Interested in feed-back from DU's economic mavens

[Kurt_and_Hunter]

I am sure there is much to quibble with in this post, in terms of particulars, but does anyone have an opposing view to the central thesis that housing has a lot of downside ahead?

(in related posts I talk about whether median home prices will return to their historical roughly three times median household income level which is another aspect of things. Is there any reason in today's environment to expect housing to level off above historical norms?)

I would love to be persuaded to keep my house, but since it retains a fair amount of location-related bubble-era value I am becoming convinced I should sell very soon and switch to renting for a few years. (Is 50 "a few?")

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x8221338

[Warpy]

1. Know your market

What are rents doing? Are you still above water on what's left of your mortgage? Are you planning to leave the area soon? Can you take a capital gains tax hit if you don't buy another place?

My own feeling is that if you like your house, rents are close to what you're paying on the mortgage and you have no interest in relocating, keep the house. The value will never drop to zero and you're still building your own equity, unlike building a landlord's equity with rent.

Add to that the instability in the market that is leaving a lot of renters high and dry when the landlord stops paying the mortgage, and renting becomes a riskier proposition.

While "take the money and run" looks attractive, it can be self defeating. Really think about this one before you act.

[Fresh_Start]

2. the worst hit areas were the exurbs

so as always location, location, location is a key factor in how you should look at the situation

housing will recover fastest in the most desireable areas
think especially about commuting time to major employment centers
if your home is 3 hours a day commuting time, it will take longer to recover than if its a 20 minute commute

the exurbs were the fastest growing areas so they are also the areas with the highest unsold inventory

[Warpy]

4. My own house hasn't lost any paper value

because it's located between uptown and downtown and near all the hospitals, a really short commute to most places. I hit parity with rent the second year after I bought, so I've been quite happy with the decision.

The exurbs north and south of the city in NM will likely do well because we finally got a north-south commuter rail system.

The exurbs to the east and west will not do well.

[Common Sense Party]

5. I agree. If you're planning on staying in the house and you locked

in a good rate, so you can afford the payments...why would you sell? And to whom?

My house is down about 20% in value, I'd guess. Big deal. It'll come back.

My 401(k) is down about 38% in value. Bigger deal, but it'll come back.

[girl gone mad]

3. A chart is worth a thousand words...

[Terry in Austin]

16. Schiller's data here

Great chart -- if it gives you a wonky thirst for more detail, he's got spreadsheets here. The same page also links to a sheet with historical stock data going back to 1871. Yum!

[Common Sense Party]

6. Sell to whom????

Who can get credit right now? And how many of them are looking for homes in your area? And in your price range? Are homes actually moving in your area?

Rents are quite expensive in many areas now.

[Joanne98]

7. It depends on where you're living. My house hasn't lost any value because

I'm not in a bubble area. It's always better to own than to rent. Especially if you're living in it. Rent is throwing money down a rat hole.

[notesdev]

9. Owning vs. renting

Actually... it is not necessarily better to own than rent for everyone. People who move often, for example, benefit by renting. If you're going to pick a place to live then stay there forever, yes, owning is better in every circumstance other than an extremely high buy-to-rent price location. High prices, high taxes, and the limits on mobility are all factors that argue in favor of renting for some individuals.

[Art_from_Ark]

14. I can think of a few more examples

Would you rather own a house, or rent a house that fronts a major highway but is zoned as residential?

Would you rather own a house, or rent a house in an area that is falling into decline?

Even if you're thinking of staying in the same town forever, you still have to take many things into consieration-- property taxes, maintenance expenses, declining values of properties around you, increasing crime rate in your neighborhood, liquidity if you need to sell in a hurry, health-related issues by being in a highly contaminated area (Love Canal, Times Beach, near a Superfund site, etc.).

[barb162]

12. Are you calling

landlords rats??? :) :) :)

(PS I agree with you, renting is bad news for the renter )

[notesdev]

8. Housing downside

Houses will not recover their boom price levels until inflation kicks in to alter the value of the currency. In terms of the boom price level relative to income, we may never see that figure again.

There are a number of reasons:

- The supply of greater fools ran out. The mortgage pirates found every last person willing to be on the hook for a boom-price mortgage, whereas a Ponzi-style scheme like the housing bubble (keeps going up as long as you can keep finding new suckers, then falls apart in a massive mess) requires a constant supply of new fools willing to pay higher and higher prices.

- There are no more mortgages to fools being made. NINJA loans, subprime loans, Alt-A loans, many ARM loans, option loans are all dead markets, since this is the stuff that turned into this toxic junk whose value is so low no one wants to even find out what that value really is.

- The construction boom overbuilt supply. At one point we had over a year of surplus supply of housing. It's down to about half a year worth, an improvement, but that improvement came at the cost of a massive drop in value. At 2005 market rates, there are few buyers. At 40%+ off those rates, yes, a lot of people who sat on the sidelines and weren't tempted by the free-money scheme of the bubble are enticed to become buyers.

- Sellers compete against distressed sales. Banks don't want to hold onto REO properties; they are not in the business of being landlords, and these properties are expensive to maintain. So both banks and individuals facing foreclosure are interested in selling what they have, at almost any price, just to get rid of it.

- Taxes going up (applies to some areas only). If you live in, say, New Jersey, your property taxes get hiked with startling regularity. Every tax hike essentially comes right out of the price of the house. Post-hike, total cost of ownership rises and the house is less affordable than it was before, and this turns into a net loss on the price of the house itself.

I could keep going but this is a pretty solid list of reasons why one should not expect residential real estate to be rising in price anytime soon. If you buy, buy to live, not as an investment.

[dixiegrrrrl]

10. Do you need the tax credit for the mortgage?

Are you in a high property tax area?

I consider the my mortgage as rent, actually, with a tax deduction thrown in.
Long as I can pay the monthly, I have a safe haven.
Safe place to ride out the storm, lot more secure than renting from someone else, lot cheaper.

[barb162]

11. "central thesis that housing has a lot of downside ahead?"

Yes, it does as there are a lot of ARMs that will be resetting, which means more foreclosures, meaning further dropping of values, etc. And there will be more job losses ahead, meaning more foreclosures. BUT, it really depends where you live and if your area is stable now. There are plenty of areas that have seen no dropoff at all and plenty of other areas have had only minor drops in value.

"(Is 50 "a few?")" A few what?

[Kurt_and_Hunter]

13. 50 years. Just a jest about how soon one might want to own a home.

[benld74]

15. Huh? Whu? ,,,,,