Originally posted by @Edward Briley:
Will housing prices crash again in the next 4-7 years?
I am someone who believes that the housing market will not return, until real estate taxes and insurance decreases, unless wages rise significantly without either of the two increasing in cost.
I am a flipper, or was a flipper, until I realized from the tax and insurance bills that with the cost of the home, and those, it was not worth doing. Matter of fact, I can understand why home ownership is the lowest in the last 50 years, because of taxes and insurance cost.
A home in most places in the US that is valued at more than $100,000 has real estate/school taxes around 200 dollars a month. Add in the insurance cost, and that is another 100 dollars a mouth, and now in many places, more than that if you include earthquake, flood and other required insurances and taxes. So from the get go, even with a low cost mortgage you owe at least 300 dollars a month on money that will get you a zero return on.
I had a new home specked that was 1300 square feet to be built on a $9000 piece of property. The cost was $130 per Square foot. The cost of the home to be built was $169,000. Taxes on the land and the house would be about $300 a month alone. Even building the house for half the price, the taxes would be about $250 a month. The value of the house and land appraisal would fall in about $125,000 - a loss from the start and that is if I would be able to sell it?
I don't know where you live or what kind of money you make, but in most areas of the country someone is much better off renting than buying a home. Now good news for people that own and rent. You are better off, because you get the tax deductions on your investment properties. If things keep doing like they are today, only multifamily properties will be worth investing in to rent. In small upscale towns today, it is not unusual for a home owner to own more than 30 rental properties. - What is wrong with this picture?
Until things change with the taxes and insurance, or salaries increase dramatically, housing will remain somewhat flat. Housing has not really bottomed out yet, and until it does, house prices will increase a little and decrease a little, It is that simple.
I mostly disagree with what you are saying here. I also live in Virginia and while virginia is a bit different then other states I think you are looking at it the wrong way
I'm in richmond and the Shenandoah valley and during the great housing crash the markets really did not drop down. But, especially in richmond, they were already a pretty decent value. But like most places in virginia I haven't seen the huge amount of foreclosures and tremendous deals either...
Anyway, the tax rates in both of these regions hover around $1 per $100. Your quoted tax rate complaint of $300 a month on a $169k house is around a rate of $2.1 per $100. Now I don't know the tax rate in your region but that seems high
As for insurance, well, we didn't get hit by hurricanes for a while and now lately we sure have, at least your side of the state. So understandably the insurance companies have over compensated.
But really, the reason why taxes and insurance feel high is not because they are high, but realitively speaking money is so cheap because low interest rates. I've owned my own home a few years and yes, I pay more in taxes and insurance then interest already. But that's not the city to blame, that's the cheap money to blame
And yes, salaries are pretty stagnant, which why the recover feels like a non recovery for a lot of people
Anyway to address the original question, I do believe we have equity prices inflated due to long term 0% interest rates which will cause some issues in the future. People highly leveraged up on balloon loans may be in for a surprise when rates rise and causes their real estate values to decline (relative to the interest rate increase).
Because not only will money become more expensive it will also reduce the value of real estate due to returns dropping
