10 KEY CHARTS TO SEE BEFORE YOU BUY A HOME.
Michael David White is a mortgage broker in Chicago.
Thanks for carrying “10 Key Charts to See Before You Buy A Home” to:
Bloomberg.com, Business Insider, Implode.com, Mark Martinez Show, MortgatgeNewsClips.com, Patrick.net, Richmond Times-Dispatch, Seeking Alpha
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Excellent article with graphs
thanks
Thanks Michael. This is good stuff. I posted on this again, with all due credit tossed your way. I’ll be discussing this on my next radio program (my next book will probably include this stuff too).
Please add me to you regular New Observations updates
Excellent information. I’ve been a real estate broker/investor for over 30 years. I’ve lived through four down markets in real estate and this one is the worst. The bigger the boom…the bigger the bust! Everything tends to revert to the mean. Buyer beware…the risk/reward ratio appears to be skewed much more to risk than reward.
if you look at these graphs, it’s hard to recommend a purchase right now.
Michael,
Do you have charts or sources for information that will show me how much of the mortgage market was government funded/secured over the years? I am trying to see links between the rise in Fannie Mae, Freddie Mac, and Ginnie Mae mortgages as a percentage of total mortgages and the current value of the properties financed.
Thank you. I appreciate the information you have shared here.
Tom Vail
The best work out there and it’s all in graphs: An Overview of the Housing and Economic Crisis
– and Why There Is More Pain to Come by T2 Partners LLC.
Hit this link:
http://blog.valueinvestingcongress.com/t2partners/T2_Partners_presentation_on_the_housing_crisis_10_20_09.pdf
Great article!
There’s so much evidence suggesting the pressures that caused the world to blow up in 2008 haven’t ceased. Maybe we don’t have another bank blow-up, but that’s only because the banks either no longer exist or are fully supported/owned by the US government. Meanwhile, regional banks are failing every day.
The only/easiest way out of this? Inflate asset prices. Sooner or later, enough money will be printed to generate enough inflation to prop up house prices.
The fundamental issue is debt. The debt outstanding today is basically the same or higher than what we had going in to the crisis.
Bought A house in Sept 2007 in McKinney Texas in Sept 2007. If we had to sell today would lose $ 50,000.(Includes selling and Closing fees.)
Sounds difficult. Send me an email if you would like my suggestions. mdw
The only problem with all your graphs is that they do not break markets down locally. For example, in Las Vegas, the inventory has shrunk so much that prices are actually going up in some categories. Condos that were selling for $100k are now up about $5k.
Nevada State law now mandates that a lender must agree to mediate with a court appointed mediator before foreclosing, providing that the borrower applies to the court. This has slowed foreclosures.
Rumor is that B of A is developing a rental program for their foreclosures in Vegas which, f true, will deplete inventory further. There are multiple offers on a great percentage of listings out here and lots of cash buyers. Rental income for investors is higher now than mortgage payments.
I’ve been a full time Realtor for 24 years. This crash is my third. With the number of foreclosures out there, rentals are in demand. Afterall, when Joe 6 pack walks away from his house, he still needs somewhere to live, right? Every crisis provides opportunity and this one is no different in that respect.
Absolutely correct. The national market trend is just a starting place. The local trend is much more important for making a home-purchasing decision. Thanks for your note. mdw
Great research !!! Please add my email to your list for New Observations etc…
Will do. Thanks for your note. mdw
you are right. We are very much underwater on a good sized rental property. As long as our 2.5% interest only 2nd mortgage doesn’t go up and as long as vacation rentals keep up, we can make our payments. But it would be so much easier to walk away and have all of that cash to put in something else. This is on top of our losing 3 businesses during the downturn.
Sorry to hear about those difficulties. I hope you will write out a list of “why you should” and “why you should not” default. It probably will make things simple to see. Thanks for your note. mdw
I just don’t have to much hope in this U.S. market today. I’m thinking about how much work I have put into it ,and It looks as if I’m not going to get any thing in return till I,m 70. I herd of it from my grand father that people were jumping from building back in that depression. This depression is far worse and does not look too, or sounding to get any better until 7 yrs from now. home to a lot of people will be a casket. crash market.. Thank you for the Grate American dream I got to live for.
Please remember there are many different ways for you to handle your finances. There may be an easier way to manage your bills. Ask somebody who understands money to review your income and expenses. I am in the office a lot and would be glad to review it with you. My phone is 312-919-8800. Thanks for the note. mdw
Great Research. As a veteran of the industry, I can tell you 2 anecdotal reasons that you are right.
1) We (GMAC) wrote trillions of mortgage debt in Payment Option Arms. At the peak of the housing bubble in 2006, one in every 5 mortgages we underwrote were POA. Those typically have a reset of five years or 125% LTV. Those mortgages will be forced to reset to fully amortizing in 2011 or sooner. Foreclosure City come alive. Housing prices dive.
2) Inflation. It will raise its ugly little head by 2011, after the US Gov’t and Fed run out of money to throw at mortgages. As the mortgage rates rise, the affordabilty will fall and consequently the housing prices will fall as well.
It will be very interesting to see if and when the US government will extricate itself from the mortgage market. They make the loans. They buy the bonds. Isn’t that like stated income? Thanks for your note. mdw
I know this is grossly oversimplified, and the MBA’s will have a million reasons why it’s wrong, but… I have used it for years, I am not upside down, I am not filing for bankrupsy and have never defaulted on anything, and retired at 52.
Take the selling price of the property, divide by 200. If you can not rent the property out for that, just keep walking! Example: $350k/200 = $1,750/month
If the the surrounding market will support this rent, then buy it, if not pass.
Simple rule… You say what am I supposed to do if EVERY property is priced way to high? My advice is SELL SELL SELL and put your money in something else and buy back later when the situation reverses. You say, that might take 10-15 or 20 years! Yup you are right. Patience, not greed always wins in the end.
I bought a house in Sacrmento a few weeks ago for $118,200 that I sold 26 months ago for $340,900. (The house rents for $1250)
Thanks for the rule of thumb. And thanks for the investing advice. It’s a winning formula. thanks for your note. mdw
So is this in fact a good time to buy a home or not?? Some people tell me it is and my mother tells me it is not.
Generally speaking, I think it’s a bad time because the risk-level is very high on so many factors. If you don’t mind buying and then having your house fall in value 10% or 20% or 30%, then go ahead. Make sure you can live with that. Thanks for your note. mdw
Want a real estate boom? Move to Canada. In Toronto prices are up 20% yoy (after doubling between 2002 and 2008) and listing your house in a good neighbourhood will see multiple offers / bidding war. Nationally prices are 7.5 times household incomes and heading nowhere but up. I am truly envious when I read about how you can buy houses for $100K in many parts of the US – that’s the 20% down on an ordinary home here!
Sounds like they are screwed and backwards up north. We have lots of room down here. Thanks for your note. mdw
So where would you have someone with $250k spare cash hold their money? I cant invest in real estate, because it is going to crash harder. Stocks are up one day, down further the next, so I am staying flat on stocks. CD’s are paying 3% if I lock in at 3-5 years.
Advice?
Gary
Risk is high all over, but I am not qualified on where money should go. I like Bill Gross. If there’s a cheap way to way to use PIMCO, where he manages money, consider it. thanks for the note. mdw
Advice?
Gary, I don’t have any “advice” for you but I can relate some recent history.
A couple we know sold their “spare house” in Las Vegas in 2006 and walked
away with $260K “spare cash” from that bubble deal. Not seeing any good
investments of the uber-risky paper variety, they elected to go with the
oldest, most conservative, most traditional way to store their “spare wealth”.
They kept it in cash but not in paper cash. They put it in metal cash from
the U.S. Mint – gold and silver coins – American Eagles to be exact.
(He’s a retired pilot with airport access so they
can take advantage of free U.S. Gov’t security!)
Call up 10-year gold and silver graphs and observe the 2006-2010 prices.
Look back to 2004 and see where I did the same thing but not in Nevada.
Hmmm, I see where the Mint is out of stock – for the third time in 12 months.
You may have to wait until next year if you decide to go the traditional route.
Apparently demand is much higher than expected over an extended period.
I have to tell you, that real estate jungle was driving us batty. But that was
then and this is now and we are quite pleased at how things are working out.
Maybe in 7 to 10 years some of us will rotate back into the real estate sector.
Others may want to buy some acreage for a nice little ranch. I may do both.
I think I will call my ranch Downtown Austin.
I am a bankruptcy attorney in Maryland, the District of Columbia and Virginia and we also handle loan modifications. From a financial standpoint, it makes sense for many people who are behind on their mortgage payments to file for bankruptcy relief and walk away from their houses since the lenders will rarely modify the loans to the value of the houses. I routinely see clients that are 100k or more underwater and behind on 1st and 2nd mortgages. After bankruptcy, many could qualify to purchase a house again in as little as 2 years and come out ahead.
Sounds like a good plan to me. Thanks for the note. mdw