Housing Bubble FBI investigating inflated Values

[ALS]

I found this on another site and thought it was interesting enough to post here. Something to think about that may hit the fan down the road.
Why it stood out to me is on Monday the local paper has the Sheriff Sales listed. On Monday there were 4 pages of listings. What amazed me was that a lot of the defaulted mortgages was the high value of the Judgement on said property.
The old, I know where that house or street is and there isn't a house worth that much on the whole road came to mind.

STORY:
About the Housing Bubble

We mentioned it maybe a year or so back - that real estate appraisers were under intense pressure from borrowers and lenders to inflation appraisals - but it seems that the story has come back into bloom again with in catchy "Realty Times" piece about the FBI getting involved in the fray. Realty Times

Now, in case you have been asleep at the switch here, what are the reasons for the real estate bubble which has propelled the consumer spending for the past several years - I mean besides the odd crooked appraisal here and there?

Predatory lending. This is where people who probably should not have purchased a home, are buying them on loans that contain dangerous trip wires. Things like balloon payments and prepayment penalties that are not explained, but which warp the rights of borrowers and prevent them from refinancing when rates drop.

ARMS - We've also warned that adjustable rate mortgages, which are a sound thing when interest rates are in a declining phase, are wonderful tools. But, when interest rates are rising, as the Fed will tack on another quarter point today, work exactly opposite the interests of consumers.

Living on Re-Fi's: People have been refinancing homes to pull out equity - which they need to live on. This saps the average homeowner of equity.

New Scams: Here's another one that is just popping up. It's the "perpetual loan" idea. The way it works is this: You go to a site offering you a "smart money" option, and effectively make no payments on the principal of the home. You become, in effect, a renter. The problem of course is that such loans may be called any time by the lender which can leave the borrower screwed...

If none of these conditions existed, I seriously doubt the price of new homes would have escalated to present levels.

 

[Pablo]

Maybe I should go back to renting?

Interesting - I also read a WSJ article about how some eggspurts are saying REIT and REIT funds are fueling the bubble as well.

Lynden average - 18X,XXX (or so) in 2003
Lynden average - 28X,XXX (or so) in 2004

I paid 22X,000 in 2000 and it was a good price on the creek for good sized home. Use your imagination for current value, I don't want to.

 

[kenw]

other things to consider:

Real Estate agents: selling nor buying agents have any incentive to lower price. Most of these people (not all...) are grossly overpaid.

Dual incomes: buyers count on both incomes to afford the house, then one gets laid off. The days of one salary rising quickly to suplant the other are history. As are permanent jobs... And if you buy a house on one income, when things get tight, the unemployed one can add some income by getting a job. If both are working, where's the cushion?

Financed appliances and furnishings: Many new houses come with appliances and furnishings that used to be purchased later. Nothing beats paying 30 years on a built-in TV that is scrap after 5-7 years....add to the list garage door openers, dishwashers, ovens, even refrigerators.

and the age-old issue: buying beyond your means. Many young people expect to buy a 1st house equivalent to the one their parents had when the kids left.

 

[TooManyWheels]

I suspect the old mentality that housing is a safe investment and should therefore always appreciate is still a factor also. Common sense says it is not true - no one thinks about the fact that over the long haul home prices have to stay in alignment with the purchasing power of new entrants to the market, so they are actually self limiting.

 

[pitzel]

High tech was in an unsustainable bubble there for a while, and look what happened.

What worries me is that many new entrants to the housing market now have the impression that money cannot be lost when purchasing property, and that the gains will continue to be sustainable and perpetual. Some of these people buy unsustainably large homes, and will now see the consequences of not only skyrocketing energy costs, but depreciation of their assets.

Despite what one may be told, real estate is actually a depreciating asset. Buildings wear out, become less and less efficient, and less desirable. While it may be faddy right now to live in the suburbs in a white elephant, rising energy costs will slowly correct that concept back into line.

I personally just hope that the 'popping' of the housing bubble won't lead to runaway inflation or significant disruption of corporate earnings. Does anyone have any statistics in terms of how much home equity the average american is using to finance stock market investments?

 

[srivett]

That can't be good for property tax unless you are the one receiving the money. It's a good thing my Grandpa doesn't live extravagantly because his house has trippled in value over 15 years. His taxes are about 5 grand and he's on a pension!

Steve

 

[Drew99GT]

quote:

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Originally posted by srivett:
That can't be good for property tax unless you are the one receiving the money.
Steve

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Which makes ya wonder why practically most cities/counties/states are broke

 

[JHZR2]

quote:

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Originally posted by kenw:
and the age-old issue: buying beyond your means. Many young people expect to buy a 1st house equivalent to the one their parents had when the kids left.

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You have a lot of excellent points, however there is one issue. In many markets, prices are so screwed up, that lousy areas, "starter areas" are priced such that it is almost not worth it to buy into the area. The poorly maintained homes, in lousy areas still command such prices that one would be better off still renting, or stretching, doing without, and buying the more expensive place right off.

That said, they should be stretching, not unable to meet their liabilities in some contingency. These things need to be well-calculated for as many scenarios as possible.

JMH

 

[JohnnyO]

Given the demographics and already low housing prices where I live, I have absolutely no plans to pay off my house. In the next two decades, starting soon, the mostly older population will die off and leave many, many homes for sale thus depressing the market in a place where gainful employment prospects are negligible. Therefore I have an interest-only loan now, spend my money on fun things and Mobil 1, and plan to buy a future retirement place in FL in the next few years.
Then I'll LET the bank take my house when I move. No point in spending a crapload of money to pay it off when in ten years I'll never be able to sell it anyway. At least we're ahead of the curve on some things here, ALS.