Foreclosures Are a Symptom, Home Prices Are the Problem (Clark: best neighborhoods, renting)

[Sarah07080]

Source :
http://homeguide123.com/articles/For...e_Problem.html

The government is so intent on treating the symptoms of the most recent housing market debacle that they are failing to address the actual root of the problem: home prices.

The Problem

The plans politicians have put forth thus far to 'keep Americans in their homes' range from poorly conceived to downright unethical. Worse yet, none of the plans come even remotely close to addressing the real problem: home prices.
There has never been much of a gap between incomes and home prices. When one gained, so did the other. This formula changed in 1997.

Source: NAR; Census Bureau
Home prices began to climb at an unprecedented pace. Within a few years, the gap between home prices and incomes had become so large that affordability was suddenly an issue for many potential homebuyers.
This should have been enough to keep prices in check, but it was not. Lenders and borrowers alike found a way to dodge the issue: mortgage fraud.
Applications were falsified, appraisals were inflated and lenders loaned reckless amounts of money to unqualified borrowers. Everyone took a financial gamble on the housing market, assuming that the bad loans could be refinanced or that the houses could be sold for profit later on. These assumptions were built on the theory that home prices would continue to climb.
Of course, it didn't work that way. Home prices are falling, leaving banks and borrowers scrambling to find a way out of their self-created financial sinkhole. Foreclosures are at levels not seen since the Great Depression and are expected to get worse in the near future.
But foreclosures aren't the problem; home prices are. People simply can't afford today's prices. The majority of the people who are in default right now have not even seen a rate increase yet. It's not their bad loan working against them, it's the fact that they bought more house than they could afford. Furthermore, they bought at a time when home prices were artificially propped up.
Freezing rates and other ploys to treat the symptom of the problem are pointless. The government is essentially laboring to keep people in a depreciating asset that was a bad investment from the get go.

Don't Drink the Kool-Aid

The government wants the public to think that the series of initiated bailouts are meant for 'working families who got duped into bad loans.' The reality is that the big bailouts are for banks, not the public.
For example, Bush's teaser freezer has nothing to do with working families and home prices. The actual goal of the plan is to prevent the real owners of most subprime loans (foreign investors of mortgage backed securities) from suing U.S. banks. It is fraud at its finest.
Bush's moronic plan has single-handedly undermined confidence in the sanctity of U.S. contract law. Since our economy is propped up by an inflow of foreign funds, our President has figuratively bit the hand that feeds us.
If banks had to buy back the worthless paper, which coincidentally will cost 10 times more than the market value of the securities, the world might realize how unfavorably leveraged U.S. banks really are. This would be bad for U.S. banks--some would go out of business--but it's better than the alternative Bush forced on us.
The bottom line is that it is time to face facts. We are well past the point of a pain-free correction. Home prices are going to fall. People are going to lose their homes. Banks are going to be hurt when real numbers finally hit the books. And the economy is going to suffer.
What we should be contemplating is how far we are willing to let the government go in their misguided and fraudulent attempts to delay the inevitable.

[JerseyJoy]

this is very true!! thank you for posting

[ottomobeale]

Interesting article.

I earn more than 90% of the rest of the country.

Yet.

I can not afford a 50 year old 1200SF cape in N NJ.

seems just a bit odd doesnt it?

[billb7581]

It's funny. In the span of a year, I went from thinking I got royally screwed on the price of my house to everyone in the neighborhood telling me how smart I was, and what a good deal I got.

[tahiti]

Originally Posted by ottomobeale

Interesting article.

I earn more than 90% of the rest of the country.

Yet.

I can not afford a 50 year old 1200SF cape in N NJ.

seems just a bit odd doesnt it?

hmmmm. well, if you do in fact earn more than 90% of the country, then I'm not seeing how you can't afford a house that size, unless you want to take on less than the 25-28% recommended. you can get something in my, very nice, N NJ town in your price range.

[emanon]

I am sure most of the younger people will disagree with this but the older folks know what I am talking about.

Todays first time buyers don't want starter homes like most of the older folks started with 40 years ago. They want fancy kitchen and baths, best neighborhoods, best schools, two new cars in the drive and a great vacation every year and they are in their late 20's early 30's.

It took me four homes before I got to live in the area where I live now. I had to send my kids to school in the less desirable areas but they finished up in the good schools and both graduated from good colleges with great jobs.

40 years ago I could not afford to live where I live now and not because I am wealthey but becaue I took my time and each time I moved I sold for a profit and moved on to better towns.

There is nothing wrong with starting out small and moving up every 10 years or so, makes you appreciate what you have worked for.


Todays young people want everything NOW and look where it's got them, in debt because they bought over their heads because they have to have it all right now.

Those starter homes are out there you just have to adjust your priorities.

[juliann1977]

I am sure most of the younger people will disagree with this but the older folks know what I am talking about.

Todays first time buyers don't want starter homes like most of the older folks started with 40 years ago. They want fancy kitchen and baths, best neighborhoods, best schools, two new cars in the drive and a great vacation every year and they are in their late 20's early 30's.

I think you're spot on, and I'd fall into the demographic about which you're speaking. Very, very few people in this age group can afford all of this, and that's when the debt spiral rears its ugly head. A whole lot of people have horrible debt to income ratios.

A close friend of mine wants to buy, and I started suggesting small starter condos in Middlesex county. She was completely dismissive, as she only wants to buy in Monmouth, and definitely not in any of the lower priced areas. I think she'll be renting for a good long while.

[nic529]

Originally Posted by emanon

I am sure most of the younger people will disagree with this but the older folks know what I am talking about.

Todays first time buyers don't want starter homes like most of the older folks started with 40 years ago. They want fancy kitchen and baths, best neighborhoods, best schools, two new cars in the drive and a great vacation every year and they are in their late 20's early 30's.

It took me four homes before I got to live in the area where I live now. I had to send my kids to school in the less desirable areas but they finished up in the good schools and both graduated from good colleges with great jobs.

40 years ago I could not afford to live where I live now and not because I am wealthey but becaue I took my time and each time I moved I sold for a profit and moved on to better towns.

There is nothing wrong with starting out small and moving up every 10 years or so, makes you appreciate what you have worked for.


Todays young people want everything NOW and look where it's got them, in debt because they bought over their heads because they have to have it all right now.

Those starter homes are out there you just have to adjust your priorities.

I would have to disagree with you on this - at least in my case. The problem I see is that even though I have moved out of my "starter home" and into something a little bigger - I still have a very modest sized house. Yes, my kids do go to good schools....and I do demand that. But for me at least - I don't see how I can afford to "move up" anymore due to the cost of housing in NJ. A 1400 sq. ft home in my area just sold for 349,000 with .47/acre. I can't afford that! And my house is 1600 sq ft. I personally would like a bit of a bigger house and maybe a little more property. Yes, I would like a new kitchen and maybe nicer furniture. But I don't think there's anything wrong when you admit that maybe NJ isn't the place your going to get it. And I certainly don't think its my fault for being in this situation.

I also think that in today's market, yes your are correct, a lot of younger people are buying into the newer developments. But I can also understand where they are coming from - for ex: why buy a 349k 1400sq ft house that is older and probably needs work when I can buy a townhouse for 400k and its brand new? I don't agree with it....I'd rather have a yard...but I can understand where these people come from. Then in the new houses they are building - and some of these developments are building ridiculously close to eachother, are 500k - and they are offering upgrades like crazy just to get their houses sold. Its tempting, and I can understand.

[kimchee]

Originally Posted by emanon

Todays first time buyers don't want starter homes like most of the older folks started with 40 years ago. They want fancy kitchen and baths, best neighborhoods, best schools, two new cars in the drive and a great vacation every year and they are in their late 20's early 30's.

There is nothing wrong with starting out small and moving up every 10 years or so, makes you appreciate what you have worked for.

Todays young people want everything NOW and look where it's got them, in debt because they bought over their heads because they have to have it all right now.

Those starter homes are out there you just have to adjust your priorities.

I agree with emanon on this one. The younger generation are making more and don’t necessary have a good understanding of personal finance. This is a dangerous combination as it makes them more optimistic about their financial situation. They are doing things like spending beyond their means in the hopes that their income will increase. Or using credit cards to pay for their extravangances.

Being of the younger generation myself, I noticed friends who fall into this trap. They borrow 4x or more of their income for a first home to show off how affluent they are.

Case in point, a friend of mine recently bought a 5BR home in Princeton for nearly 900K. She and her husband make abit over 200K, just like my husband and I, and have no children. We got the 500K 2BR condo and they decide to buy one of the better homes in an already expensive neighborhood. Why do you need a 5BR home for 2 people?

It’s people like this who want to flaunt their so-called wealth that enable home devepers to price homes in NJ the way they do. The same 900K house in Princeton would probably be 300-400K in PA. Location does not justify a 2-3x increase of a house.

[CuCullin]

Originally Posted by emanon

I am sure most of the younger people will disagree with this but the older folks know what I am talking about.

Todays first time buyers don't want starter homes like most of the older folks started with 40 years ago. They want fancy kitchen and baths, best neighborhoods, best schools, two new cars in the drive and a great vacation every year and they are in their late 20's early 30's.

Yes and no. I think part of it is definitely a different mentality - for some reason alot of people my age (26) think they can just jump right into a half million dollar townhouse. However, not everyone thinks this way.

I rented for a while, moved in with my gf's parents (closer to the train than mine )for a bit, and saved. I picked up a dirt cheap fixer upper, and have been working to increase its value over the past few months. I fully expect the process to take 2 yrs plus, and I will be in the home for 3-4 years definitely. There was even quite a bit of debate on here as to whether or not I'd find something that wasn't a trailer.

And it isn't just me - Badfish and his fiancee are out there looking at lots to build something small, with some help from others. There are a couple friends of mine looking at tiny little condo's to get by in for now.

BUT!

My dirt cheap house wasn't all that much less than the home my parents bought in Clark a few years before the boom. That house has more than doubled. Most condo's and townhomes out there can't be purchased for the price I paid. Hell, there are *lots* you can't buy for the price I paid. Home prices are a *serious* problem. Being involved in the construction industry, I've seen incredible wage increases, builder who are nothing more than sharks (not that all are, just that I've seen a number of these), builders who don't now about building, and people turning trading up in their home into an income source on a massive scale, without understanding the industry.

Its a dangerous game, and this outcome was expected by many. I'm not surprised at whats going on now, and I won't be surprised in a year.