All Equitied Up With No Place to Go
The mathematics behind today’s “Trapped in a Bubble” story makes perfect sense. Say you decided to buy a $200,000 studio three years ago with 50% down and were selling it now for $300,000 so you could trade up to a one-bedroom. Your $100,000 in equity would now be $200,000. Great, but that one bedroom that…
The mathematics behind today’s “Trapped in a Bubble” story makes perfect sense. Say you decided to buy a $200,000 studio three years ago with 50% down and were selling it now for $300,000 so you could trade up to a one-bedroom. Your $100,000 in equity would now be $200,000. Great, but that one bedroom that was $400,000 when you bought your studio is now $600,000, so despite your increased equity, the mortgage you’ll need a mortgage that’s $100,000 higher than you would have three years ago to carry that one-bedroom ($400,000 instead of $300,000). Oh, and your income has not kept pace with the rise in housing prices. Doh!
Trapped in the Bubble [NY Times]
Good points mades about the “only” 100K profit.
Basically, the sold too soon which is the worst thing you can do in real estate. In stock investing/trading you should sell too soon (sell into strength) but if anyone analyzes the numbers provided by OFHEO you will see that what I have said here in the past about timing RE sales after the peak has been known to have past is better
http://forums.newyork.craigslist.org/?ID=28091457
But, back to the point. It sounds like they sold then started looking, otherwise the numbers don’t make sense. Quick search on propertyshark shows that their coop was in London Terrace which has experienced very large price gains since they sold in April 2004. They should have held on until they found a new place because they have left prolly another coupla hunnerd on the table with nothing to show for it.
I don’t buy it. 100k increase? I traded up last year. But then again, I had made 350k in 3 years on my 1 bedroom. And rates dropped.
I think they decided market was too high and they’d sell, rent, and wait for it to drop. But it didn’t. And now they’re stuck and they’ve changed their story. I know people who have done that too.
Nobody bought for 200k in 2002 and sold for 300k in 2005. Nobody. Not in Manhattan.
A government bail-out of homeowners…are people high?
Just FYI interesting article this morning in the London newspapers – home foreclosures just hit a 13 year high albeit at pretty low levels and after having declined for 13 years…none the less there will be articles coming to your neighborhood soon…
Linus,
Good point. I guess in my head I was seeing it at as a larger version of the S&L bailout. But those were banks… not Democrats.
Scotty,
Look where the most market froth is. Somehow I’m not staying awake nights worrying that the Bush administration will rush in with a megabillion-dollar bailout campaign for homeowners in the blue states. I mean, just look how anxious they are to fix the alternative minimum tax, which whomps exactly the same people.
(The guy who takes a bath on that condo in Lauderdale, tho — there’ll be a Brinks trunk backing up for him!)
Linus,
For every home owner’s sake, I pray everyone is as level headed and rational as you are.
I’m just worried that that’s not the case. And there will be some kind of massive government bailout for the unfortunate that we’ll all have to pay for.
True Linus, but that’s my point – you have bought 100K beyond what your normal means would have gotten you, which is what so many people have been doing. People still did that before the bubble, but the 100K for renovations that you had in cash would have come from the mortgage. And while it would have certainly been more expensive that way, it wouldn’t have been unusual.
People, people. $100K or $500K, Brownstoner was just using simple numbers to illustrate a simple idea: that the problem with the value of your home going up X% is thaat more expensive places have also gone up X% (or more). So the absolute dollar gap between the value of your place and the one you want to buy has gone up over time.
I thought Brownstoner was very politely saying that the whole NYT article was completely duh-obvious. Apparently not duh-obvious enough for everyone, tho.
I don’t get the 100,000 either. Unless they sold some time ago