bostonbubble.com

[SamChady]

http://www.ft.com/cms/s/b0547428-d191-11db-b921-000b5df10621.html

As a future buyer, this stuff really scares me. With the lenders getting hammered in the stock market, an increase in default payments leading to more foreclosures, I am concerned that this will even put more properties on the market at low prices.

I do think in the long run this is a net positive - we need some regulation here to control predatory loaning practices (I can't believe I am saying this with my libertarian leanings - but I really think that these companies can do such harm with their practices that its in our best interest overall to not let them do it).

I actually had a guy tell me at the peak of the market that real estate does not go down, its been going up 20%, so get an interest only loan on an absurd amount, and then just sit back and enjoy your gains. That is simply evil.

What do people think will happen in Boston? Any way to see the foreclosure trends or the number of them entering the market?

[AgentGrn]

With the exception of some parts of the high end market, prices are going to have to fall.

The subprime lending oasis as we've known it will not exist too much longer. This means a return to proper lending standards (gasp!), which will make it harder for people to refinance out of bad loans, and will severely cut off the cash flow to new entrants into the market.

Save for that downpayment if you haven't done so already!

[samchady]

http://www.reuters.com/articlePrint?articleId=USL1470530620070314

Well, this article scares me greatly. I am sitting on the sidelines, with a down payment of 20% ready, but not going to do it until this mess is better understood.

I really worry that with the glut of new condo's in Boston and Cambridge coming on the market later this year, all the inventory that has been sitting around, the reduction in buyers because of loan restrictions (needs to happen of course), and the record numbers of defaults and foreclosures, we're going to see prices fall further.

[AgentGrn]

That's a scary read.

However, even though things peaked in 2005, there doesn't seem to have been a whole lot of meaningful price reductions ... not on the surface anyway. I think the subprime bust will contribute significantly to the downward pressure once people are only allowed to buy what they can truly afford. Combine that with the people already in over their heads, and there's going to be a glut in the market like never heard of before.

It's great to hear you have that 20%! It might not be a bad idea to keep adding to that downpayment, so that 20% now is an easy 50% or more when the right opportunity comes along.

[samchady]

I response to your statement about 50%, and this is OT, and probably deserves its own thread, but I have read a lot and run the numbers, and don't see it as worthwhile to put any more than 20% down.

Why?

Because your interest is tax deductible, and then you can invest the other money even in something safe, and you will be ahead.

6% interest is really less by your tax bracket, so its closer to 4% after taxes.

So if my invested money earns equal to 6%, I break-even after taxes. The stock market has returned a greater percentage than has housing historically, so I am making my bet there. I have a lot in cash at 5%, and the rest in a balanced portfolio, and I am averaging more than 6%.

I hear some people say that yes, I am right, but paying down your house is a risk-free 6% (or 4% after taxes) savings because their is zero risk since the rate is fixed and you cannot lose, and my investments have more risk to them. I counter this with a lot in cash at 5% to hedge it.

Thoughts?

Another wrinkle in this is that I work from home and take the home office deduction. I have always rented, so its easy, but I don't know if you can both depreciate the % that you own and deduct the mortgage both. So, having a larger payment might give me a higher business expense. On this I have to do more reading as I could be wrong.