Regarding the interest rate stuff. Some of these loan types are fairly new to florida but they were in California earlier. I am just saying that we not not be in a bubble. People are being offered and amazing array of products. My father in law has cash and securities and a retirment account. His bank said he could have a 1000000 bucks at 3% last year. Hardly any quesions. (Now the loan is up to 3.5%) So he is carrying a fixerupper million dollar canal front property in Bay Isles on Longboat Key ( a very top spot) for 3500 dollars a month that he can use as write off. That property appreciated 50% so far. And I think if he fixed it up it could be worth 2.2 million or more in this market. He gets to control this for 3000- 3500 a month. Who is being irrrational. He could pay cash. He chooses to use cheap money. I know of dozens of situations like this. People have the assets to pay cash and do--- others take the dirt cheap money.
I agree with you that we're not in a bubble although I think CA may have a pullback. But I don't call a pullback a bubble. CA has a huge influx of immigrants/new births and only so much land, so Supply/Demand is rigged from square one. Your examples are good, but you're presenting the optimistic picture aren't you? What about all the regular Joe's with ARM's who are going to get caught off guard when interest rates rise? I think a subset - not that large mind you - are going to be hurting when rates rise and you'll see quite a few defaults. But, that said, I don't see anywhere but up for the hot markets. That's why I've got two homes out here (or I will shortly) in AZ and I wish I could get a third. The home I got is non-impressive but it's in a good location and I'll bet it's up 50% in three years. Time will tell...
Playboy's Playmate of the Month gives up her modeling career in order to take up real estate investing http://www.washingtonpost.com/wp-dyn/content/article/2005/05/20/AR2005052000576_pf.html
Apparently 60% of mortgages in the last quarter in the San Francisco area were interest only. That is frightening.
I agree there probably will be some average joes caught off guard. But again I was concerned about that in 1995 when friends were locking in 5 and 7s a much lowere rates than my 30. My point is that look at that SF stat. some percent is interest only. I think a better stat would be how many are adjustable, at what cap and how often. Interest only can now be a fixed rate that converts to a regular mortgage after x amount of years. That is not a scary loan. That is a smart loan in my book for many people. It live and work in the hottest market. I have friends who work for the home builders. They are blown away by the demand and the wealth people are bringing to the table. Many are paying with cash. I just suspect that there is a lot of cash floating around up north. And that this bubble stuff is due to a miscalculation. It seems to me the same people doing the worrying are assuming Americans are dumb because we buy so much stuff. It seems to me Americans are smart. If the Chinesse want to accept our payments in dollars for really low priced goods. We are going to spend. In the long run I suspect the Chinesse will be left holding the bag. Just like the Japanesse did when they tried to buy up New York and California in the 70s. Think about it Americans are spending there ass off and then buying real estate --- which is a hedge against inflation. Who is irrational?
Well, the economy will cycle perhaps because of the China effect and perhaps not. But in AZ, it doesn't matter what the economy does, real estate does well (at least historically).
This is just an opinion, but I think you're over analyzing. The interest only loans whether fixed or adjustable are both scary because people are using them because it is their only option to get in. People are leveraging themselves to the absolute hilt, and even betting the farm on increased earnings later to remain solvent. People may be bringing wealth to the table in FL or wherever you are, but that's not the case here in general. People are taking $100k salaries and buying $900k homes on these interest only mortgages. That is a typical scenario, not an outlier. I think there may be more "average joes" than you realize who are in danger of getting caught here.
some "avg joes" are leveraging themselves into a better life......new cars, boat, the pool they always wanted....all on equity built on speculation....