Despite some of the best home-buying conditions in years— affordable prices, low interest rates and lots of choices — fear of buying has infected the market.Despite what the real estate cheerleading in the article would leave you to believe, there's still a housing bubble. In much of the U.S., homes are still overvalued. There's good reason not to buy.
It has paralyzed house hunters, making them unable to pull the trigger even on attractive deals. Some are worried about making the payments, while others are convinced they'll save even more if they wait.
It's perfectly natural that they should feel that way in the wake of the housing bust, said Lawrence Yun, the chief economist for the National Association of Realtors. "It's like when the stock market is crashing," he said. "People are waiting to see if deals will get better."
In fact, home sales are down by about 25% from last year, which means a lot of people are sitting on the sidelines. And real estate agents are having to get used to the fear of buying trend.
One reason mortgage interest rates are so low is because inflation is abnormally low, so real mortgage rates aren't as low as they appear. In fact, we currently have the lowest level of core inflation on record. Here's a graph:
"One reason mortgage interest rates are so low is because inflation is abnormally low, so real mortgage rates aren't as low as they appear"
ReplyDeleteKinda true, but if you're in a 30 year fixed rate you can't calculate a "Real" rate just based on current inflation. Over the course of 30 years, if you hold the mortgage the full term, there's no telling how inflation rates will fluctuate. OF course most people will hold a house and mortgage for a significantly shorter period but its still not cute and dry mortgage rate-current inflation = some "real" effective rate.
If QE-II leaks out into the general money supply, then the inflation will eventually come...certainly over the thirty year span...at which point, those will be very cheap rates.
ReplyDeleteI'm a bit of a deflationista, so I think I agree - at least WRT housing and wages - that is not a great time to buy.
In contrast, if there is inflation (and there will be) it will come in commodities and be passed through to the consumer, who with lower (deflationary) wages will be even less well equipped to pay for that expensive house. JMHO.
it's completely natural that people would feel this way, and it'll probably continue for quite some time. that said, simply acknowledging that people feel this way isn't really going to change much of anything.
ReplyDeleteThey have every right to feel the way they do....
ReplyDeletePrices are still far too high and committing to a $3000+ per month mortgage is INSANE.
Why ruin your life for the next 30 years just so you can say you own a home? What stupidity.
End of story.
I'm not sure I can go as far as Armond, but I think he's on the right track.
ReplyDeleteI've been thinking about a leap into the DC housing market for about a year now, and the prices are astonishing - there's been a massive transfer of wealth from everyone else to property owners. Here's a very common sales history for condos in the neighborhood where I'm looking. Sold in 2000 for $179K. Sold in 2007 for $410K. on the market now for $380. The neighborhood hasn't gentrified; it's been stable, and perhaps even declined a little.
Needless to say, salaries have not gone up anywhere near as fast. Someone in my job in 2000, making the salary paid that year, would have found that mortgage a snap to pay. I can't make the 2010 mortgage without a big, big stretch. So I'm renting and investing the difference between my rent and carry costs on the mortgage.
I feel bad for the people stuck in expensive homes, but I also wonder what the hell they were thinking when they bid the prices up that high.
Great CNBC clip about how higher interest rates will push home prices down further!
ReplyDeletehttp://www.cnbc.com/id/15840232?video=1685103992&play=1
There really is a massive transfer of wealth going on in this country
ReplyDeleteReal estate is officially dead in the US, unless you are selling to rich foreigners who want to buy a vacation home on the ocean.
ReplyDeleteThe collapse will continue for two more years and then the market will go sideways for another 10 years or more, assuming the destruction of the US dollar does not create IMF austerity along the way.
Good luck out there! Remember to own gold and silver.