People keep saying it will. I can't think of any good reason why it would, though. Anyone have any good reasons that they think ity will happen?
Why would the california housing market crash?
- Thread starter notfred
- Start date
Sooner or later, people will stop buying houses because everything will be > $800,000. If EVERYONE rents and no one buys, there will:
a) not be enough apartment space for everyone in CA
b) be no real estate market to speak of in CA, and prices will tumble
a) not be enough apartment space for everyone in CA
b) be no real estate market to speak of in CA, and prices will tumble
Prices will tumble right back down to $800,000 or whatever the price was when people stopped buying. That's not a crash, it's simply a stop in growth.
The new 40 yr mortgage and the fact that intrest rates dropped again yesterday for mortgages means that the market will keep going.
It seems insane to me. I am sitting on over 100k in equity for my current place here in D.C. and after 75k in equity from my previous home sale last year, but prices in Florida where I am headed are rising even quicker. Arg.
It seems insane to me. I am sitting on over 100k in equity for my current place here in D.C. and after 75k in equity from my previous home sale last year, but prices in Florida where I am headed are rising even quicker. Arg.
dullard
Elite Member
- May 21, 2001
- 25,932
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[*]Housing prices have in the past fallen locally. The last time many locations fell was ~20 years ago when interest rates were high. Interest rates are very cyclical. They were 15%+ before, they will be 15%+ again.
[*]Many lenders have started giving interest only loans so that people can buy more home than they can afford. However, principal will need to be paid in several years. Where will this extra money magically come from? If no money is availabe, the house needs to be sold. Thus there is likely a major increase of homes on the market in a few years.
[*]People selling their homes will likely want to buy a new home. But wait, they just got rid of their 5%-6% interest only loan and will be replacing it with a 8%, 9%, 10%, or even higher loan with principal. The only way to do so is to replace it with a cheaper house. Demand for expensive houses thus decreases.
[*]Result, more expensive houses are on the market at the one time that demand for expensive houses is decreasing. It is a recipe for a mid to high end house bubble. Those people with ~$500k houses are probably the most at risk. Those with cheap homes will see the demand soar for cheap homes.
[*]Where are these $500k homes? California.
That is roughly the typical logic. It has happened before, now you tell us why it won't happen again.
[*]Many lenders have started giving interest only loans so that people can buy more home than they can afford. However, principal will need to be paid in several years. Where will this extra money magically come from? If no money is availabe, the house needs to be sold. Thus there is likely a major increase of homes on the market in a few years.
[*]People selling their homes will likely want to buy a new home. But wait, they just got rid of their 5%-6% interest only loan and will be replacing it with a 8%, 9%, 10%, or even higher loan with principal. The only way to do so is to replace it with a cheaper house. Demand for expensive houses thus decreases.
[*]Result, more expensive houses are on the market at the one time that demand for expensive houses is decreasing. It is a recipe for a mid to high end house bubble. Those people with ~$500k houses are probably the most at risk. Those with cheap homes will see the demand soar for cheap homes.
[*]Where are these $500k homes? California.
That is roughly the typical logic. It has happened before, now you tell us why it won't happen again.
StageLeft
No Lifer
- Sep 29, 2000
- 70,150
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Yes, it's more likely growth will just slow down instead of tumbling. Being a first time home buyer in CA must really suck because you can't buy jack, whereas most other areas of the country a professional on a reasonable income can afford a first modest home. But in CA the same money (or a bit more accounting for income) buys you a ghetto shack in compton.
The afforability index in CA is really bad (wages aren't keeping up with mortgage costs). I think that more indicates a flattening then a crash (IMHO). Part of the concern is people who bought homes based on variable rate loans during 2000-2004 who's mortgage rates are going up and may not be able to afford the higher payments.
Bill
Because the double digit appreciation rates aren't sustainable.
Wages can't keep up with this.
Additionally many people are leveraged to the hilt speculating on the real estate market. While a normal homeowner might be able to ride this out, the speculators have to see big appreciations in the relatively short term to come out ahead. When prices start to level off they don't make these profits, they will default, and alot of properties will start hitting the market, driving prices down.
And like most bubbles, I think there is a strong psychological component. Something will spook the herd, so to speak, and the bottom will fall out.
Wages can't keep up with this.
Additionally many people are leveraged to the hilt speculating on the real estate market. While a normal homeowner might be able to ride this out, the speculators have to see big appreciations in the relatively short term to come out ahead. When prices start to level off they don't make these profits, they will default, and alot of properties will start hitting the market, driving prices down.
And like most bubbles, I think there is a strong psychological component. Something will spook the herd, so to speak, and the bottom will fall out.
"Statewide, 61 percent of all purchase loans were interest-only in January and February, compared with 31 percent nationally, LoanPerformance reports."
quote from the SacBee (you need to register). There is no way that is sustainable. Even if people are living in these homes instead of speculating on them, it is still
a load of reponsibility that may signal the start of cratering in the market. You do not pay down any principal and after x numbers of years, the rates adjust and you have a larger payment. I think many people are stretching to afford these homes and even though demand is strong, I don't think it can be substained.
There is a discussion on FW Finances on the real estate bubble. It will keep you up at nights if you read it and are invested in RE.
quote from the SacBee (you need to register). There is no way that is sustainable. Even if people are living in these homes instead of speculating on them, it is still
a load of reponsibility that may signal the start of cratering in the market. You do not pay down any principal and after x numbers of years, the rates adjust and you have a larger payment. I think many people are stretching to afford these homes and even though demand is strong, I don't think it can be substained.
There is a discussion on FW Finances on the real estate bubble. It will keep you up at nights if you read it and are invested in RE.
Would about the baby boomers? Seems that eventually they are going to want to sell, (or when they die). I'm sure they account of a large percentage of the real estate market now. When the huge amount of houses they bought start flooding the market, seems like it could decline a bit.
Pliablemoose
Lifer
- Oct 11, 1999
- 25,195
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Unless you see jobs leaving California in mass, the market will never crash especially in the bay area. As long as the Silicon Valley is thriving as well as all the BioTech in South SF and the financial firms in SF there will always be people moving to California creating demand for housing.
Keep thinking happy thoughts.
Eventually, companies won't be able to pay their employees enough to live in the area.
Real estate markets can and do crash. My cousin found himself upside down to the tune of about $100K on a $350K house in Los Angeles back in the early 90's
Yea, a bit article on the front page of the San Francisco Chronicle today about interest-only loans. 66% of the loans in the Bay Area this year have been interest-only. People can't afford it otherwise. In some area's the % is 78%
Ummm....61% interest-only loans mean anything to you?
You DO know how that works, right?
Those are just a disaster waiting to happen!
Here's the article in the SF Chronicle.
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/05/20/MNG5CCS82I1.DTL
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/05/20/MNG5CCS82I1.DTL
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