Housing Prices

[pete11]

I think the truth lies somehwere between TheAnk and pete11. I'm not sure if I should even interject, but let's just use some numbers and explain where they come from.

First, $300K house with 5% down and a 6.25% interest rate. This would be an assisted loan. No PMI. Not being low income myself I don't know what the actual numbers are, but I imagine there are programs for low income buyers that are along these lines.

P&I - $1775

RE Tax with homestead ($15/1000 or so I think), $375

Insurance - $120

Total Monthly Payment - $2270

2 Rents @$750/mo - ($1500)

Payment basis - $770

/.28 = $33,000 income

Not quite below the $19K average.

Maintanence - $500 (although in lumps. This assumes 2% home value for yearly maintanence cost)

Monthly Expenditure - $1270 (again averaged over a long time)

AGI Adjustments:

Maintanence (2%) - ($6000)

Total Tax Exemption for year (R.E. Tax + Interest) - ($22000)

2 apartments @$750/mo. Income for year - 18000

Net profit from home: ($10000)

Taxable income - $23000, which means no income tax paid assuming some dependents.

Even if the tax basis for the house stays the same, rents would have to increase to about $1200/mo before it would be a positive impact on AGI. Again, on average. Maintanence will likely not be 2% as the family would not have the income to support it. It would be zero until something needed to be done. I also think the 2% guideline is a bit out of date since homes have appreciated ahead of even the inflation in the cost of building materials

[xine]

Don't like 70% of them already own homes?

[pete11]

The census bureau feels that only 45.6 percent do, if you define "echo boom" as 25-34. (See Brief #13, page 8):

http://www.census.gov/population/www/cen2000/briefs.html

[Jerry2]

You can't qualify for any mortgage using 100% of rental income anywhere. The most one can use that I've seen is 75%. Also, no one is factoring in other debts like credit cards, student or auto loans.Even if the housing ratios are OK, if the total debt ratio is too high, the loan will not fly. Also, all loans with less than 20 % down have PMI. Whether you avoid it by splitting the 2 loans or you accept a higher rate that drops down in lieu pf PMI, it's still there.

The real issue with immigrant homeowners is that they are so desperate to own a home and live the "American Dream." More often than not, they are the victims of predatory lending because of limited English and no knowledge of the process. They represent an easy target for loan officers and brokers that can make more money on their loan. If you think the majority are getting 6.25%, you are mistaken...esp. with no money or minimal down. On a 19K average salary, it would take them years to save for just the down-payment and closing costs.....and that's just an FHA loan. That's also assuming FHA offers financing for 3 families, which they don't. 3+ family homes are a harder sell on the secondary market.

You would be surprised how much mortgage fraud exists in this country, even here in Lil'Rhody. There is a tremendous amount of ILLEGAL immigrants that have bought with false social security #'s. They are not getting 6.25%. The income they qualify for is generally "stated" to comply with regualtions. The reason they have 20 people living in one house is because they can't afford it. Period. In the next few years when their adjustable rates come due and their rates rise, you will see an unprecedented amount of foreclosures. It is already starting to happen. If you are thinking about buying right now, I would at least wait until next year.

[pete11]

You can't qualify for any mortgage using 100% of rental income anywhere. The most one can use that I've seen is 75%. Also, no one is factoring in other debts like credit cards, student or auto loans.Even if the housing ratios are OK, if the total debt ratio is too high, the loan will not fly. Also, all loans with less than 20 % down have PMI. Whether you avoid it by splitting the 2 loans or you accept a higher rate that drops down in lieu pf PMI, it's still there.

The real issue with immigrant homeowners is that they are so desperate to own a home and live the "American Dream." More often than not, they are the victims of predatory lending because of limited English and no knowledge of the process. They represent an easy target for loan officers and brokers that can make more money on their loan. If you think the majority are getting 6.25%, you are mistaken...esp. with no money or minimal down. On a 19K average salary, it would take them years to save for just the down-payment and closing costs.....and that's just an FHA loan. That's also assuming FHA offers financing for 3 families, which they don't. 3+ family homes are a harder sell on the secondary market.

You would be surprised how much mortgage fraud exists in this country, even here in Lil'Rhody. There is a tremendous amount of ILLEGAL immigrants that have bought with false social security #'s. They are not getting 6.25%. The income they qualify for is generally "stated" to comply with regualtions. The reason they have 20 people living in one house is because they can't afford it. Period. In the next few years when their adjustable rates come due and their rates rise, you will see an unprecedented amount of foreclosures. It is already starting to happen. If you are thinking about buying right now, I would at least wait until next year.

[Cotuit]

I merged the "Better Investment" thread into this one, and some posts from "The Plant" thread as well, because the discussion in all three threads was turning into the same discussion.

[Jerry2]

Jerry I don't think you need to stop at mortgage fraud (RI AG's office is currently investigating on wether to accept ameriquests settlement last year) you're forgetting appraisal fraud, underwriting fraud, disclosure fraud, inspection fraud, tax credit fraud.... and the list goes on. Also on stated income what % of applications do you think are fraudulent? I had one bond trader friend tell me out of all NINA's about 101% are fraudulent

http://www.bloomberg.com/apps/news?pid=new...id=aNrNjRjfwzfY

[urbie]

[qu

[pete11]

Heh... I could certainly be wrong -- but I wouldn't have the stomach to short those home builders. TOL bottomed in July, WCI and CFC in August. LEND, you're doing well there -- but I wouldn't be short any of them right now. Are you a hedge-fund manager or some'pn?

Certainly, there's cause for concern in some markets -- the overbuilding in Phoenix and Vegas has been ridiculous over the past several years, and those are notoriously volatile markets to begin with (as the Baptist Foundation of America found out). I used to play a golf course in Williams, AZ, and last summer, the fairways were lined with empty new houses with For Sale signs in front of them -- one of them was being auctioned off on-line. But a crash, in the sense of widespread selling-for-less-than-you-paid, is unlikely; prices are always sticky downward, and even luxury condos in Boston in the '80s, where there was a speculative bubble and prices came down for awhile, eventually came back. It gets back to having intrinsic value....

Urb

[GRDadof3]

I have to agree with pete11 on all of this.

One other thing to note, that perhaps was brought up previously but I didn't read it, was that there is more at stake than just a bunch of speculative condo investors and ARM recipients that are about to get burned during the forthcoming shakedown, it's also the fact that about 1/3 of private sector job growth in the past 4 or 5 years in this country was directly related to the rapidly growing real estate/new homes industry (appraisers, mortgage lenders, real estate agents, inspectors, contractors, engineers, architects, etc.). As many homeowners get burned and foreclosures spike upward, don't forget the thousands of construction and real estate professionals that will be out of work, many of which had gotten used to having a huge disposable income keeping the retail economy humming.

Another article about the resulting job losses from a housing slowdown. A lot of the media seemed to be ignoring (or forgetting) about this aspect of the housing market slowdown, and only concentrating on housing values going down.

[TheAnk]

You cannot lump condos and my example, a 3 family in The O together.. Its not happening.. Regarding financing, a 3% FHA loan is perfect for a first time home buyer. The rates are low, and fixed.. You make your MIP & PMI, but on 300k its probably $115.. Rental income is calculated for lending purposes @ 70% to account for vacancies.. All of your assumptions fail to realize the tax benefit of home ownership.. Its substantial, for interest deduction alone..

How do I feel about single fams and condos? Not too good, not too bad.. Multi families? Good.. What I think is you will see more renters as the affordibilty is skewed, its better to rent now that people don't "know" they will make a killing by buying.. More renters, stable rents.. The one possible thing I fear is a waterfall effect from condos going apartments.. Literally, this is the one thing I worry about...

I love the fact that someone always brings up 1989.. Its inevitable.. I was not around here then, but I'd like to know how this is the same as 1989? Was there the same amount of smart money flowing into the area for these big projects? I was told it was not.. Besides, after what a 300% increase in prices in 89, what did they correct? 30%.. Think about that... Who got hurt?

I think the Valley area presents a one time opportunity formed by gentrification.. You have an area that was artificially devalued (stigma aside for the moment please), and is being brought to the norm.. Gentrification in this case I believe needs to be viewed aside of the real estate nationally inflated values.. There will not be uniform price drops.. A perfect example is condos on fed hill in 3 deckers that were listing for 250k range a year ago are now 195k range.. 3 families in The O were listing for 250k now are over 300k.. Doesn't seem like the widespread fall in prices like people say.. Check out riliving for home value performance.. You will see that condos and singles are down, multi's up.. One thing I can say that is constant; in rising markets, condos are laggard, last to rise.. And rise the most.. And on the other way... First to fall, and fall the most..

Also, two reasons why housing will not plummet.. Housing is not turned over easily.. I feel this is people's #1 mistake.. With a stock, you point and click to sell in seconds.. With a house, it is a long drawn out process, that in itself will prove for a soft landing, at worst..

Secondly, housing is shelter.. People live in houses.. If you don't sell, you don't sell.. You continue to live in the house.. You cannot live in a OTC stock.. So the opportunity for a cattle-like reaction is far less with housing..

In the even of a 20% correction, how many people truly will be negatively effected? Not many.. Only people who bought at the top, and/or with ARMs.. Everyone else can just wait it out, or sell for a smaller profit.. Since houses are inflationary, how long does it take to regain from a correction? 4-5 years..

[TheAnk]

More or less, we agree pete11.. I think you generalize accross housing types.. I also think you fail to realize that not everyone bought a house yesterday..

Regarding you thinking buying a 3 fam in Olneyville is a bad idea, thats too bad.. The one thing I will say is that being a landlord is not for everyone.. If you are not handy, and decent at dealing with people, its probably a bad idea..

But I think you don't understand that for a low income family, or perhaps a recent immigrant family, it is by far the best avenue to home ownership..

An interesting side note: the gov thinks of you as a "first time home buyer" if you have not bought a home in the past 2 years... So if someone cannot afford a single fam or condo without rental income, you can buy a multi with 3% down, live in it for 2 years, sell tax free up to 250k profit, and buy another house using only 3% down and the favorable FHA rates.. So your at risk cash each time is only 3%.. Yes, Sounds like a decent plan huh pete11? Even you have to agree with this..

[eltron]

I love the fact that someone always brings up 1989.. Its inevitable.. I was not around here then, but I'd like to know how this is the same as 1989? Was there the same amount of smart money flowing into the area for these big projects? I was told it was not.. Besides, after what a 300% increase in prices in 89, what did they correct? 30%.. Think about that... Who got hurt?

[dgreco]

What is the average renting price in RI, more specifically Providence? and what is the increase and decrease percentages over that time?

[pete11]

More or less, we agree pete11.. I think you generalize accross housing types.. I also think you fail to realize that not everyone bought a house yesterday..

Regarding you thinking buying a 3 fam in Olneyville is a bad idea, thats too bad.. The one thing I will say is that being a landlord is not for everyone.. If you are not handy, and decent at dealing with people, its probably a bad idea..

But I think you don't understand that for a low income family, or perhaps a recent immigrant family, it is by far the best avenue to home ownership..

An interesting side note: the gov thinks of you as a "first time home buyer" if you have not bought a home in the past 2 years... So if someone cannot afford a single fam or condo without rental income, you can buy a multi with 3% down, live in it for 2 years, sell tax free up to 250k profit, and buy another house using only 3% down and the favorable FHA rates.. So your at risk cash each time is only 3%.. Yes, Sounds like a decent plan huh pete11? Even you have to agree with this..

[TheAnk]

I respectfully, as much as possible, completly whole heartedly disagree... The numbers work.. Do the math.. The rent ratio is right..

[TheAnk]

Some recent numbers for you:

Listed for sale:

Date # of multis PVD# Statewide# of 3Fam PVD # 3Fam Statewide

09/05/2006 586 1543 259 574

09/08/2006 586 1533 259 572

09/13/2006 620 1578 285 601

09/15/2006 621 1587 287 603

09/20/2006 623 1578 282 594

09/25/2006 622 1562 285 595

09/29/2006 620 1562 287 595

10/10/2006 622 1545 278 579

10/13/2006 618 1546 272 580

10/19/2006 628 1542 278 584

11/30/2006 601 1473 272 563

12/08/2006 580 1420 260 536

12/12/2006 573 1394 256 526

Supply is dropping, price for multis, remains positive.. Sales velocity slowing.. In your scenario, prices should be falling dramatically, right? Why aren't they?

http://www.riliving.com/oceanstate/SalesSt.../2006mf3rdQ.asp

Rents, going up..

http://204.17.79.244/profiles/compplan/Pro...%20increase.gif

http://www.usatoday.com/money/economy/hous...rent-usat_x.htm

So I suggest you stop watching CNBC, with an ashtray filled with 65 crushed out Newport 1,000s, and do some research...

Again, you don't understand.. I'm not talking about condos, or single family housing.. I'm talking income property.. In a down real estate market, all those people who may have bought, instead now are renters..

Condos, first to go..

http://www.riliving.com/oceanstate/SalesSt...06condo3rdQ.asp

[pete11]

Some recent numbers for you:

Listed for sale:

Date # of multis PVD# Statewide# of 3Fam PVD # 3Fam Statewide

09/05/2006 586 1543 259 574

09/08/2006 586 1533 259 572

09/13/2006 620 1578 285 601

09/15/2006 621 1587 287 603

09/20/2006 623 1578 282 594

09/25/2006 622 1562 285 595

09/29/2006 620 1562 287 595

10/10/2006 622 1545 278 579

10/13/2006 618 1546 272 580

10/19/2006 628 1542 278 584

11/30/2006 601 1473 272 563

12/08/2006 580 1420 260 536

12/12/2006 573 1394 256 526

Supply is dropping, price for multis, remains positive.. Sales velocity slowing.. In your scenario, prices should be falling dramatically, right? Why aren't they?

http://www.riliving.com/oceanstate/SalesSt.../2006mf3rdQ.asp

Rents, going up..

http://204.17.79.244/profiles/compplan/Pro...%20increase.gif

http://www.usatoday.com/money/economy/hous...rent-usat_x.htm

So I suggest you stop watching CNBC, with an ashtray filled with 65 crushed out Newport 1,000s, and do some research...

Again, you don't understand.. I'm not talking about condos, or single family housing.. I'm talking income property.. In a down real estate market, all those people who may have bought, instead now are renters..

Condos, first to go..

http://www.riliving.com/oceanstate/SalesSt...06condo3rdQ.asp

[jencoleslaw]

if you guys don't bring your slide rules, pocket protectors and charting calculators to the UP Party tomorrow, i am going to be very very disappointed.

[Frankie811]

if you guys don't bring your slide rules, pocket protectors and charting calculators to the UP Party tomorrow, i am going to be very very disappointed.

[jencoleslaw]

[pete11]

and i expect someone will be measuring them to see whose is bigger.

[Frankie811]

Housing slump continues, but condo sales rise

The Rhode Island housing slump continued in October, as the median sale price for condominiums dropped 12.2 percent from a year earlier and sales of single-family homes marked their fourth straight month of double-digit percentage declines, according to a report today by The Warren Group, in Boston, which tracks real estate data across New England.

http://www.pbn.com/contentmgr/showdetails.php/id/124286

[Frankie811]

R.I. ranks near bottom nationwide in rental affordability

Rents in Rhode Island have risen so high that a two-bedroom apartment now requires a full-time job that pays at least $19.36 per hour, or more than $40,200 a year, according to a report released yesterday by a national nonprofit group.

http://www.projo.com/business/content/BZ_A...HE.2bbe562.html

[runawayjim]

R.I. ranks near bottom nationwide in rental affordability

Rents in Rhode Island have risen so high that a two-bedroom apartment now requires a full-time job that pays at least $19.36 per hour, or more than $40,200 a year, according to a report released yesterday by a national nonprofit group.

http://www.projo.com/business/content/BZ_A...HE.2bbe562.html