Trying to buy first house - Page 3

Andrew we dont mind Yankee Fans its just the Yankees we hate. Living in Red Sox Nation is Just Bliss along with the Three Time in four years SuperBowl Champs The NE Patriots. And If all goes well we can Chalk up the Celts.


If you like Somerville then you would love the south shore.

Hinhgam, Hanover, Norwell, Rockland, Hull, Nantasket.

Its all good. Im only 15 minutes from the beach.

Andrew

I am a Mortgage Broker and Real Estate Agent so my comments are obviously skewed but anyway:

have you or your tax person run the numbers to see what your tax savings would be if you bought a home

is it possible to restructure your debt so your payments can decrease or be delayed until you get closer to your higher earning capacity

if home prices are rising steadily in your area investigate interest only mortgages

finally Freddie Mac and I think Fannie Mae have recently introduced new first time buyer programs

Bah to your South Shore . North Shore is the only way to go. On the water (great striper fishing up here), easy access to 95, 495, 1, 1A and commuter rail. None of the city traffic (takes me less time to get to the city driving than when I lived in Salem). 10 minutes from tax free New Hampshire and very easy access to ski country. Much more reasonable real estate prices as well up here than south shore in my opinion. I was able to find a 1000 sf condo with parking spot and period detail for under 200k 2 years ago.

Anything north of Lynn and south of Salsbury would be my choices.

You need to look at this latest development as an opportunity, not as something negative.

Look into repo homes. Might need a few fixes, but you can get a great deal!

- Colton

Down here by the time us "regular" citizens get to the repo homes all of the good stuff has been bought already and the junk/scraps left behind, typically the type of place will need to be gutted and rebuilt (the investors make good with the bankers and get first dibs).

As to the real estate market, this little comparison chart should serve as a wake-up call;



As Phillip mentioned, if you want to buy for the real long term (15-20+ years) then that's a different story, and quite a few financial guru's don't see huge drops in the real estate markets, the days of 30+% increases every year are going to go away very soon, so don't buy something hoping you're going to flip it in a couple of years for double the money. And of course in some markets there is a risk that the market will collapse/deflate and losing 10-15-20% of value wouldn't be out of the question, if you though being upside down on a car is bad, see how you feel when you have a $300k mortgage on a $240k house

Andrew

Re: Trying to buy first house

And with the wisdom of hindsight.....

The winners and the losers. The envelope please (cue drum roll).....

case-shiller-feb2008.png (image)

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Wow. Nice. I need to get a job prognosticating.

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Oops, there's something wrong with the link I posted. It doesn't show any "winners".

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The winners are the ones that lose the least, about as good as it gets.

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YAY gravedigging!

AjayM's post #68 reaffirms my quote - "It's never different this time". I liked the quote "you make all your money in bear markets, but you don't realize it at the time." There is another "Bear markets are when stocks return to their rightful owners".

Re: Trying to buy first house

Dennis, what's this table telling us?


It's interesting seeing these older discussions. I'm always curious what happened with the original poster...anyone know? Did he get his house? (Ah, I see the thread ended when he had an unexpected job loss. )

I'm one of the those folks that bought a house at the peak of the bubble (2004). I remember being torn between thinking it was a bubble and would pop in due course, but also wondering if the record low interest rate made it a wash. Emotion won over reason and I bought a house. Fortunately, I bought a house I can afford in an area with sensible house prices.

The original poster's story gives me mixed empathy and frustration. I see a social problem not often discussed: kids paying for very expensive college educations, that ultimately are boat anchors on their financial futures.

If a kid is going to school to be a teacher or engineer or other normal middle-class job, and must pay their whole way, they need to be told not to go to a $40k a year, near-Ivy school. (or whatever it is that leaves you with $1000 montly payments for 20 years, plus credit card debt.) It just doesn't make sense. But when you're 18, you don't know that.

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The Case-Schiller house price index is purportedly the most accurate measure of average house sales price, especially when compared to "median" prices which may be tilted by the "mix" of cheap versus expensive houses. IIRC Robert Schiller is an econ prof at Yale.

Standard & Poor's - S&P/Case-Shiller® Home Price Indices

For example, the table linked above says that the average house in San Diego peaked in value in November 2005 and has since fallen 24% in value ($154,972). It will continue to fall until estimated 2010, falling a total of 38.6% in value ($249,866).

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I'm in the same (sinking) boat. I bought a house at the end of 2004 in Northern VA, one of the overheated markets. I really fretted over the whole thing, but was concerned that if prices didn't correct, I'd be effectively locked out for life. Prices continued to rise like mad for another year, but have since come back to slightly less than I paid for the place. I did put a sizeable amount down, but it doesn't make me feel any better.

Interesting point about the expensive college education. I've oft wondered this myself. Fortunately for me, the 12 credit hours I bought & earned at community college in the 80s have had a massive ROI. Seriously, if I were paying $100k+ for an education, I would *need* to know that it would payoff several times over. For doctors and lawyers, this is usually the case, but for engineers and such? I don't know.

Todd

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Dennis, thanks for the clarificaiton. I'll look at that more closely.

Todd, even with the correction, people are still priced out of homes in many places -- perhaps in the coming years you'll still have come out alright.

A friend took a job in Pasadena, CA about five years ago. After the first year or two, she decided not to buy a place because it was just too expensive. Three years following that, she's only fallen farther away from being able to afford a home -- or even a condo -- because of rising prices. I dare say, the correction would need to take prices back to pre-2002 pricing for her to afford a place. And she makes a good living as a lead engineer for a small firm. So, without a crazy, interest-only, 50 year mortgage, she may forever be in apartments.

But maybe, seeing Dennis's post, this large of a correction could happen.

I've idly considered moving to CA just to buy a house on the cheap. Any loss of my house here would be grossly over-compensated by the decrease on a CA house. But then I remember that I don't want to live in CA

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Hmm, Dave - your post inspired me to finally do some math I've been putting off. It is pretty grim. I used some round/gross numbers because this is, afterall, speculative prognostication (guessing). I'm pretty much thinking as I'm going here;

I looked up the median hhld income in 1997, which was around $42k/yr. In 06 it was around $48 - so rounding off we can say income has grown around 15%.

Housing has grown about 200% in the same period; $80k to $170k median.

The relationship between housing and income is important, because in order for housing values to be maintained the average income must be able to afford the average home...

Currently, the average house is consuming 45% more of the household budget than 10 years ago. (not to be confused with 45% OF the budget) That would insinuate that current housing values are 45% overvalued - at least by 1997 budgets.

Projecting forward, in 10 years the average income - at 15% growth, would be $55k and the average median price (still by 1997 budget proportions) would be $106k.

From that I could extrapolate several possible outcomes;

1) Median housing values will continue to decline another 30% over the next 10 years to reach parity with median income.
2) Median income growth will accelerate - likely a relationship with inflation.
3) The median housing budget expressed in 1997 may have been historically below trend, so future household budgets may accommodate a larger share for housing, resulting in a faster absorption of the overvalue presently expressed.
My guess is a combination of all three, but particularly inflation. Pulling a number from thin air - Id say five more years to go...

An additional consideration is that the growth rate of the top 50% of income earners is faster than the bottom 50%. That can have a two-fold impact on this projection;
1) More affluent homes may recover their values faster
2) Lower cost homes may stagnate longer - since lower income households might take longer to afford them. It is worth noting here that current tax code disinsents higher income people from investing as landlords in rental property, nullifying any beneficial absorption of lower priced homes for rent / investment.

Once ancillary concern is the loss of real estate equity as a retirement savings vehicle. For many people the equity in their home has served to compliment (or often as their only) retirement savings. Without this I fear that retirees in the next decade or two will need to take more initiative in their retirement less they end up entirely dependent on social security (social security being yet another concern) I won't even bother discussing medical costs for retirees...

I would say that this next 10-20 years will be one of the more historically dangerous time for people to defer responsibility for their retirement...

I only wish there was a way to force everyone to listen and invest suitably - it takes so little effort for most people to address this - yet they don't and they overspend foolishly... Hell - the average tab at Hooter's would be enough to fund most peoples retirement if invested monthly...

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Eric,
I generally agree with you're going for, but one hole in your (quick) analysis is the disparity in pricing around the country, particularly the Coastal Megapolis vs. Flyover states; see Dennis' chart linked a few posts back.

LA's peak price, for this average, was $600k and projected to bottom out at $340k. Even though that's a huge decline -- as you'd expect -- that's still a very expensive house and in no way indicative of a "median" income. Worse, it's going to be a small, old house very likely an hour or two from the owner's work.

And this will remain the case because LA is a huge, important city, that everyone wants to live in. Likewise for DC, Boston, San Fran, NYC, etc.

In contrast, here in Rochester, you can buy a 2000 sq ft new construction for $200k. And you can buy a 1920s fixer-upper for $90k. But no one wants to live in these regions.

What needs to happen along with the housing correction, is a redistribution of jobs. There's plenty of affordable, quality homes nationally; but they aren't where the jobs are or where people think they want to live.

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But you'll also notice that there is a corresponding positive variance with income in these same places. While the ratio is not going to be exactly consistent across the country; it will be similar enough to be useful.

Megalopolises (Megapoli?) also were some of the fastest appreciating. As they revert to the target ratios they are now among the fastest contracting markets.

All in all - it fits well into the expected averages and ratios.

So far as jobs go - the service economy will likely tip further towards production as the weaker dollar makes home-grown production more affordable. In spite of the service sector's exponential growth the past few decades, the US is still the 3rd largest exporter of products in the world. (Behind #1 Germany and#2 China)

I feel there is a high need for unskilled jobs, but there also is a VERY high need for skilled labor, sadly there is an abundance of unskilled laborers, and a scarcity of skilled tradesman in America right now. IMHO there has been too much emphasis on college at the expense of trade schools. I think some of the loss of jobs has been due to the poor prospect for skilled labor and the scarcity of employees with a good work ethic (like showing up for work sober and on time - a sad scarcity in unskilled labor)

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Big Cities are contracting most rapidly, but they are still prohibitively expensive. That $360k average home in LA is unreasonable for your $42k average earner.

So why do people tolerate it? Because everyone wants to be in CA, or the big cities, with all the jobs.

Well, everyone but Dennis.

As for the trades: I agree. I see a risk of labor shortage in my field, where we need skilled optical & mechanical technicians.

But it also seems we're sending evermore of those jobs outside the country. I can't outsource my plumber and auto service guy, but all the factory line-workers, the furniture makers, the tool and die makers can have their jobs shipped to parts cheaper. My experience isn't broad enough, but it's not clear to me that we have the manufacturing base to support a broad middle class of skilled tradesmen.

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In the not too distant future, Al Qaeda will get the bomb.

Both New York City and Los Angeles will cease to exist, and all people living there will die.

It may be anticipated that only those cities who are not down-wind of NYC and LA will maintain their property values.

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This outsourcing has been in large part because of the scarcity you've observed. It also was due to the historically strong dollar. One problem is resolving itself now. All we gotta do next is get some more people out there to pursue viable skills....

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people are MORONS for paying the huge prices they pay for houses.

If people would stop paying outrageous amounts for houses then the prices would fall. But there will always be those yahoo's that will fork over way too much money for a house.

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update;

So far my estimate is on track. Median prices are down about 7% from last year. Inflation is becoming more and more of a concern. My guess is that early next year we'll see a raise in minimum wage which will start the wage inflation. A little wage inflation coupled with a few more housing value drops like this most recent one and we'll see the housing correction behind us in as little as a few years. Also, fuel costs could indirectly start propping up vales in urban areas...