if 20% of the mortgagers defaulted on their loans then Fannie Mae would puke!!!! it would make enron look like kindergarten recess.
Yea, I know. What's it even worse is that Fannie Mae has a 100 billion dollar line of credit with the Fed. Furthermore I don't see the federal government letting Fannie Mae fail, so you can expect the Fed would kick in what ever it took to keep it afloat. In the end we're all going to pay for the irrational exuberance in the housing market (not just those who took out the loans they can't repay)
Matt - you are correct, that statement looked good when I wrote it. Your reasoning is exactly why I'm not buying now..... ddog - sent you a PM. Check it out and let me know how things are progressing. As with my error pointed at by Matt, sometimes a fresh set of eyes or a non-interested party perspective is helpful. Later, Cracked
You do bring up an interesting point though (as we are both very familiar with the CA RE situation). About a year ago a landlord put her rental up for sale (one of my friends was the rentee). My friend asked the landlord "does this mean we need to look for a new place to live" ? The landlord replied "no, I'm just putting the house on the market at a high price to see if I can get anyone to bite, there's no way it will sell at this price". The house sold a month later for 750K. This is just an example of the "piranha feeding frenzy" that you're talking about. When the price of an asset is far above what even the owner thinks it's worth, there is a problem and a blatant sign of irrational exuberance.
Matt, Nice to see you cruising the board again. It is an interesting market now. The stampede is in full effect. As Chas pointed out, the fact that lenders will give 100%+ financing is not a sign of strength in the market, it's weakness and furthers a hidden specualtion within the market. Lever the crap out of something with no personal risk, other than credit, and you get a recipe for speculation. Even if people are living in the property, they are speculating that the prices will continue to rise. I use this to question to determine when it's time to sell a property that I own.... "would I buy the property at it's current market value?" If not, it's time to go. Simple as that. Later, Cracked I apply the same question to stocks.
Thanks Cracked, I had to go do some honest work in Chicago for a few weeks and it has limited my ability to post. Generally the mortgage financiers make their money off of the transaction fees they charge in securing the mortgage. Usually they sell the mortgage soon afterwards on a secondary market, thus their incentive is to bring in as many mortgages as possible. They don't care if the person is going to default on the loan, all they want to do is flip it ASAP. I'm telling you, I studied the S&L crash in depth while in graduate school, and I think we'll see the sequel if there truly is a real estate crunch in the future.
Do you think that the perceived value of a property is, or even should be objective? What is of great value to me may be of no value to you. Possibly even what is a tremendous asset for me may be a big liability to you. This being the case, you may be anxious to sell because you perceive no value, and I could be a buyer and feel I am getting a bargain. And we could both be 100% correct in our thinking. Granted there is a difference between a "buying frenzy", and the home that stays on the market for a while until the right buyer comes along. But for the right buyer, the price should be just about right, or it would never be agreed upon. Additionally, the seller has perceived enough value to carry the house while still unsold at their price. (Unless the seller were desperate. Which is a different issue. Then it isn't as "simple" as "time to go".) Or am I missing something?
Oddly enough the real estate cruch may occur when the economy improves. Interest rates will go up. Money will flow out of real estate and into stocks. Many people overleveraged themselves on the basis that their $300K house WILL go up by 10% every year. I mean how much would you pay for $30,000 in gains each year, compounded and tax free! What will happen with this assumption no longer holds and these same people find themselves with an overpriced house and an expensive mortgage payment?
we always pay matt, owing to the above. It's the downside of collective capital markets...with gov't insurance. Hey, everyone bellyaches the gummint isn't doing enough for the markets, blah blah yadda yadda. They forget that it's gonna cost 'em for the privilege of having that overbearing nanny (who keeps us on a such a tight leash).
Not missing anything, Your great value/asset may be my exit point/liability. Mutually exclusive. The question I've asked of myself may not apply to anyone else. It's my personal question that I use to determine if there is any additional value in the property. I've been very lucky in that I've never been in a situation where I HAD to sell a property at a loss. I've always sold into these frenzies and been very happy with the result. I miss out on some of the potential gains (Sellers remorse, did it with some stocks in 98-99 also), but, I haven't ended up negative either, knock on wood!!!! The question at its core has nothing to do with the buyers perception of value, only mine. The perception of value is always a personal one. You are correct in your first paragraph regading the value of an item. Art is a great example of the perception of value. Ever see a painting that just turns your stomach and someone says it's a great work and worth millions of dollars. If you owned that painting would you ditch it to the interested party? It's all in how you perceive the item and it's value. The market environment/psychology plays a huge part in the decisions I make. With 10 willing buyers for decent properties in todays market, a seller may even get more than they desired from listing a property. A buyers environment requires a significantly different selling approach. IMO, frenzies lend themselves to the 'greater fool theory' and a potential point of exit from the market. I agree with you that VALUE is a personal judgment. Just my two cents. Later, Cracked