Buyers In A Sharply Declining Market
Readers suggested a topic on where the housing bust is headed. “Now that we may finally be heading into an economy-wide recession, will it become difficult for borrowers with good credit and a down payment to buy even if housing prices drop to affordable levels? In NYC and places like it, where land constraints limited overbuilding, affordable housing will attract occupants. But in places where supply boomed (or population is falling) prices might get really, really low.”
“Think of the 1940s and 1950s, when incomes were constrained and new housing boomed in the suburbs. It was possible to pay almost nothing for housing in many city and small town locations. This will raise some interesting political issues in the suburbs and exurbs. You’ll have less well off people able to live where less well off people were zoned out previously.”
A reply. “This happened in the last SoCal bust. I personally knew a number of ordinary engineers who were able to buy houses in Palos Verdes and Manhattan Beach without stretching too hard in the mid 1990s.”
One observed, “In the town of Bakersfield, I have been purchasing my house for 16 years, and the neighborhood is changing. All the homes have at least 4 bedrooms. I live in a cul-de-sac with only 6 homes, and two of them have lots of tenants (mostly field workers) and one is in foreclosure with squatters in it.”
“The neighbor across the street is trying to sell his home, it was put up for sale last week. I really feel sorry for him if he decides to leave it empty and move before it sells. The town is slowing down, you can see it all around.”
Another point, “The pace of sales has been seen to rapidly increase during stock market sell offs. I submit that increasing sales and accelerating price declines can go hand-in-hand under certain market conditions.”
One replied, “Couldn’t that happen if potential sellers finally realize bubble prices aren’t coming back and all head for the exits at the same time? You still need buyers to make this happen. How many would buy into a sharply declining market and would have the means to do so if so inclined?”
Another answered, “There are always buyers in a sharply declining market. They get a house for 15% below asking price and they thing they got a steal.”
“How quickly they find out that the 15% cushion of so called equity can evaporate in a heartbeat. They also remember that the house they just bought for 250k that they think is 15% below market once sold for 500k. They pull rib cage muscles from patting themselves on the back.”
The New York Times. “The euphoria is past. The era of rampant house flipping is gone. What was once a seemingly unstoppable climb in home prices has given way to a plunge in value in many areas. Yet, there is a bit of good news: This might be the right time to find a bargain, especially for buyers approaching their retirement years who can afford to take their time.”
“Of course, anyone looking to buy can also find good reasons to take a wait-and-see attitude, like the fact that good deals may not exist in every location, and no one really knows if prices will continue to decline.”
“‘It’s like missing the top of the market - it’s the same thing with the bottom,’ said Maurice Veissi, president of Veissi and Associates in Miami.”
“Franke Watson II, a 69-year-old retiree from New Orleans, purchased a home in Prescott, Ariz., in February for more than $100,000 below its initial list price.”
“‘The house had originally been listed for $430,000,’ he said. ‘When I looked at it, it was $349,000. I offered them $300,000 and we finally settled at $309,000.’”
“When he relocated to Prescott last July he decided to rent at first rather than buy. ‘I didn’t think the real estate market was where I wanted it to be,’ he explained. He finally purchased a three-bedroom brick ranch once prices came down to what he expected to pay.”
“Mercedes Gutierrez and her husband are looking for a second home where they will eventually retire. They currently live with their 9-year-old daughter in Cooper City, Fla., but would like to buy a home in the Keys to use as a weekend getaway until Mr. Gutierrez retires in a few years.”
“But so far, prices haven’t fallen into the $500,000 to $520,000 range they hope to pay for a three-bedroom home on the ocean side of the Keys — ideally on a canal, since Mr. Gutierrez plans to spend some of his free time fishing.”
“‘We’ve found a few things, but at the same time we’re not in a hurry because we have time on our side,’ Ms. Gutierrez said. ‘We’re playing the waiting game to see how much people will drop their prices.’”
From Business Week. “When home values fall low enough, hard-pressed homeowners become less able or less willing to keep paying their mortgages. That forces lenders to repossess homes and then dump them back on the market at fire-sale prices, which depresses prices further and leads to even more foreclosures. That process has already started in parts of Arizona, California, Florida, and Nevada.”
“The drop in those markets ‘is being fueled with jet fuel,’ says James L. Smith, executive VP for portfolio services at Fiserv.”
“His unit works with borrowers to restructure delinquent mortgage loans. Smith worries that instead of settling at a reasonable price level, ‘we’re going to blow past [it] without even looking back.’”
“Some economists and politicians say that the effects of the housing bust will be modest and that low prices will attract new buyers. ‘We’re seeing people go into the market that weren’t there before,’ says Alfred A. DelliBovi, president of the Federal Home Loan Bank of New York.”
“Still, the housing optimists have systematically misjudged the market. Some became convinced that the huge runup was justified by fundamentals such as population growth, rising incomes, and land scarcity. And because sharp national housing price declines are so rare in U.S. history, analysts assumed that prices would, at worst, flatten out for a few years.”
“What they forgot was that markets can overshoot on the downside just as easily as on the upside, with both financial and psychological forces feeding the decline.”
“Naturally, this state of affairs is working out for buyers with ready down payments, such as George Farraye, (who) just paid $359,000 for a 3,500-square-foot house in Murrieta, Calif., that sold for $630,000 in 2006. Farraye says tighter lending standards ’shook out all the riffraff.’”
“At the same time, the fall in house prices is so precipitous that it is changing homeowner psychology, eroding the long-held taboo against walking away from a home. In hard-hit markets such as Las Vegas and Phoenix, many homeowners are beginning to conclude that their home purchase comes with a ‘put option’-the right to hand the keys back to the lender if things don’t work out.”
“Fiserv’s Smith, whose unit began handling loan modifications for Countrywide Home Loans in May, attributes the rise in walkaways to ‘the ticked-off factor.’ Even homeowners with high credit scores feel cheated that they’re paying more than they can afford for a house that is worth far less than the debt on it, he says.”
“Steve Hawks, owner of (a) real estate agency in Henderson, Nev., says he has been flooded with calls from people interested in ‘buying and bailing’-that is, buying an additional house while their credit is still good, then walking away from the old one unless they can cut a favorable deal with the lender.”
“Kim, a Las Vegas bartender, says she and her husband are about to purchase another house in Las Vegas, move into it, and then try to get the lender on their old house to erase their mortgage for whatever they manage to sell the place for-a so-called short sale.”
“Says Kim: ‘I’m going to lose the house no matter what. I just want to make sure my family’s set, taken care of.’”
“Says Kim: ‘I’m going to lose the house no matter what. I just want to make sure my family’s set, taken care of.’”
Kim honey, I hope you look good in orange.
Is she breaking the law?
Nope, only her credit. Don’t worry, 6 months time “new” credit card offers will arrive in the mail at the “new” address. Banks need those fees and it is getting harder all the time. They know Christmas is coming and there must be boxes under the tree for their family to enjoy. Remember toys , bonus, etc always come first!
This is just going to make lenders more inclined to not give financing
to someone who already has a home . Must be the sales people promoting this course of action ,just so they can make a sale .
Makes you wonder how many of the sales today are from people dumping another house for a lower priced one . When is the government going to realize that bailing out any of these borrowers is a waste of tax payers dollars .When is the government going to realize that they were dealing with a scam market ?
Talk about a system needing to be purged of the “games that people play.” My house has gone down in value ,but I don’t feel I have the right to dump the loss on the lender and go buy a cheaper home . I made my bed and I live in it ,but I can afford my payments because I didn’t lie to get into the property .The lenders were stupid and allowed fraud ,and now the borrowers and the lenders think everybody else should bail them out . This situation is very sick ….sick I tell you .
While I don’t agree with it, I do find it entertaining that people are sticking it to the lenders. They screwed so many people that I don’t shed one tear for them. They’ll hammer these people’s FICO scores, which is quite serious.
I agree that it’s the lenders fault for what they are getting for making bad loans to begin with . The problem is when the government expects the taxpayers to bail out the creep lenders and the creep speculator or stupid borrowers . These damn borrowers and lenders made a contract with each other and they should be made to lie in the bed with each other .
I hear what you’re saying, Bear. And the lenders (and others) do need to take it in the rear for what they’ve done. But the real deal is that 2 wrongs don’t make a right. Period. Personally, I do not condone that people dump one house in a scam to buy a cheaper one. Of course, I’m sure it works for their finances but I’d be walking around thinking that a piece of the sky would fall on my head after the deal was done. And why is it that lenders don’t check for other properties (and the payment record) before they just hand out another mortgage? I just don’t understand that part at all.
I agree with Housing Wizard….the situation is very sick.
BayQT~
“And why is it that lenders don’t check for other properties (and the payment record) before they just hand out another mortgage? I just don’t understand that part at all.”
If the lender on the new house doesn’t hold the mortgage on the old house, why should they care? Assuming the borrower has good credit and sufficient income to support the new house, the borrower will likely make the now affordable payment, the new lender will make money, and all will be right with the world except for the fact that the borrower’s FICO will tank (which won’t matter to the new lender assuming payments keep coming in) and the old lender will be screwed (which also won’t matter to the new lender).
“…I’d be walking around thinking that a piece of the sky would fall on my head after the deal was done.”
Me too…I just couldn’t do it. Karma’s an even bigger bitch than I am.
Ouro,
Would you mind posting the link to your photobucket again? I sent a pic to Big V to send to you (from Ben’s road trip to SF), but in case she was not able to get it to you, I’ll forward it, as well.
Thanks!
BayQT~
“When home values fall low enough, hard-pressed homeowners become less able or less willing to keep paying their mortgages. That forces lenders to repossess homes and then dump them back on the market at fire-sale prices, which depresses prices further and leads to even more foreclosures. That process has already started in parts of Arizona, California, Florida, and Nevada.”
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Wouldn’t it be a little dangerous to mix fire-sale prices with jet fuel?
_______________________________________________________________
“The drop in those markets ‘is being fueled with jet fuel,’ says James L. Smith, executive VP for portfolio services at Fiserv.”
“When home values fall low enough, hard-pressed homeowners become less able or less willing to keep paying their mortgages. That forces lenders to repossess homes and then dump them back on the market at fire-sale prices, which depresses prices further and leads to even more foreclosures.”
This is exactly why our pal Neil is dead on about large down payments becoming the norm as the bust deepens. Buyers who have forked out 20%+ of their own money are a whole lot less likely to just mail in the keys and walk away.
There’s an old saying that people fall in to one of two categories when it comes to money…spenders or savers. I think we’ll be back to having to prove you’re a saver in order to qualify for a mortgage.
I don’t see fire sale prices here in East Bay! All the listings I get for Danville, San Ramon and Walnut Creek are still at crazy prices in the $1million +. When are these prices going to drop? I do not want to live in Concord, Pittsburg, Bay Point or any other of these areas where prices have fallen. It is really sickening to see the prices around here and all the knife catchers! I just don’t see how they can still afford these homes. How many people have an over $300k income a year?? Am I just too poor?? I REFUSE to fund some boomers retirement and be in the poor-house as they are doing the dance of joy after I just signed my life away!! It really makes me want to rent long term, but our government’s misguided tax policies really hurt us!! Maybe prices here will come into reality soon!
Here’s the 1st set of marks in today’s Bay Ayran contest…
All those double exclamation points and question marks will most certainly help out~
5.7, 5.6, 5.9, 5.2, 5.5, 5.7
Personally, I wouldn’t even live in the Bay Area unless I was very wealthy and could afford a nice single family, in SF proper, with a LARGE yard; something rarely found. You get absolutely no bang for your buck there. I love to visit, but after several days, seeya!
anyone know how the mortgage bill is doing
hope Bush (I’m smarter than him too) vetoes it
Housing Industry Lobby Frustrated By Senate Delay
By Victoria McGrane
Jun 26, 2008
(The Politico) It’s not just Democrats who are frustrated by Republican obstruction of the Senate housing bill.
Some K Street groups pushing for the legislation are also bemoaning the delay - perhaps none more than the National Association of Homebuilders.
“Our members’ level of frustration is very high,” the group’s CEO Jerry Howard said of the news that the Senate will not pass its housing bill before the July 4th recess.
The Republicans whose objections are holding up the bill are more concerned about playing politics “than getting the people’s business done,” he said. “That’s very, very disappointing and frustrating.”
The home builders fought back Thursday, targeting two of the main causes of delay: Sen. Jim DeMint (R-S.C.), who is objecting to proceeding because he believes senators need more time to consider the bill, and Sen. John Ensign (R-Nev.), who is demanding a vote on his renewable energy tax package.
Home builders from South Carolina got on a conference call with DeMint, while Howard and a Nevada-based home builder had a face-to-face visit with Ensign, both groups stressing the desperate economic situation for their members and urging the lawmakers to let the Senate vote.
“These architects of delay are costing the American people their homes and their livelihoods,” Howard said.
‘costing the American people their homes and their livelihoods,’ Howard said.’
But when these builders undercut their recent customers by a hundred grand in the same subdivision, it’s not ‘costing people their homes’? And let’s not forget that some big builders had financing arms that were responsible for many subprime loans.
I’m always suspicious when some one says ‘the American people’.
It’s ironic that now new home builders are being undercut by foreclosures around here.I was out looking and you could by a foreclosure for 50k less than a new build.If you mention that to the salespeople they tell the great benefits of a new build. Not sure how they are selling anything at this point.
I’m always suspicious when someone says, “they’re playing politics with this bill” or “we need to get the people’s business done”. Generally that means, “Stop reading this bill and thinking about its consequences, just vote for it.”
Well said.
Its obvious by their lobbying efforts that the builders and realtors are the beneficiaries of this bill. We are not seeing a “million FB march” going on in front of the Capitol or White House.
We are not seeing a “million FB march” going on in front of the Capitol or White House.
Though that would be good people-watchin’.
“… just vote for it.”
Just vote for your future campaign contributions.
I thought the million FB March was scheduled for 9 months from now, after it goes full-term.
The home builders fought back Thursday, targeting two of the main causes of delay: Sen. Jim DeMint (R-S.C.), who is objecting to proceeding because he believes senators need more time to consider the bill, and Sen. John Ensign (R-Nev.), who is demanding a vote on his renewable energy tax package.
“Home builders from South Carolina got on a conference call with DeMint”.
I wrote along with many others a letter to Jim DeMint coupled with e-mails and phone calls. He has had his ear blistered on the “bailout” B.S. He is trying to appease the Home builders and the pissed off tax payer.We will see how it goes from here, but I think he’ll fold on his opposition. At least for now he has throw wrench into the works.
This Bill won’t change the ultimate out come, but it may keep this limping dog walking a while longer.
BTW, I believe those are private sector organizations, referenced in the article, who are complaining about the Congress not wasting your tax dollars fast enough.
Just to address taxme’s question directly, the mortgage relief bill did not pass yesterday.
I have this bad feeling that Bush knows a veto can be over-turned, hence his statement that he will veto it. Makes him look tough, but the bill still goes through. If it gets over-turned after a veto, it will tick me off. By the way, I consider myself a Rep as well.
I can understand the government providing gov. backed loans for “new purchases” to provide money ,but to bail out loans that have already been made is something the lenders should bear themselves . If lenders need a loan to stay solvent ,or need to be bought out by stronger banks or go BK ,so be it . Dodds Housing bill is not going to stop the housing crash .Also, when they started the Housing Bill proposals ,it was not seen that the crash might take property down over 50% ,so the bill is already outdated on the cost to the lenders verses the taxpayers .If they pass this bill ,the amounts will go way beyond 300 billion . When you consider fraud in the mix of loans ,its just a obstruction of justice to provide bail-outs .Countrywide Funding (which was one of the most corrupt ),will benefit first by this bail-out bill ,which even covers buying current already foreclosed on property .
Countrywide will avoid a lot of potential lawsuits also by this bail-out . Why does Countrywide deserve such a helping hand from the government /taxpayers .This Company (Counrywide Funding ),was one of the most destructive Companies . Mozilo has been around for a long time ,and he knew those loans were junk . The above is all IMHO of course .
He saves more face by claiming they changed it enough to make it acceptable to him than by vetoing and having it overturned. But that is the conventional equation for a president that is not a lame duck. Also, the last senate vote on this one was way over 2/3’s but the house one wasn’t.
It is by no means a done deal.
I’ve read that even if this bill passes, very few homeowners will qualify, since they have to prove they have income to pay their mortgage. Having the Bill pass is just another cheerleader window-dressing, so that CNBC and WSJ can crow that the worst is behind us, and come on down, the price is right. Just more mental M.
You’ll have less well off people able to live where less well off people were zoned out previously.
I’ve been thinking about this lately. I’ve been envisioning homes I want being within my price range and wondering how much competition there will be for them (from either less well off folk or from people who bit off more than they could chew and now want to downsize).
My gut instinct is that the competition will be fairly high at first, but will eventually drop off once everyone finally realizes that prices are back down to earth to stay. *fingers crossed*
This whole crisis may put me (who had a salary for only 25 years) ahead of my brother (who had a salary for 40 years). Why? Because he has a house and lots of common stocks, and I have neither. His house is not much of a burden — he bought it for $114K cash — but the stocks may kill him if the giant sucking sound of money moving out of stocks and into direct commodity speculations goes on for a while. IMO common stocks have been in an endless bubble for decades, in the sense that the dividend cash flow has been insufficient and insignificant (by contrast with the 1974 bottom, when many blue chips were yielding 5%-8%). Interesting times…
Eastcoaster, I’ve no doubt you will have a chance at a decent house when the time is right, hope it’s coming w/n a few yrs.
Did your brother buy those stocks at the peak of their prices? He may have a low basis, so he probably does not care much about the downside.
Who would have thought that owning a B and B would have such a mass appeal?
“Steve Hawks, owner of (a) real estate agency in Henderson, Nev., says he has been flooded with calls from people interested in ‘buying and bailing’-that is, buying an additional house while their credit is still good, then walking away from the old one unless they can cut a favorable deal with the lender.”
I’m curious as to what the lender’s take actually is on all of this. Are they giving a wink and a nod, knowing that the new mortgage (theirs) is likely to be a better risk than the old (someone else’s)? If they’re performing due diligence again these days, it’s got to be obvious what’s going on in these situations.
If so, they’re really eating their own. If things weren’t spriraling out of control so quickly, I would think at least some of the lenders would go in on some type of ad hoc agreement at the very least, where lenders that are party to the agreement would all agree not to do this to each other, or at least inform each other before approving new loans.
It’s as if the inmates are running the asylum with the implicit support of the warden.
With the underwriting guidelines as strict as they are right now I can’t see how they can pull this off…They will need to qualify for both loans AND the new home purchase will be considered a 2nd home and will have even more severe underwriting…..
I was wondering about how the lenders were treating new purchase requests from people who already own a home . If the lenders were smart they would take a close look at current homeowners trying to purchase another home .
take a close look at current homeowners ??
Can you say “colonoscopy”…..
‘Franke Watson II, a 69-year-old retiree from New Orleans, purchased a home in Prescott, Ariz., in February for more than $100,000 below its initial list price. ‘The house had originally been listed for $430,000,’ he said. ‘When I looked at it, it was $349,000. I offered them $300,000 and we finally settled at $309,000.’
‘When he relocated to Prescott last July he decided to rent at first rather than buy. ‘I didn’t think the real estate market was where I wanted it to be,’ he explained.’
Here’s a guy who blew it, IMO. He was in a perfect set up. Renting, watching prices fall. And then he pulls the trigger in Prescott. If he had only been watching the foreclosures down at the courthouse, he would have known that Yavapai county/P Valley defaults have exploded. I guess the NYT couldn’t dig a little and print that for some perspective.
$300k is a lot of money for a house in Prescott.
“Here’s a guy who blew it.”
The economy can use lots more of these guys.
Are there any jobs up there? Walmart must be paying good.
Here’s a guy who blew it……
I disagree Ben, he is going to die in that house so price is not that big a deal to him. He thinks he got a great deal, probably paid cash or close to it…
It’s his kids that will realize he blew their money on a bad purchase…and will sell it for $199K
‘he is going to die in that house so price is not that big a deal to him.’
What you are forgetting is the opportunity cost of the cash. There are so many empty houses in Arizona, it is probably one of the best rental markets in the US. He could get a super place for half the mortgage carry. Or have the excess in CDs and take a vacation once or twice a year.
Prices are falling so fast in this part of the state, just a year or year and a half could have saved him another 100k. I think that’s significant. Plus, did he even look at REOs, or just buy retail?
Oh, i fully agree….he could have done much better with his money, but he did rent for over 6 months….And it is kind of a wash anyway, i am assuming he had $300K in the bank @5%= $15Kyr..and can Literally live Rent Free, or $300k cash on a house and no mortgage….
It’s his kids that will realize how much he overpaid when they sell it for $199K… or less
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What you are forgetting is the opportunity cost of the cash.
You keep assuming he is going to die in that house, which is not a given. He may want to move elsewhere, he may get sick and need all his money, etc etc etc.
He flushed $100k, no matter how you look at it.
It’s his kids that will realize he blew their money on a bad purchase ??
I think this would be a good weekend topic to discuss….When I fly into the Phoenix or Las Vegas metro and see the vast tracts of houses, I just ask myself; Who the hell is going to buy all these houses when the boomers start dying off in fifteen or twenty years ?? There are 70 million Boomers…That’s a lot of fricken houses….
Senator McCain promises he will grant amnesty to any illegal alien who wants to stay in America if he becomes president. Instant buyers for the boomer’s houses. Instant slummification of the neighborhoods and instant socialized health care.
I’m no fan of McCain, but this suppposed McCain amnesty for “any illegal alien who wants to stay in America” sounds like BS. Please cite a credible source.
Ditto. This would be headline news.
Did you forget the McCain-Kennedy Amnesty act from last year??
The Comprehensive Immigration Reform Act of 2007, or, in its full name, the Secure Borders, Economic Opportunity and Immigration Reform Act of 2007 (S. 1348) was a bill discussed in the 110th United States Congress that would have provided legal status and a path to legal citizenship for the approximately 12 million illegal immigrants currently residing in the United States.
http://en.wikipedia.org/wiki/Comprehensive_Immigration_Reform_Act_of_2007
That comes out to a few pennies over $100 per square foot. That does not sound expensive to me. That sounds like 1990’s prices.
1990’s prices would have been a lot lower if the huge oversupply that exists now, had existed then.
“That comes out to a few pennies over $100 per square foot. That does not sound expensive to me. That sounds like 1990’s prices.”
I did not see where the square footage of the Prescott house was mentioned. But $300,000 is still historically expensive for a house in Arizona. Forget historically, it is just plain expensive.
“$300k is a lot of money for a house in Prescott.”
300k is alot of money for a house anywhere based on my experience. I recall in late 99 when a local back home put a 215k price tag on his shack. It was like shock and awe. People gossiped everywhere about it and drew attention for miles in all directions. I don’t know if it ever sold but it certainly wasn’t worth anywhere near that price then or now.
“Kim, a Las Vegas bartender, says she and her husband are about to purchase another house in Las Vegas, move into it, and then try to get the lender on their old house to erase their mortgage for whatever they manage to sell the place for-a so-called short sale.”
“Says Kim: ‘I’m going to lose the house no matter what. I just want to make sure my family’s set, taken care of.’”
________________________________________________________________
How frickin’ doomed are we?
How many “Kim” type time-bombs are lurking out in suburbia?
I think you have a lot of these folks out there.I don’t see how they should be able to keep anything if they screw the banks.
It is getting popular. Some realtors recommend “Buy and Bail”.
“Buy and Bail” only “works” (to use the word liberally) in non-recourse states. IIRC, that is slightly half or less than half of the states.
New wave of Option-ARM resets spring 2009. New lower prices may be coming around the corner.
People will learn more than they will ever understand.
This practice is only going to make lenders require more of a down payment in non-recourse States and private lenders will just stop lending . You can’t count on the commission sales people or the borrowers to be forthright in their dealings anymore . The lenders set themselves up for getting screwed over and over again with the loose lending practices of 2003-2007. As a tax-payer i resent that I’m being set up to bail out all the creeps running around trying to play the system . Does anybody think it will be different when the government starts backing all the loans because private lenders can’t risk dealing with the fraudulent borrowers and commissioned sales people criminals anymore .Just more bad lending .The system needs to be purged of the scams ,not more funding from taxpayer backed lending .Bad things happen when crime isn’t addressed for what it is .
I’m going to play Devil’s advocate. Maybe Kim & hubby were typical grasping “gotta have it all now because we’re entitled” FBs in 2005. Today, they might be older, wiser, and have their priorities much more in order. One hopes so, anyway. In that case, paying off lenders who made such irresponsible loans is a distanct second, priority-wise, to circling the wagons with the family and applying some lessons learned.
How interesting is this..a foreclosure help center has opened up in a building where I use to live in Fl..turns out the owner of the building hasn’t even paid his tax bill on the property for last year!..can you imagine the irony that can unfold…
“Now that we may finally be heading into an economy-wide recession, will it become difficult for borrowers with good credit and a down payment to buy even if housing prices drop to affordable levels? In NYC and places like it, where land constraints limited overbuilding, affordable housing will attract occupants. But in places where supply boomed (or population is falling) prices might get really, really low.”
NYC IS overbuilt. SFHs are the exception here. Most people live in apts, co-ops and condos. Land isn’t an issue, they build up! They have been building like mad for half a decade. I see many of the new “Luxury Condos” with “Now Renting” signs. See the NY Times today about incentives to lure high end renters. It’s pricier here, but it’s NOT different.
“Now that we may finally be heading into an economy-wide recession…”
Wake up, people! We are not “heading” into anything–we are already in a depression. The era of excess is over. American consumers cannot get any more money to spend–they cannot earn more, they cannot borrow more, they cannot save less because already save nothing. Oil prices are just making the problem worse, but they are not the main problem.
All the speculative games are over. The prices of assets will revert back to their fundamental value based on fundamental measures–dividend yields for stocks, rents for houses, and coupons for bonds–and a lot of people trying to catch the bottom now are going to get their heads handed to them.
The keys are to get and keep a job, rent so you can be mobile for your job, save at least 25% of your after-tax income, and eliminate debt unless you can pay it all back if you lose your job. Put these points on your refrigerator and do them.
Keep the popcorn popping,
Red Baron
Been doing them - except it is 50%+ after tax, not 25%.
Another shoe drops: Credit card companies are now lowering their credit limits, which not only will cause folks to hit the wall on their spending, but negatively affects their credit score.
The price of gas is the wild card. I am watching prices fall where i am interested, a 10-min. bicycle ride to the beach. But what happens to prices here when people start bailing from Inland Empire en masse and heading back to where it’s cool and close to everything? Some of the places here now are approaching what I pay for rent… but i thank this bubble for making me realize maybe i like the freedom of renting after all.
I’ve seen homeless peope in Calgary in the winter, and it didn’t look all that fun.
In lieu of Arkies & Okies invading California like they did in the 1930’s, is it possible the Golden State will become nirvana for the homeless set this go round?
Can’t beat the weather~
Rather OT, but WTF is going on with rents?!! The apartment complex I moved out of has hiked their prices to the point where I’m definitely paying less as a miserable mortgage payer. Either they’re chasing cash flow to cover their running costs (um, those rents were why we moved out, you sillies) or they know something about the market we don’t.
Part of the problem around here in Oak Park is there’s not much good quality stuff to rent. Solid Soviet architecture from the 1940s with “tacky!” all over it and no parking spaces is standard. Then they’re taken 2/3rds of what was out there and “condofied” it, which jacks up everything else. Of course, given than 80% of the stuff here is in one Historical District or another, we’re not that normal…
And this is where the private landlord picks off his new renters, the corporate owned apts have rules and sales goals and rental “models”. The small guy can offer a good price.
I prefer large apartment complexes. I lived in a privately-owned rental before. The swamp cooler would break down a lot on 105 degree days (and higher), conveniently on Fridays when the landlord went out of town. This was a second floor unit and I had no ladder.
No thanks. I lived in large corporate apartment complexes coast to coast since 1996 and maintenance was quick. Some of these complexes had 3 bedroom units and allow dogs. Jacuzzis and swimming pools are always in top shape. Try to get such service from a small time landlord. Rotsa Ruck!
Apartment investments in the major metro’s of the entire west coast have been “on fire” for the last couple of years…Solid research showed apartment rents were going to spike because of the housing meltdown…Couple that with the onforseen parabolic move in oil and there you have it…Higher rents and low vacancy…
Well, I think some Chicagoland landlords are raising prices to cover the cost of heat.
My previous landlord jacked prices this spring. I told her she was being unrealistic given the amount of inventory out there, and I walked. (Of course, she managed to find new tenants in less than a week, so maybe I’m full of it.)
ET, maybe she isn’t including heat in her deal with the new tenants? We pay our own gas and electric bills.
With something like 8,000+ condos coming on the market in the next year in Chicago, raising rents in the city is playing with fire…
My rent is being raised $75. If I don’t sign a lease $175 and go month to month it’s $175 more.
I’m very worried about rents….being in a low inventory area.
It would seem kind of stupid to me to kick me out w/an impeccable payment record who really has spruced up a pretty neglected place to get someone in at a higher rate who may or may not walk away before the contract is fulfilled and probably allow the place to go back into disrepair.
However, I think thing’s may get a little Wild West before everything’s over and done. I suppose I shouldn’t expect people to always make decisions based on good solid thought processes.
If you’re talking about Oak Park, Illinois housing built in the 1940’s is considered ‘newer’.
Also bought earlier than I wanted because finding a rental at an attractive price was tough.
“This happened in the last SoCal bust. I personally knew a number of ordinary engineers who were able to buy houses in Palos Verdes and Manhattan Beach without stretching too hard in the mid 1990s.”
- I sold my house in Manhattan Beach in Feb 1990 for $420k to a fellow Hughes Aircraft employee.
It was sold 2 times after that - settling @ $400k in 1999. It is about $920k now.
“will it become difficult for borrowers with good credit and a down payment to buy even if housing prices drop to affordable levels”
If difficult for borrowers with good credit and a down payment to buy a house, then houses have not dropped to affordable levels - unless by difficult you just mean the proctology exam people will have to go through to prove they didn’t just pull the down payment from their a$$ and all the other paper work to prove their income and debts are as stated.
A developement in Raleigh, off New Bern Ave., built 4 years ago, most houses sold for 200 grand or so. Cheap new construction. Lots of foreclosures…one lady boght TWO homes for 24,000 (not sure if that is fir each, or total) then section eighted them out. Smart lady! Section eight pays $800 a month.
Goes to show that it is hard to tell how much a neighborhood may change during the shake out.
Why? Does Section 8 imply the renters have a disease?
“Why? Does Section 8 imply the renters have a disease?”
Buy the house next to them and find out!
Any opinions on Bozeman MO? I am up here on vacation, there was a big run up in prices here? There are just an average amount of FS signs in the old neighborhoods, i haven’t seen the condo market here yet. There isn’t much here for jobs, so i would say it’s time for a fall here too.
You’re pretty much on the money with Bozeman, MT. Run up in prices because it’s a desirable place to live but very few high paying jobs. An ex, a nuclear physicist, ended up stocking shelves at PetSmart. Not that he couldn’t get a job - just not one in Bozeman and that’s where he wanted to be. Lots of wealthy retirees moving to the area keep demand and prices high - but they’re a finite source, too. The inland west (Idaho, Montana, Wyoming) is just starting to feel the pain.
I must live in the only area not affected by the housing crash. My apt building is undergoing renovations - rather than accommodate the tenants for the 8 hours of nonstop NOISE, the owners raised our rent 6%. Why? Because they can. My apt building is at or near 100% occupancy. In north Arlington, every available patch of land has condos/townhouses (luxury!) going up. According to some stats I looked up, Arlington prices are still going up, albeit much slower - 3% vs. 20%. Are all the defense contractors in the area propping up prices? Is war that profitable??
yes, and no fed workers ever get fired
we still Rural Electrification Admin
I negotiated my last lease with no increase in rent at all. Pondering the Mess did the same. Both of us are in Montgomery County. Several large buildings with similar amenities just started renting in my nabe. One was a failed condo that went rental. If you can find an area like that in North Arlington, you will find a place where you have some leverage with the landlord.
Well the military-industrial complex money has to go SOMEWHERE…
If that money won’t go into my pocket, it will go into someone else’s pocket. I chose to profit from it rather than be a fool. We are not a capitalist society. Most of the resources are spent on national security. If you don’t like it, Vote libertarian to cut down the size and scope of said complex. I don’t care. If we had a true capitalist society, I’d find something else to do. I’ve voted Libertarian since 1980 anyway.
Bill, you are a Realist!
“Mercedes Gutierrez and her husband are looking for a second home where they will eventually retire. They currently live with their 9-year-old daughter in Cooper City, Fla., but would like to buy a home in the Keys to use as a weekend getaway until Mr. Gutierrez retires in a few years.”
“But so far, prices haven’t fallen into the $500,000 to $520,000 range they hope to pay for a three-bedroom home on the ocean side of the Keys — ideally on a canal, since Mr. Gutierrez plans to spend some of his free time fishing.”
500K for a 3 bedroom?? Again I say….OMYFREAKIN’GOD THAT’S INSANE!!!!! I don’t care where it’s at. A FB in training.
3 BR homes in the Keys are closer to 1 mil. Yes it is insane.
My brother used to own a 3 br in the upper keys. It was in the late 80s. He bought in the very low $100k’s. That’s how low that can go. A very desirable harbor just across the street, btw.
They were 500k before the run up in the keys, waterfront and building is very limitted in the keys. RE on the ocean down there will never be cheap. You have to actually give the gov land for conservation to have a chance at building on the water there. Very corrupt system in the keys.
May I ask what does a fairly modest house rent for on the ocean in the keys ??
I don’t remember the Keys. I got drunk on 3 long-island iced teas…seems they hit you a little harder down there…
I lived in Marathon for a few months in the 90’s it’s easy to understand why so many locals are alcoholics/drunks. I was bored out of my skull after a few weeks, you can only fish and dive so much. That plus there are no beaches unless they are brought in by truck.
Stayed in the Keys in Feb. 07 on Summerland Key. On one street alone there where 35 house for sale. Most in the $mil+ range. Probably double number of houses for sale that now. Might not ever be “cheap”, but a RE crash in FLA is almost a given. I expect a 50% haircut in the Keys before it’s over.
Some where in the 2k to 3k per week, depending on the area.
I lived in the keys for many years. There was NOTHING worth half a million bucks down there ten years ago. The condos were around 100-150k and houses on canals ran 200-350k usually. I loved life there but wonder why I would ever go back when beach condos in many other countries are 30-50k.
I should also point out the reason we sold our place is we couldnt find good tennants that could afford to pay $900 a month rent. I doubt the job market has improved there since then.
In New York City there are virtually no land constraints, certainly not like in greater Boston.
In NYC, you’re limited only by the money someone will lend you to build. There’s no shortage of land, and there’s a ready willingness to construct anywhere, in any neighborhood. They also like to build tall, even in areas of Brooklyn where the neighbors are shuttered, decaying, one- and two-story blocks of moonscape. That’s even nearby to Manhattan, and doesn’t include the vast miles of the outer boroughs stretched beyond.
NYC is seriously overbuilt already, but few planned developments are being shelved. There’s more on the way.