Here's an update from MSNBC on the ever-increasing prices of homes and how more and more of them are selling for $1 million or more. The overview:
For the first time, there are more than 1 million owner-occupied homes in the United States worth $1 million or more, according to a Census Bureau survey published late last month.
As you'd expect, the rise is caused by high demand:
Demand for housing is still outstripping supply in many U.S. markets, said John M. Clapp, a professor of finance and real estate at the University of Connecticut. Low interest rates have made it easier for people to afford more house, as have some new financing methods, like interest-only adjustable mortgages, which initially allow buyers to lower their monthly payments.
Here's Alan Greenspan's take on the situation:
Federal Reserve Chairman Alan Greenspan has warned that housing prices in some markets have been driven to “unsustainable levels,” and some homeowners have borrowed heavily against their homes’ equity to fuel their consumer spending. If mortgage rates rise, that spending will have to drop and homeowners will be forced to save, Greenspan said in a speech to a bankers group Monday. But he added that homeowners on average have enough equity to absorb the hit if home values drop.
I would say this view is spot on. And with interest rates now rising, it appears the worst is yet to come. Unfortunately, it's first-time home buyers who will get hurt the most:
The losers in this hot market, Clapp said, are people buying a home for the first time. At current interest rates, the monthly payment on an $800,000 mortgage is about $4,700 a month. The financial hit is especially bad in places like New York, where the city’s many condominiums and co-ops require monthly maintenance fees that often exceed $1,000 a month.
Speculators will get hurt too, but that's part of the risk they take:
If prices stop rising, other potential losers could be speculative investors who were counting on a quick resale of a home at a profit to pay back debt. Economists have split over whether the rise in housing prices constitutes a bubble that could burst at any time.
“In the long run, things have to come back into equilibrium,” Clapp said.
I'm a big "buy versus rent" guy, but it does appear that renting will make more sense in some of these locations. Obviously, you need to do the math before you decide to rent or buy.
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