Posted on 12/28/2007 12:09:11 PM PST by shrinkermd
In 2002, the median price of a single-family home in Los Angeles was $270,000 and the median homeowner's income was $65,000. With a $50,000 down payment, the annual cost of that house (taxes, insurance and payment on a 30-year fixed-rate conventional mortgage) would add up to about 33% of the median household's income -- just under the 35% mark that the Federal Housing Administration calls the upper limit of "affordable."
By 2006, the cost of that same house doubled, to $540,000 -- pushed by unbridled speculation fueled by unparalleled access to mortgage capital. But median income rose a paltry 15%. So today that same set of costs come to 60% of gross income.
That might be a manageable burden when home prices are rising at double-digit rates, creating new equity that can be accessed to support spending -- but not when prices are flat and the home-equity ATM is closed.
There are "experts" out there who once preached that there was no bubble; they now preach that all real estate is local and that prices in your neighborhood won't be affected by foreclosures and price declines elsewhere.
The cold, hard truth is that foreclosures are serving only to hasten the painful process of shifting housing prices back to a level the market can sustain. Prices must and will fall. Everywhere. Probably 25% to 30% from their peak.
(Excerpt) Read more at latimes.com ...
Most people like you look around for someone to hate. Speculators are an easy target.
Right - speculation puts the bottom somewhere in mid 2008. If you're buyin', you might consider timing your negotiation to coincide with this time frame.
What's interesting is that the Greenback (USD) will likely have already found its bottom before then and will have stabilized and risen significantly. Speaking of which, I'm curious as to what will happen to the Cable (USD/GBP) now that Britain has adopted the Euro, and what will happen to the Euro itself (and USD/EUR). Will printing more EUR to replace the Pound devalue it, or will the Euro's 'take over,' or acquisition (if you will) of Britain increase its value?
If anyone has thoughts on this I'd be happy to listen...
I’ll have to beg to differ. In Las Vegas, a huge, previously underestimated component of the housing demand was speculators. What has made the market crush these speculators is the lack of rising valuations - the speculators listened too much to the realtors and ignored the actual stats. The partnership of politicians like Harry Reid gaming the BLM to release more land to development and Del Webbe building more homes at a torrid pace kept house price appreciation pretty well capped - there always seemed to be more than enough supply coming onto the market from big-scale development to keep the demand sated. The existence of interest-only loans made it possible for quite a number of long-term residents and Californians who had moved to Vegas with long-term cap gains on their Californian residence(s) to play speculator with high levels of leverage.
The conventional wisdom was that “you couldn’t go wrong buying housing in Vegas” because everywhere you turned, you always hear Vegas is “the fastest growing city in the US.” So there were lots of inexperienced newbie real estate speculators in the market, buying and holding houses empty, waiting for price appreciation to make them more than their interest-only investment in the property.
As a result, as the mortgage industry continues to implode, more and more housing is being flung onto the Vegas market. At the current long-term demand/consumption rates, there is more than two years of already built housing inventory currently on the market - and it continues to go up.
I didn't say I hated anyone. In fact, I mentioned that my brother was a speculator. I just disagree with your analysis. Oil prices are inflated by speculators. Bubbles are created by speculators, as are currency exchange rates. I take it that you are a real estate "investor"?
Come up with some real numbers, otherwise you're reasoning with your emotions.
You could be correct, but I'll tell you what happened in my area of So. Cal.
Those that were not forced to sell, that had their homes on the market, have taken them off the market...By the thousands.
Smart move in my opinion.
Fine. Come up with some real numbers and be sure to subtract out the effects of the Federal Reserve, an institution that has real power to move markets, unlike speculators. And you might want to extend your analysis beyond Vegas.
With a little help of the law of supply and demand, of course.
I think the REAL panic is the property tax people who now realize their tax collections are going down. If taxpayers adopt tax increase caps, it may mean some state and local governments will have to do without “their” tax collection money.
We see it now with school districts demanding a “one time” tax assesment to try and bypass tax caps.
In Manhattan, condo prices went up 5% and inventory is at a 4 year low.
GDP:
http://useconomy.about.com/od/grossdomesticproduct/f/GDP_Components.htm
Everybody goes ape over housing when it is only 10% of GDP.
All the counties/municipalities have to do is refuse to adjust your property tax evaluation.
Just try to protest your evaluation based on a recent appraisal and you’ll see what I mean.
You get nothing but excuses.
I live in a fly over state too. It just hasn’t been impacted by the housing market like the coasts have. But I have no mortgage. No payments for anything. Someone said the feds might move the interest rate. Whatever :)
I agree that those who bought responsibly (i.e., who can afford their payments, regardless that they are upside-down) can survive. But I’m wondering what the impact would be of many homeowners, essentially, being unable to sell their homes should they want to (unable because they can’t come up with the cash to pay off their upside down mortgage).
I haven’t seen an economist address this yet. Does millions of folks “staying put” = stability or stagnation? How much loss of economic activity would it cause if millions of people who might have bought and sold a few more properties over the years never do?
I sure hope that's a joke.
OK how about property taxes and homeowners insurance?
“Everybody goes ape over housing when it is only 10% of GDP.”
Maybe historically speaking - yes....but the last five years is open for debate. There was a vicious cycle of credit card spending then re-fi to payoff plastic then run up credit again only to re-fi to payoff credit cards again. That game is over.
Thanks for the link.
And people won’t move into a sea of vacant houses and end up the only folks in the neighborhood.
But one thing I’m also thinking is that sometimes a market change is permanent-—because it causes a viewpoint / mentality / lifestyle change.
For example, our fam got so p.o’ed at how Chirac handled France’s opposition to the Iraq war, that we stopped drinking French wine. Just our little way of stickin’ it to the man! But, guess what, this caused us to branch out into wines we’d never tried before. After a while, they completely took the place of what we’d been drinking before. Now, regardless of the “boycott,” even if we went back to French wine, we’d still be drinking a lot less than it before.
Here’s another example: when I was growing up, many folks (for whatever reason) traded in their car and got a new one quite frequently, some even every year. Over time, though, more and more people began to hang on to their cars for longer periods of time. When lightning (either social or financial in terms of car repairs) did not strike, a new viewpoint / mentality about how long you could keep a car became established.
I think in this long, long and ugly housing market bust, many of the discretionary buyers became convinced “Ah, we don’t really NEED a new house; this one is okay; let’s just stay put.” *This new viewpoint / mentality could be more or less permanent.*
IOW, the whole way people view voluntary house moves may have changed for the foreseeable future, with many more people now be willing and comfortable with staying put, rather than going through all that is involved in buying / selling /moving into another home for purely “we want a different home” reasons.
If that’s the case, it doesn’t matter when or how low the market bottoms out. The number of homes that change hands will never reach what they were when many people had a “let’s move UP as soon as we can” outlook as opposed to a “why put ourselves through that-—let’s just stay put and make do, or we’re happy with the home we’ve got” outlook.
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