Second crash--what will happen with the housing market?

[sugaki]

So I'm a big fan of Peter Schiff, and I was saying for a decade that the housing was destined to crash.

I've also been saying we're heading into another fall, like Schiff. Obviously, Schiff is a lot more knowledgeable and keen than myself.

One thing I'm not sure of is what to do with housing. I'm pondering on buying a place because interest rates are rock-bottom low, and taking advantage of FHA.

On one hand, housing is destined to decline due to increased unemployment, banks being unhealthy, construction being down, and housing never really recovering from the first crash. So that indicates prices will go lower.

On the other, Bernake can't sustain these low interest rates, so a drop in housing prices may coincide with a giant spike in interest rates, especially when lenders realize that the US can't pay back its debt. The US will either implement draconian cuts (ala austerity)--which is unlikely due to people refusing to believe spending is the issue; or they'll print more money and do even more QE's, spending sprees, etc, which is far more likely.

Either way, it looks like interests rate will shoot up, and it seems to make sense to get a 3-3.5% fixed-rate mortgage now instead of a 10-20% mortgage rate later down the line. Thoughts?

 

[wgadget]

Buy something with cash. Can't go wrong.

 

[dannno]

They will hold their value much better than fiat currency.

 

[emazur]

I believe Schiff always says that you SHOULD buy a home if you actually intend to live there and are not using it for speculation. If I recall, he may have said the home loan could be considered a hedge against inflation. But why not call up his radio show and ask him what he thinks now. Recently, he started accepting Skype calls in addition to regular calls to his show. Or, you could become a Schiff premium member for just one month (costs a little bit of money but they may still have a free trial offer) and ask Peter on his message board - I've heard he is quite responsive to premium members.

Consider this: if housing crashes again, you may lose value on your home but it balances out b/c you would have also lost money by the increase in rental prices. In 2009 in OR, I was paying $590/month, and after a 1 year lease expired I started paying $630/month, and come renew time (April 2012) they wanted me to pay I think $680 or $690/month. According to this article, rents did decrease a bit in 2009 but rose steadily after and that: http://realestate.msn.com/article.aspx?cp-documentid=28001698

According to Axiometrics, an apartment-market research firm in Dallas, 2010 was one of the best periods for landlords in the past 15 years and may mark a turning point in the short term.

My interpretation: the Fed and Congress have done everything they can to keep housing prices artificially high after the housing bubble popped in 2008, so they are destined to fall significantly again when truth meets reality. Experience has shown that home owners will abandon their homes when they go "underwater" (value is less than the mortgage), but they will stay in the homes as long as the law allows (which usually seems to be several months or more) and after they get the boot they turn to rentals and as vacancy rates go down, rental pricing goes up.

So if you don't see your home as an investment that you'd abandon as soon as it went underwater (remember, it could rise again later) and you intend to live there for the long term, it probably wouldn't be a bad idea to buy a house while interest rates are low. Just my 2 cents

 

[LibForestPaul]

Commercial is time to collapse.

 

[cubical]

20 pieces of gold or 500 pieces of silver will get you a decent income producing property. IMO anyways.

 

[Indy Vidual]

In some areas property taxes will kill your investment.
Prices will eventually go up, but how much will the dollar be worth?

 

[Steven Douglas]

In some areas property taxes will kill your investment.
Prices will eventually go up, but how much will the dollar be worth?

The worst part about that: property taxes and those who suckle from and depend upon them are deliberately and proactively insulated from monetary devaluations, with rate increases that often far outpace inflation and GDP. It doesn't matter what prices rise in the future, as property taxes are singularly unique in that regard. The parasites who operate in a market vacuum with a callous disconnect from truly productive people will adjust assessments, valuations, mill levy rates, etc., according to whatever government spends, or thinks it "needs". Tell me that kind of inflation-proofing doesn't tickle their sensibilities.

No problem, though, if you're well-healed and/or politically well connected with staggering amounts of land, as you can always get an exemption -- quite often without anyone knowing about it, as North Dakotans have been learning/ignoring the hard way.

Definitely steer clear of the property-tax "friendlier" states.

 

[oyarde]

Tax ticks .

 

[Zippyjuan]

If you are intending to stay in it for several years or longer and can afford one, go for it. And be sure to lock in your interest rate- don't even think about anything adjustable- especially when rates are so low as they are now. Once you buy, you are locked in except for property taxes but if you are a renter and property taxes go up- your rent will likely go up as well as the person you are renting from will want to recoup his higher costs. And also once you are in, don't worry about what the prices of houses does. Unless you are selling, it makes no difference if the price your neighbors pay goes up or down (in some places though people spending more for homes may cause your state to decide to raise your property taxes as well- I live in California and they are limited to a maximum of 2% increases in property taxes unless the property is sold). And once the property is paid for, that (rent) is an expense you will no longer have (again aside from property taxes which should be considerably cheaper than rental rates).

 

[sugaki]

I appreciate the advice.

I'm definitely getting a fixed-rate mortgage (likely 15-year to make interest lower). I live in California myself, and rental prices have gone up so much now that it's pretty even with mortgage prices. This wouldn't be to flip a house, but to live in. Sounds like it's a good time to buy, thanks!

Speaking of property tax, it's killer here.

 

[jbauer]

Sister got a 30 yr at 3.75% in June. Buy the house if you think your income is stable.

 

[Zippyjuan]

My thoughts on going 15 vs 30 on my mortgage. I could have gone 15 but it would have been tight though affordable. Instead I went with 30 feeling it would give me more financial flexiblity should I encounter any economic challenges- which I did when my company went on strike for five months. That sucked in many ways but having a lower mortgage payment allowed me to get through that time without falling behind on the mortgage. In good times, I have been making extra payments to reduce the balance quicker and also reduce total interest expenses over the life of the loan. I should be sending in my last payment in November- in actually a bit under even 15 years since the original purchase (I refinanced twice too to get a lower rate).

And one nice thing about CA property taxes (if one can say something nice about taxes) - they don't shoot up if people around you start paying more for their homes- potentially pricing you out of yours.

 

[Brian4Liberty]

My interpretation: the Fed and Congress have done everything they can to keep housing prices artificially high after the housing bubble popped in 2008,...

They have constrained supply as much as they possibly can. The result is now many, many more homes occupied in essentially squatter status. People who have stopped paying their mortgage, and an expanding number of traditional squatters who just move into vacant homes. Nature hates a vacuum.

 

[Seraphim]

This.

Commercial is time to collapse.