Falling prices trap new homebuyers

The Orange County Register ^ | December 13, 2006 | JEFF COLLINS

[GodGunsGuts]

Wednesday, December 13, 2006

Falling prices trap new homebuyers

Neighbors in a new Garden Grove tract say a developer's plan to slash prices by about $140,000 has left them owing more for their homes than they're now worth.

By JEFF COLLINS

The Orange County Register

[wouldntbprudent]

With one exception: what your home is worth today is relevant if you were intending to refinance in the near future.

Of course, refinancing is a form of selling your home. In effect, you sell it to the new lender and pay off the old lender.

If a house no longer appraises at a certain value, the owner's ability to refinance his mortgage is limited by that lower valuation.

[wouldntbprudent]

Same as in some parts of northern Virginia (e.g. western Prince William County). Some home prices are off $100-200K from last year.

[nyconse]

Georgia is still strong (Atlanta area). However, when I buy my new house in the spring, I am going to buy a house we can afford on one salary.

[logos]

The title of this article is a bit misleading; it should read "Falling prices trap recent homebuyers."

Remember the old saw about the stock market? "In every transaction there's a buyer and a seller ... and they both believe they got a good deal."

New homebuyers like us, on the other hand, are doing just fine, thank you. We're closing on a house this week at $10,500 under appraisal on a fixed 6.5% mortgage. The seller is selling below his cost, but that's not our problem, is it? [Our local market is far below either coast, so $10,000 under appraisal is a pretty good deal.]

[goldstategop]

The housing market has been overvalued in some parts of the country so right now we're seeing a price correction under way. I doubt you'll ever see million dollar middle class homes... no one could afford to even live in them.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

[divine_moment_of_facts]

Toll Brothers hasn't dropped prices in NJ. In fact, they have increased the prices from $500,000 to $800,000 in the last 3 years.. On the same models in the same towns...

[GodGunsGuts]

That's great news for you. Just remember, housing will fall a lot further before this is all over.

[RayStacy]

for later

[goldstategop]

They'll walk away from the mortgage... but before that happens, lenders will bust their ass to keep their customers happy. Lenders know if they are unreasonable, they'll face a loss selling on foreclosure. So they'll work out terms with their clients since a lower price still brings in a profit. Its better than a write off on the property in a tight market. So they'll be willing to accept terms they'd refuse to even consider under normal circumstances. And these circumstances are anything but normal.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

[Labyrinthos]

PS. What your home is worth today is irrelevant unless you sell it today.

While that may be true on a micro level, there are series implications on the macro level. The first one that comes to mind is the home equity market. For better or for worse, many people tap into their home equity to pay for college educations, vacations, home improvements, and consumer goods. Pulling that money out of the economy will have a ripple effect.

[Obie Wan]

Moral of this story,if you've got money to buy a house,DO NOT BUY WHEN INTEREST RATES ARE LOW. Sit back wait till they go up,the higher the better and save abot 100-200k on the purchase.Pay the higher rates till the goofball Federal Reserve starts dropping rates because for some reason they never seem to be able to leave them alone,and refinance at the lower rate !!!

[neb52]

Not really caring about the price they paid for it, but that appears to be a big house. If they are complaining, maybe they should of bought a smaller house. I can't stand people who complain about their mortgage payments on a house that is bigger than 2,000 s.f. Not saying that they shouldn't own a house bigger than that, but its like people who complain about the cost of ownership of a Hummer H1. If you can't afford it in the first place, then don't buy it to begin with.

[Kenton]

Better duck. There are plenty of FReepers that will tell you equity is money in the bank.

Actually, it's more like money in the stock market. A house is worth exactly what someone else is willing to pay for it. If one considers their home more in terms of a speculative investment than a place to live, one runs the risk of any speculator.

Not so with money "in the bank". It doesn't gain value like a hot stock or a beach house in Malibu, but it doesn't evaporate overnight either.

[Kenton]

Neighbors in a new Garden Grove tract say a developer's plan to slash prices by about $140,000 has left them owing more for their homes than they're now worth.

Just ouch!

[Fierce Allegiance]

It's not happening in CT. No bargain hunting here.

[logos]

Just remember, housing will fall a lot further before this is all over.

Of course it will. And one day, when it stops falling, it'll begin rising again.

Since this is very likely the last home we'll ever buy - and only a deep depression would affect our ability to make the mortgage payments - we're not too concerned.

As far as I'm concerned, investments are investments and necessities are necessities. It's nice when a necessity appreciates in value, but it's not wise to buy it with appreciation in mind ... or even worse, counted as a certainty.

And btw, I play poker the same way; I never carry more money into a game than I can afford to lose. When it's gone, the game's over for me. :)

[Always Right]

Toll Brothers hasn't dropped prices in NJ. In fact, they have increased the prices from $500,000 to $800,000 in the last 3 years.. On the same models in the same towns...

Yes, but the fear-mongers have one development where the developer is in serious trouble and they making sweeping conclusions based on that. It is terrible what happened in this neighborhood and the impact on surrounding subdivisions, but this in no way represents the national picture.

[montag813]

Prices in New York are rising again, because (a) it's New York, (b) inventory levels finally dropped off due to the balance shifting to rental unit development.

[GodGunsGuts]

Exactly. And it will turn into more than just an "ouch" as this thing spreads. I feel sorry for all those people who rushed to buy because this "could be our last chance to buy" at low interest rates. They forgot about the other side of the equation.

[duffi]

You're very wise to do that. When my husband and I bought 8 years ago, we bought a house based on the one income scenario.
Two years later, I became very ill and had to quit work permanently. Had we bought what we could afford at the time, we would be out on the street. You never know.