The Sacramento real estate market has been hot for several years. Independent real estate people indicated that the market would likely slow down in mid-2006, but the bubble would not burst, and it should pick up again in 2007.
Acting on that, I bought my first house in mid-2006 as the market cooled a bit.
Today, CNN says U.S. housing prices are dropping and Sacramento is one of the worst places in the nation to buy in the next year.
What does this mean for me and what are the options? Ride it out?
A lot of people here in South Florida have/had the same exact problem. Take the two houses down the street from me. About four months ago a four bedroom sold for 525k. Two weeks ago an identical house (actually a little better because it was on the ‘lake’) sold for 465k. The poor bastards who bought for 525 overpaid by 60k, in their minds.
You have no choice but to hold on. I am not a realtor (not that you can trust them anyway) nor anyone with particular knowledge on the future of the real estate market, but I would bet to assume that it will go back up one day. For example, the person who purchased for 525k will probably never sell for less than that amount, in their minds it is worth 525k. The person who bought for 465k is probably aware of the one who bought for 60k more, so in their minds, they have 60k in ‘equity’ in the house. When the market evens a little bit, and investors get some confidence back, your value should go back up.
Were you planning to sell your house next year, or apply for a home equity loan?
If not, and you plan on continuing to live in Sacto for some time, the sale price of houses around you should make as much difference to you as would the price of tea in China. The benefits of owning a home are substantial. If you’ve adjusted your tax withholdings to account for the mortgage interest deduction yet, you know what I mean, and if you haven’t, you’re going to get a large tax refund in April – so to my ears, “riding it out” actually means “continuing to live in your house, building equity, and saving huge bucks on taxes.”
What are your goals? Were you buying the house with the intent of selling it a year later to turn a profit?
Are you planning on living in it for 30 years?
Do you have an adjustable mortgage?
Are you able to make payments? Will you continue to be able to if rates adjust?
What it means is what it is: your house might be worth less than you paid for it. It doesn’t mean a whole lot if you can make payments and you’re planning on staying in it. No one is going to kick you out.
If you have to sell it, then you need to consider the possibility that you may lose money, so start saving. The bank is going to want their $300,000 back whether you sell it for $250,000 or $350,000.
There are possibilities like “short selling” or just mailing the keys back to the bank and moving to mexico with your credit forever ruined.
As others have said, it depends on what you are wanting to do.
If you bought the house hoping to wait a year then turn it over and make a profit you might have a problem. If you bought it to live in it, then this shouldn’t affect you much at all depending on the type of loan.
I know some people in the Vegas area who are making a living by buying a house, waiting a bit, then sellling at a profit due to the insane housing market out here. Most of those people are going to be fully and totally screwed if the market slows down, which it shows signs of doing.
I have been watching the local market because I am wanting to buy. Six months ago I couldn’t afford anything in town*. Now I am starting to see things that I can afford. The prices are dropping.
I’ve been reading a bit about this and there is a serious disconnect between what I hear from real estate people (this is just a minor slow down and everything will return to normal in six months with normal being insane increases on housing prices) and the economists (this is just a minor slow down to the market is going to bottom out hard). I am hoping it hits hard, I want a house. The down side to having it hit hard is that a lot of people are going to get screwed.
Slee
*There were mobile homes on the market for 200,000. A cheap two bedroom house started at like 300,000. I have no idea how people can afford these things. I make about average in town, maybe a bit more, and even factoring in two income families I have no idea how people can afford to buy anything.
At a glance: Projected drop in median home prices
Stockton, CA - 9.7%
Merced, CA - 8.9%
Reno/Sparks, NV - 8.9%
Fresno, CA - 7.9%
Vallejo/Fairfield, CA - 7.8%
Las Vegas, NV - 7.1%
Bakersfield, CA - 6.6%
Sacramento, CA - 6.4%
Washington, D.C. - 6.3%
Tucson, AZ - 6.2%
CNN says the worst places for the next year are:
California Central Valley :mad:
Southwest Florida
Phoenix, AZ
California Inland Empire
New Jersey Shore
Then if you have a place to live which you can afford (and it will get more affordable with time) you’re in good shape. You bought for the right reasons. You probably won’t be able to get a home equity loan, but that’s a good thing unless you want to invest in increasing the value of your house. I bought in the Bay Area 10 years ago, and while it is amusing to see the prices of homes near me, theoretically having lots of equity in my house has no impact at all on my life.
They probably can’t, really. The use of creative (read: suicidal) mortgages has been trending up at a breakneck pace. Last year, something like one third of new loans were interest only or option ARMs. Sure, you can “afford” an absurdly priced house by paying 60% of your disposable income to the bank and barely meeting the interest, but you’re screwed if the rates go up, or if housing prices refuse to continue exploding like they have.
Bearflag70, here’s hoping you are not one of the ones who will be screwed. If you have a reasonable fixed rate mortgage and can afford to ride out low prices, you’ll probably be fine, although I wouldn’t expect to make much on your house as an investment. If you’re barely making ends meet and were counting on the appreciation of your house, it’s time to start looking for a plan B.
On preview I see that you’re probably OK. I wouldn’t worry about it. Make sure that if the value of your property falls, you consider getting it reappraised to save on property taxes. But onsult a professional to make sure that the lower reappraisal won’t trigger some expensive and onerous clause in your loan agreement.
No one knows for sure, but my opinion is that housing prices are going to fall hard in the next two years, and take a long time to recover. The recent climb in prices is an effect of loose lending practices and low rates, and they’re being tightened and raised.
If it makes you feel any better, my in-laws own places in Florida, and the Jersey Shore. They’re trying to get rid of the Florida place. They bought in '85, but he’s married to a “wishing price” and they’ve put a lot of dough into it.
Housing could crash and crash hard and long. Oft-cited is the current Japanese slump that has gone on for about 15 years. Still not to the levels it was at in the early 90s. I don’t even want to pretend to be an economic prognosticator, but one thing I generally believe: any time there’s an asset that people are buying and selling in a day, you are neck deep in a BEE YOU BEE BEE ELL EEE. And, day trading was going on in the housing market, just like the stock market in '99.
By a lot of measures, houses were (are?) more overpriced than ever. Mortgages outpaced rents. Home values outpaced salary increases. Home values outpaced inflation by an amount way out of whack compared to historic trends.
If you asked everyone in the US what their home was worth a year ago, it would have totalled trillions. The problem is becoming evident: they’re not worth that much when there’s no one left to pay those prices.
And, it seems like everyone had an excuse why it was justified where they lived. Apparently, Oregon, Washington, Idaho, Colorado, Arizona, Utah, and Nevada were just going to be overrun with retiring boomers from California, when in reality it was just speculators from Cali, who had already speculated the crap out of their home state. They’ve created modern day ghost towns, all supposed “owner occupied”.
On the east coast, people in Georgia, Florida, and North and South Carolinas told themselves the same thing about retiring New Yorkers.
From about '97 - '05, as home prices doubled and tripled, every neighborhood in Baltimore was apparently the “Next Big Thing.” But, they were all really just riding a boom brought on by shady appraisals, low interest rates, creative mortgages, and speculation.
Still. . .beats me. Maybe it all keeps trucking right back up. If we could accurately predict gold, stocks, bonds, houses, whatever, we’d all be rich, right?
If you’re planning to stay in the area for the foreseeable future, definitely ride it out. The housing market in California crashed hard in '90, bottomed out in '93 and was back at '89 values in '95 or so. (I bought in '93 but it was dumb luck on my part.) Prices have gone up 300% since '93 so everyone who held on ended up very happy.
There are a lot of advantages to home ownership as others have mentioned. You get the tax break, you don’t have to deal with dickhead landlords or getting a 30 day notice to move and, if you have a fixed rate mortgage, your “rent” will never be raised.
BTW, iamthewalrus(:3=, SB and SLO Counties are still considered good places to buy.
If you have a fixed rate mortgage and you weren’t planning to sell in the immediate future, then look on the bright side. Falling prices mean lower property taxes. My aunt in Virginia is happy about a sudden downfall in price in her area (Vienna, an upper middle class 'burb of D.C.) because it will bring her taxes down by more than $1,500.
Don’t worry too much about it. Long term, you should be fine.
About the tax thing- how will property taxes go down based on other people’s purchase price? Here in SoCal, your property tax base rate is where YOU bought the house. Area comps won’t change your rate.
Not true. Your prop tax is X% of your basis. You basis is the value of your house but the maximum value is capped, not the minimum. If the house value goes down, you can ask the County to reassess it. They won’t do it for you without asking though.
Article in the paper about a house in North Detroit suburb. They wanted 275 and are now down to 199 with no offers so far. Our market is dropping like a rock.
I did some checking. It could also be changed by a two-thirds super majority in both legislative houses. This would be political suicide and would never happen.
You also get reassessed after certain types of rennovations. We cut through a wall to make a storage room a part of the house, and got reassessed - it was only a few months after we bought, so it was no big deal. If we did it now, it would be a disaster.
He said “5 year fixed”. That probably actually means “5 year adjustable”. It’s fixed for 5 years, and then adjusts.
A 30 year fixed is a fixed rate for 30 years.
Let’s not overhype the “tax break” you get from buying a house. You don’t get taxed on what you paid in interest. If you don’t buy a house in the first place, you’re not paying interest to anyone. Interest is money that is flushed down the toilet, just like a rent check.