re: Lets talk about the housing bubble

Everything should be free.
Just send me back all the freaking taxes I paid since I started working when I was 13 years old.
Take 95% of all assets from everybody that has over a million. Let everybody hang out, smoke skunk all day and sing Peace Out

this is why I live at sea.

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Granted the banks aren't doing the interest only ARM with balloons, but they damn sure are doing $350K+ loans to a combined income of $80K, less than stellar credit score, and very little money down. This crap is still ubiquitous and will put a strain on the bubble eventually.

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I get ya, but lenders are still basing decisions on debt-to-loan ratios and not giving loans to folks above a realistic threshold in relation between income vs debt with the new potential loan this time.

They weren’t doing that before. In fact they were allowing people to have a negative DtL ratio and still qualify. It was nuts.

A certain percentage of defaults are going to happen. The problem before 2008, however, is they were happening at 4-5x the historical deviation rate and then being hidden in tranches sold to federally funded organizations.

You can’t get a loan right now unless your net minus debt is more than 1.5x your loan premium. The only people skirting this are folks who have hidden debt from the lender.

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Let's say you bought a $500,000 home, with 20% down (so a loan of $400000). You got a 4% interest rate. Your monthly payment (assuming Houston level taxes) is $2,826.

You got a new job and you need to sell your home. Well, due to inflation (a natural cycle and partly caused by extremely low interest rates, sometimes) the fed has raised the national interest rate. Not even a lot. Just back up to the historical average, around 9%. Now, your potential buyers can't get a loan for less than that. That means, for you to find a buyer who can purchase your home for the exact amount you paid (not any appreciation) they will have a payment of $4,135 a month. For them to be able to make the same payment you did, they would have to offer you only $300,000 for the house, a $200,000 loss on your part.

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So we are going to pretend you put down 20% but they won't? Because if they did they could buy it for $500,000, pay the 9% rate you mentioned and have a payment of $3200.

As someone who has lived and owned property in other states, Louisiana's property taxes are overall quite low but the insurance is quite high especially if you live below I-12

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Welcome 2006

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I hope you are wrong.

I dont see this as recessionary though. Not like 2006.


The Bond Market is where a recession could hit us.

2006 was built on the housing bubble popping. Now it seems to be the bond and stock bubble.

People nay be able to handle the loss of value in their home in the long term if the economy stays headed in the direction it is going. I dont see a conflagion ahead like 2006 in housing.

Just my two measley cents.

You are applying to pretty broad generalizations to a pretty complex system of markets and submarkets and simplifying the concepts of real estate.

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So first, housing prices adjusted for inflation (if you believe the stupidity that your home is an asset, I'm so sorry)

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Your home and the rights that come along with fee simple ownership are absolutely an asset. You can occupy the property yourself, lease it, or pretty much do anything you want with it as long as it's reasonable unencumbered. For example, how exactly is a rental property providing a 20% return not an asset? Or how about the right for me to own a property free and clear and owe nobody a payment to reside somewhere? The right to occupy is an asset; otherwise leasehold interests wouldn't exist.

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Here's the bottom line on housing: People buy based on what monthly payment they can afford, not the sticker price. So naturally, a low interest rate makes sellers able to charge more for homes.

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Leverage increases asset prices. There are tons of studies that support this.

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Is this clear enough for everyone? The huge pool of homes that are being bought and sold for ever higher prices right now is going to devalue in a big way once interest rates become reasonable again.

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Applying nationwide statistics to the housing market is just plain wrong. In our local MSA there are geographic markets and submarkets that are experiencing explosive growth while others are in a decline. And if you bought a house new in 2009 and try to sell it now with new product going up that competes with your house, you may run into a tough time getting back what you paid.

We haven't even gone into commercial real estate. A very simplistic model I could see working in the rate scenario you mentioned would be the net lease market, which is essentially like the bond market. But even your explanation of how the "Fed has raised the national interest rate" is garbled.

Sure, the fed has open market operations and the FOMC tries to do its thing. But consider the Greek debt crisis in 2009. The market, not the government, sought safety in US Treasurys while bailing on European debt. Because they were buying up treasurys, the yields dropped, and mortgage rates followed suit as they're indexed off of Treasurys.

One more factor to consider: relative risk based pricing. Does it make sense that Greece's fiscal irresponsibility in 2009 should make US housing more affordable by lowering treasury yields and, assuming all else remains constant, lowering mortgage rates? Hell, no. What does another country's sovereign debt have to do with the creditworthiness of a mortgage applicant?

You threw up a technical analysis of interest rate trends and national housing statistics, but in reality, housing and real estate is a much more complicated subject.

Hate even suggesting this, but what if we gave massive tax breaks if you owned ONE house, but the more houses you own, you lose the tax breaks and perhaps are charged a rather high tax rate on that 3rd, 4th, 5th house? The more houses you own, the more the last house is taxed.

In order to soften that tax blow, we could set a grace/incentivized period where these multi house investors can sell their excess properties with less or no capital gains tax on the sale. They would also get a cap gains break if they sold a property to a first time home buyer.

Basically I would like to de-incentivize buying a shitload of houses an investor will actually never occupy, while giving those investors who already have a lot of inventory incentive to release more of their inventory to first time home buyers, families, etc. If that's even possible without wrecking the market

My flood ins is $400/yr in New Orleans