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Old 12-27-2009, 09:51 AM
 
Location: Northern NJ/Amagansett, NY
4,019 posts, read 4,517,701 times
Reputation: 2793
Quote:
Originally Posted by elflord1973 View Post
Inflation is the reason I don't think that nominal prices will drop substantially. I think we'll have mild inflation and that's going to drive a drop in real prices while nominal prices stay about flat.
I hope it is as mild as you think it will be.
In the short term, nominal prices are the only prices that matter. Real prices have little acute effects on the market. Real prices are more of a chronic condition.
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Old 12-27-2009, 09:52 AM
 
Location: Montgomery County, PA
2,771 posts, read 3,637,573 times
Reputation: 593
Quote:
Originally Posted by DodgeViper01 View Post
Of course things can possibly slow when incentives are not given but that was already mentioned by me. My argument is with the value being saved.
Over the period of a loan, you are still coming out on top.
Why ? Show me the numbers. I've run the numbers and posted on this forum analysis that shows that when rates are higher, affordability is nearly always better. Take a look at my posts in this thread, including the scatter plots.

housing affordability at an all time high (NOT)

Your "argument" if you can call it that, relies on the (WRONG!) assumption that prices are unaffected by these incentives.

Quote:
Even if like you said rates are higher and prices are lower, you still end up paying more because prices from pre-2000 are never coming back.
Nominal prices from pre-2k are not coming back, but what about real prices ?

A more realistic scenario is that inflation will bring up wages while house prices stagnate.

Whether or not one factor compensates for the other in pricing is an empirical question. You basically need to do your homework and analyze the data to conclude much of anything.

Quote:
Everyone remembers the early 1990s with rates at 12%+. With the economy being where it is now, the best time to buy is now.
And yet with those rates, affordability was better than today.

Quote:
As for what I told people in 2006, I knew that this was coming and told many clients about the possible crash, and that was not even my job.
I understand that it wasn't your job then. What I don't understand is, why it's your job or your area of expertise or competency to suggest that "now is the time to buy". Most realtors have no training in or expertise in economics, finance, or for that matter, elementary math.

Quote:
Lastly, as for the $250K price range, that is my most popular client today. I am located in Central NJ and that is actually the most popular price range for all my transactions. Last month I moved three properties and they were $224K, $250K, and a rental worth $275K.

This no doubt varies greatly by area -- some regions have corrected more than others. In towns where a substantial correction (on the order of 20% down from bubble levels) has played out, it probably does make sense to buy.

Around the NY metro, many (perhaps most) sellers are defending 2006 prices or close to that (within 10% of 2006 prices).
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Old 12-27-2009, 12:00 PM
 
Location: Central New Jersey
1,288 posts, read 4,008,758 times
Reputation: 277
Quote:
Originally Posted by block911 View Post
where?
Sayreville
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Old 12-27-2009, 12:06 PM
 
Location: Cranford NJ
988 posts, read 2,214,464 times
Reputation: 321
I think what is missing in this equation is the fact that in those days the dollar amount was a lot less than today, You could have purchased a home for $80,000. 20% of that is $ 16,000. You would borrow 64,000 @ 12% is approx $ 650 mo., and taxes were a whole lot less too. Everything is relative, and you really cannot compare to those days, as things were very different. Things will level off when the cap rate on a rental investment property directly relates to or close to the purchase price. For example: If you are collecting 1300 on each apartment in a two family home, then you cannot be paying more than $2,600 a month including all expenses. Considering 20-25% down. In this case the Landlord is barely breaking even, and it's really not a great investment. Prices shall not go below this threshold.
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Old 12-27-2009, 12:37 PM
 
Location: Central New Jersey
1,288 posts, read 4,008,758 times
Reputation: 277
Quote:
Originally Posted by elflord1973 View Post
Why ? Show me the numbers. I've run the numbers and posted on this forum analysis that shows that when rates are higher, affordability is nearly always better. Take a look at my posts in this thread, including the scatter plots.

housing affordability at an all time high (NOT)

Your "argument" if you can call it that, relies on the (WRONG!) assumption that prices are unaffected by these incentives.



Nominal prices from pre-2k are not coming back, but what about real prices ?

A more realistic scenario is that inflation will bring up wages while house prices stagnate.

Whether or not one factor compensates for the other in pricing is an empirical question. You basically need to do your homework and analyze the data to conclude much of anything.



And yet with those rates, affordability was better than today.



I understand that it wasn't your job then. What I don't understand is, why it's your job or your area of expertise or competency to suggest that "now is the time to buy". Most realtors have no training in or expertise in economics, finance, or for that matter, elementary math.




This no doubt varies greatly by area -- some regions have corrected more than others. In towns where a substantial correction (on the order of 20% down from bubble levels) has played out, it probably does make sense to buy.

Around the NY metro, many (perhaps most) sellers are defending 2006 prices or close to that (within 10% of 2006 prices).


I do not really understand your argument since it keeps relating back to the fact that affordability was better back in the early 1990s. I do not understand that argument because I saw what things were like back then and even now, and still the deals are better now. My parents owned a townhouse that they paid $200,000 for in 1990 and their mortgage was 13% or 14% and that was good at the time but since I said 12% I will stick to that. If you financed $200,000 at 12% for 360 months you were at a total of $740,000 at the end of the loan. That means you paid $540,000 in interest. If you purchase the same townhouse now, you are looking at about $350,000. Finance $350,000 at 5% and you end up paying $676,000 which is $476,000 in interest. Buy then versus today and you are still coming out almost $75,000 on top.

As for the NY metro area, with towns like Fort Lee, Edgewater, and Newark, prices have been hit too. Yes sellers are trying to "defend" their prices at 2006 levels but asking and selling prices are two different things. People said NYC would not get hit, it did. Orange County, it did. And the list goes on and on. I will stand by my statements, now is a great time to buy. If people simply do not feel this way, I am not holding a gun to their head making them purchase. Like I said before, in the end a smart consumer does their research and makes up their own mind.
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Old 12-27-2009, 01:17 PM
 
Location: Montgomery County, PA
2,771 posts, read 3,637,573 times
Reputation: 593
Quote:
Originally Posted by DodgeViper01 View Post
I do not really understand your argument since it keeps relating back to the fact that affordability was better back in the early 1990s. I do not understand that argument because I saw what things were like back then and even now, and still the deals are better now. My parents owned a townhouse that they paid $200,000 for in 1990 and their mortgage was 13% or 14% and that was good at the time but since I said 12% I will stick to that. If you financed $200,000 at 12% for 360 months you were at a total of $740,000 at the end of the loan.
You assume that the loan is held to maturity -- yet another wrong assumption. If you financed at 12% in 1990, you would have refinanced or sold before those 360 months were up (what percentage of loans are never paid off due to resale, and never refinanced ?). Banks take this into account when they value loans, and borrowers should do so too.

The other error in your math, is that you add up today's dollars with future dollars. This isn't valid -- the present value of a dollar tomorrow is less than the present value of a dollar today. If rates are up at 12%, this isn't just a little bit wrong -- this is a serious error. With the higher rates in the 1990s, you also had a larger increase in income, so the discounting for those future payments is steeper.

One way around the complexity introduced by PV-ing future cash flows, is to compare your monthly payment at whatever time with your monthly payment today. Monthly payment (including property tax) to income ratio is a pretty good indicator of how much you house you can afford in the first year or two of the mortgage (which is where the defaults are most likely to occur). Note that after this, this method is actually biased in favor of low-rate, high price (because it ignores the value of the implicit refinance or prepayment option).

Quote:
I will stand by my statements, now is a great time to buy. If people simply do not feel this way, I am not holding a gun to their head making them purchase. Like I said before, in the end a smart consumer does their research and makes up their own mind.
Sure, I agree -- no consumer in their right mind takes the realtor's claim that "now is the time to buy" at face value.
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Old 12-27-2009, 02:03 PM
 
Location: Central New Jersey
1,288 posts, read 4,008,758 times
Reputation: 277
Of course people refinance and that was not even mentioned because people tend to move around every ten years, so even by then they are getting a new loan with a lower interest rate. The real estate "game" is an ever changing slide of the hands in my opinion. Even in 2000 interest rates were still higher than what they are today and that is my point but I know there is no way either of us are going to see eachothers point of view 100% so I am refraining from continuing this any further because this could just end up going downhill. It was a pleasure sparring with you ElfLord.
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Old 12-27-2009, 05:22 PM
 
837 posts, read 437,846 times
Reputation: 186
Quote:
Originally Posted by DodgeViper01 View Post
Sayreville
Everything that sold less than 300k in Sayreville is so jacked up they didn't even put pictures otherwise the rest is 350 and above, with decent ones starting at 400k
Mod cut: NO LINKS to specific properties.

went for 260k it has 4 bedrooms and 1 bath with ruble for a driveway. The home is so old it probably needs to be torn down or needs 50-75k in repairs. No Thanks,


Bird's eye view:
Your web browser and the Maps site are incompatible[/url]

Last edited by Viralmd; 12-27-2009 at 06:09 PM.. Reason: NO links to specific properties.
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Old 12-27-2009, 06:47 PM
 
Location: Central New Jersey
1,288 posts, read 4,008,758 times
Reputation: 277
Quote:
Originally Posted by block911 View Post
Everything that sold less than 300k in Sayreville is so jacked up they didn't even put pictures otherwise the rest is 350 and above, with decent ones starting at 400k
Mod cut: NO LINKS to specific properties.

went for 260k it has 4 bedrooms and 1 bath with ruble for a driveway. The home is so old it probably needs to be torn down or needs 50-75k in repairs. No Thanks,


Bird's eye view:
Your web browser and the Maps site are incompatible[/url]
The Rental property for $275K (3 Bed, 2.5 Bath Ranch) was completly renovated. With a few minor touch up items, that house was perfect and my tennants are doing it all because the little things bother them.

My Idlewild property (2 Bed, 1 Bath Colonial) was built in the early 1900s and was very clean and well maintained. For $224K I would hope that you do not expect and completly renovated house but I must say this house was great and in MOVE IN condition. I mean everything was clean, new hot water heater, recent appliances, the whole nine. Was a great home for a first time home buyer.

My North Edward property (3 Bed, 1.5 Bath Cape) was in good condition but needed some work. That went for $250K and the only thing that it really really needed was a new kitchen since it was about 20 years old. The bathrooms all worked and could use some updating as well but this home was no where near the major renovation that you described.

I had an offer also on a property on Deerfield (4 bed, 2 bath cape), ended up going for $270K and that house was darn near perfect. It was more expensive than Idlewild because it was a lot larger but that home was as perfect as a home could be without all the crazy updates like granite, stainless, etc. I was even impressed.

I will not lie, there is PLENTY of crap out there but if you look hard enough you can find some good properties. What I tend to find is that the good properties in the sub $300K price range tend to start bidding wars. My Idlewild nearly created one but luckly they got out of Attorney Review quickly.
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Old 12-27-2009, 08:06 PM
 
744 posts, read 838,441 times
Reputation: 177
Quote:
Originally Posted by DodgeViper01 View Post
A real estate crash in 2010 is very unlikely unless we have another major world event and even then, your money would not be safe anywhere because the value of the dollar would drop; period.
What if my money was in gold and silver? Or gold and silver mining stocks? Or Australian resource companies? Or invested in Asian companies headquartered in Singapore selling to the Chinese domestic market? Or in term deposits in other currencies? Or in Government bonds from other countries denominated in the local currency?

How does the dollar dropping make them not safe?

A real estate crash in the US in 2010 is a certainty, unless the government keeps propping up the market.

Of course it's close to certain that the government will keep propping it up. Which just means that real estate will go up, but less than everything else since you can't export rental properties so they aren't as tied to inflationary spikes caused by printing/borrowing by the government as food/clothing/etc are.
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