The following comment was posted by NJREReport regular, Clotpoll, late last night during the Weekend Open Discussion. I think it deserves a deeper look and didn’t want it to go unnoticed, so I’m going to make it the topic du jour for this rainy Monday.
This massively long thread has gotten me to thinking about risk. More specifically, it’s gotten me thinking about how people define acceptable vs unacceptable risk.
Back in our parents’ day (the end of WWII thru the 1970’s), a primary residence was desirable and important in the grand scheme of a family’s finances, but it was never the crown jewel. Families who possessed any significant degree of wealth held that wealth in traditional, liquid investments such as stocks, bonds and money market instruments. Housing was more about emotional security and keeping a roof over one’s head; any appreciation that came a homeowner’s way was considered “gravy”, and annual appreciation rates that barely tracked inflation were considered adequate. And, people hardly ever changed jobs or moved. I can remember going to “mortgage burning” parties of my parents’ friends, celebrating making the last payment on a traditional 30-yr note. RE in those days was a valuable, but not very risky investment.
Fast forward to now. After a gigantic asset bubble burst in the late ’90s; the rise of vehicles that allow owners to liquiefy home equity; the spread of hot, cheap money worldwide; and the “nesting” of America spurred by the events of 9/11, the average American family now has over 70% of its wealth tied up in real estate.
So, the question is: now that RE is the preferred means of wealth creation for American families, how far have the stakes been raised? And, how has this elevated risk changed the game forever? Whether the market and home prices are up or down, the public wants and values RE. Even now, even here in permabearland, I don’t hear anyone saying “I don’t ever want to own a home.”. The overwhelming consensus opinion is that homeownership is a desirable thing. But the stakes are bigger, so the risks of ownership are, too.
I have no idea of what the long-term implications of this sea change are. However, I strongly suspect that the extraordinary risk that has been unleashed is a genie that cannot be put back in the bottle.
Anyway, many who post here are- by their own admissions- famously risk-averse. Their “wait things out” stance assumes that at some point of further market decline, the risk of homeownership will recede vs. the perceived benefits. However, what if that point comes…and our risk-averse friends STILL cannot pull the trigger, because falling housing prices are now accompanied by some other troubling external factors, like recession, credit collapse and/or runaway inflation. Even a slow, grinding unwinding of housing prices is bound to be woven into a fabric of some other very unpleasant economic stuff.
Here’s the ultimate question: are we all fighting about the wrong thing? Could it be that whether prices will go up or down isn’t really going to determine the future of housing in America? Could it be that the real problem has been that simply TOO MANY people own houses? And, finally, if housing has permanently become a risk-charged, high-flying investment, what constitutes an appropriate level of American homeowership, and what investment vehicles will replace homeownership for scores of risk-averse Americans?
Clotpoll,
nice.
I have to say homeownership is still desirable but if I have to take I.O./ Arm loans to achieve this I feel I’ll never own the home.
I would be hoping for appreciation.
The fact that its cheaper to rent then to purchase a home ( w/ traditional loans) is bringing the market down but I feel an awful lot of uninformed buyers exsist and are getting bad advice from boomer parents who have only benefited from RE
time will tell
lets look to more mature markets where (without a doubt) the housing availability issue is much larger… Europe.
In most europen countries (save UK) you need to put 20% down and the mortgage expenses cannot exceed 33% of your gross household income over the last 2 years. Consider too that households have less disposable income (lower salaries, more income and sales taxes, higher social costs). And you know what?
1)It is still substantially more expensive to buy a house in Europe than in the U.S. for the average household.
2)Rental vs. Mortgage ratios are comparable to the US.
In sum: In a more risk averse environment you would still likely have the same affordability challenges…just (slightly) less volatility. The ‘investment vehicles’ will remain the same… rent or buy.
Repost from loast night…
I have no idea of what the long-term implications of this sea change are. However, I strongly suspect that the extraordinary risk that has been unleashed is a genie that cannot be put back in the bottle.
I’m not convinced the recent (5 years or so) shift in attitude toward owning real estate as an investment is indicative of a long-term paradigm shift. Just 7 years ago, we could be having the same conversation about stocks. It seemed like every Joe Sixpack had an Ameritrade account and a hot tip on the next Microsoft.
I’m also convinced that most American’s haven’t suddenly become less risk averse. It’s really the lack of perceived risk that fueled the housing boom. Many saw the stock market as low risk in early 2000. When the NASDAQ turned south, many average “investors” were shocked to actually lose money.
Without double digit appreciation, I think most American’s will lose interest in RE and move on the next big thing. Houses will once again be a place to live and a source of financial stability, but not a path to riches.
When attitudes change toward real estate, I have to wonder what the appetite will be toward risky financial vehicles. An option ARM is great when houses are appreciating at 15% per year, outpacing the growing loan balance, but what about in a normal market? Will lending institutions still be willing to underwrite high risk mortgagees? Will regulators step in and impose restrictions to safeguard against systemic risk? In the late 1920’s, interest only mortgages were very popular, so what we are seeing today isn’t really anything this country hasn’t seen before, and I am sure, will see again.
Very interesting and valid point, Clotpoll.
As far as too many people owning – you mean too many people renting from bank vs, renting from a person??
It is all comes down to Current Era being Impersonal and Corporation/stock market driven.
Instead of renting from a person who own homes, we are renting from banks, instead of dealing with a family doctor we have to go to huge hospital, instead of getting to know you banker, who is personally responsible for your money we are getting loans from some huge corporations and opening savings account on the internet.
SO the NEW trend is to replace personal responsibility with CORPORATE.
That Said, I can see, for example in 50 years 90% of property is owned by huge REIT, and instead of buying homes we will be buying REIT stocks, and renting the homes, may be even with furnuture, plates, and silverwear (but not a bedsheets, please)….
This way there is no 6% fee everytime you have to move, which will make global workforce a lot more mobile.
Could it be that our world right now is geared towards more efficient lifestyle, and renting is more efficient when you take into account higher and higher workforce mobility??
Could it be that one professional carpenter mantaining 100 homes is a lot more eficient than 100 home owners trying to do the same.
We are moving to more and more Specialized Society – I do not think anybody would argue about this one.
Also check think link out:
http://www.homeproperties.com/moving/rent-or-buy.asp
Disclaimer: this is not a advertisement, just an example. This company is an REIT, and I am not affiliated in any way with them, or solicit you to buy their stocks. I even do not know what are they traiding at, right now.
What I do know is that when you visit their offices lookign for lease, as part of the advertisement materials they are giving people their stock-info and saying: “if you want to buy a home – rent from us and buy our stocks”. Risk free housing – you own it via stock market. Makes it nice, liquid, and impersonal.
Thats why Clotpoll’s post jumped at me right away.
Al,
Great post!
Current homeownership rates at a historic high of 69%. What percentage represents I/O option ARM loans? Subtract that and you get a more natural historic rate. I’d guess somewhere around 60%, maybe a bit less.
I’d say the market is saturated with owners right now. Where is the demand from first time buyers going to come from, especially considering the tidal wave of boomer retirements, selling/downsizing? And don’t tell me immigrants or Wall Street bonuses. That horse has been flogged.
P.S. What does the historic number of comments on the Weekend Open portend about the RE market?
Why is it that when people talk about home ownership, they do not refer to true ownership? That is, ownership without a mortgage. I wonder what that number would look like.
Clot – you make some interesting points, but I’m not sure enough time has passed to look at the last five years from a truly historical perspective – that is to say, whether there has been a true paradigm shift or whether this is just the mother of all bubbles.
I would have to agree with RentinginNJ with this:
“I’m also convinced that most American’s haven’t suddenly become less risk averse. It’s really the lack of perceived risk that fueled the housing boom.”
Clot –
So I am 27, and I hear the cliche about “throwing money away” ect. Mots of my friends are the college educated crowd
In this case home = SFH, townhouse, condo/co-op, trailer
1. Owning a home means your landlord is not choosing to renew your lease so he can rent to someone who will pay more/is a married couple/his cousin from X/ect.
2. In NYC ( I wish I could find the times article ) in condo buildings its easier to buy than deal with the hoops that some landlords make you jump through.
3. It is still a status symbol in some areas particulary when your the first generation to not be renters your entire life.
4. Most of the people I know and we are more conservative than probably 80% in their late 20’s are looking for property for stability for above, and or to raise kids and not move.
5. I would say that most buying apartments plan on upgrading so appreciation/equity is critical. And those that got downpayment help from mom and dad some of it came from HELOCs ect on paid off properites.
6. I plan on paying my mortgage off ASAP ( after the student loans ) and start saving for that house I need for 3. Which will be probably a 200K downpayment to stay in fort lee.
I plan on paying my mortgage off ASAP
I’d love to start doing that myself but it feels so overwhelming, given the numbers. I’ve run the calculations on the mortgage pre-pay calculators online and even if I add a few hundred every month towards principal, all it does is shave a few years off the tail end. If by pre-paying I want to reduce the amount of interest I pay every year or even ensure that my mortgage balance stays above depreciating prices, I can see that. But to actually pay it off is something I can’t even fathom because the numbers are so freaking big and the timeline is so far off.
My two cents.
Seems like most 27 yr olds are more interested in their 3 series lease payments and what latest music listening devices they can play Fergie on than buying anything the right way.
same old cliche
syncmaster – you have to make Principal payments. Don’t just throw them a couple hundred extra every month. Make 1 principal payment a year..but you have to make sure they apply it to the principal.
syncmaster – you have to make Principal payments. Don’t just throw them a couple hundred extra every month.
I was doing the numbers using online calculators and it seemed like paying to principal every month reduces my interest payments more than paying to principal once a year (assuming the monthly amount in question is exactly 1/12th of the yearly amount). Is there some other benefit to paying once a year?
I’d love to start doing that myself but it feels so overwhelming, given the numbers. I’ve run the calculations on the mortgage pre-pay calculators online and even if I add a few hundred every month towards principal
May I suggest using your tax return as a principal-only payment?
jb
Let me clarify.. I mean as an additional principal-only payment.
jb
JB,
I had planned that but then my wife started temping and having too little withheld from her taxes. I tried to get her to fix it but it never happened. I will owe money this year, first time ever.
Syncmaster,
Not sure what online calculators you are using but if you have Excel it comes with a Loan Amortization template where it calculates the entire table for you. Personally I found this schedule more usefull than any calculators I’ve seen online,
You can also add additional principal payments either monthly or annually at a specific point in time. You can change interest rates, loan period, etc.
let me know if you’d like to know how to access it.
poser,
I had no idea. I really need to get a better handle on Excel. Let me try to find it myself and if I can’t I’ll ask.
Thanks for the pointer!
Clot,
In one of your earlier posts, you said that people wanted to buy; the hang-up was that they couldn’t sell their existing homes.
But why are they looking to sell their existing homes? To upgrade somehow – to a better house or a better town?
Are their existing homes less desireable than the ones they’d like to buy?
I had planned that but then my wife started temping and having too little withheld from her taxes.
Understandable, the bright side is that you aren’t giving Uncle Sam an interest-free loan.
jb
JB,
Yup! Plus, based on numbers I have it appears that the amount I will have to pay is less than the interest + dividend income I made this year so.. it’s all good.
Home-loan house of cards ready to fall
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/HomeLoanHouseOfCardsReadyToFall.aspx
“The subprime trade continues to evolve. Stage one was the turn in the housing market in July 2005. Ironically, stage two occurred in September 2006, a month after home builder stocks bottomed, when spreads on subprime home-equity loan securitizations started to widen. I think we are now into stage three, where some of the bigger listed subprime lenders start to get hit. That might bring the ongoing problems in subprime to a wider audience. Stage four is when a top-three-listed subprime lender goes broke, leaving various Wall St. firms saddled with bad loans. Stage five is when the market really gets it, and eurodollars (at least for a time) start to rally hard as the market fears some kind of financial turmoil. We’re not there yet, as we are just now entering stage three, but do not take your eye off subprime for a second.”
I recently bought a new construction townhouse in north jersey. I payed $356,000 (including upgrades) for a 2br/3bath and put 5% down .
Financed using an 80/15/5:
1st loan: I/O 5 year arm @ 6.375% = $2099
2nd loan: 15 year fixed H.Equity @ 8.25% = $393
Maintence fees: $175
Total: $2,667 (loan includes taxes which are around $585/month)
Currently there are only 2 units same as mine available and they are running $384,000 (without upgrades) and will be built in 5 months.
1st question – About how much should I expect to get back on my tax return? I’m in the 28% tax bracket.
2nd question – If my unit has gone up approx $30,000 and this is for the same unit WITHOUT upgrades. Using the above #’s, does anyone feel it was a bad decision to buy? any if so why?
thx
New Home Owner – Did you plan to get out before the ARM reset?
585 * 12 = 7020
$7020 property taxes on a 2bedroom TH? Which town is this?
Best returns on a 6 month CD?
Etrade CD rates –
6 Month 5.21% 5.35%
1 Year 4.93% 5.05%
2 Year 4.69% 4.80%
3 Year 4.69% 4.80%
5 Year 4.69% 4.80%
Citi
6-month 5.00% 4.88%
9-month 4.75% 4.64%
1-year 4.20% 4.11%
2-year 4.40% 4.31%
3-year 4.00% 3.92%
4-year 4.00% 3.92%
5-year 4.60% 4.50%
Ing
6 Month 5.00%
9 Month 5.05%
12 Month 5.10%
18 Month 5.00%
24 Month 4.75%
30 Month 4.75%
36 Month 4.75%
48 Month 4.75%
60 Month 4.75%
BigWindow
Look we all are not like that, any time you want to talk about the mid to late 20’s and how they are coping with the bubble pick a place and time and I’ll show up.
I have an upstairs neighbor where I think his parents bought him the apartment, I used to work with a guy who said “why you buy so small get your parents to take HELOC out for your down payment” In many ways the parents if the first case I think were looking for an investment with a tennant they knew.
I have been dealing with my own issues/concerns of entitlement ( thats another long post ) from growing up middle class nice neighborhood on LI.
I think it was wrong to expect a college degree, which I am now learning how hard it is to go full time and work full time. I think it was wrong of me to expect some help on the place I live now, which I did not get some help. I think it’s wrong for my Sisters soon to be MIL to expect my Mom to pony up 30K for a wedding.
But how many people are self made are trying to step up. Look I am as cynical as many of you. Some of it has to do with being “Middle class and proud” Not middle class and acting like you upper class. Some of it has to do with not giving your kids everything they want.
Yeah it was annoying when the last GF felt she was slumming it because I dont have a full house yet and a nice ride. I hope there is someone out there who respects this and is my own age ( and only has 1-2 cats )
Ok the new boy has a tricked out German car and a house in Teaneck at 23, go him. I wish him the best of luck paying those taxes. I’ll be here paying 550 a month and banking money for that whole house.
And yeah I live in Fort Lee, and yeah my neighbors can’t afford a 600-800K half duplex and the Asians can. Don’t be racist/hate how hard are you willing to work? I told off one of my neighbors with this, guy goes and fasttracks a masters degree 5-6 years of college and then works nights and weekends for his cousin/brother/ect. Your mom lives with you and takes care of the kids while your wife works a well. Are you willing to work that hard, if not then don’t complain.
Thats why I went back for RN school, I wanted to do Medic but the money is not there. You work your main job and all the OT you can get and then you moonlight at Dialysis or PerDiem at another hospital. You also get your APN and then start drawing in like 120K a year or more.
Thats the problem my cohort is lazy, and they want the bling now. And the companies have figured out how to give it to them on easy payments. GS300 6K a year to option a 55K car. 13K bikes on credit card payments.
This is my game plan not too fancy but thats what it is.
1. Get though final semester, pass boards, get job. All RN jobs pay enought right now to meet my 20K a year needs and wants. I need the best on the job training so I am good at this and I don’t lose my license.
2. Some people in my program want Escalades I want to nuke my loans first year. The goal is less than 50K where above that the loans are not deductable, the first full year working I’ll be past that. And some of the deffered stuff I put off in school ( like a dental crown ) I need to address. 4k IRA and 401K to match would be nice too as they phase out past 50K as well.
3. Year after have 27K on the mortgage left, if we are in a very high inflationary state I will keep it around and invest elsewhere, if not I pay off the mortgage and start saving. Need about 200-300K for that house in fort lee for me to afford it at current rates. So I need 150-250K in the bank to keep the payments below 4K a month.
I also need to go back to school and start working on the APN Masters level so I can afford the upkeep on that house once I can afford to buy it. I need to make about 140-160K to do that with the 3K mortgage and 1k of taxes and heat electricity ect.
But thats with one income so if I have a wife and kids she does not have to work full time for the first couple years if she does not want to.
It’s doable you just have to be willing to bust your ass for 10 years or so.
Currently there are only 2 units same as mine available and they are running $384,000 (without upgrades) and will be built in 5 months.
If my unit has gone up approx $30,000 and this is for the same unit WITHOUT upgrades.
Can you explain what you mean by “they are running $384,000 (without upgrades) and will be built in 5 months”? Is this the price the developer plans to ask or are these units actually pre-selling (i.e. closed sales) for this amount? Is the developer offering any kind of incentives on these new units (ie, free upgrades, no closing costs, low financing, etc.)?
RPatrick,
Not sure how old you are but I suspect I’d be a part of what you call your cohort. I’m about 30. And I don’t want no damn Escalade. LOL. Can’t imagine paying GEICO even more. I’m happy with my compact POS.
#23 – New Home Owner
Here is the tax table, just subtract your decuctions from gross income to get a rough estimate of taxable income. Compare this number your W2 tax amount paid. http://www.irs.gov/pub/irs-pdf/i1040tt.pdf?portlet=3
My question to you is, what was your rationale to buy? Was it simply confidence that your investment would appreciate?
I’m in a similar situation as yourself, and can’t get the math to work.
First, even if you sell in the next few years for a 30k gain, that will be eaten up by the sales cost. Factor in that you can rent a townhome for ~$1400 in most NNJ towns, and your looking at a ~$1300 monthly difference. If you have a roommate/significant other, you can pay as little as $6-700 a month to rent.
A good way to analyze this is to add the total tax savings you expect over the time you will own this property, to the amount you expect to gain from a sale, and divide this number by the total amount of months you own. Compare that number to the monthy savings you could get by renting, multiplied by that same number of months. I’d love to see the math on this.
What this comparison doesn’t factor in is all of the intangibles people love about ‘owning’, but that is something everyone values differently.
7k on a new townhome in norther nj. what a
screw job. in several years it will be over
10k and main. will be at 250 per month.
Uh, wait, you could either do the rent vs. own on a monthly basis, or you could do it for the entire period you expect to own, but the method I described didn’t make sense.
I think my point is that unless you get a significant discount from the list price, or you expect to stay in the same place for a long time, there is little reason to buy a starter place right now.
Oh about the 3 series
BMW are still beautiful cars, the straight 6 is one of the best engine layouts for power and longevity ( almost all tractor trailer/prime movers are straight 6 )
I like the older Benz more early 80’s small turbo diesel wagon. I ride so when I want to go fast I get on the 250. The low end Benz the quality is just not there anymore.
Most of the major marques are working on diesel offerings in the next year or two. I would be very interested in a toyota hybrid/diesel with the highway effiency and the around town motor.
The TDI’s get 50MPG highway but crappy around town, and the prius is just a regular car at highway speeds but great in NY and NYC traffic.
Something like that from VW would be even better possibly pulling from the LUPO platform.
New Home Owner,
How much would it cost you to rent the same place?
I think the Nissan Versa and Toyota Yaris (and to a smaller extent, the Honda Fit and Chevy Aveo) are going to dramatically change the U.S. auto scene. All are reliable (well, maybe not the Chevy), inexpensive (most are sub-$12k), highly fuel efficient, and good looking.
Europe has had small-car options for many years, options that have never before been available (heck, even seen) in the U.S.
At just over $10k, many of these models can undercut 3/4-year old used sedan pricing. Sure, you aren’t going to impress the Jones driving a Yaris, but do you really care?
jb
The Yaris drives like sh1t but with traffic the way it is these days, what does it matter? It’s a good price and it’ll get you from Exit A to Exit B.
Might drive poorly, but it’ll probably take you all the way up to Skip Barber at Lime Rock and back on a tank of gas.
jb
I wouldn’t feel too safe driving a tuna can…
I have two trash cans which i plan to sell. One has a plastic bag and the other doesn’t. I will sell the one with the plastic bag now for $20, but i plan to sell the can without the plastic bag for $30 in the next 5 months. Whoever buys my trash can now can hope to make $10 in the next 5 months.
It doesn’t matter that there are thousands of trash cans being sold all over but the price of my trash can will go up in the next 5 months.
For R Patrick, i got your diesel right here.
http://www.worldcarfans.com/news.cfm/country/gcf/newsID/2060911.001/audi/audi-q7-v12-tdi-revealed
njrebear: throw some granite in that trash can and you easily can increase the value by a few hundred.
It doesn’t matter that there are thousands of trash cans being sold all over…
See this is what confuses me. On one hand, I read that New Jersey’s population isn’t increasing, or is increasing only anemically. On the other hand, I read of all these planned condo/townhome complexes planned on sites that used to have commercial buildings/warehouses or as part of new transit villages … all with thousands of new units.
If the population is really stagnating, who is going to live in all these new units?
For some reason people are deliberatly ignoring the subject which was brough up in the topic –
Here’s the ultimate question:
1. are we all fighting about the wrong thing? Could it be that whether prices will go up or down isn’t really going to determine the future of housing in America?
2.Could it be that the real problem has been that simply TOO MANY people own houses?
3.And, finally, if housing has permanently become a risk-charged, high-flying investment, what constitutes an appropriate level of American homeowership.
4.and what investment vehicles will replace homeownership for scores of risk-averse Americans?
Answers From Me:
1. I believe requirementd for the workforce liquidity will be determining factor in the next 30 years.
If current trend accelerates – professionals , seasonal workers, construction workers are almost expected to change job/location in 5 years – rental will be playing higher and higher role.
2. yes.
3. No – housing is just very illiquid right now. which makes super-bubbles possible.
4. Stocks of REIT. they are raising as real estate values/rents rasing, dropping as real estate values/rents are dropping.
Tehre are already REIT which are entirelly based on townhomes, yet to be seing are REIT based on the single-family homes, and i believe we will see thouse soon as well.
Now anybody else care to share their opinion about 4 questions above??
Ohh yes and to address question #4 in more details: so far there is no tax advantage in REIT.. thats the big one – so the current boom in part was triggered by tax-savings. Once goverment removes the tax cuts/ot introduces the tax cuts for renting it will be even.
In general I am big proponent of eliminating all taxes and replacing them with unified Sales tax – or taxing not earnings but consumption…. (never going to happen – Lawyers/accountants will neve allow this to happen.)
By the way do not tell me that it is impossible:
Some states choose to impose no income tax. These states are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Additionally, New Hampshire and Tennessee limit their state income taxes to dividends and interest income only.
The V12 is derived off the racecar they ran at Lemans. Audi also makes truck engines and the engines for the Lambo’s
I think really the Ford KA/Focus Toyota Yaris and the other sub compacts are going to be very good for that whole category of people where the average cost of a new car being 20-30K is just way too much.
As far as driving well, again get a bike and a helmet. Really how much time are you going to be “driving” like in a sports car ad and how much are you going to be sitting drinking your coffee on the radio.
I can see getting a golf wagon TDI, but then it can take a trailer for hauling stuff like a race bike. I also am into the whole biodiesel/grease car idea
Isn’t the Yaris a tiny car that will get folded up in a crash? I need something a little safer than that.
As for the post that got this thread started … some of it makes sense. But my problem is that most of the logic comes from life in the 70s. Well, uh, times have changed, for better or for worse. We aren’t going back to the way things were just as we’re not going back to pre-internet life. Who wants to use the dewey decimal system?
(We’re looking to buy … but after the wedding. Probably this summer. And I’m super upfront with realtors – whatever their price is, we chop of 75k-100k and begin negotiations there. If they don’t want to cooperate, then we’ll move on. And I couldn’t buy a townhouse because we’re in Brooklyn now – moving to NNJ and we’d prefer a yard.)
Scribe (#19)-
Not all the buyers I described as having problems selling their own homes are trade-ups. There are a significant number of boomers looking to trade-down right now who are stuck in this “hold pattern”.
I personally have several trade-down sellers who are stuck in this standoff. My sellers in this category are the fastest to come off their asking prices (they’ve been in these homes for years, and even a price far removed from ’05 peaks is more than they ever imagined getting), and they understand their superior potential leverage when they are ready to buy. All are looking at condoshacks, and they know that they will be holding all the cards when the time comes to buy.
However, the pipeline of deals has gotten so jammed up that even my most reasonable sellers can’t table offers, because our potential buyers can’t get their own homes sold.
My suspicion is that selling boomers with lots of equity coming way down on asking prices will lead us out of this impasse. Anyone who can enable a potential buyer to turn around and lower the asking price on his current home will be the first to sell.
Sync
Let me ask you this:
1. So you ever wonder how you look at your pay or expected pay and go “man I’m making more money than I ever thought I would and going ‘I need more?'”
2. You look at a 600K place and you do the math and your head explodes, about just how much money that is. I have friends in Cali where that is for like something in Wallington, and in FL is 1/2 a house.
I wrote that post before and now I am sitting here going that’s crazy. Thats more than half a million dollars!
Clot, I have seen a few houses on FSBO by boomers. The boomers I have seen are not of the mindset you describe.
They have probably already used their houses as ATMs paying for their kids college and their own luxury cruises. They want their houses to pay for their health issues and retirement as well, and are not budging from their astronomical prices.
I am seeing better prices from folks who got job transfers and have already moved on or in the process of moving on. Folks who have lived in the house for only a few years and never had the intent of making $.
A few more months of bleeding, NJ taxes and dealing with their sellers agent — and they will come down further.
So you ever wonder how you look at your pay or expected pay and go “man I’m making more money than I ever thought I would and going ‘I need more?’”
R Patrick,
Yes to both your questions. But the first one especially struck me.
I have friends, they’re my age.. who were making more than I was and then … got laid off. Then they made a lot less in their new jobs. One of them has climbed back up, two others I know haven’t been able to. These are all IT people, like myself. Our salaries may be high at times (like when a critical project needs our skills) but they’re not reliable.
So when I try to guesstimate how much of a monthly payment I can safely count on making for the time I spend in a home (let’s say 10 years) I end up thinking in terms of the worst lowball offer an employer might make me at my most desperate juncture (say a layoff in the middle of a recession).
Even now, with the economy relatively healthy, I have gotten lowball offers from employers who assumed (wrongly) that I was desperate. The point is unlike previous generations our incomes are much less stable and there’s no guarantee at all that we’ll be making more in 10 years than we do today (inflation adjusted). The only ‘hedge’ we have is what we can save up while the goings good.
Am amazed at the number of lowballers here who seem to expect RE agents to spend unlimited amounts of time showing houses and submitting offers that have 0 chance of being accepted.
One can see the market has gone down. One can rightly suspect that the market will further decline. However, no seller in his right mind will accept TOMORROW’S theoretical price TODAY (unless, of course, the market is rising).
Making offers that slash massive $$$ off today’s established values is an utter waste of time and shows no understanding of markets or the contextual relationship of time & value in RE pricing. Not to say one is wrong in assuming the market may go down more; it’s just that to make a “today” offer that builds in a steep anticipated future drop in a subject property’s value is not a strategy that will result in an accepted offer.
Furthermore, even if a listing agent were to convince a seller to accept an extreme lowball offer (based upon a future assumption of significant depreciation), the agent is setting himself- and the buyer’s agent- up to possibly be sued later by that seller…if the seller could prove that the agent convinced him to accept an offer that was grossly below the market AT THE TIME OF ACCEPTANCE. In fact, some listing agents are now playing CYA with listings on which they’ve accepted even modestly-discounted offers; during attorney review, they’ll lower the asking price to a number at or near the agreed-upon price in order to gauge other possible interest at the accepted price. If there is other interest…bang! Another offer comes, and the house gets bid up.
So, don’t be surprised when agents won’t devote huge amounts of time to wild-eyed lowballers. Wasting time, money and gas in order to either make no sale or one that ends up in a lawsuit is not an enticing proposition. We’re dumb…but not that dumb.
Clotpoll: Good points.
Here are my 2 cents worth.
Historically, my analysis suggests that in 80’s it was more difficult to own house. The interest rates were in double digits. I have my small chart that shows comparison percent of income required in NNJ to buy a house that hypothetically costs 1000 times of HPI. That percent definitely was much higher in 80’s then 90’s.
http://www.geocities.com/skgala/newark.htm
The thing is in 90’s due to low rates, small RE appreciations etc… Housing really became very affordable compared to previous decade.
Suddenly from 2000 onward, RE started faster appreciation and again in 2006 we percentage required is back up to similar heights of 80’s.
If history repeats (which it normally does), we will be in the period of very very low or no appreciation for at least 8 to 10 years (like 90’s). In such a scenario, it does not make sense to buy more then what you need and definitely not on ARM loans.
Clotpoll: I don’t think people are suddenly thinking differently about RE. It is just the point where buyers need to see that prices are not going to go down, when they make such a decision.
Also keep in mind that folks on this board are the ones who are doing much more analysis and research then most other folks in NJ. There are definitely other buyers who are still buying at this point in time.
Clotpoll, my experience has been completely contrary to your last statement.
SG (54)-
Good stuff. I’d add by saying that the tax law change in ’96 that created the 250K-single/500K-married capital gains exemption played a role in the ’97-’05 housing bull run that has been consistently underestimated.
RentLord (51)-
Tough comparison between FSBOs and sellers with agent representation. FSBOs’ true motives tend to be clouded- and even subsumed at times- by ignorance and greed. Their inflated asking prices also skew the data when averaged in to the inventory that is- at least theoretically- priced to sell and exposed to the legitimate broad market of buyers.
Since pretty much 9 out of 10 FSBO selling propositions go nowhere, I think it’s hard to extract any valid market knowledge from them.
Clot,
First of all, excellent post.
The mortgage paper burning parties made me reflect. My parents bought their first home over 40 years ago, thank God, still there today. At that time the house cost 28k, dp of $600 with a 3.0% rate, GI bill. They agonized over their decision to buy for weeks, finally realizing it was imperative to take this step to provide adequate shelter for a growing family, at that time 3 on their way to 6. During these years, they would never even think about taking a hel to pay for a car,an exotic vacation,paying cc debt, etc… CC debt??? Unheard of, not in the cards.
Over the years the house grew steady in value, up until the beginning of the blastoff, at or near the rate of inflation. It provided comfortable living quarters and a nice lifestyle.
Fast forward to the mid-late 90’s. I sat next to the “new wave” of traders. As we all are well aware, they quit their full time jobs, because they were making more $ in the stock market. Their gravy train had arrived. Why work 60 hours a week fixing pipes, mixing cement, etc.. Stock trading was an easier occupation, less hours, sexier and more $ than they could have ever imagined. It was the new paradigm. W.Buff. was ridiculed as a has been,it was a new era. When the Nasdaq was at approx 4,500, every new trader was willing to bet me that we would see 9,000 before 3,500.[by the way, pay up]. The new world order was close your eyes and buy a 10% decline. It worked for a long time, until one day, out of nowhere the switch was turned off. Why??? Too many chasing too few fundamentally sound opportunities.
Why mention dot com when discussing RE??? Yes a different market, however the same psychology eventually drove the RE market, greed/fear. When the hot money/liquidity was blown out of dot com, it found a new home. [no pun intended] Just like the dot com, valuations were thrown out the window. We went from 20% down, 28/36% loan requirements to bogus loans, shoe horn financing, fraudelent appraisals, etc.. The new gravy train/pay day had arrived, all aboard. New paradigm?? No, just dreams/false hopes shifting from one market to another.
Similar to the dot com, RE witnessed the last leg upward being fueled by the weakest hands. This market was turning over from value investors to individuals who had zero business being here. This enabled the % of home “ownership” to reach a bogus, temporary 70% level. Just like any market, beware when the last legs of the run are accomplished as the result of the weakest,[subprime],participants. The weakest are always the first to run/get taken out by the market. What was their risk parameters??? If I don’t buy, I will be an outcast to my friends and family. If I don’t buy it will be 100k more next year. The only risk apparent was the risk of ridicule if they did not keep up with Mary and John. Have to have granite countertops, she does. Must have a home theatre, he does. Can’t afford it?? No problem she/he did it with a hel. What the hell pull out 50K, next year the house will be worth 100-150k more.
Just like the dot com the weakest link was chasing last years, and the year before, gains. It’s John Q Public’s way, chase. Just like the dot com, out of the blue the RE market stopped on a dime. The switch was turned off. Why??? New paradigm??? No, just too many chasing too few realistic opportunities. A classic text book, maniacal, overbought, bubble, one that went a lot further than I/many could have imagined. Since every action has a equal corresponding reaction, get ready for a longer downturn, duration, and steeper decline than many can imagine. Will the market die?? No transactions will continue, just at lower and lower levels. Of course the first relief rally will be met with the usual rhetoric from the bobbleheads/cheerleaders. New Paradigm?? No, just old market dynamics at play, around since tulip bulbs, that eventually become new again.
It is true, most everybody does value home ownership. I know I do. However, the prudent say “at what cost”?? I don’t think eveyone is waiting to buy the absolute bottom. Many would be happy buying at 2002 prices. It’s not a game constituting who can pick the absolute bottom, it’s all about affordability. Back to fundamentals. Once the smoke clears, the priority for housing??? To provide shelter, accomodations, a lifestyle, trend at or near the rate of inflation. Everything that’s old becomes new again. A lottery ticket??? Better off trading pork bellies with Hilary.
What now?? The possible reprecussions are downright scary. This market will retrace to its fundamentals, nothing new about that either. The market will be better off for it. Unfortunately, innocent people will be paying a steep price for a long time to come. New paradigm??? No, just another chapter about to be written regarding irrational, bubble markets.
By the way, those that are risk averse?? It’s simple, we are in unchartered waters, demand the return of your money rather than the return on your money. The real new paradigm??? Cash is king.
Clot – I can only assume you were talking about my statement of 75k-100k off.
Well i can assue you this – when we go to look at a home, we come prepared – what the current owner paid, when they bought, and what houses in the area have sold for in the last few months. What’s great is that ALL OF THIS INFO IS ONLINE.
With the market treading downward and some owners needing to cash out before they are really f*cked, the hope here is that most people take the moeny and run.
I recently sold a house in Fla – after i got no bites at one price, i chopped off 30k and sold in a week. I’m not greedy … just smart (and of course, lucky). The greedy ones who refuse to lower the price are going to be hurting. Housing values are dropping by at least 10k a month with no end in sight.
And to those sellers who DON’T want to chop 75k-100k off the sale price … oh well. There are a RECORD # of other homes on the market, and eventually, somebody will.
Clot, can I ask – what constitutes an extreme lowball? Isn’t it also a context thing? I would assume “extreme” is generally over 20%?
BC Bob-
True dat.
I agree that eventually the boomers will have to lower their prices if they want to downsize but I don’t see them doing it anytime soon. I’m even seeing estate sales holding out for asking. It amazes me that people will continue to pay taxes and maintenance rather than take less than asking.
Here are two examples that – I went to the open houses yesterday:
3 bdrm split $549,900 2357545
http://www.realtor.com/Prop/1073704425
This owner died two years ago and they just put it on the market. It has original bathrooms and an early 1980s kitchen. The master bedroom setup is odd – on third level with oddly laid out bathroom. The only way to get to the backyard from the back of the house is through a porch on the side of the house. Small kitchen. It had a lot of traffic probably because it was the first open house. Don’t know if someone will jump because it’s a nice street and a big yard but you’d have to redo the bathrooms and kitchen.
3 bdrm ranch $623,900 2338777
http://www.realtor.com/Prop/1071087464
Ranch on great street and large property but original everything. The kitchen is old and tiny, the dining area is small, the living room is okay sized. The bedrooms are okay but not huge. The half bath is in the unfinished basement. The realtor told us that there had been offers on this property but the owners won’t accept an offer unless it is close to asking. Even the realtor admitted that the house would need $100,000 worth of work. Again, these people are paying taxes and maintenance while it sits empty. They even have price tags on the furniture that is left – priced way too high as well.
The third open house we went to was a flip.
4 bdrm victorian $749,900 2349271
http://www.realtor.com/Prop/1072569648
This guy is in dreamland! He did do a nice job on the kitchen but the layout of the house is odd. The dining room is in the front of the house and the living room is next to the kitchen so entertaining would be a pain. He put in a master bath and walk-in closet that are very nice but there is no heat in the master bath (I asked the realtor if they were planning to put the radiator back in since they left the connection but she didn’t know) unless they put in radiant floor heat. One of the bedrooms doesn’t really have a closet – it is about 8 inches deep. Anyone who pays anywhere near asking for this house is an idiot!
I am really seeing people trying to get 2005 prices or higher.
20% off seems right. we are looking at houses in the 450-500k bracket.
if the house is 500k, we would start discussions at 400k (20% off).
if the house is 450k, we would start talks in the neighborhood of 360-375k.
our plan is to buy and staying in a house where we will raise our kids.
ps – just read my last post and it had a few glaring spelling errors. syntax, too. guess that’s what happens when you’re posting from work. sorry.
Clotpoll: Making offers that slash massive $$$ off today’s established values is an utter waste of time and shows no understanding of markets or the contextual relationship of time & value in RE pricing.
I disagree…the market is established by what someone is willing to pay. This is why we are part of this blog…to inform future buyers not to listen to their full of sh-t brokers. (For fun i goto open houses and listen to these people speak) They are either idiots or bull sh-tters. Unfortunately some people still trust real estate brokers.
There is no time factor…its called market conditions. The market conditions reflect what type of bid someone is willing to present to a seller.
Established value? You make this sound like real estate can only go up. A value is established by the market…the market is sinking…and so is your income…I think this is why you are really part of this blog. I could be wrong and tell me if i am. When did you first start blogging? Tell me it was before 2005. Then i may send my friends who need homes to you.
Lucky Dog (59); NJ Gal (61)-
My definition of “extreme” lowball is contextual, but I’d put it in the 25-30% off the established and current value range. I’m like Potter Stewart when he told the Supreme Court that he couldn’t precisely define pornography, but “I know it when I see it.”
And, Lucky Dog, counter to popular opinion, what the owner paid and when he bought has NOTHING to do with market value (although I’ll agree they can give you a good insight into a seller’s motivation). Recent area comps do give a guideline to value, so you’re one-out-of-three in the useful info department.
And in your statement that “…to those sellers who DON’T want to chop 75k-100k off the sale price…there are a RECORD# of other homes on the market, and eventually, somebody will”, you have unwittingly reinforced my point. EVENTUALLY, somebody COULD accept an offer at that price. However, it probably WON’T be today.
…the market is established by what someone is willing to pay
Correction: It is established by both what someone is willing to pay and by what someone is willing to sell for.
Drat. Put the word “por**graphy” in a post and got moderated!
Clot,
Thanks for the response. Let me see if I follow this.
OK, You have boomers who want to downsize and move to condoshacks. They’re willing to be flexible on pricing since they bought years earlier.
But the people who want to buy the boomers’ houses can’t sell their own houses … So who’s in that later group? Is that the younger people who already own homes but want to upgrade to a bigger and better house?
Is it that the whole chain has stalled out because first-time buyers aren’t buying entry level homes anymore?
By the way, I know of someone who was going to sell a big house in the swank part of town – already had a contract in place. But they spent four months looking and couldn’t find a smaller house they liked. Money wasn’t the issue. They had lots of bucks. But they needed a one-level house for medical reasons, and they didn’t want a condo/townhouse. They wanted a good, smaller ranch with a decent-sized yard and couldn’t find anything they liked – cancelled the contract.
Everyone is building these huge houses now – the 2-story colonials – and age-55 apartments.
The one-level houses are disappearing as they age out and get torn down, and no one seems to be building new, free-standing one-story structures anymore.
The kind of house they were looking for would also be considered a “starter” house.
Maybe the entry level buyers have disappeared because the smaller houses that are available are badly overpriced, but also, they’re the older, less desirable houses where there just isn’t an incentive to take the plunge?
Everyone is building these huge houses now – the 2-story colonials – and age-55 apartments.
The one-level houses are disappearing…
This is slightly off-topic since it is an NJ blog, but on a recent trip to the Raleigh-Cary area, I saw a new DR Horton development with nothing but ranches.
ClottPoll: Am amazed at the number of lowballers here who seem to expect RE agents to spend unlimited amounts of time showing houses and submitting offers that have 0 chance of being accepted.
Or..sellers can keep their prices high watch young well educated residents leave NJ (Along with high paying employment) and receive the same figure of the lowball offer 2 years from now. $400,000 today is worth more than $400,000 2 years from now. How is that for time value of money.
Clotpoll (53)
That is one of the reasons why the current model of commissions works against the role of real estate agent as buyers agent. From a buyers perspective, it would be a lot better/more productive/efficient, if the buyers agent were paid for specific services – x per hour to find and look at houses, y for presenting a contract and so on – in the way a consultant would normally be paid.
I’m not sure about your statement here:
“the agent is setting himself- and the buyer’s agent- up to possibly be sued later by that seller…if the seller could prove that the agent convinced him to accept an offer that was grossly below the market AT THE TIME OF ACCEPTANCE.”
The market, from my perspective, is whatever someone is willing to pay for a specific property at a specific time. Every sale alters the market by setting new comps, either up or down, it is hardly a static number set by official sources.
“Am amazed at the number of lowballers here who seem to expect RE agents to spend unlimited amounts of time showing houses and submitting offers that have 0 chance of being accepted.”
Simple solution: dump the buyer agent, make lowballs directly to the seller or listing agent.
Also, I’ve seen many properties recently close at “massive $$$ off today’s established values.”
The market establishes what a house is worth, not realtors. If potential buyers are only willing to spend $X, then that’s what the house is worth.
The “owner” can of course keep the house, and the buyer can move on to the next property, as inventory continues to climb (the flood of inventory this spring should be a hoot).
One party (sellers) are losing $$$ with each passing month, and the other party (buyers) are gaining $$$ with each passing month. Such is the bust cycle, which will unfold for another four years, at least.
CommercialREconsultant (63)-
Why the repeated attempts to discredit me by pumping the assumption that I’m going broke? FYI- as I’ve repeated here ad nauseum- my business is up since summer of ’06.
And what does the date of my discovery of the blogosphere have to do with the validity of my participation? And why the concern with how I spend my time? FYI, I’ve worked with two buyers today and done a little bill-paying. I hope you’ve seen now that I’m simply blessed (or cursed) with the ability to write fast. Though hanging here is beginning to be a bit of a “guilty pleasure”…
Believe me, I’m not sitting at home in my boxers, swilling MD 20/20, avoiding collection agencies and watching game shows. But, thanks for your concern.
As to your take on “established value”: Yes, the market is going down. But it is going down at a determinable RATE. Offers tabled today that grossly exceed that determined rate, to me, are extreme lowballs that cannot be explained within any valid context, other than the purely speculative and emotional. Trying to “jump the shark” on the way down can be- and is- just as speculative as riding it up. Both ways, the shark needs to be ridden very carefully.
>>Making offers that slash massive $$$ off today’s established values is an utter waste of time and shows no understanding of markets or the contextual relationship of time & value in RE pricing
very true. you might stumble on a diamond in the rough but using this as a pragmatic approach to buying a home is a waste of time.
Scribe (67)-
Yeah, the whole stall is keyed off first-time buyers. I think in any market, the vitality can always be gauged by going right to those first-timers.
Affordability is still the #1 issue for them and must be addressed in some reasonable way.
Every now and then I look at real estate in the Lehigh Valley area of PA. This is why people are leaving NJ. This is the neighborhood that my cousin lives in so I’m very familiar with the area (great) and the school district (excellent). It is the Salisbury Twsp area of Allentown but it has it’s own school district.
http://lvarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Lehigh&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N845408171,-N142740,-N,-A,-N11655573
If the commute was better for my husband, we would be out of here in a heart beat. The taxes are less than I pay on my cape cod on 1/10 of an acre and the house is twice the size of mine.
Affordability is still the #1 issue for them and must be addressed in some reasonable way.
I could never afford to buy my condo today if I was a first time buyer. I bought it in 2003, which in hindsight was the last year I could actually have afforded to buy it without help from the parental units.
My sellers in this category are the fastest to come off their asking prices (they’ve been in these homes for years, and even a price far removed from ‘05 peaks is more than they ever imagined getting), and they understand their superior potential leverage when they are ready to buy.
Clotpoll, what do you mean by “superior leverage”?
If the commute was better for my husband, we would be out of here in a heart beat. The taxes are less than I pay on my cape cod on 1/10 of an acre and the house is twice the size of mine.
Willow,
Totally. We’ve been down there and loved what we saw but our minds really were made up before we even arrived… during the drive over. I work in Somerset County and my family/friends are mostly in Middlesex and Hudson counties… living out there would be a pain. I asked the realtor lady out there if there was any public transit that could connect me to NJ Transit and she said there was a bus line but it was expensive (I believe the figure she quoted me was $300/month).
Let me make a fast distinction. There is a market in which extreme lowballs are the order of the day: foreclosures. These sellers fully expect heavily-discounted offers and are motivated by the necessity of circumstance- and impending deadline- to accept what comes their way.
A property offered for sale in a competitive bidding environment- no matter how bad- is not subject to the same abrupt, immediate and wrenching process of discount as that of the seller about to be foreclosed upon by a date that is certain.
Jay (77)-
They’re going to be selecting from a giant inventory of condoshacks, all of whose prices are dropping fast.
That’s buying leverage.
S**t. Moderated again, at 3:31. Can’t figure out this one.
“That’s buying leverage”
Clot,
Bargaining from a position of strength.
ClottPoll: “Am amazed at the number of lowballers here who seem to expect RE agents to spend unlimited amounts of time showing houses and submitting offers that have 0 chance of being accepted.”
=============================================
Am amazed at the number of bagholders elsewhere whose RE sidekicks spend unlimited amounts of time showing houses that have 0% chance of being accepted.
Clot: there are a few too many hypocrits on these boards – thank you for calling them out when you see fit
what’s that obscure cliche? people in glass houses…….
BC, your post #58 above expresses my sentiments exactly, excellent and thoughtful post. The parallels you draw to the nasdaq 2000 bubble are dead on. It’s so freakin’ obvious, there shouldn’t even be a debate.
“A property offered for sale in a competitive bidding environment…”
Those were the days, back in 2005 — “multiple offers.”
Now, realtors give us “Please, make an offer.”
When wild-eyed sellers get back to reality, I’ll consider wasting time, money, and gas looking at their property. Until then, tracking which properties hit 100 Days on Market, then 200 Days on Market, has become sort of a guilty pleasure.
http://www.amazon.com/Guide-Economic-Indicators-Economics-Economist/dp/1576601455/ref=pd_sim_b_2/102-1091757-2186541
Does anyone own this reference or had a chance to peruse it. Is it worth anything?
Yeah, I know….lining the birdcage…really…
Total: $2,667 (loan includes taxes which are around $585/month)
Currently there are only 2 units same as mine available and they are running $384,000 (without upgrades) and will be built in 5 months.
1st question – About how much should I expect to get back on my tax return? I’m in the 28% tax bracket.
2nd question – If my unit has gone up approx $30,000 and this is for the same unit WITHOUT upgrades. Using the above #’s, does anyone feel it was a bad decision to buy? any if so why?
thx
thatbigwindow Says:
January 15th, 2007 at 11:44 am
New Home Owner – Did you plan to get out before the ARM reset?
Answer: yes
syncmaster Says:
January 15th, 2007 at 11:45 am
585 * 12 = 7020
$7020 property taxes on a 2bedroom TH? Which town is this?
Answer: A town in Essex County. Where have you been? That is what taxes are these days after the reassesment.
RentinginNJ Says:
January 15th, 2007 at 12:02 pm
Can you explain what you mean by “they are running $384,000 (without upgrades) and will be built in 5 months”? Is this the price the developer plans to ask or are these units actually pre-selling (i.e. closed sales) for this amount? Is the developer offering any kind of incentives on these new units (ie, free upgrades, no closing costs, low financing, etc.)?
Answer: This is the price the developer will sell the unit @ and it is non-negotiable (today anyway.) Yes if you use their mortgage company the closing costs are minimal. I’m not aware of any other incentives. They have basically been closing buildings of townhouses one month at a time and raising the cost per unit after each “building” closes. I have yet to see a decline.
pesche22 Says:
January 15th, 2007 at 12:23 pm
7k on a new townhome in norther nj. what a
screw job. in several years it will be over
10k and main. will be at 250 per month.
Answer: Thank you, Ms Cleo. :-)
Hard Place Says:
January 15th, 2007 at 12:30 pm
New Home Owner,
How much would it cost you to rent the same place?
Answer: I’m not sure, If I had to guess I would say between $1800 and $2200 for a 2 bedroom/3bath with pool and garage.
“The commentary I am getting from field and legit brokers is that fraud is an out-of-control locomotive. Stated-income loans are now finished for all the unemployed people around. We will quickly see cash-out loans curtailed. This vicious cycle has yet to play out. We are in the second inning of the unwinding.
Bear, # 22,
Must read article. Great analysis pinpointing stages. I agree, we are in the early stages of unwinding this disaster. Biggest con job perpetuated on the public, in our lifetime. However, it takes 2 to tango. The public sucked it up like a vacuum. JP Barnum was right; “a fool and his money are soon separated”. JP did not make a provision for a fool and someone else’s money, or did he???
Clot, can you recommend a good agent in Bergen County? I know it’s an oxymoron … still, it would be nice.
And to the person who mentioned PA … of course it’s a GREAT place to buy for house size/price/school/etc. Problem is if you’re in NYC, the commute is probably two hours.
So all your money goes up in gas. plus, you have to buy a nicer card than a Yaris since you’re spending all kinds of time in it … and then when do you see your family?
Jay,#86,
I don’t get it either. Simple econ 101. Sometimes the obvious is hard to comprehend.
My nephew, 10 at the time, asked me why people are bidding, paying more than asking price, when there so many houses to choose from. He stated he would trade mutltiple baseball cards for a rare one. “Why are there bidding wars for just an ordinary house, it’s not like a Babe Ruth baseball card”. I kid you not, 10 years old.
IMO, the only debate is the duration and severity of the decline.
http://www.brokeruniverse.com/hearing/
“Yes, the market is going down. But it is going down at a determinable RATE. Offers tabled today that grossly exceed that determined rate, to me, are extreme lowballs that cannot be explained within any valid context, other than the purely speculative and emotional.”
Yeah but parabolic price moves up are explainable?
Righto.
“My definition of “extreme” lowball is contextual, but I’d put it in the 25-30% off the established and current value range..”
I disagree. In a falling market last sale means nothing. sort of like the same thing when house prices exploded up.
TAKE AT LEAST 25% OFF OF PEAK PRICES. DON’T LET THIS MANIPULATOR TELL YOU IT IS UNRREALISTIC.
The RE industry specializes in pyschological manipulation. That’s what they do. they need to convince first time Bagholders, I mean buyers you need to sign up for monthly debt slavery.
paying out 50% of income is just dandy cuz it the greatest being swamped with bills every month and losing sleep if soemthing unexpected happens or taxes jump.
From NJ.com:
Corzine may look to cut income taxes for poor
New Jersey Gov. Jon S. Corzine may seek to cut income taxes this year for thousands of the state’s poorest families, according to the state treasurer.
Treasurer Bradley Abelow told The Associated Press the Corzine administration will like to revive plans first proposed last year to cut taxes for 614,000 families.
“We were interested and remain interested in doing something to reduce the income tax burden on our very lowest income paying folks,” Abelow said last week.
Last year, the governor wanted to increase by $5,000 the threshold at which families start paying income taxes. Boosting the level from $20,000 to $25,000 would have affected about 414,000 families. He also wanted to cut income tax rates for an additional 200,000 families whose incomes range from $25,000 to $30,000.
But the plans were axed as Corzine grappled with a $4.5 billion projected budget deficit.
Abelow said the plans, estimated to cost $105 million last year, were being considered again. They would help New Jersey avoid taxing families that fall below the poverty line.
The state’s $20,000 level has been unchanged since 1999 when it was $7,500, and is poised to fall below the poverty line for a two-parent family of four this year, according to New Jersey Policy Perspective, a liberal think tank. The group recently noted the federal poverty line for a family of five is $23,400, meaning such families in New Jersey have already paid income tax on their earnings.
First time buyers have been used and abused. it’s time to fight back.
You tell’em to shove it with their BS!
BOOOOOOOOYAAAAAA
Bob
Is cash really king? I’m beginning to wonder.
The dot.com NAZ bust along with 9/11 drove the masses into RE spec fever. Well, that mania is now washed out. What if we switch to the reverse? Equities inflate/RE declines, stagnates. The hot money pours back into stocks. New brokerages already opening.
The stock market has been defying gravity and I’m wondering if this is a big rotation out of domestic RE and back into stocks. If true, this could be a juicy boom that lasts a few years. Money to be made traders, are you ready to rock and roll?
Post # 85 and 87: LOL!!!
Bob, #94 to #95, right on the money.
I bought a place in 1992 for $265,000 after 2 years of some major price declines in house prices after the last RE bubble pop. This was pretty much at the bottom of the bust, or so I thought. Wanted to move in 1997, and had to take a $35,000 loss. Of course my actual loss was greater when you account for inflation and loss of investment income on the downpayment.
Other people who purchased earlier then me at the height of that bubble and then had to sell (1988-89) took a far greater loss however.
These things can take a painfully long time to play out, and unfortunately we have years of declines ahead, although I am hopeful for the internet’s potential to shorten the correction.
People who buy today are buying just off the peak, and will suffer the same fate as others who bought in the late 80’s if they have to sell. I waited two years after the bust, and still got hurt selling 5 years later…
Lucky Dog (91)-
I can recommend someone in Bergen Co. Please contact me thru Grim with your contacts.
As stated before, I do not troll here for business, nor do I troll for referrals. I do not accept any compensation from agents to whom I refer prospects from this blog.
I was tempted to break my self-imposed rule and reply to Booyah Bob (#95, to be specific) and his incoherent, self-righteous blather.
However, his own words are a far more concise and effective indictment of his empty position than any comment I can muster.
Nice job there, J.B.
Come from nowhere. Check out that best kept secret category. Love those underdogs.
http://www.housingwire.com/2007/01/15/announcing-the-2007-reba-winners/#more-257
“Yeah but parabolic price moves up are explainable?”
Yes, if you are long OJ, during an unexpected nasty freeze. In conjunction with this, 30% of the expected harvest remains on the trees because OJ growers can’t get the illegal immigrant labor to pick oranges from the tree. The illegals were too busy slapping on sheetrock for $4.00/hr more. Guess what, the illegal immigrant laborers are showing up again at the OJ groves.
newhomeowner #23
Congrats on your new townhome. If you bought what you like and can afford, you have made a good decision. Don’t get caught up in an immediate comparison to what is set to be built; it’s the long term numbers that are important. And don’t let the risk averse naysayers here get you down!
WAAAAAAAAAAAH!!!
Congratulations Grim, third place in two categories, nice job man. And thanks.
clotpoll,
Thanks for brining some rationality to the discussion here.
WAAAAAAAAAAAH!!!
New Home “Owner” #23 with an interest only loan, the realtors (see #107) are cheering and rationalizing your decision, the “risk averse” are asking tough questions.
If you had posted that you bought at substantially off 2005 prices using a 30-year fixed loan, the “risk averse” would be cheering, and the realtors would attempt to label you “wild-eyed.”
Food for thought.
There are quite a few comments about “owning” your home vs “renting” from a bank. I would argue that many people, such as myself, would prefer to “risk” making more than the hurdle rate (net mort int rate) in the market than have a mortgage paid in full.
New college drinking game:
Do a Herradura shot every time Jack Bauer tortures or gets tortured on “24”.
Love that show.
Only 12 minutes until Bauer opens up a can of whoopass.
Unrealtor,
I don’t plan to stay here that long. Whats the purpose of the 30 year fixed? Interest rates are dropping….. I can always re-finance.
I’m not thinking about 2005 prices, that would be living in the past. I am buying with the rationale that I bought early in the construction process and comp units have increased in value each month since. I feel pretty confident that I will make out O.K.
New Home Owner,
Never mind Unrealtor; he’s just a wannabe. For “Un,” it’s not about “tough questions,” it’s about taking down anyone with the sense to make a rational decision and join the ranks of homeowners.
You sound bright and confident and will do well with your purchase.
WAAAAAAAAAAAAH!!!
“I don’t plan to stay here that long. Whats the purpose of the 30 year fixed? Interest rates are dropping….. I can always re-finance.”
Are you speculating on rates??? What rates are dropping??? The subprime spreads are widening. The 10 year yield broke thru resistance. What do you see??? Isn’t is wise to lock in low historic rates on the long end and if rates go down then refinance??
“I can always re-finance.”
Tell that to the bank when the property appraises for less than what you paid.
This is what people fail to understand — they’re entering into a financial disaster, and think there will always be an easy way out.
Since you don’t think about 2005 prices, do you know how much below those 100-year-peak prices you paid?
http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
And to StarvingRealtor in #116, only a realtor would view buying at 100-year-peak prices with an Interest Only ARM as a “rational decision.”
New Homeowner,
Not to rain on your parade, but you said you think rent for your 2BR is approx. 1800-2200? Currently you are paying mortgage & taxes of $2667? Once you factor in maintenance fees & insurance and other owner related bills, the calculation probably would favor renting rather than owning.
Un,
Yeah, there’s always an escape clause. That is until there isn’t. I/O, 2004-2005 buyers can also refinance, many are required to bring a large check to closing.
New Home Owner Says:
January 15th, 2007 at 7:51 pm
Unrealtor,
I don’t plan to stay here that long. Whats the purpose of the 30 year fixed? Interest rates are dropping….. I can always re-finance.
NHO: you sound like a rookie
Clotpoll Says:
January 15th, 2007 at 7:43 pm
New college drinking game:
Do a Herradura shot every time Jack Bauer tortures or gets tortured on “24″.
Love that show.
Clot: I know it’s not a traditional one, but I order Corazon Reposado when scotch is out of place – sip it
Another ARM “refinance” optimist:
“Corzine may look to cut income taxes for poor”
Corzine, that son of a bitch. The god damn poor have it all.
This state has the squeeze on me.
End welfare now, cut the cord from the placenta, and make these homeboys goto work instead of roll dice and drink old mud.
SAS
“Christopher Jones”
Its time to pay the piper. I don’t feel for you one bit.
SAS
The god damn poor have it all.
Oh, the irony.
Land fund short of resources
On June 30, 1999, then-Gov. Christie Whitman signed into law the Garden State Preservation Trust, establishing a source of funds to preserve farmland and other open space.
[…]
… the fund is running short of money for further acquisitions and will run out altogether unless action is taken soon, according to a coalition of environmental groups, land trusts and others.
[…]
Property that could be saved will fall into the hands of developers unless the Legislature, governor and people all act to replenish the fund, the coalition — the “New Jersey, Keep it Green” campaign — warns.
[…]
A proposal has been introduced in the Legislature to ask the voters to dedicate an additional $150 million per year…
[…]
Gov. Jon S. Corzine is on record as supporting an infusion of new funding for open space preservation…
Police in north-west Pakistan say they have foiled a bid to abduct six officials working for the Pakistan Atomic Energy Commission (PAEC).
http://news.bbc.co.uk/2/hi/south_asia/6264173.stm
Guess what smarty pants, my town just went through revaluation of all local property and the Essex County Board of Taxation engaged Market Value Apraisal services INC to do appraisal. I got the letter last week and my townhouse appraised for 343k which is more then what I payed for it (base price without upgrades)
SO, what do you have to say now?
Hmm?
“SO, what do you have to say now?
Hmm? ”
like you are the epitome of greed…
Hey Sync (127)-
Too bad Whitman didn’t save a couple of those Green Acres bucks by denying big payouts to her brother and other Republifascist cronies who got huge bucks in exchange for signing away “development rights” to Hunterdon County swampland.
I got the letter last week and my townhouse appraised for 343k which is more then what I payed for it (base price without upgrades)
The appraisal is simply what someone thinks your property will sell for based upon what comparable properties have sold for in the recent past. It may or may not sell for the appraised amount. I have come across a number of properties where the asking prices are substantially less than their recent tax appraisals.
NHO #129, talk to that appraiser in a couple of years — long way down to go.
When it appraises for $210K in 5 years, that exotic financing should provide hours of entertainment:
http://www.youtube.com/watch?v=wdpOIaGnzvA
Subprime news
http://www.mortgagedaily.com/
The parent company of E-LOAN will exit subprime wholesale lending — a move that will leave more than 600 employees out of work.
Amid good employment news, mortgage requests surged and rates edged higher. Meanwhile, Freddie Mac is predicting fixed rates will stay near their current levels this year while adjustable rates will become less attractive.
A branch reduction at a New Century Financial Corp. subsidiary resulted in hundreds of mortgage employee layoffs.
Tennessee mortgage brokers helped enact predatory legislation that prohibits balloon payments, doesn’t allow negative amortization and requires borrowers to receive a notice that they may be able to get better terms on their high-cost loans.
>>
It looks like Tennessee has joined Ohio in bringing together legislation against risky lending. Good job!
New Home Owner Says:
January 15th, 2007 at 9:57 pm
Guess what smarty pants, my town just went through revaluation of all local property and the Essex County Board of Taxation engaged Market Value Apraisal services INC to do appraisal. I got the letter last week and my townhouse appraised for 343k which is more then what I payed for it (base price without upgrades)
SO, what do you have to say now?
Hmm?
NHO: uh, I hope you don’t have to pay more in property taxes?
more on 134 …
An Arizona-based company has defaulted on its debts and is winding down mortgage operations — leaving over 100 people unemployed
NHO-
I’d say you got scre**ed. NJ tax assessment guidelines state you should be assessed ad valorem…that is, at the purchase price of your new home. Submit your HUD-1 statement with your tax appeal.
Hey REBear (134)-
The Tennessee mortgage brokers helped pass that law because there’s no one left for them to shaft.
New Home Owner –
I just have to say this:
paid …NOT payed
#138 Clotpoll,
I remember reading that Tennessee has a high percentage of exotic loans. It will be interesting to see how TN ARMers refinance.
I wish NJ does something similar.
“Hard Place Says:
January 15th, 2007 at 8:38 pm
New Homeowner,
Not to rain on your parade, but you said you think rent for your 2BR is approx. 1800-2200? Currently you are paying mortgage & taxes of $2667? Once you factor in maintenance fees & insurance and other owner related bills, the calculation probably would favor renting rather than owning.”
Add to that the fact that the $2667 is with an I/O mortgage, so actually he owns nothing, just a piece of paper with a great big IOU to a mortgage company.
$2667 a month to rent money!
NJrebear (140)-
They’ll refi by mailing their keys back to the bank.
AKA “jingle mail”.
Willow, I can’t believe you went to the flip in Caldwell. The story behind that one has been discussed here before. The guy fancies himself an investor. He had that house on craigslist at the low of 650 (FSBO) and would have allowed you to choose your own finishes, etc. I believe it started at 799 or a little lower. Then he listed it with a realtor for 759 – now it says 749. I hope no sucker is taken in – when it was on craigslist he had the plans up and it looked like a bizarre layout, just like you said.
You know you’ve won the debate when people can not longer come up with a good reason against your decision and fall back on critizing your grammar!
:-)
I understand you guys are upset because you have to live based on what your landlord says and let him into your house to make sure your not pissing on the walls etc. But don’t take it out on me for buying a house and not losing 25% like all of you are predicting! Jeeze. Life is too short to worry about housing every day and sit in your little apartment.
Just my opinion.
Clotpoll: FYI- as I’ve repeated here ad nauseum- my business is up since summer of ‘06.
Are you for real. I find this difficult to believe given the current conditions of the market. It seems like the homes in and around the areas I drive and live, are sitting forever. Furthermore, the people i know in that end of the business, resi- brokers, resi-agent, and resi-appraisers tell me a different story.
Is your business located in an urban or suburban area?
New Home owner: Guess what smarty pants, my town just went through revaluation of all local property and the Essex County Board of Taxation engaged Market Value Apraisal services INC to do appraisal. I got the letter last week and my townhouse appraised for 343k which is more then what I payed for it (base price without upgrades)
SO, what do you have to say now?
And then God said “Let there be idiots”! New home owner are you kidding me? You may have a great case for a tax appeal. Did it come out 15% higher than what you paid.
New home owner: Life is too short to worry about housing every day and sit in your little apartment.
Give me a break..from your tax assessment it doesnt sound like your in the Taj. This blog is full of potential home buyers who are not risking their future by purchasing a home so they can say “Im a home owner.” For this they shall be rewarded.
“I understand you guys are upset because you have to live based on what your landlord says and let him into your house to make sure your not pissing on the walls etc. But don’t take it out on me for buying a house and not losing 25% like all of you are predicting! Jeeze. Life is too short to worry about housing every day and sit in your little apartment.
Just my opinion. ”
And this was you a few months ago. You used to piss on your walls? It’s really pretty funny how suddenly people’s attitudes change when they “buy” a home. All pleased with your new assessment, huh? By the way, it will increase your taxes – if you haven’t guessed, it’s to your town’s advantage to give you a higher assessment because they make money off of you for it. Let us know how it assesses next year, won’t you?
And my apartment isn’t little by any means, by the way. And I’ve never peed on a wall – no need to go airing your own dirty laundry here.
Young potential new home buyers:
1. I recommend rereading what Jay (102) says. It also reflects my short painful experience in NJ real estate in the late 1980s. (Thank goodness for corporate relocations that make you whole.) More generally, talk to friends and relatives of various ages (25-55) who own and also those who rent *and* who have been in NJ for at least 10 years for some perspective on the market….20 years is even better. Also talk to those who were in NJ for a while and then left. It’s worth the time and effort…this is a lot of money we’re talking about. Don’t just talk to folks in your same age group. Avoid groupthink.
2. This second proposal probably sounds a bit radical, but even at your young age, think about finding a pleasant place you’d like to retire (!) that is affordable and consider renting in NJ and buying a small place in that retirement area. It will cool off your “housing lust”, lower your downside risk, and will be a more robust strategy against any out-of-state relocations you may make in the next decade or two. The “affordability” requirement may force you to be more creative about where you retire, but if you guess right about where your generation is going to want to retire to (and you youngsters have unique expertise about what your friends value, as compared to having no expertise in timing the NJ housing market), you could come out well ahead. (E.g. why would anyone have thought in the 1950s that folks would want to retire to a dinky town like Aspen Colorado, that at one time was fairly affordable.) And it will be a whole lot more fun looking at (relatively) cheap real estate in places you’d like to retire to than expensive places in locations that are currently convenient. The key is to be creative…what places are undervalued now that appeal to you for some core reason — beaches, mountains, fishing, climate, scenary, culture, family ties, lack of congestion, etc.?
newhomeowner: If you are so socmfotable with your pruchase, why ar you still ont his site for crybabywannabehomeowners/loser renters.