by Dvanharn » Sat 07 May 2005, 15:50:00
$this->bbcode_second_pass_quote('', 'K')en Rosen, chairman of the Fisher Center for Real Estate at University of California-Berkeley's Haas School of Business, believes something less than an economic disaster could cause big problems for some buyers entering the market. He's concerned that the combination of low interest rates and easy loans has artificially pushed up prices, and lulled consumers into a false belief that home values only go up.
That is reflected in the dramatic increase in interest-only loans, which usually become adjustable after five years. Their popularity jumped in California from 1.43 percent of all new mortgage loans in 2001 to more than 47 percent originated last year, according to LoanPerformance, a mortgage data and analytical company.
The 5 years before interest can go up is a cushion, but some most of these buyers are getting the interest only rates because they cannot afford a loan with interest plus principal payments, even at the adjustable rates. I suspect many of them are "flippers" looking for a quick profit, and who may end up bitterly disappointed and bankrupt if they don't get out or real estate soon. However, the tough new U.S. private-citizen bankruptcy laws have been put in place just in time to make it tough for people to escape. Ssome young mortgage holders may be shackled with "permanent" partial payments as is allowed under the new bankruptcy laws. Interesting times ahead!!
I will likely get some funds from an inheritance when a house and a condo going on the market this month are sold. The market is still going up here in Sonoma County in the Northern California wine country, and prices are up 22% over a year ago. The average home price in this part of "wine country" is about $600,000 (median price is a little over $500,000). I am a bit worried that the prices might start to level off, and the estate's executor could end up chasing the price down. OTOH, this is a "desireable" area with limited RE inventory, and many people are looking to buy before the interest rates get too high.
Either way, I will put my share of the proceeds in what I determine to be the safest, non-speculative investment (now there's a challenge!), and hope to draw on the investment to supplement my retirement income.
I have considered moving to another state where the cost of housing is less (the city of Corvallis in Oregon's Willamette Valley), but at age 63, I really want to stay in this progressive, green, semi-agricultural area where most of my friends live.
Dave