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TMFDeej (99.47)

"In a normal market, this is an $800,000 house"

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April 16, 2009 – Comments (20)

My oldest son takes karate.  I drive him to them twice a week and watch the class with other parents from a lobby that has a large glass wall.  One of the mothers in the class, apparently is a real estate agent.  As I stood in the room watching my son practice, I couldn't help but overhear a conversation that she was having on her cell phone.  She was speaking with a client about putting in a bid on a home.  Her side of the conversation went something like this:

"OK...I'll put in a bid for $400,000 but I don't know if they are going to go for it."

Here's the good part...

"In a normal market this is an $800,000 house.  It's in a beautiful neighborhood."

At that point I almost collapsed on the floor laughing (I kept my feelings inside).  A normal market?!?!  So a market in which homes were overvalued by almost every historical metric is normal, but today's prices aren't?  Hello?!?!  And I'm in the Northeastern U.S., not a market that has really imploded yet like Vegas, Cali, Florida, or Arizona.

I'm not sure if this woman really believes this or if she was full of carp and somehow trying to make more money on the deal, but either way was annoying.

As much as it pains me to say this as a homeowner, I believe that people who think that home prices have bottomed are absolutely nuts.  Home prices will not stabilize until foreclosures slow considerably.  The only reason why it looked like foreclosures were slowing is that many banks implemented temporary programs at the end of 2008 that delayed them.

Foreclosure filings rose dramatically again during the first quarter (24% year-over-year and 9% versus Q4) to a new record.  In fact, the month of March featured the largest number of foreclosures that have ever been recorded in the four years that RealtyTrac has been tracking them. 

Not only are foreclosures rising, but many banks are sitting on large piles of foreclosed homes that they haven't even put on the market yet for one reason or another.  Not even low mortgage rates seem to be helping.  Mortgage applications actually dropped for the first time in a month last week. 

Foreclosures haven't peaked yet and home prices won't improve until they begin to slow.  This is why despite the beating that I have taken in them, I remain short all major homebuilders in CAPS (thank goodness not in real life or I would have a bleeding ulcer by now). 

Falling home prices serve as a major drag on banks as well as they cause the value of a lot of the toxic junk on their balance sheets to drop. 

I doubt that we will see much, if any any improvement in the U.S. economy until home prices stabilize.

Foreclosure Filings in U.S. Climbed to Record in First Quarter

Deej

20 Comments – Post Your Own

#1) On April 16, 2009 at 7:44 AM, KamranatUCLA (29.71) wrote:

Amen!!!

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#2) On April 16, 2009 at 8:05 AM, TMFBent (99.85) wrote:

Americans have no idea what normal is anymore, Deej. Born on third base, think they hit a triple.

Sj

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#3) On April 16, 2009 at 8:05 AM, kaskoosek (98.26) wrote:

It is funny how when you buy a home in the US, you are actually paying rent in the form of property taxes.

 

Therfore you never really own the house.

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#4) On April 16, 2009 at 8:33 AM, devoish (98.78) wrote:

It is even funnier that when you get a mortgage for a house you are overpaying in the form of interest, and you don't even get a road, or a sewer.

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#5) On April 16, 2009 at 8:41 AM, engstocker (< 20) wrote:

I get tired of hearing how "when you buy a home in the US, you are actually paying rent in the form of property taxes." Thats like saying your not free because you live in america because you pay for your freedom with taxes.

Geez give it a rest people. So you pay the equivalence of  a months rent in property taxes per year, so what, how do you think schools get paid for, the tooth fairy? You still don't have to pay for the other 11 months rent that you would be paying to a landlord. I'm a landlord though, so by all means don't ever buy a house, I like the income.

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#6) On April 16, 2009 at 8:46 AM, Melaschasm (89.11) wrote:

lol

Just another reason why you need to be very careful about hiring a real estate agent.  When their pay is a % commision of the price you pay for a house, they financially benefit when you pay to much.

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#7) On April 16, 2009 at 8:57 AM, Gemini846 (89.64) wrote:

There certainly are different perspectives on the issue. The broker was most likely just building perceived value. When I sold cars we were taught to tell people they would be in car payments $100 or more over where we expected them to end up. Called them Should/Be payments and let them work us back down to real value.

My circles at church on Sunday were all in thier late 20's early 30's talking about "no better time to buy" and "inventory is shrinking".

I went from there to an easter party with my wife's family who were in thier early 50's. The tone in that room was "we need to sell by summer because there is going to be another dip".

I don't think its wrong to buy a house in my area right now, but the concept that there won't be houses to buy a year from now is bogus.

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#8) On April 16, 2009 at 10:14 AM, mandrake66 (95.06) wrote:

This is finally starting to become of personal interest to me. I'm middle-aged, single, and have always rented, but I'm just beginning the buying process. I just got pre-approved for a fixed 15 year mortgage at 4.75%. That's pretty astonishing to someone who dimly remembers the 1970s. 

I'm in the Northeast and am definitely seeing property values drop and expect them to go considerably further in that direction. One unit in a condo complex I'm looking at now is in foreclosure and is being listed about 1/3 of its selling price from 2 or 3 years ago. My worry about a condo in this environment is whether the association is having trouble collecting fees. All of this was of nothing but academic interest to me until recently.

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#9) On April 16, 2009 at 10:15 AM, mandrake66 (95.06) wrote:

Oops, sorry, meant 2/3 of its previous selling price, it's list is 1/3 off the peak.

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#10) On April 16, 2009 at 10:33 AM, bigpeach (34.23) wrote:

kaskoosek, property taxes are not rent. They pay for schools, police, fire departments, local roads and infrastructure...

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#11) On April 16, 2009 at 11:25 AM, charlesblazer (99.42) wrote:

I wonder if you could negotiate your contract with your realtor to pay them a percentage of your savings off the list price, rather than a percentage of the sale price.  What do they usually make?  7.5%?

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#12) On April 16, 2009 at 11:42 AM, TDRH (99.85) wrote:

NAR are bloodsuckers.  Better to research, negotiate and close on your own.   

Interest rates are at historic lows yet where I am in Texas it still makes more sense to rent when you consider: Taxes, Repairs, Insurance.    The mortgage interest allows some to itemize, but other than that I would have trouble justifying the purchase.  Texas is not inflated relative to the rest of the country -housing values still have a way to fall to be in historic ranges of income. 

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#13) On April 16, 2009 at 11:56 AM, kaskoosek (98.26) wrote:

bigpeach

Maybe I want to own the house as an investment or inflation hedge rather than living in it?

There has to br some one willing to pay rent and you have to factor in all the other costs.

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#14) On April 16, 2009 at 11:57 AM, devoish (98.78) wrote:

Mandrake,

If interest rates were higher, your downpayment would become a higher percentage of the selling price of the house, and you would borrow less. Your monthly payment would be the same (everything you can afford) as you buy the nicest house in the nicest neighborhood you can.

Monthly payment = puchase price + interest.

If the interest goes up, the purchase price goes down. If the purchase price goes down, your down payment as a percentage, of the purchase price goes up.

Example:

I purchased my first house at 12 and 7/8 % with ten percent down.

Five years later I refinanced at 6&7/8 % into a 15 year mortgage with monthly payments 20% lower. A free gift from lower interest rates that at 5% you are not likely to get.

Now consider the condo you are buying as compared to the income level of you and the people who might buy there.

IF you are buying the most house you can afford, what happens to the value of that house after you buy it, if interest rates double to less than the level in 1989 when I bought my first house?

What happens if incomes continue to decline? The fifty year growth in incomes basically rolled over in the eightys with the decline of unions and upper tax rate. Income growth was replaced by low lending rates, which steadily went lower and lower, until the beginning of this decade when even low rates near 6% could not create more buyers. Laws were then changed to allow "downpayment assistance" which basically became corrupted into higher purchase prices at lower interest rates as builders supplied the assistance and then marked it up into the price of the house. Mortgage brokers went to ridiculously low lending standards to create even more buyers.

Now the lending rate has dropped to 4.7/8ths and the house prices still cannot be maintained and continue to drop. When interest rates go up, home prices will drop.

The housing market will recover when there are buyers who can afford houses. There are three things to look for as advance signs of a housing price recovery.

Foreign buyers come to the market and create demand.

Rising taxes on the "rich" to redistribute money to people who might want to buy your house after you do.

The ressurection of unions to redistribute wealth in the manner of taxes.

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#15) On April 16, 2009 at 12:00 PM, kaskoosek (98.26) wrote:

If you are renting you do not pay that tax right?

Why not tax the person living in the state rather than owning the property.

 

I know it is a good type of tax to society, but that is why some people would consider an alternative investment like gold, silver or platinum.

We are talking about investments and not the merits of it.

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#16) On April 16, 2009 at 1:17 PM, TheClub55 (49.31) wrote:

engstocker and bigpeach Your similar Quotes “I get tired of hearing how "when you buy a home in the US, you are actually paying rent in the form of property taxes." Thats like saying your not free because you live in america because you pay for your freedom with taxes…. So you pay the equivalence of a months rent in property taxes per year, so what, how do you think schools get paid for, the tooth fairy?” is funny b/c you’ve actually bought into the gov propaganda on property ownership.

 

I highly recommend you read the communist manifest, one of the 10 tenants of communism in land rent for all and no ownership of land (and yes land rent can go to schools, police, roads, etc. but its still rent).  Also, if you stop paying you property taxes (rent) to the government what happens?   Answer - They will forcibly remove you from your perceived privetly owned property.  Conclusion – We do not have true ownership of our property; call it “stealth” communism.

 

Also, I don’t know where you live but in Chi-town property tax is equal to 30% (or more) of the income I could receive if my house was rented (in the traditional since), not a trivial 1 month out of every year.

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#17) On April 16, 2009 at 1:20 PM, bigpeach (34.23) wrote:

You do pay property tax as a renter. It's built into the rent, as is maintenance and upkeep. If the property owner had to eat all those costs, it wouldn't be ecomically beneficial and nobody would own property for investment purposes. This is clearly digressing from the topic of the post, but I have to disagree that paying property tax means you don't really own the property. It just means that you have to contribute for the free things your locality offers, whether you make full use of them or not.

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#18) On April 16, 2009 at 2:04 PM, engstocker (< 20) wrote:

bigpeach,

You hit it on the head. As a landlord, I pass on the costs of taxes to the tenants. Renters absolutely do pay property taxes, they just don't know it. Owning your own home (when you don't overpay) is better than renting hands down. The key is you can't overpay.

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#19) On April 16, 2009 at 5:51 PM, TheClub55 (49.31) wrote:

bigpeach-

If you actually "owned" the property it could not be forcably removed for non-payment of taxes/rent or whatever you want to call-it.  For example, if you purchase an iPod you have the right to sell (transfer) the ipod, destroy it, basically us it anyway you see fit.  But, if you had to pay a $10 personal poperty on the iPod, I am guessing you would not call that ownership -- so how is property tax any differnt?

At the end of the day I dont' think this blog is going to change the how the world works, but I just want to make folks aware that you don't actully own your poperty with unlimited usage rights you only own the property in accordance with the law of the state (not ownership in my eyes).  Heck we have not even owned our own labor for the last 94 years (income tax).

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#20) On April 20, 2009 at 5:42 PM, Evlampius (< 20) wrote:

Just something offtopic here:


you guys are talking about the same thing only from different perspective..(glass half full). But even when you buy your ipod you still pay tax (well not in every state) but you can do to your house whatever you want

"For example, if you purchase an iPod you have the right to sell (transfer) the ipod, destroy it, basically us it anyway you see fit" substitute an "iPod" with a "house".

You're paying the tax to live on that land that you own, and if you do you enjoy the utility of it. Me, I would pay $$$$ to live alone as far as possible from the neighbours. And you you don't want to pay the tax so you live in some rental house with 3 floors that has squeeky floors and thin walls so you can hear baby crying from downstairs and the playa's rapping from the top.

So yeah, you do own a house...the utility of it!

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