New Crash Buffs - Getting Ready for Housing Armageddon?
Two articles this week are feeding the fear of those who believe we’re turning around from the crash market into another boom that can’t be sustained. In one article a recent survey was cited as finding potential home buyers in the current market willing to use “unconventional purchasing methods” to buy a home. The term used was “aggressive” buying tactics. The word “mania” is also used in conjunction with statements like these:
• From the LA Times, According to the survey, 25% of respondents would bid 1% to 5% over the home’s asking price, and the same percentage would offer to cover the seller’s closing costs.
• Trulia.com states that young adults from 18 to 34 are more willing to resort to aggressive tactics. 30% of respondents are willing to pay the seller’s closing costs and 31% are willing to bid from 1% to 5% over asking price.
This all sounds like a bit of “over-exuberance,” and the housing bubble blogs are running with it. Interest rates are their first and major point in predicting problems to come. Rates in the last three months have risen around a full point, to 4.5% or so. The Fed has constantly been assuring the markets that they have a handle on this and will keep rates down, but the bubble bloggers believe that the Fed is losing control of mortgage interest rates, and they expect more significant increases.
With the low inventories and high prices, it’s historically low interest rates that fuel buying pressure. Low rates mean qualifying for a larger and nicer home with lower payments that are necessary when wages aren’t rising. If rates keep rising, bubble enthusiasts believe that buying will virtually stop and another bust cycle will emerge.
Another trend that’s not discussed much is the use of eminent domain by municipalities to control foreclosures and take them off the market. This almost assures a lower buy-out for the lender, raising their costs of doing business which raises their mortgage rates. The good news for investors is that profits were there throughout the crash, and profits have been in the markets in this “recovery.” It’s simply a matter of changing investment strategies.
Two articles this week are feeding the fear of those who believe we’re turning around from the crash market into another boom that can’t be sustained. In one article a recent survey was cited as finding potential home buyers in the current market willing to use “unconventional purchasing methods” to buy a home. The term used was “aggressive” buying tactics. The word “mania” is also used in conjunction with statements like these:
• From the LA Times, According to the survey, 25% of respondents would bid 1% to 5% over the home’s asking price, and the same percentage would offer to cover the seller’s closing costs.
• Trulia.com states that young adults from 18 to 34 are more willing to resort to aggressive tactics. 30% of respondents are willing to pay the seller’s closing costs and 31% are willing to bid from 1% to 5% over asking price.
This all sounds like a bit of “over-exuberance,” and the housing bubble blogs are running with it. Interest rates are their first and major point in predicting problems to come. Rates in the last three months have risen around a full point, to 4.5% or so. The Fed has constantly been assuring the markets that they have a handle on this and will keep rates down, but the bubble bloggers believe that the Fed is losing control of mortgage interest rates, and they expect more significant increases.
With the low inventories and high prices, it’s historically low interest rates that fuel buying pressure. Low rates mean qualifying for a larger and nicer home with lower payments that are necessary when wages aren’t rising. If rates keep rising, bubble enthusiasts believe that buying will virtually stop and another bust cycle will emerge.
Another trend that’s not discussed much is the use of eminent domain by municipalities to control foreclosures and take them off the market. This almost assures a lower buy-out for the lender, raising their costs of doing business which raises their mortgage rates. The good news for investors is that profits were there throughout the crash, and profits have been in the markets in this “recovery.” It’s simply a matter of changing investment strategies.