I was in the market to buy in Brookyln a few years ago, but gave up in disgust. Every week, a fixer upper would shoot up another twenty grand and it just seemed like we couldn’t save fast enough to keep up. Every time we tried to get serious about buying a place, we were offered what I called a "crazy-ass loan," which I just wouldn’t sign up for. We have good credit, but didn't have enough for a proper down payment. I just was not willing to get into that game, because it made no damn sense. But adjustable and interest only mortgages were the only way to buy in. And, believe me, there was pressure to BUY NOW or you may never be able to buy again!
We decided to move into another rental and save and see how things played out.
I’ve read tons of articles about what’s happening in the housing and mortgage markets, but I’d be pushing it if I said I really understood all the crap that’s going on.
There are, however, a few things I’ve been saying all along while looking for a home and looking at the market. I have not seen these issues really addressed in the big articles about hedge funds, etc.
Shelter: Houses are a commodity only to a certain degree. Houses are not stocks. People actually need to live in them to survive. Shelter is one of the essentials of human existence. Therefore, housing speculation cannot be limitless. The fact that housing has been considered a "can’t lose" investment is just insane to me. Obviously there will come a point when people can’t afford to live in real estate unless their wages are appreciating in line with such real estate.
Overpricing: Low interest rates coupled with speculation unnaturally drove up prices. As prices skyrocketed, the only way people could buy themselves into over-inflated home ownership was to get into risky, tricky loans beyond their means. Homeowners were deluded into thinking they were house rich and went crazy sucking out equity. But - you are only as rich as someone is able to buy your home, which, for the most part, was through a crazy, risky mortgage the buyer is likely not able to afford in the long run. Of course housing has to fall, because it rose unnaturally.
While Manhattan will unlikely be touched, the boroughs will most certainly be affected. With a livable one-family going for $600K+, unless you have big saving account or have recently sold a place, you can only buy with a "creative loan." So if the banks cannot continue to float huge mortgages at low prices, this whole thing is untenable.
I just don’t get how this has eluded most lenders, home owners and financiers until now.
I’ve been saying these last few years, that the only way we’ll be able to afford to buy a house is if the country’s economy implodes. Unfortunately, it seems like that’s on its way. And it’s not the way I wanted to be able to buy a house.