A couple of years ago I took a Couresra class in Economic 101 from Prof Peter Navarro, (before he became Trump's economic advisor), first lecture he drew a Supply and Demand curve.
Why didn't New York City real estate prices go down in 2008?
- Thread starter RGLD
- Start date
This is likely the correct answer here. House prices go down when people lose their jobs. The mortgage collapse wasn't the "macro" reason house prices fell, it was the ensuing oversupply caused by mass foreclosures. In many areas (like Las Vegas given in the example) so many jobs were lost that housing plunged because no one was buying (because they couldn't). In areas where many homes are already owned, supply is limited, and non-seasonal non-tourist based jobs were plenty there was no reason to expect housing to fall.
I beg to disagree, you got the process backward: Job losses came after the housing mortgages collapsed took the housing market and the world economy with it. The problems were easy credits, liars' mortgage, negative amortization, folks bought without any way to pay for it once mortgage reseted, flawed mortgage back security...
It is an urban myth that there is no space to build in NYC including Manhattan. There are numerous blocks with 4 floor buildings which will eventually be torned down. They will be replaced by 30 to 60 floor building if the demand is there.
So the correct answer is that your assumption was wrong. Haven't you heard Trump's SIL's investment buying at the top then 666 5th Avenue going down in price?
https://money.cnn.com/2018/08/03/news/companies/kushner-666-fifth-avenue-brookfield/index.html
"The Kushners bought the Fifth Avenue skyscraper in 2007 for a then-record $1.8 billion. It was supposed to have been the crown jewel of their real estate empire, and Jared Kushner, the president's son-in-law and a senior White House adviser, played a prominent role in the deal.
But the property didn't bring in as much revenue as expected, making it difficult to repay loans on the building.
The building carries $1.4 billion in debt, the bulk of which comes due in February 2019."
End of thread....
A more detailed article:
https://www.nytimes.com/2018/08/03/nyregion/kushners-building-fifth-avenue-brookfield-lease.html
Here's a question that I can't seem to figure out....
As IRON CHEF stated " some of the 2008 housing bubble problems were easy credits, liars' mortgage, negative amortization, folks bought without any way to pay for it once mortgage reset, flawed mortgage back security."
So this basically highlights how the majority of home prices got so high up until 2008. Then the bubble pops, prices go down and now 11 years later the majority of home prices throughout the country are higher than they were in 2008. We know how we got there the 1st time
(people getting large loans for which they didn't qualify for )
How did we manage to get there this time?
I mean wages haven't gone up that much and not mention things are more expensive now than in 08. So again my question is this we know how we got there last time how did we get there this time?
Thanks 322170
As IRON CHEF stated " some of the 2008 housing bubble problems were easy credits, liars' mortgage, negative amortization, folks bought without any way to pay for it once mortgage reset, flawed mortgage back security."
So this basically highlights how the majority of home prices got so high up until 2008. Then the bubble pops, prices go down and now 11 years later the majority of home prices throughout the country are higher than they were in 2008. We know how we got there the 1st time
(people getting large loans for which they didn't qualify for )
How did we manage to get there this time?
I mean wages haven't gone up that much and not mention things are more expensive now than in 08. So again my question is this we know how we got there last time how did we get there this time?
Thanks 322170
The Harvard economist John Kenneth Galbraith had a famous quote in a book he authored back in 1990: There are two factors contributing to euphoria (bubbles): The first is the extreme brevity of financial memory, and the second is the specious association of money and intelligence.
Ten years is a life time in financial market.
You have Fed QE, CD interest rate of 0.1%, mortgage rate of 3% (8% prior to crash), practically free money after tax and inflation. So, a few early birds, who could, borrowed. The herd then followed. And the cycle started all over again.
You substitute stock market for houses, the effect is the same.
Now you understand why many of the recent ET posts are predicting a crash.
sure I understand that both interest rates and mortgage rates have both came down since 08 and that QE and the massive printing of the FED has created a larger amount of paper dollars out there. However, free money or not you still have to be able to qualify for the purchase price of the home. In your example I agree with you that if you got in early you're probably OK however we are way past early and have been for years so again ask the same question perhaps a different way. We know how the prices rose last time ( easy lending standards on bad credit ) How are people affording homes now?
How are they "qualifying" for these higher priced homes in this current market because the average income or shall I say peoples wages haven't risen enough to support these higher prices. Basically they didn't qualify in 08 so how are they qualifying now. It's all bullshit IMHO- It didn't work out last time and it's not going to work out this time. Substituting stock market for houses is not the same effect however I will agree that a crash is imminent and it will probably be the housing crash that leads the way to the other markets. If someone has a more logical explanation please share.
Thanks 322170
Monthly mortgage payments based on 2006 prime rate:
Home price: $350,000
10% Down payment: $35,000
Term: 30 year fixed
Interest rate: 6.0%
Resulting monthly payment: $2,184
Monthly mortgage payments based on 2016 prime rate:
Home price: $462,300
10% Down payment: $46,200
Term: 30 year fixed
Interest rate: 3.25%
Resulting monthly payment: $2,184
Lower interest rate inflates the value of physical assets as the monthly carrying costs of assets remain the same across both time periods. The important question then becomes, what happens to the value of those assets if interest rates were ever to rise meaningfully....the short answer is that the asset values should decrease significantly (all things being equal), unless wages grow meaningfully to the point where new buyers have more disposable income.
in the beginning it was the financial institutions and the corporations grabbing all the real estate they could which initially drove prices up. However, who's buying now. The average Joe that doesn't work for a major corporation can barley afford the $2184 monthly payment- in order to qualify for a payment of $2184 banks typically lend @ 36% of your gross pay.
( debt to income ratio)
This would equate to annual salary of 72K a year. The national household income average is 72K this means that half the people can't afford it while the other half can and this is using your example of a home priced at $462,300 if you go higher than that price than less and less people become eligible for the loan. (less and less buyers)
In addition: This example doesn't include credit card, auto and student loan debit. So a fair question becomes - Who's creating the demand now? Who can afford these higher prices? I've been told that the main buyers of these higher priced properties are companies and not individuals, their the ones doing the buying and then renting and leasing these properties out.
However, the market is now starting to turn down check out Australia and other cities across the country and for those places that aren't going down yet they're currently plateauing.
What are the power brokers going to do next to fix this imminent problem? As soon as they smell danger they will lower rates again? - Denmark here we come negative rates are headed this way. Did you know that the country of Denmark currently pays you interest to buy a home? How long can this last?
BTW: these are not signs of a healthy economy - As Always Trade Wisely!
( debt to income ratio)
This would equate to annual salary of 72K a year. The national household income average is 72K this means that half the people can't afford it while the other half can and this is using your example of a home priced at $462,300 if you go higher than that price than less and less people become eligible for the loan. (less and less buyers)
In addition: This example doesn't include credit card, auto and student loan debit. So a fair question becomes - Who's creating the demand now? Who can afford these higher prices? I've been told that the main buyers of these higher priced properties are companies and not individuals, their the ones doing the buying and then renting and leasing these properties out.
However, the market is now starting to turn down check out Australia and other cities across the country and for those places that aren't going down yet they're currently plateauing.
What are the power brokers going to do next to fix this imminent problem? As soon as they smell danger they will lower rates again? - Denmark here we come negative rates are headed this way. Did you know that the country of Denmark currently pays you interest to buy a home? How long can this last?
BTW: these are not signs of a healthy economy - As Always Trade Wisely!