Real Estate

It will take a few days for the errors to shake out of the MLS, but October’s Market Basket looks pretty weak: Sales down, prices down — but inventories continue their downward trend.

Demand for property now exists in several forms beyond simply having a place to keep your stuff. There are those who speculate in property, those who accumulate property for rentals and others. The wealth-multiplying effect of mortgage interest tax breaks allows individuals with more property to hide more and more wealth while making more and more money - in turn allowing them to increase their consumption of property. Sit on this trend long enough and what happens? Housing prices begin to rise in accordance with demand, pricing lower income individuals out of the market for equity, while simultaneously increasing the equity held by the wealthy.

Many buyers in recent years have stretched the limits of affordability, and have bypassed the traditional 20% down model. But make a smaller down payment, and most lenders will require you to have private mortgage insurance (PMI), which adds a minimum 0.5% of the loan amount to your mortgage payments, about $1,000 more a year on a $200,000 principal.

However, it’s not absolutely impossible to find lenders who give out loans at reasonable rates and agreeable charges to the people who have a bad credit history. All a borrower needs to do is look around and talk to different mortgage brokers, which would prove to be helpful to find a lender that can get them an approved loan with a reasonable interest rate and fair terms of repayment.

Zero down loans replaced VA and FHA for the most part. High rates on the second mortgages replaced PMI. Ten years ago a person might put 5% down and take out a 95% first mortgage and a lower rate, but they had to pay “Private Mortgage Inurance” on the top 15% of the LTV. The PMI amount was not tax deductible. The payment on the second at the higher rate was lower than the loan plus PMI payment and fully tax deductible. A conventional loan with a high rate second may “look” bad, but actually the numbers usually work better than a regular loan with PMI (the old fashioned way) or a 3% down FHA with an up front plus monthly MIP (Mortgage Insurance Premium).

The grass is greener in West Chesterfield, in part, because it's a neighborhood where people take obvious pride in the appearance of their community. In part it's greener because housing prices (and property taxes) are low enough that residents have some green left over to spend on the landscaping. You can still find a 3 bedroom, bath-and-a-half single family on what's said to be an oversized lot in the $150s, and even late 90s new construction at the Chatham Club can be had for well under $300K.

In one of my recent posts I took up the question about the effect on consumer spending from a rise in housing prices. My source was an article from The Economist, which discussed this topic from a US perspective and in relation with the slowdown of the US economy. In short; given the recent slump in US house prices the stronger correlation between private consumption and fluctuations in house prices the higher the risk of a real US recession. In a US context the consensus seems to be that the effect from rising house prices on private consumption is relative large and that it has been rising. But what about in other countries and regions?

Housing prices and long commute drives are serious problems in Los Angeles (and elsewhere too, of course) that no one really has an answer too. If the freeways are constant parking lots, it doesn’t really matter if you’re driving a beater or a Bentley. The long delayed plans to extend the L.A. subway from midtown to the Westside via light rail has finally gotten the ok because, among other reasons, the formerly balky homeowners associations finally realized, hey, our homes might be worth 2 million but we can’t get anywhere on surface streets during rush hour.

Declines locally will be slim to none and may have occurred already, experts say.

Quite honestly my wondering is outweighed by the notion that there’s really not alot of affordable housing in California anymore, and why I haven’t seen better paying jobs recently. You know honestly that’s who shoulders all the burden for all these crazy housing prices, the employers. My mother does payroll her work and she was telling me about all the hikes in insurance costs for the employers for liability insurance these last few years, it’s almost quadrupled. That’s where all the money for raises, and houses is going.

If housing prices come in at above inflation, they will sustain historical norms. If they don’t, it will be the first time in decades that inflation has outpaced housing. The national median existing-home price for all housing types is expected to grow 2.8 percent this year to $225,900, with the median new-home price rising only 0.2 percent to $241,400.