Why would someone want to buy into a collapsing market? (New York: bank owned, for sale)

[LongIslandBubble]

Just curious; because based on all the facts, real estate is crashing right here on Long Island. Why buy a house when it is obviously going to be tens, if not hundreds of thousands cheaper in the next few years?

Look; I am really an optimistic person; but I cannot deny the obvious.

Take inventory for example; it is almost 3 times as high as it was back in 1999 and given the situation we are now in, inventories are obviously going to go much higher.
Moderator cut: personal website
Then there is the foreclosures; you can get the lastest numbers at
Foreclosures Real Estate Foreclosure Listings and Homes at RealtyTrac

There are well over 12,000 houses right now in pre-foreclosure.
Many more that are at auction and yet more are bank owned.

Then there is the 2/28 and 3/27 ARM's that people used around 2005, 2006 at the height of the market at low teaser rates of anywhere from 1% - 4% that have been resetting; many have seen their mortgage payments double. This is the reason there are so many forclosures; people cannot afford to make the new payments; it doesn't have anything to do with jobs! Around October we will be hit with the brunt of the resets as you can see in the graphic below and this will continue for a couple of years; thus further increasing inventory.

At the same time the lenders are tightening their standards; they no longer write 100% loans; they want people to put down some money and I believe before this is all over, they will require 20% down like they used to. They are also getting rid of the 2/28 and 3/27 loans and are requiring full documentation; just imaging how many buyers will be taken out of this already buyer difficient market.


Moderator cut: personal website

The US economy is 70% consumer spending; on Long Island, that number is much higher. With all these loans resetting and people cutting back on their spending to try and stave off foreclosure; this will put a strong drag on our local economy. This will surely put us into a recession! When people lose their jobs; they cannot pay their mortgages and therefore, they will also lose their houses.

All this will certainly push prices lower; this is already happening right now! All the storm clouds are aligned! When people realize their house is worth so much less than their mortgage, they will walk away from it; it won't be the first time this happened!

A house can be rented out just like anything else and the rent will be cheaper. Just curious as to what people here who are thinking about buying a house justify their reasons to buy now instead of waiting the market out.

Thanks,
Long Island Bubble

[pinklotus]

Because the market will not decline as low as you think. From what I've seen, the prices are staying steady now but inventories are staying on the market longer. I was suprised las week to noticec lots of new listing with prices above the 500k mark. Long Island does not have too many new developments, it's the same houses that are being recycled therfore we are not going to see the big fluctuation as Florida or other places.

[LongIslandBubble]

Originally Posted by pinklotus

Because the market will not decline as low as you think. From what I've seen, the prices are staying steady now but inventories are staying on the market longer. I was suprised las week to noticec lots of new listing with prices above the 500k mark. Long Island does not have too many new developments, it's the same houses that are being recycled therfore we are not going to see the big fluctuation as Florida or other places.

You are 100% wrong! ..but I wouldn't expect anything different from a real estate agent; after all it is your living.

My thread is asking people who are looking to buy, not people who are in the real estate business.

I have been tracking houses here on Long Island and I see price reductions every day from a puny 1% to as much as 30% or more.

Take a house such as these in baldwin
http://www.mlsli.com/uniDetails.CFM?...start=1&rpp=20

-6.76% change from first recorded price
Asking Price $455k as of 08/22/2007
Asking Price $459k as of 08/18/2007
Asking Price $488k as of 07/09/2007


http://www.mlsli.com/uniDetails.CFM?...start=1&rpp=20
-9.11% change from first recorded price
Asking Price $399k as of 08/18/2007
Asking Price $439k as of 07/15/2007

http://www.mlsli.com/uniDetails.CFM?...start=1&rpp=20
-6.75% change from first recorded price
Asking Price $359k as of 08/18/2007
Asking Price $385k as of 07/09/2007


http://www.mlsli.com/uniDetails.CFM?...start=1&rpp=20
-7.27% change from first recorded price
Asking Price $459k as of 08/18/2007
Asking Price $495k as of 07/19/2007

http://www.mlsli.com/uniDetails.CFM?...start=1&rpp=20
-12.5% change from first recorded price
Asking Price $350k as of 08/18/2007
Asking Price $400k as of 07/24/2007

I have thousands more, some for much higher reductions; and even though they have been reduced, they STILL HAVEN'T SOLD!

[KellyFG]

I agree with you for the most part about the condition of our housing market on LI. I'm always looking to buy more investment properties, however right now I'm just looking & following home sale prices in a few target areas & waiting for the bottom, some say early 08 I think it will be later closer to early 09 when the reality of a new president(no good options there) sets in & we get to feel the real effect of pulling out of Iraq which will be ugly as hell anyway you slice it. Also by then all of the ARM & I/O suckers sitting on the edge of disaster will have lost their homes & inventory will be crazy & home values will take major hits when the comps are foreclosures being sold for a song by desperate banks. And by the way, we ARE on our way into a national recession, that is a fact.
Now to answer your question about why people are still buying now, well they need a place to live & rates are still low(they will be over 8% for the best borrowers by 09 IMO and much higher for those with less than stellar credit, my parents had a mortgage on a 24,000 house in the 70's with an 11%interest rate). If people are buying to live there long term & not use their home equity as an unlimited checking account its still smarter than renting. Again this only applies to working people taking good loans on homes they plan to stay in & can afford.

[momix5]

Does anyone know what a 10 day sale is on a house I have seen this all over recently on homes for sale listings? Does this mean the house is a shortsale?

[bekindtoanimals]

So many of the skilled labor force has left LI. At one time we were the leader in defense jobs and technology similar to silicon valley in CA. The outflux of these people to various states New Jersey, RTP in North Carolina, etc we have lost some good quality neighbors. With that alot of young people who do have good jobs can not afford to pay the taxes or come up with a 20% down payment unless they have help from thier parents. What about LIPA bills on top of that. Over all I think LI is in serious trouble if something is not done to attract good companies and reduce taxes. Who really wants to commute into NYC from any part of the island especially Suffolk on the LIRR.

[LongIslandBubble]

Originally Posted by KellyFG

I agree with you for the most part about the condition of our housing market on LI. I'm always looking to buy more investment properties, however right now I'm just looking & following home sale prices in a few target areas & waiting for the bottom, some say early 08 I think it will be later closer to early 09 when the reality of a new president(no good options there) sets in & we get to feel the real effect of pulling out of Iraq which will be ugly as hell anyway you slice it. Also by then all of the ARM & I/O suckers sitting on the edge of disaster will have lost their homes & inventory will be crazy & home values will take major hits when the comps are foreclosures being sold for a song by desperate banks. And by the way, we ARE on our way into a national recession, that is a fact.

I don't see a bottom until 2014 at the minimum based on my research and how Long Island responds to a bust.

We may see prices stop dropping in 09, but just because prices stopped dropping, doesn't mean we hit a bottom; don't forget, until prices are rising with inflation, the prices are really still falling. I believe it won't be until 2014 before prices will start to realign with inflation.

...and yes we are going to have a nasty recession and it's going to be the worst recession this generation has ever seen.

Originally Posted by KellyFG

Now to answer your question about why people are still buying now, well they need a place to live & rates are still low(they will be over 8% for the best borrowers by 09 IMO and much higher for those with less than stellar credit,

But this kind of thinking is just silly

Low interest rates are not a reason to buy; it's ironic, but the true best time to buy is when interest rates are high. When they are high, people tend to pay less for houses (paying less for the same house is a good thing ); when interest rates rise, the sellers just increase their prices as we have witnessed what 1% teaser rates have done. You know; it's a good thing they didn't have 0.01% teaser rates or the cheapest house would have probably been $5M.

When you buy at a high interest rate, you are getting the best price on the house; when interest rates come back down, you can refinance to a lower rate further decreasing your expenses; it's no wonder that the boomers who sell their houses make the biggest profits.

Originally Posted by KellyFG

my parents had a mortgage on a 24,000 house in the 70's with an 11%interest rate).

Now you're comparing apples to oranges.
As far as your parents; just like mine or anyone else’s, back then a house costed approx 2 – 2.5 times one parents salary and only one had to work, now it's 8 - 12 times.

What would you rather have?

The house you bought cost twice what you make in a year at 11% interest rate or 8 -12 times at 6.28%

Originally Posted by KellyFG

If people are buying to live there long term & not use their home equity as an unlimited checking account its still smarter than renting. Again this only applies to working people taking good loans on homes they plan to stay in & can afford.

I know real estate agents tend to brainwash the public into believing that it's ALWAYS a good time to buy a house; just like a car salesman will tell you it's always a good time to buy a car or a barber saying it's always a good time for a cut.

Buying is only better than renting AFTER the market stabilizes; when prices are based on fundamentals. Your house has a P/E ratio; if the monthly costs to own it (mortgage,taxes,insurance,and maintenance) are higher than what you can actually rent it for, you are overpaying and you are better off renting it.

I was going to buy a house in 2001 to live in; I was outbid by someone who was irrational; I let them have the house. Since then, I have observed this irrationality in the market and decided to sit tight, do research and wait it out.

If I would have bought then; I would probably feel very rich right now and maybe I would have done alright.

If I would have bought in 2005/2006, I would have already been deep in the red right now. If you take all the rent I paid since 2001, the prices on those houses have come down more than what I paid in rent so I am already ahead even if I bought today...but why should I do that when it is going to fall much more.

Buying a house with a traditional mortgage is the right way; however, prices have been distorted by those who used the creative financing. So even though you are using the right loan, you are overpaying for the house.

Another thing; no one knows how long they are going to be in a house; so claiming you are going to stay long term is moot. They say on the average, people move every 6 or 7 years for whatever reason.


Here is a great rent vs. buy calculator from the New York Times (best I have seen so far)
Is It Better to Buy or Rent? - New York Times

By the way, my rent is less than my Sisters taxes.

[GCGuy]

If you are selling and buying, it's a wash unless you are willing to sell, rent, then buy. If you are looking to buy a house and live there for 20 yrs, then I think many would take their chances that in 2027 the prices will be higher. Sure, there's chance it won't be, but that's not been the case for much of history. As far as asking prices dropping, so what...perhaps asking prices are way out of line and now they are straightening out?

It's tough to predict the future no matter how many charts are referenced.

[LongIslandBubble]

Originally Posted by bekindtoanimals

So many of the skilled labor force has left LI. At one time we were the leader in defense jobs and technology similar to silicon valley in CA. The outflux of these people to various states New Jersey, RTP in North Carolina, etc we have lost some good quality neighbors. With that alot of young people who do have good jobs can not afford to pay the taxes or come up with a 20% down payment unless they have help from thier parents. What about LIPA bills on top of that. Over all I think LI is in serious trouble if something is not done to attract good companies and reduce taxes. Who really wants to commute into NYC from any part of the island especially Suffolk on the LIRR.

Exactly! This is another problem with Long Island; I’m glad you brought it up.

Companies are leaving Long Island to relocate to other up and coming states for the same reason companies are outsourcing to other countries; to save on labor costs. Here is a good article from Newsday about this.

It's getting lonelier at the top -- Newsday.com (http://www.newsday.com/business/ny-top-bzside0514,0,3111167.story - broken link)

This problem is only going to get worse as the meltdown continues.

[KellyFG]

Originally Posted by LongIslandBubble

Now you're comparing apples to oranges.
As far as your parents; just like mine or anyone else’s, back then a house costed approx 2 – 2.5 times one parents salary and only one had to work, now it's 8 - 12 times.

What would you rather have?

The house you bought cost twice what you make in a year at 11% interest rate or 8 -12 times at 6.28%

don't make assumptions and use them as facts. I purchased my house on LI in 2004 for SLIGHTLY more than twice our income, and my rate is just under 7% fixed.

Originally Posted by LongIslandBubble

Another thing; no one knows how long they are going to be in a house; so claiming you are going to stay long term is moot. They say on the average, people move every 6 or 7 years for whatever reason.

You are right, things do come up & people need to move. However in most situations if a house is bought right, for a fair price-with a decent down payment & a real conventional loan, even if the people needed to move they wouldn't get killed. Lots of LIers became overnight landlords in the early 90's in order to pay the mortgage on the house they couldn't sell.

Originally Posted by LongIslandBubble

By the way, my rent is less than my Sisters taxes.

DH & I lived in my rented townhouse our first year of marriage, believe me writing off my mortgage interest at tax time is WAY better than "saving" on rent.