Am I a bastard for waiting to go house shopping until the bubble bursts?

[iconoclastic cat]

Am I more like an opportunistic infection than a good consumer?

Here's the story: in Chicago, the housing market has gone totally insane. Homes that sold for 150K when my wife and I were kids are now going for 700K or more. Since Mrs. IconCat and I are both public school teachers (and I've been laid off, but don't worry, I'll get a gig), we won't be able to afford anything over 270K, which makes it hard to find a good home.

We were all set to say, "To hell with it!" and buy a condo in an area that we knew would appreciate by the time our little IconBaby (Ana) gets here in November. Now, however, many of our friends are telling us that there will be mass carnage in the housing market very soon: the bubble will burst, and all these people who have been paying interest-only loans and borrowing on home equity up to the hilt are going to be nailed to the wall.

The prevailing advice to us is that we wait until the bubble pops and buy a house from one of these poor people who have now lost their asses. On a personal level, I find this reprehensible; but I also know that by the time that the big crash happens, Mrs. IconCat and I will have both a new baby and enough saved to put 20% down on a 370K place (if my math remains fuzzless).

I guess that no matter what happens, I'll feel guilty for taking advantage of the mess that Shrubco has wrought. I'll feel like a Republican.

Edited to add: This is, of course, assuming that a bubble actually exists in the Chicago housing market. I am currently reading evidence on both sides.

[Tace]

1. Nothing Wrong With Not Getting Suckered In The Market

And nothing noble about getting suckered. Keep in mind, however, that when housing prices decline, it likely will be the result of rising interest rates... so your net monthly payment on the same house may be similar.

That said, I'm no expert. That's just my understanding.

[iconoclastic cat]

3. You're right, the monthly payment will be similar,

but in the end, we'll still be able to afford a lot more when the bubble bursts than we could right now.

Yeah, I'm no expert either, but I know a lot of self-styled experts who haven't steered us wrong yet.

[AtTheEndOfTheDay]

46. And don't forget

that you're higher interest rates in the future can in turn be renegotiated at an even later future when rates are down again.

[Blue_In_AK]

84. Right on. I did that (see my post below)

Refinanced just a couple years after I bought the house and lowered my monthly payment by $200.

[K-W]

39. How is higher interst going to produce the same rates?

Shouldnt it produce higher rates?

[Orangepeel]

44. I think that Tace is saying that after the bubble bursts

it will cost less to buy a house, but more to borrow the money to do so. So, you might end up paying roughly the same per month on a 30 year mortgage, but less of it will be principle and more will be interest compared to today.

[DawnneOBTS]

2. You shouldn't feel guilty at all

Look, we are the ones getting screwed by Shrubco right now. Do you think they could care less about putting us into the poorhouse? They could care less if we were all living on the street. Taking care of your family should be your #1 priority.

[unhappycamper]

4. Nope. This is what the Japanese and Chinese will do. n/t

[Demit]

5. I don't understand why you would feel guilty.

Didn't you always used to try and make sound financial decisions, even before this maladministration ascended to the throne?

[iconoclastic cat]

8. Sure, I try to make sound decisions.

I research products and the companies that make them before I buy anything. I recycle. I don't buy from big chain stores. I donate money and time whenever I can.

My guilt comes solely from the thought that I could be buying a home from someone who is selling it at a loss, and I'm doing it simply because I have the advantage. Ick.

[BiggJawn]

17. Do you think these peole felt guilty while they were inflating YOU out...

...of the market? Of course not. They were all "Hey Honey! the house just DOUBLED in value AGAIN! Let's Re-Fi and go to Curacao this time with the money!"

It's the Market. It goes up, you get screwed, it goes down, the OTHER guy gets screwed.

Not your fault the other guy thought he was a high-powered Reaganite Real Estate Mogul. I would NOT allow him to jump off your roof at closing, though...

[CrispyQ]

18. Someone is going to buy those houses at bargain basement prices

it just as well be you. And like Stephanie below posted, when the buyers dry up, the sellers will be grateful to find a buyer.

We were in the desperate sellers position in '86 & sold a house for the cost of the loan, $120k. That house is now valued at approx $600k. Someone made a nice chunk of change, but we were just happy to get out of it.

[Stephanie]

6. I don't know anything about real estate, but ethically...

If those people get in over their heads and have to sell their house, they are far WORSE off if there is nobody to buy it, aren't they?

[TreasonousBastard]

7. Don't bet on a massive crash...

because just about every financial and commercial institution will be fighting it.

Truth is, the bubble pretty much has to be maintained because if it bursts, it takes the whole country down. No bank wants to sit on a pile of uncollectable mortgages, or hold real estate worth less than what it loaned. Or find out how the new bankruptcy law REALLY works.

The way I see it, the ony way there would be a huge crash is if something else were to cause it-- like 25% unemployment. Right now, people are stretched, but are able to cover the bills. Unless a large percentage of the population just gives up, prices stay high. It's all supply and demand.

And, if there is this big crash, what makes you think either of you will still be working? No job is safe in such a crisis.

Regionally, there have been crashes, and could be more, but they don't last long.

[iconoclastic cat]

10. Very good points. However, the Chicago housing market is unsustainable.

These prices cannot go on forever. While I agree that there may not be a huge "crash," I do think there will be a regional drop--that region being Chicago--in housing prices. Please keep in mind, though, that this concept is one that I am hearing from many other people who seem to know what they're talking about.

[TreasonousBastard]

31. Dunno anything about Chicago, but...

I have watched several cycles in NYC, and even after 9/11 real estate didn't crash and burn like the towers did.

You see the Jeremiads about how co-op prices are dropping like stones, but then realize it's maybe 10% tops in some types of units. 10% could be considered the fat in any pricing in a volatile market, so that's no big deal. Then prices start rising again.

Same thing here in NJ, where some heighborhoods were hit with overheated demand, and then adjusted a year or two later. The papers were full of stories about mortgage debt more than equity after the adjustements, and all the rich homeless-to-be. Everything eventually worked itself out and prices started their noirmal rise again.

There has, so far, been a large enough group of owners who could keep their places off the market if they chose. Like any market, sellers may take a profit if they can, which will cause a fall in prices after a while, and the last in line can choose not to sell when the price drops too much.

Another small thing, which may or may not be relevant, is that many companies subsidize employees moving expenses, including home sales, when they transfer them. Here in NJ, this has helped spike RE values when people didn't have to take a big hit when they moved out and several companies moved thousands of people in.

I remember when Weichert worked with the relocation companies to move a bazillion Upjohn employees to NJ when Upjohn was bought out. Weichert had no interest whatsoever in these people getting reasonable housing, but sent them all to the new, and expensive, developments in Hunterdon County. Not one person had been told they could buy a decent home in Union County for half the price at the time.

[Arugula Latte]

54. "Unsustainable" -- not necessarily

I mean, look at California. A four-bedroom, two bath house, just a ranch, nothing fancy, that I grew up in cost about $40,000 in 1970. Today that house is probably worth $850,000. We kept saying, "This can't go on forever," but it's been 35 years and prices have never gone down, not once.

It's not like people are suddenly not going to need a place to live.

[Phoebe Loosinhouse]

69. California right this moment has an affordability index of 17%

Meaning only 17% of the population can afford to purchase a home at the median. Say your words over again, "a 4 bed 2 bath ranch, nothing fancy - $850,000." That is a big problem.

FYI There is one historical bubble that never corrected. To this very day, Japanese real estate has not hit the highs of the mid eighties.

[evolvenow]

71. That plus the fact that adjustable/no interest loans will rise...do you

see CA housing going down? I have been trying to buy for a decade and it is just insane. It is so beautiful here and I have heard that foreign investors are buying in addition to locals, I am concerned that if I wait, a 1 bed condo will be considered a bargain at 600,000. Bananaland!


Welcome and thanks for your great posts!:hi:

[iconoclastic cat]

14. I've started looking around the Internets, and you may be a myth-buster!

Hmmm...perhaps this bubble thing is hype-within-hype.

[leesa]

27. It can't be maintained because people's wages aren't keeping pace

Also, people are losing wages entirely. There is no way the market can sustain this.

[barb162]

32. then explain the Los A ngeles and San Fran markets

[K-W]

41. Its called a bubble.

People can afford to buy the homes even without higher wages because of low interest rates and almost garunteed returns on thier investment as the bubble grows, but this cycle cannot sustain itself.

[barb162]

76. It sure is one lonngggggggggggggggggggggg bubble

[K-W]

85. It doesnt matter how long the bubble took to form, all that matters

is whether there is unsustainable growth in value driving irresponsible financial behavior, ie speculation and heavy borrowing. And other economic conditions might act as something of a needle, even if this bubble is a fairly stable bubble.

[TreasonousBastard]

34. In the long run, you are probably right...

but for now, there are enough people finding ways to pay this ridiculous money for housing that it will keep going for a while.

[K-W]

42. Your confidence is ungrounded.

It very well could crumble very very soon and there is no way to predict it.

[Conservativesux]

61. I cant understand it either. Here in Sacramento they are building houses

all around here like there is no tommorrow, and yet wages are stagnant here, not to mention all the job losses.

How can you buy a 300,000 to 600,000 dollar house when you can barely make it now?

If someone can explain how this is done, I would certainly love to know.

[barb162]

77. I am astounded by it. Even when the tech bubble burst a few years

ago, the house prices in your state didn't really drop very long and not by very much as I recall. It was more a case of the increase in prices didn't go up as fast as they had before the bubble burst

[Conservativesux]

81. Its true. What has happened is that many people living in the SF Bay

area have sold thier homes and are moving to houses in "cheaper" parts of CA, since the Silicon Valley bubble burst, most often in the Sacramento Valley, where the summers are much hotter then in the Bay Area.

I think that is why the price of home here are still high and getting higher, and yet the wages/saleries are stagnent here with many employers dropping healthcare plans for employees.

Where people living here now are getting the $$$ to buy theses expensive homes, many of which are built on flood plains that were formerly used as rice growing fields, I just cant figure out.

[K-W]

40. You dont seem to understand how bubbles work.

Nobody wants a bubble to burst, the fact is nobody is capable of stopping it and you are absolutely wrong that every institution will be fighting it. Financial and commercial institutions will save thier own necks at the expense of working Americans like they have done when every bubble in the history of economics has burst.

You cant wish away overpriced real estate and unsustainable consumer debt.

[TreasonousBastard]

51. You are assuming that this is actually a bubble...

and that isn't proven.

Show me where housing costs have vastly outpaced inflation nationwide (and simple median numbers or particular hot regions don't count).

Classic bubbles, like the South Sea Bubble, Dutch Tulip Bulbs, internet stocks, and other such things occurred when the prices of things with little inherent value were bid to ridiculous highs by speculators. Real estate, otoh, exists, is real, and is in limited supply. It is also being used by people who are living or working in these spaces.

Most people are buying houses to live in, not to flip next week for a profit, and they are paying the bills on those houses. Same with commercial real estate. In both cases, there have been cycles over the years when prices tanked from overbuilding or reduced demand, but the general trend is still up as long as the supply is restricted and the demand keeps up.

As I said before, the general trend is for prices to keep rising as long as people can afford to pay. The crash comes not when the bubble bursts of itself, but when people can no longer afford to pay.

[lastliberalintexas]

52. Even the financial "gurus" concede there is a bubble

Indeed, even Greenspan has said such a thing. The financial sector doesn't really mind a "controlled" crash as much as you seem to think they do. Such a situation means that they are again able to make money off the same piece of property after foreclosure, and they rarely actually lose money on the resale. Some of them refer to it as a "readjustment" or some other euphanistic phrase rather than a crash or bubble bursting, though.

Now, an "uncontrolled" crash is of course another story altogether.

[Phoebe Loosinhouse]

70. While most people are buying houses to live in, approx 1/4 of the

market is investor related (the latest NAR statistics say 23% of all transactions). This is unprecedented. Primarily this is made up of people who are seeking to shift money from stagnent stock market and bond investments. This has definitely put upward pressure on the market as people seek to become real estate magnates. It is different because real estate does have tangible value , but that doesn't mean that these speculators don't exert upward pressure. There is growing concern because this has huge potential for negative outcomes a la the S&L fiasco of the eighties. Fannie Mae and Freddie Mac have HUGE, GARGANTUAN, portfolios they have guaranteed. Bottom line as I see it is to tighten the money flow to investors vs owner occupants in order to bring a slow and orderly tamping down of the market. Appraisals also play a huge role, but that is a whole other story.

[barb162]

78. I just read that Braedenton, Florida prices went up 45% this year

Now with 4 hurricanes there this past year I am just shaking my head people aren't moving out of that sweaty state.

[Phoebe Loosinhouse]

9. There are many, many factors to look at

Number one, the point made by the second poster is very valid - many predict that rising rates will cause dropping prices and historically that usually has been the case. However, Alan Greenspan himself said he did not understand why mortgage rates did NOT seem to be increasing along with the other rates that have risen. I would appreciate it if someone could explain why this has not been the case.

Number two - so much bubble talk may turn out to be a self-fulfilling prophecy if it keeps buyers like yourself out of the market because you have been convinced this is the case. Slowing of demand will lead to rising inventory and that will put downward pressure on prices.

Number 3 - Employment - if you have any kind of major job erosion where you live, that also may cause an increase in inventory while people sell at the perceived high side of the market, or some people may want to take their gains and downsize or move away.

Number 4 - The inflated "investor" market of new wannabe real estate tycoons - some people invest sucessfullly in real estate: they buy well, renovate smartly and sell at a profit. But, you have many new investors who are going in with a friend or partner - they are buying high, overimproving, don't understand capital gains and taxes and things like 1031's, or they are living with negative cash flow , or they have discovered how hellish it can be to be a landlord. Stand by for many of these properties to come onto the market.

Number 5- DESPITE #'1,2,3,and 4, interest rates really are at amazingly low rates. IF you find a property that you really like and can afford and can see yourself remaining in, say for 10 years or so, you should be fine even if the market makes a large downsize correction. Over time, it will march back up and we will start the cycle all over again.

[iconoclastic cat]

11. Yow. That's very interesting. Thanks!

[TreasonousBastard]

23. No one knows the answer to #1...

although there are some interesting theories. The imbalance between long- and short- term rates might have someting to do with it. Most people I've heard just say they've never seen such a thing before.

As for #4, I've been hearing that developers are now leery of the "investor market" and are trying to sell only to those who will actually live in these places. Apparently, there are enough people buying into new housing simply to flip it that it's destabilizing the market in some places. I suspect some of those are the same ones who were overbuying and overbuilding the handyman specials that are becoming harder to find.

[lastliberalintexas]

55. Welcome to DU, Phoebe

As for number one, the best explanation I've seen is that the financial sector has to keep the rates low to keep the housing market going because of the staggering prices. From some I've talked with and/or heard from, I think the financial sector would actually be happy with a so-called "controlled" readjustment, even if not an all out crash. After all, they don't make most of their money on the loan transaction itself, they make it on the interest they earn from the loan.

But at this point, their options are keep rates low and volume high to make a little money, or raise rates and lose the business entirely. Until prices drop, they just can't raise the rates. Heck, too many people really don't qualify for the loans already- there's no way they could loan that kind of money to most people at even higher rates.

[LiberallyInclined]

12. if you're waiting for a chicago real estate bubble to burst-

you're not a bastard, just uninformed.
there isn't a "bubble" in chicago real estate.

[iconoclastic cat]

15. You don't think so?

Please explain.

[LiberallyInclined]

72. i was reading an article a few weeks ago...

but i can't find it now- it was comparing ratios of rents vs. mortgage payments on a per square ft. basis or something to that effect, on a number of housing markets nationwide- if the monthly cost of buying is wa-a-ay over the cost of renting, it 's the mark of a bubble(I'm going from cloudy memory here)...places like the west coast(especially SoCal), upstate NY, DC- all have signs of bubbleage- but in chicago, the numbers aren't all that bad- although in some of the sub-urban areas, like naperville, it might be a different story.

my wife and i have a two-flat in North Park that we intend to put on the market within the next year- we've been here 9 years, and the value of our home has tripled since we bought it...mostly due to the walter payton college-prep magnet school that was built a few blocks away a couple years after we bought and moved in- in it's first year, it was the #1 ranked school in the city. since it's a "magnet" school, it can draw students from all over the city, but 1/3 of the student body has to come from the surrounding neighborhoods- ergo home values around here shot up quick.

we had hoped to get our place on the market by this year, partly due to my fear of such a 'bubble', but we would have been extremely rushed to do so...the more i looked into it, the more my mind eased regarding said bubble, so it's likely that we'll be waiting until next spring to sell. it may be a gamble, but the worst=case scenario would be that we'd stay put.

before any bubble bursts, mortgage rates will have to go LOTS higher, probably even into double digits, and that isn't going to happen overnite. and even IF a bubble were to burst, there are plenty of people like yourselves, biding their time and hoping for the worst to jump in and buy- meaning that large price drops- if they happen, won't last long.

BTW- the next-door neighbor couple are both fairly young CPS teachers, although they have no children- they bought their house several years back for around $280,000, and it'd probably fetch around $380,000 or more now- but they've also put a lot into it.

there are still decent homes in decent neighborhoods that can be had for under $270,000 in Chicago- it won't be in lincoln park, obviously- but NOW is the time to buy- by the time a "crash" happens, IF one happens, high mortgage rates will be a big part of the reason, so it still won't be any cheaper to buy, unless you're paying cash.

[jeffrey_X]

87. Good post...thanks for the info....another Chicago homeowner here...

My wife and I just bought a place in East Village. We had been renting in the Wicker Park neighborhood the past 5 years, but buying there was out of the question. If you've seen what's happened to Division street (west of 90/94), then you know how that area has changed. We got extremely lucky signing a pre-construction contract near the intersection of Chicago and Ashland. It took almost 2 years to build the place, but it was well worth the wait. We just moved in back in December and as of today, we have already gained about $100,000 in equity.

My advice would be to check out craigslist and look for some deals. Also check out some preconstruction deals if you have the time to wait. Put down some earnest money and buy in an area that is up and coming.

Best of luck.

[BagEnd]

20. I don't know Chicago well enough.... but

$150k to $700k "since we were kids" isn't enough information. Lots of markets have done more than that... depending on what that time-frame is.

A house I bought in the DC suburbs has gone from the 170s to 500k in the last five years... has it been more than five years since you were "kids"? :-)

If it has been 20-25 years, that would be pretty normal.

As a general response... there are a lot of "hot" markets out there that might go down a little over the next few years (though the chances of a fall from 700k to your target price of 270k would be hard to imagine). But nationally, the portion of income an average family spends on an average home each month is lower than it has been in a very long time. It's hard to get a "bubble" with the stat.

Try to take "the market" out of your decision. You're not buying an investment, you're buying a home. Go with the traditional rules of thumb. How long are you comfortable living there? How strong are your job prospects (stability and growth)? What percentage of your income would the payment be? How substantial are the tax benefits for you personally?

[iconoclastic cat]

24. Good points. I agree with you on the "you're buying a home" part.

[K-W]

43. Even if that is true,

you dont think real estate prices nationally will be effected by the bubbles that do exist bursting?

[LiberallyInclined]

74. nope.

any bubble-bursting will be a local or possibly regional affair.

and before the bubbles start bursting, interest rates will have to head pretty far north of where they are now, so unless people intend to pay cash, they won't save anything by waiting for the pop.

[Ilsa]

13. Don't feel guilty! Sometimes it is smart to wait. I hope

you get the timing right so you get what you need when you need it. Keep in mind what your priorities are for your home, though. A place to live, affordable, an area that you like and want to raise your child in. You have no control over how the RE market will perform, so if you think it will fall, then you should wait because it is the smart thing to do, for yourself and your lender.

[iconoclastic cat]

16. Okay, so maybe the bubble is mythical. I still have to wait, regardless.

Thanks for everyone's advice! Keep it coming! I'd love some more links, too.

[shrike]

19. You can always come to Northwest Indiana

Don't laugh: a lot of Chicagoans have. Then again, you'll have a VERY long commute and prices have gone up in certain communities here. Though you can still get a lot of bang for your buck.

[barb162]

35. Yes, I have heard houses are really reasonable there and also

in the far south area of Chicago, like Kankakee county.

[LiberallyInclined]

75. BEWARE of property taxes-

a friend of ours got himself a new girly-friend, who convinced him to buy a house near her- i think it was something like Miller, or Miller Beach...? anyhoo- right after he bought, he got the new property tax bill, and it had gone up by something like $10,000...i guess the residents are all VERY PISSED off, and sueing the state over it, or something to that effect- we don't see our friend much any more, as he's in love(and debt, apparently), and he doesn't really like to discuss the tax thing when we do, as it sorta bums him out.

[shrike]

82. Tax situation is messed up, no doubt about it

Although my taxes actually went DOWN (I don't live in Miller.)

Miller, Hammond, Whiting and the communities north of U.S. 30 have been hit hard, mostly because the powers that be decided to shift the tax burden from industry (Where it had been for decades, particularly in Whiting and East Chicago) onto the residents. Which of course benefits no one but the fat cats since they are moving jobs offshore anyway.

There's been a lot of noise over here, mostly by people who don't know what they're talking about, who say residents in Miller, et. al, are paying their fair share at last. What they don't say is that people who DON'T own lakefront property are being taxed at a lakefront rate. Never mind the fact that they can't even see the lake and that there's a crackhouse a few streets over. (Miller is still a marginal area in some parts. Some idiot from the New York Times came in and wrote that people in Miller "living in sumptuous mansions along the lakefront" were obligated to pay their fair share. LMAO!) And that these people are living in older cities, with older roads and older infrastructure, and you can bet they won't get any bang for their buck.



Lots of folk are suing the state, and it's not just the Miller people. The whole re-evalution was done extremely poorly, with no rhyme or reason to it. However, the tax bite did not hit everybody equally. And Miller was particularly hard-hit. I feel sorry for them.

[seabeyond]

21. dont you think that person desperately trying to sell that house

even at the lower price that is going to hurt them, would appreciate the home selling, as opposed to not selling because people feel sorry for them. buy the house, at a good price, and get on with life. and congrats to you future, have a blast with your first little one. lts of exciting times to come

[ellenfl]

22. i am a real estate paralegal here in florida.

i would not buy until this bubble bursts. the time to buy would have been 1-2 years ago. i don't think the price of housing will go down by much when the bubble bursts but i think buying now is foolish. just mho.

it seems that bush's fat cats are using their tax refunds to buy milion dollar houses down here . . . some in cash!

ellen fl

[kittenpants]

29. where in FL are you?

I just bought around Tampa about 6 months ago & now I'm scared! Although I didn't buy a million dollar home & I needed a place to live anyway, I just don't want to get stuck with a mortgage I can't pay off of course.

[ellenfl]

65. i am in northern palm beach county . . .

the prices here have gone through the roof. i don't know about tampa. do you think you got in over your head? if you have a mortgage you can afford, i wouldn't worry about it. just keep an eye on rates, if you have an arm.

ellen fl

[Warpy]

25. No, of course not.

You're being prudent. Since when did financial prudence become synonymous with Repuglican? Look at the way THEY have been mismanaging money for 25 years!

I bought my place 9 years ago. Were I in the same position today, I'd continue living in my single wide trailer until the market starts to cool down. Buying in this market is just plain nuts. Prices are being driven by speculators, and when they get into a market, watch out!

[leesa]

26. Why buy a house you possibly can't afford?

People were foolish enough to get into a bad deal, that's not your fault. Why would you feel guilty?

[iconoclastic cat]

28. It's those interest-only loans. A lot of people loved that idea.

[bunny planet]

45. Interest only loans have always been available to real estate insiders,

like realtors and morgage brokers. They are actually perfectly fine loans if you add to the interest amount and prepay principle every month. Say your interest only portion is 500./per month but you pay 1000. that month. The extra money comes right off the principle and the new total principal is reflected in your next monthly statement. You are not obligated to just pay the interest, you have the option of paying principle as well. The problem is when people get these loans and can only afford to pay the interest only portion of the bill, that's when it does not pay to have that kind of loan.

Obviously the lenders know that lots of people are qualifying for interest only loans when they might not qualify for as much house with a traditional principle/interest loan, and are taking advantage of their willingness to get in over their heads. Interest only loans only make sense if you can pay well over the interest-only portion every month. You can actually pay down the principle quicker on that kind of loan faster than with a 30 yr.fixed loan, since interest is so much of the monthly payment for the first 10 years of a principle/interest loan. Even when you pre-pay priniciple on a fixed loan, much of it goes towards escrow for property tax increases and doesn't do much to bring down your principle unless you can pre-pay a huge amount each month.

[barb162]

30. I think there's a bubble in certain neighborhoods and suburbs

of Chicago but that in general there's no bubble in the Chicago area.

[iconoclastic cat]

33. Definitely a possibility.

[barb162]

36. A good thing about Chicago v. the suburbs is the low tax on

real estate in Chicago. It just amazes me. Okay you pay a lot for a car sticker, but big deal...you save thousands a year on house taxes as compared to the suburbs. Did you ever look at the Beverly area of Chicago? I think those houses are great buys and they have nice sized lots and huge trees.

[iconoclastic cat]

37. Yep! I've seen that.

[K-W]

38. Good consumer?

There is nothing reprehensible about buying a house from someone who desperately needs to sell it, and there is nothing 'good' about borrowing large sums of money.

If someone made the mistake of borrowing more money than they could afford, they chose to take a very large risk.


The main problem with this whole situation is that there is absolutely no way of predicting when the bubble will burst. I dont know the chicago housing market, but very few markets will be safe once the bubble starts bursting around the country.

If you can wait, id wait, but youd need to be a psychic to know for sure. The whole reason bubbles form is because such large trends are impossible to predict.

[Stinky The Clown]

47. I'd advise that you buy now

First, there's more evidence against there being a bubble than in favor of there being one.

Lots of good info for you upthread. Here's a few more points to keep in mind ......

The stock bubble was a true bubble. the stock prices soared on stocks that were supported by essentially worthless, assetless companies. Housing, on the other hand, always has *real* intrinsic value. It may fluctuate, but it won't 'crash' so much as it *could* correct. But even corrections (and they've happened in localized areas) have always had recoveries. There's no reason to think that is not still the case. Even the famous SoCal and Oil Patch crashes have recovered fully.

If you're buying a house to live in, that's the right thing to do. The best time to buy is when you can afford to do so. Trying to time the market is at best a gamble, and in the end, the rewards are relatively small.

If you can't afford what you want, buy what you can afford. If nothing else, you're building equity and investing in yourself. You can always leverage that equity later and move up.

Go for conventional financing, even if it means buying less house. The **real** trouble in today's housing market is not so much prices or speculators, it is risky financing. Zero down mortgages, interest only mortgages, ARMs, and all the other bullshit ways to finance a house are just different options to get in waaaaaay over your head. Stick with 30 year convectional financing.

(This is PURE tinfoil .... maybe these risky financing schemes are just lending institutions' hedge against low profits on all the cheap money out there right now. They're planning on these interest only 120% mortgages - the worst of the worst of these schemes - as a way to later get an inventory of houses to resell at a profit when they get the inevitable foreclosures. Where solid 20- or 30-year fixed loans get sold, I'd bet lots of these risky loans don't .... or they get sold at a better return to the seller. I'd love to see some data on that aspect of it. In the end, the risky loans benefit only one person .... the lender. Again .... this is tinfoil hat stuff.)

Here are some background links. The first one is probably the most informative. It shows Chicago as being fairly priced.

http://www.consumerreports.org/main/detailv4.jsp?CONTENT%3C%3Ecnt_id=579825&FOLDER%3C%3Efolder_id=162679&bmUID=1116031019173

The rest of these are good as background.

http://money.cnn.com/pf/features/lists/home_valuations/
http://money.cnn.com/2005/05/19/real_estate/re2005_boomtown_0506/
http://money.cnn.com/2005/05/12/real_estate/re2005_100markets_0506/index.htm

[DoveTurnedHawk]

48. I'm in Los Angeles, I Just Listed My Place

Which I bought about two years ago. I am basically profit-taking and moving into an apartment closer to work for a while. I really do believe our market is overpriced right now, as the first link you post seems to indicate.

DTH

[Stinky The Clown]

50. Yup, LA is overpriced by that chart .....

But the whole thing is so regional/localized. Look at DC and Baltimore. 40 miles apart (less than 10 miles between their suburbs).

DC is overpriced, Baltimore is fair.

[lastliberalintexas]

56. If by "recovered" you mean

that home prices are about where they were pre-bust and after adjusted for inflation, then I guess you'd be right. About the Oil Patch anyway- SoCal is a monster of another creation.

[Stinky The Clown]

64. Yes, that's pretty much what I meant

And the recovery is entirely because houses having intrinsic value.

SoCal ..... the allure of paradise ...... the illusion of wealth ...... beach front communities ...... everyone wanting to cash in .... the whole culture out there.

My brother lives in San Diego (I'm in Maryland). We were raised by decidedly middle class parents who had to raise us with more love than money. But they did very well by us, all things considered. And they taught us well the value of money and the need to be careful with it. Fiscal (apolitical) conservatism (they were life long democrats).

Today my brother and I are both more financially successful than our parents were. But boy are we different. He's been frugal, to be sure, as have I. But he gets into the wackiest investments at times. He always seems to do well, but I would be petrified to do some of the things he does. My investments are ultra safe and ultra conservative. Our house and two investment properties, some mutual funds and CDs, and very safe stocks.

I point this out to say that he was never like that until he moved to SoCal. Maybe its the water? The smog? All that sun? .... or maybe as I postulated above .... the culture.

[yurbud]

49. Wait until Bush's third term and get one for free

after they send everyone out work on farms and be re-educated.

Hillbilly Hitler art:



Blog:

[Neshanic]

53. No, you will not have long to wait. About October is my prediction.

From working closely with the housing market here in Phoenix, the aquisition of new land and the prices wanted for raw land combined with massive speculation by Californians,and speculators that cannot unlaod and are trying to rent, not finding any takers, should present the perfect storm sometime this mid fall.

[amazona]

57. no you shouldn't feel guilty but...

...please be skeptical of the bubble argument. I don't know enough about Chicagoland to say but people who thought they'd out-wait the bubble in London real estate prices now realize that they will never be able to afford property there. If the location is desirable, I don't think you can count on a bubble bringing the price down. If anything, real estate prices in highly desirable areas greatly out-pace the growth in middle and lower middle class incomes.

If you follow your friend's advice and consequently can never afford to buy a condo, much less a house, how bitter will you be?

[salin]

58. I bought a foreclosed house

and because the rate of foreclosures were so high in this area - I bargained it down even further. Have to have the right conditions. Former HUD home; bank had it sitting - and it wasnt being looked at - while there is a lot of economic development four blocks away - hasn't yet come to this neighborhood - so those willing to pay - are looking a few blocks away -- thus the price had already dropped by about 20%; So I offered about 25% less of that - but had the ability to buy outright. I knew work would have to be done - and figured the cost of the work - dropped that from the lowered price and made my offer. Got it. I think I paid about 60% of the original asking price - and after the work went in probably nearly doubled the investment - though I am not doing it for the investment - am doing it for lower living costs (no mortgage - no rent - but insurance and property tax - still less annually then rent on a house of this size).

If you can get the right factors in place - the price can be dropped enough to make up for the difference in higher interest rates.

Here is a hint - put aside thedifference between rent and what a mortgage would be each month (or more if you can) and increase the amount of that down payment.

Be willing to look in up and coming "transitional" neighborhoods where there has been financial investment over time (eg economic development zones). Wait til the foreclosure rate has gone up enough (it is high enough here in Indy for this to be the time) so that houses are sitting for a while - even dropping in price - giving an incentive for the banks to WANT to sell.

I could feel bad about someone else's pain per losing the house. But I had nothing to do with that, I came along later.

Just a few thoughts.

[ohio_liberal]

62. Me too, sort of

I didn't feel bad. According to the auditor's office the original owners were given many opportunities over 10 years to just pay something, anything on it and keep their home but didn't (and they certainly weren't destitute, the husband is a thriving general contractor). I bought it at auction for $6,500.00 and $10,000 in remodelling later we have a nice house.

[LoneDriver]

59. All bubbles do burst eventually.

All ponzi schemes do. However you can both make out for yourselves and help victims of it by buying foreclosures. What will drive the price down is when banks start holding too much property. You can however find people about to lose their property to foreclosure and buy their property for their debt and maybe some cash. They walk away, you get the property but keep their credit more or less intact. It worked the last time a property bubble popped.

Say, wasn't that under the other *?

[AngryAmish]

60. I come down on the side of no bubble in Chicago

The way to measure if real estate is a bubble compare monthly rents of similar properties to mortgage prices less the interest deduction. Actually, I did a mini study of this myself using the listings on craigslist and found that rents and payments were mostly inline. I sure other other, practicing economists have looked at this problem and can give you better answer.

Where you gonna move to? I'm in Palmer Square.

[IndyOp]

63. I have been debating 'buy now' vs. 'wait until the bubble bursts' for

months now. I decided after the election that the economic indicators suggested hard financial times ahead and that I wanted the big mortgage off of my back. I, like you, worried about the ethics of waiting for the bubble to burst so that I could 'take advantage of someone else's misfortune'. In the end, I decided that renting until the bubble burst and then buying low would not be inappropriate. As soon as I got to that point, however, other issues arose - as they did for you - Congratulations on the new baby girl soon to join your family!

I don't want to wait until the bubble pops and then buy a house that would leave me with as much mortgage as I have now. When I bought my first home 5 years ago, I found the one I liked and listened to the banks when they told me how much I <i>could afford</i> (37% of gross salary). Since the election it occurred to me that I want only as much house as I <i>can very comfortably afford</i>. So, I've sold this house and am ready to take the next step.

I've thought about renting for the next 6 months and waiting to see if the bubble pops and buying a lower-priced home at that time. I keep coming back to the fact that I love the neighborhood I am in now and bubble-or-no-bubble, I want to own my own home (and I am dead set against paying condo fees!).

My plan right now is to buy a smaller home. I think that, in a smaller home, I am less likely to be negatively impacted if the bubble does burst. The value of high-priced homes will fall faster than the value of low-priced homes (because insane real estate prices are mostly due to inflated land vaues, not the cost of the structure). At the price range I am seeking, I will be able to pay more than 50% down on my next home and my mortgage will drop by over 1/3rd compared to the one I am paying now.

I can't know what will happen next. I can try to make simple, smart financial decisions - like buying a home that is well within my means and depositing the money saved on my mortgage into a savings account (to be invested in the European stock market so that each time the dollar falls, my euro-stocks will rise in value).

Whew! :crazy:

[TXlib]

86. I don't get this attitude:

I, like you, worried about the ethics of waiting for the bubble to burst so that I could 'take advantage of someone else's misfortune'.

The two options you have are:

* buy now; if the bubble bursts, the misfortune is yours.

* wait for the bubble to burst, and buy low. Misfortune is somebody else's, but how are YOU taking advantage of them? They are free to sell or not sell, and it was their decision to buy when they did. It's not like you were planting ideas in their heads.

[Lydia Leftcoast]

66. Whatever you do, don't move into the boonies just to buy a house

Before you do that, think seriously about whether you are so desperate to own a house that you'd subject yourself to a 60-90 minute commute each way.

Would gas prices and wear and tear on two cars eat up any "savings" you enjoyed on the price of the house? What about your real life outside of work? A baby is going to add to your workload and cut into your hours of sleep. Do you need to add yet another drain on your time?

As I look around at the exurbs in Minneapolis (where some of my own relatives live) I see young families running around sleep-deprived and frantic and financially strapped. And it's all a self-inflicted wound.

If they hadn't let media hype and peer pressure convince them that they needed a brand new trophy house, they could have found a perfectly decent pre-owned house closer in.

Don't buy unless it makes sense for you. It doesn't make sense if potential house payments are significantly larger than the rent you're paying. And forget the "tax benefits." In effect, you're paying a dollar in interest to get a maximum of 35 cents back from the government--a lousy deal when stated at those terms. In the end, expenditure is expenditure, no matter where it goes.

Invest in something else--something that you can use to build up a large down payment so that you won't have to finance so much.

Or settle for a smaller house at first. You don't need to get a big house with just one child. A 2-BR crackerbox will do. You don't even have to worry about schools for five years.

[tanyev]

67. Try to find a foreclosed house formerly owned by a Bush voter.

The sweet smell of vindication.

[BooScout]

68. I don't see a Chicago bubble..

I have seen no indication the Chicago area is a bubble. A couple of things to look for. A high precentage of Interest Only loans in your area and what's the foreclosure rate in the Chicago Area.

There's not going to be a national bubble to burst. So don't wait if you are betting on that. Interest rates are stll low. They will not stay this low for much longer (IMHO).

The appreciation of 150K to 700K is not out of line for the time frame you quoted.

[ScreamingMeemie]

73. Real estate appraiser speaking up...there is no bubble...it's all a lie

on paper pushed farther by speculation. Here in my corner, while the news is trumpeting rocketing home sales, more and more of the comparables I use are over 6 months old...which was unheard of in 2000. Buy when you want, if you can afford it. It really won't matter. :hi:

[barb162]

79. WHat do you mean about the 6 month old comps

[TXlib]

80. Huh???

The prevailing advice to us is that we wait until the bubble pops and buy a house from one of these poor people who have now lost their asses. On a personal level, I find this reprehensible

So, if you're investing in stocks, you'd rather buy high, and sell low, to help out all the stupid morons who can't make money on their own?

I really, honestly, cannot wrap my brain around what you find reprehensible about this.

You would rather pay $700k now for a property that you think is going to deflate back to, say $200k in a few years, all because you think you're taking advantage of somebody?

All I can say is thank goodness for people like you who keep the market liquid, and allow people like me to buy low and sell high.

[Blue_In_AK]

83. Don't feel bad about it...

I bought my house in 1990 when a real estate bubble burst here. It wasn't exactly by choice, but my landlady at the time got foreclosed on and I was forced to move. I ended up buying a duplex, a HUD foreclosure, for not a whole lot of money. I had to put some cash in because the roof was bad, but the last time this place was appraised in 2002 it was worth over twice what I paid for it (including the cost of the new roof), and I'm sure it's even greater now. And the real beauty part of it is that my tenants (who have all been friends or family this whole 15 years) pay 3/4 of my mortgage and they still feel like they're getting a good deal because I've kept the rent reasonable. Quite by accident I ended up making one of the best decisions of my life.

I think you may be wise to wait.

[Justpat]

88. No

My mother has sold real estate for 38 years. I was thinking of
buying a house. She told me to wait several months as she thinks
the housing market is going to tank big time.

It isn't being a bastard. It is being wise.

[Justpat]

89. No

dupe. sorry.

[crispini]

90. Well, here's the thing: in order for the local

housing bubble to burst, the local job market's going to have to go first. What I mean is that while these people continue to be employed at the same level and their movements and relocations in and out of the city stay fairly constant, there will be no downward pressure on the housing prices. However, if one large local employer or industry goes TU, and homes are repossesed, THEN you will see the local housing bubble go down.

We saw something kind of similar in the North Texas housing market when the telecommunications industry died in the early part of the decade. The only housing stock that was affected was the bedroom communities where all of the telecom executives lived. You could buy a $500,000 house for $300,000, etcetera. Now, in our area, this is considered "high end" of the market -- it is still possible to buy a nice home for around $100k here -- and the high end of the market was the only thing that was affected, because it was taken down by this industry.

I guess what I'm saying is that the STOCK market bubble burst because, well, stocks are very liquid and easy to sell. Homes, not so much.

Here's what you might want to evaluate -- what percent of your market is taken up by people who are buying second and third homes for INVESTMENT purposes? If the bubble goes, that's the area that will be most affected. At least that's my thoughts.