From the Wall Street Journal:
First-Timers Begin Looking At Houses Again
High home prices have helped drive many first-time buyers out of the housing market. Now, with prices falling in many areas, there are some signs that buyers are beginning to drift back.
The share of first-time home buyers dropped earlier this year to its lowest level since 1987, according to the National Association of Realtors. First-time home buyers now account for 36% of home purchases, according to a study released last month by the Realtors group, down from 40% in the three previous years.
First-time buyers play a key role in the housing market. They provide a source of new demand for homes, and they also make it possible for owners of entry-level properties to trade up, creating a ripple effect that affects higher-priced sectors of the market. Declining affordability has made it difficult for first-time buyers to buy homes in many parts of the country, an important factor in the recent housing downturn.
But as more sellers begin to cut their asking prices and rates on fixed-rate mortgages have moved lower, some real-estate agents are reporting renewed interest from people shopping for their first home. Sam Schneiderman, broker-owner of the Greater Boston Home Team, says he has seen “a real surge in first-time buyer activity” in the last two to three weeks as lower prices draw buyers who think the market may be close to bottoming out. Kevin Freadhoff, an agent with Realty Executives of Southern Arizona in Tucson, says in the past 60 days he is seeing first-time buyers “start to warm back up again. They are seeing that houses have become more affordable.”
…
First-time buyers are particularly sensitive to rising housing costs, in part because they don’t have equity from an existing home they can tap as prices shoot higher. And lower incomes provide less of a cushion when monthly payments climb. In a sign of just how hard it is for first-time buyers to come up with the cash needed to buy a home, 45% of first-time buyers bought their home with no money down, according to the recent National Association of Realtors survey, up from 43% a year earlier.But recent data have been encouraging for first-time buyers. The National Association of Realtors reported that the median price of an existing home fell 3.5% in October from a year earlier, the largest decline since the group began collecting these data in the late 1960s. The average rate on a 30-year fixed-rate mortgage now stands at 6.16%, the lowest level since October 2005, according to HSH Associates in Pompton Plains, N.J.
…
Many would-be buyers are taking a wait-and-see approach. When home prices were soaring, many first-time buyers jumped to buy houses they could barely afford, believing they would be shut out of the market if they didn’t act quickly. Now, with prices falling in many areas, “there’s no immediate need to buy, and so they kick the tires more,” says Frank Borges LLosa, owner of FranklyRealty.com, a brokerage in Arlington, Va.Arthur Orkisz, a speechwriter in the Washington, D.C., area, says he expects to hold off until at least next summer before buying his first home, “unless something so dramatic happens that it’s absolutely silly to pass it up.” Giveaways such as flat-screen TVs are “all nice and dandy, but at the end of the day anyone capable of doing the arithmetic realizes that’s a gimmick to get me in the door,” he says. “That’s not enough of an incentive” to buy.
Dead Cat Bounce to squeeze in the last of the foolish. What happens when we see a run on the dollar due to the deficits. Dollar valuation goes down by the year and gets factored into any outside lenders wanting a premium on money lent. Interest rates will go up even if the fed does not follow because of the risk and thus house prices will inversely fall. Upside down borrowers will not be happy.
Lower prices tend to bring on lower prices. It becomes self perpetuating. I smell a major bear trap!!
I really do not see a lowering of the prices in the starter home range. The main correction is in the 600-1mil homes.
I was monitoring prices in NNJ/Central NJ since the end of 2005 and it seems that prices at lower end right now are higher than they were back than…. At Least Asking prices.
So the barrier for New Home Buyers in NJ is extremelly high.
And I am sorry but I do not count rasing price by 20% fron 2 years ago, and lowering it after 2 month by 5% a price decline. 5k of 350 2bedroom/bathroom 900sqft cape cod on the 50/100 lot is not a price decline.
I TOTALLY agree with Al on this one. There is very little correction (actually, no correction) in starter homes in the $350K range. In fact, these homes are the ones that the sellers seem most intent to hold firm to their prices, and the ones that seem to still be selling above asking.
I had a long conversation with my partner last night about home buying and we made a final decision to WAIT until next spring before we do anything else. If the prices for starter homes don’t go down, we will relocate out of the ridiculously expensive tri-state area.
It’s really a shame that the government has allowed this to happen – we’re people that make $200K combined, and cannot afford a decent home unless we want to be maxed out and not able to save for children’s education, go on vacations, etc. The house owns you, instead of the other way around.
Alright, I’m done venting.
should the gov’t set prices for homes?
I just wanted to back up the folks who said that we aren’t seeing price reductions in starter home range. We’re looking at homes between $375k and $419k, in hopes of finding something between $325k and $350k. No sellers in this range are lowering their prices, and our agent and sellers’ agents still have the pressure on to pay more. It’s very discouraging when $350-375k buys you virtually nothing.
My husband and I would be considered middle or upper middle class — it seems to me that we should be able to afford an average or slightly better than average home in an average or slightly better than average area.
FTB,
Are you putting in bids and having them rejected? Is it possible that sellers know these asking prices are not realistic and simply treat them as an opening bid, knowing they’ll be lowballed?
Al
I really do not see a lowering of the prices in the starter home range. The main correction is in the 600-1mil homes.
Al, Maybe at this time.
However, I am certain many baby boomers/young couples will at the very least, be more likely to consider moving as other state’s see their real estate bubble burst (most notable..Florida). Furthermore as prices decline on the higher end (over $600,000), this will put pressure on the lower end, especially for people who are in between the starter home and average home.
In addition, NJ is not creating the higher paying employment for young couples to stay. This will also put pressure on sale prices of starter homes.
Last but not least, take a look around at the commercial construction going on. Maybe when I see the construction of office buildings like I do the construction of big box retailers, then maybe….I feel good about NJ’s future. (I dont need to remind anyone why these retailers were built) – House = ATM.
I didnt even bother mentioning real estate taxes, but there are to many indicators pointing south, to conclude that NJ home prices will stay level.
I love NJ, just as much as anyone who lives here, but even I went to North Carolina and Florida to look at homes. When people like me start to look else where to live…(I know quite a few)…NJ has a problem.
Wait till October 2008 for NJ house prices to bottom out!!!!
skeptic- we’ve had one good offer (within 8% of a high asking) rejected because of price and another rejected because another offer of the same amount was willing to put down more. We’ve been willing to negotiate throughout and have never lowballed (as much as we’d like to).
Our agent and sellers’ agents have gone out of their way to put pressure on us and presumably, other buyers, to keep prices up. In addition, the attitude of the seller’s or the seller’s agents when you enquire about how negotiable the price is is just dismal. Of course, there is a ton of inventory still out there, we’ve been the best offer on two homes, and I really don’t know what sellers are waiting for. It’s not getting better next year.
Well, admittedly I’m not an expert in politics (government policy, etc). But, I feel like the government should be aware of what is happening to the people in their country have have some influence to help out the masses (ie, the middle class). It’s really quite discouraging when you only the rich and the poor have benefits to help them.
“Our agent and sellers’ agents have gone out of their way to put pressure on us and presumably, other buyers, to keep prices up.”
It might be time to get a new agent that would work for you! If there are enough buyers out there that bid below asking or even lowball, then that would be the norm going forward. Have patience and a thick skin! Let’s collectively change seller’s and their agent’s attitude. Good luck.
skep-tic Says:
December 14th, 2006 at 10:08 am
should the gov’t set prices for homes?
what the gov’t should do is put money policies in place that protect the country’s currency and put regulations in place to alter insane irrational Stupid lending practices.
BuyNextYear Says:
December 14th, 2006 at 10:59 am
“Our agent and sellers’ agents have gone out of their way to put pressure on us and presumably, other buyers, to keep prices up.”
Screw realtors. Go it alone. Send bids directly to sellers.
Seems that houses move quickly still if priced “right”
On the lower end of the starter homes… just a guess but those sellers are the ones who probably should not have gotten into home anyway (recently bought, over extended) and they have little wiggle room. Therefore trying to hold on as long as possible before reducing prices. Maybe a little bit of envy as well if their neighbor sold at a substantial profit last year. Also I remember a few years ago a guy at work complaining that he had a lot of appreciation in his current house but because all of the other homes that also appreciated he could not afford to get into a better house.
Take at least 25% off 2005 peak prices Says:
December 14th, 2006 at 11:21 am
skep-tic Says:
December 14th, 2006 at 10:08 am
should the gov’t set prices for homes?
what the gov’t should do is put money policies in place that protect the country’s currency and put regulations in place to alter insane irrational Stupid lending practices.
Goverment should not set prices for Homes.
What it should do it punish people who are BREAKING LAWS.
Lying on you Stated income loan = Breaking the LAW!!!
Fixing your client’s paperwork, so they would qualify for bigger loan – THATS BREAKING THE LAW!!!
NOT Disclosing ALL SUBPRIME loans packed into the mortage backed sequirities when selling them to Mutual funds – THATS A CRIME!!
AND Goverment supported all of these by letting people get away with CRIMES.
Mortage Fraud is at ALL TIME HIGH. FOreclosures are raising.
DO you think Banker’s/lenders are going to give back Originator’s fee’s for BAD LOANS they have created???
SO in effect the housing Bubble WAS CREATED by Loose Money policy, encorauged by polititians who would do anything to keep appearance of the economy as strong, profit from it, both finantially and politically (getting re-elected). Effectivelly widelly abusing their powers for benefits of selected group of people (finantial institutions and realtors who supported BUSH with huge donations during his compain).
SO I am not saying that there was no Greed Factor from average Joe in this bubble creation, but you have to look for a groups of people/organizations, who Benefited TREMENDOUSLY from it.
Again I do not believe in Conspiracy theories, I believe in neglecting your duties (e.g. enforcing LAW) for benefits of a few.
It would be extremelly easy to include submission of the last 4 years IRS return with the load paperwork on the STATED INCOME LOANS.
Why hasn’t it being done???
It would be very easy to include detailed payment/amortization schedule with every ARM/NEG IO loan to make it show very clearly the sum of money(not percentage points) into loan origination papers on the first page:
1st year – 1056$/month
2nd year – 1056$/month
3rd year – 2300$/month
So even the least intellegent people could smell trouble.
Has this been done???
SO I do believe goverment deserves big share of Blame to come.
I’m done venting. :)
we can have as gov’t policy an agency that checks every transaction beforehand (e.g., the SEC w/r/t IPOs), or we can have a gov’t that relies on the threat of punishment as a deterrent (current policy w/r/t home lending).
obviously, the threat of punishment for mortgage fraud hasn’t had much of a deterence effect recently. we had the same issue with corporate fraud a few years back, but executives now getting an ass-pounding in prison have woken everyone up.
The same thing will happen in the mortgage industry. We should not allow a period of excess to seduce us into welcoming SarbOx type regulation for mortgages
FTB,
I’m also curious re: the profiles of the sellers to whom you’ve submitted bids. Have they been they long term owners or recent owners? Do you think they’ve been incapable of selling below asking due to the fact that this would force them to bring cash to closing?
From my experience, I lowballed 3 offers:
– one to a flipper who bought less than a year ago in foreclosure (LP: $399; Offered $350; countered $377)
– one to a long term homeowner (ie, probably 15/20+ years) (LP: $375; Offered $320; Came back and said will not accept less than $370)
– one to a short-term homeowner (
This is an interesting topic. Are lower prices bringing in more buyers?
We chat a lot on this blog about why prices should be lower, how low we should bid/lowball, and when will be a good time to do so.
Are there any advantages to purchasing a house right now, that can be valued, and may not be as readily available in 2007/2008? Would that advantage value exceed the value of waiting for anyone?
For example:
1. Most of the dumpen lumpen Flipper properties available now include new everything and/or upgrades. [Granted, that may not appeal to every taste.] Does that have a value..what? Inventory may be higher in a year, but it may not be the same type of places.
2. Lots of selection, little competition. Does that have a value?
3. Stock market risk [and that inflation risk we are all so interested in]. Does make a purchase now have a value, vs. ’07/’08?
4. Tightening credit?
5. Anything else?
FTB – stick to your guns. Dont yield. 8% off is a damn good offer and they would be sorry next year for rejecting it (I would never buy a house at just 8% off of today’s price).
I know the process is frustrating as many of us want to get into housing at ‘right price’ , but this is just not the time.
I’ve made peace with this situation by calculating how much money more I would have been spending by getting into house and put that amount into a balanaced fund (stock + bond). Whenever you feel frustrated, you can look at how your fund has been doing and how much money you were able to save by not buying that money sucking home. BTW my investment has been doing great.
Hope this helps.
lina,
Keep at it – with your thoughts on what the gov’t should be doing, I’m sure you won’t mind paying Maplewoods’ taxes (which, based on the home prices you quoted must be on the irvington side of town and will only be about 15k/year) to find a community who feels as you do. ;)
PbW –
That’s depressing.
Are there any advantages to purchasing a house right now, that can be valued, and may not be as readily available in 2007/2008? Would that advantage value exceed the value of waiting for anyone?
There are a lot of advantages to buying ight now except one little disadvantage: unless your family does not make over 100K/year (ideally 150K) you can not afford anything. (I do not believe in buying converted apartmentss for 300K in middlesex county – they look ugly, they are ugly, they are apartments which you will be renting from the bank for 30 years and more importantly will not be able to sell).
Okay, so let me ask the board this question.
If total Household income is $200K, and there are carrying costs of another secondary home (fixed mortgage of $1000/month, plus about $100/month in taxes/insurance), what would you all say is a safe (low/conservative) cost of another home?
I’ve figured $350K. Was wondering what other people would calculate.
Can you rent out the other house and get it out of the equation?
My husband and I relocated to New Jersey from Chicago in July. We are DINKs with an income that puts us in the middle to upper-middle class (though it certainly doesn’t feel that way). We decided to rent when we moved, because we could see what was happening in the market. Our lease will be up in July 07, and though we have some time to make a decision I have been pondering the decision to continue renting or buy.
I have been tracking prices in the condo development where we are renting, in case we should decide to buy there and also to get an idea of the market. Sellers were reducing their prices in late summer, but then most of them gave up in Sept or October and took their units off the market. For example, a unit like ours was listed at $319k when we arrived in July, though it apparently had been on the market since spring. Shortly thereafter they reduced the price to $299k. By September it had been taken off the market. I met their agent at another open house and he explained that the sellers had accepted an offer of $290k, but then the buyer started to realize that the market was shifting (duh!) and started demanding things that the seller wasn’t willing to give. Consequently the deal fell through and the sellers are renting the place until March when they feel the market will be better for sellers (wishful thinking if you ask me).
In July there were about 7-8 units for sale, of about 85 total. Now there are only 3 for sale, the rest having been taken off the market. I know that at least a few of the properties that were taken off the market are vacant, so I assume they will be relisted in the spring.
Interestingly, just to show that there are idiots buying right now, a family put their unit up for sale in November for $305k. They must have been motivated sellers who were willing to be flexible with price, or their buyer was exceptionally stupid, because they closed a week or so ago. I am waiting to find out the sale price.
The bottom line is that I would be willing to pay about $260k for one of these units in decent shape, if interest rates stay roughly the same. I wouldn’t mind renting for another year and buying in 2008, but I am worried that interest rates will rise and any advantage to us through a lower sale price will be counteracted by higher interest rates. Just for reference sake, my landlord bought our place in October 03 for $230k.
I am sure I don’t have to ask, but any opinions out there? Is $260k by next summer just a pipe dream? Will sellers who are buying into the “spring will be better” mantra be so desparate when their place hasn’t sold by late summer or early fall that we will be able to get our price?
BTW, at $260k we have enough saved for a 20% downpayment and we could well afford the PITI.
AK
Yes, but when calculated cost of another home, I want to play it conservative and assume no income from that property just in case I have difficulty renting it.
I’m super conservative with money!! Probably not the way to get rich, but also the way to not get poor!
AK, just in case you’re still there when you get your lease renewal in [May?] call your condo owner and tell him you want to go month-to-month.
AK,
How much are you renting for right now? Are the ones you are looking similar in size to the current residence?
if you are renting from a private owner, they should have no problem going month-to-month. if they force you to renew for a year lease, you could always “unintentionally” misplaced the paperwork and delayed for a couple of months. just make sure you keep on paying rent.
Sorry for the typo in the first line (should be “our” not “are”). Of course I do that before calling our landlord an idiot.
AK
Al Says: “I really do not see a lowering of the prices in the starter home range. The main correction is in the 600-1mil homes.”
I did point this out a while back. It takes time for the correction to trickle down to the lower price range.
Lina, you are also looking in a town that is a 30~40 min train ride to manhattan. Prices will likely drop first in the outlying areas before it drops in the towns that are convenient for a manhattan commute.
If you look in the Priceton/windsor areas and the brunswicks, you will see significant drops even in the 400K to 600K price range. Don’t expect that in Essex/union county until later next year.
They key to finding a deal is being patient.
Reluctant.
Do not trust the online calculators on what you can “afford” – esp. from the realtor’s site. The general rule of thumb is that you should not buy more than 3 times your gross income.
But in NNJ – I personally think I might have to go a bit higher than 3 times our salary. House buying/selling is pretty expensive. So personally I would want to make sure I move into a house which I really like and would not want to move out for the next 10-15 years at least. The house I really like (in good area etc.) generally cost around 550K. I hope they come down to 450-475K range in next 2 years. In the meantime I’ll rent and save more toward downpayment.
BTW – I think condos are much more in danger of losing value than SFH. Unlike SFH – which will consume qute a chunk of land, condos can actually be “manufactured”. Just add 20 more stories and viola – you got 500 more condos. History also shows condos/townhomes lose more value % wise as compared with SFH.
Also I’m going to rent a 2 BDR @1500 and I was annoyed at the high rent. But NYC premium thing is there (I hate it)
I guess folks that visit this site have a bearish outlook. Most of the stuff here is quite shallow.
From my search to buy a starter SFH at about 400k in NNJ, I have come to realize that its almost a sellers market if the home is in move-in condition and in a nice location. Its those crappy homes that are not in move-in condition and in crappy locations (on a busy street) that are not selling. I guess in the past those might have been candidates for speculative buying.
There are people serious about buying and moving in that are paying close or above the OLP.
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