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Real estate prices inflated or are sellers losing money due to economy, wait for normalized market before making home purchase, real estate bubbles, mortgage rates
I may get flamed for this... but I think the answer is:
Wait.
Since we have trillions in national debt and we have to pay it sooner or later, I think (with my limited understanding of economics and real estate) the only thing we can do is inflate our way out of it.
Provided that the wages and salaries stay ahead of inflation (even if it goes up to 15-20%) and that real estate prices stay flat with strict mortgage lending rules, people who are currently priced out can price themselves back in if they sit tight and wait, save up, and hunker down under the storm of inflation.
Otherwise, the status quo will not help people price themselves back into the real estate market UNLESS wages and salaries go up. But wages and salaries are not gonna go up unless they are required to stay ahead of inflation. And inflation now is super-low, so paychecks have no incentive to get bigger on their own.
So the only way I see myself getting priced back into the market is a several years of inflation in the 15% range - PROVIDED that my salaries keep up with the inflation and real estate prices stay flat.
DCNative, you aren't going to get flamed for your thoughts, at least not from me. It is an interesting topic.
Just another spin: I have sellers not getting their prices, and Buyers who think everything is "over priced".
The sellers say, ok I'll just rent my property and wait for this to pass.
The buyers are saying, ok, I'll just rent a property until the prices come down.
Now, the buyers are paying the mortgages for the sellers....Who will come out ahead in the wash?
No one has a crystal ball and we can only look to the past to see the future. Home prices have historically only gone up OVER THE LONG TERM. yes, if timed perfectly and using the skills of an experienced negotiator, you can pick up a distriss property now.
If I were a first time buyer, I would be using the current market to my advantage. Buy a property that fits my budget, at a still low interest rate, and take the interest deduction and sit on it for as long as possible. Then trade up when the time is right.
I'm finding that first time home buyers want their dream home right out of the gate. Historically, that hasn't happened. You have a starter home, start building equity and move up over time, gaining wealth as you go along. What happened over the last 3 to 4 years was an anomally. Not normal. Typically, home ownership appreciation grew slowly but steadily and people bought homes to live in.
It will never hurt to save up more money. No matter what you decide to do with it.
RE will always be a good investment. But the instant equity bonanza of 2000 to 2005 was an anomaly. It just wasn't normal. You can usually count on slow steady growth. Nothing exciting. It's just going to take a while for the market to normalize again.
Everyone wants to buy low and sell high! There's a lot of people on both sides who are unhappy right now. Myself included. I can't even sell my house for less than it appraised for in 2000! I think a lot of the prospective buyers are scared to sign on the dotted line. What if the prices drop more?
It's probably a good time to go back to the basics. Buy what you can afford. Buy a house you want to live in for 5 years or more.
Yeah, maybe I should just lower my expectations about a house. the american dream has gotten prohibitively expensive, at least in the places where I do want to live.
Maybe it's time for myself and everyone to stop keeping up with the Jones's, and just do our own thing. It would be a much more interesting country if everyone did that.
And inflation now is super-low, so paychecks have no incentive to get bigger on their own.
Inflation is now higher than it has ever been. We don't feel all the effects of it because all that extra money is offshore though the plunging dollar is an indication of it.
Keep studying economics and you'll know what I mean.
First off you need to realize that RE prices are very out of whack and UNSUSTAINABLE. They were bid up to the prices that we have now due to the fact that the fed lowered rates to 1% after the dot com crash. We should have seen the housing boom end when we saw the dot com crash but that did not happen due to the interest rates going lower (and more money flowing into the economy). Several years after that happened we saw the emergence of exotic mortgages such as IO, negative amortization, adjustable rate mortgages and so on. These mortgages bid up prices even further! Now that we see the sub prime collapse and the subsequent loss of 20% of buyers that would normally qualify. We are already seeing the effects of that loss of buyers on the market with sales volume going lower and inventory increasing. We have not even seen the true effect of that loss of buyers yet with home prices going down. It will be a slow and steady decline as these foreclosures hit the markets.
What I am personally predicting is that the fed will raise interest rates to try to get rid of all the inflation in the system and help to stabilize the USD. As far as I've seen the fed seems to be more concerned with keeping inflation under control rather than stopping the housing recession.
With that being said I believe we will see steady declines in housing. While that is occurring obtaining a mortgage will be substantially more difficult. You will have to fully document your income and lenders will be reluctant to give mortgages on depreciating assets. The bottom line: When we reach the bottom of the housing market cash will be king. Make sure you have a huge down payment ready if you plan to get a great deal on some real estate.
Quote:
Home prices have historically only gone up OVER THE LONG TERM.
Not according to Mr. Thornberg. He states the the real appreciation (that means adjusted for inflation BTW) is only .2%!!!!!!!!!!! Whoop de doo.
Watch first three minutes:
Location: Stuck on the East Coast, hoping to head West
4,640 posts, read 11,934,552 times
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Quote:
Home prices have historically only gone up OVER THE LONG TERM.
Not according to Mr. Thornberg. He states the the real appreciation (that means adjusted for inflation BTW) is only .2%!!!!!!!!!!! Whoop de doo.
Watch first three minutes:
Who is Mr. Thornburg?
I found this article very interesting about buying vs renting (the author is for renting)
You are not 100% accurate in your post...you still can do stated income loans, they are just more highly scrutinized (ie you can't have a 22 year old teacher making 100K a year). Stated income loans are a need for cerain types of professions...ie Realtors. When you work on a 1099 a lender looks at your net taxable income vice looking at a gross income for a traditional employee. That becomes hard to qualify for a loan once all of your expenses have been deducted for your income.
You are also correct in saying that that once adjusted for inflation appreciation is only about .2%, but after 30 years, once a mortgage is paid off....that appreciation amounts to a lot of money, not too mention the time value of money is an amazing thing not to mention the write-offs that owning a home gives you over the lifetime of owning it.
I have seen this argument before: stock market versus buying... but I need help understanding...
You have to live somewhere right? and if you have $1500 for rent or mortgage, you are paying it to someone (bank or landlord) and there isn't any more money.. what are you using to invest? Unless you can live with your parents or relatives or friends for free. then you can put that money into the market.
But, you say I can pay $1000 in rent and put $500 into the stockmarket. You can. You can also pay that much in mortgage and put the rest in the market. But folks usually like to live in the best area they can, whether they are renting or purchasing.
Just a thought...
Shelly
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