I recently came across an article in review of the economic downturn and its effect on the housing market. The article evaluated the current market and assessed whether or not it would be a good time to buy. Please read the article – The Housing Crash Continues – It’s Still A Terrible Time To Buy – Why?. I would like to document a response to this three-fold commentary. The article has some true statements and some blatantly false statements and accusations. I will be addressing the false statements below.
“Because housing prices will keep falling in most places. [...] Because it is still much cheaper to rent than to own the same size and quality house, in the same school district”
If you are a buyer out there in the Silicon Valley, you will attest to the fact that we are not living in “most places”. We have been experiencing an upward moving market since last year and housing prices continue to inch up as there is more competition in the marketplace. Prices are not high as compared to income and rents in our area. (See my earlier blog title “Rent vs. Buy”). While this view may hold water in the midwest, it is a moot point in our world. The author maps out an equation to monitor whether it is a good time to buy vs. rent. This calculator will tell you whether you will be making a positive cash flow if you rented out your new home, break even, or lose money — it doesn’t factor in pride of ownership which the author forgot to mention. Many people dream of owning their own place in this world, their own plot of land – the author can’t put a price on the American Dream.
“Because it’s a terrible time to buy when interest rates are low. Realtors just lie without shame about this fundamental fact.”
Look at our marketplace right now — interest rates are low and housing prices are also historically low. There hasn’t been a perfect storm like this in years. The reason that the interest rates are low is because the Fed is continuing to keep them that way by purchasing mortgage-backed securities. So, one could argue that the rates are “artificially” low because if the government hadn’t stepped in they may be unbearably high and many people would not have been able to take advantage of this unique time in the market. As my colleague, Scott Raley put it: “I concur with the writers ideas that the banks and government are not letting natural selection take place in the market. Through prefered tax laws, lack of oversight and overly generous taxpayer funded bail-outs, the banks are putting off judgement day as long as possible. To them a non-proforming loan is a better answer than having to foreclose. If this same course of action continues, I believe we as a country could be in for years of stagnant real estate growth.” The government is trying its hardest to stimulate the market, which is great for the present, but holds unforeseen consequences in the future. If we are talking about the here and now – we have low interest rates and low prices… and I am not sure what tomorrow will bring! It seems that the author is assuming that buyers are paying a high price to get into their homes — hello!! We are seeing prices in some areas as low as they have been in 10 years!
“Because buyers already borrowed too much money and cannot pay it back.”
The author is referring here to those homeowners who bought a few years ago and who are now in over their heads. Many of these homeowners were counciled to get themselves into adjustable rate mortgages which inevitably hurt them when the housing market crashed and they couldn’t refinance as there was no equity in their home. Obama has initiated the “Making Homes Affordable Program” where a distressed homeowner can either refinance the loan at 105% loan to value, petition their lender for a loan modification, or as a last resort, short sell their home in lieu of foreclosure. These homeowners are feeling the ugly ramifications of shotty lending practices and false hope. This is a true statement of homeowners who bought under the old lending guidelines – but is not true of todays borrowers. Over the past year, the Federal Government has been implementing fair lending practices, harsher guidelines, better regulated appraisals, and strict vigilance of mortgage brokers and Real Estate Companies to start to right the problem. Unfortunately the above statement is true of many homeowners who bought a few years ago in a world of stated income and stated assets — buyers can rest assured that in today’s world, getting a loan is NOT that easy and even a person who makes >$200,000 per year will feel the push back of the lending world. These new regulations will ultimately bring stability to the marketplace and makes me feel confident that those borrower who is approved for a home loan in today’s world – deserve it!
“House price inflation has been very unfair to new families, especially those with children. It is foolish for them to buy at current high prices, yet government leaders never talk about how lower house prices are good for American families…”
Again, we are in a market place where real estate is historically low. So, with this reasoning it would be a good time for a family to invest in Real Estate as it has nowhere to go but UP! As most real estate investors know, real estate, usually, does not offer a quick return on investment, but is rather a long-term return on investment. If a family is looking to make the transition from renting to owning their own home, they need to assess the affordability of the home — how much are they investing monthly in principle, interest, taxes and insurance compared to their income, other debts and tax write off. They will need to take into account the longevity of ownership — how long they will plan on keeping the property. With these items accounted for and mapped out, a family should feel comfortable making the transition in todays marketplace.
“Real estate in America is all about deception. There is no free market because bids on houses are never published and bids are often faked to get you to think you have to pay more.”
I am not going to say too much about this paragraph because I expect that I can go on and on forever making a case against this. As a Realtor, I bring value to my client – I do not deceive and I do not lie shamelessly as the author accuses all Realtors of doing (way to make a blanket statement). He insists that if a property hits the MLS it is already stale because the Realtors saw it, no one wanted to buy it for themselves and it is the sloppy seconds of the Realtors. I am not made of money – and neither are my colleagues. I wish that I could buy every good deal that comes across my desk, but this is a ludicrous accusation. We are in a service industry and my fiduciary duty as a Realtor is to find the best deal for my client according to his situation, use the C.A.R. contract to his benefit by keeping him out of a lawsuit, negotiate with the other party to the benefit of my client and ultimately keep my client on the right track in order to ensure his success. There is so much more that I could say… it will have to wait for another blog, because this one is already WAY too long 
.
I would be very interested in comments about this article. I have already received some feedback from my colleagues:
“In our area, the cost to build new single family housing is typically way above the median price. When you figure in special assessments and regulations as Brian said, it drives the price so high developers have a hard time penciling projects out. Thus, when that new construction does take place it inevitably adds to the value of existing homes.
Yes Texas is a land with virtually an unlimited amount of land to build on. The same holds for places like Los Banos, Stockton, Merced and most central valley cities.
These are the places the have been hit the hardest and will take the longest to recover. Also remember, whenever the s*@t hit the fan, there is always a flight to quality.
That is why San Mateo and the western area of Santa Clara country have held up so well. These are areas of both “old money” and ”new money” (google) where families have the intellect and staying staying power to weather the economic storms that sweep away your overleveraged, less knowing, homeowners.
- Scott Raley
Keep reading →
thomsonteam