Real Estate

The current issue of Fortune magazine has a cover story on real estate speculators getting rich buying and selling houses in rapid succession. None of them seems to have taken to heart the magazine's 2002 cover story, which said: "U.S. housing prices are stretching the outer limits of what's reasonable and sustainable…. In a year or two, prices will fall with a thud."

James Hagerty and Ruth Simon find some people who are certainly acting like they would in a housing bubble. Up until six months ago, I could account for housing prices in terms of scarcity (they aren't building many houses near the California coast any more) and low interest rates. That's getting less possible with each passing day: WSJ.com - As Prices Rise, Homeowners Go Deep in Debt to Buy Real Estate: A year ago, Ryan Epstein and his wife had whittled down the mortgage on their four-bedroom colonial house in North Beach, Md., to $130,000....

r Treasury-indexed adjustable-rate mortgages (ARMs) averaged 4.26 percent this week, with an average 0.7 point, up from last week when it averaged 4.23 percent. At this time last year, the one-year ARM averaged 3.99 percent. It’s remarkable how mortgage rates have remained so low for so long, according to Frank Nothaft, vice president and chief economist. “But as long as inflation is held in check, there is little or no pressure to push mortgage rates higher. And at the moment, despite high fuel prices, core inflation does indeed seem...

If you think you will ever get another home loan, you need to know this. Loan officers and mortgage brokers know something you may not. They know about Par and Rebate (aka Yield Spread Premium). These are tools of profit for them and a way to take more of your money without you ever knowing about it.

Housing prices seem to be rising indefinitely. It seems like there is no better time to be a home owner. However, Paul Krugman at the N.Y. Times is arguing that the housing market is nothing but a speculative bubble that will soon burst. He references a few sources who predicted the Dot-Com bubble burst, who are now predicting that the housing mark bubble will also soon burst. This is terrible news because the largest asset for most people in the U.S. is their house, and alot of people are going to lose alot of money if the housing market suddenly...

There's an article in the Boston Globe today that reports on a prediction by The New England Economic Partnership (NEEP) that housing prices in Massachusetts will decline by 3% by 2007. Based on the near 100% rise in housing cost in metro-Boston over the last ~5 years, I'd say that we could correct a lot more than 3%...but they do have a point when they say that we're heading into a positive economic climate. I dunno....there's no way that I could buy a place that's like my current apartment and expect to pay anywhere near the amount...

1. What are the terms? This will include interest rates and the length of the loan. Some lenders may require you to carry private mortgage insurance or to pay your mortgage through ACH deposit. Get the terms in writing, so that you can compare them with other lenders.

Me: “Or, you could re-finance like many of your neighbors, and take out extra money to pay for college or buying another property… or anything you decide to do. Mortgage rates are as low as I’ve seen them in 40 years. In fact, cranking the new equity out of their homes is exactly what kick-started the economy out of the doldrums a year or so ago, no matter what Bush claims about his tax cuts.”

Interestingly, U.S. homeowners already seem to have an implicit understanding of the importance of the price/rent ratio. The Federal Reserve Bank of San Francisco published a fascinating research study last fall analyzing the fundamental pricing of houses. Using government data, Federal Reserve researchers compared U.S. housing prices to rents going back to 1982, and found that they've generally risen hand in hand--until recently, when home prices rocketed to all-time highs compared with rents. However, what's curious is that the rent component of their study focused on Consumer Price Index data, and this data is estimated at least partially through surveys of homeowners asked to assess what their house would rent for on the open market. So while the debate currently rages in the news media over whether homes are overvalued, U.S. homeowners have already tacitly admitted that homes are overpriced--even if they haven't said it in so many words.

The ones who are really screwed in this scenario are the young homeowners who have gotten themselves locked into "interest only" mortgages. I know a good number of otherwise intelligent people who have these loans, and they are ALL banking on their house's value continuing to rise at 10-15% per year. And when I ask them about their plans if housing prices don't rise so fast (or, god forbid, fall), they just look at me like I'm insane.

In July 2001, Paul McCulley, an economist at Pimco, the giant bond fund, predicted that the Federal Reserve would simply replace one bubble with another. “There is room,” he wrote, “for the Fed to create a bubble in housing prices, if necessary, to sustain American hedonism. And I think the Fed has the will to do so, even though political correctness would demand that Mr. Greenspan deny any such thing.”

I don't think I'm the only one watching housing prices like a hawk and today, there's some good and bad news out there depending on where you want to buy (or sell) in the West. In Montana, Bob Anez reports for the AP that prices are higher than in 20 other states while in Colorado, home prices are 7th highest in the nation.

And to those folks who thing housing prices can’t fall, just remember the early ’90s. You couldn’t sell your house even if it was in Palo Alto. Oh, and how about Tokyo in the mid ’90s? Property went into free fall.

One of these localities is the peninsula stretching from San Francisco to Silicon Valley, about 30 miles to the south. This is an area where housing prices are more than three times the national average and are rising rapidly. It is not that housing in this area is more grand than elsewhere, but that very ordinary houses have very grand prices. There are communities on the peninsula where the average home price is a million dollars and where it would be hard to find a house that anyone would call a mansion.

There are dozens of loan types and hundreds of loan programs available through thousands of mortgage brokers, bankers, lenders, finance companies, credit unions, even stock brokerage firms.

Contrary to popular belief, finding a mortgage doesn’t begin with an application.

Education is a better first choice. Mortgage information sources are as vast as the number of mortgages available. Web sites, topical newspaper articles, mortgage books, consumer seminars and workshops, financial planners, real estate agents, mortgage brokers and lenders are all available to assist you along the way.

The Atlanta Fed president added to recent warnings by Fed officials and others about possible regional U.S. housing bubbles. Investors gambling that housing prices will soar indefinitely are likely to be disappointed, he said.

While the jump in wannabe real estate investors smacks of a "bubble-icious" market, it "is not a portent of imminent demise," says Bob Barbera, chief economist at ITG/Hoenig. "What you need to temper things is a full percentage point rise in mortgage rates." That is all it needs?

But even as the Fed has steadily lifted its benchmark short-term interest rate, mortgage rates have remained low. The average interest rate for a 30-year fixed loan is now 5.71 percent, down from 6.30 percent a year ago, according to Freddie Mac, the government-sponsored mortgage buyer.

Of course, I'm hypersensitive to this because I've lived through one of these bubbles before. Back in the early 90s, housing prices in California dropped by nearly 30% when our last bubble popped. I personally ended up selling a house I bought for $172,000 for $129,000. It's not impossible for that to happen again.

If you are a first-time homebuyer, the best place to live is in Dorchester. It has a great quality of life, it's convenient to public transportation and major highways, it's close to downtown, and, most importantly, housing prices are low.

A stat Piggington picks up on is the contrast in growth in housing prices verses income and population in San Diego, a 24% growth in price with a 1% growth in income and net out migration is not sustainable. California may be in the Wiley E. Coyote moment after he runs out over the cliff, but hasn't looked down yet. Then again, the web traffic suggests some people are starting to glance down.

I love the city of San Francisco. It’s beautiful, energetic, and dense. It’s a great place for a young man to hang out. But as the article mentions, “[a] two-bedroom, 1,000-square-foot starter home is considered a bargain at $760,000.” This is not the place to raise kids. The problem is finding a politically acceptable way to deflate these ridiculous housing prices. People who’ve invested in homes there are not going to be happy when the house they bought at price X is brought down to its actual market value of...

I've talked alot about China and specifically about the hand-wringing over the question of China's currency. Paul Krugman addresses this today--quite well, I think. He tells, in fairly accessible language for an economist, how the U.S.-China relationship works: China is keeping its currency lower than it should be for a country where investment is flowing like crazy, which makes its goods cheaper in foreign markets. China is financing the U.S. budget deficits (by buying U.S. dollar assets), which has kept U.S. interest rates low, which,...

Perhaps one of the most effected has been Somerville -- once sarcastically referred to as Slumerville -- which has seen a drastic increase in housing prices and economic revitalization in some areas as higher-income folks moved north from Cambridge encouraged by the extension of the Red Line into Davis Square. Long a bastion of working-class Irish and Italian families, the changing face of the city has left many of the people behind as longtime residents see their children and grandchildren forced out by increasingly unaffordable prices. It's a problem that not only hits the pocketbook, but opiate-abuse, related overdoses, and suicide has disproportionately effected teenage working-class whites in Somerville. Obviously it's not easy to draw a direct correlation between changing demographics and these consequences, but an irrefutable sense of desperation has swept across this population.

Mortgage brokers say those who believe they cannot afford a house because they don't have money for a down payment are wrong. As housing prices have climbed - leaving more and more potential home buyers behind - the mortgage industry has responded with loan programs that allow even those with a short credit history to use, for example, cell phone bills to prove their credit worthiness.

Essentially, buyers are able to bid up housing prices relative to income because of low interest rates, speculative expectations of future asset appreciation and a little irrational exuberance, too. See Brad DeLong on this, too.

A trend is emerging among some very smart and capable young individuals that can scare the banks and mortgage brokers heavily. It is a concept of living debt free. In India, America and Europe every individual working professional dreams of living debt free forever.

This may be the only time in maybe 30 years I can recall that homebuilding growth continues unabated as mortgage rates rose. So for the homebuilders that cater to the very upscale market, there may be some very short-term trades on the long side, putting a smile on Larry Kudlow’s face, but historical market correlations cannot be dismissed for long.

Here’s how “No Money Down” actually works. Lenders will pay mortgage brokers a rebate for giving the client a higher rate than necessary. Brokers will then use that rebate to pay your closing costs. What remains from the rebate after closing costs, the broker will retain as his/her origination fee or broker fee. The thing to note here is that there is no such thing as “no cost”. The broker is paying your costs for you with the money they receive from the bank.

How I became a mortgage broker may in some ways seem accidental, however, I always intended to be in business for myself even in my youth. No, I don’t think that there are people out there planning to become mortgage brokers because it’s a “glamorous” career choice. Most people are probably like me. I new I wanted the independence that comes with owning your own business and the means to do that, by some chance, just happened to be the mortgage business. That being said, do not doubt for a minute that I love my job. I do! It is a very gratifying thing to help someone buy a new home. Your home is your sanctuary even if everyone’s idea of sanctuary is different. Nonetheless, we all want the place we can go and know that we belong there and are safe. That’s a pretty good feeling…………….helping people find their sanctuary!

I found a great blog the other day. While it isn't solely focused on real estate, he does have a section devoted to it. Last month the author was writing about the Fenway, but in a wider sense, about construction in the city and supply and demand, overall.

PMI has not predicted how much housing prices might drop, but Leslie Appleton-Young, chief economist for the California Association of Realtors, says any decline will be much smaller than the 20- to 30-percent drop that she said would define a true bubble.

``Do I think housing prices are going to collapse?'' she said. ``No.''

One of the arguments for a permanent increase in housing prices inside the Beltway is the lack of available space. “There’s no place to build any more houses, so prices can’t possibly go down,” is what people say. I’m sure the same reasoning has also been applied to many other metropolitan areas.

6. Save money and shop for your home insurance the easy way! Yeah, I know this is a shameless plug for our web site, but seriously, whatever web site you do use, get online and shop around for your home insurance. You can get multiple home insurance quotes from HometownQuotes.Com or any of a dozen or so reputable companies online. Go to a search engine, like Yahoo! and type in 'home insurance quotes.' This is the best way because if you get 5-10 good quotes you can decide for yourself who is the best.

"Long-term mortgage rates, which dropped again for the fifth consecutive week, remain low enough to keep refinancing activity a viable option for many," said Frank Nothaft, vice president and chief economist at Freddie Mac. "Not only can homeowners take some equity out of their home, many may also be able to lower their mortgage rate at the same time," he said.

To quickly get an idea of how much money you could squeeze out of a reverse mortgage, you should use the AARP's reverse mortgage calculator at www.rmaarp.com.

It is still true that the farther home buyers range from the District, the cheaper housing prices will be. But Prince William isn't considered as far out as it used to be, according to Amy Ritsko-Warren, spokeswoman for the Northern Virginia Association of Realtors -- and neither are the farthest reaches of Prince George's and Montgomery counties.

• Mortgage insurance: Just as bad. "On average, mortgage insurance costs three times more than ordinary term life with the same amount of benefits," Tyagi says.

Upper Darby is absolutely stuffed with people - moderate housing prices, decent schools, and low crime rates see to that - so it doesn't surprise me to find out that the schools are stuffed as well. Upper Darby is also as multicultural as they come - the graveyard behind me has Greek, Thai, Vietnamese, Irish, and African headstones - so a foreign family of any kind wouldn't have trouble blending in. UDHS cranks out over 800 graduates a year; how they keep track of just the seniors is beyond me.

But the biggest change has occurred in how many people are leaving this state for others, compared with those who settle here from other states. Numerous reports have cited housing prices as a key reason for the exodus.

Housing prices slumped in oil-patch states when crude oil prices collapsed in 1986, he pointed out. Southern California and the Northeast, similarly, had home prices plunge during severe recessions in early 1990 and 1991.

The skyrocketing housing prices are a negative for buyers, the FDIC pointed out, because the typical middle-income family cannot afford to buy a midpriced home in the Las Vegas area.

If you are not putting a downpayment worth at least 20% of the total value (i.e. sale price) of the home, then lenders will require you to take out something called “PMI” (Private Mortgage Insurance). So if you’re buying a $200,000 home, you must put down at least $40,000, or you will be forced to take out PMI.

There have been quite a few articles recently from all over the place talking about an imminent housing crash. As housing prices have continued to grow at record speed, I've begun to believe them. Living in the SF Bay Area, I have seen probably the most dramatic housing boom in the world.

Over the long haul, housing prices will appreciate. However, economic downturns do take place providing different kinds of investment opportunities. Standard and Poor reports on their housing volatility index.

For all of the complaining those of us living in the DC Metropolitan area do about housing prices none of our zip codes made the Forbes Magazine Top 25 Most Expensive Zip Code Slideshow.

Take our living situation. Two people (one in comments and one in email) have suggested we hold onto our house in LA, rent it out till we're ready to buy in New Jersey. It's the sensible thing to do. It's what we should do, in fact. Housing prices continue to skyrocket. Our bungalow has more than doubled in value in the past four years. How can we sell but not buy again right away, knowing that with prices rising 20 to 25% per year, we could easily be priced out of our new local market? We should either buy right away or hold onto what we...