TheGodfathers Real Estate Predictions

[thegodfather]

safety

[Prada]

Real estate has to do more so with supply and demand and market analysis then one's salary. As long as demand is there inflation could increase without bound and much affect. In my last read I noticed that the hottest markets were more so located in south versus east and west. My take is that there is jsut so much supply that there will end up, eventually, not be any demand to follow suit which will lead to depreciation.As stated, everyone is in on it or thinks they're a realtor

[abcde]

Ok...I have been watching my local home market for quite some time. Everyone should be aware that home prices are outpacing salary increases every year...Anyone with a brain knows that home prices cannot continue to increase the way they are. For instance, the house that we're having built now is costing $503,000, whereas the exact same model house in an older development built in 1996 cost $263,000. Now, my same model house is on the market in OTHER developments selling for between 650-850k. One of my main points in all this....buying an EXISTING home in this over-inflated real estate market is a really bad idea, you're paying for someones ridiculous appreciation. You will always get more for your money with new construction. For instance, Pre-construction pricing was $489k, and currently the same home a few months after construction has started is $540k, so people who got in pre-construction have already made about $50k.

Anyway....with appreciation of homes outpacing yearly salary increases the bubble is bound to burst. The result of the way the market is right now, is that although you can ask a much higher price for your home, it takes much longer to actually find a buyer for the home. Another thing i'm interested in seeing is how the 'FLIPPING' market will be affected by this. Trying to acquire a flip property in my area now is next to impossible. SO MANY people have jumped onto the flipping bandwagon that realators are catching wind of these properties before they even go on the MLS and either taking them for themselves or funneling them to select buyers.

Anyways, just thought Id rant a little about the real estate market and how much of a kick in the nuts is gonna be for people who bought houses this year....

Nice observations. But I was trying to guess your prediction - it's that the real estate market is going down? Are you saying its a buyers market, short the homebuilders or ???? Do you agree with the previous posters comment on different regions?

[Logan13]

Real estate has to do more so with supply and demand and market analysis then one's salary. As long as demand is there inflation could increase without bound and much affect. In my last read I noticed that the hottest markets were more so located in south versus east and west. My take is that there is jsut so much supply that there will end up, eventually, not be any demand to follow suit which will lead to depreciation.As stated, everyone is in on it or thinks they're a realtor

Supply and demand are definately going to effect any big ticket item, but I think what GF is saying is that there are only so many peole making the money to buy these homes, and yet they keep making them. I look around my city and can not believe that so many people made the kind of money to pay for all of the newly constructed houses. Fact is, they don't and supply will surpass demand soon. These developers are not building middle class family homes any longer, they are all upper class homes. The average home in my city in 1999 was appraised at $139,000, today the average house appraises out at $249,000 and the average cost of new construction in this area is $318,000. The bubble will burst, but it will be those who own one of the many $319,000 houses that will be taking the biggest hit around here.

[Logan13]

Ok...I have been watching my local home market for quite some time. Everyone should be aware that home prices are outpacing salary increases every year...Anyone with a brain knows that home prices cannot continue to increase the way they are. For instance, the house that we're having built now is costing $503,000, whereas the exact same model house in an older development built in 1996 cost $263,000. Now, my same model house is on the market in OTHER developments selling for between 650-850k. One of my main points in all this....buying an EXISTING home in this over-inflated real estate market is a really bad idea, you're paying for someones ridiculous appreciation. You will always get more for your money with new construction. For instance, Pre-construction pricing was $489k, and currently the same home a few months after construction has started is $540k, so people who got in pre-construction have already made about $50k.

Anyway....with appreciation of homes outpacing yearly salary increases the bubble is bound to burst. The result of the way the market is right now, is that although you can ask a much higher price for your home, it takes much longer to actually find a buyer for the home. Another thing i'm interested in seeing is how the 'FLIPPING' market will be affected by this. Trying to acquire a flip property in my area now is next to impossible. SO MANY people have jumped onto the flipping bandwagon that realators are catching wind of these properties before they even go on the MLS and either taking them for themselves or funneling them to select buyers.

Anyways, just thought Id rant a little about the real estate market and how much of a kick in the nuts is gonna be for people who bought houses this year....

My cousin who lives in San Diego was just in town bragging about how the home that he just purchased cost him $412,000. Then he elaborated on it and as it turns out, $412,000 only buys a 1500sq.ft home with 2 bedrooms in San Diego. That is just plain nuts! $412,000 here would get you a 4 bedroom 3,500 sq.ft. home with land. Man I would hate to live in his market!

[firmechicano831]

well I'm a realtor in North California in the Silicon valley next to the beach and the house median down here is about 700k. We are talking about an ok house that is 3bd/2 bath and around 1800 sqft. Now my house just got appreciated at 900k but then again I don't think I'd get as much for it. Our market here has already changed dramatically and it's totally a buyers market now although houses are still selling but at a slower pace. Last year houses were in the market for as long as a week and now they are on the market on an average of 3-4 months. Some houses have dropped dramatically as much as 140k in six months. I was looking at some comparisons and saw some houses that sold six months ago for 870k but the house down the block with the same floor plan and sqft can't sell for 695k now. Imagime what the buyer is thinking that bought this house for 870k. Alot of realtors in our office are saying that these are bargain prices and that the prices will increase again so they have started to buy properties. They say that the market goes up and down in waves and that mostly everyone wants to buy when the wave its at its highest point but when its hits down bottom everyone runs and waits for it to rise again. I think that prices will start to even out to its true value and not inflatted value in the long run. But I also think that interest rates will have to do alot with how the market will end up at the end of the year.

[thegodfather]

Right now I believe its a SELLERS market...now various things affect this such as what THE FED has interest rates set at...however, I believe the biggest impact to the market and what has allowed these crazy home prices to be possible are ARMs (Adjustable Rate Mortgages).

Whoever said supply will surpass demand hit the nail on the head with this situation. You cannot get your way into a decent development around here for anything less than 400k, and i'm talking a 3-4br/2.5bath house with white walls and no structural options. In my area, there are TONS of trac homes (40,60,80 home developments) priced 'FROM the 650s'. If you drive around my township and the neighboring one, there are a plethora of homes where you cant even think about shopping at unless you're going to spend 500k,600k,800k. My question has always been, who are buying these homes? i.e.-what profession are these people and how are there so many of them that can afford homes this price.

Now lets take another example from a community close by. They have been completely built up, there is really no more buildable land for trac homes. However the other day I noticed a builder putting up a new development in that area. Get this, a 7 Home site development, homes starting at 6000sq. ft. or $750k. So it seems, that where builders are not able to lay down 80-100 homes, they will try to make up for it by building monstrosities (cheaply) and then pricing them high.

A development about 2 miles down the road just bankrupted and the builders changed hands twice already. I just think that builders are over confident about the market and peoples abilities to buy these high priced homes. Also, instead of just builders involved in new construction, now I have noticed Century 21, Weichert, and ReMax building new construction on spare lots that they are able to pick up here and there. The market is being absolutely flooded with these homes. When this happens it will obviously drive the prices down considerably. I think we are on the verge of the bubble bursting, and I can see it happening in the next...........6-12 months.

I dont believe that I will be hit by the bubble TOO hard..As I believe I got a relatively good deal for 503k, 4000sq ft, on 1.8 acres, with full walkout basement.

However, those who own 800k homes but with close to the same sq.ft. and on 1/2 to 3/4 acre lots will definately take hits I believe.

I want to discuss the ARM loans again though. Id like firmechicano831 to chime in on this a little bit. Basically, people are getting away with not paying any of their interest for the first few years of their loan, which significantly decreases their payments...Since this is a relatively new thing, and I believe soon all the lenders are gonna come knocking on peoples doors for their interest payments, it will be interesting to see how many foreclosures there will be.

[firmechicano831]

well I know alot of people her are into the ARM loans because the property prices here in California are much higher. Like I said we are talking about homes of about 700k with either 10% down or nothing at all but mostly 10% down. I have seen the interest rates rise and alot of houses or people that are starting to not be able to make their payments or even know that they are in a negative ARM loan. The problem with these loans is that people are starting to try to refinance or sell their properties that are not worth as much as when they bought them 1-2 years ago since the market has already changed from a sellers to a buyers here. The market is flooded with more sellers trying to sell and people trying to refinance now. The problem that I've been seeing is that people that are trying to sell are trying to get the same price that they paid for their homes but can't becuase they bought when the market was high. And the people that are filliing for bankrupsy the banks can't collect all the money because they are negative.

[firmechicano831]

Negative ARM loans work in a way that you pay less then interest on the loan every month. For example lets say that the ARM loan is 1.2 interest for the first two years so you pay $1300 a month when the interest on the loan is $3500 so you are going negative $2200 each month. So instead of you loan amount remaining the same or goiing down it's actually increasing by $2200 hundred each month. Another problem that I see coming is after the two years are up these people are going to have to refinance at an interest rate of maybe 6-7% which will increase their payment to about $4000-$5000 a month when their used to paying $1300 a month. This is where the problems will come in and when we will start to see people try to sell their homes or default on their loans.