US house prices in freefall -- redux

[Kidlicious]

Originally posted by PLATO
I don't think this is correct at all. The costs of owning a home are much greater than renting when you factor in maintenance costs. Now, you could say that maintenence is factored into the rent, but that would be neglecting the economy of scale that landlords are usually able to realize. The simple fact is that it costs more to own than it does to rent. Over time, this will reverse itself, but it is usually within the first three years of a loan that default is a major issue.

This really does not make sense at all. If it costs more to own then why do people own at all? It's a huge hassle. Renting is easier and you are saying that it is cheaper.

edited.

[PLATO]

Originally posted by Kidicious


This really does not make sense at all. If it costs more to own then why do people own at all? It's a huge hassle. Renting is easier and you are saying that it is cheaper.

edited.

Yes renting is easier. It is the long term benefits of owning a home that draw in most homebuyers. Added benefits are the ability to customize, defraying interest costs through tax deductions, stability of ownership, and usually higher standards of living in the neighborhoods.

There are many, many good reasons to own a home and they grow over time. For people who have a demonstrated lack of ability to manage credit, the extra costs associated with maintyaing a home can sink them. It is far better for them to work on responsible credit histories while renting and showing the ability to pay the extra costs by saving (which would also give them the down payment that they should have).

A lot of defaults are in First Time Homebuyers. The market has significantly tighted credit in the last two yerars for this segment and rightfully so. Many First Time Homebuyers are simply not prepared for the extra expense of owning a home.

[Ben Kenobi]

You have been studying Austrian School haven't you? We don't need a correction. We need jobs.

A correction is both needed and inevitable.

Unemployment is intolerable. 10% is a tragedy best to be avoided at very high costs. Only a fool would plan 10% unemployment and call that what we need.

Where did I say either. Aren't you tired of putting words in my mouth? I said, and I'll quote myself that the current unemployment is 5 percent. That, in and of itself is a sign that the economy is working well. We need jobs yes, and people need cheaper housing.

You're using double speak. You stated before that this is good for the economy because now more people would be able to own houses. I told you that just the opposite would happen, and it has.

In the short term, you are right. In the long term, I am right. Which would you rather? Be right now or right later?

Also, this bottom that you speak of is based on people's expectations, and nothing else. So when are people going to start buying houses.

When they can afford to. For someone who's so gung ho about everyone owning a house, you are sure opposed to the drop in prices. You should be cheering it on because that makes housing more affordable.

When they do start buying houses speculators will start scooping up houses like crazy. No one is ever going to benefit from this but the rich.

False. People will ultimately be the primary beneficiary when houses are at a more reasonable level.

The poor people in homeless shelters aren't going to get their homes back.

Why is it when people who lose their houses are in the homeless shelter. I've already explained it to you why this won't happen (ie, this thing called renting an apartment).

What you don't understand is that future demand is going to be based on people confidence in the market.

To a certain extent. Those who are the most daring will be the ones in the end who will make the most profit.

I wouldn't say that your prediction is any worse than anyone elses, but to move prices consumers will have to act together. That is their expectations will have to all be the same. I don't see that happening at any definite time. That's the whole problem with markets.

Every thousand dollars you chop off a house brings it into range for more people. That's the good thing about the market because people don't have to collude for things to work, you can assume it will happen because people are self-interested and buying low is in their self-interest.

Also, you don't understand what the consequences are for the housing market to be ****ed up like this for the indefinite future. This is going to affect the whole economy is a very serious way.

Until the housing prices come down. Then demand for them will tick up and things will go smoothly. Hell, I'd even bet the economy avoids a recession altogether, even if growth is slow.

[Kidlicious]

Originally posted by PLATO
It is far better for them to work on responsible credit histories while renting and showing the ability to pay the extra costs by saving (which would also give them the down payment that they should have).

That's easy to say unless you are paying out the nose in rent that keeps going up every year, while the price of houses go up every year too. When housing prices and rents are skyrocketing every year it's obviously better to buy sooner.

[Kidlicious]

Originally posted by Ben Kenobi
Where did I say either. Aren't you tired of putting words in my mouth?

WTF?!

I don't know why I even try to talk to you anymore. You don't make any sense. I was just trying to make sense out of what you were saying.

[Ben Kenobi]

That's easy to say unless you are paying out the nose in rent that keeps going up every year, while the price of houses go up every year too. When housing prices and rents are skyrocketing every year it's obviously better to buy sooner.

The answer is to trade down to a smaller place and keep your payments constant. If you are single Kid, I can't see why that would be an issue.

I wouldn't buy an overpriced home I couldn't afford, just because I hated renting. As much as I hate renting, buying only makes sense when I can afford to. That means a decent downpayment, as that is the best way to save money in a mortgage. Also, taking a smaller place then you can afford works too, since you save that money.

[Kidlicious]

Originally posted by Ben Kenobi


The answer is to trade down to a smaller place and keep your payments constant. If you are single Kid, I can't see why that would be an issue.

I wouldn't buy an overpriced home I couldn't afford, just because I hated renting. As much as I hate renting, buying only makes sense when I can afford to. That means a decent downpayment, as that is the best way to save money in a mortgage. Also, taking a smaller place then you can afford works too, since you save that money.

Did you not get that we are talking about poor people? They are already in the cheapest housing. They just want to own instead of rent.

[Patroklos]

If they owned their home they wouldn't have so much problems paying their bills.

So in order to help someone with lousy credit/debt practices you are going to saddle them with what is statistically the largest debt someone will have?

[Kidlicious]

Originally posted by Patroklos


So in order to help someone with lousy credit/debt practices you are going to saddle them with what is statistically the largest debt someone will have?

That's not all. Something should also be done about prices and borrowing costs. We need to build more houses.

[Patroklos]

We need to build more houses.

Perhaps you haven't been paying attention for the last year or so...

That's easy to say unless you are paying out the nose in rent that keeps going up every year,

Kid, have you ever rented a place that was more expensive than a likely mortgage you would take out? My rent right now is half of what the mortgage on the condo I was thinking of buying last year would have been. Now I bank the difference for when I decide to buy a much cheaper place with a much larger down payment.

Renting is cheaper than owning unless you are a ******, in which case you have no buisness owning a house anyway.

I don't know why I even try to talk to you anymore. You don't make any sense. I was just trying to make sense out of what you were saying.

What Ben said made perfect sence. There is no way we can be in economic recession/depression with 5% unemployment. If it were 10% then that would mean something, the fact that it isn't means something too.

[Kidlicious]

Originally posted by Patroklos
Perhaps you haven't been paying attention for the last year or so...

Please explain to me why prices went up so much if they were building so many houses.

Kid, have you ever rented a place that was more expensive than a likely mortgage you would take out? My rent right now is half of what the mortgage on the condo I was thinking of buying last year would have been. Now I bank the difference for when I decide to buy a much cheaper place with a much larger down payment.

Renting is cheaper than owning unless you are a ******, in which case you have no buisness owning a house anyway.

When you buy a house you get something called equity.

[Patroklos]

Please explain to me why prices went up so much if they were building so many houses.

There was once a demand for them, but they built and built and built before the slacking in demand was apparent (or before they were willing to accept it), leaving us with our tens of thousands of empty brand new homes.

The glut in inventory is one of the prime factors in the current troubles.

When you buy a house you get something called equity.

Which as PLATO pointed out to you several times now, does not happen if you default in a couple years.

Which is better, a default that bankrupts you and destroys your credit after three years of "ownership," or paying half the price for a rental for three years while saving the difference in cash?

[Kidlicious]

Originally posted by Patroklos
There was once a demand for them, but they built and built and built before the slacking in demand was apparent (or before they were willing to accept it), leaving us with our tens of thousands of empty brand new homes.

Why are you talking about demand? The supply is too short. It doesn't matter how many people demand houses if they are too expensive for them to buy.

The glut in inventory is one of the prime factors in the current troubles.

The glut is a symptom of the inefficient market, not a cause.

Which as PLATO pointed out to you several times now, does not happen if you default in a couple years.

Which is better, a default that bankrupts you and destroys your credit after three years of "ownership," or paying half the price for a rental for three years while saving the difference in cash?

No suprise you aren't addressing the point that I'm making. If housing prices were lower they would be able to afford the payments.

[DirtyMartini]

Originally posted by Patroklos

Now I bank the difference .

I have absolutely no education in economics, but this seems to be the piece that most people neglect.

I'm not talking about those living in poverty who can barely afford even the cheapest rent. I'm talking about middle income folks. People buy the biggest house they can afford the minimum monthly payment on and do it with a minimal downpayment. They don't have any appreciable equity for 5-10 years

[Patroklos]

Why are you talking about demand? The supply is too short. It doesn't matter how many people demand houses if they are too expensive for them to buy.

Tell that to Miami.

The supply is not short, in Charleston SC alone there are 60K new homes or starts on the market WITH NOBODY TO BUY THEM. That is even with a 10% markdown in the last year.

The glut is a symptom of the inefficient market, not a cause.

No it isn't it is the cause. People didn't lose money and then their house devalued, their hous devalued and then they lost money.

No suprise you aren't addressing the point that I'm making. If housing prices were lower they would be able to afford the payments.

You need to make up your mind. On the one hand you are pissed housing prices are falling and people are being forced out of their homes, on the other you want housing prices to fall so new people can buy houses.

Regardless, we are not going to see a 60% drop in housing prices, which is what would have to happen for that condo I would have bought to equal my rent now. Renting is cheaper, period. Home ownership is a long term investment for those who can handle a long term investment.

I'm not talking about those living in poverty who can barely afford even the cheapest rent. I'm talking about middle income folks. People buy the biggest house they can afford the minimum monthly payment on and do it with a minimal downpayment. They don't have any appreciable equity for 5-10 years

This is exactly correct, and that group is in fact where most of the poor forclosed home owners everyone is crying about come from. They push their means to the edge, leaving no room for fluxuations. They might have been able to survive an APR increase if they were were banking an odd grand from their paycheck, but stupid people leave beyond their means and thus are caught flat footed at the slightest change in the status quo.

And remember, they don't just buy the biggest house possible, but the nicest cars, designer clothes, big TVs, etc. But not health insurance, you have to save money somewhere