So is the sale of my home hopeless? (Summit: rental, first time home buyer)

[theoakman]

Originally Posted by clevedark

"For example, the buyer that could have bought an 800k place in Summit by using the equity on their 500k home has to settle for a 700k home because their "500k home" will only sell for 400k now. Or worse, they won't even enter the market, because they are unwilling to sell their "500k home" for 400k."

Yes but you're forgetting that the 800K home is now the 700K home (or 650K). When the whole market goes down how are you losing money if you're still trading up?

(Not that I'm suggesting we try this at home, children.)

You aren't if you are trading up. But when there is no one to come in at the bottom, it makes trading up non-existent. If you are lucky enough to sell your house today, then sure, you can trade up.

[sholden]

Originally Posted by clevedark

And those 2000 prices posted up there look totally out of whack to me. Try doubling them.

Sure if you want 2007 prices, but in 2000 that's what they were.

Now NJ as a whole wasn't a "megabubble" like some areas, prices didn't go up 400% or anything close to it...

However, NJ (well the parts that interest me...) is heavily influenced by NYC. So there's a triple whammy going on:

1. Interest rates have to rise at some point in the future, or the US dollar is toast (which would be bad for all of us who have or earn US dollars).

2. The "herd mentality" has changed from "house prices always go up" to "house prices are going down" - whether or not either of those statements was/is true is irrelevant - the perception is all that matters.

3. The financial sector is in tatters, with more to come (recessions impact the financial sector, this time round the financial sector went first but that means it's going to get hit again by the normal recession impact which hits it after the recession really gets going in a normal recession) and makes up a large amount of NYC's jobs (both directly and indirectly).

I agree NJ is not going to see a housing bubble pop like CA/FL/NV/etc are seeing. However, those places are not going to see the same level of pain from the financial sector imploding.

I have no idea what or when the bottom will be. I'm reasonably confident that we will have a "U" and not a "V" (possibly an "L" even) in that prices will not shoot back up suddenly. With the big proviso that the govt is printing and borrowing money at a rate without historic precedent (in this country anyway, Germany, Argentina and Zimbabwe are amongst the well known countries that do have such precedents) the inflation that will result if that money supply, which is currrently "stuck" in the financial sector, suddenly makes its way to the rest of economy will push house prices "to the moon".

So I do see a situation in which house prices shoot up fast again, but I think there would be better places to have your money in that case anyway - though no bank will lend you hundreds of thousands dollars at low interest rates to let you leverage 4:1 into them...

[clevedark]

Those weren't the prices when we bought our first house in the area in 1998. 500-600K was your entry point in Chatham and Summit for a house that was a notch above true entry level--the horrible cramped cape or nasty split level on a busy street with no yard.

As a buyer I find those statistics to be really misleading. I see them all the time and think, what houses are they talking about???

[clevedark]

Originally Posted by theoakman

You aren't if you are trading up. But when there is no one to come in at the bottom, it makes trading up non-existent. If you are lucky enough to sell your house today, then sure, you can trade up.

Right, and when the first time home buyer can't get a loan in today's frozen credit market the whole machine stops working.

I was surprised a developer came in and bought that house--haven't all their lines of credit been yanked?

[elflord1973]

Originally Posted by clevedark

"For example, the buyer that could have bought an 800k place in Summit by using the equity on their 500k home has to settle for a 700k home because their "500k home" will only sell for 400k now. Or worse, they won't even enter the market, because they are unwilling to sell their "500k home" for 400k."

Yes but you're forgetting that the 800K home is now the 700K home (or 650K). When the whole market goes down how are you losing money if you're still trading up?

(Not that I'm suggesting we try this at home, children.)

I'm "forgetting" no such thing. My point is that equity in "starter homes" drives the higher end of the market, and that is declining right now because no-one can come in at the lower end. So "starter home" prices are a leading indicator of the rest of the market.

I take it from your post that you share my view on this.

[theoakman]

Originally Posted by clevedark

Right, and when the first time home buyer can't get a loan in today's frozen credit market the whole machine stops working.

I was surprised a developer came in and bought that house--haven't all their lines of credit been yanked?

IMO, that's not even the problem. My girlfriend was able to qualify for a 250k loan at their lowest interest rate with only a year of stable employment through Wells Fargo as recently as early December. I think people are simply waking up to what is and isn't affordable. If FHA ever requires people to make a real downpayment (read, not 3.5%), the gig is really up.

[JamesBoyer]

Originally Posted by theoakman

You aren't if you are trading up. But when there is no one to come in at the bottom, it makes trading up non-existent. If you are lucky enough to sell your house today, then sure, you can trade up.

That is the problem with your argument, the bottom segments of the market are still fairly active. In many towns the bottom segments are making up 70% of the current sales. Eventually that starts to trickle up. Most people once they have been home owners, especially in single family homes, don't do well going to apartments or rental homes.

I have been working with a few people who are trading up now. The stats show that they can get a bigger discount on the home they are go too, than they have to give on the one they are coming from. Others are begining to realize this as well, and look on this time in the marketas a great time to be trading up.

At least in my neck of the woods, starter home prices, seem to be holding up fairly well.

[theoakman]

Originally Posted by JamesBoyer

That is the problem with your argument, the bottom segments of the market are still fairly active. In many towns the bottom segments are making up 70% of the current sales. Eventually that starts to trickle up. Most people once they have been home owners, especially in single family homes, don't do well going to apartments or rental homes.

I have been working with a few people who are trading up now. The stats show that they can get a bigger discount on the home they are go too, than they have to give on the one they are coming from. Others are begining to realize this as well, and look on this time in the marketas a great time to be trading up.

At least in my neck of the woods, starter home prices, seem to be holding up fairly well.

Didn't we already establish that sales fell off a cliff last quarter? 70% of the sales means nothing when sales are hovering near all time lows. The market is cold, ice cold...

[Jerseyt719]

So the basic consensus is that the sale of a home IS hopeless right now??

[sholden]

Originally Posted by Jerseyt719

So the basic consensus is that the sale of a home IS hopeless right now??

It's not hopeless, expecting 2007 or even 2008 prices is though. There are enough people willing to try and catch a falling knife/pick the bottom that if priced right a home should sell.

Of course if James is right and NJ is different, then you'd be a fool to sell now and should wait for prices to rebound back to 2006 levels (since there was no bubble).