All Real Estate, All the Time

[kalian]

http://www.lewrockwell.com/orig3/blumen4.html

One challenge that has been issued by critics is the likelihood of an excessive accumulation of debt. Only hard-core skeptics question that home owners can perpetually refinance and extract home equity from their rising home prices. However, a growing chorus of doubters has raised the issue that increasing debt levels will limit the long-term growth of the economy.

Past generations of home owners looked forward to the final payment of their mortgage debt prior to their exit from the work force. Of concern are the following trends: in recent years, home equity as a percentage of home values has sunk to an all-time low, in spite of the aging population of baby boomers nearing retirement, several consecutive years of strongly rising home prices, and a period of record-low interest rates.

(snip)

The mainstream economist responded to these charges. "Home owners can simply extract equity from their home by refinancing and use the cash they take out to pay the difference between their income and their mortgage." Home owners extracted $491 billion of equity from their homes last year according to the Wall Street Journal. "Home owners are already using home equity from refinancing to meet ongoing monthly expenses," he continued, "It is a small step forward to start using these funds for the mortgage itself."

He continued, "Those worry-mongers who are always complaining about debt are laboring under the quaint notion that debt is supposed to be repaid. The purpose of going into debt is so that you can acquire more debt in the future. Governments have known this for a long time, but in a democracy, why shouldn’t ordinary people be able to take advantage of this as well?"

...more...

This one is an "OMFG!" :wow:
This is why the US is in such deep shit...

[yardwork]

1. I thought this was debunked in the 1980s?

"Those worry-mongers who are always complaining about debt are laboring under the quaint notion that debt is supposed to be repaid. The purpose of going into debt is so that you can acquire more debt in the future.

Um, thanks but no thanks. I think I'll just go ahead and pay off my house anyway, so I have someplace to live just in case there is no social security or health insurance for me when I retire, you know?

[kalian]

2. Exactly....

but unfortunately, the US consumer has such a severe case of
"affluenza" that there's no stopping this race to go over the edge
and into the abyss...

[papau]

3. Banks that made loans "safe" by lending 100% plus the first two years

payments

Then revaluing the real estate to reflect the added value that the loan brought to the deal.

Yep - we did that - and S&L's went under - but who in the GOP remembers more than "cut taxes" and "Reagan" (they always forget the 14 month deep recession that followed Reagan's tax cut in Aug 81).

[54anickel]

6. Didn't Raygun also have the sense to back off on his 2nd proposed

tax cut? Not to sing praises of Ronnie, but I thought I read that recently somewhere. Raygun backed off on the 2nd tax cut while Shrub pushes ever so hard to make tax cuts permanent.

[papau]

7. Dole went to Reagan in early 82 re the recession that had started

Without Dole, the books under Reagan would have destroyed the nation.

By agreement with the Dem's, there was no "reverse the tax cut" talk in 82 to 86 - each tax increase bill was a "fairness" bill.

[54anickel]

9. Thanks Papau, I remember reading something to the effect that Ronnie

somehow backed off, guess it wasn't exactly his idea though.

[ramapo]

11. Revenue enhancement was Ronnie's favored term

He never raised taxes...only revenue

[FloridaPat]

4. Rumor has it that what little growth the economy did during

the last 2-3 years was financed by homeowners refinancing their homes. If true, can you imagine how bad things really are?

[kalian]

5. Yup...

and how bad the fall will be once the numbers come rolling in?
Let me tell you, I strongly believe that they're hiding and lying
their way into the elections. If they lose, they can blame it on
the dems...
If they win, they'll blame it on another "stage event". Either way,
we're all screwed.

[54anickel]

8. OMG! I kept thinking I was going to find a disclaimer "Just kidding"

I guess he's just kidding on the square! They can't be serious! If this joint continues to rise in value as it has the last couple of years I won't be able to afford the stinking property taxes on it anymore.

This is where we want to stay and retire, we've built a beautiful woodworking shop in the back, put on a nice completely handicap accessible addition (was originally built for my parents - both have now passed away).

Sorry, but this economic plan just SUCKS! These folks have been playing in the derivative markets for far too long. Now they want us to "derive" a living from the rising value of the asset of our home. What happens when you loose your job and can't make the payments, you sell the bank gets all the money since you financed 100% of the joint and you're out on the street.

Unfriggenbelievable!!!

[kalian]

10. Precisely right....

you will become their slave. Its rather quite simple, really. :)

[abelenkpe]

13. a co-worker of mine

recently called his mother who is a real estate agent to tell her that he getting ready to buy a house. He thought she would be happy for him. Instead she yelled at him and told him not to even consider buying a house right now. She said that in two or three years he would be able to get a foreclosure at a good price. I doubt she would have admitted this to anyone other than her son. So I believe you are absolutely right that it is not a good time to accumulate more debt. I hope you can keep your house! It sounds fabulous, much like my parents place.

But now that I've read this thread I am worried about another one of my co-workers. He has refinanced several times over the past couple of years. He will most likely be out of work this summer (we are all getting laid off for a minimum of two months, some with guaranteed work in August, others with just a promise to call them in November) and he has a family of four to care for. He has been thinking about dumping all his stock and using that money to pay down his mortgage or actually refinancing again and using that money to put towards his mortgage. Do you think it would be best for him to just hold off?

Also, how do you think the real estate market will effect the price of rentals? Right now, landlords are asking for insane amounts of money. For instance I looked at a three bedroom recently where the landlord was asking 2300.00, and I said I'd give hime 2000.00. The apartment has been open now for four months. I keep hoping he will change his mind. Would a downturn in the real estate market increase or decrease the cost of renting an apartment? Any advice would be greatly appreciated.

[rapier]

14. notes

I don't give anyone advice. Besides, I am poor enough that only a fool would follow it anyway.

I don't even give it to my family. You can't even give it to your co worker.

But... selling stocks to pay down the mortgage is way silly. Not because selling stocks is bad, I think that is a good idea but because it leaves him with no cash cushion. He might end up having to borrow it back with a home equity loan. How silly. Point this out to him. Sell the stock if he wants the cash or sell as he has to but don't pay down the mortgage just to build equity which he may then have to borrow against later. That is just nuts. Paying down the mortgage does nothing for his cash position.

As to rents: in many areas of the country rents are falling as anyone who can is now buying. Vacancy rates in many areas are at decade or longer highs. That guy with the 4 month vacancy is just stubborn, no matter what area your in.

The hot housing market is bad for rentals and the reverse should hold as well.

Related to both do a bit of study. Find the rental prices on some single family homes then guess the market price of the house and figure what the mortgage payment and taxes would be. I bet you'll find that the rent is lower. That means the houses are too high. Your friend probably has no equity so mentioning that he sell would probably get you punched out but looking at it this way, renting while having an opprotunity cost loss of not getting more appreciation if housing continues to rise, is actually a good deal now. This is for single family homes I am speaking of. Apartments are a different matter but as I said they are actually falling in many areas. Stick to your guns and negotiate with renters.

[rapier]

12. The housing economy

Funny article which explores the logic of the housing bubble, and the stock bubble too.

It must be stressed that in classic economic thought it was always a given that asset inflation was NOT wealth building for the economy as a whole. In fact it ususally leads to wealth destruction. This is all old school now. At least until it isn't.

http://www.dailyreckoning.com/home.cfm?loc=/body_headline.cfm&qs=id=1548

Click second entry in left frame. "Sings the Housing Economy...."