I'm personally predicting something similar (if not quite so serious) for Alberta. Alberta has been booming for a few years now due to high resource prices (our provincial government consistently runs very high budget surpluses, this year was something like $11-$12 billion), as well as large scale investments in oilsands projects up north. I think that we are going to see some significant drops in oil prices, which in turn could lead to oilsands projects being delayed/slowed down/scaled back. This in turn could significantly slow down the growth of our booming provincial economy. Why? Because the cost of oilsands production is significantly higher than that of pumping oil out of the ground. That said, everyone that I talk to about this seems convinced that the Albertan economy is unlikely to ever bust again, that oil prices will never drop, etc.
I would only call one of those a true bubble. The other two are simply the effects of the economy going in the toilet. I was selling and appraising RE in the last '80's and early 90's. The trigger to that collapse was the due in large part to the commercial RE sector, which crashed due to the Tax Reform Act.
Oh for Pete's sake...why is everyone so scared of real estate? Hold on to your real estate. Buy all you can at fixed rates. A fixed rate note is a promise to pay the bank back X number of dollars over time in exchange for the use of a property now. For me, I have rental houses on fixed notes. I would LOVE LOVE LOVE it if the value of the dollar was cut in half overnight! Rents would shoot up, and I'd be paying the banks back with currency now worth half its value. If the value of currency falls to 10% of its current value, I could take a months wages and pay one of those properties off, and yet I'd still get a nice rent from it. To prepare for inflation, buy things of value. I think I read an excerpt from a letter written by a businessman in ancient Rome to his servants telling them to buy ANYTHING of value. I do think that speeding up the printing press is the only way out of our fiscal mess. Gotta cover the cost of medicare for all those retirees? Speed up the press. Gotta pay for a foriegn war? Speed up the press faster! If you buy a bond, the government guarantees you that you'll get your 5% or whatever on the purchase price. But they don't guarantee that the value of currency might be worth only a small fraction of what it was worth when you purchased the bond in the first place. Inflation is coming, and one could argue that it is already here, but it is being masked by crappier and crappier goods and bond purchases from the Chinese. But the rising cost of building products, oil, gold, etc., is all due to our fiscal irresponsibility. Housing prices are up, and may even stay up, not because they INITIALLY warranted the lofty prices they bring now, but because the dollar's value dropped out from under it. In my estimation, in my neck of the woods, the value of houses doubled since about 1997. I don't have a chart, but I'm willing to bet gold did the same thing, implying that the dollar is worth roughly half of what it was then. If true, the value of the house may be justified because it is an asset that has a relatively static value (in gold). One more thought before I go. When the Baby Boomers begin to retire, they will consume less, stop buying stocks, and start selling stocks. All of these are bad for the stock market. You can make money trading in any market. But unless you get some kind of matching in your retirement account, you're fooling yourself if you assume any type of growth for the next couple of decades. Have to wonder if its not already happening in anticipation... SM
I'm sorry, but right now would likely be the dumbest possible time to load up on real estate. Also, if your argument regarding the relationship between currency valuations and housing prices were true, Canadian real estate would have dropped in value over the past couple of years.
I would have to disagree. As a Mortgage Professional who specializes in "90% LTV Foreclosure Bailouts" I can tell you 1st hand that the people I'm bailing out are hard working people. Most of whom where once A+ credit borrowers who lost a job, spouse, child or became terminally ill. It is those that are facing tremendous challenges in their life. The media is lying to the people about the subprime market. The loans are not the problem. Those will low FICO scores and those that don't make a whole lot of money are the ones that pay their mortgage on time. It's the six figure income guy that needs to be bailed out and not the guy working at the local grocery store. Not my opinion. Just the facts!
We have "friends" who bought/refi'ed with these wonderful new 1-percenter loans that are designed for you to make payments for awhile and then hand over your house to the creditor and scoot out of the house like some deadbeat. The rest of the payments goes arrears and either go into a separate phantom account or just added into the existing loan. Each and every quarter point increase will increase your indebtedness and total liability. Some say it is a FICO score buster 'cause you can start out with a perfect credit, make payments on "your house" for years and see your FICO score destroyed. THe problem is that people are wither too optimistic about the future, too trusting or just plain stupid about home econ and elementary finance. Of course media and scummy loan guys are also to blame but ultimately the onus is with the "joe" who gets something that is 'too good to be true' and laps it up!
Your on the right track ..............but........ Remember, the Option ARM was intended for the Self Employed borrower NOT the Wage Earner. Although the client has the ability to pay only the minimum you must keep in mind that you are only paying a portion of the interest payment. So if the the total monthly interest payment is $100.00 and you pay only $25.00 you still owe $75.00. The $75.00 will be added to the loan balance and if the borrower continues to only make the minimum payment they will soon realize - "Negative Amoritization". Now they are upside down on the house. Even a good thing can be abused.
Well I am not a R/E mortgage pro. I just had a long conversation with a veteran mortgage guy and he was fuming about these and the ramifications of what it will lead eventually. I think these loans are abused at all levels because they are like a drug - they alter reality. I live in Sacramento, CA - a rather hot real estate market even now being a refuge for so many LA and SF Bay Area relocators. Unfortunately too many people think this year they will enjoy the same appreciation growth they had last year which effectively bailed them out of not making adequate payments but having caught up in appreciation. It won't happen this year it seems. Don't forget - the loan amount compounds!
Your only assuming that the house will continue to appreciate at the national average of 3-6% per year. That might not be the case especially in a cooling market where there are not that many available comps? Also, the appreciation has to make up for the lack of equity in the house. If the Negam is exceeding the capital appreciation then the borrower will only end up driving themselves deeper into debt. the cost of a 100% LTV refi is much more expensive. even FNMA with its 97% LTV is going to cost more then the Option ARM rate even after an initial adjustment. That is the pickle. Not enough equity. Too much debt. Over spent.