidence that there is price pressure, asking prices are dropping and homes are taking longer to sell.

In the new home sales report that came out today and volume is up, but the median price is down

[fujishig]

Well, I live in CA, and if there is no bubble, then I'm never owning a house (here, at least), since I certainly can't afford more than maybe a closet, and I'm not like most of these people who have no problem getting a interest-only loan and counting on increasing equity. I know this is the only way a lot of people can afford houses, but when more than half of new housing loans are interest only, there's a problem. Ah, I'll pay off my debt and save some money for a few years, and see what the market is like by then. If the median price rises to a mil by then, I guess I'm renting until I'm dead.

I wonder how much of the "demand" for housing is from speculators and "investors" and how much is from people actually wanting to live in them?

By the way, about Hawaii: someone mentioned (maybe in the FW thread) that the reason housing is so expensive there is because it takes so long for a new house to be built. Not to mention the limited real estate there. I was born in Hawaii, and often wonder how people can afford to live there, since last I checked, tourism is still down and that's the number one industry there, not to mention the cost of living (even taking housing out) is sky high.

Of course, I'm hoping it's not a nation-wide bubble, since that could hurt our economy, but to me the coastal real estate markets are ridiculous.

[DodgingCars]

Actually, there was a great article in the Economist on this. Some of their predictions seemed a little dramatic, but many of the reasons they citied that they believe that this is a bubble seemed legitimate. I know that people have talked about this for a couple of years, but I think the talk is getting more serious. We're also starting to see the market cool in some places overseas and even domestically (I mentioned earlier that Orange County and San Diego County had both seen some cooling). Most of the people that are taking the "There's no housing bubble!" stance seem to be in real estate or home building. :) I think all the talk of a housing bubble will cool the market a little (investors may back off).

We're starting to see more economists talking about seeing a bubble. There were several reports release just last week -- UCLA was one of them.

Without the help of "experts" though, I think some housing markets have to be at their peak. There are lower-middle class neighborhoods near me that have houses selling for $500-600k. That's nuts. Who's buying these houses? Houses in better areas (i.e. better school districts) have prices at about $700-800k. Someone I know lives on a street with, in my opinion, fairly modest houses selling for over a million dollars. These houses would have been $600k, at most, 5 years ago.

[DodgingCars]

I wonder how much of the "demand" for housing is from speculators and "investors" and how much is from people actually wanting to live in them?

I think that I read that it's something like 30% of houses sold last year were to investors and another 30% were 2nd homes. Less than 50% of the homes bought last year were for a primary residence.

Edit: I believe this figure was in LA or California, not nationally.

[fujishig]

Without the help of "experts" though, I think some housing markets have to be at their peak. There are lower-middle class neighborhoods near me that have houses selling for $500-600k. That's nuts. Who's buying these houses? .

I read the same articles from the FW thread. You know who's buying the houses?

1. Makeshift "investors" who hope that the real estate market continues growing at it's current rate, and who either take out money from their primary home to invest in a second one, or just take out an interest-only or ARM and hope to sell in a couple of years (although that new law will kill short term sellers with taxes) They don't mind paying the appreciated price because they assume some other guy will pay even more later on down the line.

2. Young families who are afraid of being priced out of the housing market and are forced to take IO or ARM loans to even afford the monthly payments on the house. They are assured that the equity will continue to grow at this insane rate so that by the time they have to pay off principal or the rate becomes adjustable and their payments rise, they should have enough to cover it.


I'm really, really close to being buyer number 2.

[DodgingCars]

I don't know if there is a national bubble, but I do think that there are some local markets they may be in one.

Signs of a housing bubble?

MA home sales decline by 11.1 percent
Talk of a housing bubble may be a self-fulfilling prophecy (scare off buyers)
Economists at the Merrill Lynch investment firm, the University of Maryland and the UCLA Anderson Forecast all claim that the bubble is hear or near.
Foreign markets are starting to see cooling
In California the rent v. own ratio is growing further apart (meaning people can't even cover interest payments with the rent they could get)
Home prices have risen far above incomes in 30 of the nation's top 52 metropolitan areas.
Large numbers of people are using "creative" mortgages to get into homes.
The Anderson Forecast warns that the construction of new homes is outstripping the natural growth of the population.
In some markets, prices have risen about 75 percent since the start of 2001.

[DodgingCars]

I'm really, really close to being buyer number 2.

My wife and I were long priced out of the LA market. We're looking to move because of it.

[al_bundy]

Actually, there was a great article in the Economist on this. Some of their predictions seemed a little dramatic, but many of the reasons they citied that they believe that this is a bubble seemed legitimate. I know that people have talked about this for a couple of years, but I think the talk is getting more serious. We're also starting to see the market cool in some places overseas and even domestically (I mentioned earlier that Orange County and San Diego County had both seen some cooling). Most of the people that are taking the "There's no housing bubble!" stance seem to be in real estate or home building. :) I think all the talk of a housing bubble will cool the market a little (investors may back off).

We're starting to see more economists talking about seeing a bubble. There were several reports release just last week -- UCLA was one of them.

Without the help of "experts" though, I think some housing markets have to be at their peak. There are lower-middle class neighborhoods near me that have houses selling for $500-600k. That's nuts. Who's buying these houses? Houses in better areas (i.e. better school districts) have prices at about $700-800k. Someone I know lives on a street with, in my opinion, fairly modest houses selling for over a million dollars. These houses would have been $600k, at most, 5 years ago.


I read that article, and it was very short on actual facts except a few dire predictions

My theory on housing is that the whole thing is built on the first time home buyer. This is where the real cash money comes into the market. Everything else is equity and paper profits. But the real cash comes in from the first time buyer.

Example. First time buyer buys a home for $150,000 and puts 20% down. 10 years later he sells the home for $250,000 and uses the equity to buy a new home. The equity was financed by the person that bought the home from him and is now in the form of debt belonging to the current resident of that home. The original buyer most likely could not have afforded that new home without selling the original home to someone who is also probably a first time buyer.

My theory is that no matter how low rates go and no matter how much crazy financing they can think up, if the first time buyer can't afford their home then the whole system is in trouble and the more expensive homes can't get sold up the chain. In many places the market is at the point where interest rates are low, but people need crazy financing deals like IO or negative ammortization just to be able to afford the payment.

As far as bubble, I think California and Florida are maybes or most probably. NYC is a no to a small chance of a bubble here. The percentage of IO loans is one of the lowest in the country here and getting a mortgage is only part of the process. To buy most real estate you need to come up with 20% down in cash or more and have the HOA do a full background and credit check on you.

[Jack Straw]

I just bought a house a few weeks back, so based on that, prices will drop. Its a skill I have. I think this will be the first time I've offerred congrats and condolences in the same sentence.

[LurkerDan]

I don't know if there is a national bubble, but I do think that there are some local markets they may be in one.
I was goint to point this out. It seems rather silly to talk about a bubble in the abstract, as it varies so much by region. In fact, here in Boulder, we had a number of years of flat prices, even slight declines. We were hit hard by the dot-com crash, plus we have a stupid-ass constitutional amendment regarding govt spending that has been surpressing a rebound. However, in the past few months, prices finally started to crank upwards. I doubt that suddenly things will burst now.

And I hope not, seeing as I closed on a house 4 days ago. :D

[Puzznic]

I think there is definitely a bubble. When the late 90s stock bubble burst everyone ran to real estate because it was "safe". Now with so many people desperate to get into the market they have just created the same problems as the late 90s stock market. It seems like you would be better off investing in stocks now because once the real estate bubble bursts the same people will probrobly run back to stocks.

[LurkerDan]

except people need houses to live in, nobody needs stocks. thinking about it purely in the same terms as other investments, like stocks, is incorrect.

[al_bundy]

I'm way ahead of you

Forbes has a nice article of how hedge funds are manipulating prices of T-Bills and oil. I need to get me a book to really learn it


http://www.forbes.com/business/2005/06/20/bond-rates-mortgages-cx_lm_0620rates.html

[al_bundy]

except people need houses to live in, nobody needs stocks. thinking about it purely in the same terms as other investments, like stocks, is incorrect.

he meant a lot of the 1990's speculators/day traders probably moved into real estate and started flipping homes. A lot of builders are putting an end to this and now they will have to move somewhere else

www.condoflipping.com

[LurkerDan]

he meant a lot of the 1990's speculators/day traders probably moved into real estate and started flipping homes. A lot of builders are putting an end to this and now they will have to move somewhere else

www.condoflipping.com
but my point is valid. thinking about the market for stocks and the market for real estate as the same thing, 2 different types of investments that function the same, is incorrect. The market for real estate will not act the same as the market for stocks, because you don't have the same types of investors (which is due to the fact that the investments function very differently).

[al_bundy]

people sold their worthless stock certificates on ebay after the companies went bankrupt

real estate is like musical chairs, there is always a sucker at the end

if there is a bubble then some poor sucker is going to be left with a mortgage they can't afford. already has happened in las vegas

[al_bundy]

Watching a rerun of yesterday's Bloomberg and Bill Gross from Pimco was on as well as someone from Freddie Mac.

Both said that they are worried by speculation that they see in a few local markets and Bill Gross is also worried that some people are over leveraged in RE.

[DodgingCars]

I read that article, and it was very short on actual facts except a few dire predictions

My theory on housing is that the whole thing is built on the first time home buyer. This is where the real cash money comes into the market. Everything else is equity and paper profits. But the real cash comes in from the first time buyer.

Example. First time buyer buys a home for $150,000 and puts 20% down. 10 years later he sells the home for $250,000 and uses the equity to buy a new home. The equity was financed by the person that bought the home from him and is now in the form of debt belonging to the current resident of that home. The original buyer most likely could not have afforded that new home without selling the original home to someone who is also probably a first time buyer.

My theory is that no matter how low rates go and no matter how much crazy financing they can think up, if the first time buyer can't afford their home then the whole system is in trouble and the more expensive homes can't get sold up the chain. In many places the market is at the point where interest rates are low, but people need crazy financing deals like IO or negative ammortization just to be able to afford the payment.

As far as bubble, I think California and Florida are maybes or most probably. NYC is a no to a small chance of a bubble here. The percentage of IO loans is one of the lowest in the country here and getting a mortgage is only part of the process. To buy most real estate you need to come up with 20% down in cash or more and have the HOA do a full background and credit check on you.

That's an interesting theory. I think its valid. There are already markets where many first time buyers have been priced out. This of course helps drive up other markets (i.e. cities in the west: Phoenix, Portland, Vegas, etc.) But then, people start getting priced out of those markets as well.

I didn't know NYC was so weird. :)

[X]

Every study I have seen shows no significant correlation between real estate prices and stock market prices. There certainly isn't a negative correlation between them but there might be a slightly positive trend.

Leaving out drastic interest rate increases which I think we can agree aren't very likely to occur, real estate prices most highly correlate with wage and unemployment levels.

[mosquitobite]

High end home - I'm talking 5bd, 3+ baths and over 3000 sq ft would cost you $400K TOPS.

First time home buyers here can still own a home for around $100K.

My 2600sq ft 4bd, 2ba brick home cost $118K.

No bubble on price here :lol:

I will say though, that I have noticed a LOT more "For Rent" signs around town. Which to me, seems to point to the fact that more people can afford to buy with the lower interest rates so why rent (especially here). I do wonder what this will do to the market here since investors will have to take lower rent or sell.
:shrug:

It's got me & my hubby wondering what our next step should be.

[Puzznic]

except people need houses to live in, nobody needs stocks. thinking about it purely in the same terms as other investments, like stocks, is incorrect.


Your right, its definitely not the same. I was just looking at it in a simple human behavior way. It just reminds me of the stocks bubble because the current RE market seems to be built like a house of cards.

[al_bundy]

6 months ago I would say no way there is a bubble

but with all the "creative" financing people are using these days just to afford a payment, I don't know

[SpaceBoy]

I think there maybe is some bubble bursting, at least in certain areas.

I have been watching a few different houses around the boston area, nothing great, but pretty nice value for the money.. (right around 500k, which is a reasonable house price up here, and even then the house normally needs lots of work done)

Just this week, 2 of the 3 I had been watching dropped around 50k each, in their asking price. That's a serious drop.. I'm going to go check one of those out now.

Also, I can count at least 10-15 houses in my neighborhood where I rent and surronding areas that the houses have been sitting since before xmas forsale.

I think only marginal gains are possible anymore in some markets. Overall doubt it will ever happen. I mean if you can get 2k sq ft place, like the one poster said in IN for around 120k, how much cheaper can it get.. ha

[X]

6 months ago I would say no way there is a bubble

but with all the "creative" financing people are using these days just to afford a payment, I don't knowI'd sure like to hear your reasoning on this.

[Deftones]

The house prices in AZ continue to be insane. A 3800 sf house that is 12 years old just sold across from my gf's parent's house. It was bought for about $300k and just sold for $725k. -eek-

[VinVega]

There is a bubble, simply because of the 0% rate loans abounding and the speculation buying. People are buying condo's before they're even built in Florida and then flipping them after 6 months for a profit (still before they've been built). That can't continue for much longer, the market can't sustain that type of frenzy. I think they'll be a pullback, but a bust will be hard to achieve unless the interest rates skyrocket AND the economy slows.

[VinVega]

Every study I have seen shows no significant correlation between real estate prices and stock market prices. There certainly isn't a negative correlation between them but there might be a slightly positive trend.

Leaving out drastic interest rate increases which I think we can agree aren't very likely to occur, real estate prices most highly correlate with wage and unemployment levels.
Didn't Real Estate prices spike up after the stock market recession in the early 1990's? I don't have the numbers in front of me though.

[SpaceBoy]

The house prices in AZ continue to be insane. A 3800 sf house that is 12 years old just sold across from my gf's parent's house. It was bought for about $300k and just sold for $725k. -eek-

725k for a 3800 sq ft is insane? Seems d@m good to me. My friend here got a plane 800k and it was just 2k sq ft.

Then again, the same can be said lots of places nowadays.

To bad a place that much only really does you any good if you sell it and move somewhere you dont' want to live, otherwise you just have to pay more.

[Deftones]

725k for a 3800 sq ft is insane? Seems d@m good to me. My friend here got a plane 800k and it was just 2k sq ft.


But the AZ market is different in there is infinite space to expand. It's not like an LA where growth isn't possible.

It's insane in that just two years prior, that same house would've sold for about $500k. Now it's more than doubled in price in less than 2 years. Also, all the houses in that neighborhood of similar plans have sold in the $600k range in the past 6 months. That's like almost a $75k jump in that short period of time.

[al_bundy]

I'd sure like to hear your reasoning on this.

affordability

at current low rates it should be nothing for a middle class family to buy a home on a fixed rate loan. Why are so many people getting IO loans?

How does a middle class family making $150,000 a year afford a $600,000 home in california if they are first time buyers?

My theory is that if the first time buyers can't afford then the person who is going to sell them the home can't sell it and buy something better and so on up the food chain.

[X]

Didn't Real Estate prices spike up after the stock market recession in the early 1990's? I don't have the numbers in front of me though.Both the stock market and the real estate market spiked up. However they don't show a long term correlation and that time period certainly doesn't show that one spikes at the expense or due to weakness of the other.

[BigPete]

How does a middle class family making $150,000 a year afford a $600,000 home in california if they are first time buyers?

Actually, 4x doesn't seem that bad to me ... lower the salary to $75k - $100k and then I'll agree with you.

[X]

affordability

at current low rates it should be nothing for a middle class family to buy a home on a fixed rate loan. Why are so many people getting IO loans?

How does a middle class family making $150,000 a year afford a $600,000 home in california if they are first time buyers?Let's assume they put down 10%, or $60,000. That leave $540,000 to finance.

Here are two alternatives...

An interest-only loan for a minimum of 5 years at, let's say 5.25%. That means payments of $28,350. Chicken feed, considering it's fully tax deductible.

A fully amortized 30-year loan at 5.5% means annual payments of $36,793. Again, most of that amount will be deductible as interest in the first 5 years. Over $29,500 is deductible the first year, $25,000 is still deductible in year 10.

In fact $600,000 is just about the maximum that lenders recommend for a $150,000 income.

[grrrah]

First time buyers arent the ones that typically buying the $600k homes. we are buying the 300k condos :(

the guys buying the 600k homes are the ones that bought the 150k condos, and sold it to us for 300k and used the profits as a down. or they work for google. :(

[ukywyldcat]

I think that prices may have finally peaked and there will be a small correction or several years of a flat housing market. I think the mania and euphoria is finally over.

Question: Why <i>finally</i>? Are you one of those people who are bitter that they have waited so long they are priced out? I hope not.

When I run an open house on one of my rentals, most visitors are "kick the tire" types who are obviously feeling the pain of their own stupidity. They waited when prices went up and kept waiting, waiving their fist in the air about how stupid it all is while vowing to swoop in and get a bargain-priced palace from some sucker who lost it all. These same people have been telling the same miserable story for years, and that story has served them no purpose. They love to come to the open house and try to make me as miserable as they are. They bash my plans and offer to buy at a ridiculously low price. They waste my time and I cannot stand them. (I keep needles handy for the most annoying ones)

Anyway, I can count my blessings for people like that. I lovingly refer to these losers as "tenants".


But back to my question...why are you so set that it has <i>finally</i> peaked? I don't think it has, but it has definitely slowed. I honestly don't care if it does, but I'm poised to buy if it begins to drop. Hell, I'm poised to buy if it keeps rising. I really don't give a damn.

Oh, I almost forgot. Those people who crash my open house. Quite often they are married couples. One spouse really wants to buy or rent a nicer unit than they have. The other, usually the man, wants to stay put. He is the dumb one of the two, keeping them in the rut they are in. Anyway, the man uses my open house to do two things. Remind his wife that they cannot afford to buy and to show her again just how far $600K goes, and that the $600K 1500 sq. ft. 2/2.5 home is ridiculous, and that next year they can get it for $300K when the world collapses and he is ready execute the shrewd move he has been contemplating for 5 years. The second reason to show her the rental is to remind her that their $1400 rental condo is where they should stay, because it is big compared to the newer $2500/month rental units that are half the size.

[DodgingCars]

I'll talk to you skeptics in a year and we'll see whos right. :)

[X]

I'll talk to you skeptics in a year and we'll see whos right. :)You mean the ones who are still living in the home they bought that might have gone down in value a little? Or the ones who still won't be able to buy a home even if it has? Or the ones who are living in the home that has gone up a lot in value? Or the ones who were suddenly able to buy a home because the values plunged 50%?

[Sloth911]

Housing Bubble:

Prices in the market continue to rise until the median two-family income in an area can no longer support the current monthly cost of the home (princiapl/interest). As long as the rates stay low, buyers can afford more principal - and the prices of homes will rise until that monthly payment is more than 30% of the median two family income. 30% is the rough debt/income ratio that banks use to figure out how much house you can afford.

In "hot" areas like NY/CA people are getting interest only mortgages - and their maximum montly payment is based on interest alone - allowing these people to afford "twice" the house of a conventional mortage. Granted, they are building no equity.

I doubt the housing bubble will burst. The prices may slowly cool off and stop increasing (when rates go up) but housing prices will NOT burst like the internet stocks did. Why? Cause homes are real property and hold real value that is unlike that value that was placed on interent stocks.

The people who will see the "bursting" will be people who buy the high-end homes that cost 2-3 times the value of the median home in their area.

==========

I put $0 down, and have to pay the dreaded PMI. Within a year, hoping the bubble doesn't burst too bad, I will have the 20% equity,

If you have good credit this is EXACTLY what people should do if the only reason they haven't bought a house is no funds for the downpayment.

I bought my house in Jun 2003 w/ 0% down. In fact, just like on TV, I got "cash at closing" my interest rate was high at 6.125% w/ PMI built in and a 20 year mortgage.

In the Dec 2004 I refinanced my home based on the new appraised value (meeting the 20% equity requirement) and I got a 15 year mortgage at 4.75%.

======================

Several of my friends have been "saving" for a house over the last 2-3 years and have nothing to show for it. The homes cost $50k more now and they still need to save more money.

People scoff at the idea of not putting 20% down and getting a 30 year mortgage because that is what their parents do/did and they can't think/research for themselves. I tried to help my friends see the "light" and they think I am crazy.

======================

Another very, very populat alternative is doing an 80/20 mortgage where 80% is in a conventional mortgage and 20% is in a HELOC that you can use to cover the down payment.

[BadlyDrawnBoy]

You mean the ones who are still living in the home they bought that might have gone down in value a little? Or the ones who still won't be able to buy a home even if it has? Or the ones who are living in the home that has gone up a lot in value? Or the ones who were suddenly able to buy a home because the values plunged 50%?


Ooh Ooh, I'm in one of those categories.

This is a great thread.

[DodgingCars]

You mean the ones who are still living in the home they bought that might have gone down in value a little? Or the ones who still won't be able to buy a home even if it has? Or the ones who are living in the home that has gone up a lot in value? Or the ones who were suddenly able to buy a home because the values plunged 50%?

Well considering this thread is about a possible bubble and there seems to be 2 views: we're in one or we're not, and I've taken the position that we are....

ummm.. you figure it out.

[DodgingCars]

Housing Bubble:
I doubt the housing bubble will burst. The prices may slowly cool off and stop increasing (when rates go up) but housing prices will NOT burst like the internet stocks did. Why? Cause homes are real property and hold real value that is unlike that value that was placed on interent stocks.


Maybe not a burst like the stock market, but I could see a quick cooling... Maybe not a burse, what a quick deflation. :) Califonia had something similar in in the early 90s.

[kvrdave]

Anyway, I can count my blessings for people like that. I lovingly refer to these losers as "tenants".


DAMN!!! I actually think there are plenty of good reasons to rent rather than buy (but not in my situation), and tend to look at my tenants as neighbors. :shrug:

[X]

Maybe not a burst like the stock market, but I could see a quick cooling... Maybe not a burse, what a quick deflation. :) Califonia had something similar in in the early 90s.Yes. My house went down about 11% at that time (I know because I had it appraised during the height and the slump). Everybody was in shock. Didn't matter much to me because I wasn't selling then.

During that year or so it wiped out about the previous 2 years of appreciation. Since then it's gone up 3 to 4 times the value it dropped down to.

[al_bundy]

Housing Bubble:

Prices in the market continue to rise until the median two-family income in an area can no longer support the current monthly cost of the home (princiapl/interest). As long as the rates stay low, buyers can afford more principal - and the prices of homes will rise until that monthly payment is more than 30% of the median two family income. 30% is the rough debt/income ratio that banks use to figure out how much house you can afford.

In "hot" areas like NY/CA people are getting interest only mortgages - and their maximum montly payment is based on interest alone - allowing these people to afford "twice" the house of a conventional mortage. Granted, they are building no equity.

I doubt the housing bubble will burst. The prices may slowly cool off and stop increasing (when rates go up) but housing prices will NOT burst like the internet stocks did. Why? Cause homes are real property and hold real value that is unlike that value that was placed on interent stocks.

The people who will see the "bursting" will be people who buy the high-end homes that cost 2-3 times the value of the median home in their area.

==========



If you have good credit this is EXACTLY what people should do if the only reason they haven't bought a house is no funds for the downpayment.

I bought my house in Jun 2003 w/ 0% down. In fact, just like on TV, I got "cash at closing" my interest rate was high at 6.125% w/ PMI built in and a 20 year mortgage.

In the Dec 2004 I refinanced my home based on the new appraised value (meeting the 20% equity requirement) and I got a 15 year mortgage at 4.75%.

======================

Several of my friends have been "saving" for a house over the last 2-3 years and have nothing to show for it. The homes cost $50k more now and they still need to save more money.

People scoff at the idea of not putting 20% down and getting a 30 year mortgage because that is what their parents do/did and they can't think/research for themselves. I tried to help my friends see the "light" and they think I am crazy.

======================

Another very, very populat alternative is doing an 80/20 mortgage where 80% is in a conventional mortgage and 20% is in a HELOC that you can use to cover the down payment.


very few people are getting IO mortagages at least in NYC. A lot of condo/coop HOA's won't let you buy into the building if you do so via a IO mortgage. Most coop boards require that you put 10% to 20% down as well.

Most housing in NYC is coop apartments. The custom is that you give 10% of the selling price at contract as earnest money and the rest at closing. And the coop boards do a full investigation on you and won't let you buy in unless you are OK financially. All those stories about people paying $1 million for an apartment, they have enough cash in the bank after closing to pay their bills for 6 months if they lose their job.

[BigPete]

In reality, isn't it simply the price of the land that is skyrocketing? Won't the same $250k allow you to build the same kick-ass house as it would have 5 years ago, provided you already have a place to put it?

[orangerory]

I think the people who think there is a bubble that has burst (or will soon) or that everything has peaked - are those people who never "got in" and are sorry about it.

Those people who don't feel that there is a bubble (like me) are people who own more than one property, have made significant gains on their properties and are confident that they will make more.

I think that the reality is that things will slow down - but prices aren't going to drop. At least in my area (Wash. DC) - the job market is strong, rates are still reasonable (and will remain so for quite some time), and we're still nowhere near the prices of NYC or San Fran.

Anyway - I have heard people complaining about the "bubble" for 5 years - well, they sat back and waited and other folks got in on the action and made a killing. Keep complaining, keep waiting - you're not going to see a crash and you will never own.

[The Bus]

Housing Bubble:

Prices in the market continue to rise until the median two-family income in an area can no longer support the current monthly cost of the home (princiapl/interest). As long as the rates stay low, buyers can afford more principal - and the prices of homes will rise until that monthly payment is more than 30% of the median two family income. 30% is the rough debt/income
ratio that banks use to figure out how much house you can afford. In "hot" areas like NY/CA people are getting interest only mortgages - and their maximum montly payment is based on interest alone - allowing these people to afford "twice" the house of a conventional mortage. Granted, they are building no equity.

[SNIP]

Another very, very populat alternative is doing an 80/20 mortgage where 80% is in a conventional mortgage and 20% is in a HELOC that you can use to cover the down payment.


Some points are pedantic, but as a whole, this part of the message is incorrect.

First off, the ratio most banks use is 36%, although some will allow up to 45% or even 50%. (Or more, but those are specialty cases).

Second, interest only lets you afford anywhere from 10% to 30% more house, not quite twice, assuming you're not counting the period when you start paying back principal.

And third, yes, they are very much building equity. Remember:

<blockquote>Sales Price - Amount Owed = Equity</blockquote>

Even if the amount owed remains the same, increases in price will mean you gain equity. If sales prices drop (even moderately), having a regularly-amortizing loan is not going to protect you from equity loss. A 30-year mortgage gets paid down only by about 1% in the first year. If
nominal house prices were to remain stagnant, it would take five years to pay down the mortgage by 7%, which is the point where you are almost guaranteed to not come out upside-down.

Finally, an 80/20 does not need to be with a HELOC. It can be done with 30-, 20-, 15-, or 10-year fixed mortgages, with ARMs, with HELOCs, and/or with Interest Only.

What I do know is this: house price increases cannot greatly outpace wages for any significant period of time. If this rise continues, at some point, we are either need to be earning a lot more, or the pricing will cool off.


What is Likely to Happen...



Consider this: say we enter a period of (comparatively) rapid inflation. Let's say inflation is suddenly at 7%, which is high, but not alarming. Assume wages increase at 9% on average. Now interest rates are much higher (back to the "normal" 7 to 10%), making houses effectively 25-50% more costly (in terms of monthly interest payments for new home buyers). This puts a damper on house prices, which now only increase 5.5% or so a year (their long-term average).

Let's say this continues for about three years.

What has happened to the REAL price of a home in DVD Town? Let's find out, assuming this begins in 2006.¹ All figures are estimates of current indices, I'm not going to waste time to make this currently accurate since accuracy is not my focus. Anyways, let's take a look at DVD Town.

DVD Town, USA

2005
Inflation: 3.0%
Wage Increase: 3.0%
Housing Increase: 15%
Mortgage Rate: 6.25%

Which results in...
Median wage: $40,000
Median house price: $200,000
Monthly P&I housing costs²: $1231 or $1169
House Price to Wage ratio: 5.0
Housing Cost to Wage (monthly) ratio³: 36.9%


Let's see what happens later...


2006
Inflation: 7.0%
Wage Increase: 9%
Housing Increase: 5.5%
Mortgage Rate: 8.75%

Which results in...
Median wage: $43,600
Median house price: $211,000
Monthly P&I housing costs²: $1659 or $1576
House Price to Wage ratio: 4.8
Housing Cost to Wage (monthly) ratio³: 45.6%


And then...


2007
Inflation: 7.0%
Wage Increase: 9%
Housing Increase: 5.5%
Mortgage Rate: 7.5%

Which results in...
Median wage: $47,500
Median house price: $222,000
Monthly P&I housing costs²: $1552 or $1474
House Price to Wage ratio: 4.7
Housing Cost to Wage (monthly) ratio³: 39.2%


And finally...


2008
Inflation: 7.0%
Wage Increase: 9%
Housing Increase: 5.5%
Mortgage Rate: 7.5%

Which results in...
Median wage: $52,000
Median house price: $234,000
Monthly P&I housing costs²: $1636 or $1554
House Price to Wage ratio: 4.5
Housing Cost to Wage (monthly) ratio³: 43.2%


Adjusting for wages:

2008 (in 2005 earned dollars)
Median wage: $40,000
Median house price: $178,000
Monthly P&I housing cost²: $1250 or $1187
House Price to Wage ratio: 4.45
Housing Cost to Wage (monthly) ratio³: 37.5%


____________________________________________________


Results...



Homeowners who bought in 2005 have enjoyed a 17% nominal increase in their homes. If you bought a median-priced home, you made $34,000 in equity. :up:
Wage-adjusted house prices dropped 11% since 2005, or roughly 3.8% per year. :up:
For 100% or 95% financing, monthly house payments have not become more or less affordable for someone who waited it out. :up:
For homeowners who bought in 2005, the monthly payments that were $1231 are now effectively much more affordable since their wages rose from $40,000 to $52,000 per year. :up:
If first-time buyers who decided to "wait it out" saved $300 per month, by 2008 they could have a 5% down-payment.



So, in summary...


-- Houses will not become stratospherically unaffordable.

-- The wage- and inflation-adjusted price of houses may drop without an effect on the perceived value of the home.

-- Houses can be higher in price AND more affordable, even when rates rise.


____________________________________________________

¹ I am NOT predicting these exact numbers, I am simply using this as an example to illustrate my point.

² The first number is for 100% financing. The second number is for 95% financing. These are the more popular options for first-time homebuyers, since many don't have large down payments. For brevity, we assume rates are the same.

³ This ratio figures compares the 100% financing option only.

[ukywyldcat]

If first-time buyers who decided to "wait it out" saved $300 per month, by 2008 they could have a 5% down-payment.


As usual, a great overall post. I found this tidbit amusing. Another example that backs my theory that saving up for something in any long term plan is for suckers. If I can't save for something and have it by the end of the week - maybe the end of the month...I'm either not going to be interested or I'll find another way.

[kvrdave]

In reality, isn't it simply the price of the land that is skyrocketing? Won't the same $250k allow you to build the same kick-ass house as it would have 5 years ago, provided you already have a place to put it?


Sort of. Lots of building materials have gone up significantly. Codes generally become more complex over time which contribute to a higher price. And municipal hook up fees tend to go up quite a bit as well. But the land probably is over half of it.

[The Bus]

Land is land. I know that's a trite response, but it is what it is. If you're to follow the "Three Rules of Real Estate" (location, location, location), then that's all that matters. It's also the main catalyst for why a 4-bedroom ranch home sells for $135,000 in South Carolina and $980,000 in California.

However, kvrdave is right, in that other costs do change. Not only do the costs of material change (and certain ones can change quickly from year to year), but you also have the cost of labor (which has been effectively stagnant recently), and the cost of convenience of available labor. If the economy is slow and the housing market is slow, you can probably build a house to-suit for very little compared to trying to get a good builder during busy times.

Here are some costs of homes to be built in this area, not counting the site. These are estimates of appraisals, so take them with a grain of salt. They're all in Delaware, which, as a market, ranks slightly above average in house values. I'd imagine construction costs (not counting hook ups, taxes, etc.) would be similar across the country IF these appraisers are right.

BIG DISCLAIMER: I'm not a contractor, or a real estate agent, or a handyman, or an appraiser, so I can't tell you if this is right or not. This is just the info I have. This info covers the past two years, so I am just putting this up as a novelty:

$290,000 - 2,900 ft.² 2-story home, 4 Bed, 2.5 Bath, finished basement, 2 car garage, deck
$250,000 - 2,600 ft.² 2-story home, 4 Bed, 2.5 Bath, finished basement, 2 car garage
$235,000 - 1,450 ft.² 2-story home, 3 Bed, 2.5 Bath, finished basement, 2 car garage, patio & porch
$230,000 - 1,900 ft.² 2-story home, 4 Bed, 2.5 Bath, finished basement, 1 car garage, deck
$180,000 - 1,800 ft.² 1-unit twin-home, 3 Bed, 2.5 bath, finished basement, 1 car garage, covered porch
$175,000 - 1,600 ft.² 2-story home, 3 Bed, 2.5 Bath, finished basement, 1 car garage, deck
$170,000 - 1,000 ft.² ranch home, 3 Bed, 1 Bath, finished basement, patio/sun room
$170,000 - 1,300 ft.² 2-story home, 3 Bed, 1 Bath, finished basement, 2 car garage, deck & open porch
$160,000 - 1,600 ft.² 2-story home, 3 Bed, 2.5 Bath, finished basement, 2 car garage
$145,000 - 1,800 ft.² end-unit townhome, 3 Bed, 2.5 Bath, no basement, 1 car garage
$140,000 - 1,800 ft.² split-level home, 3 Bed, 1.5 Bath, finished basement, 1 car garage, deck
$130,000 - 1,200 ft.² ranch home, 3 Bed, 2 Bath, no basement, 1 car det. garage
$105,000 - 1,200 ft.² townhouse, 3 Bed, 1.5 Bath, finished basement

(All these are colonial-type houses, with wood frames, brick/siding exteriors, nothing fancy, just the typical stuff here in the East/Mid-Atlantic/New England).


Site/land values for these properties ranged from $25,000 to over $100,000. For the most part, these prices are in line with each other, and it tells us that properties that sell for $600,000 or more and have features similar to the ones in the list above have a large percentage of their value in the land. The land is what is getting so pricy, not the actual costs of building the site.

The problem with just buying land at first is that you usually need a lot more down than for a house (typically anywhere from 10 to 30% down). You might be able to buy a site for $150,000, but you will still need a hell of a lot of money, and now ALL your investment is exposed to risk as opposed to a house where at least some of the value is inherent in the structure.

Then again, if you are savvy, go ahead and buy large plots of land, subdivide them, and sell them piecemeal. I know a lot of people that have turned $10,000 into $50,000 or more over time, but they are shrewd investors.

[mllefoo]

We were told by the title company as we were signing our documents yesterday that just about 90% of the loans she sees are I/O ARMs. She was impressed we have a loan where we pay on the principle as well as interest, but we had to jump through hoops to get the loan we did. I didn't want an I/O because I'd like to build some equity, and I don't plan on moving out of my digs for a while.

The real estate market in the SF Bay Area will occasionally flatten, but it never goes down. We will be able to make a decent profit on our place in six or seven years, but unlike a lot of people who buy around here, I'm not doing this to invest. I'm buying a place so I have a place to live.

[mllefoo]

My husband brought up an interesting point: I/O loans were popular just before the stock market crash in '29.

[jiggawhat]

I'm a RE agent in california and I can tell you that the one thing keeping prices so high is simply Supply and Demand. Rates are low, so people are induced into buying at any cost. The one thing that does scare me is that there are so many interest only loans happening. Most of these folks don't realize that the interest only period last for a couple years, then when the period ends and they find out they have to pay both interest and principal. Usually the payment doubles and most of them simply can't afford the payments and forced to sell.The amount of I/O loans was relatively small in 2002 but now it's almost 50%, which is ridiculous.

[X]

I'm a RE agent in california and I can tell you that the one thing keeping prices so high is simply Supply and Demand. Rates are low, so people are induced into buying at any cost. The one thing that does scare me is that there are so many interest only loans happening. Most of these folks don't realize that the interest only period last for a couple years, then when the period ends and they find out they have to pay both interest and principal. Usually the payment doubles and most of them simply can't afford the payments and forced to sell.The amount of I/O loans was relatively small in 2002 but now it's almost 50%, which is ridiculous.But you need to consider the time periods you're talking about here.

Interest-only loans are generally interest-only for the first 5 years. Somebody taking out that type of loan now won't have to worry about their payment going up until mid-2010. And at that time they can just refinance again, either interest-only or conventional, if interest rates/payments are more favorable at that time. Five years is a good amount of time to increase your income via raises, job switching, or inflation as well.

For the people who already have a few years on an interest-only, they can refinance now at extremely favorable rates to extend their low payments until 2010.

In addition, I think I read that the average amount of time a home is owned by someone is less than 5 years in California.

So I don't see this type of loan popping the bubble for many years, if there even is one.

[kvrdave]

Agree big time. I also don't understand the attraction people have to ARMs currently. I know the story of "I don't plan on being here longer than X years" etc. but why bother with an ARM when regular rates are incredibly low? Plans and situations change, and some people will get hurt by the ARM as well. Those suckers can shoot up a fair amount.

[jiggawhat]

But you need to consider the time periods you're talking about here.

Interest-only loans are generally interest-only for the first 5 years. Somebody taking out that type of loan now won't have to worry about their payment going up until mid-2010. And at that time they can just refinance again, either interest-only or conventional, if interest rates/payments are more favorable at that time. Five years is a good amount of time to increase your income via raises, job switching, or inflation as well.

For the people who already have a few years on an interest-only, they can refinance now at extremely favorable rates to extend their low payments until 2010.

In addition, I think I read that the average amount of time a home is owned by someone is less than 5 years in California.

So I don't see this type of loan popping the bubble for many years, if there even is one.

The loans I've been seeing lately are only interest only for 2 years.

[X]

The loans I've been seeing lately are only interest only for 2 years.That's not what I see around here. There are 3 year ones if you want a slightly lower interest rate, but 5 years is the norm and there are 7 and 10 year versions as well.

Just as a comparison in rates (no points)...

3 year IO 4.875%
5 year IO 5.000%
7 year IO 5.250%
10 year IO 5.500%

I saw a 1-year at 4.000% in the paper, but no 2-years advertised at all.

[mllefoo]

The I/O loan the lending agency was considering for us was five years with an enormous balloon payment due in 2010.

With our current loan, we have a balloon payment due in 15 years, but by that time we will have moved on to another, hopefully bigger place.

[LurkerDan]

But the AZ market is different in there is infinite space to expand. It's not like an LA where growth isn't possible.
You do realize that you live in a desert, right? There may be (effectively) infinite land, but there sure ain't infinite water! ;)

How does a middle class family making $150,000 a year afford a $600,000 home in california if they are first time buyers?
Um, I make about a third of that and I just bought a home that's less than half that. It can be done.
The loans I've been seeing lately are only interest only for 2 years.
Mine is for 10 years, and the interest stays fixed even after that.

[JimRochester]

No, it will wait until I pick up that investment vacation home in Florida then values will plummet 50%

[Deftones]

You do realize that you live in a desert, right? There may be (effectively) infinite land, but there sure ain't infinite water! ;)


Of course there isn't. But, if there's one thing that those damned Mormons did is make sure AZ keeps most of the water that runs into the state. They made all sorts of exclusive deals back in the early to mid 1900's to ensure Phoenix would have water for generations to come.

Recently, one of the federal courts decided that LA and SD can't have a drop of water from Colorado. Nevada, luckily, got some of their water rights back from Lake Mead as a result of this federal court decision.

If anything, Californians should be worried about running out of water. ;)

[LurkerDan]

Of course there isn't. But, if there's one thing that those damned Mormons did is make sure AZ keeps most of the water that runs into the state. They made all sorts of exclusive deals back in the early to mid 1900's to ensure Phoenix would have water for generations to come.

Recently, one of the federal courts decided that LA and SD can't have a drop of water from Colorado. Nevada, luckily, got some of their water rights back from Lake Mead as a result of this federal court decision.

If anything, Californians should be worried about running out of water. ;)
Yeah, I was mostly kidding, I know AZ has lots of water rights. Though it always kills me when I drive there and see all the pretty green lawns, and think how much water is wasted growing lawns in the desert.

You're right, California has more to worry about, though of course as residents of the West, I think we all need to be conscious of the water problem (heck, you just got back from Lake Powell, how different is it looking?).

[kvrdave]

If anything, Californians should be worried about running out of water. ;)


Boy, that's the truth. I have been surprised that there hasn't been more attention to it. I also blame them for low flow toilet legislation.

But there are a lot of stupid things that blanket legislations do. Forks, Washington gets about 120 inches of rain a year, and yet they have the same requirements for septic tanks as I do with 16 inches of rain a year. Stupid.

[BadlyDrawnBoy]

my int only is a 3/1, but I am in a TIC Agreetment with a partner, and I know that when we convert the units to condo, we will refinance, so the lower rate was key for me, why throw money away when I need that money to use for condo converstion costs.

[Deftones]

Yeah, I was mostly kidding, I know AZ has lots of water rights. Though it always kills me when I drive there and see all the pretty green lawns, and think how much water is wasted growing lawns in the desert.

You're right, California has more to worry about, though of course as residents of the West, I think we all need to be conscious of the water problem (heck, you just got back from Lake Powell, how different is it looking?).


Those are few and far between anymore. Most new builds have desert landscaping. It's easier to take care of and requires much, much less water. Even still, if you decide to have a lawn you have to be water conscious. Some cities (Phoenix and Mesa) can fine you if you have excess water running down the street gutters from your property.

As for Lake Powell, it's amazing what some rain can do. It's going to be quite a while before it's back to full pool (about 14 years ago was the peak), however the Lake is up at least 20 feet this year and actually rose 4 feet in the week we were there. So it's getting better, but still not ideal.

[DaveNinja]

Southern California needs to worry about water, not Northern California (they're 2 seperate states now, right?)

[al_bundy]

CSFB downgraded KB Homes a few days ago citing risks in certain markets

KB Homes is selling it's mortgage unit to Countrywide. KB Homes supposedly wrote up a lot of IO loans. I think that their management learned a thing or two from the telecom meltdown of a few years ago and are trying to minimize their risk to having a lot of people default.

[DodgingCars]

Southern California needs to worry about water, not Northern California (they're 2 seperate states now, right?)

SoCal takes all of NoCal's water... at least that's what NoCal claims. The truth is, central California (agriculture) gets most of it.

[DodgingCars]

CSFB downgraded KB Homes a few days ago citing risks in certain markets

KB Homes is selling it's mortgage unit to Countrywide. KB Homes supposedly wrote up a lot of IO loans. I think that their management learned a thing or two from the telecom meltdown of a few years ago and are trying to minimize their risk to having a lot of people default.

CSFB downgrades homebuilders
Lower ratings on Ryland, KB Home, M.D.C. Holdings
By John Spence, MarketWatch
Last Update: 4:21 PM ET July 5, 2005

BOSTON (MarketWatch) -- Analysts at Credit Suisse First Boston on Tuesday morning downgraded two large U.S. homebuilder stocks on risks in key markets, and another on valuation concerns.

CSFB said it believes that "there is not a national housing bubble but . . . there is significant risk in markets where the builders derive a large percentage of profits."

Analysts downgraded KB Home (KBH: news, chart, profile) and M.D.C. Holdings Inc. (MDC: news, chart, profile) to underperform from neutral because they said the companies have higher exposure to speculative housing markets that could see a turnaround if investor sentiment shifts.

CSFB said KB Home remains highly exposed to Las Vegas, Phoenix and many California markets that the broker views as risky based on excessive investing, above-average home price appreciation, interest-only market share, job growth and permit growth.

CSFB estimates that Arizona, California and Nevada comprise roughly 77% of KB Home's operating profit. Meanwhile, analysts estimate these three hot markets represent about 71% of M.D.C. Holdings' operating profit.

On Tuesday, shares of KB Home lost 73 cents to $75, and M.D.C. Holdings shed 76 cents to $80.75.

The broker also downgraded shares of Ryland Group Inc. (RYL: news, chart, profile) to neutral from outperform on a valuation that it believes has approached a peak relative to its peers.

However, CSFB said it believes Ryland "still benefits from one of the most risk-averse and differentiated business models among the public builders," citing the company's strategy of not over investing in any particular market.

CSFB estimates only 66% of Ryland's operating income is derived from its five most profitable states, compared with 85% on average for other homebuilders the broker covers. Also, the analysts said Ryland has relatively lower exposure to some of the most speculative markets.

"As such, this downgrade is based solely on valuation and we would likely revisit our outperform rating at a more attractive price," CSFB analysts wrote.

Shares of Ryland lost 54 cents to close $75.46.

CSFB also reiterated its outperform rating on shares Centex Corp. (CTX: news, chart, profile) and raised its target price to $80 from $71 based on its relatively lower exposure to the riskiest housing markets.

Shares of Centex last gained 62 cents to $71.36 on Tuesday.


John Spence is a reporter for MarketWatch in Boston.

http://www.marketwatch.com/news/story.asp?guid=%7BD65622C0-2DCF-4374-B70A-A75482F57135%7D&siteid=google

[The Bus]

(All emphasis mine.)

Housing Goes Frothy to Flat in Denver Area
By MOTOKO RICH
Published: July 17, 2005

http://graphics8.nytimes.com/images/2005/07/17/national/17denver.1841.jpg
Kevin Moloney for The New York Times
To entice homebuyers, sellers are reducing prices in Denver as the once-hot housing market there slumps.

PARKER, Colo., July 12 - Tom Woods, a 37-year-old defense industry consultant, wanted to build a nest egg for one of his young sons' college tuition. Inspired by rising prices for homes in this Denver suburb, three years ago he invested in a new three-bedroom townhouse for $155,000. His hopes were that renters would cover most of his mortgage and that the property's value would appreciate by at least $10,000 a year.

But last October, when Mr. Woods put the townhouse up for sale to help pay some unforeseen medical bills, there was more pain than gain: the house sat on the market for eight months. He finally found a buyer in June, but to seal the deal he had to make big concessions, including paying the buyer's closing costs. After handing over the keys on Friday, he ended up with a profit of just $10,000 for his three-year investment.

Even as prices for homes in frothy markets like Las Vegas; Riverside, Calif.; Miami; and Washington are still jumping by more than 20 percent a year, Denver's homeowners are learning the hard way about living through the real estate doldrums. Five years ago, median house prices were rising at an annual clip of nearly 17 percent. By the first quarter of 2005 the increase had slipped to 3 percent, according to an analysis by Economy.com, a research firm.

Still, some Denver homeowners have read reports in the news media of skyrocketing prices elsewhere and assume they are accumulating wealth in their homes at the same rapid pace.

"I was surprised," Mr. Woods said. "My expectations were higher."

Although sellers continue to profit, houses are sitting on the market longer, buyers are negotiating harder, and some owners, particularly young buyers who may have been counting on rapid appreciation, are postponing dreams of renovations, moves to larger homes and big savings for their families.

With economists warning that prices in hot markets cannot continue to rise as sharply as they have in the past few years, the experience of Denver's homeowners may foreshadow what could happen if those markets start to cool. Denver's circumstances are in some ways particular to the area, driven largely by job losses in the telecom sector, but they illustrate how a moderate slowdown could play out for homeowners in other parts of the country and stand as a potent reminder that galloping price appreciation is not the norm.

Economists are divided as to whether certain markets will simply cool off, or whether they will actually melt and send prices plummeting, as happened in parts of California, New England and New York in the 1980's and early 1990's. Earlier this year, Federal Reserve Chairman Alan Greenspan said some metro areas were showing signs of "froth."

Optimists point to Denver as a model of an adjusting real estate market. "I think it's a good example of when a market softens, what happens," said David Lereah, the chief economist of the National Association of Realtors, a trade association. "You see double-digit price appreciation go down to 4 percent or even 1 percent, and then it starts coming back to a historical norm of between 4 and 6 percent. That's very healthy. That's wonderful. It beats inflation."

But many analysts take a gloomier perspective, suggesting that the most heated markets could suffer more than Denver's so-called soft landing. "I think Denver is a best-case scenario," said John H. Vogel Jr., adjunct professor of real estate at the Tuck School of Business at Dartmouth College. In the case of markets like Naples, Fla.; Miami; and New York, he said, "I think you'll see dramatic price decreases because I think the prices have become artificially inflated by trading and speculation."

Denver's housing boom never quite reached the heights of Las Vegas's, for example, where home prices increased by nearly 33 percent in the first quarter of this year, according to Economy.com. But from 1998 through the third quarter of 2001, homeowners in sprawling Denver enjoyed double-digit appreciation as telecom employers like Qwest Communications International added jobs - and homebuyers - to the market.

From December 2000 to September 2003, however, Denver lost about 74,000 jobs, about 6 percent of its job base, according to Economy.com. Increases in home prices stalled, then started to taper off. Houses lingered on the market, and sellers were forced to cut prices.

Touring a development last week in Castle Rock, a southeastern suburb, Tom Santilli, an agent with Re/Max Alliance, pointed out a four-bedroom house that had not sold for five months, despite its impeccable condition. The price had been lowered to $396,500 from $419,000, but because of a few flaws - a smallish family room, and white kitchen cabinets instead of wood and glass - the sellers had "not even had a low-ball offer" after showing it to 65 prospective buyers, Mr. Santilli said.

Where buyers here had few properties to choose from in the late 1990's, today they can afford to be picky. Inventories of available homes have tripled from 8,010 in January 2000 to 25,817 in June, according to Gary Bauer, a real estate broker and consultant in Denver.

Sellers are also competing with homebuilders, who are offering incentives like discounted mortgage rates and free air-conditioning.

At Sapphire Pointe, a subdivision in Castle Rock, huge beige and cream houses, dubbed prairie palaces by local residents, are clustered along curving lanes and cul-de-sacs. Last week the builder, D. R. Horton Continental Series, was offering a four-bedroom, 4,371-square-foot house for $489,697, $40,000 below the listed price. The builder had added upgrades that included fireplaces; granite countertops; and metal banister pickets on the curving staircase. The master bathroom was bigger than some studio apartments in Manhattan.

Many sellers of existing homes are offering incentives of their own. When Mary Ann and Brian Kuklinski put their mocha-colored three-bedroom house on the market in May for $275,000, they knew that a house nearby had languished on the market for eight months. After five weeks and 30 showings, they reached a deal by lowering their price to $270,000 and throwing in their washer and dryer, the refrigerator, and a swing set in the backyard.

The Kuklinskis, who have three sons, ages 11, 7 and 5, paid $197,000 for their home in 1999 and ended up with enough appreciation to help with a down payment on a house they are building nearby, a $385,000 four-bedroom with a three-car garage.

But for other homeowners, the calculus of the 1990's that might have led them to trade up quickly no longer applies. "When the market was strong, somebody would move up to a nicer home in two years because they had so much equity," said Karen Snyder, an owner of Metro Brokers Right Realty in Centennial, a suburb southeast of Denver. Now, she said, "they're just staying put."

Those who had hoped to tap increased equity to pay for home improvements are also scrapping their plans. Gustavo Salazar, a high school math teacher, bought a small house with his fiancée, her sister and her boyfriend two years ago for $232,000. Earlier this year they decided to refinish the basement. But when they checked with their mortgage lender, they learned that they only had about $9,000 of equity in the house, less than the estimated $15,000 they would need for the project.

Mr. Salazar, 30, said he was shocked that the house had appreciated so little. "I was thinking the market was going up because this is such a nice area," he said.

Michelle Konishi and her husband, Jeff Konishi, were living in a four-bedroom, four-bathroom house not far from Mr. Salazar when they filed for divorce. They paid about $350,000 in 1999 to build their house, and put it on the market at $474,900 in April 2003. Five price cuts and 10 months later, they sold it for $405,500. Because they had invested in landscaping, a deck, carpeting and custom window coverings, Ms. Konishi said, the couple just about broke even.

Local analysts say it was inevitable that surging prices would not last. "Now we're back to what I would portray as a normal market," said Mr. Bauer, the real estate consultant. "Historically we had 5 percent appreciation, and now we have 5 percent appreciation."

While many homeowners have adjusted to the new reality, others pine for the good times that still exist in other markets.

When sellers come in with high expectations, Chad Ochsner, a managing broker with Re/Max Alliance, said he reminds them that "just because it's like that in Las Vegas or Phoenix, that doesn't necessarily mean it's going to be the same way here in Denver."

If some of those places follow Denver's lead, it may be for reasons other than those that softened Denver's conditions, economists say. "The thing that weighed on Denver's housing market was its job market," said Mark Zandi, chief economist at Economy.com. He added, "The concern now is that interest rates rise and suck the wind out of housing demand."

In fact, analysts say the Denver market has remained as healthy as it has because of low mortgage rates as well as creative financing, including no-money-down and interest-only loans. Interest-only loans have accounted for a high rate - 42 percent - of purchase loans over $360,000 in Denver this year, according to LoanPerformance, a mortgage data firm.

That unnerves some economists, who say that even with appreciation of less than 5 percent, Denver's housing prices may be overvalued.

"I think it is a very frothy market," said Tucker Hart Adams, the chief economist of the Rocky Mountain region for U. S. Bank, adding that those who bought homes with interest-only or variable-rate mortgages could be vulnerable. "When rates start moving up, they're going to see their payments go up," she said. "When people start getting nervous and start to sell, it's a downward spiral."

Despite the warnings, some of those like Mr. Woods, who have seen less than stellar returns, say they have not soured on real estate. Mr. Woods said he still hopes to invest in real estate and pay for his three children's college educations. "If I had the cash available to invest in a rental property, I would do it," he said. "It's a pain, but I still think, over time, that there are some real good benefits to it."

Source: New York Times (http://www.nytimes.com/2005/07/17/national/17denver.html?incamp=article_popular)

[The Bus]

That's not what I see around here. There are 3 year ones if you want a slightly lower interest rate, but 5 years is the norm and there are 7 and 10 year versions as well.

Just as a comparison in rates (no points)...

3 year IO 4.875%
5 year IO 5.000%
7 year IO 5.250%
10 year IO 5.500%

I saw a 1-year at 4.000% in the paper, but no 2-years advertised at all.

2-yr ARMs (or 2/28s) are generally products only sold by subprime lenders, like Household, Option One, Ameriquest, First Franklin, Citifinancial, New Century, etc.

[VinVega]

13 Riskiest Housing Markets in US (http://biz.yahoo.com/special/re05.html)

The Riskiest Housing Markets

1. Boston, MA
2. New York, NY
3. Fort Lauderdale, FL
4. Washington DC
5. Detroit, MI
6. Los Angeles, CA
7. San Francisco, CA
8. Sacramento, CA
9. Providence, RI
10. Minneapolis-St. Paul, MN
11. Denver, CO
12. Miami, FL
13. Tampa-St. Petersburg

The Bubble is here. :)

[al_bundy]

I don't believe NYC is risky because of the low investor ratio and the low IO loan ratio. The biggest thing that drove housing prices in Manhattan in the last 2 years was Wall Street bonuses. Some stocks are 10x - 100x higher than their 2002 prices and people got rewarded for making bets on them.

I was going to bump this but someone beat me to it. I read this on a blog and it made me think. The price appreciation is slowing down and this should get the investors and the flippers out of the market and cool things off or cause a price drop if there is suddenly a lot of inventory. Investors that that hold a lot of property need it to appreciate at least 6% per year or they will lose money. If prices start to appreciate slower than they lose money and this may put inventory on the market and slow demand as well.

[DodgingCars]

I heard about that 13 markets things on the radio. The guys behind it talked about the formula they used to help come up with the list. If I remember these were some of the things they used:

Rent to mortgage ratio
Job market (expected increase or decrease in unemployment)
Speculation

Edit: The article mentions:
Job growth, population, median income and affordability all play roles in determining which markets are vulnerable to price declines.

I find it surpising that neither Las Vegas nor Phoenix is on the list, because I believe both have had the most extreme increases in prices.

[VinVega]

I find it surpising that neither Las Vegas nor Phoenix is on the list, because I believe both have had the most extreme increases in prices.
Personally, I think the flood of people to Vegas and Phoenix has little to do with real estate speculation. It has more to do with cost of living/escaping the insane CA market. A lot of people expect that migration to continue, regardless of the housing market.

[LurkerDan]

Cool, no housing crash in the Denver area! :banana:

Denver and Colorado have been growing through some rough times economically. The loss of telecom jobs only tells part of the story, a retarded constitutional amendment passed in 1992 tells the rest. The amendment basically makes it very hard for the state to pull out of an economic downturn when one happens. So, to hear that people are just not getting huge returns is ok with me, doesn't make my very recent home purchase seem like a bad move. And Boulder is also a somewhat different market than Denver.

[Aphex Twin]

13 Riskiest Housing Markets in US (http://biz.yahoo.com/special/re05.html)

The Riskiest Housing Markets

1. Boston, MA
2. New York, NY
3. Fort Lauderdale, FL
4. Washington DC
5. Detroit, MI
6. Los Angeles, CA
7. San Francisco, CA
8. Sacramento, CA
9. Providence, RI
10. Minneapolis-St. Paul, MN
11. Denver, CO
12. Miami, FL
13. Tampa-St. Petersburg

The Bubble is here. :)

Where's Orange County, CA?

[BigDan]

Orange County is probably lumped in with Los Angeles.

[al_bundy]

Looking at the market lately and I think California may be saved. Tech is on a roar and this increases the value of people's stock options. People cash in their options and pay off their mortgage therefore avoiding a nasty ammortization surprise a few years down the road.

If this is the case, then I have to put this away into the remember for later. I don't know if it's a coincidence that IO loans shot up in the first part of the year just as tech started coming back. People must have seen that business is going to improve later in the year, leveraged nice houses and will pay them off with options while enjoying nice capital gains. The ultimate form of insider buying.

[kvrdave]

I'm ready for the peak. Working to hard and making too much money. I'm probably down around 12 posts per day!!!! :(

[Deftones]

Personally, I think the flood of people to Vegas and Phoenix has little to do with real estate speculation. It has more to do with cost of living/escaping the insane CA market. A lot of people expect that migration to continue, regardless of the housing market.

That's the problem. There wasn't a flood of people moving to Phoenix. 25% of all new homes sold last year were from real estate investors from other states. Now that homebuilding companies have wised up to it, they have restrictions on who can buy and how long you have to live there.

[SpaceBoy]

13 Riskiest Housing Markets in US (http://biz.yahoo.com/special/re05.html)

The Riskiest Housing Markets

1. Boston, MA
2. New York, NY
3. Fort Lauderdale, FL
4. Washington DC
5. Detroit, MI
6. Los Angeles, CA
7. San Francisco, CA
8. Sacramento, CA
9. Providence, RI
10. Minneapolis-St. Paul, MN
11. Denver, CO
12. Miami, FL
13. Tampa-St. Petersburg

The Bubble is here. :)

That's not to promising to me, with me and my fiance considering buying.. I myself am trying to get her to wait, because I agree with this list, and I really believe things are going to drop somewhat here (not huge, but if I can save 10-20k I'll take it, since it's gonna cost 500k or so just to get a fixer upper not even close to boston)

[DodgingCars]

That's the problem. There wasn't a flood of people moving to Phoenix. 25% of all new homes sold last year were from real estate investors from other states. Now that homebuilding companies have wised up to it, they have restrictions on who can buy and how long you have to live there.

Phoenix did have a large increase in their population over the last year. I think in pure numbers (not percent), they were #1 last year in population growth.

However, you're right... There are tons of out of state investors in the Phoenix market. In fact, I heard a story that some HOA in the Phoenix area wanted to prevent homeowners there from renting out their property (they had to either occupy it or sell it) because of the large number of people who were buying and renting out.

On the topic of crazy house prices... my wife and I walked buy a townhouse for sale in our area and I picked up a flyer. 2300 sq ft townhome (3 units complex) in Lomita (LA school district) --- $679,000.

[Ranger]

Oh my. That's pretty expensive for a townhouse.

I'm still considering moving to Boston after I finish school (just one more damn year) because I have some relatives there and I thought the job market would be better, but the cost of living in these cities just seem ridiculously high so I guess I'd be better off staying in the red stick.

[The Bus]

Phoenix did have a large increase in their population over the last year. I think in pure numbers (not percent), they were #1 last year in population growth.

However, you're right... There are tons of out of state investors in the Phoenix market. In fact, I heard a story that some HOA in the Phoenix area wanted to prevent homeowners there from renting out their property (they had to either occupy it or sell it) because of the large number of people who were buying and renting out.

On the topic of crazy house prices... my wife and I walked buy a townhouse for sale in our area and I picked up a flyer. 2300 sq ft townhome (3 units complex) in Lomita (LA school district) --- $679,000.

I just walked by a townhome for sale at the end of my street (same as mine), and they had it for sale for $209,000. That would give me a $50,000 increase in <2 years. Crazy.



:whofart:

[neiname]

I just walked doen the block from where I live and there is a townhouse that just went on the market at $10,000,000. It's near the park though.

[Deftones]

Phoenix did have a large increase in their population over the last year. I think in pure numbers (not percent), they were #1 last year in population growth.

However, you're right... There are tons of out of state investors in the Phoenix market. In fact, I heard a story that some HOA in the Phoenix area wanted to prevent homeowners there from renting out their property (they had to either occupy it or sell it) because of the large number of people who were buying and renting out.

On the topic of crazy house prices... my wife and I walked buy a townhouse for sale in our area and I picked up a flyer. 2300 sq ft townhome (3 units complex) in Lomita (LA school district) --- $679,000.

Actually from my recollection, Vegas has been #1 the past 2 years. But that's neither here nor there. ;)

There has been an increase in population, and that's why the state was looking ahead when the light rail was proposed. Should be done by 2008, I think.

[DodgingCars]

Actually from my recollection, Vegas has been #1 the past 2 years. But that's neither here nor there. ;)

There has been an increase in population, and that's why the state was looking ahead when the light rail was proposed. Should be done by 2008, I think.

"Phoenix had the greatest population gain among the nation's largest cities - an increase of 29,826 residents from July 2003 to July 2004"

http://www.azcentral.com/news/articles/0719census-ON.html

:)

:p

[Deftones]

"Phoenix had the greatest population gain among the nation's largest cities - an increase of 29,826 residents from July 2003 to July 2004"

http://www.azcentral.com/news/articles/0719census-ON.html

:)

:p

You are reading that incorrectly. Las Vegas isn't considered a large city, yet. Phoenix only had the most growth amongst the top 10 - 15 populous cities.

When Phoenix gets put into the top tiers of these lists, it is because they are including Phoenix metro (Mesa, Tempe, Chandler, Gilbert, Peoria, Glendale). Phoenix alone doesn't have a huge population growth that these other cities are.

In fact, Gilbert and Chandler had nearly the same growth population wise in actual numbers, but the percentages were far higher since their head count is much lower than Phoenix.

[grrrah]

I just walked by a townhome for sale at the end of my street (same as mine), and they had it for sale for $209,000. That would give me a $50,000 increase in <2 years. Crazy.



:whofart:

similar here for me but ~6 months after I saw that, I looked into maturity lengths. Too bad I will still have to pay PMI for 1.5 more years :( . Oh well, Thats why I hoping there isnt a major burst. 50K+growth in the next 1.5 years is better than not paying the $200*24 months and saving 10-20k.

[grrrah]

You are reading that incorrectly. Las Vegas isn't considered a large city, yet. Phoenix only had the most growth amongst the top 10 - 15 populous cities.

When Phoenix gets put into the top tiers of these lists, it is because they are including Phoenix metro (Mesa, Tempe, Chandler, Gilbert, Peoria, Glendale). Phoenix alone doesn't have a huge population growth that these other cities are.

In fact, Gilbert and Chandler had nearly the same growth population wise in actual numbers, but the percentages were far higher since their head count is much lower than Phoenix.

I don't know much about population growth in AZ, but I have 3 friends, that couldn't afford to buy here in CA, but bought in AZ and FL to rent out while they are renting here in CA. The 2 that bought in AZ have no plans whatsoever to move there, and the 1 that bought in FL said it was very unlikely that he would move there.

[Deftones]

Yeah. Your friends are the a-holes that are ruining our market. ;)

[DodgingCars]

You are reading that incorrectly. Las Vegas isn't considered a large city, yet. Phoenix only had the most growth amongst the top 10 - 15 populous cities.

When Phoenix gets put into the top tiers of these lists, it is because they are including Phoenix metro (Mesa, Tempe, Chandler, Gilbert, Peoria, Glendale). Phoenix alone doesn't have a huge population growth that these other cities are.

In fact, Gilbert and Chandler had nearly the same growth population wise in actual numbers, but the percentages were far higher since their head count is much lower than Phoenix.

You're right. I found something showing that Gilbert's population growth was actually larger than Phoenix's. This was just for "large cities"

[Aphex Twin]

You are reading that incorrectly. Las Vegas isn't considered a large city, yet. Phoenix only had the most growth amongst the top 10 - 15 populous cities.

When Phoenix gets put into the top tiers of these lists, it is because they are including Phoenix metro (Mesa, Tempe, Chandler, Gilbert, Peoria, Glendale). Phoenix alone doesn't have a huge population growth that these other cities are.

In fact, Gilbert and Chandler had nearly the same growth population wise in actual numbers, but the percentages were far higher since their head count is much lower than Phoenix.

It's really hot in Phoenix. 18 people have died due to the heat. I wonder what that does to the population growth and real estate prices.

[X]

Yeah, lately it's been 50 degrees hotter in Phoenix than where I live.

I grew up in Phoenix and the heat didn't seem so bad when I was a kid but I'd never want to live there again unless I could be gone from June through October.

[X]

Existing home sales set record in June

House prices rise at fastest pace in 25 years

WASHINGTON - Sales of existing homes set a record in June with home prices shooting up at the fastest pace in nearly 25 years.

The National Association of Realtors reported that existing homes were sold at a seasonally adjusted annual rate of 7.33 million units last month, a gain of 2.7 percent from the May sales pace.

The torrid sales pace helped to push the median price of an existing home up to a record of $219,000 last month, a gain of 14.7 percent from the median, or midpoint, for prices a year ago. That was the biggest jump in prices since November 1980.

The June performance was better than expectations as the nation’s housing market continued to flash signals that some parts of the country could be in the grip of what Federal Reserve Chairman Alan Greenspan last week called a “speculative fervor.”

The concern is that housing prices are rising at a pace that is unsustainable and that in some parts of the country could start declining if rising interest rates begin to weaken demand.

Such a development could spell trouble for homeowners who find the value of their homes falling below the value of the mortgage they obtained to finance the purchase.

For June, sales were strong in all regions of the country. Sales in the West rose by 5.5 percent. Sales were up 3.4 percent in the Northeast, 1.9 percent in the Midwest and 1.1 percent in the South.

The performance in June beat expectations. Many economists had expected sales last month would be flat, given the strong increases in previous months.

“Just when you think sales activity is ready to settle into a more sustainable pace, the housing market continues to surprise,” said David Lereah, chief economist at the Realtors.

Lereah said the boom in housing is being driven by mortgage rates which, defying expectations, have remained near rock-bottom levels this year even as the Federal Reserve has continued to raise short-term interest rates.

However, mortgage rates have risen in the past three weeks, according to a national survey by mortgage giant Freddie Mac.

Lereah said as long as rates continue to rise slowly, he predicted that sales of both new and existing homes will decline only slightly in the second half of the year.

Sales of both existing and new homes have set records in the past four years and many analysts are looking for both sales groups to climb to new records this year as well. Just to lend a little perspective, here are the average 30 year fixed mortgage rates from 1980 and surrounding years...

01/1979 10.39
02/1979 10.41
03/1979 10.43
04/1979 10.50
05/1979 10.69
06/1979 11.04
07/1979 11.09
08/1979 11.09
09/1979 11.30
10/1979 11.64
11/1979 12.83
12/1979 12.90
01/1980 12.88
02/1980 13.04
03/1980 15.28
04/1980 16.33
05/1980 14.26
06/1980 12.71
07/1980 12.19
08/1980 12.56
09/1980 13.20
10/1980 13.79
11/1980 14.21
12/1980 14.79
01/1981 14.90
02/1981 15.13
03/1981 15.40
04/1981 15.58
05/1981 16.40
06/1981 16.70
07/1981 16.83
08/1981 17.29
09/1981 18.16
10/1981 18.45
11/1981 17.83
12/1981 16.92
01/1982 17.40
02/1982 17.60
03/1982 17.16
04/1982 16.89
05/1982 16.68
06/1982 16.70
07/1982 16.82
08/1982 16.27
09/1982 15.43
10/1982 14.61
11/1982 13.83
12/1982 13.62

[Cardiff Giant]

Good maybe prices around me will finally get to the point where I could buy something. It seems like I'd have to shell out about 200k for even a decent condo in my town.

[BadlyDrawnBoy]

18.45 in '81

that's the same as a really really bad Credit Card APR. and would seem impossible to pay off. wowowowow.

[VinVega]

Yahoo Story (http://news.yahoo.com/s/washpost/20050725/ts_washpost/d_c__area_housing_market_cools_off)

By Kirstin Downey and Sandra Fleishman, Washington Post Staff Writers
Mon Jul 25, 1:00 AM ET



Washington area temperatures may be sizzling, but the once-torrid real estate market seems to be cooling off as houses stay on the market longer and the number of homes for sale rises.

Home sales tend to slow in the summer, but the number of houses for sale in the Washington area has climbed by 50 percent in recent months. The available inventory has risen to about 35,300 homes, up from an average of about 23,000 in the past three years, according to Metropolitan Regional Information Systems Inc., which runs the local multiple-listing service.

The average number of days a house stays on the market has crept up by two days in Fairfax County, to 16 days in June from 14 days a year earlier. In Montgomery County it has risen to 20 days from 18 days, according to MRIS. Those are, however, still short turnaround times by historic standards.

Meanwhile, the number of houses sold in Northern Virginia's inner suburbs fell by 9.6 percent in June, compared with a year earlier. In the District, the number of houses sold dropped by 8 percent, while in Montgomery County they dropped about 1.6 percent.

Local real estate brokers say they are seeing signs of a change.

"The market has slowed for sure, especially at the high end," said Wes Foster, chairman of Long & Foster Real Estate Inc.

Foster said the market is returning to "normalcy" after a frenzied era of multiple contracts, bidding wars and desperate buyers waiving their right to property inspections or appraisals.

"It's very healthy," he said. "It worried the pure hell out of me the numbers we were seeing. I remember Boston in 1982 to 1989, when [prices] went up 25 percent a year for six years, and then in one year [they] fell 87 percent. The ride up for everybody selling was wonderful but the ride down was awful. . . . It was very painful and I don't want to see that here."

Foster said the recent manic market has been fueled by what he called "crazy fools running around buying houses as investments," with "bad loans, interest-free loans."

"They'll get hurt, and I think they should," as prices inevitably correct themselves, he said. A slowdown is needed because so many average people have been priced out of homes or compelled to pay high prices, he said.

Real estate broker Susann H. Haskins of the Long & Foster office in Potomac, president of the Greater Capital Area Association of Realtors, cautioned that the down-tick may simply be summer-related.

"Is it a major shift? Not necessarily. . . . I don't think we should raise the red flags and send up the alarms yet. . . . We don't have enough data to definitively say the expansion has ended," she said.

The Washington region remains strong, compared with other markets, said Ken Wenhold, regional director for Metrostudy, a housing research firm based in Houston. "Although the resale inventory and days on the market have increased slightly, it is still overall a very tight resale market," he said.

Many area real estate agents said that good houses in good neighborhoods, realistically priced, still sell well and that sales are faster in less-expensive areas. In Prince William County and its largest cities, including Manassas and Manassas Park, the median price is $380,000 and sales rose 10.7 percent in June, compared with the year before. In Prince George's County, where the median sales price in June was $300,000, the number of sales rose 3 percent.

"I still see prices rising and the market is very strong," said real estate broker Donald L. Frederick, with Re/Max International Inc. in Camp Springs, who cited Prince George's County's affordability as the reason for its strength at a time real estate agents from other areas said market activity "is way off."

But in many of the region's inner suburbs, where prices have about doubled in four years, some sellers who expected results within days of posting a for-sale sign have been disappointed. Some are cutting their prices.

At the beginning of the year, buyers were frantically grabbing at anything. Now some have the time to pick and choose among neighborhoods, line up home inspections before buying and carefully consider the lofty prices they are paying.

Computer consultant Will Gibson, 39, put his red-brick Bellevue Terrace duplex, just off Wisconsin Avenue in Northwest Washington, up for sale in the spring. His wife, Jeep, was hoping to move to the suburbs. Gibson listed it at $895,000, but it did not sell. After two months, he took it off the market and stored the for-sale sign in an upstairs hallway. He said he will try to sell it again "after we fix a few things up."

Liza Potter, 31, who owns a townhouse in Burke, has been monitoring the market since March because she wants to move to a larger, single-family house. In March, she said, homes listed for sale on the Internet lasted two days. She often could not drive to them quickly enough to make a bid before they went under contract.

Now, she said, attractive listings are lasting two weeks and the prices seem to be slightly lower. Two weeks ago, she and her husband, Darrell, 41, a computer specialist for the Defense Department, bought a house for $650,000 in a nearby neighborhood they had thought they could not afford. They now are listing their townhouse for sale at $439,000.

"More houses are on the market, so people have a little more time to look around and see what else is out there," Potter said.

Neighbors, for whom watching the home-sale market has been a favorite parlor pursuit, are noticing the slowdown, too. Dimetra Panagakos, 81, who lives next door to Gibson in Northwest Washington, chortled as she discussed the market.

"They used to sell in a week, these houses here, but now no more," said Panagakos, who has lived in the neighborhood since 1948. "Ha, ha, ha, they went crazy in my neighborhood, my neighbor asked $900,000 -- and now no more."

Some renters are also watching with interest. Sabrina Daly, 26, a research analyst who shares a $2,000-a-month rental house in Arlington's Lyon Park with two other young women, said the renovated bungalow next doo