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Why be cautious about buying a home in today's market?

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DallasLoanGuy
Super Contributor

Re: Why be cautious about buying a home in today's market?

I am on a roll.... my house value went up again for the 9th straight year..... Smiley Very Happy
 
What bubble?
Retired Lender
Message 11 of 41
Anonymous
Not applicable

Re: Why be cautious about buying a home in today's market?

We'd all love to be optimists, and history has had its share of recoveries, but the fundamental premise that we're in a tough economic environment is true.

Let's face it:

- The cost of gas is almost 3x higher than it was in 2000  and Americans are driving less

- Even with the market correction, housing prices have close to doubled in major metro areas

- Housing costs have outpaced incomes (link 2)

- Food prices (particularly staples) have spiked

- Foreclosures are up 121 percent compared to Q2 of 2007

- Consumer confidence is down, and despite a minor bump in July, is half of what it was a year ago.  

- Consumers had $962 billion due on credit cards in May, up from $897 billion a year earlier, according to Federal Reserve data.

- 100 U.S. lenders have suspended their government-backed student loan programs

- Inflation is more than it's been in 17 years

- The percentage of uninsured has risen from 14 percent to 16 percent in the past decade. Of all people under 65, about 47 million are uninsured.

- When adjusted for inflation, the minimum wage (despite increases) has fallen 22 percent

...but the median household income has been relatively flat for years.

Everyone can put an optimistic spin on those issues and say everything can only go up, but frankly, I'd hate to be in my teens or 20s right now...or a low wage earner.  Just looking at our local market here - with housing prices far outpacing income increases (particularly when normalized against expenses) - it's a tangible issue.  

The OP mentioned being "cautious" in today's market.  Without commenting on his (or her) analysis, I'd say a little cautiousness is prudent.

And I think it's perfectly legitimate for people to question whether or not -- at least for the short term -- the market has really "bottomed out." 

Message 12 of 41
Anonymous
Not applicable

Re: Why be cautious about buying a home in today's market?

Today's market is the best opportunity for buying a home that many people have had in 10 years!  I bought my first home as a single person 8 years ago and paid $198k, which was about the lowest I could get for a half-way decent neighborhood.  I sold it 3 years later for $325k, I wouldn't even have been able to afford to buy my own house at that price.  I then bought a $347k house with $70k down and that was about the limit that I could afford 4 years ago too, a mortgage of $277k. 
 
Then the huge surge in home prices and houses around me were selling for over $500k!  (Dang, I should have sold).  Then the bubble burst and prices are back to the high $200k WHERE THEY REALLY SHOULD HAVE BEEN IN THE FIRST PLACE!!!
 
Real estate is rarely a bad investment in the long term.  People still need a place to live and people will always want to own if they can rather than throwing money away on rent.  My DD and SIL are first-time buyers looking now in the $130k range, which is barely above getting outside of really undesirable areas.  At that price it's not much more than paying rent around here.  So much is focused on PROFIT in a house but that's not the only thing to consider.  Sure, for investors and speculators that's the bottom line but not for a family who wants to own and have some stability and control of their lives and not be at the whim of landlords.
 
I could sell my house for about what I owe on it now if I want to write off my down payment but I'm not worried about it.  I didn't buy my HOME to make a profit and I bet that a lot of people are in the same boat.  You wait it out and keep living your life and try to ignore all the noise about the sky is falling.
 
 
 
Message 13 of 41
jaybird201
Established Contributor

Re: Why be cautious about buying a home in today's market?

FICOScott, I must say you do appear to have too much time on your hands to have linked all of your statistics. They sound reasonably accurate though.
 
Let me just go ahead and make a few observations about some of your statistics. Oil is up because of speculative trading, decreased supply and increased demand. Rising food prices in the U.S. are mostly a result of increases in gas prices, not because we have any sort of shortage. Inflation may be at it's highest in 17 years, but take a look at the average rate of inflation. It's 4%. Seeing as how we're at 5%, anyone who is getting upset about rampant inflation is completely absurd. Right now the biggest issue we're facing is the decline in the value of the dollar, which is making oil more expensive, which is making gas more expensive, which is making pretty much everything else more expensive.
 
Yes, housing costs may have outpaced incomes. But you're ignoring the times when incomes have outpaced housing. That statistic looked at the past 7 years. The past 7 years was the time during which housing bubble was...bubbling. 7 years isn't "long-term". Over the short-term housing prices may have outpaced income growth, but that has no bearing on what happens in the mid- to long-term.
 
I'd love to continue to poke holes in your argument for this being some awful economic downturn, but I have to get back to work.
 
I agree though, WE ARE in an economic downturn. Economies work in cycles. Without downturns, we wouldn't have recoveries during which our economy booms. Continuous uncontrolled growth is never sustainable (See the housing boom that occurred over the past decade). Take an economics class and learn about the fundamentals of financial markets rather than making a bunch of assertions about how the economy is in the crapper and going out and finding stuff to support you.
 
Pessimism and optimism aside, the U.S. and world economies will continue to thrive in the long-term. This is assuming there are no alien invasions or extraordinary events like the Armageddon. Do you believe in aliens FICOScott?


Message Edited by jaybird201 on 07-30-2008 11:39 AM
Message 14 of 41
Anonymous
Not applicable

Re: Why be cautious about buying a home in today's market?

FICOScott, all good points, BUT I don't know if you noticed it, but most of the issues you cite can be attributed to effect of inflated gas prices.

Food? Takes trucks to ship the food items to the local stores (not even mentioning the gas costs in production, shipping the materials, etc). Higher gas prices = higher prices, period. The goods, even TVs, and such, aren't going to walk themselves there!

Housing prices in metro areas increasing? Of course! You don't see many jobs smack-dab in the middle of Suburbia, do you? Nope, they're usually clustered in metropolitan areas. With gas prices, the less you drive the better. I know oodles of people who have sold their homes (or ARE selling) and moving closer to work.

A lot of those people will be "blue-collar people" since a lot of "white-collar" employers are offering 4 day work weeks to offset the cost of gas. Oftentimes, they're already in a precarious financial situation (not trying to be snotty, here). They work more hours, get paid less, etc.

Heck, even in my teeny-tiny burg, the big contracting companies already offer 4 DWW ... and the military agencies are pushing it, too.

But the bottom line is that while, yep, caution is a GOOD thing (always has been, always will be), it's not necessary to go all "Doomsday" and "Apocalypse." If everyone would please just stop pitching a fit and contributing to MORE "consumer misconfidence" everything will "right itself" soon.

(And yes, "misconfidence" is a real, government-created word Smiley Wink )
Message 15 of 41
jaybird201
Established Contributor

Re: Why be cautious about buying a home in today's market?



Wonderin wrote:
FICOScott, all good points, BUT I don't know if you noticed it, but most of the issues you cite can be attributed to effect of inflated gas prices.

Food? Takes trucks to ship the food items to the local stores (not even mentioning the gas costs in production, shipping the materials, etc). Higher gas prices = higher prices, period. The goods, even TVs, and such, aren't going to walk themselves there!

Housing prices in metro areas increasing? Of course! You don't see many jobs smack-dab in the middle of Suburbia, do you? Nope, they're usually clustered in metropolitan areas. With gas prices, the less you drive the better. I know oodles of people who have sold their homes (or ARE selling) and moving closer to work.

A lot of those people will be "blue-collar people" since a lot of "white-collar" employers are offering 4 day work weeks to offset the cost of gas. Oftentimes, they're already in a precarious financial situation (not trying to be snotty, here). They work more hours, get paid less, etc.

Heck, even in my teeny-tiny burg, the big contracting companies already offer 4 DWW ... and the military agencies are pushing it, too.

But the bottom line is that while, yep, caution is a GOOD thing (always has been, always will be), it's not necessary to go all "Doomsday" and "Apocalypse." If everyone would please just stop pitching a fit and contributing to MORE "consumer misconfidence" everything will "right itself" soon.

(And yes, "misconfidence" is a real, government-created word Smiley Wink )

 
Glad to know I'm not alone in my sanity.

Message 16 of 41
Anonymous
Not applicable

Re: Why be cautious about buying a home in today's market?


@jaybird201 wrote:


 
Glad to know I'm not alone in my sanity.






*snort*

I don't think the average person is a stupid animal, Jay ... even though we seem to be acting like one (speaking in terms of our nation). I really think that once no one gets whacked by the invisible "falling sky," sanity will return.

I liken it to the panic of Y2K ... panic ruled the streets; normal, otherwise sane people began building bomb shelters and hoarding food and money. Once it was January 2, 2000, we all just seemed to .... wake up and realize that the sun still rose, the sun still set and we still had to go to work, LOL!

I compare us, as a nation, with this recent panic to that of a scared kid in his bed, worrying about the monsters and the dust bunnies underneath (and his imagination fueled by a scary movie he watched -- AKA, the doom-sayers and negative noogies). Once the sun comes up, we'll realize we're fine and life will go on.

As you said in your earlier post (and I LOVED the whole "Do you believe in aliens!" Too funny!), it's a matter of cycles. Ain't nothin' new.
Message 17 of 41
Anonymous
Not applicable

Re: Why be cautious about buying a home in today's market?



jaybird201 wrote:
FICOScott, I must say you do appear to have too much time on your hands to have linked all of your statistics.
 
.....
 
Do you believe in aliens FICOScott?

....

Take an economics class and learn about the fundamentals of financial markets rather than making a bunch of assertions about how the economy is in the crapper and going out and finding stuff to support you.



OK.....I'd prefer to have a reasonable, mature conversation. These types of comments (and some you made earlier) are just ad hominem attacks.  They don't serve any purpose in furthering your argument that any downturns are short-term.  Incidentally, I'm sure we're all familiar with economic news, so I'm simply citing references, which only takes a few minutes with Google when you already know what information your pulling. 
 
Second of all, I personally don't believe that economic woes are going to last forever. Things are getting rough (and going to be rough), but not collapsing.  However, I **do** believe that there are a wide range of issues that are arriving at the same time that makes this particular situation rough - particularly on the current generation of teens, 20- and 30-somethings. 
 
This stat is a bit dated, but as another example - the average debt load for undergraduates reached roughly $19k in 2002.  It's not strange to see graduates in professional areas coming out of school with $40k-$70k in debt.   The average household has $8k in credit card debt, with about $18k in non-mortgage debt.  Personal bankruptcies have doubled in the past decade.  Experts expect a surge in corporate debt default rates.
 
Housing costs spiked in the last decade. Food costs have spiked. Gas has spiked. The dollar is increasingly down against the Euro.  People are changing their behavior. They're defaulting on their debt. Mortgage rules are getting tighter.  That's not Chicken Little.  That's reality.
 
All of that put together just results in a slowing market.  Hell, Citigroup is expected to write down $6 billion.  The Bears Sterns debacle alone cost investors $1.6 billion. 
 
When people and companies can't handle their debt loads, there are job losses, foreclosures, and reductions in spending. 
 
It might be a great time to "buy" - but that assumes that the average person is in a position to. 
 
 
 
 
 
 
 
 


Message Edited by FICOScott on 07-30-2008 01:06 PM
Message 18 of 41
Anonymous
Not applicable

Re: Why be cautious about buying a home in today's market?



PittsburgPamela wrote:
Today's market is the best opportunity for buying a home that many people have had in 10 years!  I bought my first home as a single person 8 years ago and paid $198k, which was about the lowest I could get for a half-way decent neighborhood.  I sold it 3 years later for $325k, I wouldn't even have been able to afford to buy my own house at that price.  I then bought a $347k house with $70k down and that was about the limit that I could afford 4 years ago too, a mortgage of $277k. 
 
Then the huge surge in home prices and houses around me were selling for over $500k!  (Dang, I should have sold).  Then the bubble burst and prices are back to the high $200k WHERE THEY REALLY SHOULD HAVE BEEN IN THE FIRST PLACE!!!


This echoes my point.  Some people have already taken advantage of (and profited from) the insane surges we've seen in the past decade.  This is not "new" news.  A certain percentage of the population has made their money or increased their value at a nearly impossible rate.
 
Will prices continue to climb at the same rate that they did?  For people that buy at the peaks - that $500k house would need to sell for $820k to profit at the same rate as the initial purchase.
 
Long-term, things will likely be fine, but I doubt people are going to be making money at the rate that they once were, and the "cost of entry" to play the game is much higher.   
 
Message 19 of 41
Anonymous
Not applicable

Re: Why be cautious about buying a home in today's market?



Wonderin wrote:

But the bottom line is that while, yep, caution is a GOOD thing (always has been, always will be), it's not necessary to go all "Doomsday" and "Apocalypse." If everyone would please just stop pitching a fit and contributing to MORE "consumer misconfidence" everything will "right itself" soon.


This is all relative, right?  "Doomsday" and "Apocalypse" are extreme concepts.  If I were an undergraduate or graduate facing $40k in debt for school costs and an environment of layoffs, the idea of home ownership would be a pipe dream for the forseeable future.  That might not be an economic apocalypse, but it's an extreme personal challenge for many people. 
 
Culturally, things can adjust (for example - with young people spending more time living at home after college), but their are many individuals and whole swaths of America that are facing rough times.   
 
 
Message 20 of 41
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