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Yesterday, the FED injected $1 TRILLION DOLLARS into the Economy.
Hmmm. Where was the actual INJECTION SITE? My bank account certainly did not receive a "shot in the arm." Will it actually make it INTO the economy or will it be hoarded by banks who refuse to use it to loan money to anyone?
The "short term" is very good for those who can speculate.
How many can speculate ?
AND, "If" you can speculate, why put it in a house ?
History tells us something else about what the FED is doing.
THEY know what the effects can be of "what" they are doing, and they are VERY happy, that people couldn't care less and are, purposely "focused" somewhere else, on other unimportant issues like AIG and the "BAD" people of Wall Street.
If you are, just a regular person, you are going to be SLAMMED by these things, and are going to wonder "how" it happened so quickly.
Well, it's all out there for you, "IF" you want to see it.
I am not defending the policy. As a person born and lived a good portion of his life in one of those banana republic countries with hyperinflation rates, I just suggest people on this board to keep their money as a commodity such as gold rather than saving it as U.S. dollars. Trust me that is exactly what my family and many others did back home. It is better than buying CDs, stocks and that sort of stuff at a time of uncertainty. Gold is speculative, but in the long run retains its value better than others. Think of it as going back to medieval times.
The commodities look like a good bet, in general the thumb rule is to bet on something that you can touch and others want. A house can also be in that category, but thats the beauty of the 30 yr fixed mortgages.... if we do go through a hyper inflation then the current monthly payments are going to look like a pittance compared to what you might be making at the time....
As far as moving the existing glut is concerned, I am not sure how fast can that happen. At this moment the FHA seems to be the best loan... like the post Depression times.... 3.5% down minimum....
I think if you are not ready to put at least 10% down on a conventional loan, then your PMI might actually be nasty.... as I hear even the PMI companies have increased the cost of insurance.
I think if you are not ready to put at least 10% down on a conventional loan, then your PMI might actually be nasty.... as I hear even the PMI companies have increased the cost of insurance.
Not only has there been an increase, it's getting tougher and tougher to get. I have a bank right now that wanted to see PMI approved for my buyers before they finalize underwriting! Fortunately it was
Homes are usually one of the worst investments you can buy. I know that Real Estate agents, mortgage lenders, and everyone else in the Real Estate business will try to argue this fact, but it is just that. A Fact! Housing over the past 100 years has appreciated at an average of 4% nationally. Well, most people take out a mortgage at a rate higher than that. So, you're paying 5-8% for something that appreciates 4% on average. This is not good financial planning on most people's part, since they see their home as an investment. It's kind of like borrowing money from the bank at 7% and buying a CD at 4%. Not smart!
Let me give you a real world example. My grandparents bought their home in Lindenhurst in 1943 for $8,300. It's now worth approx 250k. That's an appreciation rate just over 5%. That same amount of money in the in the S&P 500 would have been approx 1.5k at a rate of return just above 11%. This doesn't include all the upkeep on the house and taxes paid each year.
Long story short. Housing is one of the worst investments you can buy for a passive investor. It doesn't rebound like the stock market does, it appreciates at a poor rate, it has huge upkeep and tax exposure costs, and it exposes someone to huge diversification risk.
Additionally, if the housing market acts like it has in the past when it's boomed then you will see 10-15 years of housing prices staying constant on LI. But, my specualtion is based on solid reasoning. Let me give you reasons why:
1. LI as a community is getting older and people are moving away after retirement. This means you will always have a constant supply of houses on the market. Not many people retire in NY anymore.
2. High taxes actually depreciate housing prices. If someone can afford 2.5k per month for mortgage and 1k goes to the taxes then 1.5k can only be left over for the mortgage.
3. NY as a region has been decimated by the financial crisis. It will take years for the damage to be measured, but many of our most lucrative jobs (i.e. banking, financial, hedge-fund, legal) have disappeared with little to no chance of coming back. Leehman, Bear Sterns, and many other large employers have disappeared or been bought up by companies that have their headquarters outside NY. Less high paying jobs will cause a trickle down effect in housing prices.
4. Alternatives! Conneticut, Westchester, and New Jersey all offer suitable alternatives to NY with lower taxation levels. The transit systems used to be set up so that anyone who seriously wanted to commute to NYC would only think about LI as their only option, but the past 20 years have opened Southern Jersey and Conneticut as viable commuting options. The High Speed Rail line that is in the Stimulus package will actually hurt LI as a competitor for commuters. This is illustrated by the number of younger people that move out of the city, but go to NJ or Conn as compared to LI.
5. Tightening lending standards. The real reason we saw such a boom in housing prices on LI is because the loosening of lending standards allowed people to borrow more money with less credit. The tightening of standards means that less people will be in the market to buy a house. Because, let's face it. A family earning 50k per year can't afford a 300k mortgage and 10k taxes on LI. They've got no business buying a house on LI.
6. The dumping of homes that is inevitable. Jobs are being lost in NYC at a huge rate. LI has a huge reliance on NYC jobs since we have very little industry of our own. The jobs being lost are very high paying skilled jobs that pay very well, and as a result demand for property is dropping heavily. Rents are projected to drop 50% in Manhattan this year along. This will have a trickle down effect. Rents are a more responsive indicator of the housing market because leases are typically one year. It would be amazing if rentals drop 50% in NYC and housing in the commuter areas doesn't drop equally over a more prolonged period.
All of this leads to over supply and decreased demand for housing on LI, and what do you get when you have more supply than demand. You get suppressed prices.
The only thing LI has going for it is the beaches and the fact that land is scarce.
Long term, the ever increasing tax load is what is going to drive more and more of the middle class off Long Island. Some of these taxes are like having a second mortgage. It is going to be a big negative on home prices.
Today people are voting for the school budgets here on Long Island. And all these parents and others who are blindly voting YES, do not seem to realize that they are making it less and less affordable when their own children grow up and start looking for a home of their own. And thats just the school taxes.
Least it doesn't take 2+ hours to get out of the state at 8AM in the morning on a weekday. Try that on any of the LI highways - you're lucky if you make it into one of the five boroughs, where you then become trapped in a quagmire of trucks and traffic.
Long term, the ever increasing tax load is what is going to drive more and more of the middle class off Long Island. Some of these taxes are like having a second mortgage. It is going to be a big negative on home prices.
Today people are voting for the school budgets here on Long Island. And all these parents and others who are blindly voting YES, do not seem to realize that they are making it less and less affordable when their own children grow up and start looking for a home of their own. And thats just the school taxes.
They fail to realize they are voting YES to the demise of their most valuable asset - the home.
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A few years has gone by.....how does the market look today?
