Housing Bubble Starting to Lose Air?
We don’t usually get around to the Op Ed page ’til later in the day so we missed Krugman’s piece yesterday on everybody’s favorite topic, the housing bubble. Among the signs he points to that the bubble is already losing air are: The bubble doesn’t burst with a bang–inventory builds as sellers hold out for…
We don’t usually get around to the Op Ed page ’til later in the day so we missed Krugman’s piece yesterday on everybody’s favorite topic, the housing bubble. Among the signs he points to that the bubble is already losing air are:
Is there any hard evidence that properties in New York are sitting on the market for longer?
That Hissing Sound [NY Times]
Wanna Be…
Some of the responses to you have some merit, but it’s not as difficult as some make it seem. I am a SINGLE male making $100K alone so I equate myself to you. One of the things linusvanpelt said that I agree with whole heartedly is “AGGRESIVE SAVINGS”. That down payment is key.. especially if you want to avoid PMI. But even with out that. Check some of the banks that regard some parts of Brooklyn, north of Stuyvesant Heights and some parts of clinton hills as” Target Areas”. I did my financing through HSBC’s Community Works program which is about 70 bps below market. So again I financed $500K @5% fixed. w/ $2300 of rental income that leaves about a monthly payment of $700.
And this is on PUTNAM between Marcus Garvey & Throop. A Very good brownstone block.
Now I think you’d agree that you can handle that.
You folks seem to be missing the obvious. It’s the interest rates, stupid…. Mortgages rates are rising(have been higher for the last 5 weeks straight). Interest rates have been the primary determinant of house prices in the bubble envirnment. Is it any wonder the housing bubble is losing air?? I dont buy the arguement that these homes are going for cash. Maybe the $2.5+ mill market, up to $2mill buyers are definetely taking out mortgages with hugh downpayments. I’ve looked over the property records of most of the sales this year in FG/CH. What i’ve found is most buyers are taking out 2 mortgages to purchase these homes; 1 for ~$990K and the other up to ~$200K. Mortgages of $1.2mill with cash making up the difference seems to be the plan. And with rates rising this strategy simply will not work anymore.
Yeah, but New Stoner, you paid a REALLY low price for a brownstone, and with a 30 year fixed rate mortgage, you didn’t take a financial risk but got a really good rate and have TWO rentals. I’m guessing you’re in it for the long haul. You were NEVER in trouble.
And you can’t really think interest rates are guaranteed to be this low forever, can you? Apparently your parents have never discussed the days when interest rates were anywhere between 18 and 20% with you, huh? You may not think they’re rising that fast now, but someone whose ARM rate changes when the rates are closer to 7 or 8 or higher in a few years is going to disagree with you. Sure, it may never happen, but how can you say for sure it won’t?
Right there with you Wannabe – double income over 200Gs a year, decent savings. But I cannot stomach the mortgage payments that come even with a low downpayment and good interest rates. We don’t own now, and don’t plan to for a little while yet, as we are saving so much renting. There’s no tax break for us in owning at this point. The fact is some people don’t mind being housepoor – I’m not one of them. I’m not going to sacrifice vacations and savings for some beat up house, be it in brownstone Brooklyn or the ‘burbs, that requires 100Gs or more of work and will force me to stay in the “golden handcuffs.” I frankly don’t get the impression that a lot of people buying care whether or not they are stuck in the handcuffs. To each his own.
And I think many of these people do have that kind of money, and if they don’t personally, their parents do and are giving it to them. Or they sold an apartment and made a bundle they normally wouldn’t have made in a normal market, where double digit increases in value are NOT the norm. My parents want to try and help us too, but they cetainly aren’t throwing around sums like I’ve heard parents have given. Nor are they dumb enough to allow me to take an IO or an ARM (since rates are rising) with their money.
So hang on wannabe – I think things will have to change. There seems to be little inventory out there for people who want to spend under 5. And while many people are acting like it doesn’t matter that there’s no affordable housing, NYC can’t survive on Wall Street bankers alone. NYC can’t afford to have ALL of the people with lower incomes leave.
People make this “bubble” thing more complicated than it really is. Think about the Tech bubble…Bursting meant people bought Yahoo(yhoo) @ $100 and were either forced to sell at a significantly lower price, because they bought on margin, or they continued to hold the stock at a lower valuation, say $60. Now apply that to the real estate market, which is VERY Geographical specific. So lets talk about Brooklyn. No One that has paid $800K – $1.5MM for a 3 Family, 4 story Brownstone, is all of a sudden going to find that their property is now worth $600K – $800K..
What you will see is that they will no longer get 20 to 30 % annual increases in property value.
No home owner is going to lose their shirts here. That hype is being perpetuated by people that are still upset that they waited too long to buy.
As for people that have creative fianancing (ARMS) Interest rates are not going up fast enough to make people’s monthly mortgage payments all of a sudden be unmanagable.
I’m a new buyer having paid $500K for a four story, 3 family Brownstone with a 30yr FIXED mtge @ 5% and renting out the two top apartments for a total of $2300. Keeping the duplex for myself, I doubt that I’m in any kind of trouble.
BUBBLE SCHMUBBLE!!!!!
Wannabe,
“How does the rest of middle-class NYC deal with this?”
1. Loans/gifts from parents
2. Getting an apartment much smaller or in a less desirable location than preferred
3. Forgoing travel, entertainment and other costs not associated with housing
4. Aggressive saving, often in tandem with (2) and (3)
5. Renting. Renting is in fact the norm in NYC — I think something like two-thirds is the figure — so when people ask hoow wthe average person can afford to buy, we should remember that, not just in bubble times, the “average” person doesn’t.
Not trying to be unsympathetic, but those are the answers, besides aggressive financing, that I can think of off the top of my head. I’m very sympathetic, because when my wife and I bought our first co-op we made far less than you. We were just lucky enough that that was in the ’90s, so there but by the grace of God, etc.
It is unfortunate, and this is not to say that prices won’t drop, but the sales market in NYC, especially for houses, does not depend on the average person being able to afford to own.
At the high end of the market, many — or most — deals are done for all cash. According to the logic that “creative financing” has driven the rise in prices, how would you explain the all-cash deals? The high end has risen sharply too.
Explaining a price trend by pointing to how people are financing their purchases misses the essential factors that are driving prices higher.
Now that I have written all this, I wonder what the point really is. After all, anyone can assert that “prices are too high” or “there’s a bubble.” I heard the same claims 4 years ago when I bought. Those same people are screaming even louder now. Just give it a rest, people. If prices are too high, they will adjust on their own. And we don’t need Greenspan trying to further the process with his ridiculous and unsupportable claims.
Wanna be homeowner,
You might have to find family or friends to get you a little more for a down payment. Put 10% down on a place that has one or two rentals. There are places in up and coming areas in Brooklyn. Those rental incomes help you pay the large mortgage. Its the down payment you need to get. Sometimes you can borrow against a 401K or annutiy fund. Or take from IRA account. You can pay these back as you collect rent and save once you close and move in. It is doable.
Selling their coop they put at least 20% down on, reaping 100K plus tax free profit and buying a brownstone with 10% or less down with rental incomes to help pay the mortgage. Right?
Wrong. We’re out of the running for pretty much everything, as we can’t put down more than 10% ans truly would not be happy to spend that kind of cash on a $300K, 500 sq ft 1BR. I sincerely don’t expect the same appreciation on this hypothetical 1BR as on something larger and more desirable.