[Eug]

Taking Stock

Plenty of folks scoffed when John Talbott came out with his 2003 book, The Coming Crash in the Housing Market. Here we go again — another prophet of gloom cashing in by stirring up panic.

But three years later, the former investment banker with Goldman Sachs must be feeling a measure of vindication. The U.S. housing market hasn't crashed yet, but the creaking is getting louder.

This week, the U.S. National Association of Home Builders said confidence among its members tumbled to a 14-year low in July as buyers cancelled contracts and speculators exited the market. A day later, the Commerce Department said housing starts fell 5.3 per cent in June — the fourth drop in five months.

Want a glimpse of how ugly things could get? Take a look at shares of U.S. home builders, which are collapsing like a cheap roof as customer orders fall and companies slash earnings forecasts.

Consider D.R. Horton, one of the largest U.S. builders, whose stock has been cut in half since January. This week, Horton reported the first quarterly profit drop in its history. Even chief executive officer Donald Tomnitz couldn't put a positive spin on the numbers.

“Every downturn is longer and deeper than people expect,” he said on a conference call. “We are assuming the worst.”

[Cody Dawg]

I think it depends on the area. Real estates sales will not "crash" in nice areas: Hawaii, San Diego, coastal California, Manhattan, and coastal areas in Florida. They are destination locations with tourism to prop them up. Florida has the added bonus of being a place where people want to retire or want a vacation home especially since we have no federal income tax and homestead protection for homes. We have the beach, theme parks, warm weather, and lots of golfing...it's pretty darn nice here despite the occasional hurricane. Who wouldn't want to be here?

I recently read how in the Seattle area there is still a huge shortage of entry-level housing ($300K.)

In my area in Palm Beach Florida we have what I would term a flat market right now, but prices are not dropping in response to the end of the buying frenzy that characterized the last couple of years.

[Eug]

Personally I think some of the nicer areas are particularly at risk, because some of them are where the prices were the most inflated. In fact, that's what it suggests right in the article:

According to Mr. Talbott, there are more new and existing homes for sale — about 3.6 million — than at any time in U.S. history. And that number will only grow as homeowners with adjustable-rate mortgages — more than $1-trillion (U.S.) of which come up for renewal at sharply higher interest rates this year and next — discover they can't afford to pay the extra $1,000 or more in monthly payments.

“That is going to force a lot of people to sell into a down market and make a down market a lot worse,” he said in an interview. No wonder his follow-up book, published earlier this year, is titled Sell Now!

As he sees it, we're still in the early stages of an unwinding that could take five to seven years, during which time prices in the most overheated markets — coastal areas in particular — could plunge 50 to 60 per cent.

However, I'm not convinced it will be a sudden crash either. I think they will plateau and then some areas will decline.

Interestingly, the same signs are not apparent yet in Canada. Housing starts in Canada are still big numbers here. Actually, I'm annoyed at this, because I WANT a crash. I wouldn't make as much money on my current home when I sell, but it'd make a purchase of a much larger home that much easier.

Originally Posted by Cody Dawg

I recently read how in the Seattle area there is still a huge shortage of entry-level housing ($300K.)

Yes, condo prices in Seattle are simply outrageous (although they're even higher in a few other US cities). A friend of mine who moved there paid more for his 2 bedroom condo than what I'd guess most Americans pay for a 4-bedroom detached home.

[chabig]

I think that as long as our population continues to increase, real estate will become more valuable.

[Eug]

Originally Posted by chabig

I think that as long as our population continues to increase, real estate will become more valuable.

Yes of course, in the long run.

However, the current real estate market is thought to be overpriced in many areas, considering that prices in some areas have increased by as much as 50% or more in just a few years, spurred on by various things not the least of which are low interest rates.

I would not be surprised to see a drop of say 25% vs. current prices in the coming years in some areas. That would still mean an increase of 20% vs. 5 years ago, which agrees with your statement of real estate becoming more valuable... in the long run.

[Cody Dawg]

Eug:

Some "coastal areas" that this guy may be referring to are areas known as the "rust belt." But the coastal areas in Florida have generally all been insulated from any price degradations or depreciation. They are flat right now, but prices are in no way depreciating in the single family home market. I know - I just finished home shopping and bought a new home and we were a) Shocked at prices (again) for the average home and b) Shocked that the owners complaining about the lack of buyers would also not budge on their asking prices.

They may not be selling as fast, but they are holding their own. That's for homes and not condos or townhouses - which I am SO glad we are not in because that is the most volatile market. They can always build up but as far as land goes, that's a limited resource. In fact, in some areas in San Diego and in Hawaii for example, you can only lease the land your house sits on...for up to 99 years for example.

[E's Lil Theorem]

I'm not sure "costal" areas are completely exempt from this. I'm not a real state buff, but I do recall that the early 90s were pretty horrible for real estate in southern california (especially in the OC).

Originally Posted by Cody Dawg

... especially since we have no state income tax ...

Fixed™.

[Eug]

Originally Posted by Cody Dawg

Eug:

Some "coastal areas" that this guy may be referring to are areas known as the "rust belt." But the coastal areas in Florida have generally all been insulated from any price degradations or depreciation. They are flat right now, but prices are in no way depreciating in the single family home market. I know - I just finished home shopping and bought a new home and we were a) Shocked at prices (again) for the average home and b) Shocked that the owners complaining about the lack of buyers would also not budge on their asking prices.

They may not be selling as fast, but they are holding their own. That's for homes and not condos or townhouses - which I am SO glad we are not in because that is the most volatile market. They can always build up but as far as land goes, that's a limited resource. In fact, in some areas in San Diego and in Hawaii for example, you can only lease the land your house sits on...for up to 99 years for example.

The article isn't suggesting the crash is now. It is suggesting the crash is coming, and that stagnant prices are just the first signs. That's the way it often happens. After the price increase honeymoon, things slow down, and then flatten out... and then they may just drop.

Now, the analysts could very well be wrong of course, but I do think there will be a decline in many areas currently "holding their own". I don't know your particular area, but in other areas it really does seem like the pricing tiers are out of whack, and will head downwards once interest rates rise more.

Originally Posted by E's Lil Theorem

I'm not sure "costal" areas are completely exempt from this. I'm not a real state buff, but I do recall that the early 90s were pretty horrible for real estate in southern california (especially in the OC).

Yes. I'm no real estate expert either (and in fact I have zero money in real estate besides my home and via some mutual funds), but I was specifically thinking of parts of SoCal (where some friends of mine live).

[Cody Dawg]

Who knows. I sure don't have a clue.

Maybe you're right (or your expert) Eug. The home I bought was brand new construction that the buyer was unable to complete payment/building costs for with the builder and we got it for $150K less than we would have because he lost his applicable deposit and we paid off the remainder of the building costs and moved in. Upon moving in the home has about $100K in equity. We looked at some homes to purchase then decided to go with the previous formula we've used: Buying a foreclosure. In the case of our current home it was basically a form of foreclosure so we bought it. Love the house (LOVE IT) and love the price even more.

[Eug Wanker]

Yeah, around here, the foreclosure types don't seem to be as common. Either that or the real estate agents and speculators are snapping them up before I even found out about them.

It may be that they are less though, since traditionally Canada hasn't been as aggressive in loaning out money for real estate as the US. (Interest costs on mortgages are not generally tax deductible here.) The banking system is also very different. Most stuff is done through a series of very large national banks, and they tend to bend over backwards in giving people leeway in paying off mortgages for primary homes, something I've noticed that some small US banks and mortgage companies aren't as willing to do.

Plus the demographic is different where I am. I'm looking smack dab in the middle of a large urban centre.

Originally Posted by Eug

Yes. I'm no real estate expert either (and in fact I have zero money in real estate besides my home and via some mutual funds), but I was specifically thinking of parts of SoCal (where some friends of mine live).

P.S. The same bust did happen in Canada in that time period too. My friend's family got a great big house in the 80s in Vancouver (which is just north of Seattle for those who don't know), and by the 90s the price had dropped by something like 40% - hundreds of thousands of dollars.

[analogika]

Originally Posted by Cody Dawg

we were a) Shocked at prices (again) for the average home and b) Shocked that the owners complaining about the lack of buyers would also not budge on their asking prices.

They may not be selling as fast, but they are holding their own.

Doesn't that indicate precisely that current prices won't be actually sustainable for long?

[Cody Dawg]

I don't know.

The median home price here is now $400K. That's for an average so-so home.

For anything that is a little nicer you're looking at $500K to $600K.

Just because I personally think that homes are outrageously priced for what you get in terms of home value and just because I personally think that people are stupid to not lower their prices a couple hundred thousand dollars to meet my perception of what is a "realistic price" doesn't mean that they should.

[Kerrigan]

Originally Posted by analogika

Doesn't that indicate precisely that current prices won't be actually sustainable for long?

What does that mean? As a rule property prices never decline, maybe you mean the rate of price increases?

People have been talking about the looming real estate bubble for 2-3 years now, and it hasn't happened.

[analogika]

Originally Posted by Kerrigan

As a rule property prices never decline

Woah.

[itai195]

Originally Posted by Kerrigan

What does that mean? As a rule property prices never decline, maybe you mean the rate of price increases?

People have been talking about the looming real estate bubble for 2-3 years now, and it hasn't happened.

As a rule? Property prices often decline in certain areas for certain periods of time. Even in the ridiculously expensive Bay Area, property prices declined for a couple years during the dot-com crash.

[Eug]

Originally Posted by Kerrigan

What does that mean? As a rule property prices never decline, maybe you mean the rate of price increases?

No, prices. Your rule has already been broken in North America in recent times. I mean I already mentioned a friend whose home value declined a couple hundred thousand dollars in just a few years, back in the 90s.

BTW, this is what Forbes suggests could contribute to a real state price decline, with my uneducated comments:

1. Bird flu soars <-- I'm not sure I buy this one
2. Another terrorist attack <-- Plausible
3. Taiwan declares independence <-- Probably won't happen in the near future
4. War <-- Probably won't happen on American soil in the near future
5. Oil at $120 a barrel <-- Not anytime soon, but it doesn't have to reach $120 a barrel. $99 would be bad enough.
6. Recession <-- Helped push the last real estate crash
7. Interest rates spike <-- Helped push the last real estate crash
8. Currency crisis <-- I don't think there will be a US currency crisis, but I do think the Chinese yuan comment is a reasonable one. Unpegging the Chinese yuan would affect the US economy.
9. Bank crisis <-- Gotta wonder...
10. California slides into the sea <-- Heh. If you read the text they just mean repeated natural disasters would affect home prices in those areas, not that California would actually slide into the sea.

[BRussell]

With so many people leveraged into homes they can't afford, with silly interest-only and other crazy mortgages that assume fantastic growth to be feasible, I think a lot of people are going to get into trouble. It feels like the 1999 stock market.

[davesimondotcom]

Originally Posted by BRussell

With so many people leveraged into homes they can't afford, with silly interest-only and other crazy mortgages that assume fantastic growth to be feasible, I think a lot of people are going to get into trouble. It feels like the 1999 stock market.

I think this is spot on. I've felt this for a while - that people are ignoring the facts and just assuming real estate to be a rocketship that will never come down.

The only real estate holding I have is my home, which we have no intent on leaving. And because we're here for the long haul, we'll be here through any downturn in the market.

But just in my area, there are quite a few "for sale" signs while more and more homes are being purchased. I have to think that there is a tipping point where there is a flood on the market and prices will begin to go down.

[itai195]

The problem isn't IO mortgages specifically, in my opinion. It's that prices in some areas just have no fundamental basis in the first place. There's no reason for prices to skyrocket in Phoenix the way that they have, for example, given that there's an unlimited supply of land. In other parts, like the Bay Area, parts of FL, NY, etc there are long term trends of price growth and real fundamental reasons for prices to be high.

[davesimondotcom]

Originally Posted by itai195

The problem isn't IO mortgages specifically, in my opinion. It's that prices in some areas just have no fundamental basis in the first place. There's no reason for prices to skyrocket in Phoenix the way that they have, for example, given that there's an unlimited supply of land. In other parts, like the Bay Area, parts of FL, NY, etc there are long term trends of price growth and real fundamental reasons for prices to be high.

Well, abundance of land is one thing. There is certainly plenty of land in my area still used for farms and ranches, etc.

However, you have to also consider that just being land does not make it equal in value to other land. Where the roads are, where the sewer system is, where the grocery stores are, etc. all contribute to the value of land.

Sure, you can probably get a chunk of the desert near Phoenix cheap. But if you don't have water, sewer, roads and other conveniences, it's likely that land is useless.

See what I mean?

Land in my area has gone up because people want to live here. Even though there is plenty of land available, something on the river with trees and a mountain view is going to be more valuable than something without those things.

[SVass]

Some of the price increase is "inflation" or the natural decrease in the value of money and isn't "real". Local crashes occur when an industry collapses in an area and many jobs are lost. The Cape area in Florida suffered such a decline in the late '60s. Local booms also occur and can be considered similar to "tulip mania". Pundits are always selling their imminent doom scenarios.

Anyway, Seattle does have a scarcity of low cost housing and a surplus of high paid employees/retirees. It is a typical blue state area. sam

[BRussell]

Originally Posted by itai195

The problem isn't IO mortgages specifically, in my opinion. It's that prices in some areas just have no fundamental basis in the first place. There's no reason for prices to skyrocket in Phoenix the way that they have, for example, given that there's an unlimited supply of land. In other parts, like the Bay Area, parts of FL, NY, etc there are long term trends of price growth and real fundamental reasons for prices to be high.

I'm no expert by any means, but it just seems to me that people with some of these non-traditional mortgages are more vulnerable than others.

[Spliff]

I just hope the Vancouver real estate market collapses. I want a total fricking collapse. Then I'll buy.

[Kerrigan]

Originally Posted by Eug

No, prices. Your rule has already been broken in North America in recent times. I mean I already mentioned a friend whose home value declined a couple hundred thousand dollars in just a few years, back in the 90s.

Not to be anal (save that for the next Salty thread) but AFAIK the price at which property is appraised never declines.

Obviously there are cases where the property sells for lower than its appraised value, for instance, when the land is flooded or when it becomes useless in some other way. But technically it will still be worth at least its last appraisal, which may seem like a small thing but it is rather important in legal matters (damage assessment, imminent domain, etc).

[itai195]

Originally Posted by davesimondotcom

Well, abundance of land is one thing. There is certainly plenty of land in my area still used for farms and ranches, etc.

However, you have to also consider that just being land does not make it equal in value to other land. Where the roads are, where the sewer system is, where the grocery stores are, etc. all contribute to the value of land.

Sure, you can probably get a chunk of the desert near Phoenix cheap. But if you don't have water, sewer, roads and other conveniences, it's likely that land is useless.

See what I mean?

This is true, but around Phoenix there are tons of new housing developments in previously undeveloped areas. Pracitcally whole new towns are being built. To me, it doesn't make any sense for prices in that area to increase so much when housing is so widely available, due to the availability and affordability of land. In contrast, looking at the SF Bay Area, we're pretty much running out of undeveloped land. People already often buy homes with 60-90 minute commutes to work, which is pretty much the limit anyone would tolerate. Most new housing developments in my area seem to be high density developments (townhomes, condos) often in undesirable locations (next to highways, in bad neighborhoods, etc) where land is cheapest. There are a couple new townhome developments in desirable neighborhoods, but those homes carry around a $100k premium.

As for Seattle, there is a shortage of available middle income housing these days. However, Seattle's economy is very closely tied to the fortunes of Microsoft and Boeing, and a downturn at one of those companies can depress the local economy. Granted the ties to MS and Boeing aren't as strong as they used to be.

Originally Posted by Spliff

I just hope the Vancouver real estate market collapses. I want a total fricking collapse. Then I'll buy.

Yeah, if you still have a job at that time

[chris v]

I think we're seeing a speculation bubble. The percentage of people buying houses simply because they expect the value to increase fast enough to be a good investment, rather than for the sake of living in them, has increased dramatically. There's one large, outsized really, new home in my (old, 1930's) neighborhood that was built 4 years ago, and has now been bought and sold three times. No one has ever lived in it. That's an anecdotal case, and it's probably a bit extreme, but many houses in this neighborhood have sold twice or three times in the 7 years I've lived here.

I know houses have more intrinsic value than tulips, but speculators are definitely skewing the market, and they'll pull out one of these days, and move on to the next best thing, like vintage Fender Guitars.

[torsoboy]

According to the real-estate experts where I live, the market has "stabalized" here. To me it looks like it peaked and is on it's way down... crashing down.

For example, in the past 2 years prices have DOUBLED on homes in our area (some have more than doubled), and the average time on the market was (until a couple of months ago) under a month. Many of the sub $200k houses were selling in just a single day on the market. Small lot prices went from $30k-$40k in 2004 to $130k-$150k at the beginning of this year (<.25 acres).

Now lot prices are $75k-$100k... they dropped $50k-$60k in just the last couple of months. Houses that were up for $350k are now listed at $285-$310k. The average time to sell is now 5-6 months.

To me it looks like the bubble has burst and things are back on their way to some prices that people can actually afford. Or at least can dream of affording. I am very very glad to see the prices dropping, I was afraid my younger brothers were going to have to move somewhere else just because they wouldn't be able to afford a home. At the current prices they still wont be able to afford homes, but if it continues to drop like it is doing they at least have a chance.

[jcadam]

There's McMansions going up everywhere around here. They are not building anything else, it's not possible to buy a newly constructed, BASIC domicile anymore. I make above average income for this area, and I can't afford one of the damn things (I'm renting a house right now). Makes me wonder who the hell is buying these new homes and how they can afford them.

P.S. when I was looking for a rental home, the real estate agent I was working with tried to convince me to buy .. told me getting approved would be no problem. Hmm.. no way in hell I could keep up with the payments, but I'm sure Mr. agent man didn't care about that

[production_coordinator]

I'm still seeing new 700K town houses being built like CRAZY in the DC region... and it's not slowing all that much. It's frightening.

[Eug]

Originally Posted by Kerrigan

Not to be anal (save that for the next Salty thread) but AFAIK the price at which property is appraised never declines.

Obviously there are cases where the property sells for lower than its appraised value, for instance, when the land is flooded or when it becomes useless in some other way. But technically it will still be worth at least its last appraisal, which may seem like a small thing but it is rather important in legal matters (damage assessment, imminent domain, etc).

Wrong again. After the bubble burst in the 90s, the appraised values dropped thru the floor.

[Charles Bouldin]

A few points on this:

Real estate increased in value in Hong Kong for something like 30 years, uninterrupted. It was said that it was "impossible" for HK real estate to decline...then it lost something like 60% of it's value and still hasn't recovered. (Housing prices in Japan have been depressed for at least the past 12 years...)

Just as stocks have historial price/earning norms, housing has historical price/salary ratios. Ask your parents what they paid for a house in 1960, and what they earned. Do the ratio, and the same calculation with what YOU earn relative to prices. We're way out of line now.

Baby boomers are passing peak child rearing years and are about to move out of big houses into retirement homes. Lots of houses will come on the market. Hmmm, increased supply....

The population is still increasing, but you have to look at the distribution, not just the overall popullation size.

Prices around Washington, DC are already stagnant and the inventory of unsold homes is growing very quickly. Every other "for sale" sign now has a little sticker that says "NEW PRICE", and they don't mean a higher one!

In the coastal zone, I think prices will drop 20-30% in the next few years. It could get worse.

[Eug]

Originally Posted by Charles Bouldin

A few points on this:

Real estate increased in value in Hong Kong for something like 30 years, uninterrupted. It was said that it was "impossible" for HK real estate to decline...then it lost something like 60% of it's value and still hasn't recovered. (Housing prices in Japan have been depressed for at least the past 12 years...)

Just as stocks have historial price/earning norms, housing has historical price/salary ratios. Ask your parents what they paid for a house in 1960, and what they earned. Do the ratio, and the same calculation with what YOU earn relative to prices. We're way out of line now.

Baby boomers are passing peak child rearing years and are about to move out of big houses into retirement homes. Lots of houses will come on the market. Hmmm, increased supply....

The population is still increasing, but you have to look at the distribution, not just the overall popullation size.

Prices around Washington, DC are already stagnant and the inventory of unsold homes is growing very quickly. Every other "for sale" sign now has a little sticker that says "NEW PRICE", and they don't mean a higher one!

In the coastal zone, I think prices will drop 20-30% in the next few years. It could get worse.

When was the Hong Kong bust? It seems the Shanghai bust is happening now.

The whole world, it seemed, wanted in on the game. Who cared if speculators were buying and selling apartments within days? Prices had been clocking 30% annual increases from 2002 on.

Today, says local real estate agent Anthony Ip, "the situation has reversed completely." Ip recalls how developers once would hang up on him if he dared to question the price of a new property. Now desperate developers are offering perks like free parking spots, country club memberships, and even free autos as incentives. Not only have prices of some luxury apartments dropped by as much as 30%, but sales volume is off by 70%, say Ip and other agents.

[BRussell]

Originally Posted by jcadam

There's McMansions going up everywhere around here. They are not building anything else, it's not possible to buy a newly constructed, BASIC domicile anymore. I make above average income for this area, and I can't afford one of the damn things (I'm renting a house right now). Makes me wonder who the hell is buying these new homes and how they can afford them.

P.S. when I was looking for a rental home, the real estate agent I was working with tried to convince me to buy .. told me getting approved would be no problem. Hmm.. no way in hell I could keep up with the payments, but I'm sure Mr. agent man didn't care about that

My brother-in-law is a home builder near where you are. He's been doing very well over the past several years, and he's wondering when it's going to end.

[Eug]

U.S. home sales plunge

Sales of previously owned homes plunged in July to the lowest level in 2 1/2 years and the inventory of unsold homes climbed to a new record high, fresh signs that the housing market has lost steam.

The National Association of Realtors reported Wednesday that sales of existing homes and condominiums dropped by 4.1 per cent in July from June to a seasonally adjusted annual rate of 6.33 million. That was the lowest level since January 2004.

The inventory of unsold homes in July rose to a record high of 3.86 million.

Last week the National Association of Home Builders reported that confidence among builders sank to a 15-year low.

[Dino-Rider]

Thank god. It seems there may be some glimmer of hope of actually owning my own place, someday. With a huge garage. And a hot tub. And hopefully no lawn. I hate lawns. I just want a garden to grew food and 'herbs'.

[turtle777]

Originally Posted by Kerrigan

As a rule property prices never decline, maybe you mean the rate of price increases?

And every rule has exceptions.

There are plenty of rural areas in the US where the price increase has not kept up with inflation. That results in a real decline of property value.

-t

[analogika]

That's not a "rule", anyway; that's just wishful thinking.

It *used to* be sound advice before property became a speculative investment, which is apparently what's happened to the US property market.

The Japanese had a similar thing happen in absolutely insane dimensions in the 70s/80s - until the bubble burst in the early 90s. A LOT of people went bankrupt.

All that has to happen is for banks to ask for their money back on property investment loans. Now that it's becoming clear that property is harder to sell at current prices, i.e. property cannot be turned into cash, it turns from a collateral into a liability for the bank.

[Eug]

In truth, I'm not 100% convinced (yet) that there will be a real bust, where prices drop 30% or whatever. I'm not ruling that out, but it could be that prices may just plateau (or even decline a bit esp. when factoring in inflation). However, that's not a real crash/burst bubble.

I definitely wouldn't be keen to invest in the US real estate market in the coming years though.

[turtle777]

Originally Posted by analogika

The Japanese had a similar thing happen in absolutely insane dimensions in the 70s/80s - until the bubble burst in the early 90s. A LOT of people went bankrupt.

Funny thing is:

Japan has VERY limited amount of land and space, so a price increase makes sense.

But look at the US: almost unlimited supply of land, and still, some markets go up like crazy. This is dumb, makes no sense, and makes it clear even more: current real estate prices are speculative, and not based on a real value.

-t

[Eug Wanker]

Originally Posted by what_the_heck

Funny thing is:

Japan has VERY limited amount of land and space, so a price increase makes sense.

But look at the US: almost unlimited supply of land, and still, some markets go up like crazy. This is dumb, makes no sense, and makes it clear even more: current real estate prices are speculative, and not based on a real value.

-t

True to an extent, but land is not really unlimited. Not everyone wants to live 50 miles from an urban centre.

[mitchell_pgh]

I simply see the market slowing and perhaps slowly sliding back to where it should be... but I don't see the bottom dropping out like when the .com bubble burst.

[Dino-Rider]

No, but if it dropped a little bit and held there a while, that'd give people who aren't homeowners yet, like myself, a chance.

[awcopus]

Originally Posted by what_the_heck

Funny thing is:

Japan has VERY limited amount of land and space, so a price increase makes sense.

But look at the US: almost unlimited supply of land, and still, some markets go up like crazy. This is dumb, makes no sense, and makes it clear even more: current real estate prices are speculative, and not based on a real value.

-t

Location, location, location.

People enjoy city living. My wife and I live in a relatively small apartment, but we don't need a car to access amazing cafes and restaraunts, theaters, libraries, parks, stores (Apple 5th Ave is a 10min subway ride, SOHO store is another 15min). NYC's real estate market is strong because it is a global destination. Everyone in the whole world wants to live here, and, in fact, people from all over the world are my neighbors. There will not be a real estate crash in NYC in the near future. Even 9/11 didn't actually significantly slow down the market here.

It's a shame but there's no window of opportunity to buy here in NYC if you're not already making major bank ($200k+ a year) because prices just aren't coming down. We're saving for the inevitable move to a city suburb (we need the space), but even there prices continue to rise in proportion to price increases in the city, which show no signs of slowing yet.

People who can afford apartments and townhouses in NYC aren't affected adversely by interest rates. In fact, for many of them their incomes rise when interest rates go up (i.e., their millions in the bank generate more cash for their all-cash purchases of whatever goods and services they desire).

Bottom line: the best way to afford what you want is to create and save as much wealth as possible. </d'uh>.

[Cody Dawg]

I love NYC but it's terribly expensive there. I wouldn't want to live there as a result. Where I live we have a beautiful view of a wooded area, a pond, and we live about 5 minutes from the ocean. We feel incredibly blessed and fortunate to own a home. I know so many people don't. Right now is a good time (while there's a downswing) for people to try and buy a home IMO.

[Spliffdaddy]

Right now is a bad time to buy a home. Wait another year.

Interest rate increases have stopped - and might actually begin to slide down a bit. The 'Fed' doesn't exactly announce such things, but all the signs (and hints) are there.

Housing prices have peaked. This is the worst time to buy a house. Last one left holding the bag loses. Home sales are down in most markets. Prices will begin to plummet as sellers get tired of waiting for buyers. The hardest-hit areas will be the ones that had huge increases in housing prices for the last few years.

The real estate speculators have already cashed-out. Leaving a lot of new home owners with mortgages that will soon exceed the value of the home - as its value will begin to plummet. Fortunately, most home owners didn't buy their house in order to make a profit.

Seriously, this is not a good time (in most areas) to buy a house. Wait about 6-12 months and you'll pay 20% less for the same house.

[Naplander]

The housing market is pretty ridiculous in the UK at the moment too. I am looking to buy my first place (in London), and an entry level property, with two bedrooms, starts at around $400,000!!

Please dear God, bring on the housing price crash

[Big Mac]

Yeah, things don't look great right now from a macro perspective. It's clear Greenspan screwed up by keeping interest rates so unusually low for such a long period of time. It caused substantial inflation in housing prices in order to compensate for the reduced interest rates. As a result, people bought houses they could not afford by way of ridiculous IO financing schemes. We see the market is imploding. Values will decline preciptiously, AND the IO loans will convert to regular loans, a double wammy of epic proportions. The U.S. consumer will be forced to curtail spending, and that will reverberate throughout not only the domestic economy but the world's as well. That, coupled with the wonderful geopolitical scene, should make for very "interesting times" over the next decade.

[DigitalEl]

Consider D.R. Horton, one of the largest U.S. builders, whose stock has been cut in half since January. This week, Horton reported the first quarterly profit drop in its history. Even chief executive officer Donald Tomnitz couldn't put a positive spin on the numbers.

We close on our D.R. Horton home in 4 days (Monday the 28th).

Before putting the finalizing paperwork in the FedEx box, we had serious second thoughts. It's definitely a buyer's market. We were concerned we could find a never-lived-in investor house for less than we were paying for our new one. After looking, we did find some attractive houses investors were willing to take a bath on, but none with all the upgrades we had chosen. In the end, a thousand here and a thousand there wasn't worth the hassle factor of bailing on our original deal and then having to make the changes we wanted. There is (some) value in convenience.

The problem all the small-timers are having is that real estate was never meant to be a liquid asset. People tying up all that they have in an investment home and looking to flip for a quick profit are getting burned.

It's a painful lesson. And considering what having a bunch of rental properties in an established, otherwise nice neighborhood can do to home values, it gives me a perverse pleasure.

[torsoboy]

Woohoo! (at least for those looking to buy a home)

Home Prices Plunge by Most in 35 Years: Financial News - Yahoo! Finance

"Home Prices Plunge by Most in 35 Years"

[turtle777]

Originally Posted by torsoboy 

Woohoo! (at least for those looking to buy a home)

Woohoo. If you buy now, you'll bite your ass later.

-t