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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 10:00 AM   #21
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

I don't think it's the fixed-rate mortgage that's killing people. It's all those people that bit off more house than they could chew, financing 100% of the purchase price plus closing costs into an adjustable rate loan that was deceptively low to begin with. And even though fixed-rate mortgages aren't THAT bad, every time they go up they still price the house just that much further out of some people's range.

In my case, I have an HELOC, not a mortgage. It's tied to the prime rate. When I took it out back in early 2005 it was at 5.5%. As of the last payment it was up to 8.25%. That's a pretty sharp rise, but I only owe about $76K on it. So I'm feeling a hit of about $176 per month, which I hardly feel. I've just been paying it down more quickly. A lot of people can't do that, though.
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 10:04 AM   #22
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

Quote:
Originally Posted by Andre1969
I don't think it's the fixed-rate mortgage that's killing people.* It's all those people that bit off more house than they could chew, financing 100% of the purchase price plus closing costs into an adjustable rate loan that was deceptively low to begin with.* And even though fixed-rate mortgages aren't THAT bad, every time they go up they still price the house just that much further out of some people's range.
Things will get even more interesting when the various flavors of Option ARMs start getting to the end of their "fixed payment" period and start re-casting. Then borrowers can go from paying 1% of the balance annually (and tacking the rest of the interest on to the balance) to paying full P&I every month with a typical rate of 7+%...
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 10:06 AM   #23
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

There
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Originally Posted by Sam
At 6.5%, it's very reasonable. *But it's a 30% increase from 2 years ago. *The rate increase is the last straw that breaks the camel's back.

In my view, the housing bubble was never a hype. *I have been convinced of the bubble in the Northeast, the West, and in Florida for 3 or 4 years. *I believe that the cost of a house should never exceed 3 times the gross annual family income. * That 3x ratio has been impossible in the recent past.
I agree that the rate increase was the last straw and that adjustables are a factor. *I am just baffled by homebuyers who didn't consider the risk of the adjustable and budget accordingly * *But the "bubble" in the West, Florida, East cities has, I think, only been created because of the demand in those desireable areas. Of course, the low interest rates and easy mortgage terms allowed many people to buy who couldn't have bought in those areas previously. *But a desireable geographic location will remain in demand, even if a "bubble" bursts. *And people will still want to buy houses there and will stretch their budgets to afford it. The 3X gross income rule is really irrelevant to supply-demand, IMHO.
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 10:17 AM   #24
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

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But a desireable geographic location will remain in demand, even if a "bubble" bursts. *And people will still want to buy houses there and will stretch their budgets to afford it. The 3X gross income rule is really irrelevant to supply-demand, IMHO.
You're not the only one who thinks the 3x rule is irrelevant.* For me, I just cannot come up with a budget to support buying a home that costs 3x income.

But I hope you're right.* I have a friends and family in those "desireable geographic" locations, and I don't want them to get hurt.* Their opinions is pretty much the same as yours.
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 10:20 AM   #25
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

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I never really understood that. Yeah, its nice to be in a place with good schools, but there are also excellent private and parochial schools in many places. We consciously made a decision to skip the hugely inflated prices that went with the nearby towns with famed school systems because the trade off between higher housing prices (and taxes) versus parochial school tuition was a no-brainer.
There we go again, applying logic to the emotional purchase decisions.

Realtors must hate that.
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 10:36 AM   #26
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

A couple of thoughts:
First the cost of houses will come down but not as significatly as they went up. If a house went up 100% over a period of time I doubt it will fall by 50% or back to the original purchase price. So what size adjustment is price are we talking about here? The major change is or will be in seller's expectations - from one of making a large amount of money to breaking even (taking into account sales commission and other costs). Expectations will be taking a large hit.

As a buyer - apx 6 months or more away - and RE this is all great news.
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 10:38 AM   #27
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

Quote:
Originally Posted by brewer12345
I never really understood that.* Yeah, its nice to be in a place with good schools, but there are also excellent private and parochial schools in many places.* We consciously made a decision to skip the hugely inflated prices that went with the nearby towns with famed school systems because the trade off between higher housing prices (and taxes) versus parochial school tuition was a no-brainer.
I'm glad that's working out for you in NJ Brewer. *But, don't you think that when the time comes that you choose to sell, your decision to break free from the herd will work in the opposite direction?

Here in northern Illinois, urban and suburban communities with a reputation for poor schools always seem to have other baggage they're dragging along. *That is, there's a reason why they have poor schools. *It's seldom a situation where everything else about the community is strictly A-1, but gee, the schools stink..........
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 10:44 AM   #28
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

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Originally Posted by Andre1969
I don't think it's the fixed-rate mortgage that's killing people. It's all those people that bit off more house than they could chew, financing 100% of the purchase price plus closing costs into an adjustable rate loan that was deceptively low to begin with. And even though fixed-rate mortgages aren't THAT bad, every time they go up they still price the house just that much further out of some people's range.

In my case, I have an HELOC, not a mortgage. It's tied to the prime rate. When I took it out back in early 2005 it was at 5.5%. As of the last payment it was up to 8.25%. That's a pretty sharp rise, but I only owe about $76K on it. So I'm feeling a hit of about $176 per month, which I hardly feel. I've just been paying it down more quickly. A lot of people can't do that, though.
So many people are trying to flat out CASH OUT! they still think it is early 2005. Now we have people who are pricing homes at still high prices and they sit because there is SO MUCH INVENTORY!

I will say this when I priced my home back in April a bunch of realtors said to price it in the 540,000 range. I said i want this thing sold, I priced it a 519,000 the lowest price in the neighborhood by 20,000. Guess what it sold. I WAS LUCKY. since my sale in april not one home has sold in the neighborhood. The prices are starting to drop but small drops, like 5,000 at a time. hey if these people want to sell drop it by 25,000 ! I know what people paid for these homes and they are getting greedy. Again I know I would have taken 460,000 for my place and still would have waked away with 250,000 profit, not bad the 300,000 profit was better.

Today holding on at a higher price for say 9+ months you end up losing in two places you staill must pay that mortgage and the price will invariably be lower when you do sell it.

Lotsaluck!
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 11:11 AM   #29
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

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I'm glad that's working out for you in NJ Brewer. *But, don't you think that when the time comes that you choose to sell, your decision to break free from the herd will work in the opposite direction?

Here in northern Illinois, urban and suburban communities with a reputation for poor schools always seem to have other baggage they're dragging along. *That is, there's a reason why they have poor schools. *It's seldom a situation where everything else about the community is strictly A-1, but gee, the schools stink..........
I imagine it depends a lot on location, just like everything else about real estate. Who said A-1? I want a place to live, not a fantasy land. If you can find a 'hood with reasonable amenities, taxes, and nice neighbors that isn't next to the smelter or something, might be wotrth investigating that private school trade-off.
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 11:23 AM   #30
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

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Originally Posted by Oldbabe

What is going on??* The cause has to be more than interest rates going up to 6.5%. That's not a high interest rate! *
Its not high, but its higher than it used to be.

I bet most people out there just look at the monthly payment when trying to figure out how much to pay for a house. Until recently, people were bidding up home prices. The only thing that *allowed* people to bid up home prices is that they could get a loan that made their monthly payment "affordable".

For example, if you wanted to buy a house three years ago with a 30 year mortgage at 5% interest and 20% down, the bank would lend you enough money to buy a house for $293k, and your monthly payment would be $1440. You go out looking for a house and see one you like priced at $280k, and you offer $293 because your agent advises you that you don't want to get outbid, and you can afford it anyway.

Today, that same person wants to put 20% down, and will get a 30yr loan at 6.5%. The bank tells them they can only afford a house that costs $250k, but the monthly payment is still $1440. But none of the houses for sale cost $250k!

The creative finance loans (ARMS, interrest only, etc) only make the situation worse.
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 11:34 AM   #31
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

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Originally Posted by dex
A couple of thoughts:
First the cost of houses will come down but not as significatly as they went up. If a house went up 100% over a period of time I doubt it will fall by 50% or back to the original purchase price. So what size adjustment is price are we talking about here? The major change is or will be in seller's expectations - from one of making a large amount of money to breaking even (taking into account sales commission and other costs). Expectations will be taking a large hit.
Good luck with that.

We bought our first Oahu home in 1989 for $277K.

In 1990 it appraised at $425K. Part of that was due to $30K of landscaping & home improvements, including at least the equivalent in sweat equity.

By 1996 it appraised for $243K and stayed there for 3-4 years.

Today it'd sell for ~$600K but the tenants would not be happy.

Housing represents an illiquid low-volume transaction with high costs & significant emotional issues. As with any investment of this nature, the bell curve has very fat tails and the volatility will be breathtaking.

Even as rentals, Hawaii RE rarely returns more than 6% cash-on-cash. The nationwide real estate investment organizations haven't spent any time here in almost two decades while they clean up in hot spots like Tulsa or Dubuque. Looking for 10% around here makes most realtors shake their heads and dismiss you as a clueless idiot...
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 11:39 AM   #32
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

Nords, what happened in 1996?
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 12:04 PM   #33
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

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Originally Posted by brewer12345
I imagine it depends a lot on location, just like everything else about real estate.* Who said A-1?* I want a place to live, not a fantasy land.* If you can find a 'hood with reasonable amenities, taxes, and nice neighbors that isn't next to the smelter or something, might be wotrth investigating that private school trade-off.
Yep, each situation will be unique.

BTW, an interesting situation exists in our community relating to private and parochial schools. *The ethnic groups living here tend to be Roman Catholic and strongly support the Catholic parochial school system which consists of multiple grade schools and a large high school. *About one-third of the families with school age children send their children to the parochial schools.

This seems to help the quality of our public schools in two ways:

1. *There is a healthy parent-driven competitive spirit where the staff, students and parents of the public school system strive to keep up with the metrics of the parochial schools.

2. *Public school funding is improved. *Dollars spent per student is higher thanks to tax revenues being spread across fewer students.

I'm not sure how this effects our real estate values. *Having both the parochial and public school systems ranked highly can't hurt. *And, our taxes are not out of line with surrounding communities. * *

*
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 12:09 PM   #34
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

I have a friend who owned a nice, big 1-bedroom condo in Garden Grove, CA. Gated community, private covered parking spot, beautiful landscaping, etc. In 1992 it was worth about $110-120,000. By the time the bottom fell out of that market they were talking more like $30K, and that instance taught me a new phrase..."deed in lieu of foreclosure"
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 12:16 PM   #35
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

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Nords, what happened in 1996?
I'm not Nords , but part of the problem in 1996 was the Japanese economy started tanking and lots of real estate was held by Japanese owners at that time - they flooded the market with selling.
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 12:21 PM   #36
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

DF and I are looking to buy sometime during the Fall of 2007 (we have to get through the wedding and its aftermath first). I'm pleased to see prices are stagnating, if not falling slightly in various areas around DC. As someone else pointed out, there's way, way too much greed among those selling their houses these days. It's either that, or people have too much of their net worth tied up in their homes and are looking to get out while they still can realize gains equivalent to the investing they should have been doing all along. Imagine how much money those folks would have if they had not only the appreciation in their houses, but an equivalent investment portfolio as well.

If you want to sell your house, then price it to move (pun intended). If your just simply looking for a sucker to buy your house at a still-inflated price (so as to pocket a 300+% appreciation), I'm not your guy. Don't worry, I'll still be here when you'll decide to be reasonable or you're forced to sell.
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 12:26 PM   #37
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

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Originally Posted by brewer12345
I imagine it depends a lot on location, just like everything else about real estate.* Who said A-1?* I want a place to live, not a fantasy land.* If you can find a 'hood with reasonable amenities, taxes, and nice neighbors that isn't next to the smelter or something, might be wotrth investigating that private school trade-off.
I would second that thought, and go further to say in my area the curve zooms up for the schools rated in the 90%+. It's 25% higher to live in the famed community with the best schools than it is to live in my 'hood with schools in the 75%. Trust me, 75% does not mean gang wars in the cafeteria at lunch! Not slamming teachers, Mom is one, but it's interesting to see the correlation between wealth of the parents and how well kids do. Kids from wealthy, educated parents do well in school, and wealthy, educated people tend to buy in the same neighborhood, and all of a sudden we are handing out awards to teachers in that neighborhood for having the most kids to pass the exit exam or SAT or whatever....
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 12:35 PM   #38
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

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I would second that thought, and go further to say in my area the curve zooms up for the schools rated in the 90%+.* It's 25% higher to live in the famed community with the best schools than it is to live in my 'hood with schools in the 75%.* Trust me, 75% does not mean gang wars in the cafeteria at lunch!* Not slamming teachers, Mom is one, but it's interesting to see the correlation between wealth of the parents and how well kids do.* Kids from wealthy, educated parents do well in school, and wealthy, educated people tend to buy in the same neighborhood, and all of a sudden we are handing out awards to teachers in that neighborhood for having the most kids to pass the exit exam or SAT or whatever....
Heh, one of the towns nearby is famed for its school system. It is a well-off area, but I think the real reason for the high test scores is that its the town where a major Bell Labs facility is situated. You don't think the kids of all those science and math PhDs tilt the scores a tad, do you?
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 12:45 PM   #39
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

Absolutely. I have another factor for my area, ESL students. More new immigrants in the neighborhood, lower test scores. Also, I remember in high school that we "good students" were completely segregated from the "bad students" and never even saw each other. Gangbanger boy didn't get enrolled in physics.


Just did a quick calc, the average rank for my districts elementary schools is only 52 percentile (52 percent of schools worse, 48 better) for San Diego County. Dang, I better move!
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years
Old 08-24-2006, 01:15 PM   #40
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Re: U.S. Economy: Home Sales Drop to Lowest in More Than Two Years

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Originally Posted by Oldbabe
Everyone seems to have a story about a house for sale that won't move. My ex *has our old house in Ohio on the market where it's been sitting for four months with two price reductions, from $310K to $295K to 284K. And this is a house in a formerly hot neighborhood with excellent schools that has had significant improvements and upgrades in the last two years.

My sister's place in MD has also been sitting with no offers for four months, a house that has been upgraded beautifully, with a deal for closing costs attached. They have also reduced the price.

What is going on??* The cause has to be more than interest rates going up to 6.5%. That's not a high interest rate! *I think this is a case of self-fulfilled predictions. There has been so much hype about the housing bubble for the past 2-3 years that now that interest rates have increased a little, buyers are waiting for the big drop. I think they are going to have to wait a long while. Sellers are not going to give up their appreciation and go upside down on the sale if they can at all avoid it.
for manhattan the average time to sell an apartment in the last 10 years was around 4 months. I bet for houses on the coasts it has been around 6 months or so. People got used to homes flying off the market in 2 days in the last two years and are now panicking as things go back to normal.

reminds me of the dot com bubble. you used to be able to find a new job in a week. come 2001 it goes back to 6 months which was always the average. people panicked.
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