NY Housing Article: Any thoughts? (New York, Deer Park: foreclose, rental, countertops)

[dman72]

Originally Posted by propain

You didnt say the location where you were looking to buy.

Sorry you dont like my economics, but welcome to LI. Its been going on for a long time. In Massapeuqa there is an area called Harbor Green. There is nothing special about it. Its just like the rest of Massapequa yet the prices are about 30% higher than in any other areas of Massapequa. You also have "Nassau Shores" and "Treehaven" ect..

These areas are all in the same SD but command different prices. Some because of being on the water, others for no reason at all other than a fancy name and special street signs. PEOPLE make these prices. Not the market. Im sorry, but its fact all over the island.

There are about 8-10 School districts that I will look in, and from that point find the best house for the money. We're not that picky about any particular area, as long as it's good. Babylon SD, Connetquot SD, E I, West I, Islip. Bayport-Bluepoint, 3 Village, Smithtown, Commack, Kings Park, a few others.

Again, we'll see.

[Burb]

Originally Posted by MiddleIslander

Right now the problem we have to deal with is actually deflation - where decreasing economic activity is driving prices lower. And also there is a vast amount of wealth currently being destroyed due to the collapse of illusory home wealth, and unwinding derivatives, so monetary supply is actually decreasing.

The idea that the Fed can be printing money and not inducing undue inflation is counterintuitive. What effect this has on the longer term is not quite known, but for the immediate future we will see inflation near zero.

No country facing enormous budget deficits, rapid growth in the money supply and the prospect of a sustained currency devaluation as we are has ever experienced deflation. Inflation has to happen, the question is to what degree.

[MiddleIslander]

Originally Posted by Burb

No country facing enormous budget deficits, rapid growth in the money supply and the prospect of a sustained currency devaluation as we are has ever experienced deflation. Inflation has to happen, the question is to what degree.

No doubt inflation will occur. I question the growth in money supply though, remember something called the credit crisis? That occurs when there's no money supply (credit, currency, almost the same thing these days). Every foreclosed house, short sale, or mortgage modification decreases money supply. Every derivatives contract that's lost value decreases money supply.

We may see mild deflation or stagnation in the value of our monetary currency for a short period of time, but it won't last long. Our financial system was designed to embrace inflation rather than deflation. If deflation ever shows its face, the fed opens the taps just a bit more.

I don't know what's going to happen with inflation. I just don't think hyperinflation or stagflation is guaranteed. Only time will tell.

[seren77]

Originally Posted by propain

Others will buy in today at low interest rates and hope for a good dose of inflation which is almost a guarantee. The government is running massive deficits and has the printing presses at full throttle. That's the classic recipe for inflation. Inflation is the debtor friend.

Well, I have to say that it is not that crystal clear. Check out this link:

Inflation and Government Spending - Economix Blog - NYTimes.com

Especially this part: "Our study found significant positive correlations between inflation and government spending only in cases when military spending grew — as it does during wartime."

I personally do not expect any inflationary pressure for a while. To believe that, you have to believe you expect a quick recovery from recession. I simply do not see that. We have a huge decline on demand side for that to happen and it simply doesn't come any soon.

[Burb]

Originally Posted by MiddleIslander

No doubt inflation will occur. I question the growth in money supply though, remember something called the credit crisis? That occurs when there's no money supply (credit, currency, almost the same thing these days). Every foreclosed house, short sale, or mortgage modification decreases money supply. Every derivatives contract that's lost value decreases money supply.

We may see mild deflation or stagnation in the value of our monetary currency for a short period of time, but it won't last long. Our financial system was designed to embrace inflation rather than deflation. If deflation ever shows its face, the fed opens the taps just a bit more.

I don't know what's going to happen with inflation. I just don't think hyperinflation or stagflation is guaranteed. Only time will tell.

Indeed, time will tell, I don't completely disagree with you. To date we haven't felt the consequences of increasing the money supply. The Tarp funds and bailouts have not hit the ecomomy at large. The money has just been passed back and forth top-side. As long as the money stays in the hands of the banks and the government, no problem. if the consumer gets a hold of the extra Billions, look-out.

[propain]

Originally Posted by Burb

Indeed, time will tell, I don't completely disagree with you. To date we haven't felt the consequences of increasing the money supply. The Tarp funds and bailouts have not hit the ecomomy at large. The money has just been passed back and forth top-side. As long as the money stays in the hands of the banks and the government, no problem. if the consumer gets a hold of the extra Billions, look-out.

The government is buying its way out of this recession and putting the money into the hands of the consumer. This almost guarantees inflation. The low interest rates we are seeing will possibly re-inflate the housing market as well. Luckily the banks have become way more stringent on LTV ratios and home values themselves. They also aren’t lending as easily... but banks have short term memories and before you know it they will be lending full throttle again. As soon as the banks and government feels we have hit bottom watch the interest rates rise to about 8% and hold there for a long time.

In my opinion inflation is almost a guarantee at this point. Its just a question of when. This is why I say buy now. Like I said in my previous post, If you purchased real estate at 5% you will make out like a bandit. With inflation your monthly payments will be low and you'd get to repay the principal over time with devalued dollars. That's a double win.

[MiddleIslander]

Originally Posted by propain

The government is buying its way out of this recession and putting the money into the hands of the consumer. This almost guarantees inflation.

Not when an economic slowdown and deflation is in progress. Inflation only occurs when prices and people's spending ability both increase, more or less permanently. Right now people are spending far less and prices are going down. Salaries aren't increasing, they're decreasing. It's not so cut and dried.

Originally Posted by propain

The low interest rates we are seeing will possibly re-inflate the housing market as well. Luckily the banks have become way more stringent on LTV ratios and home values themselves. They also aren’t lending as easily...

These things that you've said are contradictory. Low interest rates will not keep home prices from falling, because supply is at record levels and continuing to increase rapidly. Demand is low for all but the best priced properties. You can ask any realtor or mortgage broker - banks are now bringing in their own assessors to look at the home, evaluate comps, and are eager to kill deals that are over fair market value.

Originally Posted by propain

but banks have short term memories and before you know it they will be lending full throttle again. As soon as the banks and government feels we have hit bottom watch the interest rates rise to about 8% and hold there for a long time.

I guess you're not realizing the connection between interest rates and home prices. The instant interest rates go up, the demand side will ease. Easy credit caused the housing bubble in the first place, and likewise lack of easy credit will force home values down. Ignoring all other factors, the increase in interest rates alone will destroy affordability.

Originally Posted by propain

In my opinion inflation is almost a guarantee at this point. Its just a question of when. This is why I say buy now. Like I said in my previous post, If you purchased real estate at 5% you will make out like a bandit. With inflation your monthly payments will be low and you'd get to repay the principal over time with devalued dollars. That's a double win.

Why will you make out like a bandit? If interest rates go up and cause home prices to drop, you've still got this massive principal to pay off. That's a lot more money, perhaps hundreds of thousands worth, that you must pony up if you want to sell early, or pay off your loan early.

Buyers today need to plan on remaining in their home for a decade or more to see their money back. If staying put isn't a problem, and you need a home, by all means buy... but for young families who need the option to chase opportunities, keep on renting and saving!

[spamsux]

Propain happened to buy a house just prior to the start of one of the biggest bubbles in history and he now thinks based on merely conincidence that he can provide savy analysis of the real estate market and other marco economic issue.

[Jrprofess]

Originally Posted by propain

Most are refinancing right now into low interest FHA's. People have smartened up. They aren’t just waiting for those ARMS to come to bear. They are refinanced their way out right now and have even had their mortgages re-adjusted based on value.

This second coming you are all hoping for is not going to happen.

But you can wait if you like. Best of luck. I just would hate to see you all price yourself out of the market. Don’t doubt the will of Liers to hold on prices. Some will fall due to job loss, divorce etc. Most will just close the hatches and ride it out. Most have already re-adjusted their mortgages to 5% rates and will now ride out the storm as interest rates surge.

Reality in my humble opinion is somewhere in the middle of the small spat going on between the two camps on this thread. 10-15% further down across the entire island and then stagnation as houses are pulled off the market or others need to wait it out...and that wait will be long.

For those investors or first time home buyers concerned that the small ranch rental property they want to buy in Deer Park or Kings Park for 295k will not be available at the same "steal", or that a similar home will be higher priced in a year or two, I say wait. Things are going to mentally bottom on the island another 10-15% (aside from those who MUST sell) and then scrape along the bottom for 3-5 years in my humble opinion. Historical norms still have a ton of catching up to do. I was appraised earlier this year (I did a shorter term refi...had to get some benefit from this bailout )) at 20k less than my spring 2004 purchase price, and was pleasantly surprised. This is my second home, so I carried equity in from my first home sale. But for those thinking things do not have further down to go, they are mistaken.

[WJFM]

In this debate of Buying-Vs-Renting, I would like to throw in 2 cents.
1) Home price and Inflation - Some people here have suggested that home prices have to keep pace with inflation ( + 2%). In last 8 years, what other prices can you think that has kept pace with inflation. Gas price was 1$ in 2000.. it is now 3$. Health care premiums have atleast doubled. Food prices have atleast doubled. Commodities like copper, steel etc have also atleast doubled since 2000. So.. why should home prices alone keep in pace with inflation.
2) Renting - Renting actually sucks in Nassau county. Either you end up paying very high prices for a few nice apartments.. or end up living in illegal basement housing if you want something affordable. There are not many apartment complexes in good areas, and even the supposedly nicer ones like Avalon/Fairhaven have rents of 2000$ for a 2 bedroom apartment. And here is another thing that has not kept pace with inflation.. Rent. Typically, landlords are supposed to increase their rents by 4-5% every year, but they increase it by 10% when they add a new tenant. Rents have almost doubled since 2000.
3) Taxes - The avg 8000$ taxes for a long island school district is reasonable.. considering that private tuition for EACH child is about 12k per year in the avg private school, and your taxes pay for the children's schools and all town/county services.

I think Nassau county is having problems attracting upper middle class / middle class families who work in the city. Westchester has more to offer at this point.. similar quality schools, better downtowns, less traffic/noise/congestion and safer areas. If we can get more investment into Nassau county downtowns, we will be able to attract more city dwellers, and give a push up to real estate.