Housing: 2006 thread, use the 2007 thread instead.

[Whoozyerdaddy]

Originally posted by: piasabird
Real Estate is not an Asset for the owner who has a loan. It is a liablity. It is only an asset for the Bank that owns the loan. By definition an asset is something that makes money.

Not always...

To date, since the purchase of my home, my house has appreciated $250 more per month than I pay in mortgage. It's only a paper gain until I sell but when I do, some time next year, I will have made made more on the sale of the house than what I paid in mortgage payments.

 

[Genx87]

Originally posted by: Whoozyerdaddy

Originally posted by: piasabird
Real Estate is not an Asset for the owner who has a loan. It is a liablity. It is only an asset for the Bank that owns the loan. By definition an asset is something that makes money.

Not always...

To date, since the purchase of my home, my house has appreciated $250 more per month than I pay in mortgage. It's only a paper gain until I sell but when I do, some time next year, I will have made made more on the sale of the house than what I paid in mortgage payments.

Yeah, my father makes more in appreciation on his house than he does working

Of course he wont see those gains until he sells the place. Also helps he has it paid off in full.

 

[Slew Foot]

Of course when you sell you have to move somewhere else (or rent), and every other house is just as expensive as the one you sold, oops. Unless you're downsizing or moving to a less desireable location, then you might make out ahead. People who bought in the last 3-4 years are about to get slammed, especially those without equity or with HELOCs.

 

[dullard]

This thread now clearly labels every data point as preliminary, revised, or final. If anyone has lots of spare time and can find more final data than what I have on the graphs, I'd really appreciate it. However, I'm not certain if the data was actualy released monthly online back then because none of the main news websites have it.

The graphs have been updated to use the final data if I could find it. If not it uses revised data. The newest data point of course is always preliminary data.

The graphs have been expanded to include more of 2005 data. This shows the clear peak in housing was in the summer of 2005.

Oh, and I corrected a half dozen stupid spelling mistakes. Probably there are dozens more in the OP.

 

[Vic]

Originally posted by: dullard
That is definately the bank's job - to determine if the buisness plan has a good chance of succeeding. If the flipper's business does not look profitable, the bank should not be loaning to this business. However, I suspect many flippers aren't getting business loans to finance this business. Is that part of what you consider fraud in the flipping transaction? Or is there something else you were thinking of.

They don't get business loans. That is just part of the fraud. A flip itself is a form of fraud. How is the dramatic appreciation justified?

Vic, that is the closest I've finally seen you go to saying appraiser's are problematic. I personally think the whole process needs overhauling. The appraiser should be completely independant and should NOT know the price of the mortgage/deal before doing the transaction. It just baffles my mind that many bankers tell the appraiser what the house needs to be appraised for and then it is often appraised for that amount to the penny. It should almost be a very rare coincidence when a appraiser coincidently appraises exactly down to the penny. But, it happened with my house, it happened with my coworkers' houses, it happens all the time. It is in the house buyer's AND the bank's interest to get a realistic appraisal not one based on the purchase price. True, there is some subjective leeway, so appraising can't be perfect. But what we have now is boarderline fraud in my opinion.

Appraisers are always problematic. However... your post here is amazingly uninformed. First, don't confuse your broker for your lender. Lenders operate under a never ending barrage of fraud attempts. They hold the purse strings that everyone else wants to rip open. To lenders, the broker is yet another party of the transaction to suspect for fraud, just as they suspect the buyer/borrower, seller, the realtors, and yes, the appraiser. Every major lender has entire departments, consisting of highly-trained underwriters and/or their own on-staff appraisers, who sole job is scrutinize and review every appraisal that comes through the door. Data is double-checked, comparables are questioned, values are cut, second appraisals are required, and entire appraisals are even rejected sometimes. The important thing to remember here is that the property appraisal is for the lender's purposes only, NOT the borrowers or anyone else's. Lender's base their decision in large part off the value and condition of the collateral and, if the loan fails to perform, that collateral is their only hope of cutting their losses.

Now, a real estate appraisal is the professional opinion of the market value of a property. On a purchase transaction, with an executed sales agreement, exactly how could the purchase price not be the market value except through an act of fraud by one of the parties involved? For an appraisal to come in at sales price shows that the transaction is on the level. And, as I said above, the appraisal is for the lender's purposes only. Not to protect the buyer from paying to much for the property but to protect the lender from lending too much on the property. If the buyer were paying in an all-cash transaction, he wouldn't even need an appraisal.

 

[Vic]

Originally posted by: Slew Foot
Of course when you sell you have to move somewhere else (or rent), and every other house is just as expensive as the one you sold, oops. Unless you're downsizing or moving to a less desireable location, then you might make out ahead. People who bought in the last 3-4 years are about to get slammed, especially those without equity or with HELOCs.

You are correct that property appreciation of one's primary residence is essentially "paper wealth."

However, even if there is a bubble, why would people who bought in the last 3-4 years get slammed like you describe? The value of a property you own is only important if you intend to sell it. Having negative equity doesn't stop one from living in a house anymore than being "upside down" in a car keeps one from driving it. HELOCs are fine at this point because the Fed is very likely to stop raising rates (they are not going up, they have gone up).

I have long felt that the issue with real estate over the past few years is that people started becoming homeowners for the wrong reasons. It's not about making money. It's about owning your home. IMO from reading your many posts on this subject, you represent that that issue as bad as all the others, but you're just bitter you missed out on the action. Consider that people like you, hoping that prices will fall so that you can reclaim your lost opportunity, are a powerful force that will keep values up (although no longer rising). Every time prices slip just a little bit, one of you will jump in to buy.

 

[jlbenedict]

Median Price Of New Home: $321,300
Record High Number Of Unsold Homes: 566,000

Homes Sales Drop 3% In June

 

[dullard]

Originally posted by: Vic
Appraisers are always problematic. However... your post here is amazingly uninformed. First, don't confuse your broker for your lender.

If the US Bank lender says the US Bank person that I deal with is not a US Bank lender but instead is a US Bank broker, why should I care? That is just an internal defintion. As far as I'm concerned, they are one and the same. I went to US Bank for a loan. The job title of the person I deal with is meaningless to me.

The important thing to remember here is that the property appraisal is for the lender's purposes only, NOT the borrowers or anyone else's.

Then the appraiser should work for the bank. And the bank should pay for the appraiser, not the buyer. Of course, the bank fee will just be increased to offset this. However, the false sense of independence will at least be gone.

Now, a real estate appraisal is the professional opinion of the market value of a property. On a purchase transaction, with an executed sales agreement, exactly how could the purchase price not be the market value except through an act of fraud by one of the parties involved?

If the buyer pays for an appraisal, the buyer usually thinks he/she paid for an appraisal of the house's true value. That way the buyer can know if this is a good/bad deal. Lets take this out of housing to take emotions away. Suppose I wanted to buy a coin that I thought was rare for hundreds of thousands of dollars. Suppose i get a loan for this purchase. Suppose I pay for an appraiser to determine if the coin is real. That appraiser should tell me the true value of the coin (a valuable rare coin or a worthless knockoff). To simply say that the coin is worth what I wanted to pay for it is not accurate. If I pay $200,000 for a fake doesn't mean the fake is really worth $200,000. What a person pays for something is NOT necessarilly what it is worth. Same goes for housing. An appraiser's job should be to avoid that situation. And this isn't only for fraud protection (like my coin example) but should also be for stupidity protection. A stupid buyer should be protected by the appraiser (to whom the buyer just paid a large chunk of money for an honest appraisal).

Not to protect the buyer from paying to much for the property but to protect the lender from lending too much on the property.

Then the buyer should not have to pay directly for the appraisal. It gives the impression that the appraisal is a fair value for the house and gives the false impression that the appraisal is for the buyer.

 

[LegendKiller]

Originally posted by: Vic
You are correct that property appreciation of one's primary residence is essentially "paper wealth."

However, even if there is a bubble, why would people who bought in the last 3-4 years get slammed like you describe? The value of a property you own is only important if you intend to sell it. Having negative equity doesn't stop one from living in a house anymore than being "upside down" in a car keeps one from driving it. HELOCs are fine at this point because the Fed is very likely to stop raising rates (they are not going up, they have gone up).

The problem is that many people who bought in the last 3-4 years *ARE* people who intended to sell within 5 years. They are those who took out exotic mortgages to finance houses that were over-appraised and stupidly priced, yet did it to get rich quick, or live the "American Dream" at any cost. I know a few personally.

I have long felt that the issue with real estate over the past few years is that people started becoming homeowners for the wrong reasons. It's not about making money. It's about owning your home. IMO from reading your many posts on this subject, you represent that that issue as bad as all the others, but you're just bitter you missed out on the action. Consider that people like you, hoping that prices will fall so that you can reclaim your lost opportunity, are a powerful force that will keep values up (although no longer rising). Every time prices slip just a little bit, one of you will jump in to buy.

I certainly agree with this. People do not take a whole-life look at how, why, or if they should buy a house. They merely buy to buy at any price, or buy to make money. They do not look at their personal situation rationally, nor the price of the house rationally, and adjust their world-view appropriately.

This is the funamental problem in the near future. Once the world comes crashing down on these people they will have a huge mess to pick up. Personal debt is at all-time highs relative to income. Rates are up and will likely keep going up in the immediate future. The forward curves have already built in a 50/50 likelihood for an increase for the next board meeting and even a 25% one for the one following. Even if it does flatten, the amount of exotic mortgages out there is staggering, when they unlock, its bub-bye time for a lot of people.

Think of it this way. If the number of people who *can't* afford their home until prices go up and they get out with breaking even or up is so far hidden and the number of home on the market is dramatically increasing, to the point that you are getting price compression, then what happens when those that are in trouble already?

I think that we are only seeing the tip of the iceberg.

 

[Vic]

To dullard:

You want the loan, you pay the fees. Mortgage insurance protects the lender, not the borrower -- who pays for it? A lender's title insurance policy (not to be confused with the buyer's policy, which is typically paid for by the seller) protects the lender, not the buyer -- who pays for that? If the borrower doesn't pay for it upfront, then it goes into the interest rate. Don't like it, pay cash.
I love your analogy BTW. What is a "fake" house? Home values are determined by market value. A market value is the compromise between what someone will pay for something and what the current owner will sell that something for, at a specific point in time. An appraiser's job is to figure that out. Part of figuring that out is a sales agreement already executed by parties showing a willing to conduct the transaction at a specific price and time. That is what lenders are required to provide to appraisers. Don't like that, then fight USPAP. Lenders don't have a choice in the matter.

Moving on, I love your selective quoting and your intentional obtuseness. If loan officers and brokers determined who got a loan and who did not, and under what terms, then everyone would get a loan at 0% interest. Obviously, lenders are -- by their very nature -- composed internally of opposing factions, one eager to sell the money and the other eager to protect the lender's interests.
Appraisers cannot and should not work for the bank. Their opinion is required to to be independent. However, the fact that the appraisal is for the lender's purposes is never hidden and there is no "false sense." Every appraisal specifically says that it was prepared for the lender's purposes and for that lender alone. I suggest you dig up yours and read through it.

I am so happy that -- in this modern media-crazed world -- that the uninformed think they know more than the experienced. I take more loan applications in a slow week than you will do in your lifetime, and have been doing that for the past decade, and yet you think you know more than I do. If you think that sounds condescending, consider your own arguments. Lenders have seen it all. Every single problem that you can imagine, we have already experienced. I sh!t you not.

 

[Vic]

Originally posted by: LegendKiller
The problem is that many people who bought in the last 3-4 years *ARE* people who intended to sell within 5 years. They are those who took out exotic mortgages to finance houses that were over-appraised and stupidly priced, yet did it to get rich quick, or live the "American Dream" at any cost. I know a few personally.

A property cannot be over-appraised and stupidly priced at the same time. If the stupid price is supported by the market conditions at that time, then the appraisal was proper. The job of the appraiser is to provide a professional opinion of the value of the property based on current market conditions. It is not the job of the lender or the appraiser to predict future market conditions, or to protect the buyer from same, nor is it even remotely reasonable to expect such protection.

 

[dullard]

Originally posted by: Vic
I love your analogy BTW. What is a "fake" house? Home values are determined by market value. A market value is what someone will pay for something. An appraiser's job is to figure that out. Part of figuring that out is a sales agreement already executed by parties showing a willing to conduct the transaction at a specific price. That is what lenders are required to provide to appraisers. Don't like that, then fight USPAP. Lenders don't have a choice in the matter.

I said it could be for fraud OR stupidity protection. Are you the one being selective? No, there is not a fake house. Where did I say there was a fake house? There are houses that are worth far less than what the buyer offered though. There are too many possibilities there to discuss them all. The appraiser should be the first line of protection against these potential problems. I'm not saying it is the lender's fault. I'm saying things should change from what they are now. If it is USPAP's problem, then USPAP should change.

Moving on, I love your selective quoting and your intentional obtuseness.

I selectively quote to keep the forums clean. I think I do that as a favor for everyone at Anandtech. I dislike scrolling through tens/hundreds/thousands of lines of quoted stuff just to get to what I want to read. Is there anything specific that I'm being obtuse about? I could attempt to fix it, but you never tell people what is really wrong, so we don't know exactly what needs to be fixed. You just keep saying so many people here are obtuse.

Appraisers cannot and should not work for the bank. Their opinion is required to to be independent.

With some changes they can work for the bank. I'm trying to point out the problem with the current situation. They are supposed to be independant, but they really aren't with the way things are now. If we aren't going to change that fundamental problem, then the next best thing is just to eliminate the false sense of independance.

I am so happy that -- in this modern media-crazed world -- that the uninformed think they know more than the experienced.

Where have I said I know more than you? I simply said there are problems and I'm trying to highlight some of the problems that I see. Of course I'm uninformed (we all are, no one knows everything). So there may be many more problems that I don't see. But the fact that I'm missing some problems doesn't mean that the problems I do see shouldn't be addressed. It isn't just me, the federal government is looking at these problems too. "The property value is inflated (faulty appraisal) to increase the sales value to make up for no down payment and to generate cash proceeds in fraud for profit." So are you going to say that you know more about this issue than ALL of the people involved in those investigations? Sorry I posted a general link here that barely discusses the issues, if I had time I might be able to find an article that more specifically shows the alleged appraisal fraud which is currently being investigated.

 

[Vic]

It is not the lender's job to protect the borrower from stupidity, simply the lender to protect itself from the borrower's stupidity. Lenders don't tell people what to buy, just what they will lend on and under what terms and qualificiations.

Appraisers are independent. But like any vendor, they work for a specific client. In this case, the client is the lender. There is no "false sense," read your appraisal. It clearly states that fact.

Did you read that government page you linked? Those issues are being brought to the government primarily by lenders who have burned by one or more of the parties in the transaction. When an appraisal over-inflates the value of the property, it is almost always the lender, not the borrower, who gets burned. If the loan fails to perform and the lenders is forced to foreclose on the house, then the lender stands to take a substantial loss. This is why appraisals are performed for the lender's purposes, and why every lender scrutinizes and reviews each and every single appraisal that comes through the door. NEVER is the appraiser's determination of value taken as gospel. NEVER.

 

[dmcowen674]

July 27: New sales down, Unsold completed homes record high

Well well well

It took two years to come home to roost but I showed everyone on here the first signs of the empty subdivisions and I got chastised.

Now it's front page news.

At least it shows so clearly how the liars and deceptors that have been posting in here hate this Country so much.

Hopefully all the emptiness that they have created bothers them so much they will leave the Country that they turned into a waste land.

 

[dullard]

Originally posted by: Vic
Did you read that government page you linked? Those issues are being brought to the government primarily by lenders who have burned by one or more of the parties in the transaction. When an appraisal over-inflates the value of the property, it is almost always the lender, not the borrower, who gets burned.

Exactly why there should be change. If anyone gets burned, there is a potential problem. Not all problems need legal changes to fix, but this is certainly one that I think legal changes can fix without significant harm. In fact, the FBI considers appraisal fraud to be the MOST serious of all mortgage frauds. Appraisal fraud is 80% of the reported fraud and averages $60,000 of damage. Don't you think it is a problem too?

I'm not out just to protect the borrower, I'll also be an advocate to protect the lender. I'm not sure what gave you any other impression.

 

[LegendKiller]

Originally posted by: Vic

Originally posted by: LegendKiller
The problem is that many people who bought in the last 3-4 years *ARE* people who intended to sell within 5 years. They are those who took out exotic mortgages to finance houses that were over-appraised and stupidly priced, yet did it to get rich quick, or live the "American Dream" at any cost. I know a few personally.

A property cannot be over-appraised and stupidly priced at the same time. If the stupid price is supported by the market conditions at that time, then the appraisal was proper. The job of the appraiser is to provide a professional opinion of the value of the property based on current market conditions. It is not the job of the lender or the appraiser to predict future market conditions, or to protect the buyer from same, nor is it even remotely reasonable to expect such protection.

However, the appraiser can set any price because they are the guidance to the market. Of course, the market can, will, or might bear that cost and the appropriate price. However, you are assuming that the market operates in a vacuum, where the appraiser does not cause any price feedback, a dubious assumption at best.

The more likely scenario is that the appraiser appraises the value of the house, the market reacts to that appraisal by meeting or even beating that appraisal. Since that happens the next house to go on sale will then be appraised *AT LEAST* at the previous high for that house. However, what will happen is the assumption that the house is worth a bit more or that it is better than the next highest equiv house, so you get a double feedback loop.

The biggest problem is that the appraisers are counting on the market to set the price, but the market also looks to the appraisers. The cycle keeps going on and on with nobody really looking at the fundamental value of that product and how out of whack it is.

Add in realtors who are constantly pumping up and have the biggest interest in keeping things rolling. Mix with that a little greed and naivete of the purchaser/borrower and you get a combustable mix that creates what we have now.

The same thing happens with the stock market. However, replace appraiser with analyst, replace realtor with broker, and replace purchaser with gullible investor. Add in a healthy dose of greed and you get market bubbles.

 

[Vic]

There is no assumption that the next house is worth a bit more than the previous house. I thought you worked in the industry... have you ever even read an appraisal? There's no place on the grid for an appraiser to pump value over a comparable house based on any assumptions.

Buyers and sellers control the marketplace and set the prices. Realtors, lenders, appraisers, brokers, etc. do exert influence, but they have no actual control per se.

Blaming lenders and appraisers for the latest housing boom is IMO disingenious at best. Do you people have even the slightest clue how many deals I've lost because the appraiser couldn't come up with the value and I have an angry buyer screaming at me and threatening to go to another lender who they think will find an appraiser who will meet value? Buyers who eagerly and deliberately wants to pay more for a home than what it is worth and what they can afford. And these aren't isolated instances, these buyers are everyday events. And this is the lender's or the appraiser's fault... how? You people acting like lenders never turn down buyers and properties is simply ridiculous.

 

[LegendKiller]

Originally posted by: Vic
There is no assumption that the next house is worth a bit more than the previous house. I thought you worked in the industry... have you ever even read an appraisal? There's no place on the grid for an appraiser to pump value over a comparable house based on any assumptions.

Buyers and sellers control the marketplace and set the prices. Realtors, lenders, appraisers, brokers, etc. do exert influence, but they have no actual control per se.

Blaming lenders and appraisers for the latest housing boom is IMO disingenious at best. Do you people have even the slightest clue how many deals I've lost because the appraiser couldn't come up with the value and I have an angry buyer screaming at me and threatening to go to another lender who they think will find an appraiser who will meet value? Buyers who eagerly and deliberately wants to pay more for a home than what it is worth and what they can afford. And these aren't isolated instances, these buyers are everyday events. And this is the lender's or the appraiser's fault... how? You people acting like lenders never turn down buyers and properties is simply ridiculous.

I work in securitization, I deal with the messes everybody else creates in the asset pools by poor lending practices.

Just because *you* experience those problems does not mean that everybody else doesn't fudge the numbers. It doesn't have to be a huge increase over the previous house, small incremental ones have a large impact over time, a compounding one at that.

 

[dmcowen674]

Originally posted by: LegendKiller

Originally posted by: Vic

Originally posted by: LegendKiller
The problem is that many people who bought in the last 3-4 years *ARE* people who intended to sell within 5 years. They are those who took out exotic mortgages to finance houses that were over-appraised and stupidly priced, yet did it to get rich quick, or live the "American Dream" at any cost. I know a few personally.

A property cannot be over-appraised and stupidly priced at the same time. If the stupid price is supported by the market conditions at that time, then the appraisal was proper. The job of the appraiser is to provide a professional opinion of the value of the property based on current market conditions. It is not the job of the lender or the appraiser to predict future market conditions, or to protect the buyer from same, nor is it even remotely reasonable to expect such protection.

However, the appraiser can set any price because they are the guidance to the market. Of course, the market can, will, or might bear that cost and the appropriate price. However, you are assuming that the market operates in a vacuum, where the appraiser does not cause any price feedback, a dubious assumption at best.

The more likely scenario is that the appraiser appraises the value of the house, the market reacts to that appraisal by meeting or even beating that appraisal. Since that happens the next house to go on sale will then be appraised *AT LEAST* at the previous high for that house. However, what will happen is the assumption that the house is worth a bit more or that it is better than the next highest equiv house, so you get a double feedback loop.

The biggest problem is that the appraisers are counting on the market to set the price, but the market also looks to the appraisers. The cycle keeps going on and on with nobody really looking at the fundamental value of that product and how out of whack it is.

Add in realtors who are constantly pumping up and have the biggest interest in keeping things rolling. Mix with that a little greed and naivete of the purchaser/borrower and you get a combustable mix that creates what we have now.

The same thing happens with the stock market. However, replace appraiser with analyst, replace realtor with broker, and replace purchaser with gullible investor. Add in a healthy dose of greed and you get market bubbles.

It's hysterical yet so sad watching you two spew absolute rubbish.

The banks control the Market, period.

You can fire all Appraisers today, they mean nothing.

 

[LegendKiller]

Originally posted by: dmcowen674

It's hysterical yet so sad watching you two spew absolute rubbish.

The banks control the Market, period.

You can fire all Appraisers today, they mean nothing.

Again, how does the bank increase prices?


Lets think about this for a minute, perhaps we can apply it to brokerage accounts.


1. Investor A thinks that AMD stock is going to shoot through the roof. Since he doesn't have enough money, he decides to lever himself up with margin from his brokerage house.

2. The brokerage house, assuming that Investor A can handle the margin requirements gives the guy enough to buy what he wants.

3. Investor A buys in to all sorts of hype surrounding AMD, including investor reports and analyst reports. The analysts set a price target for AMD, 20% more than current. So investor A takes out the leverage. Now, anybody who is an independant thinker will acknowledge sticking everything you have into AMD and AMD alone *AND* levering up is damn risky, yet INvesor A ignores this, meanwhile, he flips burgers as McDonalds dreaming of when he will get rich off of AMD and it's Athlon processors.

4. Everybody keeps going, happy as a lark, until AMD's profits fall and go into negative territory.



Now Dave, of course, will blame everybody else. However, who's fault is it if Investor A loses his shorts? Sure, you can blame some of it on the brokerage for giving him credit. You can blame some on the analysts. However, the majority, vast majority even, goes to Investor A. Why? Because he wasn't rational and bought in to stupidity.


Who sets the price for houses? The market. Who helps the market set prices, appraisers. Who helps the appraisers, the market. Who issues the loan so people can afford a house, the banks.

Now, if the banks controlled the appraisers and demanded they jack up the price beyond market, then why doesn't the investor realize this? Why buy if fundamentals are out of whack? If nobody buys at the market level, then the market level *MUST* come down to rational levels right? Well, only if people were rational and thought before they bought. However, they don't. WHY?

Because they are stupid. Of course, Dave, having gone to Suffolk Community College, will immediately blame all of his woes on externalities rather than himself. After all, isn't everybody else to blame for his lack of education and critical thought?

 

[Slew Foot]

Originally posted by: Vic

Originally posted by: Slew Foot
IMO from reading your many posts on this subject, you represent that that issue as bad as all the others, but you're just bitter you missed out on the action.

I made 500K when I sold my house in San Francisco last year (which is earning me about 30K/yr) , Im currently renting while watching prices tumble and laughing at the suckers who held on too long.

 

[imported_Tango]

Originally posted by: Vic

Originally posted by: Slew Foot
Of course when you sell you have to move somewhere else (or rent), and every other house is just as expensive as the one you sold, oops. Unless you're downsizing or moving to a less desireable location, then you might make out ahead. People who bought in the last 3-4 years are about to get slammed, especially those without equity or with HELOCs.

You are correct that property appreciation of one's primary residence is essentially "paper wealth."

However, even if there is a bubble, why would people who bought in the last 3-4 years get slammed like you describe? The value of a property you own is only important if you intend to sell it. Having negative equity doesn't stop one from living in a house anymore than being "upside down" in a car keeps one from driving it. HELOCs are fine at this point because the Fed is very likely to stop raising rates (they are not going up, they have gone up).

I have long felt that the issue with real estate over the past few years is that people started becoming homeowners for the wrong reasons. It's not about making money. It's about owning your home. IMO from reading your many posts on this subject, you represent that that issue as bad as all the others, but you're just bitter you missed out on the action. Consider that people like you, hoping that prices will fall so that you can reclaim your lost opportunity, are a powerful force that will keep values up (although no longer rising). Every time prices slip just a little bit, one of you will jump in to buy.

Uncorrect. The value of a real estate property is significant even if you don't sell, exactly like any other asset. Otherwise only cash would be worth something. But cash is, well, just another asset, and as such fluctuates in price.

Based on the present value of your real estate properties you can obtain credit to acquire other assets or simply use th equity accumulated to, again, obtain other assets.

If you know the correct financial instruments cash, real estate, commodities, stocks, bonds or options are just the same things. Of course different markets have different timing and liquidity carachteristics and so they DO provide different investing solutions. But for some reason people tend to think of real estate as something somewhat different from other markets. It's not. It's just a market with its own characteristics not dissimilar, for example, to fine art or antiques.

 

[Satchel]

Originally posted by: Tango

Originally posted by: Vic

Originally posted by: Slew Foot
Of course when you sell you have to move somewhere else (or rent), and every other house is just as expensive as the one you sold, oops. Unless you're downsizing or moving to a less desireable location, then you might make out ahead. People who bought in the last 3-4 years are about to get slammed, especially those without equity or with HELOCs.

You are correct that property appreciation of one's primary residence is essentially "paper wealth."

However, even if there is a bubble, why would people who bought in the last 3-4 years get slammed like you describe? The value of a property you own is only important if you intend to sell it. Having negative equity doesn't stop one from living in a house anymore than being "upside down" in a car keeps one from driving it. HELOCs are fine at this point because the Fed is very likely to stop raising rates (they are not going up, they have gone up).

I have long felt that the issue with real estate over the past few years is that people started becoming homeowners for the wrong reasons. It's not about making money. It's about owning your home. IMO from reading your many posts on this subject, you represent that that issue as bad as all the others, but you're just bitter you missed out on the action. Consider that people like you, hoping that prices will fall so that you can reclaim your lost opportunity, are a powerful force that will keep values up (although no longer rising). Every time prices slip just a little bit, one of you will jump in to buy.

Uncorrect. The value of a real estate property is significant even if you don't sell, exactly like any other asset. Otherwise only cash would be worth something. But cash is, well, just another asset, and as such fluctuates in price.

Based on the present value of your real estate properties you can obtain credit to acquire other assets or simply use th equity accumulated to, again, obtain other assets.

If you know the correct financial instruments cash, real estate, commodities, stocks, bonds or options are just the same things. Of course different markets have different timing and liquidity carachteristics and so they DO provide different investing solutions. But for some reason people tend to think of real estate as something somewhat different from other markets. It's not. It's just a market with its own characteristics not dissimilar, for example, to fine art or antiques.

How is this done without increasing your debt? Equity is not a liquid asset. Are you suggesting that people should take out a second mortgage to purchase something that might appreciate at a higher rate and have a better return? If so, what do you suggest?

 

[imported_Tango]

Originally posted by: Satchel

Originally posted by: Tango

Originally posted by: Vic

Originally posted by: Slew Foot
Of course when you sell you have to move somewhere else (or rent), and every other house is just as expensive as the one you sold, oops. Unless you're downsizing or moving to a less desireable location, then you might make out ahead. People who bought in the last 3-4 years are about to get slammed, especially those without equity or with HELOCs.

You are correct that property appreciation of one's primary residence is essentially "paper wealth."

However, even if there is a bubble, why would people who bought in the last 3-4 years get slammed like you describe? The value of a property you own is only important if you intend to sell it. Having negative equity doesn't stop one from living in a house anymore than being "upside down" in a car keeps one from driving it. HELOCs are fine at this point because the Fed is very likely to stop raising rates (they are not going up, they have gone up).

I have long felt that the issue with real estate over the past few years is that people started becoming homeowners for the wrong reasons. It's not about making money. It's about owning your home. IMO from reading your many posts on this subject, you represent that that issue as bad as all the others, but you're just bitter you missed out on the action. Consider that people like you, hoping that prices will fall so that you can reclaim your lost opportunity, are a powerful force that will keep values up (although no longer rising). Every time prices slip just a little bit, one of you will jump in to buy.

Uncorrect. The value of a real estate property is significant even if you don't sell, exactly like any other asset. Otherwise only cash would be worth something. But cash is, well, just another asset, and as such fluctuates in price.

Based on the present value of your real estate properties you can obtain credit to acquire other assets or simply use th equity accumulated to, again, obtain other assets.

If you know the correct financial instruments cash, real estate, commodities, stocks, bonds or options are just the same things. Of course different markets have different timing and liquidity carachteristics and so they DO provide different investing solutions. But for some reason people tend to think of real estate as something somewhat different from other markets. It's not. It's just a market with its own characteristics not dissimilar, for example, to fine art or antiques.

How is this done without increasing your debt? Equity is not a liquid asset. Are you suggesting that people should take out a second mortgage to purchase something that might appreciate at a higher rate and have a better return? If so, what do you suggest?

I am not suggesting anything, of course. I would never leverage on real estate, because it does not fit my investing strategies. But I am just saying that you can leverage your portfolio on real estate equity as you could on any other class of assets.

If you want to widen your portfolio, no matter what assets it is composed of, you just need to beat the interest rates you would be paying on the financing operation. In fact you could do less than that, cause you keep the privilege of enjoying both the gains (or losses of course) of thenew asset you bought and keep the gain (or losses) of the asset you are leveraging on.

But this is not the point, the point is increased assets value does matter regardless of the fact that you plan or not to use this increased equity for other purposes. Otherwise we all wouldn't care of stock prices unless we plan to sell them. We check stock prices every day because that is the current value, and depending on that valuation we acquire or lose investing capacity.

To answer your question: I would follow the track you suggested if your financial situation allows you to consider your house as any other asset. If it's the house you are living in, then I would never do it. But that's just me.
Pure rationality would tell you it doesn't matter. A good investment is a good investment no matter how you financed it. Of course life is not always pure rationality and the risk of losing your home is perceived as much more tragic than losing on mutual funds or stocks or bonds.

Also real estate is not a fungible asset. You can't just buy the same house again. If now you are forced to sell your home, it's not granted that you might be able to buy it again in the future, like you could with bonds or stocks. That's why the real estate market is much less liquid than other markets. It is quite close to the art market. Sell a Modigliani today, it's gone forever.

 

[Satchel]

Originally posted by: Tango

Originally posted by: Satchel

Originally posted by: Tango

Originally posted by: Vic

Originally posted by: Slew Foot
Of course when you sell you have to move somewhere else (or rent), and every other house is just as expensive as the one you sold, oops. Unless you're downsizing or moving to a less desireable location, then you might make out ahead. People who bought in the last 3-4 years are about to get slammed, especially those without equity or with HELOCs.

You are correct that property appreciation of one's primary residence is essentially "paper wealth."

However, even if there is a bubble, why would people who bought in the last 3-4 years get slammed like you describe? The value of a property you own is only important if you intend to sell it. Having negative equity doesn't stop one from living in a house anymore than being "upside down" in a car keeps one from driving it. HELOCs are fine at this point because the Fed is very likely to stop raising rates (they are not going up, they have gone up).

I have long felt that the issue with real estate over the past few years is that people started becoming homeowners for the wrong reasons. It's not about making money. It's about owning your home. IMO from reading your many posts on this subject, you represent that that issue as bad as all the others, but you're just bitter you missed out on the action. Consider that people like you, hoping that prices will fall so that you can reclaim your lost opportunity, are a powerful force that will keep values up (although no longer rising). Every time prices slip just a little bit, one of you will jump in to buy.

Uncorrect. The value of a real estate property is significant even if you don't sell, exactly like any other asset. Otherwise only cash would be worth something. But cash is, well, just another asset, and as such fluctuates in price.

Based on the present value of your real estate properties you can obtain credit to acquire other assets or simply use th equity accumulated to, again, obtain other assets.

If you know the correct financial instruments cash, real estate, commodities, stocks, bonds or options are just the same things. Of course different markets have different timing and liquidity carachteristics and so they DO provide different investing solutions. But for some reason people tend to think of real estate as something somewhat different from other markets. It's not. It's just a market with its own characteristics not dissimilar, for example, to fine art or antiques.

How is this done without increasing your debt? Equity is not a liquid asset. Are you suggesting that people should take out a second mortgage to purchase something that might appreciate at a higher rate and have a better return? If so, what do you suggest?

I am not suggesting anything, of course. I would never leverage on real estate, because it does not fit my investing strategies. But I am just saying that you can leverage your portfolio on real estate equity as you could on any other class of assets.

If you want to widen your portfolio, no matter what assets it is composed of, you just need to beat the interest rates you would be paying on the financing operation. In fact you could do less than that, cause you keep the privilege of enjoying both the gains (or losses of course) of thenew asset you bought and keep the gain (or losses) of the asset you are leveraging on.

But this is not the point, the point is increased assets value does matter regardless of the fact that you plan or not to use this increased equity for other purposes. Otherwise we all wouldn't care of stock prices unless we plan to sell them. We check stock prices every day because that is the current value, and depending on that valuation we acquire or lose investing capacity.

To answer your question: I would follow the track you suggested if your financial situation allows you to consider your house as any other asset. If it's the house you are living in, then I would never do it. But that's just me.
Pure rationality would tell you it doesn't matter. A good investment is a good investment no matter how you financed it. Of course life is not always pure rationality and the risk of losing your home is perceived as much more tragic than losing on mutual funds or stocks or bonds.

Also real estate is not a fungible asset. You can't just buy the same house again. If now you are forced to sell your home, it's not granted that you might be able to buy it again in the future, like you could with bonds or stocks. That's why the real estate market is much less liquid than other markets. It is quite close to the art market. Sell a Modigliani today, it's gone forever.

I'm sorry, I thought we were discussing primary residences. It goes without saying that real estate can be used for investment purposes.