Real Estate Boom Gone Forever? (Naperville, Wheaton: low income, for sale, real estate market)

[HOWELL_STREET]

I joke with my youngest son since he is a mortgage processor. My question to him is, "When are you going to give me a zero percent mortgage"? Of course it is humorous to both of us because currently that will never happen. But it interesting to note that building contractors of new homes are now starting to use gimmicks. Out in Cortland, IL - - our second home - - for interest in buying a new home, a builder offered a brand new car, like a Toyota Yaris, for example. That was to entice the sale of their new homes.
But the problem as I see it is that we are at the point of homes being too expensive. Although the prices have shot up very quickly, it will take years for them to come down. Even in foreclosures, to entice people, a house might be discounted 10% or possibly 20%. But a reduction of even 20%, will not sell a one million dollar house. And there are a lot of them in the Wheaton, Illinois area. Not necessarily for sale, because people have decided to keep them rather than sell at a discount. I also expect the same in Barrington Hills, Illinois, too. So we have reached a point of stagnation. Nobody - - including me - - wants to give away their house by reducing the price much. It is my opinion that in the future, when people become desperate enough, then we might see zero percent mortgages. But that is going to take a lot of homeowners to lose a lot of their real estate investment. This exact same thing happened in the Florida Boom and Collapse starting about 1925. So one should read that book written by William Frazer. Frazer is a very smart economist circa 1992. That book is still availabe although very pricey at about $100. But one can obtain it through the Interloan Library System. Please read it for a very fascinating insight because that is where we are now headed.

Carter Glass

[oakparkdude]

This is normal. Real estate has always been a cyclical industry. As long as the overall population keeps growing, eventually prices will rebound. Its cold comfort if you're trying to sell your house now, of course.

[DGDurmie]

A zero percent mortgage would be great for me right now since I'm looking to buy!! Haha wishful thinking, I know. Let me say I know almost nothing about real estate or the market, but if I may still pick your brain a little to kind of go along with what you said in your post.....everyone keeps saying that it is a "buyer's market" and that now is the time to buy because home prices are finally starting to fall, and since there's so much on the market there's a lot to choose from and more bargaining power. My future hubby and I will be first time buyers, and while I see the potential truth behind these statements, I can't help but still be REALLY nervous! Here's my thing: Let's say we buy a house for $250,000, which, a year ago may have been on the market for higher, so we think it's a good deal. BUT, how can we be sure that the value will increase in coming years instead of decrease? If the market continues to lose it's "boom" and really crashes, are we going to end up losing money down the road? So, is it really the best time to buy? Like I said, I no nothing about the market, but it makes sense to me that it could be pretty risky.

[BRU67]

Originally Posted by DGDurmie

AHere's my thing: Let's say we buy a house for $250,000, which, a year ago may have been on the market for higher, so we think it's a good deal. BUT, how can we be sure that the value will increase in coming years instead of decrease? If the market continues to lose it's "boom" and really crashes, are we going to end up losing money down the road? So, is it really the best time to buy? Like I said, I no nothing about the market, but it makes sense to me that it could be pretty risky.

Short answer -- You can't. The housing market is what the name implies -- a market. That means it can go up, down, boom, slump, stay stagnant for long periods of time, etc. It can be impacted by geopolitical forces, immigration patterns, weather patterns, whims of the market, trends, etc.

Given that you're clearly not a speculator, your best bet is to buy something you can afford (on a 30 year fixed mortgage preferably) and stay in for at least 10 years. I'd be conservative with my neighborhood choice too. Don't buy, for example, in Garfield Park because everyone's telling you its gonna be the next Bucktown. Leave that to people with larger portfolios.

If you want my guess, I think housing values will stay stagnant, if not slightly decline, over at least the next 5 years. Too much appreciation was piled on too quickly, in the face of stagnant wages too. There's only so much people can afford! So if you don't see that you can stay in this house/condo long term, you'll be better off renting. Of course, this is merely a prediction.

[gardener34]

There was also problems with the real estate market in the late 70s if anyone recalls. Weren't there really high interest rates then? I know we had really bad inflation. I think that is why the feds are so interested in keeping inflation in check - to avoid a repeat of those days.

We had a crummy economy in the 70s.

[BRU67]

Originally Posted by gardener34

There was also problems with the real estate market in the late 70s if anyone recalls. Weren't there really high interest rates then? I know we had really bad inflation. I think that is why the feds are so interested in keeping inflation in check - to avoid a repeat of those days.

We had a crummy economy in the 70s.

Yes, there was, but this situation isn't comparable. In the late 1970s, sky high interest rates and a slow economy stagnated the housing market for a spell. In this case, home prices effectively doubled in 7 years or so, while incomes grew very slowly, if at all. The boom was driven by a frothy "greater sucker" theory that powered speculative booms such as the recent dot.com debacle. Fuel was provided by creative financing methods such as short term ARMs and interest only loans.

Trouble is there are no more suckers and the consequences of the creative financing methods are coming home to roost, which means marginal buyers are out of the market. And I'm not just talking about low income people either. A "marginal" buyer by Naperville or Elmhurst standards could be a professional couple making $175k per year household due to the insane prices there. And a massive number of foreclosures from all across the spectrum will probably put further downward pressure on prices. In the late 1970s, people weren't buying but they weren't living in homes they couldn't afford either.

[HOWELL_STREET]

Dear Friends:

All of your answers are very good and I won't dispute them. However, please hear my bottom line. It is the very first time in many, many years, that employment remuneration is decreasing. In my opinion, that is the key point to all of this. A person one said that the important thing is the stock market. However, the stock market won't give one a 'bonanza' all of the time because when 'you' get the bonanza from a windfall profit, then you are taking that profit from someone else in the market who has lost it. If that is done year in and year out, then the middle class eventually gets destroyed. If we only have two classes of society - - poor people and rich - - then the entire economy of our country collapses. The poor won't buy the products and the rich (business owners) won't hire Americans to build those products.
So IF we are getting less remuneration for employment or if we don't have a decent employment at all - - then the price of housing HAS to eventually come down. It won't for a very long time into the future because everyone does not want to sell their home equity at a reduction. Then the real estate 'boom' is stagnated. So to reiterate, in my opinion, it is one's remuneration from viable employment that is our bottom line for our economy stability. From my viewpoint, it appears that we have lost it. Thank you for your comments.

Best Regards,

Carter Glass