My friend bought a house recently and suggests I should buy a house; I’m confused, what should I do?
I love Long Island and I don’t ever want to leave. Will I be doomed if I stay?
Why would prices have to plummet? Wouldn’t they just come down a little since Long Island is such a great place to live that there will always be buyers here?
If I buy a house now and plan on staying there for a long time how am I not safe from a crash?
My Realtor tells me that prices aren’t coming down and that there soon will be a lot of buyers who will buy up the entire inventory. I really want to buy, should I be worried if I wait out this year?
If I'm not a speculator and aren’t planning on flipping the house for a profit, why should I worry about a crash?
I'm not buying with a subprime loan; why should I be worried about a crash?
The median looks like it may be going up; Doesn't this mean that house prices are rising?
I see so many people buying houses right now; how could they all be wrong?
I’ve been told that Long Island is different than other places and that housing will not be hurt here as much as in other markets. Is this true?
Every market is usually considered immune from a housing crash according to the residents who live there; this is normal human behaviour, no one wants to believe that it can happen in their own town. The fact that a place is very desirable is the very reason that prices have been driven up since it gives them reason to believe that it is a good investment. If you want proof of this, take a look at some of the things that are happening in the California markets.
One thing that I will agree is different on Long Island than any other place I have seen is that we live in an isolated world that is protected by nothing but talk. Newsday is the only paper and NEWS12 is the only televised news on Long Island. If you rely on news from these two sources only, you will be the last to know what is really happening on Long Island.
As an example, this was in the NY post and was also broadcast on Fox news; yet I haven’t seen it in Newsday or on NEWS12, go figure. How could information so important be left out of our own newsfeeds?
My friend bought a house recently and suggests I should buy a house; I’m confused, what should I do?
Have you ever heard the phrase “Misery loves company”? Many people who have bought into the bubble know that prices are going to fall but are in denial; they will shrug off any evidence that housing prices will fall because they are afraid to acknowledge that they made a big financial mistake; some will also want you to share their misery. You should do what you truly believe is right for you after analyzing the facts yourself. I only offer my advice and present the facts so that you are armed with enough knowledge to make that decision yourself.
I wouldn't get into anyones face and tell them not to buy; I am just hoping this information finds its way to you so you can take your time, read it and decide for yourself what is best for you.
I love Long Island and I don’t ever want to leave. Will I be doomed if I decide to stay?
If you love Long Island and don’t want to leave, there is nothing wrong with staying. You just need to make sure that you can afford to buy using no more than 1/3 of your gross household income (including taxes, insurance, etc.) with a fixed rate loan for no more than 30 years. Also understand that you may have to live in the house a very long time before you will be capable of trading up because prices will fall for quite a while and then level off for several years before they start to rise again; I estimate it will take around a decade, but that is just a prediction of mine based on my research.
If you really want to do this, find out the maximum amount of money that you can afford based on the above criteria and do not spend any more than that; if you can’t find a house that you like for that much, then you just can’t afford to stay; accept that and buy a house you don’t really like or move to some place that you really can afford; a simple decision I think.
Another thing, look further ahead in your life before you buy; for instance, if you are planning on having children and want to have one parent raise the children, then you have to factor in the loss of a wage earner and/or the costs of bringing up a child. Please don't let your house decide whether you can have children or not; children are wonderful!
Remember also that your taxes will continue to go up and salaries will most likely be stagnant; jobs may also continue to disappear leaving you with fewer choices should you lose your current job.
Bottom line is that you can rent here on Long Island until the damage is behind you. Rent is not cheap, but neither are the costs associated with owning a house; especially one that is falling in value.
You can also try using CEPR's cost of renting vs. buying calculator to determine whether it may be worth it to you. If you do go by this calculator and choose 30 years as the term of ownership (debtorship), you must understand that you cannot predict how long you will be living there. Do not use a real estate agent; you know what you want and you can find it online easily. Having a real estate agent isn't going to help you; it will just put more pressure on you to buy and offer more than you really wanted to.
Why would prices have to plummet? Wouldn’t they just come down a little since Long Island is such a great place to live that there will always be buyers here?
The reason that Long Island housing prices will plummet is because of the reason why they were driven up in the first place.
Historically house prices pace inflation by a percentage or two because peoples salaries rise over time and so they can afford to pay more as time goes on, but in this market people were only able to bid up the prices because of the huge leverage that came from exotic mortgages, not from increased incomes like it does historically; take away that leverage and it all comes tumbling down. I understand that people who are living in a bubble have a hard time understanding this logic, so I will explain in more detail.
These loans allowed just about anyone to take out huge amounts of money; many without even any documentation whatsoever. These loans are now going bad by the thousands and the lenders who were issuing them are going under one by one. The remaining lenders are now tightening up their lending standards and soon it will be very difficult to get such huge amounts of money; let alone get a mortgage at all.
When you remove the ability to get these huge amounts of money; people will not be ABLE to pay that much to buy. It’s not just a matter of how great the area is and if the buyer is willing to pay those prices, it’s having buyers that are capable of paying those prices.
It would have been impossible for house prices to get as high as they did without exotic financing because there would be no other way for people to get their hands on that much money. If exotic financing is no longer available, it would be impossible for people to pay those sky high prices and with thousands of these exotic mortgages going bad and inventories skyrocketing, it would be impossible for prices not to fall! This is really just common sense, but people have such a hard time understanding it.
Consider this; if you had a whole lot of millionaires (real millionaires) come to Long Island to buy up all the property that is out there (and there is a lot!) using cash and one day they all went broke and decided that they wanted to get out, they would sell for whatever the property would fetch, surely you can see that the prices would have to plummet because there will not be any millionaires left to buy them at their asking price; it really is no different than what is going to happen.
You can say exotic loans made all the buyers on Long Island temporary millionaires; and now the chariots are turning back into pumpkins. Not all fairy tales have a happy ending!
If I buy a house now and plan on staying there for a long time how am I not safe from a crash?
No one really knows how long they will be in a house. You can plan on buying and staying there many years, but it doesn’t always work out that way. You can end up having to sell for many reasons such as:
- A job loss or job transfer.
- Divorce.
- Health crisis; death in the family.
- Having a child (loss of wage earner or unaffordable day care expenses or need for a bigger house).
- Neighborhood becomes seedy; high crime rate.
- Some other strange circumstance.
When the prices fall (and they definitely will) and you are stuck in a situation such as this, it is a very sad happening!
When the stock market crashed, many people thought that if they held onto the stock long enough, it will eventually go back up; that may eventually happen, but you have to admit that the smartest people were the ones that sold at the top or close to it. Think of all the people who were buying while the stocks were crashing thinking it's going to soon turn around.
Now ask yourself; Can I honestly plan out the next 30 years of my life?
My Realtor tells me that prices aren’t coming down and that there soon will be a lot of buyers who will buy up the entire inventory. I really want to buy, should I be worried if I wait out this year?
Realtor’s are not going to tell the truth when it stands in the way of them making a sale. There is no difference between a Realtor and a used car salesman as far as their motives; they have a product that they must sell whether it is in the best interest of the buyer or not; this is why the N.A.R. is funding a $40M ad campaign to try to convince you to buy. If buying was such a great idea, why would they need to have such a campaign; investors aren't stupid (most of them), they know whether or not it's a good time to buy.
The fact is that inventories are very high right now and people are not buying. Sales are down 40% across Long Island and foreclosures are up 55% (82% in Nassau alone and 42% nationally). We aren’t even in spring yet and the inventories are way up. All those foreclosures aren’t even accounted for yet and there are many more to come as more loans go bad. Come spring, there will be all this inventory as well as all the new inventory since many people who were planning on selling in the last few years decided to wait it out and see how high it will get before putting their house on the market to maximize their profits; they now know that house prices aren't going up any more and they will all be rushing to the exit at once to claim their windfall while they still can. The fact is that there is so much more inventory than there will be buyers to absorb them. Many houses will sit as others will cut their prices just to get out. Waiting this year out is a very smart thing to do, in fact waiting longer than that would be even better but by the end of the year you will have more of an idea how it all will play out. Prices will fall alot this year and there wll be alot of jobs lost since many consumers will have to cut back on their spending just to survive. There is a recession coming and if you aren't stuck making payments on an overpriced property during that time, you will be glad you waited.
Realtor’s will lie to you, but they won’t be able to lie much longer; there will soon be way too much inventory to sweep under the carpet this spring time.
If I'm not a speculator and I'm not planning on flipping the house for a profit, why should I worry about a crash?
If you buy a house using a toxic loan; you are a speculator whether you know it or not. Those loans are designed to be used under the assumption that house prices will keep going up and before the loan resets, you will be able to refinance into a fixed rate mortgage using the acquired equity. Many people have been able to do this over the past several years as the prices kept rising; but now they are dropping and even though some will not lose their houses, many will.
Prices will continue to fall as the market winds down. Buying now will put you many years behind when the true bottom presents itself. As long as you can afford to stay in the house throughout the crash, you may survive; but you will have effectively taken a huge loss.
Even if you didn't lose your house, if it took a decade for it to get back to what you originally paid for it (with inflation factored in), you still lose because your money would have done much better invested elsewhere (or even left in the bank!) .
I'm not buying with a subprime loan; why should I be worried about a crash?
The problem is that while you didn't use a subprime loan and may be able to comfortably afford the payments on your loan, there are neighbors that did use one and many are now struggling to afford their monthly payments; some are ending up in foreclosure or are forced to sell at a loss. Since the value of your house is based on the comps of other houses sold in your neighborhood, they will surely reduce the value of your house; the same way its value increased before you bought it.
While this may not be a concern to you, it should be because if you wind up stuck in a position where you must sell, you will have no choice but to take a loss.
I didn't put anything down when I bought my house; if prices fall I could just walk away and all I lose is money that I would probably have spent on rent anyhow and my credit was never really that good anyway. So why should I have to worry?
The Feds have thought about this scenario while they were blowing this bubble up and changed the laws to make sure the masses don't get away with it this time. If you default, whatever debt you are forgiven, you will be 1099'ed so you will still lose.
The median looks like it may be going up; Doesn't this mean that house prices are rising?
The rising median doesn't mean that house prices are rising, in fact it can rise as prices are actually falling. There are several reasons for this.
Let's say I were a buyer looking to spend $400k on a house and I did, I would be a statistic in the median. If I decided that I wanted a better house for my money and started looking at $500k+ houses and put an offer in for that same $400k but after negotiations I was able to get it for $410k; that would result in a higher median because I was spending $10K more for housing than I originally planned on spending, but at the same time the price of the house I bought has actually decreased.
The fact is that when we are in a declining market, people always lowball to get a better price and with inventories as high as they are they will most certainly get it at a lower price; not that it is now a good time to buy, because it isn't and those who do will soon find out the hard way.
The median is just something for realtors to use to trick you into thinking the prices are rising when they aren't. You can say that median prices are bogus. Look at high inventories, high foreclosure rates and overstretched homedebtors to be your gauges of what direction the market is taking; we certainly have all of those.
The median will eventually fall and when it does it will not directly correlate to the lower prices that will soon be here, but more to the fact that people will no longer be able to borrow so much due to the subprime meltdown and tighter lending standards; they will pay much less but will still be picky with all that inventory.
Anyone who doesn't understand this will be easy prey for the realtors.
I have been looking around at many houses and have found one that I like. Any of the others that compare to this one are more expensive. Is this a good deal?
It is impossible to determine if a house is a good deal or not by comparing the asking price to others that are similar because they are all overpriced. Sellers have been so accustomed to seeing prices rise that they are determined to get as much money as they believe they can get. This is what makes buying a house in the current market very difficult; therefore you are better off waiting at least this year.
Prices are poised to fall and many if not all the sellers know that; this is why one would purposely lower their price below their competition so that they can get someone to believe that the price is a good deal when it really isn't.
As we head into the spring, you will see that asking prices get cheaper and cheaper as sellers start to see actual sales prices dropping and realize one by one that they had better cut the price while there is still equity in their house. The same psychology that made the asking prices rise will make them fall just the same.
If you are looking to buy a house, you should start saving your money right now and just keep observing the market throughout the year; you will find that prices will continue to fall as you see friends and co-workers who have bought into the bubble see their houses equity fall into negative territory.
If you are determined to buy which I strongly recommend that you don’t, at least don’t leave it to one realtor to look for houses for you because there are so many houses for sale right now with a whole lot more to come by spring time; realtors will only show you a select bunch. While realtors do compete with each other for business, on a higher level they are in cahoots with each other. They may show you a house that has an offer on it but not tell you there is one. When they take you to the house they are hoping you will fall in love with it and then after you make an offer, they will try to get you to pay a higher price by telling you that someone else put in a higher bid on it; when they find your upper limit, they tell you that someone else bought it out from under you. By doing this, they are trying to build up fear so that you will act quicker with higher bids on the next house you are interested in; I see this happening a lot; don’t fall for it! ...and for gods sake, if you do find a house that you are interested in, lowball it significantly, walk away and continue looking for several others because there are so many of them and the more you look, the better they will be; if they are interested in selling to you, let them come to you; you are in the drivers seat, not them!
People have been talking about this housing bust for years and it hasn't happened; why should I believe you?
Over the years, many have been talking about the housing bubble and it's inevitable collapse. Some thought it would happen years ago but it didn't. The reason why it kept going is because lenders just kept on getting more creative and kept lowering their standards. They kept on lending to more riskier borrowers. As long as house prices were increasing, they kept on lending to anybody with the assumption that if they couldn't make payments, the lender could get their money back with the sale of the house.
The most riskiest borrowers are defaulting on their first or second mortgage payment; these people who had no business buying a house in the first place. Now they are defaulting by the thousands and are taking the lending industry down with them; because the houses aren't worth what the mortgage is on it. People are starting to realize the effects, but sadly enough don't even know why. The lenders that are still in business are tightening standards and people aren't able to get the mortgages they used to. This is what is pinching off buyers, which is putting the heavy downward pressure on house prices. Prices are now falling and this is just the beginning of the crash, it will soon get alot worse. Buying now is not in the best of your interest.
I keep hearing on the radio/TV that prices are falling and it's now a good time to buy a house while interest rates are low. They even advertise a free program to teach you how to buy a house; shouldn't I be looking now before interest rates rise?
These advertisements are part of a $40M advertising campaign funded by the NAR in an attempt to stimulate sales. Not only is it not a good time to buy, it is a very bad time to buy; prices are falling but they are nowhere near stabilizing. This means that if you buy, even at a discount, you will still be overpaying because prices have a long way to fall before they are normalized by the fundamentals. Interest rates are low, but they are higher than they were a few years ago. That "free program" they are offering is just to brainwash you into believing that buying now is good for you.
Avoid this propaganda; the only thing that is true about what they say is that prices are falling. When prices stop falling, that is the time to think about buying, not while they are still falling. Right now there are a number of foreclosures that are surfacing and will continue to get worse as the credit crunch tightens; there will be more houses for sale at a time where there are less people able to get financing for them.
Don't worry about rising rates; they are actually your best friend because higher rates will not only limit what you can pay for a house, but will also limit the amount anyone else can. If most people can't pay alot for a house, this doesn't mean no one can buy a nice house; it just means that they can't pay too much for a nice house; thus prices fall. When interest rates fall again years from today, you can refinance; this is one of the ways most people build wealth in real estate.
If house prices start to come down alot due to foreclosures, that would mean more people would become renters which would increase rental demand. Wouldn't higher rents put a bottom on housing prices?
During the runup in house prices, there were more younger people that entered the house buying market and there were more houses built to accomodate them; This means more empty houses. Many have put themselves in such deep debt that they will find it hard to rent as well.
- Many of these younger couples who lose their house and perhaps some older couples as well will move in with their parents.
- There will also be some parents that will move in with their children.
- Many that are stretched and are barely able to hold on to their houses will make apartments in their house or rent out rooms just to make ends meet.
- More of the younger generation will continue to leave Long Island, as will the older boomer generation; thus reducing rental demand. When buyers can't get a big enough loan to buy on Long Island, the idea of leaving will be more attractive to them.
With all the added rentals available, there won't be too much pressure on rents. I believe that rentals will actually fall.
If there is going to be a huge crash like you are predicting here, wouldn't this be all over the news?
I don't usually answer a question with another question, but in this case I'm going to make an exception.
Back in 2000, before the Nasdaq crashed, did you read all over the headlines that it was soon going to crash?
The fact is, several years before the Nasdaq crashed, there were many commentators who were out there making statements about how the stocks are grossly overvalued and were going to crash. They just weren't in the media spotlight and just like some people are now denying the claims that housing is going to crash, they also denied that the stocks would back then. Local news sources didn't mention any of this for whaever their own reasons were.
Some of those who had predicted the stock crash are:
Peter Schiff
Eric Janszen
Dean Baker
Robert Schiller
While they correctly predicted the stock market crash, they are also predicting the housing bubble. So whether you lost alot of money in the stock market crash or not, it may be in your best interest to listen to them this time.
I'm hearing everywhere that it's a buyer's market and that it's a great time to buy so why all this negativity?
The Real Estate Industry is one of the most wealthiest Industries out there and they are spending $40M in advertising in Newspapers, Magazines, Television and on the Radio in desperation to try and prop up a falling market. If the market was so great, they wouldn't have to advertise; things would just sell! This will not stop the crash because the liquidity that drove the market to such extreme levels is now disappearing and many people are being forced to sell. Inventories are extremely high and will continue to rise for years. Increased supply at a time when there is much lower demand will cause the very opposite of what has been happening in the last half decade.
I see so many people buying houses right now; how could they all be wrong?
This is exactly how manias form; it's the herd-like mentality that causes so many people to believe that it is the right thing to do. It happened with tulip mania; it happened in every stock market crash; it happened with all real estate crashes and just a few years ago that great bunch of people who took out those ARM's are already marching off a cliff together. If you buy now, you just may eventually join them.
