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Old 09-21-2006, 03:50 PM   #1
benjaminetanyahoo
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Default Real Estate: Up! Up! Up! That's the only direction it goes

Quote:
Home futures: Price-drop seen for 10 top markets
Trading in residential housing futures is more evidence that housing markets may be in decline.
By Les Christie, CNNMoney.com staff writer
September 19 2006: 11:05 AM EDT

NEW YORK (CNNMoney.com) -- Home prices will be lower a year from now in the nation's leading markets - at least that's what investors speculating on residential real estate believe.

Trading in housing futures on the Chicago Mercantile Exchange point to declines by next August of at least 5 percent for 10 leading markets; speculators are betting the biggest decline will be in Las Vegas, with a drop of 8.2 percent.
Prediction: Housing prices are going down across the nation.
If the sentiment of traders is a valid indication, housing markets will be a lot lower next year.
Metro area Index
(6/2006) Futures
(8/2007) Diff.
Boston 177.90 164.40 -7.6%
Chicago 167.10 157.20 -5.9%
Denver 139.46 131.60 -5.6%
Las Vegas 233.75 214.60 -8.2%
Los Angeles 273.22 255.00 -6.7%
Miami 278.22 259.20 -6.8%
New York 212.79 202.00 -6.0%
San Diego 249.60 230.00 -7.9%
San Francisco 218.13 202.40 -7.2%
Washington 250.39 233.00 -6.9%
10-City 225.96 211.40 -6.4%
Source:Chicago Mercantile Exchange
Note: All cities were assigned a base of 100 in 2000. An index of 177.90 means prices have risen 77.9 percent since then.
Video More video
On CNN Pipeline, CNNMoney.com's Allen Wastler explains the growing number of foreclosures. (September 14)
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The S&P CME Housing Futures and Options, launched this past spring, enable investors to hedge against a drop in the value of residential properties in the future or to bet that those values will go up.

The investments are tied to the the Case-Shiller Home Price Indices. According to Robert Shiller, author of "Irrational Exuberance," the results of the trading in housing futures have substantial predictive value. "It gives us a finger on the pulse of the markets," he says. "We've never had that before."

Before the launch, there had been little opportunity for real estate speculators to invest in housing markets short of going out and buying actual properties.

Still, the investment vehicles may be too new to have the same predictive power as other derivatives products.

"The [trading results] have some predictive value and I would not expect them to be off investors' expectations by some order of magnitude," says Richard DeKaser, chief economist for National City Corp who compiles his own market valuations. "But it is not a very deep market. It is traded very thinly. I would be reluctant to attach too much importance to the numbers right now."

So far, however, those doing the trading seem to be betting correctly. Trading yielded results earlier in the summer that came "fabulously close'" to where the actual index wound up in August, according to Fritz Siebel, director of property derivatives for Tradition Financial Services, which brokers the S&P CME Housing Futures and Options.

That's not good news for homeowners in Boston, New York and other big markets - every one of the 10 cities covered by the indexes is showing a drop. The smallest loss is in Denver, where trading activity forecasts a decline of 5.6 percent. The 10-city cumulative index shows a drop of 6.4 percent.

According to Shiller, the numbers may exaggerate the extent of the decline because there is a risk premium that has to be taken into account. In other words, more traders are interested in protecting themselves against loss than are interested in investing in a growing market.

"As a result the predicted decline might be a bit bigger than the actual one," says Shiller.

As the market for these derivatives grows and investors enter into it who are willing to take the opposite position, that risk premium should shrink.

Even taking all that into account, the trading still indicates a fairly substantial turnaround. It joins a host of other indicators, both statistical and anecdotal, that seem to agree that housing prices will not only soften but actually decline.

As Siebel puts it, "It sounds like the housing market is set up for a fall; I think we've reached a tipping point."
http://money.cnn.com/2006/09/19/real...ion=2006091911
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Old 09-21-2006, 04:33 PM   #2
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Here's your chance to buy a house. Just buy it and buy the put on the future and you're hedged.
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Old 09-21-2006, 04:39 PM   #3
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Yawn....again....

Bought almost a year ago at $375, NNJ outside NYC.

Similar homes on my street have sold in the last 60 days for $425. For someone who can't afford the $600 median household price of Westchester, NYC, or Long Island, the area I live in represents a value. Location, location, location.
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Old 09-21-2006, 04:48 PM   #4
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Quote:
Originally Posted by Cole View Post
Yawn....again....
Ditto.
Big woop...at best a 5.9% decline and at worst 8.2%.

OMG sell now while you cannazors!!1

- Janq
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Old 09-21-2006, 04:51 PM   #5
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Stock investors are a terrible meter for market direction. Look what happens to oil futures every time someone spits across a border in the mideast. Stock investors are panicking even worse than you are, that's all.
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Old 09-21-2006, 05:03 PM   #6
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Quote:
Originally Posted by Janq View Post
Ditto.
Big woop...at best a 5.9% decline and at worst 8.2%.

OMG sell now while you cannazors!!1

- Janq
Yep, Rent would cost a hell of a lot more than that (for us)...
Rent in 1 year: $10,800
Lived in house for 2 years, so that means we saved 21,600, but if we lost the 8.2% we'd "lose" $21,730... Again, that's worst case, IF we were to sell which we aren't... Yes I know another %6 for commissions would come out of that too.
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Old 09-21-2006, 05:06 PM   #7
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Quote:
Originally Posted by Janq View Post
Ditto.
Big woop...at best a 5.9% decline and at worst 8.2%.

OMG sell now while you cannazors!!1

- Janq
RE is local, sohere goes nothing. In my area, the places I've been looking at and follow the last 2 years, you're lucky if it only went down that much since the beginning of this year. I've seen some drop as much as 25% and it's in one of the more desireable areas too. Brand NEW 1500sq-ft townhouse 5-10 min drive from the beach.

Quote:
Originally Posted by jacobsen1 View Post
Yep, Rent would cost a hell of a lot more than that (for us)...
Rent in 1 year: $10,800
Lived in house for 2 years, so that means we saved 21,600, but if we lost the 8.2% we'd "lose" $21,730... Again, that's worst case, IF we were to sell which we aren't... Yes I know another %6 for commissions would come out of that too.
Rent = throwing your $ away to the landlord.
Interest on your mortgage payment = throwing your $ away to the bank.

So, tell me, how much did you throw away to the bank in 2 years?
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Old 09-21-2006, 05:10 PM   #8
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Quote:
Originally Posted by asianautica View Post
RE is local, sohere goes nothing. In my area, the places I've been looking at and follow the last 2 years, you're lucky if it only went down that much since the beginning of this year. I've seen some drop as much as 25% and it's in one of the more desireable areas too. Brand NEW 1500sq-ft townhouse 5-10 min drive from the beach.
It's also been really well publicized that Sand Diego was the most overblown market in the nation and is now the most deflated.
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Old 09-21-2006, 05:13 PM   #9
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Double yawn....

Quote:
Trading in residential housing futures is more evidence that housing markets may be in decline.
All these stupid articles are may be, could be, might be. All speculative. Until you have some real it's going to plummet data, stop posting.
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Old 09-21-2006, 05:14 PM   #10
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Originally Posted by imprezton View Post
It's also been really well publicized that Sand Diego was the most overblown market in the nation and is now the most deflated.
Too bad I'm living in San Diego, so that's the only market I care about.
Quote:
Originally Posted by teiva-boy View Post
Double yawn....
All these stupid articles are may be, could be, might be. All speculative. Until you have some real it's going to plummet data, stop posting.
How's this for data: I was considering buying a 1500sq-ft town house 5-10 min from the beach in one of the more up scale place in San Diego. At the time, beginning of this year, it was selling for $570k by the builder. Now, there are still plenty of models available and a coworker of my fiance just bought the exact same plan I was gonna buy for $465k with $30k in free upgrade, $5k in closing cost. Yeah, to me, waiting 9 months saved me over $100k. Who knows what the next 9 months bring. Just noticed you're from San Diego, so the area I'm talking about is Carmel Valley. The development is Airoso.

Last edited by asianautica; 09-21-2006 at 05:20 PM.
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Old 09-21-2006, 05:20 PM   #11
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benjaminetanyahoo - thanks for the title. We've never heard you say that before!

And as always the only people in trouble here are:
interest only loans
ones who planned to flip a house/only live in one a couple years.

In the long run people are still making bank that bought a house from 2000-2004/early '05.

If you bought your house in San Diego in '00 for $100 it was worth $249 in 05. And now it's only worth a piddly $230. Damn what a terrible investment. And in another year it may only be worth $212. Those poor bastards with their house appreciating over 100% in 7 years.
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Old 09-21-2006, 05:24 PM   #12
asianautica
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Quote:
Originally Posted by docwhorocks View Post
benjaminetanyahoo - thanks for the title. We've never heard you say that before!

And as always the only people in trouble here are:
interest only loans
ones who planned to flip a house/only live in one a couple years.

In the long run people are still making bank that bought a house from 2000-2004/early '05.

If you bought your house in San Diego in '00 for $100 it was worth $249 in 05. And now it's only worth a piddly $230. Damn what a terrible investment. And in another year it may only be worth $212. Those poor bastards with their house appreciating over 100% in 7 years.
You forgot to add:
Ones who will get divorced and bought w/in the last 2 years, @ current 50% divorce rate, that's alot.
Ones who pull equity out and buy fancy cars, boats or more houses.
Ones who will lose their jobs and bought w/in the last 2 years.
Ones who use ARM to buy more house than they can afford.
etc.
etc.
etc.
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Old 09-21-2006, 05:36 PM   #13
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^^ and people trying to break into their first home.

No decent houses for <$400k in decent neighborhoods. you need 20% down and that still leaves you with $2,022 /month at 6.5% BEFORE taxes and utilities. a couple making 100k /year is just getting by with those figures in a BLAH house.
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Old 09-21-2006, 05:37 PM   #14
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Quote:
Originally Posted by asianautica View Post
Too bad I'm living in San Diego, so that's the only market I care about.

How's this for data: I was considering buying a 1500sq-ft town house 5-10 min from the beach in one of the more up scale place in San Diego. At the time, beginning of this year, it was selling for $570k by the builder. Now, there are still plenty of models available and a coworker of my fiance just bought the exact same plan I was gonna buy for $465k with $30k in free upgrade, $5k in closing cost. Yeah, to me, waiting 9 months saved me over $100k. Who knows what the next 9 months bring. Just noticed you're from San Diego, so the area I'm talking about is Carmel Valley. The development is Airoso.
Sounds like you did teh right thing by waiting, but your numbers don't include:

The difference in interest rate in 1 year, unless you were paying cash.
If you were renting, the cost of your rent.
Taxes saved on interest payments.

All those combined probably wouldn't off set the supposed $100K difference, but the added accuracy will keep things more realistic.

Also, hindsight is 20/20.
But is it that surprising w/ interest rates going up, that less people will be able to afford property?

What causes the housing boom?
Low interest rates.

Where are the rates now?

Also, rates are liekly to go down, again...what will happen then???

It's not rocket science. I think common sense covers it.
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Old 09-21-2006, 05:39 PM   #15
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Quote:
Originally Posted by imprezton View Post
It's also been really well publicized that Sand Diego was the most overblown market in the nation and is now the most deflated.
Nothing could be further from the truth. San Diego was never the most overblown market.
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Old 09-21-2006, 05:41 PM   #16
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Quote:
Originally Posted by elucas730 View Post
Nothing could be further from the truth. San Diego was never the most overblown market.
Really? Miami could give it a run for its money. Where else? San Francisco? The increases in SF were not as steep as those in SD.
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Old 09-21-2006, 05:42 PM   #17
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Quote:
Originally Posted by docwhorocks View Post
And as always the only people in trouble here are:
interest only loans
ones who planned to flip a house/only live in one a couple years.
Not necessarily "in trouble", but if you could by a house today that is $100K cheaper than it was 1 year ago, wouldn't you rather do that? You will have a lower payment and you will gain equity faster.
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Old 09-21-2006, 05:46 PM   #18
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Quote:
Originally Posted by imprezton View Post
Really? Miami could give it a run for its money. Where else? San Francisco? The increases in SF were not as steep as those in SD.
According to this very well done report: http://www.globalinsight.com/gcpath/Q22006report.pdf

which calculates how much a house is overvalued, San Diego is about the 67th most overvalued place in the US.
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Old 09-21-2006, 05:50 PM   #19
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Quote:
Originally Posted by asianautica View Post
Rent = throwing your $ away to the landlord.
Interest on your mortgage payment = Money usage fee subsidized and reduced by the federal mortgage interest deduction
Fixed

If one had no interest then they would have no home, thus living in moms basement or a ground level fixer-upper branded by Target with brown walls.

How many people do you know IRL who can afford to buy a home cash with no loan?
How many banks or persons do you know that loan money without a fee aka interest?

- Janq
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Old 09-21-2006, 05:52 PM   #20
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Those who HAVE to sell are the ones getting burned. Many have bought more home than they can afford and we will billions of $$$ in ARM's resetting in the next couple years. Look for housing prices to decline Nationally by 25-40% in the next couple years as more and more and more inventory comes into the market. Once people reduce their prices from what they THINK their home is worth then we will see housing pick back up.

http://www.schwabinsights.com/2006_09/mktoutlook.html

Good read BTW.
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Old 09-21-2006, 06:01 PM   #21
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Quote:
Originally Posted by asianautica View Post
Rent = throwing your $ away to the landlord.
Interest on your mortgage payment = throwing your $ away to the bank.

So, tell me, how much did you throw away to the bank in 2 years?
bingo. whenever someone comments to me about how I'm "throwing away" money on my apartment, I like to find out how much they pay in interest on the mortgage, insurance, property taxes, etc., and how much they were actually able to deduct in taxes. essentially, the number to be compared against rent is the total amount paid, minus the tax difference and any principal paid, plus the appreciation on that principal...

vastly, you'll find that in many inflated markets (such as boston or san diego), a homeowner who has purchased recently will be dissipating substantially more income than someone renting a similar property... and that's just the month-to-month... if you count closing costs, inspection fees, and all the other miscellaneous bits, buying, lately, has been a very tough pill to swallow.

/Andrew
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Old 09-21-2006, 06:08 PM   #22
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KhaOS,

How much of your rent is tax deductible?
Zero.

Also how much of your rent is recoverable in the future upon moving?
Zero, guaranteed.

- Janq
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Old 09-21-2006, 06:16 PM   #23
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Quote:
Originally Posted by Janq View Post
KhaOS,

How much of your rent is tax deductible?
Zero.

Also how much of your rent is recoverable in the future upon moving?
Zero, guaranteed.

- Janq
True, but it is really a location by location thing. In many of the areas that have seen rapid increases in housing prices (like Boston, where KhaOS lives), rent has not increased at nearly the same pace. So, it is almost certainly better in those overvalued places to maybe wait out the next 6 months or so and see how things go. It is really going to happen that most/all of these hyper-inflated areas will see drops in housing prices, some as much as 40-50%, like Southern California in the early 90s.

In general, if Mortgage Interest Write Off + Property Tax Write Off + Increase in Equity is greater than your rent, you have to buy a house (some people are hamstrung by other debts, but you get the drift).
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Old 09-21-2006, 06:16 PM   #24
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Quote:
Originally Posted by Janq View Post
KhaOS,

How much of your rent is tax deductible?
Zero.

Also how much of your rent is recoverable in the future upon moving?
Zero, guaranteed.
And? If 70-80% of my interest (ie, the net cost to me due to deduction) plus insurance and taxes (also minus appropriate deduction) exceed the dissipated rent on a similar property, what difference does it make?

This is, and has been (for the last two or three years), a bad market for a first time homebuyer in a lot of major metro areas. There are good deals to be found, and ways to help protect yourself, but it's a minefield, and a lot of people are going to get nailed in the next few years.

/Andrew
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Old 09-21-2006, 06:25 PM   #25
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I am cracking up as to how many homes around central florida are now for rent for ~1000 a month. They are trying to cover their balloon payments since the homes haven't sold for a while. We are talking new home construction btw. Been looking for a 2nd house for me to live in for a while, but prices have been unrealistic around me. Now that the housing market here is stagnant, I seeing light at the end of the tunnel. Those who think the article is a load of crock will end up seeing for themselves the drops....
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