Realaty Check pt. 2
Mopfog's comment on my last post got me thinking that perhaps I didn't explain myself well enough. Let me try this again.
Let's say you're someone who is attempting to sell your house. What do you do?
Okay, step 1 you look at the listings in your neighborhood to determine what your house is sort of worth. Comparable houses equals comparable prices. You find out that houses like yours are selling for about $450,000. I could have said $100,000. Doesn't really matter. What matters is that every house in the neighborhood is selling for about the same amount except for maybe one that's selling for about 10% less. Fine.
Now, people want to buy your house, but the problem, at least at the beginning is two things. First of all, sub prime rates have made them extraordinarily weary of loans. What's worse is that non-sub prime rates on houses at this price range are exuberant--that's, after all, the reason someone invented sub prime rates in the first place. This means that immediately there are less people on the market looking for homes, a lot less. Also, they know that with gas prices being what they are, they'll have to tack on a huge fee to moving costs. Again far less people on the market to buy new homes.
So, here you are with your 450,000 home and there are 1/2 as many people on the market from before, and no one in your neighborhood is selling their homes. Why? Because down the street someone is building new homes and selling them for $400,000 and they're developing enough land to accommodate all the people who are looking for homes. There should be a spillover customer base who will buy previously owned homes, but they don't exist for reasons that I've already elaborated. You can't expect the land developer to stop. After all, even if they make 200,000 per square acre they're still reaping a huge profit.
Now, you figure maybe you'll lower the price of your home, but really? How low? Not lower than that guy down the street. After all, you've just put in a new fence. So, you stay up their around 450,000. Maybe you drop down to 420,000.
Meanwhile, a land developer in some other part of the nation is counting on you, well...people like you anyway. He wants you to sell your home and come and buy his new home, which you'd like to do, but you can't get your house to sell. He can't sell his homes so he drops their price. The same goes for the land developer down the street from you. He drops the price from 400,000 to 350,000 and so you, in your used $420,000 house, are competing with a new $350,000 homes.
You see, if no one can sell their old home, they can't move on to buy a new home. Real estate is always a game of trading. I sell my house in Georgia, I move out to Illinois. But the house in Illinois is going to cost more so I want as much money as I can get, but no one is moving from Illinois to Georgia, because in Illinois they're waiting for you to move out and buy their house. What we have is essentially a traffic back up across the system. The obvious solution is to lower your price, but you can never lower it enough because the land developers will always go lower--they're as desperate as anyone else.
My point here is that if you're trying to sell your house, this is all very bad for you. On the other hand, and this is where I think Mopfog missed my point, if you are trying to buy a house, this is good news for you. Houses dropping in price means that eventually we all won't need sub prime loans to become home owners. What's more, as long as you don't need to move, you're unaffected by all this.
Of course, that brings up another problem. Lack of job security sort of means that you have to move...but that's another story and probably a different blog.
Let's say you're someone who is attempting to sell your house. What do you do?
Okay, step 1 you look at the listings in your neighborhood to determine what your house is sort of worth. Comparable houses equals comparable prices. You find out that houses like yours are selling for about $450,000. I could have said $100,000. Doesn't really matter. What matters is that every house in the neighborhood is selling for about the same amount except for maybe one that's selling for about 10% less. Fine.
Now, people want to buy your house, but the problem, at least at the beginning is two things. First of all, sub prime rates have made them extraordinarily weary of loans. What's worse is that non-sub prime rates on houses at this price range are exuberant--that's, after all, the reason someone invented sub prime rates in the first place. This means that immediately there are less people on the market looking for homes, a lot less. Also, they know that with gas prices being what they are, they'll have to tack on a huge fee to moving costs. Again far less people on the market to buy new homes.
So, here you are with your 450,000 home and there are 1/2 as many people on the market from before, and no one in your neighborhood is selling their homes. Why? Because down the street someone is building new homes and selling them for $400,000 and they're developing enough land to accommodate all the people who are looking for homes. There should be a spillover customer base who will buy previously owned homes, but they don't exist for reasons that I've already elaborated. You can't expect the land developer to stop. After all, even if they make 200,000 per square acre they're still reaping a huge profit.
Now, you figure maybe you'll lower the price of your home, but really? How low? Not lower than that guy down the street. After all, you've just put in a new fence. So, you stay up their around 450,000. Maybe you drop down to 420,000.
Meanwhile, a land developer in some other part of the nation is counting on you, well...people like you anyway. He wants you to sell your home and come and buy his new home, which you'd like to do, but you can't get your house to sell. He can't sell his homes so he drops their price. The same goes for the land developer down the street from you. He drops the price from 400,000 to 350,000 and so you, in your used $420,000 house, are competing with a new $350,000 homes.
You see, if no one can sell their old home, they can't move on to buy a new home. Real estate is always a game of trading. I sell my house in Georgia, I move out to Illinois. But the house in Illinois is going to cost more so I want as much money as I can get, but no one is moving from Illinois to Georgia, because in Illinois they're waiting for you to move out and buy their house. What we have is essentially a traffic back up across the system. The obvious solution is to lower your price, but you can never lower it enough because the land developers will always go lower--they're as desperate as anyone else.
My point here is that if you're trying to sell your house, this is all very bad for you. On the other hand, and this is where I think Mopfog missed my point, if you are trying to buy a house, this is good news for you. Houses dropping in price means that eventually we all won't need sub prime loans to become home owners. What's more, as long as you don't need to move, you're unaffected by all this.
Of course, that brings up another problem. Lack of job security sort of means that you have to move...but that's another story and probably a different blog.
posted by Monstro D. Whale at
8:54 AM
5 Comments:
Countrywide Home Loans is currently having major stock issues due to the housing issue. The feds have pumped billions of dollars into the economy to offset the effects that this is having on the nation.
On the positive side, we should see less ARMs (adjustable rate mortgages)which are part of the reason the housing market is in such a poor state.
Another positive is that long-term mortgages and loans will have lower interest rates. It's a good time even for those who are still making payments on their houses, since they can or will soon be able to refinance at a lower interest rate.
Now, as far as house sellers go; developers will continue to make money as they always have. The average home seller might lose money, unless they live in an area that is still appreciating value due to an influx of boomers, like Montana, for example.
Areas like Montana, Colorado, and anywhere there is a major lake, are still gaining value due to the influx of boomers from southern California, New York, Florida, and San Francisco.
Colorado is nearly tapped out, however. Prices have gone up too much for even most of the property speculators. This has also happened in areas across the country where there isn't something (like waterfront property) to drive the prices up further.
The average Montanan cannot afford to buy a house within their own state. My wife and I make about $14/hour after taxes. The most expensive house we can comfortably afford would be about $140,000. (with no money for a downpayment) Thus my comment on the other post was related to our personal perspective on the housing market at this time.
Side Note:
Now, if that translates for other people ($x/hour after tax)times 10,000 = house you can afford, that would be interesting.
I still think your rate is going to go up pretty soon. It isn't that you'll be affording more, it's that the homes will cost less.
My parents are selling their home in Colorado as we speak. It's a pendulum in a lot of ways. They're houses have dropped, on average, about 50-100 thou from what they were five years ago, but then that was up 50-100 thou from what they were 10 or 15 years ago.
Well, there's always Pittsburgh, folks. We just got rated America's Most Livable City (or something like that -- although I realize all cities claim that). Anyway, one of the reasons we moved here was because our 4-bedroom brick house (4 levels, counting the basement) in a nice, safe neighborhood, cost $96,000 back in 1997. Today, it's not much more than that. On a 20-year mortgage (mine at 6.125%), the monthly payment is about $1,000 (which includes insirance and local taxes). That's about what we were paying for rent in the D.C. metro area back in the early 90s.
See, Pittsburgh used to be like the 3rd or 4th largest city in the USA back in the steel producing days. But then that industry died off and shitloads of workers left, leaving their well-built old houses.
New construction is still insanely expensive here, as everywhere. But there are thousands and thousands of huge sturdy homes in safe neighborhoods for well under $140k, many under $100k if you're willing to put in a little sweat equity.
The bad news, of course, is that once you live here, you're more or less stuck here -- which can be good or bad, depending on your outlook. That is to say, consider these two situations: (1) a family lives in Pittsburgh during their working years, (2) a family lives in New England during their working years.
20 years from now, the New England (or New York, or Colorado, or Vegas, or LA) family has the option to "cash out" and retire to almost anywhere else. That option is not available to Pittsburghers because nothing appreciates much here.
But, in terms of sheer housing prices / affordability, it's really the exception to the rule in the USA, at least as far as I've looked/researched.
Okay, that's my Pittsburgh sales pitch for the day.
Hell...you sold me. My problem is that, as a professor, I have to go wherever they hire me. It doesn't matter if the houses cost 100,000 or 700,000. There are only so many universities and their are a whole lot of us experts at 20th century American Literature.
I was watching Flip this house or something like that, and there was a couple who bought an old Victorian style house at an auction for about 67,000. Granted, they had to refinish the hardwood floors and invest 'sweat equity.' It was, naturally, somewhere in middle America. Ohio maybe. Problem is, there's nothing in Ohio that I want, other than perhaps a nice house.
Post a Comment
<< Home