Valley home prices rise

How can they ask for so much for these homes when it's a buyer's market? I have seen ZERO impact on home prices due to this supposed housing crisis. I've seen homes with asking prices of $250k & up & the houses are NOT worth that much. If they sit on the market for a yr I don't want to hear the homeowner bitching, they did it to themselves, especially if they're not willing to budge swallow their pride & lower the price.

Homes wrote:

How can they ask for so much for these homes when it's a buyer's market? I have seen ZERO impact on home prices due to this supposed housing crisis. I've seen homes with asking prices of $250k & up & the houses are NOT worth that much. If they sit on the market for a yr I don't want to hear the homeowner bitching, they did it to themselves, especially if they're not willing to budge swallow their pride & lower the price.

prices have come down from the last few years and there are more homes available than ever before. the reason prices seem high still is because people owe that much and must try and sell for the loans they still owe on. not many people are buying and i think it will take a few more years of price reductions until this market is normal. people overpaid by almost double and they are now suffering.

"Nationally, a wave of foreclosures has crippled parts of Florida and California, where the run-up in home prices was steeper and speculation was rampant. By contrast, home prices were slower to rise in the Lehigh Valley and in Pennsylvania, and never reached the same dizzying heights as other areas."

Prices doubled around here just like the Florida and California markets. Where did this reporter goto school? I think they need to get figures from independant outsiders instead of the people selling homes.

This area is so freaking strange. I know two people at my office that recently sold their places in a week at full asking price! And I have a friend that is looking to buy a starter row home for 125-150 and his first three offers for three different houses were denied. I think the problem is that the competition for affordable housing in the Valley is quite high due to an increasing population and a relatively low supply of affordable housing, which in turn appears to increase prices of affordable housing. We live in a crazy world.

The River,

Yes you have hit the nail on the head. Housing is not a homogenous product, but high differentiated based on price, quality, location, etc.

The increased credit review and modified standards to conservatism by mortgage bankers will price people down to a lower level, hence higher competition in the "affordable housing category."

Let say a dual working family in Allentown or a young professional graduate making $36,000 per year. Possibly the bank will allow them to have mortgage up to 1/4 of their gross income. This equates to a monthy mortgage payment of around $750. For a 30 year fixed rate at 5%, this is affordability of a home at $140,000 range.

Those in homes already and have stable incomes will ride this slowdown out. Those looking to upgrade should in this market. Those who are first time buyers, who can qualify should buy in this market.

It is interesting that new highs in prices were hit a lowest volumes. Either these are the last sucker buyers, or if volume now continues to increase, we have hit an inflection point of driving future growth in prices.

I am leaning that the shakeout of those on the bubble of foreclosure is not over, but I do believe the bottom of pricing will occur in December 2008.

The pickup and reversal should occur in 2009, and then all the opportunisty real estate funds will jump in in 2010 and 2011.

The value real estate investor is buying in 2008 and 2009.

I doubt we will see the bottom until 2011 minimum and thats what my best friend who owns multiple brokage firms predicts and he's been around for 40+ years in the business. Even the research I do online is pointing towards that. Prices got too high too fast and when you add in all the other major economic problems hitting us at the same time this is going to be something that will be talked about for centuries to come. This problem is the largest we Americans have ever faced. This is our great depression without a shadow of doubt. People told me to be optimistic during the late 90's and early 2000 timeframe too. I lost a major part of my retirement. At least this time I was warned this housing market was a disaster coming around 2004 and made a mint for me.

How did it make a mint for you?

JobsGone wrote:

I doubt we will see the bottom until 2011 minimum and thats what my best friend who owns multiple brokage firms predicts and he's been around for 40+ years in the business. Even the research I do online is pointing towards that. Prices got too high too fast and when you add in all the other major economic problems hitting us at the same time this is going to be something that will be talked about for centuries to come. This problem is the largest we Americans have ever faced. This is our great depression without a shadow of doubt. People told me to be optimistic during the late 90's and early 2000 timeframe too. I lost a major part of my retirement. At least this time I was warned this housing market was a disaster coming around 2004 and made a mint for me.

Don't trust greedy lying bastieds

Huh wrote:

How did it make a mint for you?
<quoted text>

We sold our place for 250,000 and had purchased it for 110,000 5 years earlier. We have been renting since. Once a similar home is available for around 110,000 again, and it will be, we are going to buy again. Do you realize how many others did like us? In our group of friends there are 6 others who did the same. It was like winning a small lottery. So many people thought the prices of real estate was going to keep rising, that was foolish.

Screwy Louie wrote:

Don't trust greedy lying bastieds

So many people were listening to realtors like they were telling them the truth. They are worse than car dealers and the general public fell for this scam. It's the same with general reporting like this one, deceiptful tactics and greed created this disaster and it's going to make all the earlier recessions seem miniscual in comparison to the blowout thats just starting to show it's ugly head.

40 plus years in real estate and your buddy knows when this is going to end. Try a little longer while your buddy is visiting Neverland . The rule of thumb was passed more than 40 years ago. One weeks salary for your home mortgage on a 15 yr and the rest for the family and vacation.

Every one had jobs then that paid a decent wage, now greed has taken over and your 40 yr buddy in real estate may be just like the rest of the greed and have his house foreclose on him like the rest of the suckers he sold homes to with an ARM.

great discussion of the current mortgage crisis on "This American Life" on NPR this week.

There are interviews with just about everyone in the housing/mortgage/mortgage reseller/investment backed security chain.

Some interesting points-in certain mortgage classes(no doc of income, no assets-"NINA loan") some buyers could NOT EVEN MAKE THEIR FIRST PAYMENT!. This has never been seen before in mortgage lending.And they were getting $300-$400k loans!

There is an interview with a Vegas bartender who had a customer that was a mortgage reseller. The customer convinced the bartender to get homeowners to sell their mortgages to the mortgage reseller guy . This moved the mortgage up the chain into bundles of thousands of mortgages.

And on it went till trillions were bet ultimately jeopardised on bad loans.

One fresh out of school mortgage reseller finance kid was making $75-100k per month. Now he can't even pay his own mortgage.

There are still many of these loans to go bad. The LV is a bit insulated from the fallout do to the proximity to NY/NJ

So in other words, you made money on the housing boom and HOPE to make money on the bust. You havene't made money on the bust yet.

JobsGone wrote:

<quoted text>
We sold our place for 250,000 and had purchased it for 110,000 5 years earlier. We have been renting since. Once a similar home is available for around 110,000 again, and it will be, we are going to buy again. Do you realize how many others did like us? In our group of friends there are 6 others who did the same. It was like winning a small lottery. So many people thought the prices of real estate was going to keep rising, that was foolish.

Huh wrote:

So in other words, you made money on the housing boom and HOPE to make money on the bust. You havene't made money on the bust yet.
<quoted text>

How did you come to that conclusion? I never talked about making money on the bust. You might want to read my posts again. We made the money on the sale not the bust. There are nice homes sitting for months and some 1 year or more. These people are lowering prices and offering everything and cant give them away. People seem to be really tightened up and waiting this out. When you can rent in a good area for under $800 a month and you can in the valley easily it makes sense to rent than buy. The market is croweded with thousand dollar rentals but most have to reduce price or not rent. In the fall there will most likely be so many homes renting around here the prices will be dropping like flies in December. The only way you are going to make money during this bust is by not buying for at least a few years not months.

Prices shouldn't increase since the houses were never worth what they were selling for anyway. No matter how much people whine, a downfall in housing prices is actually a correction of where they should be. People may complain, but they are actually screwing over their own children since their kids won't be able to afford a house. I hope the market stays like this since it will help prevent new developments from popping up over the landscape.

John wrote:

Prices shouldn't increase since the houses were never worth what they were selling for anyway. No matter how much people whine, a downfall in housing prices is actually a correction of where they should be. People may complain, but they are actually screwing over their own children since their kids won't be able to afford a house. I hope the market stays like this since it will help prevent new developments from popping up over the landscape.

You dont have to worry about development anytime in the near future. There are more subdivisions sitting empty now since the US was created. The people still building are doing so because they already have the money from loans and must do so. Prices are going to get back to normal so in fact future generations "CAN" afford to own a home.

I heard one real estate professor on NPR saying that"there won't be any buyers in 15 years for 1/3 of the outer ring houses".

She was referring to the growing demand for walkable neighborhoods aka new urbanism.

so according to this scenario 1/3 less buyers -prices are comin' down!

"Outer ring" does not apply in this part of the country. The northeast is mostly developed going back hundreds of years, and we're pretty much a megapolis from boston to DC. Outer rings of developments exist in the new boom areas in the south and southwest. Take Phoenix and Vegas as examples. Development happened so quickly and irresponsibly away from the city centers that there are ghost town developments. A lot of housing wealth will be lost in our country, but the majority of losses will occur in the sun belts - southwestern US and Florida. Real estate is VERY local.

goon wrote:

I heard one real estate professor on NPR saying that"there won't be any buyers in 15 years for 1/3 of the outer ring houses".
She was referring to the growing demand for walkable neighborhoods aka new urbanism.
so according to this scenario 1/3 less buyers -prices are comin' down!

The River wrote:

"Outer ring" does not apply in this part of the country. The northeast is mostly developed going back hundreds of years, and we're pretty much a megapolis from boston to DC. Outer rings of developments exist in the new boom areas in the south and southwest. Take Phoenix and Vegas as examples. Development happened so quickly and irresponsibly away from the city centers that there are ghost town developments. A lot of housing wealth will be lost in our country, but the majority of losses will occur in the sun belts - southwestern US and Florida. Real estate is VERY local.
<quoted text>

Are you living around the Lehigh Valley still? Unless you are blind, prices have dropped 20% minimum and falling. It took almost 6 years to create the housing monster but it's crumbling down and still has a long way to go. Check out the lehigh valley multiple listing service and it's all there. Prices are going to get back to pre 2000 levels and might go farther. The bubble started double digits after 2001 but prices were rising faster than normal since the mid to late 90's when 3-4% a year increases were the norm. Check out this graph because it's not debatable.

Locally inflation has been going through the roof and the job creation around the Lehigh Valley since 2000 has been low paying service sector jobs, not family sustaining wages. You can already see homes that were selling for $200-225k during the height of the bubble now selling "asking" for $150k. That's a fact that can't be denied if you do some simple research. Using the lehigh valley multiple listing service and the lehigh county deeds.

We have an 18 month supply of homes available locally and that number is probably higher when you add in forclosures and "for sale by owners" who aren't measured into the BS FIGURES the morning call and Jeannie Bonner print in the paper.

http://patrick.net/housing/crash.html

http://graphics8.nytimes.com/images/2006/08/2...

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Housing prices rose 100% in many big markets from 2002 to 2006. Even more in some places. We have now seen a 30% decline. We need to see a 50% decline and that is just to get back to a point at which houses were already expensive. Inventory is still rising, and people are walking away from homes. With Condos, the situation is even worse. There is a 16 year supply of condos in Florida. There is enormous condo overbuilding in many areas.

The housing bust in Japan went on for 18 consecutive years. The bust in California is less than 2 years, Florida far more advanced than CA is still less than 3 years old.

Housing prices compared to rent are still high, compared to salary are still high. The argument that wages and incomes are rising on average ignores a monstrous skew. Real wages have been falling for the bottom 80% or so of the population, and dramatically for the bottom 50% of the population.

If Bill Gates, Microsoft CEO, walks into a bar in a slum on the South side of Chicago, average income in that bar will shoot up dramatically. Will that event make houses more affordable for anyone in that bar?

When it comes to construction jobs, it's important to note that the bust in commercial real estate is now just picking up steam. Inquiring minds will want to consider Vacancies Soar In Commercial Real Estate Bust and the Shopping Center Economic Model Is History.

Wal-Mart, Starbucks, Target, Sears, Pizza Hut, Home Depot, Lowes, etc etc ect are all cutting back growth plans. It was the overbuilding of all these stores that provided job growth over the past 6 years. They were low paying jobs, but at least they were jobs. Where is the job growth going to come from now? I have been asking that question for years and no one has been able to answer it.

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Second "Price is Right" Indicator: When will buying real estate make sense for landlords?

I recall times when investors could buy a house with 20% down, rent it out at market rates, and make a positive cash flow in year one. In fact, I did it. But lately, real estate investors have been speculating. They buy homes that create a negative cash flow, then count on home appreciation to pay them back someday. As with any investment, the more speculative, the more risky. I'd rather wait until I can buy rental investment homes that create positive cash flow. Then future price appreciation would be icing on the cake.

My (speculative?) landlord bought our home in 2006, near the peak of the housing bubble. Here's an estimate of the annual costs our landlord incurs on our home:

Item Annual Cost Notes
Down Payment $2,000 20% of $250k =$50k down.$50k x4% in T-bill, CD or bond instead.
Mortgage Payment (P+I)$14,772 $200k @ 6.25% 30 yr fixed
Property Taxes $1,500 0.6% of hm value
Insurance $900

Maintenance, Repairs $2,331 15% gross annual rent (this is the minimum allowance typically recommended)
Property Management Fees $1,399 9% of gross annual rent (8-10% is typical)
Vacancies $1,295 1 month per year allowance
Marketing and Leasing Fee (by Mngmt Co.)$583 90% of 1 mo. rent every 2 yrs (80-100% is typical fee)
Auto Expense $0 (assuming owner relies 100% on mngmt company)
Total Annual Cost $24,780


+$15,540 Annual Gross Rent Collected

-$24,780 Annual Costs

=$9,240 Annual LOSS

Obviously our landlord was betting on home price appreciation to continue at unprecedented rates.

In order to break-even in year one, our landlord needs to increase our rent from $1,295 to $2,065 per month. Of course, if he tried to do this, we'd move out, no one would move in, and his investment property would sit vacant. Not good!(So he's not likely to raise the rent, either.)

Alternatively, if he had bought at the "right" price, with the intent to create a near break-even cash flow in year one, he'd have paid only $130,000.

$130,000 is 48% less than the current value of $250,000! Ouch!

If our landlord had bought this home for $130,000, this is what the math might look like:

Item Annual Cost Notes
Down Payment $1,040 20% of $130,000 =$26k down x4% in T-bill, CD or bond instead.
Mortgage Payment (P+I)$7,680 $104k @ 6.25% 30 yr fixed
Property Taxes $780 0.6% of hm value
Insurance $900

Maintenance, Repairs $2,331 15% gross annual rent (minimum)
Property Management Fees $1,399 9% of gross annual rent (8-10% is typical)
Vacancies $1,295 1 month per year allowance
Marketing and Leasing Fee (by Mngmt Co.)$583 90% of 1 mo. rent every 2 yrs (80-100% is typical)
Auto Expense $0 (assuming owner relies 100% on mngmt company)
Total Annual Cost $16,008


+$15,540 Annual Gross Rent Collected

-$16,008 Annual Costs

=$468 Annual LOSS (almost break-even)