Originally Posted By LuLu The writing on this has been on the wall for quite some time - not that most people have acknowledged it. My fear has been how this will affect the whole economy, which seems to have been running on the real estate boom / home equity. Is there anything safe to invest in? I've been sitting on the proceeds from my RE sale over a year ago. I intend to keep sitting on it til the dust settles.
Originally Posted By fkurucz <<Is there anything safe to invest in?>> I think that it depends on what is the approach that will be taken to handle this situation. If they "let the market sort it out" then I think we will face the mother of all recessions, perhaps even a Great Depression #2. In this scenario almost all assets will depreciate and cash will be king. I don't that will happen. I think that they (The Fed, other Central Banks, major world governments) will chose to use high inflation to make the monthtly payments more "affordable". In this scenario it might be best to invest in precious metals, as they will have a high probability of tracking inflation.
Originally Posted By SuperDry <<< In this scenario it might be best to invest in precious metals, as they will have a high probability of tracking inflation. >>> If inflation is your worry, you could buy Treasury Inflation Protected Securities ("TIPS"), which are 100% guaranteed to track inflation and 100% guaranteed to pay off by the US gov't.
Originally Posted By Mrs ElderP I am absolutly no expert on Real Estate Investments, but I do know what is stupid! ElderP and I bought our house in Feb of 2004, when rates were near their lowest. (They didn't go much lower, but they stayed low for about another year or so.) We did finance ALOT of our house, 80/15 w/only 5% down, BUT we chose a 30yr fixed rate mortgage. Think about it, rates are at an all time low, why would we want an ARM rate that is only going to go UP! I've also thought about those speculators counting on that OC 20% rise, and the chance to flip for actual cash. Really, unless you are moving states this does you no real good. Say you buy a house w/no down for 300,000 and sell in 18months for 375,000. WHO HOO, you've made 75,000 right? But you still have to live somewhere, and if the 3bd/2bth you just had sold for 375,000, what is your next 3bd/2bth going to cost you? Yeah, right about 375,000. So, now you've put some money down, yea for you, you STILL have to pay off a 300,000 mortgage, big whup! The mortgage companies were counting on that fact that the very first bill most people make it a priority to pay is their mortgage. Even if they get behind on the credit cards or the utilities they pay the mortgage. Or so the thought goes.
Originally Posted By Mrs ElderP More random thoughts: We live in forclosure central, the Inland Empire was the last market in S. Cal to rise and it will be the first to fall. We have a forclosure rate right now only topped by a couple of Bay Area regions. Despite that housing prices have not come down very much, if at all. They have mostly been holding steady. I wonder how long this can hold up.
Originally Posted By fkurucz <<Say you buy a house w/no down for 300,000 and sell in 18months for 375,000. WHO HOO, you've made 75,000 right? But you still have to live somewhere, and if the 3bd/2bth you just had sold for 375,000, what is your next 3bd/2bth going to cost you?>> The flippers would just buy another 375K house with a teaser rate ARM, and resell within a year for yet another windfall profit. As long as the teaser rates were only 1% they could afford the monthly payment. Many even rationalized: why just buy a 400K house? I'll buy a million dollar house and make 250K profit! During the bubble anyone could get a loan. A running joke is that the only qualification was the ability to fog a mirror (being alive).
Originally Posted By fkurucz << Despite that housing prices have not come down very much, if at all. They have mostly been holding steady. I wonder how long this can hold up.>> Lenders are keeping foreclosed properties off the market because they know they will cause a down price chain reaction once they hit the market at fire sale prices. Also remember that most people in the IE who bought their first home in the past 2 years are the ones who are being forced to sell (because their toxic loans have reset and they can't refinance back into another teaser rate ARM). However, since most of them put no money down they can't discount their houses for a quick sale. They would be forced to bring cash to closing, and they don't have any! Eventually the dam will burst. IE prices will unfortunately collapse, some are predicting price drops as high as 50%.
Originally Posted By fkurucz <<The mortgage companies were counting on that fact that the very first bill most people make it a priority to pay is their mortgage. Even if they get behind on the credit cards or the utilities they pay the mortgage. Or so the thought goes.>> They are in for an unpleasant surprise. Some one with "no skin" in their house will likely walk away, especially if the house's value takes a nosedive. The car and credit cards are considered much more important (they will likely lose the cards once they default on the mortgage). You what they say: you can live in your car, but you can't drive your house.
Originally Posted By fkurucz <<If inflation is your worry, you could buy Treasury Inflation Protected Securities ("TIPS"), which are 100% guaranteed to track inflation and 100% guaranteed to pay off by the US gov't.>> Just beware of whose definition of inflation Uncle Sam uses. The CPI numbers thay publish have been a joke for years.
Originally Posted By Mrs ElderP re post 27, I personally doubt 50%, I think that's a little extreme, but I would love to see it. Our income has gone up and we owe less than 50% of the current value of our house. As long as we can sell this one in 3 or 4 years for more than we owe, we would love to buy a larger house (worth what this one is now) with our larger income!
Originally Posted By LuLu The trick will be for this whole scenario not to blow up and affect *everyone* very adversely. Yes, I've heard those 2 possibilities: serious recession/depression or runaway inflation. In either one, there won't be too many folks worrying about their next, bigger house.
Originally Posted By fkurucz From what I have been reading, car sales are tanking because the flow of funny money has dried up. People can no longer use their house like an ATM. Just last year someone close to me tried to get me into flipping houses, and wouldn't take no for an answer. Fortunately I kept saying no.
Originally Posted By Mr X **We did finance ALOT of our house, 80/15 w/only 5% down, BUT we chose a 30yr fixed rate mortgage. Think about it, rates are at an all time low, why would we want an ARM rate that is only going to go UP!** Sounds like you made a wise choice. At this point though, I think it'd be tough to find a company bold enough to fund a 5% down loan (so it's good you got in when you did!)...of course, there will ALWAYS be shady companies that will do what you need for ridiculous interest rates and harsh terms, but a whole lot of them are now out of business. Meanwhile, the stock market rallied HUGE today, Dow up almost 300 points (after being down almost 300 points on Friday)...volitility is extreme these past few weeks, two point intraday swings are totally common. If you're invested for the long term, no reason to panic now (unless your name is Jimmy Cramer)...but I still do urge everyone to carefully research those mutual funds and switch out of any that have a lot of exposure to homebuilders/lenders and the rest. Personally, I got burned a bit. I took some short positions as of Thursday and was too greedy to sell on Friday. So in my scramble to get out today, I lost about $200. That's not a biggie, but it kinda sucks because on Friday and early today those shorts had me up about $1500! Oh well...there's a saying in the markets that seems to be very true. Bulls make money. Bears make money. Pigs get slaughtered. Oink.
Originally Posted By Mr X Oh, I made a good decision to cover though, by the way. If I'd tried to "hang on" through the day, I'd have been down WAY over $1,000! :O
Originally Posted By Mr X "two point" meaning two hundred, by the way...sorry. I'm a geek, and so recently I've hyped on Wall Street, which now makes me a "wall street geek"...with all the weird terminology that goes along with it. It's just terminology though, trust me I don't really understand a bloody thing!
Originally Posted By twirlnhurl Would anyone want to venture a guess as to how/if this would affect the Disney company? (I am referring to the affects of the inflation or the recession that could happen when the real estate bubble pops.)
Originally Posted By DouglasDubh People have been saying that the real estate "bubble" will "pop" for almost a year. Just a few months ago, on this very board, a few posters made dire predictions when the stock market dropped a bit. Of course, then it roared back. As I said then, and still believe, these mortgages will continue to be a problem, and the real estate market will continue to be soft for several more months, but it won't cause the economy to crash.
Originally Posted By Mr X Isn't that already what I said? Or were you replying to someone else's particular post? In any case, it's DEFINITLY (whatever "it" is) all the fault of George W. Bush!!
Originally Posted By Mr X I hope none of my comments were regarded as "dire predictions" here (I did freak out a little in February), I simply said that being exposed to lenders and investment banks was not recommended at this time. Would you disagree with that, Doug? I sure see some awfully depressed stock prices (not to mention dead companies!) in those sectors!
Originally Posted By DouglasDubh <Or were you replying to someone else's particular post?> I was responding more to fkurucz' posts than yours.
