I found a fantastic article via my absolute favorite source for post-bubble news/housing crash news: http://patrick.net/housing/crash.html. The article that I followed from Patrick's website is: The Housing Market's Double Bubble: The Big One Still Has Yet To Pop.
It's a very informative article that explains the housing mess clearly. It brings up something I hadn't considered before though and the thought of it was frightening! All those folks who had moved out to the boonies in order to find an affordable home, can no longer afford the gas to commute back and forth from work to home and vice verse. They can't even afford the homes that they are living in and the loss of equity and the terrible location makes it impossible for them to sell their homes. So what are these folks going to do? They're going to try to move closer to their jobs, to places like Burbank! Yikes!
What does that mean for us? I've been thinking about this a lot, after the horror of it settled in my mind. Clearly this means that there will be more competition for rentals, as most are going to walk away from their homes, so they will be unable to buy another home, they'll be renters, just like me. And what does competition for rentals mean for me? Higher rental prices caused by competition and the lack of rentals! Sure there are all those foreclosed houses that we could rent, but have you seen the prices they want for a house rental? You'll be lucky to touch one at $2000 a month, but most are about $2500 to $2900, representing the mortgage payment for an overpriced home, that the prior owner couldn't afford in the first place. So the problem is that housing rentals won't be an option for many of us. Instead we'll be stuck in apartments and duplexes, etc.
I wonder if an influx of outside folks has been driving the cost of renting in Burbank up in the first place? I mean I understood that present Burbank residents have been stuck in their current rentals, because they couldn't afford the new rental prices in the neighborhood, but I hadn't considered all the people who were walking away from their homes and moving into my neighborhood because of it. I HAD thought about people being forced into rentals because they lost their homes, but I HADN'T thought about people coming from outskirt areas like Santa Clarita, Lancaster and Palmdale to live in my neighborhood because they couldn't afford the gas.
When does this nightmare end?
And what about the stagnant price of homes. Sure they are dropping, but not as much as you would think considering the buyer pool has pretty much dryed up. Even given this, people still think that if they hold on to their homes, eventually us folks will be able to afford them at bubble prices, but we're talking years here, right? Many of us won't want to wait that long. We'll have moved out of the area long before that. Still, people aren't dropping their prices. I've seen decreases in my neighborhood, but nothing substantial. Some homes in Burbank increased over 150% in only 3-4 years! That's crazy! The prices need to come down. Anyway, I can't understand what banks and sellers are thinking.
If they know we don't have the incomes or the crazy loans to afford to purchase their homes, then who do they think is going to buy them?
It seems so simple to me. 1+1 doesn't equal 2.
The whole housing mess scenario seems almost surreal, completely unbelievable. It's like a crazy nightmare and the things you think would never happen are happening, like the screaming high gas prices, that serve only to add salt to our wounds, further bringing our nation down. It's almost like there's a crazy puppeteer looming above us, laughing hysterically with fiendish delight, as he lays one whopper after another on us. It's crazy and denial is rampant. No, I'm not getting paranoid, I'm just baffled by all of this and I'm trying to make sense of it all with some level of humor.
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2 comments:
Always enjoy reading your posts Kelly...
Fear not Kelly. Rents cannot rise forever either. As the job losses mount and the recession deepens and stagnates the economy, people will not be able to pay ever increasing rental rates. Rental rates in areas close to jobs will of course be higher (as you well know), but there are only going to be so many people that can afford $2500+ per month. And there will be less of as the economy sours.
Rents will not be able to bubble like housing because there is no "free money" (i.e. liar loans) available to close a contract for rent. Even in desirable locations. Either you have the money for the deposit and can afford the monthly payment or you cannot. If the cost of groceries and gas (cost of living in general) remains the same or rises while the wages stagnate or drop (increasing un-employment = higher demand for jobs = lower wages acceptable for job seekers), that means people can afford less and less. There is a point where you can only command so much for rent. That point will be reached soon enough. Didn't the State of California just lay off a bunch of people? Banks are closing... Title Insurance companies are closing... people can't take equity out of their house anymore to re-tile their bathroom so the tile setters are losing jobs. I think you see my point.
If a landlord is trying to pay their mortgage with rent at a very high level they are going to be out of luck. They are stuck with charging rent at market price which is based on what people can afford to pay for rent.
One thing to take into account is that some people will begin to live with more people in their house so they can afford rent. This does a couple of things in my view. It keeps more houses available to both rent and sell; increased supply, lower demand. It is not like the population is increasing from what I am reading. More pressure for prices to drop and most likely keep rents fairly stagnant.
The rules for affordability should be the same for purchasing a home. It was not for the variety of reason very well explained in that article. Now that the "free money" is no longer available, you have to *shock* have good credit and a substantial chunk of cash available for a down payment. All of the people that are in a cash position to purchase a home at the still current high prices and are willing to purchase will take the leap and purchase. After that, the next level of home purchasers with less cash will be buying houses, but the prices will have to come down to meet that level or none will get sold. Once those people dry up, you are onto the next lower level of people with cash for downpayments and so on. Eventually the price to own a home is going to have to be at the same level you can rent a home. Still a very long ways to go. The government can prolong this process by bailing out homeowners (banks really), but if the banks are not willing to lend money to make housing affordable at current prices, the bailout just delays the inevitable.
Not to add fuel to your fire, but there is another phenomenon that is happening. The people walking away from their houses don't get kicked out of the house for up to 12 months! Think about that... how would you like to live in your house for 12 months rent free?? They get to save their money then walk away from their house owing nothing and only a bad mark on the credit report.
On the other hand. In the outlying areas where there was rampant building and 2nd or 3rd home speculation but fewer well-paying job prospects there is a going to be (and I am seeing in some places there already is) an obscene glut of houses just sitting empty, becoming public hazards. My prediction in these areas is that the following is going to happen:
*Prices will fall to very low levels. Like $50k for a 3 bedroom house built in 2002. No jobs; nobody to buy the large quantity of overbuilt and abandoned houses. I saw somewhere that in a decent suburb of Detroit there are houses going for less than $12k! Houses that would sell for like $250k in places like Fresno, or $650k in places like Burbank. I could buy a house like that outright! But I ain't moving to Detroit.
*Local governments in these areas are going to put up tax money as incentives for people to either rent these houses or buy them outright. The housing bill the president just signed, assigned money to states to do something like this already. Where it makes sense, it will be cheaper for the local governments to do this than to pay for cleaning up the human wasteland that will spring up around these abandoned houses. People will flock to this "free" money for housing, jobs will be created to support the influx of people to these areas and prices housing prices will go up as demand increases in these areas.
Personally, I'd hate to see more government hand-outs for housing, but I would also hate to see California become the wild west in the suburbs too.
Anyways, thanks for letting me rant on your blog. Maybe I need to come up with my own?
DaMENACE
You have GREAT points, and yes, you should blog them. I should blog your comments! Thanks, as always, for cheering me up!
It seems that sitting tight is the best plan, and waiting. I still can't believe how crazy everything is right now.
I'm glad I'm returning to work in two weeks. I think I've had too much time on my hands to think about this mess. I start work and two classes (US History I and Cultural Anthropology), so I'll be too busy to think about anything!
Can I blog your post? Just a thought.....
Kelly
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