Wednesday, October 01, 2008

Real estate bubble?

From this blog, July, 2006.
Anybody listen then?
I couldn't resist reposting....

The raising of interest rates on millions of adjustable rate mortgages over the next several years has all the makings of a classic horror story.

Is there a real estate bubble?
Google for yourself and see what others are saying. Money Magazine gets extra points for grabbing the most obvious headline, "Bubble Trouble." Great rhyme.

HenryCopeland posting at blogads caught this NY Times snip.

On a personal level, however, there is going to be pain as homeowners struggle to make higher payments. In 2003, of all new mortgages, 10.2 percent were interest-only, meaning the homeowner paid only the interest for the initial period of the loan. According to Loan Performance, a research firm, 26.7 percent of all loans were interest-only last year and another 15.3 percent were payment-option adjustable rate mortgages, which allow homeowners to choose how much they paid each month.

In some areas of the country where homes are expensive, these loans were highly popular. In most California cities, as well as in Denver, Washington, Phoenix and Seattle, interest-only loans represented 40 percent or more of all mortgages issued in 2005.

Traditionally, interest-only loans and adjustable-rate loans were used by people who expected to live in a house only a short time, but such loans have turned into “affordability products” as housing prices rose. The interest rate on the loans, while below that of conventional 30-year fixed-rate mortgages at the beginning, resets after 3, 5, 7 or 10 years, depending on the loan. So, homeowners who took out loans in 2004 could find, for example, that their initial 4.25 percent loan climbs to 6.25 percent or 7.25 percent next year.

Someone now paying $350 a month for a $100,000 interest-only loan could be facing payments of $680 both because of the shift to the higher rate and because the borrower would have to start paying off the principal as well as the interest.

Pay me no mind. I'm just an old guy playing with his blog.

Lots of people seem to be paying too much for property based on the Greater Fool Theory.

'Nuff said.

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