Housing market

[RLD4ISU]

I was a little surprised when a local (Twin Cities) news reported that - compared to last year - MN closed housing sales have decreased 31%, but the median home price has increased 4%. The report also said buyers have more ability to request things like: seller paying the closing costs, negotiating inspection costs, etc.

Minnesota real estate market cooling down, but buyers continue to face challenges

Minnesota real estate officials say the housing market is cooling down, but prices are heating up and it’s presenting challenges for buyers.

kstp.com

It will be interesting to see what it is like a year from now.

 

[BCClone]

Not everyone that stays in their home is keeping their low interest rate. Yes the absolute numbers of refis are low but just know people are doing them....and for different reasons. Some have to because of divorce or death etc...not just to cash out on equity.

I appraised a house a few years ago and as it was dug into, it became apparent that they were financing their other larger purchases with their house value. They had gotten lucky and their last one, the previous appraiser used a couple goofy ones so when I came through (being new) I showed a lower value and all hell broke loose. The boss then stepped in since it was an employee of a large customer and they were creating a stir.

It was apparent it was a family spending above their means and when I was appraising, many of our refi’s were cash coming out.

 

[ClonesFTW]

Not everyone that stays in their home is keeping their low interest rate. Yes the absolute numbers of refis are low but just know people are doing them....and for different reasons. Some have to because of divorce or death etc...not just to cash out on equity.

A lot of people don’t care about the interest paid over the life of the loan, they care about monthly payments. If they can cashout to payoff their $600 truck payment and their house payment goes up $200- they still cleared $400 from their monthly expenses. Not saying it’s the right move but it’s reality.

 

[BCClone]

A lot of people don’t care about the interest paid over the life of the loan, they care about monthly payments. If they can cashout to payoff their $600 truck payment and their house payment goes up $200- they still cleared $400 from their monthly expenses. Not saying it’s the right move but it’s reality.

And that works until the vehicle breaks down a they replace it a couple times and now have maxed out their house, payments are now higher and they need a new tranny in their vehicle. I saw that too many times in the bank, but we can’t give financial advice because if it doesn’t work out perfectly we set the bank up to be sued.

 

[Beernuts]

And that works until the vehicle breaks down a they replace it a couple times and now have maxed out their house, payments are now higher and they need a new tranny in their vehicle. I saw that too many times in the bank, but we can’t give financial advice because if it doesn’t work out perfectly we set the bank up to be sued.

That is a hard position to be placed in. It kind of feels like the housing crisis when credit agencies were handing out strong ratings despite the reality showing the weakness in the actual ability to repay the loans.

Are we going to see defaults increasing again?

 

[BCClone]

That is a hard position to be placed in. It kind of feels like the housing crisis when credit agencies were handing out strong ratings despite the reality showing the weakness in the actual ability to repay the loans.

Are we going to see defaults increasing again?

I don’t know, but what I can tell you is that many of the appraisals I did( I stopped about a year and a half ago- no money if you don’t own the business) we maxing out and many we’re refi’s that the owners were rolling stuff into them. The company owner did the FHA loans and basically that is all he did because we had more of those than regular ones. 3-5% down was typical and several times the owner was handing back 3% for closing costs (basically making a 0 down loan). Now we are supposed to subtract those from the value, but the industry had decided they were too common (me as an outsider, I believe they did it because very few appraisals would have worked otherwise). There is a new mortgage mess with new games that were played. The employment market will determine if we have a rash of foreclosures or not.

 

[ClonesFTW]

Are we going to see defaults increasing again?

Not near the level we saw last time due to a profound increase in underwriting scrutiny as the result of 2008 and then again during COVID.

 

[Beernuts]

Not near the level we saw last time due to a profound increase in underwriting scrutiny as the result of 2008 and then again during COVID.

I hope you are right. But based on BCClone's comments and human nature for greed / wants I wouldn't be surprised if people are overextending again for homes.

I am afraid we are seeing it in the ag industry where people are bidding up farmland that is overpriced for what it produces. Then it become speculation instead of investment. Interesting times again.

 

[BigBake]

I appraised a house a few years ago and as it was dug into, it became apparent that they were financing their other larger purchases with their house value. They had gotten lucky and their last one, the previous appraiser used a couple goofy ones so when I came through (being new) I showed a lower value and all hell broke loose. The boss then stepped in since it was an employee of a large customer and they were creating a stir.

It was apparent it was a family spending above their means and when I was appraising, many of our refi’s were cash coming out.

So they were taking Home Equity loans out and buying cars? Or just making purchases in general on the home equity?

 

[BCClone]

I hope you are right. But based on BCClone's comments and human nature for greed / wants I wouldn't be surprised if people are overextending again for homes.

I am afraid we are seeing it in the ag industry where people are bidding up farmland that is overpriced for what it produces. Then it become speculation instead of investment. Interesting times again.

Ag is a different situation. Most lenders I know have a 5500-6500 per acre cap on lending. You don’t need cash but you are putting up more ground to cover it, so the lenders will be okay, the buyer is the one with the problem. Also, there is a lot of cash out there. If you ask lenders, lines of credit are/were very low this year and now. People are healed up. I know one bad year can really swing it, but even insurance levels are at the profitable point for many.

 

[cyclone4L]

So they were taking Home Equity loans out and buying cars? Or just making purchases in general on the home equity?

I'm sure every case is different, but majority of people are just looking to make ends meet.
"I need money today, I'll figure the future out tomorrow." It's the reality, no matter how awful.

The message that you are responding to, the ONLY thing that matters to buyers/homeowners is the monthly mortgage payment. The value of the house doesn't when they aren't looking to sell. Most Americans are in survival mode.

 

[BCClone]

So they were taking Home Equity loans out and buying cars? Or just making purchases in general on the home equity?

Some were cars, some were remodels (ones that they would get half their investment back in increased value), debt consolidation was big, had some college loans being cleaned up. Some were refinances to cut their payment but why then would talk about trips or other expenses they could incur with the savings. Several could spend $800/month (pulling a number out of my rear as an example) for a payment because they were “pre-approved” for that, and you can guess what their purchase price was when you backed that payment into a 30 year note.

We built our house, I admit I’m logical and cheap, we built it as though we would update and improve as we got older. I remember some people talking about their 75-100k in cabinets that were coming in. A couple houses I got into the basement and all of a sudden the rooms weren’t sheetrocked and electrical lines were hanging. I would ask how they planned to finish and when and the couple would look at each other and say they were unsure since they ran out of money. Yet they had countertops and some flooring that they could have went midline with and that would have freed up money to finish., but earlier they said they had seen this stuff in a friends house and fell in love with it (told me it was a competition thing then). Pride and ego does a lot of people in.

 

[BCClone]

I'm sure every case is different, but majority of people are just looking to make ends meet.
"I need money today, I'll figure the future out tomorrow." It's the reality, no matter how awful.

The message that you are responding to, the ONLY thing that matters to buyers/homeowners is the monthly mortgage payment. The value of the house doesn't when they aren't looking to sell. Most Americans are in survival mode.

Agree but will add that they are in survival mode due to their own issues a good chunk of the time. Many plan more for their weekend then for what their monthly expenses require. You know how many times people would say they felt bad for their neighbors or others because they lost their jobs, but then admit they cleaned out their savings to buy/build/update the house.

 

[Sigmapolis]

I think there's some bifurcation in the market.

Case in point with my own experience --

I "own" two homes (well, 1.5 homes): (1.) my childhood home in Boone, which I inherited with my brother when our father passed away, and (2.) my actual residence in Waukee with my wife. I say "own" because I think the bank holding the mortgage effectively owns the equity needed to cover the outstanding balance. Zillow says the one in Boone is worth about $250,000; the Waukee one is, well, several times that amount.

The Zillow estimate for the Boone home has been slipping for months. It even took a good hit this morning or late last week. The Waukee one, though, at a completely different band of the market, has held steady and has actually increased slightly. I think the affordability issues caused by higher rates is going to matter for a certain class of buyers/sellers/homes than it is for people with fewer concerns like that.

 

[BCClone]

I think there's some bifurcation in the market.

Case in point with my own experience --

I "own" two homes (well, 1.5 homes): (1.) my childhood home in Boone, which I inherited with my brother when our father passed away, and (2.) my actual residence in Waukee with my wife. I say "own" because I think the bank holding the mortgage effectively owns the equity needed to cover the outstanding balance. Zillow says the one in Boone is worth about $250,000; the Waukee one is, well, several times that amount.

The Zillow estimate for the Boone home has been slipping for months. It even took a good hit this morning or late last week. The Waukee one, though, at a completely different band of the market, has held steady and has actually increased slightly. I think the affordability issues caused by higher rates is going to matter for a certain class of buyers/sellers/homes than it is for people with fewer concerns like that.

You made me look, says ours is worth 292k in this small town. Doesn’t have everything right, but if I get that, I would be happy.

 

[cyclone4L]

Agree but will add that they are in survival mode due to their own issues a good chunk of the time. Many plan more for their weekend then for what their monthly expenses require. You know how many times people would say they felt bad for their neighbors or others because they lost their jobs, but then admit they cleaned out their savings to buy/build/update the house.

Oh ya. Drive around any small town in Iowa. You'll see a $80k house with a $60k mall crawler sitting in the driveway.

 

[Beernuts]

Ag is a different situation. Most lenders I know have a 5500-6500 per acre cap on lending. You don’t need cash but you are putting up more ground to cover it, so the lenders will be okay, the buyer is the one with the problem. Also, there is a lot of cash out there. If you ask lenders, lines of credit are/were very low this year and now. People are healed up. I know one bad year can really swing it, but even insurance levels are at the profitable point for many.

Agree that ag lenders are doing a better job protecting themselves, and that right now there is a lot of cash in farmers hands. However, looking at input costs, machinery repairs, upcoming rents, taxes, that excess equity is going to be leaned upon by March. 21 and 22 were great years for ag / farmers. I wonder if 23 will start the pendulum back to tighter margins and a slow down in farmland values.

 

[Gunnerclone]

I'm sure every case is different, but majority of people are just looking to make ends meet.
"I need money today, I'll figure the future out tomorrow." It's the reality, no matter how awful.

The message that you are responding to, the ONLY thing that matters to buyers/homeowners is the monthly mortgage payment. The value of the house doesn't when they aren't looking to sell. Most Americans are in survival mode.

Most Americans that own a home are in survival mode? Any links to that?

 

[Cyclonepride]

Agree but will add that they are in survival mode due to their own issues a good chunk of the time. Many plan more for their weekend then for what their monthly expenses require. You know how many times people would say they felt bad for their neighbors or others because they lost their jobs, but then admit they cleaned out their savings to buy/build/update the house.

Yes, it is their own issues most of the time, but this is not going to be like most of the time. The markets are so out of whack that a lot of people who have done everything right will get screwed too.

 

[Sigmapolis]

Most Americans that own a home are in survival mode? Any links to that?

It never ceases to amaze me the ability that college-educated upper-middle class people have to talk themselves into the belief they're some sort of proletariat that needs a ton of help to get by.