Cost of housing in a recession?

Discussion in 'Off-Topic' started by THE_RB, Mar 19, 2013.

  1. THE_RB

    Thread Starter AAC Fanatic!

    Feb 11, 2008
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    I was watching a US made reality show where someone was house hunting, and looking at 2 bedroom apartments for under $400 a month, and a nice enough 3 bedroom house on a large block in what looked like a nice suburb for $550 a month negotiable. Sorry I didn't get the state but it was south-ish with "y'all" etc in the speech.

    This made me think, I deliberately moved to a "cheap" country area here in Australia but even here housing prices have risen and and a 3 bed house with nice block would rent for $1390 a month, that's two and a half times more than in that area in the USA, and this is a CHEAP area to live in Australia.

    Have house prices took a big dump with the recession and the imploded American economy? It would be great if people gave an approximation of the rent or purchase prices of housing in their area, just to get a ball park figure for different states or areas.

    If I could rent a big 3 bed house in a nice suburb for $100 a week, maybe I should move to the USA? Cheap housing, cheap food, cheap Harley Davidsons, what more could a guy want? :)
     
  2. shortbus

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    Sep 30, 2009
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    Kangaroos? :) :)
     
  3. #12

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    Nov 30, 2010
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    Right now, the housing prices in America are in shambles. You can buy a two million dollar beach residence for half what it was mortgaged for 10 years ago. You can find people being squeezed into homelessness by the banks that sold them an unjustifiable mortgage and virtually steal their house by offering them something more than what the bank is offering, which is usually nothing but a sheriff with a gun to put them on the curb. Half the houses on my street are unoccupied and still, there are, "flippers" buying them for a song and a promise, adding a fence, removing a dead tree, and trying to sell them at a profit. It's a mess, I tell ya', and in every mess is opportunity.

    If you're willing to do the work, you can get into a reasonable home for a reasonable price. If you're willing to work and have the money to be patient, you can practically steal a house right now. After all, that's what the banks did. They wrote mortgages that they knew couldn't be paid, and stole the equity that previous owners built up over decades of hard work and regular payments. Now the banks have tens of thousands of foreclosed properties sitting vacant while hundreds of thousands of hard working people struggle to survive on the charity of their families while their Masters Degrees get them minimum wage at a burger restaurant.

    Still, the banks spend millions of dollars per day lobbying congress to "deregulate" their activities.
     
  4. Sue_AF6LJ

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    Mar 16, 2013
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    Sorry to say this is the sad side effect of a society who thinks property values will continue to rise indefenately.

    They won't and they don't.
    Those who fall into the trap of using their home as an ATM will have to pay the piper sooner or later.
     
  5. gerty

    AAC Fanatic!

    Aug 30, 2007
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    My father-in-laws house sold last month for $53,000 , it's a nice 3br brick with garage, central heat/ac,nice yard, in a nice neighborhood. The couple that bought it did a little painting, and now have it advertised for $650 a month.This is in a small town in TN. I'm sure city prices are much higher.
    My wife checked with the realtor and he said this couple has about 7 rent houses, and this was about average for them pricewise.
     
  6. Brownout

    Well-Known Member

    Jan 10, 2012
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    In America, it depends really on which region. Though rents are down generally, I doubt you would think they are cheap in the northeast or the west coast.
     
  7. toffee_pie

    Active Member

    Oct 31, 2009
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    wow at the house prices in the states..

    in the uk you would not get a plot of land for that house in TN.
     
  8. WBahn

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    Mar 31, 2012
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    I've owned three houses, all in the Colorado Springs area. We got hit by the housing collapse, but not nearly as bad as many parts of the country. But then again, we didn't have the huge runnup in housing prices that the really hard hit areas saw, either.

    The first was a 1800sf townhome that I bought in 1995 for $80k and sold in 2001 for $116k. So that was about a 6.4% annual appreciation over that time frame, which wasn't bad. Now, if you take into account that fact that I was paying over 6% on the mortgage, most of that appreciation was eaten up by the interest payments each month, so I really walked away just a little ahead. Had I lived there the entire time I owned it, I could have fairly claimed that I got to live in a nice townhome for free. But since it sat vacant for nearly three years, that's not really the case.

    The second home was a single family home of about 2200sf on a 1/3 acre lot that I bought in 1998 for $136k. I had taken in a dog that needed room to run and who was going crazy and becoming distructive in the townhome by doing things like pulling the linoleum up off the floor. So I figured that I either had to buy a house or shoot the dog. I really should have shot the dog! After selling the townhome I put $16k into siding and windows. In trying to get it ready to rent or sell we put $30k into materials (and had it looking pretty sweet!). Unfortunately, we ended up having to sell it at the bottom of the market in Spring 2012 and walked away with $150k. So this 14 year investment sold for $32k less than the purchase price and the two major improvements. If you take into account inflation over that time, I lost some serious coin. Should have shot the dog.

    The third home was purchased in the fall of 2008 just at the beginning of the slide (hey, buy high, sell low). It had originally listed for $314k and I bought it for $285k and figured I was doing great. Within a year it had slid to $250k. I think it might have recovered now into somewhere near the price I bought it for.
     
  9. strantor

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    Oct 3, 2010
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    The housing cost in most of America is much lower than other similar countries. The house I live in is in a nice peaceful suburb, no crime, nice looking place with friendly middle class neighbors who work. It's worth ~120K.

    When I was in Canada, I was appalled at the cost of homes. One of the guys I worked with was selling his house, asking over half a million dollars. I saw the house. It was shanty, less than 1000 SQ ft. It was pretty, in nice shape, but a house that size in a comparable neighborhood where I live wouldn't cost more than 50K. And this was Alberta, the land of land. So many thousands of square miles of unoccupied land, how can this plot of it, and this tiny house fetch such a high price?

    I figure a house there in Alberta costs 10X as much as the same house would cost here. And that same house in Singapore would cost 10X as much as it costs in Alberta.

    I don't know how much houses cost in Norway, but they must be free in order for everybody to be driving Mercedes.
     
  10. WBahn

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    Mar 31, 2012
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    While the banks aren't blameless, they aren't the evil doers that they are made out to be.

    First off, how did the banks steal the equity? Remember that when they made the loan they gave YOU the money that the loan was written for and that YOU used to buy the house at a price that YOU agreed to pay for it. If the market goes down and they end up having to foreclose and take back the house, they only get a house that is worth LESS than what is still owed on it (otherwise the owner could have sold it and settled the note). They don't get the money that they gave to the owner, they only get what they can sell the house for now, so how did they "steal" the equity that was in the house. The person that SOLD the house to the owner that AGREED to buy it at a high price is the one that walked away with a check for the equity.

    Second, banks are sitting their rubbing their hands looking for ways to foreclose. The opposite is very much the case. They will typically let someone stay in the home for between six months and two years before actually foreclosing because they want the owner to either pay them or sell the property at a price that will let them settle the loan. One of the problems that some people are having is that they can't get the bank to foreclose; if they foreclose then now the bank is responsible for paying the taxes and things like homeowners fees. When they do end up foreclosing they want to then sell the house for what it will bring quick and writing off the balance, but they can't do that in many cases because of various restrictions on what they can and can't do and so they end up sitting on it and paying the ongoing expenses for months or even years. Remember, they gave the OWNER money that the owner spent and they are NOT getting that money back. In almost all cases, the bank is losing money anytime they have to foreclose.

    As for writing mortgages that the knew couldn't be paid back, in many cases they had no choice. I refinanced by house in the 2002 time frame and for quite some time prior to that had seen all these banners and ads touting mortgages for up to 125% of the home's value. I asked the mortgage broker how it possibly made sense to loan money for more than a property was worth. I figured that such loans probably required the exess to be used to make improvements to the property that would bring its value up to somewhere near the value of the loan. Nope. She said that they were effectively required to advertise and write such loans in response to the government's big push to make homes more affordable to people that otherwise wouldn't qualify or wouldn't be able (or willing) to cover the other costs associated with buying a home such as furnishings and the like. This was also when I learned about the "stated income" loan. She said that every week she wrote mortgages for people that she knew damn well didn't make enough money to repay the loan, but they were required to accept an applicant's statement about what their income was and they couldn't require proof and they had to write the loan based on what the stated income was. This was a major part of the heart of the government's effort to expand home ownership and the end goal -- expanded home ownership -- trumped everything. If a lender didn't play along, then there were all kinds of ways they could be punished. So they played along. The result was the "sub-prime" lending fiasco and about the only way to limit -- or at least spread out -- the risk and losses was to invent all kinds of crazy bundling schemes and market them off to speculators. But that was a house of cards that couldn't stand for long. In many respects, the whole thing was a Ponzi scheme and, like all Ponzi schemes, it can only continue as long as you can keep fresh blood entering the pool of investors. Since they had to keep making these bad loans, they kept inventing more and more crazy schemes to mitigate the risk and each scheme had to appear to promise higher and higher returns in order to sucker the next layer of fools in. Of course, at the same time, housing prices were shooting through the roof in many markets because that's what happens when you make a lot of money available to a lot of people who otherwise couldn't buy something -- the demand goes up for a supply that can't grow to match.

    So, sooner or later, the house of cards comes tumbling down.

    For a while, it looked like some sanity would establish itself and that loans would be required to satisfy proof of adequate income and only be written for sufficient loan-to-value ratios to guard against foreclosures. But once again they are writing loans for well over the value of the property with relaxed income requirements and once again it is being driven by the government's desire to keep people in homes that they simply can't afford. So the house of cards is already being rebuilt.



    But regardless of whether it's the evil lender or the evil government or some unholy combination of the two, the bottom line is that the person borrowing the money is a willing participant in the mess and people that borrow more than they can reasonably repay are asking for trouble.

    After I refinanced the house in 2002 I lived on rice and beans for 33 months in order to pay off the mortgage. At that point I had a 100% paid for house and my total cost to live there, including taxes, insurance, and utilities, was under $250/mo. In 2008, had I decided to forego getting the "deal" on my current house, I would still be living in a nice house for under $300/mo and wouldn't care a lick about the housing bubble bursting because that only matters if you are trying to actually sell a property.

    So, unless we have to move for a job, we are now committed to paying off the mortgage on the current house as quickly as we can and then NEVER borrowing money again. I had paid off all the non-mortgage debt by 1997 by using a scorched earth policy and the roughly three years that I was totally debt free was the most stress-free in my life. When you have no mortgage, no car loan, no credit card debt, and no student loans you don't need much to live on. My total housing costs per year, including maintenance, was under $5000. Food and gas ran me about $800/mo so another $10k/year. Throw in income taxes and I only needed to earn less than $8/hr in order to maintain my lifestyle and I could easily have lived on minimum wage. That's provides a HUGE sense of security when you know that you can cover all of your expenses just by getting a minimum wage job at a fast food joint.

    During that time I was making about $60k/yr and wasn't even trying to save money. I expanded my lifestyle a bit but I was used to living on rice and beans and so even a modest increase in consumptive spending seemed like an extravagant lifestyle to me. The big thing was that I did a lot of flying and got my instrument pilot's license and never even had to check to see if I could afford it. During that three years I bought a $15,000 car for cash and when I made the (now regretted) decision to purchase my current home I had $70,000 just sitting in my bank account. If I hadn't bought the house I would probably now have enough sitting an an account so that I could buy this house for cash and still have $30k left over and could have continued letting the old house sit vacant or rent it out until the market recovered and had another $200k of value sitting there. But I decided that I just had to have this house and was willing to go back into debt to have it. Stupid. Stupid. Stupid. Never again. If I can't pay cash, I can't afford it.
     
  11. Brownout

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    Jan 10, 2012
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    That's baloney. Most of the subprime loans had nothing at all to do with any government push to expand home ownership. That's a story banks tell to try to blame well intentioned government progreams for the mess they caused. Those programs were in effect for three decades before the housing bust.

    Same old stroy, blame the poor for rich man's sins.
     
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  12. tracecom

    AAC Fanatic!

    Apr 16, 2010
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    I agree, but when the government, the lenders, the realtors, the builders, your family, and your friends? are telling you to buy up, trade up, flip up, it's hard to resist. (I did resist, but I know many otherwise rational people who did not.) And "they" know that we, the people, are so much easier to control when we're head over heels in debt.
     
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  13. MrChips

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    Oct 2, 2009
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    I heard houses in Detroit are listed for $1k and the seller will settle for $100. Is that true?
     
  14. WBahn

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    Mar 31, 2012
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    At what point should I come to a conclusion that I am responsible for what I agree to. There was lots of peer pressure to do cocaine and crack and other drugs when I was growing up. There were plenty of times when it was hard to resist since the pressure to "fit in" and "belong" is, indeed, very strong. But I never did any of those drugs and, if I had, it would have been MY fault (as long as I willingly agreed to do it).

    The same with debt. It doesn't matter if the Joneses have a new car they can't afford and are pressuring me to buy a new car that I can't afford. If I buy that new car that I can't afford, that's on me. If I max out my plastic and then make the minimum payment each month so that I can max it out again as soon as the payment posts, that's on me (I got THAT t-shirt!). If I just have to have that new iPhone and that new BluRay player and that new Wi and that new home theatre and I sign up for their "easy payment plan", that's on me.

    Until I decide that I have the authority to tell all of them to take a hike, I am going to continue to be someone that is paying all of my hard-earned income to someone else each month while complaining that it's "their" fault and that I'm just the poor victim.

    When I got my first job after college I stated making right at $42,000/year (plus some very decent benefits). When I went looking for an apartment I was told that it would actually be cheaper to buy than to rent. I looked at the cost of rentals and the cost of owning and it was about a toss up. So I went ahead and bought that townhome and my total monthly cost was about what the people that were renting the place were paying. The day after I closed on the townhome (which was one month after starting the new job) I bought a car because my truck was getting on its last legs. Not a brand new car or a "slightly used" car, but a car that was seven years old, had $85k miles on it, and cost $6000. But I financed it. The next day I was planning to go buy some new furniture for my new home. That night I sat down -- well, okay, I laid down because I truly had zero furniture other than my waterbed -- and totalled up my debts. After I got my heart going again I got up and cut up every single credit card I had. I never gave going shopping for furniture another thought. I couldn't afford it. Period.

    A month earlier I was a grad student living on a $900/mo stipend. Now I'm an employed engineer paying $902/mo in interest alone! I was $120,000 in debt. Yes, $80k of it was the townhome, but $40k of it wasn't. I had over $18k in credit card debt (and with basically nothing to show for it), I had over $15k in student loan debt (and most of it was not spent on school), I had over $6k in a car loan. I was paying more than $450/mo in interest just on the non-mortgage debt. But my minimum payments on all of that wasn't much more -- just under $640/mo -- meaning that I wasn't making any headway and was going to be literally still be paying off that $40k until I was 97 (literally -- I ran the numbers).

    But by getting totally radical in eliminating any spending that wasn't absolutely avoidable I paid off that $40k in just under two years making just over $40k/yr. I mean radical. I didn't eat fast food or in a restaurant (unless someone else was paying -- hey, I'm not that stupid!), no cable, no internet (not a biggie back then), no magazines, I cancelled my membership in all but one organization, I didn't see a movie during that entire time, I didn't buy a single CD or VHS tape (didn't own a DVD player and damn sure wasn't going to be buying one), I didn't even think of going to a concert or taking a vacation and I ate lots of generic food cooked at home and I walked five miles one way to work during good weather.

    But when you get that serious it gives you a lot of leverage. I had eight credit cards and the interest rates varied from about 11% to 18% (unless you were in default, anything over 18% was unheard of back then), I called each one of them up and said, "I have eight credit cards. I'm going to pay all of them off and close them as I do except the last one, which will get all of my business. I'm going to pay them off highest interest rate first. What are you willing to change my rate to so that you have a change of being that last card? A couple said that they "couldn't" change the rate. Fine. The others sure did. One of them dropped the rate from 18% to 7.7% on the spot. After making the calls to each card, something that took about an hour or so, I was paying more than $200/mo less in interest, all of which could go toward even faster payoffs.

    Then, when I paid off a card (I made minimum payments on all but the highest rate card and slammed everything else at that card each month) I would call up the next highest rate card and tell them that they were my new target that that, unless they lowered my rate right then, that I would pay them off and close the account within xx months (where xx was frequently just one to three months). Some dropped the rate, some didn't. If they didn't, that just meant that they were the next card that got closed.

    Let me tell you, paying bills became FUN! I would sit in the room where I had everything tallied up on a whiteboard (that I still have with the beginning and ending numbers on it -- it's a shrine!) and just stare at the board and dream about which card would get paid off next and how much longer before I was done. Now, if you think that's weird, let me remind you... no movies, no shows, no concerts, no cable, you get the idea. But seeing the progress was exciting and also just the feeling of knowing that I was in command of myself and my financial destiny.

    And the day I paid off that last student loan was like being released from prison. I now had an extra ~$2000/mo to do whatever I wanted to. I actually tried to spend it and couldn't! So it built up a year later because a 10% down payment on the first house and, the day after closing , an $8500 truck (something about me buying vehicles the day after I buy a house...wierd) that I paid cash for.

    When I bought the truck I took with me a check that I had already made out for the $8500 that I had decided I was willing to pay for a truck and had it in my pocket with the Pay To line blank. After I found the truck I wanted, which had a sticker price of about $14k, I got them to give me what they claimed was "the price at which we're already losing money on the deal", which was something in the $10,000 range not including all their dealer add-ons. I then pulled out my check and said, "I'm buying a truck today. I'm willing to write your company's name on this check in exchange for that truck, out the door. Is it a deal, or do I write some other company's name on this check later today?" In the end, their finance guy gave me the title and one penny, saying, "I couldn't make the numbers come out to exactly $8500. I could get it to be a penny more or a penny less. I didn't want to find out what would happen if I make it a penny more. Here's your change." The truck's long since gone to the scrap yard, but I still have the damn penny!
     
  15. Brownout

    Well-Known Member

    Jan 10, 2012
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    You know what they say, if you can't dazzle them with briliance, baffle them with BS. The people selling the loans were like used car salesmen, convincing buyers their better judgement was lying to them. They were predators, getting people into bad loans that they would never be able to pay back while convincing them it's a good thing.
     
    Last edited: Mar 19, 2013
  16. WBahn

    Moderator

    Mar 31, 2012
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    I haven't heard that, but I know it's really bad. At first blush you want to go, "Hey, I'll scrape up $10k if the result is that I can own a hundred homes!"

    But then you have to ask yourself that tons of other people with lots more money could do exactly the same thing but on a much larger scale. So why aren't they? It must be that a lot of people have looked at the return on investment and concluded that $100 is too much to pay! My suspicion would be that various taxes and fees are so high that they would eat the guts out of any possible return you might realize down the road, especially if there is no realistic likelihood of the housing market there recovering anytime soon.
     
  17. MrChips

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    Oct 2, 2009
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  18. MrChips

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  19. GetDeviceInfo

    Senior Member

    Jun 7, 2009
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    We've got the perfect storm going on here in Alberta. The feds have altered the qualification requirements which make it harder for first time buyers. The banks have lowered their interest rates on mortgages. Prices are stable, with some areas dipping, while others are rising.

    This is ideal for investers. Vacancy rates are 3% and falling. Rental rates are rising, while mortgage rates are falling, and home prices remain steady. It was very difficult to find positive cash flow properties for years, but those days are back.

    One can spend all their hard earned cash engaging in consumerism, but I like to make it work at building assets.
     
  20. maxpower097

    Well-Known Member

    Feb 20, 2009
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    Yes and no, most of the $100, and $1000 dollar house need $20k-30k in repairs to make them livable. They hold a big auction every year and whats been happening is all the livable house that sell for $20k-$50k sell to rich investors to rent or rich EU's to rent out in big investment groups. Actual people they were holding the auction for hoping to get them into real houses were all outbid by people with money. At the end everything that was left was like $5000 houses that needed $20,000 worth of work, and the $100 ones they were basically lots that needed to be paid to demo'ed. You gotta figure the mayor of detroit says it would be beneficial to the city to bulldoze 1/4 of it and concentrate it. He's right but that requires paying people to move into other housing which people rape the gov for unless its a marshal law situation which could happen with these cuts.
     
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