US house prices in freefall -- redux

[Kidlicious]

I will admit that in a way you are right about one thing, that there is a surplus of houses. It's too bad people can't afford them.

There's a shortage of houses that people can afford.

[Japher]

There's also a shortage of realistic people who can't admit when they got scammed and sell their house for what it's worth and not for what their new house across town will cost.

One of my old neighbors, nice people (they still come around), have been unable to sell their house and moved about 10 miles away because they wanted one extra room for some reason. A couple of weeks ago I suggested they put the new house on the market too and take which sells first. They never thought of that, and thought it was good idea... Wake Up America!

[Kidlicious]

Originally posted by Patroklos
No, Kid, SOME people can not afford SOME houses that are being built.

You need to really stop with that nonsense. I don't care if some people can afford expensive houses. Your statement was that people are buying houses that they can't afford. Ok, so build houses that they can afford. It's very simple. If the builders would have built cheaper houses then thats what people would have bought, and since they would have been able to afford them there would have been no crisis.

Your imaginary belief that everyone must own a home is the problem, it is the exact problem that got people into their foreclosure situations.

Bull****! Deal with my statement that if homes were cheaper then more people would be able to afford them. Quit spouting off nonsense.

The problem with the prices last year was not that nobody could afford those houses, but that we had so many houses and less people wanting them that buiders/realters had to compete for scarce buyers. That lowered home sale prices for all homes. This has nothing to do with poor people and ownership.

Listen to what you are saying. On the one hand you are saying that the problem is scarce buyers, and on the other hand you are saying that the problem has nothing to do with poor people and ownership. Christ! Can't you see that there would be no problem if poor people could afford to buy houses!

[Patroklos]

If the builders would have built cheaper houses then thats what people would have bought, and since they would have been able to afford them there would have been no crisis.

I see the disconnect, I somehow forgot you were a communist and thus have no idea how people actually behave.

What part of "people are buying houses at the limit of their finances" don't you understand? What, you think they are doing that because there are not houses in their responsible price range?

Bull****! Deal with my statement that if homes were cheaper then more people would be able to afford them. Quit spouting off nonsense.

If if if if if. They are not, homes cost what they cost because of supply and demand, PERIOD. For certain people that will always be beyond reach in their current status.

What you said is everyone who works should be able to own a house. This is stupid thinking, and is exactly the sort of attitude that convinces people to purchase to the limit of their finances so people like you can croon over homw ownership percentages. But the problem wasn't simply that people who shouldn't have been buying were, but also and more importantly people who should have been buying bought more than they needed.

Listen to what you are saying. On the one hand you are saying that the problem is scarce buyers, and on the other hand you are saying that the problem has nothing to do with poor people and ownership.

It doesn't kid, it has to do with the middle class and ownership, most poor people have no buisness buying a house at any realistic price from a financial standpoint. They should be renting and saving.

Christ! Can't you see that there would be no problem if poor people could afford to buy houses!

If poor people could buy houses Kid, then every middle class family would be ruined.

[Kidlicious]

Originally posted by Patroklos
What part of "people are buying houses at the limit of their finances" don't you understand? What, you think they are doing that because there are not houses in their responsible price range?

That's a matter of fact. It's your own statement. If people are buying houses that they can't afford (ending in foreclosure) then those are the houses that are being built. FACT!

[DirtyMartini]

Here are some real world numbers for you. In my town of roughly 100,000 people, there are 354 homes on the market (not including "for sale by owner") with a listing price between 0 and 150,000 dollars. There are 80 homes on the market listing for 100,000 or less.

The monthly payment on a 100,000 dollar house (assuming a 3.5% [$3500] down payment, 6.5% interest rate, 30 year term, and the usual estimates for property taxes, mortgage insurance, and hazard insurance) is $799.01

For example -- there's a 3 bedroom 2 bath, two car garage, built in 2001, listing for 99,900. According to a relatively conservative mortgage affordablility calculator, someone who makes $2877/mo gross can afford that home, and still service $230/mo in other debt (car, student loan, credit card debt).

Rent-wise in this market, it's about 6-800 bucks/mo. for a 1 bedroom apartment, add about 2-300 bucks/month per extra bedroom. I rented a 4 bedroom, 3.5 bath house last year for 1200 bucks a month, for example.

So, what would it cost to rent that 3 bedroom/2bath house I mentiioned earlier? Probably somewhere around 800 bucks/mo.

Make of that what you will.

[Kidlicious]

The rest of your post is too much nonsense. I'm not going to bother with you anymore in this thread.

[DirtyMartini]

Originally posted by Kidicious


That's a matter of fact. It's your own statement. If people are buying houses that they can't afford (ending in foreclosure) then those are the houses that are being built. FACT!

You have your cause and effect backward.

Builders build homes that they can sell. People who should have been buying homes of cost X were instead buying homes of cost 1.5X. Builders, seeing what caliber/cost of homes were selling best, met the demand for such homes buy building more of them, and more, and more. This worked well until that extra 0.5X started causing problems (and a whole other cycle of cause and effect).

You see, people didn't buy homes of 1.5X because that's what builders built. Builders built homes of 1.5X because that's what people were buying. If 1X cost/value homes were selling like hotcakes, that's what builders would have built. Supply and demand.

[Kidlicious]

Originally posted by DirtyMartini
Here are some real world numbers for you. In my town of roughly 100,000 people, there are 354 homes on the market (not including "for sale by owner") with a listing price between 0 and 150,000 dollars. There are 80 homes on the market listing for 100,000 or less.

The monthly payment on a 100,000 dollar house (assuming a 3.5% [$3500] down payment, 6.5% interest rate, 30 year term, and the usual estimates for property taxes, mortgage insurance, and hazard insurance) is $799.01

For example -- there's a 3 bedroom 2 bath, two car garage, built in 2001, listing for 99,900. According to a relatively conservative mortgage affordablility calculator, someone who makes $2877/mo gross can afford that home, and still service $230/mo in other debt (car, student loan, credit card debt).

Rent-wise in this market, it's about 6-800 bucks/mo. for a 1 bedroom apartment, add about 2-300 bucks/month per extra bedroom. I rented a 4 bedroom, 3.5 bath house last year for 1200 bucks a month, for example.

So, what would it cost to rent that 3 bedroom/2bath house I mentiioned earlier? Probably somewhere around 800 bucks/mo.

Make of that what you will.

But as you say more houses are in the higher price range. So more people end up buying houses and paying more in house payments than their rent was. Now my point is wouldn't it be more efficient if people were buying houses and their new house payments were closer to that of their rent. Then they would be able to make their payments with no problem and there would be no crisis.

[Kidlicious]

Originally posted by DirtyMartini


You have your cause and effect backward.

Builders build homes that they can sell. People who should have been buying homes of cost X were instead buying homes of cost 1.5X. Builders, seeing what caliber/cost of homes were selling best, met the demand for such homes buy building more of them, and more, and more. This worked well until that extra 0.5X started causing problems (and a whole other cycle of cause and effect).

You see, people didn't buy homes of 1.5X because that's what builders built. Builders built homes of 1.5X because that's what people were buying. If 1X cost/value homes were selling like hotcakes, that's what builders would have built. Supply and demand.

I never disagreed with that. My point is that there should be some regulation, because that's definitely a problem, and one that can easily be fixed with regulation.

[DirtyMartini]

Originally posted by Kidicious


Now my point is wouldn't it be more efficient if people were buying houses and their new house payments were closer to that of their rent. Then they would be able to make their payments with no problem and there would be no crisis.

That's what the market does. That's what the market is doing now. That's what my example shows -- the rent and the mortgage on that 100k house are pretty similar. The only stumbling block is the roughly 7k that would be needed to get over the down payment/closing costs hurdle. Not every market is in balance like this, but they're getting closer every day as the market corrects.

Way back in the beginning of this thread someone talked about the relationship between rent and home prices. Goes something like this --

People won't rent a house when they could own it by paying just a little bit more each month on a mortgage. At the same time, they won't pay (for example) twice as much on a mortgage, as they would to rent the same home. As home prices rise relative to rent (2000-2005), people begin to stop buying and demand falls. When demand falls (2005-current) the value of those homes goes down, mortgages become more affordable -- more renters become buyers.

I recently became a home owner. Sure, it's great, but I agree that it's not for everyone. People need to stop looking at rent like it's flushed down the toilet. You're going to flush -- a lot -- of money down to toilet on mortgage interest no matter how low the interest rate. On that 100k loan, you'd end up paying $121,933 over the life of the loan in interest (admittedly somewhat reduced by the tax benefit, but still). Plus the flexiblility and reduced responsibility of renting are not to be dismissed. You're also protected from market instablility-- people whose homes dropped 20% in value over the last year lost tens of thousands of dollars each, while those of us who rented lost nothing.

To address something else you said earlier -- I'm not sure how much more affordable mortgages themselves can get. Right now a conforming 30 year fixed is like 6.5%. The interest is tax deductible. Not long ago a 30 year fixed was well below 6% (low of like 5.675%). That's cheap money. It wasn't that long ago that you could expect 8-9% or higher on a home mortgage. I still contend the whole affordability issue is the down payment. Americans have no ability to save. Even when renting they live beyond their means and fail to prioritize saving. You've got to pay yourself first!

[DirtyMartini]

Originally posted by Kidicious


I never disagreed with that. My point is that there should be some regulation, because that's definitely a problem, and one that can easily be fixed with regulation.

All right, I'll bite. In fact, ignore all my other long-winded posts and answer this one, I think this is the meat of the discussion.

What regulation would you propose that would result in more low-priced homes on the market?

[rah]

Please keep in mind that in certain areas, the property itself can be worth considerably more that any building that stands on it, so regulations on builders may not solve the problem. In my neighborhood it, really wouldn't matter how much you regulated the builders because poor people couldn't aford the land with nothing on it, let alone a house.

[DirtyMartini]

Originally posted by rah
Please keep in mind that in certain areas, the property itself can be worth considerably more that any building that stands on it, so regulations on builders may not solve the problem. In my neighborhood it, really wouldn't matter how much you regulated the builders because poor people couldn't aford the land with nothing on it, let alone a house.

No fair giving Kid hints! Yeah, it's pretty absurd what a lot costs. The standard practice is to buy a cornfield (3500/acre) and chop it up into lots that sell for 100-200k each. So like a 10 acre plot, minus 20% for roads, etc, chop the remainder up into 1/2 acre lots at 150 a pop. Thats initial land cost of $35,000, potential back end of $2,400,000. I don't know much about construction, but curb and gutter don't cost that much!

[rah]

But don't worry, we can regulate the price of land.