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There are and always will be areas of the country that have different real estate markets, appreciation or depreciation, for one reason or the other. Marketing of certain areas creates "hot spots", but that is not the only reason. There is also a herd mentality; take the problems in FL recently, or on the Gulf Coast where affordability of homes has actually decreased because of high insurance rates and overdeveloped areas. It's supply and demand at work.
They can't build homes fast enough around the Charlotte area (as an example). People are herding there from areas where the cost of living is too high (in their perception). This drives prices upwards. However, there is going to come a time in the near future when circumstances collide, the area is fast becoming overdeveloped. Supply and demand will again come into play as more homes on the market = lower prices. This has already affected resale homes in the area when the competition from new homes is greater. After a small number of years, many of the cheaply built homes in crowded cookie-cutter subdivisions are going to start looking like housing projects. I've seen many of them already showing signs of unkempt yards, and deferred exterior maintenance because they're not built for the 100 yr. avg. lifetime of solidly built homes. Prices will stagnate for a while, then drop. It's the cycle of real estate in general, not my opinion, but my observation. Economics 101.
Banks have a lot to do with creating the "illusion" of affordability. They convince people to take larger loans due to a lower interest rate, or an interest only loan. It's irresponsible, and causes mortgage failures. The adjustable rate mortgage is a huge culprit, and always has been. When rate adjusts just 2% on a big loan, that raises the monthly payment often to a level where if the homeowner had applied at that rate, they wouldn't qualify for the loan. They qualified at the teaser rate ... then are at risk of foreclosure and losing their home and what little equity they had to begin with. When your mortgage payment is not predictable, you should worry, a lot. Taxes go up, other expenses rise, and you have nothing "fixed" to count on. In overdeveloped areas, taxes will rise at an alarming rate within the next 5 years -- the costs of building infrastructure (roads, schools, etc.) has to come from somewhere.
Pop, goes the bubble. Those that can afford to bail out and take a loss or a break even will do so. Then the cycle starts all over again with the migration from one high cost area, to a lower cost area.
It is not a country wide problem as some have indicated here ... yet. For it to become a country wide problem, we would have to be in a recession. There are always areas localized areas of no growth, slow growth, and over growth.
Roger Lowenstein's short fascinating piece in todays's (Sunday March 18) New York Times speaks directly to the topic at hand.
Lowenstein addresses directly the assertions made by Robert Shiller of Yale, who's perhaps the most visible and convincing of the people predicting a catastrophic drop in the housing market.
This is a quick and engrossing piece no matter what your opinion on this topic. Just go to the Times site and search, using the word "bubble". I'm not sure I'm allowed to post a piece here, (moderators?) or I would.
David
Last edited by chaz longue; 03-18-2007 at 01:20 PM..
OUCH - What should a relocating family do? Rent? Bid low? Ask for help in closing costs? We are relocating to Westchester county.
NOTHING... thats right nothing. Rent... and if you currently own a home. sell it and cut your losses. do not buy anything for at least 5-7 years or you will get hurt like the rest of the herd.
westchenster is amoung the nations highest and MOST overpriced homes. unless you are born wealthy and don't care if you loose half the value in your home in the next 5-7 years than don't buy there.
There are and always will be areas of the country that have different real estate markets, appreciation or depreciation, for one reason or the other. Marketing of certain areas creates "hot spots", but that is not the only reason. There is also a herd mentality; take the problems in FL recently, or on the Gulf Coast where affordability of homes has actually decreased because of high insurance rates and overdeveloped areas. It's supply and demand at work.
They can't build homes fast enough around the Charlotte area (as an example). People are herding there from areas where the cost of living is too high (in their perception). This drives prices upwards. However, there is going to come a time in the near future when circumstances collide, the area is fast becoming overdeveloped. Supply and demand will again come into play as more homes on the market = lower prices. This has already affected resale homes in the area when the competition from new homes is greater. After a small number of years, many of the cheaply built homes in crowded cookie-cutter subdivisions are going to start looking like housing projects. I've seen many of them already showing signs of unkempt yards, and deferred exterior maintenance because they're not built for the 100 yr. avg. lifetime of solidly built homes. Prices will stagnate for a while, then drop. It's the cycle of real estate in general, not my opinion, but my observation. Economics 101.
Banks have a lot to do with creating the "illusion" of affordability. They convince people to take larger loans due to a lower interest rate, or an interest only loan. It's irresponsible, and causes mortgage failures. The adjustable rate mortgage is a huge culprit, and always has been. When rate adjusts just 2% on a big loan, that raises the monthly payment often to a level where if the homeowner had applied at that rate, they wouldn't qualify for the loan. They qualified at the teaser rate ... then are at risk of foreclosure and losing their home and what little equity they had to begin with. When your mortgage payment is not predictable, you should worry, a lot. Taxes go up, other expenses rise, and you have nothing "fixed" to count on. In overdeveloped areas, taxes will rise at an alarming rate within the next 5 years -- the costs of building infrastructure (roads, schools, etc.) has to come from somewhere.
Pop, goes the bubble. Those that can afford to bail out and take a loss or a break even will do so. Then the cycle starts all over again with the migration from one high cost area, to a lower cost area.
It is not a country wide problem as some have indicated here ... yet. For it to become a country wide problem, we would have to be in a recession. There are always areas localized areas of no growth, slow growth, and over growth.
hmnnn you offer some good info. but can you tell us what you mean by prices will stagnate for a while and then drop? prices in my area has stagnated fro about a year now and I too agree that the prices will drop in 07-08.
you are right "Banks have a lot to do with creating the "illusion" of affordability" but haven't the realtors and sellers also played the same card? all of which had alot to gain.
every perspective buyer who is even thinking of touching a home right now should listen and read Robert Shiller of Yale. if you don't you will become a home slave. unless of course you have money to burn and if you actually do you are not pleaying the home market anymore.
Why do people behave like cattle? This whole mess would have been avoided if buyers did not bid up real estate prices out of stupidity. Just because interest rates were low why did the dummies offer more money for the properties, effectively eliminating any benefits to the interest rate reduction? Refinancing I can see, if fees were not excessive real money could have been saved. And what entices someone to take out a second mortgage or heloc? I have had so many people try and convince me they are doing better with a mortgage than I am without one. Oh they get a mortgage interest tax reduction, sure. But they have to pay INTREST!!! that money is like burning it or throwing it into the garbage. Oh I get a deduction from my income and then pay 3% of a principle over 400,000 yeah who's dumb enough to fall for that. I would rather make 20,000 CASH than have my property double in value and have me pay the same amount in 5 years taxes that it cost to own the place originally! The bubble was bad, bad bad. There is never any good comming from real estate prices outpacing income EVER! The only real solution is a crash, and if it doesn't come expect a miserable life slaving for the lenders and government taxes. Think your high paying job or business will save you? Get used to outsourcing and watch the internet decentralize financial centers in the comming years. Even if real estate doesn't fall in value you lose 2% or more in property taxes every year, and mortgage interest and insurance, and upkeep and......it would be a lot nicer to have some bonds growing or stocks in your 401K gaining value with no tax till you spend it. SOme people think I am nuts but the real estate bubble has to crash hard otherwise the US economic system is doomed. The stability of our economy rests on the middle class and without one, we end up with domestic violence and terrorism, and a Latin American style economy. Pop the bubble, flatten it, get rid of the nonsense so we can get down to using technology to solve the energy problems and control our population. The bubble has reduced our standard of living for sure.
what a smart person.... everyone should read his post. i wonder what you would suggest a person who has saved for a while for a home should do. There is no doubt in my mind that home prices WILL fall and the bubble pop. however, how do you protect your cash during these times when the dollar too is falling in value? do you buy some gold? or is cash king? I would love to hear your opinion. however I must say that I do see volatility in the stock market too... is our economy doomed for a second (dare i say "great depression" I think someone in this thread said that we are not even in recession right now and I think their head is stuck in the mud. I know we are in deep recession right now even though the feds are hush hush about it and keeping themonser from rearing its ugly head by keeping the interest rate low for now. can't see it for too much longet...
I'm sure everyone has heard of the saying "you can lead the herd to water but you can't make them drink" I would like to be the first to correct this.
more correct to say "you can lead the herd to water and when you get there watch them drink till they drown"
everyone of those stupid buyers who bought in 04-05 and even 06 will drowned. all of those folks needed to get into the game of real estate because of fear that either they will be priced out or wanting to makemoney because they thought that the home prices will keep going up up up.
I too do not feel sorry for them and for one will be laughing to the bank literally with all the money I saved by not buying like everyone else was. I know that I will not be a slave to my home and will have plenty to diversify into other markets like the stock market, building future wealth for my 401K and other markets as well. everyone who has accumulated wealth will tell you that you don't do it overnight. it comes slowly overtime with the right calculated decisions. Look at Warren Buffet only the second wealthiest man in the world. he started with 10K when he was in his thirties and made his wealth built on solid foundation. I think his stock is the most expensive stock in any market right now. last I saw it was selling for a mear $105,000 but warren will tell you that its still cheap for the offer. nuff-sed
Last edited by house-hunter; 03-19-2007 at 11:36 AM..
"everyone of those stupid buyers who bought in 04-05 and even 06 will drowned. all of those folks needed to get into the game of real estate because of fear that either they will be priced out or wanting to makemoney because they thought that the home prices will keep going up up up."
My husband and I bought in 04 for $166,000 a house that now appraises at $225,000. Our payments are less than what we were paying to rent a two bedroom apartment and we get a tax deduction for the interest. We've built equity and we're not paying someone else's mortgage with rent money.
If you don't want to buy, then don't. But don't call others who choose to make a sound financial investment in a home stupid. Home ownership is still the best single investment a person can make. They just need to be reasonable about it and buy within their means.
"everyone of those stupid buyers who bought in 04-05 and even 06 will drowned. all of those folks needed to get into the game of real estate because of fear that either they will be priced out or wanting to makemoney because they thought that the home prices will keep going up up up."
My husband and I bought in 04 for $166,000 a house that now appraises at $225,000. Our payments are less than what we were paying to rent a two bedroom apartment and we get a tax deduction for the interest. We've built equity and we're not paying someone else's mortgage with rent money.
If you don't want to buy, then don't. But don't call others who choose to make a sound financial investment in a home stupid. Home ownership is still the best single investment a person can make. They just need to be reasonable about it and buy within their means.
I'm afraid that you have been mislead... firstly, I see that you are from NC and more specifically an area that has seen growth from an influx of northerners to your area. and thus, you may not see a huge loss or may break even when this is all over and the low hits its bottom.
However, if your home appraised for $225 its probably going to be worth half of that or $112,000... also who cares what you home appraises for? everyone knows that the only true value gage is what your home will sell for. Its like owning a stock and seeing it triple in value and saying look the price of my stock went from $10 to $20 to $30. as they say its all on paper until you liquidate. in other words it means absolutely nothing. that is unless you buy low and sell high. unfortunately for you, you have bought high, so unless you stay in it for the unforeseeable future you stand to loose value before it regains again. in the mean time your spending on utilities, insurance, interest ect. what you are getting back is a drop in the bucket compared to the all time low of renting. of course all of this is location sensitive. as I said in many forums on the subject be advised by your accountant and financial adviser for specifics on your case.
I will agree that if you did not fall prey to those teaser rates (sub-prime loans) and ARMs that are due to adjust in 07. than you will be one of the few yup one of the FEW who will be able to hold onto your home through the lows of the coming crash. the effects are already hear. look out your window and see the forclosures. they are on the rise. some have critisized me in saying that what I sa has no value (because they are realtors) but in fact it has great value as it contributes to a crrective market. the alternative is a great depression and if that happens we all stand to loose.
average house prices have outpaced the average houshold income. I say its time for a new man on the hill. I'd like to call for BUSH's impeachment. he's done enough!
Last edited by house-hunter; 03-19-2007 at 02:33 PM..
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