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Who will the boomers sell their homes to?


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2012 Nov 28, 1:08am   27,380 views  79 comments

by Goran_K   ➕follow (4)   💰tip   ignore  

Over half of new college grads unemployed and in heavy debt
http://www.americanthinker.com/2012/11/approaching_crunch_time_on_the_student_loan_debacle.html

The FY 2009 three-year default rates -- which the Department views as more indicative of ultimate defaults -- was 13.4%, essentially the same as the 13.8% for the FY 2008 cohort. In private non-profit institutions, the three-year default rate was 7.5%, at public institutions it was 11%, and at private for-profit colleges it hit 22.7%.
There were 218 schools that actually managed to produce students who had three-year default rates of over 30%, and 37 schools that had rates over 40%!
As bad as these stats are, remember that they do not count borrowers who were allowed to postpone payments due to unemployment or other hardships.
Given that over half of all recent college grads are unemployed (or employed only at jobs not requiring a college education), we can expect those default rates to rapidly rise.

Also take into account median household debt is STILL twice as much as it was in 2002-2003, and that's after years of loan mods, refinancing, etc.

High debt.
No job prospects.
Possible bad credit from default.

Will this generation actually be able to buy homes anytime soon?

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61   Goran_K   2012 Nov 30, 12:12am  

Over 70% of boomers expect to work PAST 65 and even past retirement:

http://www.cbsnews.com/8301-500202_162-57323056/most-baby-boomers-expect-to-work-after-65-poll/

Wong Ulrich said, "Since the poll was taken in March and then the next poll was in early October before the gains of October, the Dow (Jones Industrial Average) was down 10 percent. So it's an additional big hit -- 62 percent of those surveyed said they took a big hit with one or many of their retirement vehicles. For example, in terms of IRA and their work IRAs, that they have lost on average 42 percent, 41 percent in personal investments and real estate --we don't necessarily think about real estate as an investment -- but that's something that we have all depended on as a foundation; 29 percent of respondents ... have lost value and equity there."

62   David Losh   2012 Nov 30, 1:00am  

Call it Crazy says

housing recovery

We are in a housing recovery, it's just different from what people might think.

Prices will drop in many areas that are right now living in a dream. There are parts of Washington State where property prices sky rocketed and now that those areas have dropped 30% from the peak it's like everything will be OK.

It's not OK.

Prices went from $60K to $200K and now dropped to $120K, but that's still double the price. Nothing warrants the price increases, but thousands of home owners have loans in excess of those amounts.

In city properties may have dropped 30%, but they didn't double in price during the peak. So, some in city properties may be a pretty safe bet.

Some reality, some time, will creep in, but I think most people at this point will simply bite the bullet, and pay the debt.

Buyers have choices. They can buy below the means they have, pay off the mortgage they get, rent that out, and move up, or sell, and move up.

This is the way it was before every one got to be so smart about "leveraging" property.

Real Estate is a meat head business. It's not rocket sceince. Your goal is to beat the bank out of as much interest as possible. It's only an asset if you have equity, and the only way to create equity is to pay down the debt.

63   Goran_K   2012 Nov 30, 1:01am  

David Losh says

Real Estate is a meat head business. It's not rocket sceince. Your goal is to beat the bank out of as much interest as possible. It's only an asset if you have equity, and the only way to create equity is to pay down the debt.

Exactly.

64   dublin hillz   2012 Nov 30, 2:43am  

David Losh says

It's not rocket sceince. Your goal is to beat the bank out of as much interest as possible. It's only an asset if you have equity, and the only way to create equity is to pay down the debt

I completely agree. That's why I have always been a proponent of pre-paying the principal. This approach is the antithesis of taking out helocs or equity line of credits or only paying the monthly minimum and "investing the difference" in the stockmarket. The faster that someone can eliminate the mortgage payments the faster they can achieve financial freedom that will never be experienced by renters or by those who take full 30 years to pay off the debt.

65   David Losh   2012 Nov 30, 3:11am  

SFace says

I will never want to pay off a loan that is 2.5% net of tax

and the bank wants you to pay them that 2.5% interest for as long as they can convince you to do that.

The fact is that we past the point of appreciation so your only equity will come from principal reduction.

Amortizing the loan quicker is the the best way, if maybe not the only way to create equity.

I read a lot of comments about how people are using the banks money for a "leverage" position, but that's a crock. You only get leverage if you are getting a return.

The people getting a return on your 2.5% interest payment is the bank.

66   David Losh   2012 Nov 30, 5:28am  

SFace says

Would you lend me 1M very long term at 2.5%

I'm not a bank, but sure, why not? There is no risk to the bank in today's market place, because the Notes have been secured, sold, insured, and are now being bought by the Federal government. So, sure, why not?

SFace says

My appraisal on a recent refi came back 20% higher than Feb2012

Of course you can always get more from the bank on your promise to pay. Banks like payers, and your appraisal means nothing except for a refinance. Now, that money you can invest elsewhere, and that would be leveraged, but the family home remains in jeopardy, as a liability.

Keeping the family home as a liability makes no sense what so ever. It's not smart, it would be much better to rent.

The only way the family home becomes an asset is by equity.

67   David Losh   2012 Nov 30, 5:32am  

SFace says

Bank needs to make money too

The bank is the enemy.

You take the money, make the return, pay off the bank, and move onto the next deal.

Holding long term debt ten years ago might have worked, but today it's a huge gamble.

68   Goran_K   2012 Nov 30, 5:33am  

Any savvy accountants here?

If the Debt Forgiveness Act isn't extended, I know short sellers will get hefty 1099s from the IRS for the windfall they got by short selling. What about those who get foreclosed on?

This could really complicate things for those who pig out on credit, and then try to "strategically default".

69   Dan8267   2012 Nov 30, 6:33am  

Goran_K says

Who will the boomers sell their homes to?

They won't. They'll leave them to their Millennial kids who will either move in or sell it to other Millennials are a much, much lower price. I guess that's the solution to the problem. Get rid of the generation that insists its houses are worth 10,000 times what they paid for it.

70   dublin hillz   2012 Nov 30, 7:34am  

If you intend to keep the home aka capital in the family, then your holding period is technically infinite. Of course, you can't control what your kids will do what you die, but nonetheless, it's sort of true. The implication is that via infinite holding period, the buy vs rent is clearly in favor of buying since it normally takes 5-7 years to break even vs comparable rental. Obviously this point of view does not apply to DINKs or to those who never plan to have kids.

71   carducci22   2012 Dec 1, 12:05am  

2.5% interest is a myth. Where did you get that number from? Did anyone get that rate? From whom? I ran to the bank to be told; eeeeee, the thing is criteria bla bla bla. Endless stories. Give me a break!

72   Goran_K   2012 Dec 1, 1:07am  

Yeah I don't think most people will be getting 2.5% for purchase loans. MAYBE refinancing.

73   carducci22   2012 Dec 1, 10:17am  

Could you be more specific pls?

74   Goran_K   2012 Dec 3, 12:02am  

zesta says

Your Center for Economic and Policy report was released in FEB 2009! A lot has changed in 3+ years, C/S is reporting 6 consecutive months of gains and underwater homeowners are trending downwards. That 3.5m in Dec 2011 is probably less now.

Nope. Not much has changed:
http://www.housingwire.com/news/monday-morning-cup-coffee-homeowners-over-50-fall-foreclosures

75   TechGromit   2012 Dec 3, 12:43am  

APOCALYPSEFUCK is Shostakovich says

Gay billionaire Chindians will 10x the price of townhouses in Stockton before Christmas and sell to aliens from outer space who shit solid gold. Boomers will all retire as billionaires and spend their golden years shooting at their grandchildren in Death from Above tours in gutted, hellish cities that would make Camden look like Monte Carlo.

Remind me again why your not on my ignore list. Nothing you say makes much sense, but it's occasionally funny.

My father-in-law keeps saying he's going to Will his house to us. A house we neither want or need. We can barely afford the Mortgage and taxes on the house we have, what do we need another for? Even a house owned free and clear still have taxes and other expenses associated with it, if it ever does end up in our possession, we will just sell it.

76   Goran_K   2012 Dec 3, 1:06am  

Dan8267 says

They won't. They'll leave them to their Millennial kids who will either move in or sell it to other Millennials are a much, much lower price. I guess that's the solution to the problem. Get rid of the generation that insists its houses are worth 10,000 times what they paid for it.

I like the way you think!

77   zesta   2012 Dec 3, 2:11am  

Goran_K says

zesta says

Your Center for Economic and Policy report was released in FEB 2009! A lot has changed in 3+ years, C/S is reporting 6 consecutive months of gains and underwater homeowners are trending downwards. That 3.5m in Dec 2011 is probably less now.

Nope. Not much has changed:

http://www.housingwire.com/news/monday-morning-cup-coffee-homeowners-over-50-fall-foreclosures

Wow, newsflash! More delinquencies and foreclosures in 2011 compared to 2007.

In case you haven't noticed we're in Dec 2012. Do you think there were more foreclosures of people over 50 in 2009 or 2012?

78   Goran_K   2012 Dec 3, 2:26am  

I think over the past 3 years, not much has changed to improve boomer situations. :)

79   mdovell   2012 Dec 3, 2:47am  

They might not want to sell but it might depend as to how large their bills are and in particular medical bills. Medicare does not pay for everything and social security is not an investment vehicle.

You also have to wonder how much in the way of larger items might be sold off. Boats, 2nd or 3rd cars, motorcycles. Perhaps reminiscent of larger/encompassing hobbies. Coin/comic/stamp collections, collected artwork, higher end audio vision (hello dirt cheap Tivoli!) Certainly some might be donated to libraries (books, music, video) or museums (art or anything historic) but there is only so much to go around.

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