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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: J. P. who wrote (11763)	7/25/2003 10:40:12 AM
From: Tradelite	Read Replies (3) \| Respond to of 306849

<<The principle on houses is sky high! And even the "low" interest rates eat you up at these principle asking prices. This market is punishing people who are starting out> Those people (buyers) ARE the market. The market isn't something which exists without them and "punishes" them. The market is doing what it's doing because the buyers are buying. Discussion can get pretty mixed up if this concept isn't well understood. I know this, because I used to spend hours trying to explain the "market" to sellers who mistakenly thought THEY were in control of prices. Even the smartest ones sometimes never quite "got it". One thing that seems to be overlooked continuously on this thread is the market impact of many many more Americans buying homes because they NEED them. I got laughed out of here many months ago when I suggested demographics were responsible for the housing boom, which started long before Greenie ever did a thing to sharply reduce interest rates. This trend will continue in heavily populated areas, almost without regard to interest rates. And for those people who intend to flip a house within a few years of buying, the market will treat them no differently than it ever has. They stand to lose money. You're not supposed to make a six- or seven-figure investment in ANYTHING without having an exit plan--certainly not something as hard to liquidate as real estate. As for the comments about $150K houses somehow being different for borrowers to manage than homes which are more expensive....well, for one thing, a $150K house is practically a mansion in some parts of the country even today. House prices are always a reflection of the income levels of the area in which they're located. So the $150K buyer is no less concerned about interest rates than the fellow who can afford a million or more. They just live in different places. Everything is relative. <<But 150K is pretty low. With 70K you can almost pay off half immediately.>> Believe me, many folks who buy $150K homes will never see 70K in their bank account at one time if they live to be 200 years old. Therefore, to dismiss the impact of interest rates on them makes no sense.

To: J. P. who wrote (11763)	7/25/2003 11:45:00 AM
From: GraceZ	Respond to of 306849

Now-a-days where I live, a nice starter is around 300-400K. In CA the median home price is $369,290. You might call that a "starter" because where you live is far above the median, but it isn't a starter except in your neighborhood. The median price means that half the houses sold sold for less and half sold for more so there are a lot of homes in CA selling for far less than what you think of as a starter. The minimum household income needed to purchase a median-priced home at $369,290 in California in May was $84,980, based on a typical 30-year, fixed-rate mortgage at 5.62 percent and assuming a 20 percent downpayment. The minimum household income needed to purchase a median-priced home was up from $81,510 in May 2002, when the median price of a home was $319,590 and the prevailing interest rate was 6.82 percent. car.org The real "starter" in your area might be a condo, not a house. What we define as a starter is a dwelling that turns a renter into an owner. In high priced areas that is a condo or a fixer upper or even a trailer. The fact that you wouldn't want to live in something below the median has nothing to do with it, what matters is, can people get in the starter homes so that people like you (or people in houses below yours) can sell your house to someone who has enough equity to move up into your house. If I sold my house tomorrow I have far more than the 70k needed to get in that "starter" if I wanted to (I don't want to). If I sell all my real estate (three houses) I have enough equity to buy in at a far higher priced home even after paying all the gains taxes and I don't have anywhere near the income to qualify to get into a million dollar house. Such is the power of your investments to outstrip your ability to grow your income. While my income has clearly topped, my investments continue to build and this is where down payments in the move up market come from, there and from inheritance or some other windfall. But 150k is pretty low. With 70K you can almost pay off half immediately. And if you can raise 70K, you can probably pay off the balance quicker than 30 or even 15 years (likely 5 years). That isn't what I could buy it for now, but there are certainly any number of people in my area whose houses sold for far less (the people we bought from had exactly 26k in this house and many of their neighbors with similar cost basis are still here) and a lot of new comers paying to my neighborhood are paying half a million to a million to live next to my little shack. -g- I have clients in CA who never made more than 60k in any year in salary yet they were able to buy a 300k house which would now sell for 600k and they have a mortgage less than a quarter of that 600k. How did they do it, especially considering that they paid high Northern CA rents for 20 years while they were getting together that down payment which was far more than the sale price I paid for my present home. First off, they have me as an advisor. It makes me crazy they want to keep that much money in a house but I help people attain their goals regardless of my own personal preferences. I hate the idea of having that much capital in a non-productive asset at the top of a market. So far they've been right and I've been wrong because that house has appreciated far more than anything I could have had them put their money in over that time frame. If the house was truly selling for what it is worth as a dwelling it would be around $150k so anyone buying that house is paying a premium of 450k to live in that location and they are paying a huge premium to what they could rent a similar property. It's nuts to me, but houses aren't bought using rational logic the way they would buy some other service. They delude themselves that a higher price has a higher value when just like a financial asset the opposite can be true. When I tell my friends in CA what the difference in price is between there and here they usually remark that must mean that I live somewhere no one wants to live....yet the growth in new homes here is at a far higher rate than where they live. I live in Paradise and it's getting a little more crowded every day. I imagine at some point it'll be as crowded as Northern CA or even maybe Southern CA. I hope not because that will be when I cash out and move. This market is punishing people who are starting out. I was just as punished buying my first house at $74,500 (it seemed like an impossible amount then) and my husband who bought his first house at $30,000 when he was 26 making 8k a year felt a similar burden. The fact is that the reason home prices have risen so high is because housing affordability reached an all time high recently which is the opposite of what you are assuming.