Tuesday, August 12, 2008

The Credit Slump

One of the more obvious reasons that we are in the midst of such a housing crisis is that the same banks who had no problem lending money to anyone who could fog up a mirror now seem to have a problem loaning money to very viable purchasers. We will not see a complete housing market turnaround until credit starts to become more readily available.

Bank after bank is going out of business and the requirements necessary to obtain a mortgage have become herculean in nature. Is it any wonder that so many homes are languishing on the market? I still believe that there will always be people who want or need to buy a home for their family however it has become exceedingly difficult to qualify for a mortgage.

There are many very good deals on houses that can be had if you can get a mortgage or you are fortunate enough to have an ample supply of cash. Every day there are houses coming onto the market that are priced at 50 to 60% of what they sold for back in 2004-2006. Imagine buying a home that sold for $450,000 in 2005 for $225,000 today. It's out there but the catch is you must be able to get the financing.


At 8/13/08, 4:17 PM, Anonymous LongIslandLost said...

What is a viable purchaser? It would be some one who could comfortably afford the house payment (mortgage, insurance, and taxes). And, it would be some one who can come up with a 20% down payment. The first requirement shows that the person can pay the loan back. The second requirement shows that the person will lose a lot if they fail to pay the loan back. Obviously, the bank will use these two rules to ensure that they get their money back.

Now consider Mount Sinai. The median household income is about $100k. If the household has no other debt, they can pay about 1/3 of their gross income for PITI. At 6.25%, 10k/yr taxes that means they can buy a $360k house with $72k down.

There are seven houses for sale in Mount Sinai that can be purchased by a family earning $100k/yr.

There are 94 houses for sale in Mount Sinai.

So, there are two things that will happen. A lot of families who make a lot more than 100k are going to move into Mount Sinai (maybe because they want to avoid the convenience of Nassau county?). Or a lot of folks won't sell their house.

It seems that the latter is happening.

BTW do you know of some good recent median income links for Suffolk county towns. I don't really trust my $100k number.

At 8/18/08, 9:55 AM, Blogger Bethany said...

Actually, if you fit the criteria, you can still be a viable purchaser with just a 3% down payment according to FHA guidelines.

As for Mount Sinai, an annual income of $100k barely cuts it however there are plenty of decent homes available in the surrounding towns. I think the median household income is based on people who had bought years ago when the prices were obviously lower. The median income of a new buyer to the area will be substantially higher.

For a better Suffolk County median income link you might want to try www.gillanguide.com
The author of the site and book is a Suffolk County native and an all around good guy.

At 9/4/08, 6:44 PM, Anonymous LongIslandLost said...

What if there is nobody with a higher median income to move to an area?

And wouldn't you expect new residents who are less established in their jobs to have a lower income than older residents who have more seniority and experience?

At 9/5/08, 7:31 AM, Blogger Bethany said...

Then the median area income would decrease probably in line w/the price decreases for homes in that neighborhood.

Newer residents do not necessarily have a lower income than older established residents.


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