Interesting (and scary) aspect of the housing bubble (Seniors in trouble?)

[Roland99]

Peter Viles was just on CNN and said something I don't think I've heard mentioned re: the housing bubble so far.

He was asked who was buying these million-dollar homes?

His response was that many Baby Boomers are cashing in on the equity in their older homes and converting that into buying these more expensive homes. The scary part is when the house prices crash (as they are already starting to), these people will be out a large chunk of what used to be equity (an asset). Odd he didn't mention the plethora of interest-only loans.

[BlackHeart]

1. To me the bubble means

an end to spiraling prices, not a drop in prices. Although I imagine that could happen in a few locations.

[Roland99]

2. Oh, they are dropping in several key areas

Boston, Los Angeles to name two biggies.

I'm seeing prices drop as homes become more stagnant even here in Louisville.

[teryang]

3. This is interesting because people are afraid to cash in

If you have a home with a dated mortgage, for example in the $900 a month range and you sell to get the substantial equity you have two options. One, get an apartment that is much smaller but meets your needs for higher monthly payments. Two, buy another home and pay higher interest, higher taxes, and much larger monthly payments.

This is why the inventory of unsold homes is piling up. The mobility of the population (i.e. commerce) is stagnating. It's a manifestation of stagflation.

[Roland99]

4. Actually, apartment rents are dropping, trying to compete w/low int. rates

An apartment complex where I lived back in 1997 was about $625/mo. for a large 2BR/2BA back then. It had gotten up to $850 just a few years ago but I was back in one two years ago and was only paying $660/mo.

The complex I'm in now used to charge as much as $1,200 for the largest 2BR apartments. Now those can be had for $800-850/mo.

[teryang]

7. I guess it depends on the local market

Where I live, people who could "cash in" by selling their homes can't replace them with anything near a reasonable substitute without taking a beating.

I do agree that many experts say that one should consider cashing in now, renting, and coming back into real estate market later. It doesn't work where I live and it is a common topic of conversation.

[no_hypocrisy]

5. Who's buying these million dollar homes? In northern NJ, it's

folks with 6+-figure incomes who find living in a modest Cape Cod to be degrading to their income status, and proceed to tear it down and replace it with a McMansion. The only thing they don't include in their estate is good landscaping and a moat with alligators.

[Quakerfriend]

6. Yes, I am trying to sell my mothers property which is

just outside of Philly. It is in a very popular area that feels like the country but, is only 15 minutes outside the city. Great access to everything. And, the house is in pristine condition.

It has been on the market since Nov 05 and we have received 2 offers- one was 200K below the asking price and the other was for 120K below.