Falling prices trap new homebuyers

The Orange County Register ^ | December 13, 2006 | JEFF COLLINS

[GodGunsGuts]

Wednesday, December 13, 2006

Falling prices trap new homebuyers

Neighbors in a new Garden Grove tract say a developer's plan to slash prices by about $140,000 has left them owing more for their homes than they're now worth.

By JEFF COLLINS

The Orange County Register

[painter]

A home that we paid 15,000 for in 1966 is now going for over half a million. Even with inflation this is absurd.

Do you still have it?

[ladyjane]

You can't tell a lot about the rental market by looking at rents in google or craigslist. I think the Bay area has a form of rent control so only the least desirable units get advertised.

The rental market has been miserable for landlords for the past 5 years. It's been great for renters. In Boston, for example, units that used to bring in $2500 a month are getting $1600. and places that were 5k are now renting for half that.

Not all landlords are hurt equally. New landlords probably have been hurt the most because they expected a much higher return and thus probably paid more for the property. Long term landlords have tremendous tax benefits and may have some solid returns to balance off the losses, so net after taxes they're doing okay.

As a landlord you are very vulnerable the first few years. Over time with inflation, appreciation and depreciation your vulnerability decreases.

[Who dat?]

I doubt you'll ever see million dollar middle class homes... no one could afford to even live in them.

Depends where you are.

At my wife’s office the average salary is probably in the $240,000 range. That’d be your generic mid-level manager.

If you include variables like bonuses and stock grants you’d probably have compensation in the $320,000 range, give or take, on average.

Certainly there are lower level, new people that make significantly less – but then there are plenty that make considerably more.

Considering that both spouses typically work (so there’d probably be other income in addition) how much home do you think you could afford?

I ask because you can hike around in Peters Canyon and climb a few hills and look out at mile after endless mile of million+ dollar homes. They’re not sitting unoccupied either.

Then you can go to Malibu or Newport Beach and look at the *really* expensive ones.

People don’t live in southern CA because they crave smog or enjoy never-ending hordes of people. There’s only one reason ($).

[RockinRight]

True. I forget about that since I don't do land loans normally, I do loans existing homes and don't see the land cost itemized.

Ever look at a lot for sale and think "they want a hundred grand for DIRT?"

[jetson]

Currency not worth a damn, our government letting illegals pour in and overrun our neighborhoods with excess cars and people living in garages, illegals sucking up valuable jobs and real estate prices falling. This is the SH*TS. Thank you federal government for not protecting our borders and regulating currency.

[wtc911]

If you didn't buy looking to flip then this dip is meaningless.

[linda_22003]

No. If I saw a lot at that price in Northern Virginia, I wouldn't be able to get to the bank fast enough to get the money - I'd be driving on two wheels the whole way.

[RockinRight]

But are they REALLY better off? You could make 240k in CA, sure, but when you figure housing costs, you could live in Omaha on $120k at the same standard of living. I'm not denying the money factor, but I bet at least SOME of the people who live in these high-cost places would discover they'd live BETTER with a pay cut somewhere like Texas than they do in California.

Here's an interesting website, probably one of the most accurate of its type:

http://www.bestplaces.net/col/

[wtc911]

The smart buyer is not the one who jumps at the reduced pricing schemes but the one who waits until those who are over-extended walk away.

[Melas]

No tears here. America started going astray when the general public ceased thinking of houses as places to live and started thinking of them as investments.

[RockinRight]

There always have been, and always will be, a small percentage of people who are true RE investors, buy low, repair, sell high or rent for a while, or become landlords for years.

When Joe Schmoe who works in IT at Joe Blow Microsystems starts flipping houses, then there's an issue.

[NCLaw441]

You said, in part: We concentrated on living within our means.
***

That comment nails it. We are working hard to teach our children about living BELOW your means. We were a two-income family making around $70K 18 years ago. Realtors were point us to $250K and higher homes, which, technically, we could have afforded. We scaled back, got our home for around $116K (2200 sq. feet, with unfinished basement). We took a 15 year mortgage, refinanced once and got it paid for a couple of years ago. Our incomes have increased substantially over the years, but we have remained happy with our home, making improvements along the way, but nothing exhorbitant (wood floors, screened in porch, etc). I guess we could sell the house for over $200K, but to what end? Buying a more expensive home and getting a new mortgage? Except for one person, everyone makes less than SOMEONE else. Someone will always have a bigger, better home, car, etc. We are fortunate that while we are not wealthy, money is not much of an issue for us, because we try not to want what others have. It has made for a contented life. We can get most things we want. We should be able to put our boy/girl twins through college, and retirement is looking feasible at age 65 or before.

[Uncle Ike]

" then this dip is meaningless "

Yep -- that little leak is meaningless -- the rest of the dam looks okay from here.....

See post #19 upthread for "meaning".......

[Publius Valerius]

I saw that episode. I also wonder how much longer they'll continue to be able to run their company that way: they are jerks, plain and simple. They berate and humiliate their employees (often family members!) and contractors to try and get them to work for less. Eventually, those people will just stop working.

I like the South Carolina folks better; I think they are way more professional and have a much better operation overall.

[BubbaHeel]

When all of those "creative" mortgages come to their balloon or higher-payments points, and people find out that they can't refinance, (as promised as a 'selling point') and can't sell, and can't make the payments --

Pardon my ignorance, but what is a balloon? What is a "higher-payment point"?

Are you saying that banks in SoCal were making home mortgages with non-constant monthly payments, i.e. monthly mortgage payments that increased over time?

Yikes. Not where you'd want to be in a tight market [as the homeowner/mortgage payer], if, say, you unexpectedly lost your job...

[pfony1]

It's too bad Japan didn't drop its confiscatory tax on real estate "gains", instead.

That tax means that every home-seller ends up with less money to buy a "replacement house". As a result, most home-owners stay put (in spite of zero low interest rates) and endure multi-hour commutes.

Small houses. Long, body-numbing commutes. Hmmmm...

Does this explain Japan's falling population?


Incidently, Japan's "housing bubble" was driven by a shortage of supply (qv: Japan's confiscatory real estate transfer tax, referenced above). A "market" with few transactions is (unsurprisingly) very volatile.

I'd like to think that you know that market conditions in the US are significantly different from market conditions in Japan.

But I don't...

[RockinRight]

I'd rather have a modest home to where I can still afford savings, vacations, and FURNITURE.

I have been in many homes where the people bought this huge house but can't afford to furnish it.

The mortgage payment I qualify for and what I'm comfortable paying differ by about $1000 a month. If I took the max I qualified for, I'd be living on ramen noodles and never leaving the house after work-and still broke after paying the bills.

[ladyjane]

It's important to look to see where you are relative to the other baby boomers. The first wave of boomers have left the snowy winters and high cost of living areas of NY, NJ, CT and MA. They have sold their homes up north for a million dollars and have moved to areas such as the Carolinas and Georgia and have bought themselves mansions for $300,000. Sales of upper end houses on golf courses are strong and prices are more than holding their own.

Overall I don't think it is a good time to buy right now - the exception being areas where the baby boomers are moving. If you are planning on moving south (not Florida) where those boomers are heading it's probably a good idea to start looking now.

[finnman69]

Tt's not about mortgages, it's about afforability. When average incomes are $50,000 and homes cost $500,000 the math does not work.

[Uncle Ike]

" Yikes. Not where you'd want to be in a tight market [as the homeowner/mortgage payer], if, say, you unexpectedly lost your job... "

Ignorance??

Looks to me like you're got a pretty good grasp of the situation... ;~)

(And, yes -- remember all those tv ads a few years ago for big mortgages with 'affordable' payments? Low-payment-now with increased-payments-over-time is exactly what they were selling...)