The Post Subprime Crisis Home Buying Thread

Originally Posted by dkzzzz

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Did you get your downpaiment from your parents? How are you planing to afford the mortage payments + fees+utilities?
I am just curious.


Agree there with Kronik. Prices need to come down another 20% before they return to inflation adjusted values.
Ugly wooden shacks that people buy here in North east are not houses their a fuking boxes with breathing holes.

My wife and I make a pretty significant income. Without revealing an exact number, I'll say that both of us make more than six figures. The down payment is a combination of money we had saved up prior to getting married, wedding gifts, and money we saved up after getting married. Based on our calculations, we can pay our mortgage payments, credit cards, cars, student loans, utilities, insurance, etc. and still have enough left over every month to put a few grand away.

Eventually we plan on having kids and my wife may stop working for a while or may work part time. By that time, I should be making even more money and we should have enough stashed away to weather the storm.

Originally Posted by dkzzzz

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Did you get your downpaiment from your parents? How are you planing to afford the mortage payments + fees+utilities?
I am just curious.

It's fairly easy to calculate how to afford anything, whether it is a mortgage or a new car or 10 pair of shoes. I've lived on a budget spreadsheet that I whipped up in Excel and tweaked over the years.. about 10 years now, I guess. I just added a couple new fields to it to account for the new expenses, and plugged in the numbers. I even dumbed it all down with a few quick on-the-fly calculations, so I just enter the home price, and then my budget gets prefilled with all the right numbers for mortgage, downpayment, taxes, insurance, etc. Honestly, I don't understand how people can survive on and make sound, long-term financial decisions with anything less.

This is the same spreadsheet that I used two years ago by plugging in Summer 08 to have X number of dollars for a downpayment. Here I am, and I have exactly the right amount of money. This whole financial responsibility thing really isn't that hard. It takes a few minutes every couple months for me to maintain this.

Agree there with Kronik. Prices need to come down another 20% before they return to inflation adjusted values.
Ugly wooden shacks that people buy here in North east are not houses their a fuking boxes with breathing holes.

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I don't know how prices will fall another 20%. Considering what we've been through in the last 5 months or so, we will have to continue to see the same trends, but probably worse, for at least the next 6-8 months. There's still probably a bit more correcting yet to occur, but I wouldn't predict another 20%.

I've seen a lot of data for the last 3-4 months on house prices, and in the city of Chicago, prices have fallen about 15-18% already. Houses initially on the market for 600-700k 3-4 months ago are selling for 500-550k today. That would be a nice 3bdrm 1800sqft condo in good condition in a great neighborhood with easy mass transit access to the loop and would rent out at 3000/mo. I can't imagine that property dropping another 20% and going for 400k.

You would probably not be surprised how hard it is for people to look money straight in the eyes when desire and expectations cloud their view. My sister's first marriage was basically destroyed because she and her husband could not maintain a budget. She is now on her second marriage, and from all signs and signals, the same thing will happen. I keep a similar spreadsheet as you. It takes minutes a week.

I don't have a spreadsheet or anything - I just try to make more money than I can spend, and spend so much time working that I don't have any time left to spend my money on things that are stupid. And there you have odoreater's budgetry101.

The problem with valuing a house is that unlike an economic asset it has no associated cash flow to discount. Because of that, at best it is simply guesswork and comparative analysis. There is no way to say whether home prices are going to stabilize, drop 30% or what, because value, rather than price, is set only by supply and demand. It is one of the few markets where price and value are the same.

Housing is outrageously overpriced. Don't buy anything if you can avoid it.

Prices might have fallen from 2007 levels, but they're still above 2005 levels which is where all the ARM loans are resetting at. In other words, if you're buying today you're following in the in exact footsteps of those who are responsible for the current subprime crisis in the first place... you just have better docs.

Bottom will be somewhere about 2000 levels which is pre-boom.

If I was really a pessimist, I'd say prices will drop to 1995 levels for the pendulum to swing as far into undervaluation as it is right now in overvaluation. No doubt this will occur in some markets but not all.

^^^ The problem with this comment is how on what you base your valuation. If you look at multiple of buy to rent, the US is quite cheap relative to Europe, at least in major cities. If you simply look at the long term trend line, you might get a different idea, but to do that you would need to assume that the market has been efficient in the past.

Originally Posted by iammatt

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^^^ The problem with this comment is how on what you base your valuation. If you look at multiple of buy to rent, the US is quite cheap relative to Europe, at least in major cities. If you simply look at the long term trend line, you might get a different idea, but to do that you would need to assume that the market has been efficient in the past.
This is all good ,but in Europe they don't give stupid loans to stupid people made out of stupid money. So their market of supply/demand is way way way tighter and more sound than this BS that Fed serves us. I am not thinking there are no reasons to be on the market right now. I am thinking there are no reasons to be on North Eastern markets currently as they are just starting to fall. Unfortunately most people buy into idiotic idea of being Home-poor aka American Dream. And then they work like slaves without lifting their heads in fear for the rest of their lives. They just do not talk about this aspect of RE markets on TV shows.

Originally Posted by iammatt

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^^^ The problem with this comment is how on what you base your valuation. If you look at multiple of buy to rent, the US is quite cheap relative to Europe, at least in major cities. If you simply look at the long term trend line, you might get a different idea, but to do that you would need to assume that the market has been efficient in the past.

I base my valuation on the fact that housing prices have been so outrageous for so many years (even at low interest rates and despite exotic loans) that median housing has become unaffordable as a multiple of median salaries. That's the reason for the banking system bailout to prevent impending collapse.

Sure, I can afford a house for $xxx - but the property is overpriced and becomes even more so the further I go above the median. Why buy now when something better will be cheaper 2 years down the road? It's like throwing money away!

Originally Posted by dkzzzz

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This is all good ,but in Europe they don't give stupid loans to stupid people made out of stupid money. So their market of supply/demand is way way way tighter and more sound than this BS that Fed serves us. I am not thinking there are no reasons to be on the market right now. I am thinking there are no reasons to be on North Eastern markets currently as they are just starting to fall. Unfortunately most people buy into idiotic idea of being Home-poor aka American Dream. And then they work like slaves without lifting their heads in fear for the rest of their lives. They just do not talk about this aspect of RE markets on TV shows.
Fine. I don't know the European RE market enough to comment, so I won't. My point is that attempting to value an asset that has no associated cash flow is impossible. You simply buy what you can afford and what seems reasonable to you. There is no more you can do than that.

Originally Posted by raphael

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I base my valuation on the fact that housing prices have been so outrageous for so many years (even at low interest rates and despite exotic loans) that median housing has become unaffordable as a multiple of median salaries. That's the reason for the banking system bailout to prevent impending collapse. Sure, I can afford a house for $xxx - but the property is overpriced and becomes even more so the further I go above the median. Why buy now when something better will be cheaper 2 years down the road? It's like throwing money away! \t
Fine, but that is an opinion, not a valuation. I am not taking the position that prices are dear or cheap, simply that attempting to value RE other than by using current comps is an exercise in futility.

Originally Posted by iammatt

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Fine, but that is an opinion, not a valuation. I am not taking the position that prices are dear or cheap, simply that attempting to value RE other than by using current comps is an exercise in futility.

No, that's reality. The comps are **** because they compare what one about-to-be foreclosed homeowner paid for his property to another sure to be be foreclosed homeowner - if they buyer pays the price based on "comps".

I don't know what's so near and dear about inflationary real estate prices. Every market takes pride in lowering costs to end-consumers: we've got walmart, the computer industry, cars, labor, etc. Real estate is magically supposed to go up?

Originally Posted by raphael

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No, that's reality. The comps are **** because they compare what one about-to-be foreclosed homeowner paid for his property to another sure to be be foreclosed homeowner - if they buyer pays the price based on "comps".

I don't know what's so near and dear about inflationary real estate prices. Every market takes pride in lowering costs to end-consumers: we've got walmart, the computer industry, cars, labor, etc. Real estate is magically supposed to go up?

U mad?

Originally Posted by odoreater

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I don't have a spreadsheet or anything - I just try to make more money than I can spend, and spend so much time working that I don't have any time left to spend my money on things that are stupid. And there you have odoreater's budgetry101.


Jaeger Bomb! Jaeger Bomb! Jaeger Bomb!

Originally Posted by raphael

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No, that's reality. The comps are **** because they compare what one about-to-be foreclosed homeowner paid for his property to another sure to be be foreclosed homeowner - if they buyer pays the price based on "comps".

I don't know what's so near and dear about inflationary real estate prices. Every market takes pride in lowering costs to end-consumers: we've got walmart, the computer industry, cars, labor, etc. Real estate is magically supposed to go up?
Well, I don't give a **** if prices go up or down. I have a house and have had it for a relatively long time. My point is simply that you can't value a house using any method other than what houses sell for. They have no cash flows.

Look, I spend my days valuing things. You may be right, and you may be wrong, but that will only be borne out in the future. You aren't right or wrong based on any ability to value them. Were I to guess, I would say we have another 15% to go on the down side, but that is a guess based on the way markets correct, and has nothing to do with any intrinsic value for houses.

Originally Posted by raphael

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No, that's reality. The comps are **** because they compare what one about-to-be foreclosed homeowner paid for his property to another sure to be be foreclosed homeowner - if they buyer pays the price based on "comps".

I don't know what's so near and dear about inflationary real estate prices. Every market takes pride in lowering costs to end-consumers: we've got walmart, the computer industry, cars, labor, etc. Real estate is magically supposed to go up?

It seems you do not want to accept what Matt is trying to tell you. A residential house is worth pretty much what someone else is willing to pay. It is not a cash producing asset to which you could place some simple valuation models to, such as discounted cash flow. That's all Matt is saying, and what he's saying it objectively correct.