Housing Doom and Gloom (2011, buying a house, buying)

[ghuber]

I haven't seen too much negative housing stuff posted on here lately... The recent positive spin must be getting into people's heads. Back to reality...

Homes: About to get much cheaper - Oct. 20, 2009

"The nation's biggest metro area, New York City, will underperform the nation as a whole over the next two years, according to Fiserv. Prices, which have already fallen 21.7% to a median of $375,000, are expected to fall 17.4% by June 2011."

[elflord1973]

Originally Posted by ghuber

I haven't seen too much negative housing stuff posted on here lately... The recent positive spin must be getting into people's heads. Back to reality...

Homes: About to get much cheaper - Oct. 20, 2009

"The nation's biggest metro area, New York City, will underperform the nation as a whole over the next two years, according to Fiserv. Prices, which have already fallen 21.7% to a median of $375,000, are expected to fall 17.4% by June 2011."

unfortunately, this looks about right. Slow bleed from here. If you're a potential buyer and you want to defer your purchase until prices are back to historical norms, you'll be waiting until ... when ... 2013 or so ? If you knew that we had a bubble back in 2003 and decided to wait for the bubble to burst, you'd be waiting 10 years.

[ansky]

But if you're looking for a home you plan on living in long-term, then none of this really matters.

[njerzygrl]

Anybody want to venture a guess about NJ?

[Lusitan]

NJ will follow NY-metro index heading down at least another 15% over the next year and a half. It's a foregone conclusion. Everyone has been warned -- do not buy a house in the area unless your job is solid, you have 12 months of post-down payment living expenses saved up, you have a 20% down payment, the house price is no more than 3x annual income, you are very certain that you love the home and that you will be here for at least the next 10 years.

Otherwise, buying a house in this market is a fool's game.

[elflord1973]

Originally Posted by njerzygrl

Anybody want to venture a guess about NJ?

Here are a couple of different approaches:

The market approach:

The Case Shiller futures market, which is in colloquial terms a betting pool for future values of the Case Shiller index, were predicting a 10-20% drop a while back.

Last I checked, the market was predicting a smaller drop (around 10% or so), looks like CME website isn't responding so I can't dig up current quotes.

The "value" approach

Another approach is to look at long run historical norms. Based on this, median prices "should" return to somewhere between 2.5 and 3x median income "eventually" (but when ?)

This approach might suggest (for example) a 20% drop in real terms over a period of 5 years (using 2% annually compounded inflation)

If I had good median HH income numbers, I could do this properly, but here goes with the above numbers (with median house price == 370, and I'll use 80 as median hh income)

(median price/median income) / 1.02^5 = price/income ratio in 5 years if price stays same and income follows inflation (2% inflation is a number I pulled from the bond markets. If inflation is higher, price won't drop as much though "real price" (inflation adjusted) will).

(1 - "normal price income ratio" / the above number) * 100% = percent drop.

If price income ratio is about 4 now and we expect it to drop to 3, that gives us a 17% drop spread over 5 years.

[ghuber]

Originally Posted by ansky

But if you're looking for a home you plan on living in long-term, then none of this really matters.

Sure it matters! What do you consider long term? The latest forecast that recently came out is that the NYC metro area won't return to the prices we witnessed during the bubble until 2018-2021. That's a long time.

[mumra]

it looks to me that there are plenty of people that are doing just fine in NJ. i have read several threads asking for help looking for houses in the 400-500K range. Thats some healthy paychecks.

[Lusitan]

Originally Posted by mumra

it looks to me that there are plenty of people that are doing just fine in NJ. i have read several threads asking for help looking for houses in the 400-500K range. Thats some healthy paychecks.

Yawn. The way people in the U.S. propel themselves into financial disaster, I don't think the fact that people are looking to buy 500K houses tells us anything about how healthy their financial situation is. All hat, no cattle.

The difference is that the rope people are being given to hang themselves with is getting harder and harder to come by every day.

[CaptainNJ]

Originally Posted by ansky

But if you're looking for a home you plan on living in long-term, then none of this really matters.

it definitely matters. it matters differently to different people depending on their financial situation and their options. there are various scenarios where buying a house that quickly drops in value can hurt you. lots of people in a position to sell now are seeing that (many who didnt plan on selling so soon when they bought the house).