Hi all....
Almost bought a house this month, then after doing some research, I found out some shocking facts:
1) Mortgage foreclosures are at record highs. In the second quarter of 2002, 1.23 percent of home loans were in the foreclosure process, a record level. Over this same time period, almost 5 percent of mortgage loans were delinquent, up almost 20 percent from the average delinquency rate in 2000.
2) The amount of home equity loans outstanding stagnated between 1990 and 1995, only rising from $235.9 billion to $289.3 billion. That figure is was $701.5 billion in 2001. The amount of home equity loans is larger than all borrowing by credit cards in the United States
3) The housing bubble, represented by $12.04 trillion in homeowner home real estate valuation, and $10.757 trillion in original home mortgage and secondary housing market paper, is the biggest such bubble in history. It has more than doubled its size since 1995
4) the US dollar has fallen more than 10% in the last 6 months against major world currencies such as the Euro and the Pound. The collapsing dollar will eventually force some sort of intervention by the Fed, such as raising interest rates, because the Fed is running some nice budget deficits, and the fact that the dollar is looking pretty unattractive to foreign investment is going to cause a major crunch pretty soon. Apparently the current US enecomy has to attract something stupid like 1.3 billion dollars a day in foreign money to balance itself out. FY 2002, the federal budget, excluding Social Security, will show a deficit of $314 billion. This represents the largest budget decline in U.S. history, and it is the third-largest on-budget deficit in history
5) with interest rates so low, yielding almost no returns for traditional investments, as well as the stock market troubles, people are viewing housing as their investment, not as their place to live. Everyone who owns a house now plans to live in it for a few years, sell it for $100 000 more than they got it for, and then get a bigger loan and move into a bigger house. Like a pyramid scheme, eventually someone has to be caught at the bottom, there is not an infinite number of people buy into the housing market, and not an infinite prices that houses can reach.
6) Certain markets (specifically CA) have seen 5 yr property values increase by almost 100% - what exactly has made the same house which should be worth less as it is 5 years older, suddenly be worth more than double it was 5 years ago? did the population size of CA double in 5 yrs? do Californians know that their state is running at a shocking 25% budget deficit annually? After being stretched to their limit on mortage repayments, Californians are about to eat some NASTY tax increases somewhere.... my guess is a combination of Sales and property tax
7) The number of low- to moderate-income working families spending more than half their earnings on housing rose by over 67 percent between 1997 and 2001
8) baby boomers with money to invest but nowhere to put it have decided real esate is their cash cow, with record numbers owning 2 or 3 houses.
9) home price have outsripped rental prices by more than 30% since 1995
10) as a sharp reminder of the stock market fiasco, real estate agents are using the familiar lines of
"now IS the best time to buy" followed by
"you'll be left behind, it will just be more expensive next year" or
"property is the only investment that has made sense thorugh these troubled times" or my favorite
"our economy X is its own economy, we don't get affected like the rest of Y" - as if Y can't buy stuff from X anymore because they are too poor it won't affect you, ya right!
11) Americans are spending 14.3 percent of their take-home pay on debts - the highest percentage since 1986
12) more personal bankruptcies will be filed in 2002 than in any other year ever (although I must admit the reason for this could really be 2 fold: there are more ppl living in the country every year and looming bankrupcy law changes might have helped people decide to rather go bankrupt now)
13) we have 2 very possible wildcards that could really cause an unexpected shock: a prolonged middle east war, or another terrorist attack
14) probably the most troubling of all points is simply this: eventually there will be nowhere to lower interest rates too, and eventually, people will not be able to take out MORE loans against their houses. When this happens, the river of new money that has been keeping the economy going will dry up. And then businesses will lose sales, and then people will lose jobs, and then those same people won't be able to pay their mortages, and then the housing market will have plenty of available property for sale, and then the downward spiral will start
Of course these are mostly my own conclusions. I *encourage* you to tear them apart
I admit that I could be wrong, and that is why evidence to point that out to me is lovely! but as a long time Anandtech reader (and I really do like the overall community here, some very nice people), and a very active Hot Deals follower, I am trying to avoid possibly the most unhot deal anyone could ever make - buying a house and a few years later owing the bank $10 000's of dollars because you decide to move neighborhoods and your house isn't worth near what you payed for it...
Almost bought a house this month, then after doing some research, I found out some shocking facts:
1) Mortgage foreclosures are at record highs. In the second quarter of 2002, 1.23 percent of home loans were in the foreclosure process, a record level. Over this same time period, almost 5 percent of mortgage loans were delinquent, up almost 20 percent from the average delinquency rate in 2000.
2) The amount of home equity loans outstanding stagnated between 1990 and 1995, only rising from $235.9 billion to $289.3 billion. That figure is was $701.5 billion in 2001. The amount of home equity loans is larger than all borrowing by credit cards in the United States
3) The housing bubble, represented by $12.04 trillion in homeowner home real estate valuation, and $10.757 trillion in original home mortgage and secondary housing market paper, is the biggest such bubble in history. It has more than doubled its size since 1995
4) the US dollar has fallen more than 10% in the last 6 months against major world currencies such as the Euro and the Pound. The collapsing dollar will eventually force some sort of intervention by the Fed, such as raising interest rates, because the Fed is running some nice budget deficits, and the fact that the dollar is looking pretty unattractive to foreign investment is going to cause a major crunch pretty soon. Apparently the current US enecomy has to attract something stupid like 1.3 billion dollars a day in foreign money to balance itself out. FY 2002, the federal budget, excluding Social Security, will show a deficit of $314 billion. This represents the largest budget decline in U.S. history, and it is the third-largest on-budget deficit in history
5) with interest rates so low, yielding almost no returns for traditional investments, as well as the stock market troubles, people are viewing housing as their investment, not as their place to live. Everyone who owns a house now plans to live in it for a few years, sell it for $100 000 more than they got it for, and then get a bigger loan and move into a bigger house. Like a pyramid scheme, eventually someone has to be caught at the bottom, there is not an infinite number of people buy into the housing market, and not an infinite prices that houses can reach.
6) Certain markets (specifically CA) have seen 5 yr property values increase by almost 100% - what exactly has made the same house which should be worth less as it is 5 years older, suddenly be worth more than double it was 5 years ago? did the population size of CA double in 5 yrs? do Californians know that their state is running at a shocking 25% budget deficit annually? After being stretched to their limit on mortage repayments, Californians are about to eat some NASTY tax increases somewhere.... my guess is a combination of Sales and property tax
7) The number of low- to moderate-income working families spending more than half their earnings on housing rose by over 67 percent between 1997 and 2001
8) baby boomers with money to invest but nowhere to put it have decided real esate is their cash cow, with record numbers owning 2 or 3 houses.
9) home price have outsripped rental prices by more than 30% since 1995
10) as a sharp reminder of the stock market fiasco, real estate agents are using the familiar lines of
"now IS the best time to buy" followed by
"you'll be left behind, it will just be more expensive next year" or
"property is the only investment that has made sense thorugh these troubled times" or my favorite
"our economy X is its own economy, we don't get affected like the rest of Y" - as if Y can't buy stuff from X anymore because they are too poor it won't affect you, ya right!
11) Americans are spending 14.3 percent of their take-home pay on debts - the highest percentage since 1986
12) more personal bankruptcies will be filed in 2002 than in any other year ever (although I must admit the reason for this could really be 2 fold: there are more ppl living in the country every year and looming bankrupcy law changes might have helped people decide to rather go bankrupt now)
13) we have 2 very possible wildcards that could really cause an unexpected shock: a prolonged middle east war, or another terrorist attack
14) probably the most troubling of all points is simply this: eventually there will be nowhere to lower interest rates too, and eventually, people will not be able to take out MORE loans against their houses. When this happens, the river of new money that has been keeping the economy going will dry up. And then businesses will lose sales, and then people will lose jobs, and then those same people won't be able to pay their mortages, and then the housing market will have plenty of available property for sale, and then the downward spiral will start
Of course these are mostly my own conclusions. I *encourage* you to tear them apart
I admit that I could be wrong, and that is why evidence to point that out to me is lovely! but as a long time Anandtech reader (and I really do like the overall community here, some very nice people), and a very active Hot Deals follower, I am trying to avoid possibly the most unhot deal anyone could ever make - buying a house and a few years later owing the bank $10 000's of dollars because you decide to move neighborhoods and your house isn't worth near what you payed for it...
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