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Yeah, I love that argument also. Those idiots didn't say anything when the move up buyers from lower-end, subprime houses pushed their home prices through the roof the past few years. But now that the lower end market is in freefall, they think those homes "don't affect our neighborhood".LOFL
Um, how does she not like it? To that end, would be funny to bump some posts buried in here...a kind of FFA, "Where Are They Now?"...
SLOD is right - wifey's totally on board. Of course she'd like more space and the freedom to decorate a home, but she understands how crazy it would be to buy a home in a market in freefall. When prices are dropping 1% a month, the potential savings add up quickly. Couple the discounted future prices with the ability to save a couple grand a month by renting a cheap apartment and it becomes a no brainer. Can you imagine buying a 400,000 home knowing it's going to lose approx 4k per month in value for the next 18-24 months? Neither can I.The Z Machine said:
What are you going to do when you have $300K in a bank account, collecting 2.5% interest, while housing prices continue to fall?
I'm a below average FBG - it would take me 10 years to save 300k. Plus, I think prices will stabilize before then.Until they do, I won't be investing several 100 thousand in a depreciating asset.
Actually me and my wife are almost in this position right now (this really isn't a LOOK AT ME post)... we've just been saving and living below our means for a while. We really want a house and have come very close to buying a couple times, but we keep coming to the same conclusions that TommyGunz does... it would just be throwing money away. When we buy, it will be to buy a home that we can hopefully live in for the rest of our lives... so we are not looking at this as a financial investment to profit from in 3 to 5 years like everyone else that bought during the bubble. With that being said, we'd rather wait to buy our house for $100,000 to $250,000 cheaper than if we were to buy it today and use that savings towards our retirement or kids' education.
Have to sell now though, cant wait it out. I literally get physically sick just thinking about it, so
The upside is that you will get more for it now than in a year from now. Who knows... maybe you can buy it back in a couple years for 15% cheaper.Just listed a rental property in Jacksonville FL for 169,900...it appraised for 194,000 just 12 months agoHave to sell now though, cant wait it out. I literally get physically sick just thinking about it, so
I just wonder what's going to happen when people reach a point where interest rates are so low that it feels like they're "throwing money away" by keeping it in the bank, rather than putting it toward a house. Even if the house continues to depreciate, you're almost better off when you factor in the combined "savings" from deducting the mortgage interest & not paying rent.
That's a good point and something we've looked at ourselves. Right now we are receiving 4% in our bank account which actually generates enough interest to pay for our monthly expenses (all utilities and groceries), plus some. Our rent is about $22k annually, but our mortgage payments after factoring in a tax deduction would still be around $54k. And we're saving about $70k more per year while we are renting versus if we were paying a mortgage, so as of now, we still feel better off financially as renters.Not only are our local home prices out of whack in terms of annual incomes, but also compared to local rents. If rents were skyrocketing, I think we might be in more of a hurry, but rents are actually stagnate here or going down as a result of all the local layoffs from the real estate industry.
Gambino
bagger and LHUCKS, don't quit your day jobs.
Keep falling baby. Keep falling.
Heads up to Assani, fastEddie, and other Vegas FBGs. Keep renting and saving - there should be some massive bargains around the corner in '09. Be ready.
Man, I hate articles like this that throw out statistics without real costs. I am not trying to deny how bad the market is in some areas. It is, but the lines comparing the Income Ratio from the 1980s/1990s to 2008 is just plain stupid without comparing interest rates.To me a $2000 mortgage with a fixed interest rate is the same to a family making 100k per year no matter if it is in 1980 on a cheaper house with a higher interest rate or in 2008 on a more expensive house with a much lower interest rate. If you are going to use income ratio to try and paint an "affordability" issue with the current prices, then they should at least have the decency to use real costs.
Your point regarding interest rates is fair, although it doesn't hold up quite as well in some of the biggest bust locations like California where jumbo mortgages still predominate for all middle and upper-class houses (but, yes, it is a more valid point in places where prices are below the old conforming loan limit). Even after all of the Fed cuts since September, jumbo rates are still pushing towards 7% (with a point).I don't agree with your last point regarding people coming back in droves. Previous housing recoveries were long and drawn-out and the buyers were in better financial standing. The "droves" that drove this last market boom rarely had more than 10% down (often, much, much less) and there isn't any reason to think that these same people will have the ability to purchase under the tighter underwriting standards being put in place today.
Ouch - I predict a rude awaking for you sir. Your post is full of RE agent talking points that are completely full of holes.When I hear "upper end houses didn't use ARMs", "there's not making more land" and "my area is immune to huge drops", red flags pop up.
I think you're missing some key fundamentals here. (1) Prices for all real estate are effected by the bottom of the market. Think about it in a more straight forward market. If Honda started selling Accords for $5K, do you think it wouldn't affect the price of a BMW or a Lexus? Of course it would. You make a valuation on the difference in price and difference in value. People will have to move. It happens all the time. Sure you can hold on and hope the market recovers, but the people who have to move, have to sell...and they will sell at a discount dropping your value. (2) This drop in value will make Refi's and HELOCs more difficult. If you bought your house for $600k, and it is now only valued at $500k, a refi may actually be out of the question for many people. (3) Interest rates are going up. It's unlikely you will continue to see these historical lows. If rates move up 100-150bps, it will drive values. Many people buy on payment, especially in the jumbo markets. If the rate is 100bps higher (from 7% to 8%) on a $600K note, you are talking about a monthly increase of a little over $400/month, or about a 10% increase in monthly payment. Personally I think rates will move higher than that.
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Could you let me know when this is going to happen so I don't lock up my savings in a 4.8% CD??
I agree with your post and Tommy Gunz's post above. I would only add that increasing the conforming loan limit under the new stimulus package is already causing an increase in all conforming loan rates. Lender's don't want the added risk of these loans without an added spread.
This is an enormously bad idea. Essentially, taxpayers would be providing a direct bail-out to homeowners who bought more than they could afford. And I can't believe no one is addressing the obvious issue of what kind of fiscal disaster this is considering the market isn't even close to bottoming. If the government refis these mortgages at the current home values, then what happens in 18 months when homes are worth 15 to 30% less? Any defaults are going to be at the expense of taxpayers.
If he gets to 48,500 then let Gunz know.
I don't think your neighbor could have had worse timing in putting it on the market 7 months ago. That should have been right around the time when the credit markets froze up completely (last summer). Ouch.On a side note, how large was the price run-up in Chicago this decade?
I'm sure I'm one of the very few that think this is actually a good idea. Keeping people in their homes and preventing foreclosures is really in everyone's best interest. I believe that the Feds WILL in the end bailout somebody, and it seems to make much more sense to shore up the problem at the root, rather than end up bailing out the financial sector. Either way, I think that those who made the bad loans will make out like bandits.Our government may be getting directly into the lending business...
Link
This is an enormously bad idea. Essentially, taxpayers would be providing a direct bail-out to homeowners who bought more than they could afford. And I can't believe no one is addressing the obvious issue of what kind of fiscal disaster this is considering the market isn't even close to bottoming. If the government refis these mortgages at the current home values, then what happens in 18 months when homes are worth 15 to 30% less? Any defaults are going to be at the expense of taxpayers.
Of course, no one seems to think it is a bad idea to give even more money to borrowers who should have never received a loan in the first place (subprime and over-leveraged Alt-A and prime ARM borrowers).
I really can't understand the degree to which politicians are willing to go in order to keep these people in their houses. Just because someone loses their house to foreclosure doesn't mean that they will be homeless.
It depends where you are in those markets.North Scottsdale only dropped 1% last year. Coolidge / Maricopa (fringe Phoenix markets) dropped 30%-50%.
I'd get a better handle on what market should be. It could be that the market is $40k too high, and by dropping it by $20k you are still above where you need to be. If you continue to get these comments you need to drop the price.
Price was set by the company, via a couple of appraisels that were done through them. The appraisel valued the house and then dropped it another set percentage since the company really doesn't want to buy a bunch of houses from their relocating workers. So unless the appraisers were really off their game the price we're selling for now should already be significantly lower than what "normal" people should be selling their homes for. In the end the company is going to buy it for the price that was set so I don't have to really worry too much, but we will get a cash incentive if we can sell the house ourselves.
Ah, well here is the problem...the appraisers are still out of whack with the market unfortunately. I am seeing this in both land and homes. Not your fault, but what I have realized through this entire market cycle is that appraisers are essentially worthless.In a booming economy they comp your house out to other overpriced homes giving you the false sense of comfort that you had a "good" buy. But in reality it was maybe just not as bad as the comps.Likewise, since there are so few sales occurring giving the appraisers relatively limited comps, they have to actually start trying to think and adjust comps and typically do a pretty poor job of adjustments. Don't even try to get them to appraise a property using the Cost or DCF method like they are supposed to (they are supposed to do 3 methods and pick the one that is the most useful). Most appraisals I am seeing don't even attempt to do it, likely because most appraisers' knowledge of discounted cash flows come not from any type of higher education but the quick course they take in it on their way to getting their license.Hopefully you can sell it, but appraisers' information is often 6 months old. In Phoenix at least almost all of the price depreciation occurred in the 4th quarter. So if appraisers are using comps from September or before, those are horrible comps.Not your problem per se, but people can sometimes give an appraisal too much credit.I am actually looking to refi my house and get it appraised to take some money out of it to save...I think if I wait too much longer the appraisals will catch up and there won't be enough equity to do it to make it worthwhile.
It was a fairly strong decent appreciation but nothing close to what you saw in So Cal or Miami etc. Yea, I told him 7 months ago that he had bad timing when he told me he was putting it up. We talked about it and he came up with the plan of taking it off market for at least the winter if he did not get anything by the end of Nov. I guess he decided against it. I still think that would have been the best thing he could have done. The market will pick up (by how much is the real question) come spring and it would be better to have a new listing then than one that has been on market for 9 months.
One of my best friends just bought a house from a short sell in Thousand Oaks. We did not get into specifics of amounts when I talked to him last but apparently it was a good $130K or so off of previous list price.
But I don't think the government can be effective in preventing people from losing their homes. And if government was effective in keeping home values artificially high, you would then be shutting down the first-time homebuyer and the move-up markets for years to come. All of the bail-out proposals thus far have been short-term solutions which would bring about long-term ramifications much, much worse than our current problems. And the "bad loan" makers have been suffering through this as well. All of the major subprime lenders ended 2007 either in bankruptcy or on life support. They won't be surviving this downturn.
That is likely 10%-20% off list price there.
All that may be true. Do you agree with my thought that the Feds will in the end bail out someone here? If you had to pick your poison, should it be a bailout of the banks/investors or the homeowners?
Well, I'm resigned to think that at least one of the bail-out proposals will get passed in some form or another. As I mentioned before (to ad nauseum), I think any bail-out will have very bad effects on the future housing market, but if I had to choose whether to provide more assistance to the credit markets or troubled mortgage borrowers, I would choose to help the credit markets. There are obvious moral hazards to helping either troubled group, but I think the hazards are much worse on the borrower end. Wall Street has already lost a lot of money in this and a bail-out on their end will only help keep them going in the future (not erase their earlier losses), whereas if you keep borrowers in homes they can't afford, they don't suffer at all in any of this and that sets a very damaging precedent by the government.Furthermore, choosing to bail-out homeowners now over assisting the credit markets will only serve to hurt homeowners again in the long run. If the government (taxpayers) pays to keep people in homes that they cannot afford, housing prices will remain artificially high and will continue to shut people out of the market from either buying their first home or for homeowners to move up in the market. They will essentially be stuck Lenders, of course, would remain wary of lending in such an environment and credit standards would remain as tight, if not tighter than they are now.Essentially, assisting lenders and the credit markets benefits everyone in the economy (not just troubled borrowers), whereas assisting troubled borrowers benefits only benefits troubled borrowers (those least deserving of the help) at the expense of everyone else.dancingbones said:
I beg you to do some research on how local markets are interconnected. While there will undoubtedly be differing percentage drops among various neighborhoods, the "some areas are immune to significant price drops" theory doesn't stand up to real data analysis. So your post suggests to me that those who own in North Scottsdale may still have a small window to escape before their drop occurs, if it hasn't began already.
Can you please point me to your real data analysis?
I don't do real data analysis, I read it from professionals who analyze historical numbers and debunk myths like "La Jolla won't fall, it's such a nice area". In sum, desirable areas fall just like less desirable areas in downturns (albeit different % depending on the run up during the boom). Desirable areas benefit when homeowners in less desirable areas see significant price gains and want to "move up", creating additional demand and therefore significant price increases. Likewise, when prices are falling in less desirable areas, demand softens as there are fewer move up buyers, and this results in downward pressure on prices.Don't get me wrong, homes in N Scottsdale and La Jolla will always carry a premium over homes in neighboring, less desirable neighborhoods, but that premium isn't inelastic.
OK. I don't agree with the blanket statement that desirable areas are immune to significant price drops, but I also don't subscribe to the idea that every neighborhood will necessarily see significant price contraction during this downturn. In premium areas where the underlying job economy is good, I predict you'll see relatively small (10% or less) contractions in price over the course of the correction, with a long period of stagnation.I don't do real data analysis, I read it from professionals who analyze historical numbers and debunk myths like "La Jolla won't fall, it's such a nice area". In sum, desirable areas fall just like less desirable areas in downturns (albeit different % depending on the run up during the boom). Desirable areas benefit when homeowners in less desirable areas see significant price gains and want to "move up", creating additional demand and therefore significant price increases. Likewise, when prices are falling in less desirable areas, demand softens as there are fewer move up buyers, and this results in downward pressure on prices.Don't get me wrong, homes in N Scottsdale and La Jolla will always carry a premium over homes in neighboring, less desirable neighborhoods, but that premium isn't inelastic.
Yea, this is what Gunz doesn't get.His "homerism" has spilled over into his real estate "analysis". He lives in an area where he can't afford a home, and it has corrupted his objectivity.
In Gunz's defense, Gunz's whole point was trying to be objective about the market conditions instead of relying on the "my neighborhood is different" spiel. And this is how it's played it out in previous market corrections as well.Link
And I need to correct the inaccuracies stated in the article by Delores Conway (above the highlighted language) that demand has remained high in the affluent areas of LA and Orange County. That simply hasn't been the case as home sales have been in decline for 2 1/2 years and reached their lowest point on record (going back over 20 years) in November (the very same month of this article).
I'm only talking about areas in which prices boomed over the past 5-6 years. In areas where prices grew at relatively modest rates, I agree with you that the correction will be smaller.But if La Jolla and North Scottsdale homes doubled over the past 6-7 years, they're going to fall far, far further than 10%.
