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Sell your home now, or risk the coming real estate crash

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(editor's note: Near the end of the article are links to verifiable websites showing this content and the date published.)

Political Gateway and Atlas Homes (May 13th, 2005)- We at Atlas Homes in Florida say it is time to sell if you own investments. Huge condo complexes are being built everywhere (just like before in the late 80s before the condo market crashed). Apartment complexes are converting to condos/townhomes which tells you what the corporate investors are thinking "time to sell and get out".

Updates and links to news items are at bottom of article

In the 1980s, Gold went crazy and hit 800 an ounce on the markets. Everyone started buying at the high rates while smart investors dropped out quickly. Gold fell so quick it broke many small investors. Real Estate is going crazy, bidding wars are all the frenzy for even run down homes. People are jumping in to get rich quick on what may be the tail end of the bubble.

Let's look at the information.

Bankruptcy: Your wonderful lawmakers, bowing to special interests who know the crash is coming, have changed the bankruptcy laws. Your home is not safe in a bankruptcy now. You cannot walk away from your debt (especially the debt of a foreclosure) anymore. Chapter 7 is almost impossible, you will be forced into a payemnt plan and not be allowed to start over. To make such a huge change in the bankruptcy laws at the behest of credit card companies and lenders at this time can only be looked at as an indicator of what is going to happen. These companies and special interests are not stupid and they plan for the future. Only the most dense cannot see this as a 'pre-emptive strike' against defaults that are on the way.

Interest-Only loans: In the 1920s these type of loans became popular so people could free up money to buy stocks. After many lost their homes and fortunes in the market crash bankers only allowed their rich clients to obtain these loans.
Currently interest-only loans are one of the hottest loans out there. It allows people to buy homes and investments they could usually never afford. Interest-only loans become adjustable rate loans after a few years (1 to 5) with the obvious devastating effect of causing a need for a homeowner to sell when the payments become to much.

Rates are rising: Rates have gone up for seven straight quarters and the 'Fed' has said they will continue to go up aggressively to stave off inflation. Low rates allowed people to buy more home for the same monthly payment; thus homes shot up in value. When rates go high enough even an adjustable or an interest-only loan will not allow people to afford a home at these prices. The sellers market is over when that happens.

Home Equity loans: Home Equity loans in the last few years have been great for homeowners. Equity lines are second mortgages they can write checks from. Many used these loans to upgrade their home or to buy second, even third homes. These equity lines are 'adjustable' mortgages that do not exactly amortize as you think when figuring out a payment. Since they are adjustable they will go up with rate increases. Since they are not a first mortgage the regulations keeping them at a low 'maximum' rate cap' are not as strong. We talked to a lady who did not know what her cap was so we made her take a look. It turned out to be 18% and she almost had a heart attack.

Re-financing will not help: So you went a bit crazy and have adjustable mortgages and some equity lines of credit. "Hey, I will just refinance when the rates come back down," you say. These are the lowest rates in 40 years.40 years ago someone said they would wait for them to come back down and was an old man when they finally did. Rates are rising for adjustable and fixed. Re-financing at a fixed rate will be much higher than your current adjustable and it will cost you to make that financial move. So like many you will wait and hope the rates will not rise too high. Trouble is, some 80% of all loans written this year were 3 year adjustable mortgages and interest only loans. That is a lot of people who are 'hoping' to not be in financial trouble.

What to do?

If you are a property owner I say sell now and put the money in the bank. All of it. Rent a house for a year or so and get ready for some super bargains to be had as people unload their 2nd, 3rd, and other investment properties. Those who need to sell will sell and sell low. Prices will probably stagnate as they did in the 90s after the last Real Estate bust, so deals will be everywhere as people try to save themselves financially.

What if we are wrong? What if home prices just keep rising 'to the moon' and you miss out on buying new home? The worst that can happen if you rent right now is you lose a little increase of what could have been your equity. And your rent will be cheaper than a new mortgage right now at these prices.

What if we are right? Renting after selling your home could keep you from losing a ton of equity (remember, you sold your property) and possibly not being able to afford your home as rates make re-financing impossible.

In Florida we at Atlas Homes are offering savvy investors and selling home owners a 'One Week Listing' and almost guaranteeing a bidding war before the week is over. If ever there is a time to sell it is now. Do not wait 40 years to get your equity out. Home prices can and do fall after a real estate bust. Sell high, rent and wait, then buy low next year or the year after.

Online verification

news aggregation site wn.com archive of may 13th, 2005
Article is listed at bottom right, all the way down, under politics section

Internet archive, way back machine
Main page cache of may 13th. article is listed in latest news, 7th down

May 26th cache of the article itself.

Updates May 13th:

Washtenaw Mortgage Introduces 40-Year Mortgage
To lower monthly costs and keep prices high they are pulling out all the stops.

US real wages fall at fastest rate in 14 years
( it was 1991, the last real estate bust)


Developer tactics to avoid housing bust
Developers have figured out how to stop flipping of properties while still building.

Vultures smell drop in hot Florida condo market
"real estate entrepreneurs are forming "vulture capital" funds to pounce on what they call an inevitable downturn in an exploding south Florida real estate market"
Investors are getting inline to pick up foreclosures

Foreclosures galore
This worked fine so long as the houses didn't lose value. However, the drop in real estate values during the Depression pushed a large proportion of interest-only loans into foreclosure. Lenders switched entirely to fully amortizing loans, and that has been the standard mortgage loan since.



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