http://www.economist.com/displayStory.cfm?story_id=8845261&fsrc=RSS

Would someone please comment on how these lenders are hurt, because don’t they make these buyers PAY for mortgage INSURANCE???? i.e. in the event they default, the lender can get their money back? …so, shouldn’t the mortgage insurers be in trouble, rather than these subprime lenders????

On top of that, why do they then repossess the house and auction it off? So, if these mortgage insurers won’t pay the lenders, why on earth are buyers required to pay mortgage insurance in the first place???

Just like you said, this part is not mentioned much in popular press, and the article kind of mentions how the mortgage is “packaged” in a security and then it gets murky from there.

I fully acknowledge that historically L.A. real estate has been pricey - I suppose if you wanted to retire you could sell your home in Los Angeles and move to just about any other state with a tidy profit. I hear the folks in Idaho, Arizona, and Oregon just love us for the skyrocketing affect this has had on their local real estate markets.

Popular notions about gaining wealth from real estate have really taken a foothold in the past few years, everyone thinks he/she can become a real estate mogul. I feel that the super inflated real estate prices of the past few years are simply the result of a lot of speculation and easy money. It is the current fad. Just as easily as people saw an easy buck in real estate, they will also catch onto the next scheme, whatever it will be - especially after a few people get burned by the subprime lending debacle. It’s a herd mentality that will drive many to sell at the same time, just as it was when people were buying like crazy.

The real estate prices over the past few years have been insane. I don’t know who is buying houses at the inflated prices currently being asked for - or if anyone is buying anymore. Unfortunately(for me)the market here in Los Angeles seems to be quite resilient. I keep an eye on the low end of the spectrum and it isn’t budging. (My boyfriend hides the real estate section of the paper from me because it ticks me off!)

To respond to a few things in the previous posting: I’ve been watching as block after block of $600k condos go up around my neighborhood - the completed buildings are substantially empty. So much for condos being “cheaper”. As to landlords - I know that if numbers don’t pencil out for (real) real estate investors - as in the ones who own large apartment complexes - they will not buy a property as an investment, so I’m not sure how much of that is being passed on to the renter. Anyone who seeks to make a profit after paying today’s ransom for real estate is going to be disappointed.

One thing is for sure, if I were to buy a house at the current price level I’d never be able to (a) have anything left to save for retirement, or (b) retire at all - because I’d be working myself to death to pay for it. People in my age group (mid 30’s) have gotten hip to the fact that traditional pensions and Social Security won’t be there for us in the future. I guess the life savings account that doubles as a domicile won’t be there for us either.

All I have to say is “Come on, Earthquake!”

Show me a mutual fund that does better than 15% average annual return over the past 15 years.

Keep in mind also, that transactions in equity markets can be done by almost anyone nowadays with just a few mouse clicks; while a real estate transaction will involve many more parties. In other words, the equity market is much more LIQUID (and reasonably more scientific if you discount those who like to mess with their financial statements and are hopefully all in jail by now) than the real estate market, which in the words of a former real estate association president “the asking price is what people are willing to pay”. So, the question is, why are you willing to pay that price? The real estate market could be a lot more liquid, and its valuation more scientific.

When calculating long-term return on your primary residence, don’t forget all the tax write off you are allowed (in the US). In the early years of a mortgage, most of your payment is interest paid to the bank. So, if your income tax happens to be high enough to off-set that mortgage interest, you kind of live for free! The appreciation is based on the purchase price - but your original investment was your down payment.

While I partially agree with the interplay between first-time buyer and the speculator’s reaction, I don’t think there are enough of those who must relocate or needed to trade up to effectively reverse the price trend. I mean, this can happen to a small town that is based on a major employer for example. When the employer relocates or closes down, then the people will move.

We are forgetting about a lot of babyboomers, many of who must have paid off their house, and are keeping or will pass it on to their kids. I think they will have an effect on pricing trend, if MANY of them sell at the same time. I mean, if where they live is a nice town or city, why sell? So, if there is some sort of economic stimulus at play (i.e. hot job market) we will have the condo development, or urban sprawl. Instead of opting to rent and “wait it out,” these first-time buyers either try the condo (relatively cheaper), or move farther out. So, in the absence of an adverse event (i.e. natural disaster, political unrest, negative employment prospects), I think the elevated price will stay high, and possibly not rise higher.

One thing interesting about renting vs owning is the landlords themselves. I don’t think their rental price is based on 30% of anyone’s income. Unless their rental property is fully paid off, they will have a mortgage. Like everyone else, they want a premium for their investment, so they will charge a percentage premium above their own monthly payments in order to be “cashflow positive”. Of course, if you can’t compete with the other landlords, you will have to raise your down payment. Unless you don’t care about being cashflow positive, because you can write off your mortgage costs too.