Send a Message
to The Thinker

Comments

55

Joined

Apr 4, 2007

The Thinker Profile

Forums Owned

Recent Posts

Newsday

Pricing by range

I would like to weigh in on this debate as to whether a house is priced correctly. What is the fair value of a house? For a commodity, which a house is and is not, fair value is the price where a willing seller and a willing buyer agree to trade. Lets take a hypothetical stock "A." If the stock trades at $100 we say stock A is worth $100 even if some other owners of stock A would not sell their shares for less than $130 and other prospective buyers would not buy stock A for more than $85. Also, different buyers and different sellers may trade the same item at different prices. One gas station around here charges $3.07 a gallon for regular unleaded, another charges $3.23. What is the fair value of the gallon? Does it matter if the first gas station sells more gallons than the more expensive gas station? Bottom line is, fair value is in the eye of the beholder. Often the same item may have a different value to different people. This is why arbitrage works. This is why trade benefits both buyer and seller, each is getting something of a higher value than what they are giving up, at least from their own perspective. If a seller would rather have their house than $500,000 then to that seller, their house is worth more than $500,000. If a buyer looking at the same house would rather have $500,000 than the house, then to that buyer, the house is worth less than $500,000. So to the seller, the house is worth no less than the price he would let it go for. Meanwhile to the buyer, the house is worth no more than what he would pay for it. Sometimes the seller is willing to let a house go for a price the buyer is willing to pay. Sometimes there is a whole range of prices that a seller would let it go for and a buyer would pay. In these situations who ever bargains harder will set the price within that range. If, however, the seller is not willing to let the house go for a price the buyer is willing to pay, then the house simply will not sell. This just means that the house is already in the hands of the person who values it the greatest. Trade allows for goods to pass to the person who attributes the highest value to the goods. If the owner is that person then the goods will simply not change hands. Luckily, if an owner has to sell his house, the more time passes, the more of a burden that house is to him and the less value he attributes to the house. Similarly, the more time passes, the more of a burden not having the house is to the buyer and the value he attributes to the house increases. Eventually the house is sold but it takes a while. In the mean time, it is very difficult to ask what the fair value is of a house that is not selling.  (Aug 1, 2007 | post #26)

Newsday

Hard times for first-time homebuyers

Also, I am sorry for switching back and forth between the issue of not buying more house than you can afford and not overpaying for a house. To me these go hand-in-hand. You see, a house is affordable only if it is no more than 2.5 times gross annual income. So for your typical Long Island family making $70,000 a year (i know, this is on the high side of typical) an affordable house is $175,000 and less if that family has a lot of other debt such as student loans and credit card bills. You can't get a house on long island for $175k anymore so BUYING A HOUSE AT ALL is equivalent to overextending yourself. This becomes particularly acute when you look to your average 20-something first-time buyers making a combined $55,000 a year. They could in truth afford no more than $138,000 for a house. Too bad run-down capes in bad areas pretty much start at $300,000 these days. Do you see why buying a house now IS over extending one's self?  (Jul 31, 2007 | post #146)

Newsday

Hard times for first-time homebuyers

I think we are actually getting closer to agreement on this issue. You see, in the time between 2000 and 2005, real estate has been quite volatile. 2005 prices often seem to be 2 or 3 times more than the 2000 price. That is pretty volatile even though it only went up. Don't forget, Yahoo stock made a similar strong run between 1998 and 2000, only going up. You say real estate prices have always been a stable investment. We did not see this stability between 2000 and 2005 we saw break-neck appreciation. I agree that in 20 to 30 years time real estate will again be above what it is today. I agree because inflation marches along. However, history has shown that over the long term, real estate is a poor investment just barely out pacing inflation. Compare this to the stock market which has proven to be a very good investment over the long term. If someone is looking for an investment they should look elsewhere. If someone is looking for a place to live, right now people would be best served by renting. Perhaps in 2017 prices will return to 2005 levels, but if someone wants to buy a house, they should look carefully at the fundamentals to see when the time is right. When the average house price is back to 2.5 times average income (instead of todays 5 to 10 times) then it will be time to buy. When the average house again sells for 100 to 120 times monthly rent (instead of todays 200-400 times monthly rent) then it will be time to buy. I am not against real estate, I am trying to prevent young people from destroying their financial future by getting sucked into the market right before a major crash.  (Jul 31, 2007 | post #145)

Newsday

Hard times for first-time homebuyers

Burke, your last comment shows me that you do not understand the importance of the fundamentals in making a decision as to whether to rent or buy. I am not saying that buying has never been a smarter option than renting. I am saying that NOW, in 2007, it is better to rent than to buy. This analysis is based on market fundamentals such as "comparisons between median household income and median home prices" and "comparisons between rental prices and purchase prices." If you analyze these trends over the past 50 years you will see that housing has pretty much gone up with inflation and in the period between 2001 and 2005 there has been a fantastic appreciation of home prices relative to inflation that has fundamentally changed the rent or own equation. Now, today, buying a house would be like buying tech stocks in 2000. If we were having this conversation about tech stocks in 2000 you would probably argue that everyone should go out and buy tech stocks because they have made a lot of people rich.  (Jul 31, 2007 | post #126)

Newsday

Hard times for first-time homebuyers

listen Carter Burke, I know exactly what I am talking about. It is bubble deniers such as yourself that are in for a shocking revelation when you try to sell your crappy cape in the south shore for $750,000 and the highest offer you get will be $325,000. You will probably wine, "but the Joneses got $680,000 for their house last summer and our house has a nicer refrigerator. " The bubble days are over Burke and you missed the boat! The investor interest and easy loans that drive up housing prices into the sky are all gone now. All thats left for housing is a momentous decline that will last for at least several more years. Half of all first time home buyers who buy now will wind up in foreclosure by 2008 when their loan is far greater than their house value. If you are a renter, sit tight, pop some popcorn and enjoy the show. And when you see Burk in the street with a cardboard sign that reads "will work for mortgage" through him a few bucks.  (Jul 31, 2007 | post #108)

Newsday

Hard times for first-time homebuyers

Chrissy, if you buy a house all you will truly OWN is a half a million dollars of debt and an oppressive tax burden that lasts in perpetuity. You will then have to worry about shoveling snow, lawn care, pipes bursting, sinks clogging, driveway resurfacing, new roof, leak in the basement.. the list goes on and on. I think you need to reevaluate your American Dream because I don't see what is so special about owning a house. It USED to be smart to buy your house because you saved money versus renting. Thats not true anymore. You need to stop worrying about buying a house and start worrying about what your American Dream should really be.  (Jul 31, 2007 | post #100)

Newsday

Hard times for first-time homebuyers

I didn't mean to say "seller" I meant to say "lender"  (Jul 30, 2007 | post #89)

Newsday

Hard times for first-time homebuyers

It is not the lending standards that hit first time home buyers hard, good lending standards PROTECT the buyer as much as the seller. It is the ridiculously high prices of homes that hit the first time home buyer hard.  (Jul 30, 2007 | post #88)

Newsday

Real estate: Good curb appeal helps sell a house

I think the reason we see all of these stories is that people are having trouble selling their houses and want to know how they can get theirs sold (without lowering the asking price too much). Prices need to come down though, and they are already starting to come down. But in the mean time, if you can spruce up your lawn and get out of the market before the crash then good luck to you.  (Jul 30, 2007 | post #2)

Newsday

LI, Queens housing sales still cool

I don't agree. They are making more houses every day. It is true that new houses are built on less and less land and eventually high-density housing will replace some low-density housing, but LAND is not what people need to live, HOUSING is the only thing people need. Because new HOUSING is built all the time. HOUSING values will fall. Obviously the more land is under your house the better it will hold its value. If your house is on 2 acres in a prime location I don't think your house will have much to fear from the housing bust. But if you just paid $800,000 for that "luxury" townhouse in an iffy neighborhood (e.g. the Mariner's Walk project in Oyster Bay) then you are in for a world of hurt because there is really no limit to how many "luxury" townhouse projects can be built on long island an hour out of the city and in a bad school district.  (Jul 25, 2007 | post #8)

Newsday

LI, Queens housing sales still cool

And if my Aunt was a man, she'd be my uncle... Taxes only go up, the long island population is shrinking as people seek greener pastures, and new housing units are coming on the market every day. Supply and demand WILL eventually meet at an equilibrium price, and that price will be far lower than it is now.  (Jul 24, 2007 | post #5)

Newsday

Why you should buy my house

"Yeah Right" has it right, the extraordinary home values in our area have everything to do with the availability of debt and nothing to do with the actual economic fundamentals of population, salaries and the need for shelter. That is why housing prices have risen while rents have stagnated. As defaults mount, liquidity will tighten and housing costs will begin a precipitous decline. Homeowners have become very comfortable with the idea that the house they bought for $179,000 a few years ago is actually worth a half a million dollars. Many of them have even borrowed against this equity to fuel relentless spending. Others have determined that their home equity would save them from the need to save for retirement. In any event, home owners will cling dearly to the idea that their homes are truly worth many times what they paid for them because if they admit that their homes arent worth what they thought they were worth then they have to face the fact that they will not have enough money for retirement. This is a bitter pill to swallow, so it does not surprise me that many screwed borrowers like crack pipe are unwilling to face the economic realities. He is scared of turning 70 and having to tell his wife that they have run out of money because he didn't properly save for retirement. Do you really think you OWN your house Mr. crack pipe? Lets see what happens when you run out of money to pay the mortgage payments and real estate taxes. Your eviction will be quick and painful. In truth, nobody ever truly owns property, they merely rent it from the bank for as long as they have a mortgage, and they ultimately rent it from the government through the payment of property taxes. Your choice is either to rent property from the bank and government directly or rent it through a landlord who these days is likely subsidizing the other expenses. Buying your own place is like throwing away the free money landlords are willing to give you to subsidize your living expenses. But don't get me wrong, even though landlords are subsidizing your living expenses, they may still be making money because they probably bought the property a long time ago when prices were reasonable. Therefore, by renting, every party is a winner.  (Jul 24, 2007 | post #61)

Newsday

LI, Queens housing sales still cool

Housing prices will continue to fall and inventories will continue to rise until housing prices come back in line with earnings. We have a long long way to go, so get used to seeing articles like these.  (Jul 24, 2007 | post #1)

Newsday

Why you should buy my house

Pete, you are sick and I am glad you left Long Island.  (Jul 24, 2007 | post #54)