Why would someone want to buy into a collapsing market?

[Jrprofess]

Originally Posted by webclever

I am 28 years old, tech professional with a sound job. Me and my wife have been saving for quite sometime and have a pretty nice down payment. I make a low 6 figuere salary and I'm happy and stable. About a year ago we started seriously looking at the local real estate market here in Long Island. Now keep in mind this was before anyone on wall street went bust, 25/yr old mortgage broker were driving 7 series' and everyone who owned a house prior to 02' were adding pools, rooms and new driveways to park their new toys on. The only guys around speaking "the truth" were the bloggers and everyone thought they had 2 heads and a few screws missing. Now we all know who had the screws missing, eh!

After dedicating many (and I mean many) hours of research, I thank god for the half a brain I was given. I would have been stuck like the rest of them buying on emotion and not common sense. Lets face it folks, this is only the tip of the ice burg here on Long Island. Our local economy was being steamed along by home equity lines and cash-out refi's. With 40% of the local economy supported by housing related services, you can start to see the trouble. There are so many mom and pop stores on this island that have been living fat off of the locals "fake equity". Its all coming to a halt.

All you have to do is look at the median household income for the Island. 50% of the population only bring in $79,000/yr. The average median home price is over 400k. Do the math. Now that banks are contracting and extremely tighting lending standards house prices are going to tank. And anyone who doesn't think so either drained all the "fake equity" out of their home or makes money from real estate. Bottom line.

I see prices going back to 02' prices. Banks are tight (countrywide may start losing customer deposits) and there is minimal credit to go around. And this is all happening when the economy is in decent shape. Wait until the recession hits. Fugly!

My advice to any young, first time home buyers thinking about buying, DON'T.
Save, save, save and pay off all of your debt and make sure your credit is in ship shape. Keep an eye on housing inventory levels and median incomes. These two facts tell it all. Especially in a severe credit crunch. keep an eye on economy blogs and and professor Rubin's blog over at Yale....

Don't listen to any realtors. They are going hungry.....

Rent, save and short financials......Cheers to all the financial sound!

-Smiles

The only disagreement I have with your comments is that prices in some areas might dip below '02 levels. This area will prolong the pain because our employment is still currently high, and folks are willing to sit on ranches in good school districts on a quarter acre that they think should fetch 500...so they lower it to 499, then 489...meanwhile the market will settle in the 300's for that home in a couple of years. Just one opinion but I agree with much of yours. Why people think such a crazy correction is impossible is nutty to me, because houses skyrocketed just as irrationally...what, huge shifts in housing prices are only allowed to go upward, and crazy percentage changes in the price of homes can only be in a positive direction? If it jumped irrationally in the last 5 years by 100%, why can't a correction of 50% occur...seems plausible to me...albeit scary.

[GCGuy]

Hugs all around...let the collapse of LI commence. Boom, there is goes, crashing and crumbling to the ground. Boy, maybe I'll move to Carolina, or Omaha.

[webclever]

Your right, I was actually being optimistic about the 02' prices. So many people are drowning but aren't showing the signs, not yet atleast. The whole reason housing took off the way it did was because anyone with a heartbeat, the ability to lie and a signature got a mortgage. You can stop a rocket when it has an endless supply of fuel....

Our company sells globally so we should be ok. We made it through the tech burt without any layoffs so I'm hoping for the best. As far as construction related work, I see a long, long recession ahead....And with sellers staying on the stubborn, the longer it will take to get our economy back to thriving.

I'm watching areas like Stony Brook, St. James, The Setauket's and Mt. Sinai. I figuere when the market does bottom, these are the areas that will pop back up the most quickly (me being optimistec again). Remember Japan experienced a similar bubble and after hitting bottom homes didn't appreciate their for 15 years...

Overall, I think most people have no clue as to how deep this thing goes. All they have to do is look at the banks, hedge funds managers and all other investment flows suffering endlessly right now. Housing is the one thing that effects us all. And if the tech burst did what it did, just think what a housing bust will do...

Good luck with your waiting. I actually find it kind of exciting to see what happens next. I have enough money saved up to endure a 2 year layoff so I'm not that worried about a recession. After all, we need it!!!

Cheers!