Comments on: Learning to love falling house prices

By: Manish

Manish — Thu, 25 Jun 2009 04:34:51 +0000

We bought our first home in Dublin, CA. We’ve been waiting since 2002 to buy into the SF Bay Area, and were accumulating the downpayment. I am glad we were able to buy a very beautiful home (no, its not a short sale or a foreclosure), with a very nice (not huge) yard for my daughter to play in. When I compare my rent (2 bedroom apartment, 1800) vs. my mortgage (3 bedroom SFH, 2209) with a 4.875 30 year fixed, I frankly do not care if the house value falls. We make mid-100k combined, and the conforming loan that we took fits our budget. The point is, housing is heavily driven by affordability more than anything. In the bay area, the homes in the 500-600k range are selling simply because they are competing with rents (provided the buyers put 20%+ down). I am hoping to get break even after 10 years. I have been renting for about 10 years, we raised our daughter for 5 years without a backyard to play in, getting nagged by our downstairs neighbors when she used to run or jump. Believe me, that is not a good feeling. Now that the prices have fallen about 30% from the peak in our area, and we can afford this house without any creative financing, we are happy. Will the prices fall further? Certainly. Will we find a house that we can afford and *like* to live in for 10+ years? Not so sure. Will we end up paying more in rent over 10 years? (216k if the rents stay at 1800/mo)? I’d think so. How much interest will the cash savings from renting generate over 10 years? Probably 1-2% after taxes. Is it worth it with even minimal inflation? Not for us.

By: Mick Russom

Mick Russom — Wed, 24 Jun 2009 20:29:40 +0000

House prices should be 3-4x median household income in a given area. Period. Anything higher will lead to a correction. People were scammed into get rich quick schemes by “investing” in a liability, a house, which carries the loads of maintenance and taxes and interest.

Fellow Americans, you truly are mostly idiots, and you need to curb your debtor’s appetites. Do this for yourself, or brutal competition with India and China will make your living standards drop precipitously. Ron Paul doesn’t seem like a moonbat now, morons.

By: Tony Flores

Tony Flores — Wed, 24 Jun 2009 18:10:38 +0000

Great Article Mr. Swann, My sentiments are with you across the breadth of the article.

Now a little context from me. On point one: My Wife and I were priced out of the market in Chicago from 2005-mid 2008. We made a conscious decision to sacrifice and rent a studio apt in a family owned building to save money and wait for the bubble to deflate. We consciously avoided taking out an option ARM in order to afford a nice house in a nice area as the prices were artificially over inflated and we did not buy into the lie that \”housing only goes up\”. Thankfully my wife and I chose not go down the dark path and are not in a bad situation.

Where is the empathy for people like us who had our dreams of owning a home delayed due to the bubble? This is why I have little empathy for many people who screwed themselves by buying too much or taking out that huge HELOC. Most of these people are getting what they deserve.

When we started actively looking in Sept 2008 on the northwest side of Chicago, when the liars were saying it was great time to buy(compared to the \”peak\” of the bubble) we found that this was not so. There was a lot \”junk\” relative to the price/location/features and the affordability just was not there. As of the end of April In 8 months we looked at 250+ properties on our MLS and walked thru 70+. Of the 250+ homes only 5 houses excited us as to the price/location/features. Thus only 2% of our listings we looked at have been good. You would expect under normal conditions to find at least 10-20%of the listings to excite us Of these Five listings: 2 went CTG before we could get a walkthrough, 1 went CTG before we could do a second walkthrough (shame on us), 1 was a short sale that we backed out of after a house inspection, and 1 we were outbid on by a cash buyer, and we are a strong buyer as we have golden Credit, can put 10-15% down and, have no contingency of having to sell a home.

It has been really frustrating to us as we want to own but until the prices correct more we are still looking. The good news is that now we can look in nicer locations, the houses are nicer needing less work and the listing prices have come down on avg 10-15% in the past 8 months and those that are overpriced are selling on avg 9-10% off of list vs. 4-5% off of list 8 months ago. This has translated into reductions of $40-75K on properties that we track for comparables.

In Chicago according to the Case-Shiller data (which is not perfect, but is the best index out there) the bubble went up to 168 in Sept 2006 and as of Mar 2009 it was 122. However many sellers want to ignore the other declines. Why is it they will accept positive news from an index to justify higher seller prices, but reject negative news that justifies lower selling prices?

I agree with Gordon Richards. I see that housing prices here in Chicago are still not a great deal. They are better than 8 months ago but still we need to see another 15-25% decline in prices to actually be good. Until then we will continue looking and waiting.

By: daveinfo

daveinfo — Wed, 24 Jun 2009 16:42:04 +0000

I think the nation is finding it difficult to recover from one of the deepest downturns of the housing market so far. Despite a lot of federal efforts to improve the situation, the market is not showing very bright signs of easing. The recession in this market is still increasing every day as the unemployment rates are also reaching red alert.

There are very little chances of housing reviving. No signs of recovery

By: Whitney Ross

Whitney Ross — Wed, 24 Jun 2009 15:31:57 +0000

With due respect to Richard of “Best Comment Fame” the Housing Bubble started in 1995 and unsustainable property appreciation took off in 1997 on a national basis. Housing prices will drop to 1997 adjusted for inflation/income if we are lucky.

The problem is that ALL the fundamentals which determine asset value are MUCH worse than in 1997. As such, there is no reason why property values should stabilize at the pre-bubble level. Don’t buy a house unless you don’t care about losing money.

By: Warren

Warren — Wed, 24 Jun 2009 10:53:03 +0000

Regarding Psalms 15 and the issue of interest, we must also compare other scriptures having to do with interest to determine exactly what type of loaning Ps 51 was speaking about. Compare the parable of the Talents (Matt 25) where a wicked slave was criticsized for not at least depositing the talent with the bankers so that the master could receive the monies back with interest!

Clearly the Bible doesn’t condemn charging reasonable interest in a business pursuit. It is only when it is charged to the afflicted or needy one or your brother. However, the Bible does completely condemn usury - excessive and greedy interest charged to anyone.

By: Dennis Kao

Dennis Kao — Wed, 24 Jun 2009 05:06:47 +0000

Mr. Swann suggests a paradigm shift this country needs to embrace - government attempts to artificially prop up real estate values will not work, and detract from what should be their true focus: preparing the U.S. to compete in the 21st century global economy by incubating new technologies that can create jobs and goods the U.S. can export.

Obviously a stable banking system is needed, but pouring billions of dollars to bailout people who, unfortunately, purchased homes at the wrong time will do nothing to pull us out of recession. Better yet, let’s give scholarships to the 10,000 brightest scientists in this country, then have them mentored by our best venture capitalists. Let them create the next Google, the next Intel, Genentech, and yes, the next GM.

By: Keith

Keith — Tue, 23 Jun 2009 20:37:30 +0000

I find all of this fascinating. Everyone is pointing fingers at everyone else. There is plenty of blame to go around, however, who in there right mind ever thought they should be able to buy a $700,000 home when they are at a $70,000 per year salary level? This is where the foreclosures are greatest, not with people who bought a home which is within their means to pay the mortgage. As a country we have been living well beyond our means for years, and now the government is forced to bail out the system.

By: Sekar

Sekar — Mon, 22 Jun 2009 18:01:03 +0000

I think we’d be better off with high interest rates and low principal values like the early 80s. There is little tax benefit to buying a home these days and if you include the coming rise in property taxes and other home expenses in the future, its no longer an investment. Interest alone almost doubles the cost of a home. Meanwhile real wages have been stagnant or falling for males since 1975. Finally, why is the government incentivizing banks and real estate ? Remove any and all writedowns on all taxes and let the market decide what the home is worth along with interest rates. People will participate in larger numbers if they trust the system. That trust is what is missing right now from an economy that is solely based on government intervention for major industries like banking and real estate. Unfortunately, a productive industrial and manufacturing economy is what is necessary in order to grow this trust. Instead we get more bailouts for fire, insurance and real estate at the expense of a productive economy based not only on consumption but domestic production and self-sufficiency. Many people are going to be in for a rude awakening soon.

By: Mr. Anderson

Mr. Anderson — Mon, 22 Jun 2009 11:19:21 +0000

Benny….I don’t agree with your plea to have the bailout money given to the people……..as Thomas Jefferson concluded… “A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned - this is the sum of good government”……we are headed 180 degrees opposite of this……..