patrick.net

Troy says

so what happens when unemployment starts returning to a normal level?

oh yeah, to answer the question directly, ZIRP ends and mortgage rates go up to 7, 8, 9%. Or higher.

Troy says

Troy says

so what happens when unemployment starts returning to a normal level?

oh yeah, to answer the question directly, ZIRP ends and mortgage rates go up to 7, 8, 9%. Or higher.

Yeah. I am waiting till unemployment goes down to 5% and let's see how long Fed can hold the interest rate to 5%. At the very least I am not even looking to hire an agent to buy until I see the rate go up to 7%.

Where are you located Blue Swan? Here in Portland we joke that we were late to the party and since the subprime punch was gone we drank a heck of a lot of Alt-A punch. Our U6 number is hovering around 20% . We are known for attracting hipster and creative types read baristas, wanna be band members, and artists. They sure as hell can't buy a house and now they can't even afford rent. Vacancies in the hipster areas is up and rents are down about 20% so where did they all go? I'm guessing either back to the Midwest of they are 10 to an apartment.

We are in a slow bleed here. High end >$500K ain't selling and those that are are taking ~30% haircuts from original asking price. Low end ~$225K supposedly have 'numerous bids' but we'll see what happens now that the Dec 1 $8K credit scare has passed.

Our foreclosures continue to climb and I know of two households who haven't made a payment in about a year but the process hasn't even begun. Can you say shadow inventory. Oh, and what about all the loan modifications that aren't happening?

I think next suimmer will be very telling of true market conditions in the Portland area.

$800B on defense... exactly... What happens when all these American soldiers leave the middle east and come back home??? Are there going to be any jobs for them? Are they going to be able to make a living and support their families?

As much as I'd like to see Obama pull troops out of the Middle East... I think one reason he put a troop pull-out on the back burner is bad PR he would get when all those soldiers that honored their country can't find jobs. Atleast they are collecting a Govt paycheck now...

Troy says

Unemployment is one factor, but wages are another. We need the 2006 employment *and* the 2006 wage level for apples-to-apples price support.

BS! We need 2025 wages at the current cost of living, and to justify Washington keeping home prices at the level they are.

Sure some homes have dropped in value, but only the really hard sales in a slow economy.

Shotgun shacks are 30K but a 3br ranch in Burbdale will still run you over 200K+ and that's the starting price.
Just 10 short years ago, 200K was what corporate executives paid for a house. Not toilet scrubbers and clerks.

Tenouncetrout says

and to justify Washington keeping home prices at the level they are.

?

Home prices are a fascinating market. 10 short years ago 30 year mortgage rates were 8%

http://research.stlouisfed.org/fred2/data/MORTG.txt

And FHA 3.5% down w/ $8,000 spiff up to $730K @ 4.5% was not the lending norm. We are also still in Bush tax cut territory; the DINK HH making $200K paid $60K in Fed taxes in 1999, now it's $44K. That additional $16K in after-tax income can service FOUR HUNDRED THOUSAND in principal at 4% effective interest.

Blue Swan says

crash-olah says

where do you think people are going to get money to pay for their current mortgages

See, that’s my question. We’ve been in this “worst recession” for two years. We should be seeing bread lines and squatter camps in Washington, DC. But we don’t! All we see are a few upper middle class people in the New York Times talking about losing a hundred thou on a condo purchase from 1997.
Where is the effect of the misery index? I don’t see it!

there are no lines because the nanny state system now in place gives magic cards that are worth cash at EBT systems ... so welfare taking non-workers can be consumers without the public knowing they are welfare takers. THat would be bad for their frail ego. Trouble is these non-workers do not buy food for their kids with the cash, WIC does that. And the cash does not go to rent, Section 8 takes care of thet. The non-workers use the EBT money for smoke, drink, drug, and song ... whatever they wish. Great sytem huh? That is why there are no soup lines. In my opinion.

Bap33 is right - because there are so many safety nets for unemployed people (unemployment payments, food stamps, etc) the "misery" isn't in your face like it was in the 30's. Currently 36 million people are on food stamps. That's 10% of the population.

In the 30's, because of deflation, if you had a job you did pretty well. and let's remember, even at the peak, unemployment stood at 25% which means most people had jobs. It's similar today. Most people have jobs and for those people things are pretty good.

As others have stated, people are getting closer and closer to the edge but these things take time to play out. You can look at graphs of the 30's and it looks like everything happened really quickly but living it day to day it was agonizingly slow.

But at the end of the day, if you think this is the bottom then go buy a house.

Blue Swan

I'm afraid a 650K home now worth 610K probably is a crash if the person put a downpayment on it. They lost most of all their downpayment. Right or wrong, for lotsa folks, they use all their savings for the downpayment. Worse, some folks may have even liquidated their part of their retirement accounts, tax penalty and all, to get the cash for the downpayment.

The fact that losing 40K doesn't seem like "news" to you suggests that you may not be tapped in with many regular ol' folks in the US.

Just like housing cannot keep going up and up...it cannot keep going low and low.
The only way to come up with predicting somewhere close to bottoms in housing is to look at case shiller index.
BTW, is it just me or did anybody else notice that traffic and activity on this site has drastically reduced lately !

realestatebug says

Just like housing cannot keep going up and up…it cannot keep going low and low.

Really? Tell that to people in Detroit.

realestatebug says

The only way to come up with predicting somewhere close to bottoms in housing is to look at case shiller index.

Equivalent rents are a much more accurate indicator of value and in most of the BA we're not even close.

Troy says

We’re spending $800B/yr on defense now –that’s 8 million jobs @ $100K per year.

Actually that is 8 million jobs paying 100k in taxes a year. Very big difference. The 800 billion number is just the tip of the iceburg. There is lots of military spending buried unseen everywhere in the budget.

Troy says

We are also still in Bush tax cut territory; the DINK HH making $200K paid $60K in Fed taxes in 1999, now it’s $44K.

You are forgetting about AMT which will make the cuts a lot less than the headline rate. Bush and congress very much counted on AMT negating a lot of the tax cuts so they could, for political propaganda, say they made big tax cuts without actually cutting too much. Just the usual games.

bob2356 says

There is lots of military spending buried unseen everywhere in the budget.

yes and no. Maybe another $200B in there, a rounding error : )

You are forgetting about AMT which will make the cuts a lot less than the headline rate.

Point taken. AMT for $200,000 filing jointly is $55K, eliminating half of the tax cuts.

For the Portland area, pending sales dropped from 2,079 in October to 1,328 in November, a 36% decline, biggest October-November drop in at least five years.

Just what I figured...the big rush to grab that $8K credit and now reality hits. Can this market stand on it's own w/out the credit?

Leigh says

Just what I figured…the big rush to grab that $8K credit and now reality hits. Can this market stand on it’s own w/out the credit?

no. but I'm sure the govt is thinking of some other credit that will help keep prices inflated.

Leigh says

For the Portland area, pending sales dropped from 2,079 in October to 1,328 in November, a 36% decline, biggest October-November drop in at least five years.
Just what I figured…the big rush to grab that $8K credit and now reality hits. Can this market stand on it’s own w/out the credit?

You should look at pending sales for an average of a few months. Comparing Oct to Nov isn't really fair if there just happened to be a spike in October since people expected the credit to end. The numbers might have been more even if people weren't rushing to close before Dec 1st.

IMHO it's still a valid point...RE is screwed w/out the credit. How many buyers are now out of the game since they bought in October? Down hill from here.

crash-olah says

ut I’m sure the govt is thinking of some other credit that will help keep prices inflated.

The stupid thing is that they could just double the mortgage interest tax deduction.

Even if interest rates go to 7%, that would raise the $2000/mo price level of housing from $350,000 to $600,000.

This only adds $100B/yr to the deficit, LOL. They could have avoided ALL the f-ing nastiness of the past 2 years for the tiny cost of $100B/yr in lost tax revenue.

Troy says

This only adds $100B/yr to the deficit, LOL. They could have avoided ALL the f-ing nastiness of the past 2 years for the tiny cost of $100B/yr in lost tax revenue.

You don't really believe that, do you?

Leigh says

IMHO it’s still a valid point…RE is screwed w/out the credit. How many buyers are now out of the game since they bought in October? Down hill from here.

I agree with your end point that without the $8k stimulus housing is in for more trouble. I just don't think that data is necessarily a fair justification.

Troy says

bob2356 says

There is lots of military spending buried unseen everywhere in the budget.

yes and no. Maybe another $200B in there, a rounding error : )
You are forgetting about AMT which will make the cuts a lot less than the headline rate.
Point taken. AMT for $200,000 filing jointly is $55K, eliminating half of the tax cuts.

Actually it's closer to 400 billiion in buried defense funding in addition to the official 613 billion defense budget. Since the federal budget is 1.6 trillion (excluding ss and medicare which are funded on their own) that makes defense 60% of the federal budget. One hell of a rounding error in my book. I would surely like to be your accountant when you say keep the change. Anyway I'm on your side, the military is eating us alive.

tatupu70 says

You don’t really believe that, do you?

Dunno. The problem isn't that prices got too high compared to incomes, but that *payments* got too high compared to incomes, causing all assets -- trillions in loans -- held by banks to go bad, and damn near seizing the entire economy in 2008-2009.

They say the present mortgage interest deduction is $100B/yr in lost revenue. So doubling everyone's tax benefit would technically be another $100B/yr tax loss, at least initially.

Doing the math, I could afford twice the house -- er, twice the purchase price -- if I was getting a double tax deduction on the interest! This is just like halving the interest rate.

How much has TARP etc cost? We've added nearly $3T to the national debt over the past 3 fiscal years since January 2008.

I'm not saying this would have been good policy, since we should try to deflate housing not inflate it, but I think it would have worked as a band-aid to keep the party going.

Again, not that the party itself wasn't going to blow up eventually.

Troy--

There's a couple of problems with that. First, the deduction only applies if you itemize you return. So, the savings is really only the difference between the mortgage+ property tax and the standard deduction. Second, you're only saving 1/4 or 1/3 of the interest depending on your tax bracket.

So, the savings depend greatly on the size of your loan and your tax rate. But, I can't come up with a scenario where you can double your payment.

eg. 300K loan at 5%. Interest is $1250/mo. If you double interest deduction, the extra tax savings is $250/mo. or so. The interest on a 600K loan is $2500/mo. You're a long way off from affording that...

Standard deduction is $5700, twice that if married, tax benefit is ~$9,000 on a $350,000 loan at 6%.

But joint filers tend to buy the $600,000 houses, and the tax benefit of $600K @ 6% is ~$16,000.

PITI on that $350K @ 6% is $2600, but the nominal carrying cost (everything except loan paydown) according to my spreadsheet is $1800 (w/ the $770/mo tax benefit). Actual out-of-pocket expense is $2200/mo.

Doubling the mortgage interest deduction (turning it into more of a credit) would mean a nominal carrying cost of $1800 could support a $750K 6% mortgage, with an actual monthly expense of $2600.

The monthly tax credit on this would be $3300, so as this declined over time my finances would be increasingly stressed, but it takes 10 years to knock down the principal 20%, so I think this would track wage inflation closely.

Not saying this is a good idea, but it's what my spreadsheet is telling me.

Oops, I see the flaw. People in my situation above "only" pay $3000/mo in taxes, so this would essentially remove vast swathes of upper-middle-class taxpayers.

Still, the power of tax credits and housing should not be minimized. $100/mo can support $35,000 of principal at a 3.5% effective rate.

"Everything still seems expensive." The north, east and far south prices have fallen...but not yet the bottom for San Francisco, San Mateo, and Santa Clara. Only the 2nd year of declines.. there is plenty of time for prices to continue to fall.

http://www.housingbubblebust.com/OFHEO/Major/NorCal.html

I went to in to stock investing after i read most of the comments in this site. i got convinced that i can make money in stocks because most people are stupid. I was able to predict the bottom in housing ( i bought in march 09) . prices in my area have risen 10% since then.
90% people were saying housing will keep going up during the bubble ( housing bulls) and now 90% of housing bears ( patrick netters..etc) are saying housing will keep going down.
Now body has ANY SENSE OF WHERE IT SHOULD STOP ( either UP or DN) which means that people are actually clueless.

realestatebug says

which means that people are actually clueless.

except you, of course. lol

realestatebug says

prices in my area have risen 10% since then.

Mortage rates

realestatebug says

Now body has ANY SENSE OF WHERE IT SHOULD STOP ( either UP or DN) which means that people are actually clueless.

I agree with this, though. Nobody can predict the future, and every market is attempting to price in the future.

If mortgage rates somehow drop to 2% (like in Japan), then prices will damn near double from here. If they go up to 8-9%, prices will tumble to match area rents of equivalent properties.

If we get a wage-price spiral like from the 1970s, then buying this year will be an excellent move. If we get Japan's lost decade of staglation, then it won't.

I don't know which way things are going to go. I'm not optimistic, but I was similarly semi-pessimistic in 1992, headed off to Japan, and went from the frying pan into the fire so what do I know.

Tatupu,

"First, the deduction only applies if you itemize you return. So, the savings is really only the difference between the mortgage+ property tax and the standard deduction."

I have heard this argument countless places and am baffled by a startling omission. You assume that the itemized deduction includes only mortgage interest and property tax. My wife and I, for example, would have an itemized return that would exceed the standard deduction, and we do not pay any mortgage interest and property tax (we rent). It is not hard to see that if we bought a house, we would receive the full benefit of a tax deduction. And we are not alone: the standard deduction is based roughly upon the average taxpayer deduction, so assuming no itemized deductions is a very poor model for potential home buyers, who certainly would have enough income-based deductions.

@cforrey--

I was just making a generalization. Most people don't have other significant deductions save taxes and interest so usually this is a fair statement. I'm curious-what other deductions do you claim?

tatupu70 says

I’m curious-what other deductions do you claim?

I am curious too.

cforrey and his wife both are earning lots of income and paying hefty amounts as state/local tax, lots of medical expenses, lots of other loans, lots of charities etc?

realestatebug says

0% people were saying housing will keep going up during the bubble ( housing bulls) and now 90% of housing bears ( patrick netters..etc) are saying housing will keep going down.

Whats missing? Capitulation on the part of Housing Bulls, yes they still believe prices will go back up.
Very often they confuse talk in the media about economic recovery and housing recovery.

Until you really see capitulation we will continue to fall...

Tatapu, state/local taxes are the big deductions. If we want to generalize, I'd say that the fairest determination of the tax break of home-ownership can be determined by the following equation:

Mortgage + Property Tax + State Tax - Standard Deduction

This is the increase in deductions you can claim by owning a home and itemizing your deductions. Of course, the benefit is clearly regressive, as lower incomes will lead to smaller mortgages and property taxes. Our state taxes (high cost of living area) are just north of $7,000/yr. So if we bought a house whose annual property tax was around $5,000, then ALL of the interest on our mortgage payment would be deductible.

That means that most people buying around me are benefiting greatly from the mortgage/property tax deductions. It seems to me to be a mistake to dismiss the tax benefits of owning, as I see done a great deal on this site, in particular when weighing the benefits of renting vs. owning. I agree that's not as simple (or as beneficial) as some present it as being, but in many, many cases it is a tremendous benefit, so why deny that either?

scepticus31 says

Tatapu, state/local taxes are the big deductions. If we want to generalize, I’d say that the fairest determination of the tax break of home-ownership can be determined by the following equation

I agree, but he implied that he had many other deductions other than interest and taxes...

I expect in many areas, prices stay will stay relatively flat over the next 3 to 5 years while the longer-term economic picture sorts itself out. Certainly we have peaked, but do we fall off a cliff (a double dip recession) or does inflation and/or organic growth pull us out of the recession and into recovery? Who knows... but certainly, with so much uncertainty, prices will move just south of sideways until it all shakes out.

There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know.

Donald Rumsfeld

Tatapus, "I agree, but he implied that he had many other deductions other than interest and taxes…"

Actually, I am he and he is I... I just changed my display name, sorry for the confusion.

Seaside, Tatapus -- Our state/local taxes are about 7500. We had some moving, medical, charitable, and miscellaneous expenses this past year as well. I realized after doing our taxes that we might have been better served by itemizing. While many of our deductible expenses were not of a recurring nature, our state/local taxes will be a reliable deduction.

The larger point is that anyone interested in buying a house must be paying state taxes, likely quite a few thousands of dollars worth. I would like to get to the bottom of the issue of the "myth" of homeowner's tax credit. For many, particularly on this site - it seems to be dismissed as a REA-perpetrated scam to malevolently drive unwitting rubes into the perils of homeownership and undue debt burdens. However, in my case, it seems that I would stand to benefit tremendously from a full deduction of my mortgage interest. Please correct me if I'm wrong. Obviously, when weighing whether to buy or not, I would really like to have my facts correct.

And for potential buyers in general, it seems to me an unanswered question - how can we characterize the potential benefits of the tax deduction? It seems to me that if you are looking to buy a single family home, there is more than a negligible benefit, much more. If you're looking at an entry level condo, perhaps you should be prepared to be underwhelmed by the tax benefit. Can we reach any accord on this issue?

Only you and your accountant can answer these questions. It all depends on your tax bracket and your deductions. The numbers aren't that hard to crunch. Be sure you don't forget AMT in the tax equation or you might be in for a really rude shock. Be really, really sure to include maintenance in your calculations also. Most people who haven't owned don't have any clue how much this can be.

I'm all for home ownership where it makes sense. I've owned 5 homes so far and still own a couple as cash positive rental properties. However, where I live now renting is almost half the cost of owning. I put the difference in the bank. There is no way in the world, even with tax deductions and a 15 year mortgage, to make up that much difference by owning. Should the situation change I will reconsider.

The "myth" of the tax credit is that it is an interest free loan of your own tax money. Nothing more, nothing less. We all know what happened to people who financed their down payment don't we?