patrick.net

Found this when I was trying to see how long i have been a "regular" at this site. Thought I would share.

**********
From: EastCoastBubbleBoy
To: p@patrick.net
Subject: Great Site!

Patrick,

I have been following your site off and on for at least four years
now. I love the new forum, as well as the housing links. Keep up the
great work!

A bit of background about myself. I have family in two major bubbles
in the Northeast, and have lived in both of them. Back in mid-2001, I
was looking to buy a condo near family. I had been noticing the market
starting to heat up, and knew that if I didn't get in, I may regret
it. My bank literally laughed me out the door. I was told that my debt
to income ratio was too high, and that, based on my current salary, I
wouldn't be able to save up a down payment fast enough to keep up with
the rising prices. Suffice to say, the laxed lending wasn't as
prevalent, so I didn't think to look for it, and took him at his word.

So, rather than buy, I continued to rent and paid down my debt to the
best of my ability. All my debt was student loan debt (no credit card
debt) so I didn't much mind and attacked it aggressively. I lived
slightly below my means, but wasn't subsisting on tuna fish and roman
noodles by any means. Life was comfortable and I even managed to pad
my savings account with a few shekels.

It 2004, I thought I'd try again. I had some free $$$ available (or so
I thought), and tried to purchase a parcel of land near family. It
didn't pan out, for a variety of reasons. The biggest fly in the
ointment was that a "land loan" required upwards of 30% down, no
matter who I talked to, even the more unscrupulous lenders. Dejected,
I sat on the sidelines and waited while prices continued to climb.

Things have finally started to turn here in the Northeast. Prices in
the Metropolitan Areas are starting to fall, although not enough to
make a mortgage affordable for the common man.

A few months ago my father in law and I got into what has become a
running debate as to what the market will do. I say it will come down
hard, he says it won't come down much, it will pause then keep on
going up. Our rationals are as follows:

My contention is that house prices in the bubble areas will decrease
by 30% to 50% over the next five years. An average income should be
able to buy an average house. If the average income of an area $50k,
then the average house should be no more than $250,000. (20% down, 6%
30 year fixed) probably less than that since taxes and insurance need
to be factored in.

My father in law thinks my math is flawed. He argument is that the
cost of raw materials has undergone a similar run-up. Nickle, copper,
plastics, they all cost FAR more than they did five yeas ago. Cost of
material goes up, therefore the purchase price goes up accordingly. I
must admit, his argument makes a certain amount of sense.

He supplements his argument by noting that the builders seem to be
switching from McMansions to more moderately sized homes in order
to "keep with the market". He thinks that prices will only come down a
small amount, mostly due to the smaller house size, before taking off
again.

So the question is, which of us is right? Only time will tell I
suppose. I hope for my sake that I'm right, but if prices don't
plummet I may have to join the lemming parade. That or move to a lower
priced region of the country.

One final thought:

I think that one of the oft overlooked factors is how the student loan
debts of most twenty-somethings will affect their ability to purchase
a home. When you start out 100k in the hole before you work a day in
the real world, it makes it tough to get ahead. My fear is that my
generation (the children of the boomers) will be WORSE off than their
parents when all is said and done. So much for the "American Dream".

Keep up the great work!

Best Regards,
EastCoastBubbleBoy

**********

Amazes me how much I got right, and more importantly how much I got wrong.

I've had a few "near misses" since when that letter was written and today - but despite some close calls,I have yet to make the leap from renter to homeowner.

Even after all of these years, after all of the price declines, not much has changed. Houses were overvalued in 2003 - so absent wage inflation a return to 2003 prices, although not a bad thing, still does not equate to that ever elusive concept of "affordability".

#housing