Via the Long Island Business Blog, we note that in Forbes Magazine’s list of the USA’s most overpriced regions puts Long Island, N.Y. at number 7.
No. 7: Long Island, N.Y. – (Nassau-Suffolk, N.Y.)
Cost of Living: 40 of 50
Housing Opportunity: 48 of 50
Unemployment Rate: 17 of 50
Average Salary: 24 of 50
Indeed, though the median home price in the Los Angeles metro area has dipped from $525,000 to $319,000 over the last two years, Angelinos still face one of the least affordable housing markets in the country. According to the NAHB/Wells Fargo’s Housing Opportunity Index, only New York, Long Island, N.Y., and San Francisco are more expensive.
Obviously we talk a lot about prices here on HIB. It’s one of our favorite subjects. There’s been a lot of back and forth about this in the comments of late and I just wanted to weigh in a bit.
It’s really hard to know where prices are, at least in the short term. Median prices in the Village did actually go up a bit, but that’s very misleading. When you’re talking about a very small area with a small number of sales, changes in the median price reflect more a change in the mix of housing sold.
Two metrics we can look at, inventory and the difference in selling vs asking prices, point to a continued and sustained downward spiral in housing prices in the short and even medium term. The fact that these trends persist, even in the face of historic low mortgage rates, indicates to me that there’s still a lot of air in the housing bubble.
The bottom line is, houses aren’t appliances or cars. Each house is different and has its own individual price. There are good deals to be had, even in a hot market and there are bad deals (tons and tons of them) even in this terrible market.
“houses aren’t appliances or cars. Each house is different and has its own individual price.”
The things that make ‘each house different’ are surface treatments that any subsequent owner is going to customize anyway (carpet v. hardwood, paint v. wallpaper, blinds v. curtains, furniture and appliances). The real determining characteristics – usable land size, floorplan – are all but identical. Whether its the cookie cutter Levitown capes from the 50’s on 50×100 neat grid plots, or more modern subdivisions where the only difference is whether the contractor read the prints with the entry on the right or turned them over and put the entry on the left (or more likely – built them semi-attached with only one reversible print for each half, so they could save $$$ by consolodating the water/sewer/power supply on the common wall). The Long Island housing stock has more uniformity than any used house salesman has the integrity to admit. Is one house 50′ further from the main road than its neighbor? Yes. Difference to the daily life of the resident? 3 sec. shorter/longer commute and 0.1 decibel more/less noise. That’s ‘different’? $50k worth of ‘different’?
You’re already beginning to see the reality…
“The price differential for the Village is maybe more than I can justify. Am I really going to pay $50K or more for a house for the privilege of living in the village instead of W. Islip, W. Babylon or Lindenhurst?” (link)
Think about how much private school education you can buy with $50k (plus interest over the life of a mortgage), added to the differenatial of not paying village taxes for some 18 years. Plus, if you really are considering buy-and-hold on this house (in this case, longer than it takes for your youngest to graduate hgh school), remember that tuition goes away when they finish school — high taxes don’t. There’s a reason RE listings spike in platinum school districts come June of each year; the NYT did a piece last year about that phenomenon in Ridgewood NJ.
If it’s worth $50k to you for a village zip code, then you are right about that… because its your money.
To me, I weigh getting a good night’s sleep knowing that the extra money I make over what buys a comfortable rental benefits me, not the bank, some lucky prior homemoaner, their used house salesman, the mortgage broker, appraiser, home inspector (how many mouths can one transaction feed?!?), and that I could maintain my standard of living even if forced to take a substantial pay cut – something not possible if I took on the obligation of even a mundane house at peak prices (putting aside the value proposition – is the house worth it any price).
Give in to reason, and your journey to the dark side will be complete…
Ok…..let’s see. Say 7K a year for private school…thats $583 a month. A house for 445K in Babylon Village at 6% interest, no taxes, is $2134 a month. A house for 389K, no taxes, in west Babylon schools, is $1865 a month at 6%. Your better off in the 445K Village house to the tune of $314 a month. Thats assuming you don’t pick a school that costs more than 7K a year and tuition doesn’t go up over the 13 years you have a kid in private school….meanwhile your mortgage is a fixed cost, and the 445K house will be worth more in 10 years than the 389K house.
A reasoned argument based on some facts, and not a personal attack. I truly didn’t think you had it in you, harriet.
First a comment about your numbers – P+I on the two loan amounts you’ve postulated would be $2,332 and $2,668 respectively. You’ve apparently credited the borrower for federal tax deduction (at 25% rate) on interest paid (plus or minus a few dollars not worth arguing over). Deductability is only a net benefit if the borrower already itemizes deductions (usually because they already own a home). If they do not, they are giving up some of the standard deduction to get that tax benefit. And the borrower still has to write checks to the bank for the full P&I (my numbers), not P&I minus tax deduction (your numbers), if they suffer an income interruption.
You say that the owner in Babylon is $314/mo ahead of the W. babylon owner based on mortgage alone after paying for school. What about the village taxes due? As long as we’re round guessing, is $1,800 a year out of the ordinary? That’s $150/mo., or roughly half of your savings. Then consider the differential in school tax between Babylon and W. Babylon. I think calling that $1,800 per year is generous to your position. The Babylon house is now $14 ahead. Will school tuition increase? Yes, with inflation. No less than taxes will, and you’d be luck if taxes only keep pace with inflation. No advantage to Babylon over W. Babylon.
Also the higher mortgage and taxes in Babylon continue beyond 13 years – school tuition does not. Advantage W. Babylon to the long-term buyer.
Aside, for the same net cost, I’m taking parochial/private school every time – for one essential reason: they are responsive to the needs of the student and concerns of the parent because the parent can choose to place the child elsewhere. I don’t care how competent, or highly rated a public school district and its teachers are — they know the basic fact that they get paid whether your kid attends their school or not. In fact, they’d have a lighter workload and no less pay if you lived in Babylon and sent your kids to private schools — this often shows.
“your mortgage cost is fixed”
It is equally fixed in W. Babylon as it would be in Babylon, which are the two alternatives you’re comparing. No benefit to Babylon over W. Babylon.
“the 445K house will be worth more in 10 years than the 389K house.”
Only by the function of inflation. The long term history shows that residential real estate beats inflation only by about 1% per year. That’s just over $5,600 advantage of appreciation in real dollars (net of inflation) over ten years. Consider that the borrower paid (again in real inflation-adjusted terms – assuming 3% inflation which translates to a 3% real rate of borrowing given 6% APR) almost $15,000 in interest over ten years to borrow the additional $56k to buy the Babylon house: they paid $15,000 to gain $5,600 — Net loss $9,400 to the Babylon house.
Also, why is it that these discussions always assume ther person who buys the cheaper house spends their excess money on hookers and blow? The money not spent on current consumption (like the $340/mo P+I; $40k over 10 years) can be saved for retirement or invested for any other purpose, likely at better than 1% real return to be expected on the house. Advantage W. Babylon over Babylon – both in return on investment and because the owner has the flexibilty to deploy their assets in places other than their house.
And just to tie up loose ends, when you add $2,668/mo. P+I, ~$1,200/mo. all-in taxes and ins. (T+I) for a PITI monthly nut of $3,868, would you consider that someone spending 28% of gross income on PITI, pencilling out to a gross earnings of ~$165k per year, can ‘afford’* the “Village”?
*I have to quote and asterisk that word when using it in conversation with you.
“they are responsive to the needs of the student and concerns of the parent because the parent can choose to place the child elsewhere.” This has not been my experience nor the experience of people I know. Its a cliche. The attitude at private shcools is “take it or leave it.” At public schools, they know they are required to provide very expensive services via an IEP or 504 plan if required to, and they are much more flexible in working with a child’s needs.
“Also, why is it that these discussions always assume ther person who buys the cheaper house spends their excess money on hookers and blow?” No, in this case they spend their excess money on private school education.
Re your numbers: they’re too high. A 445K house does not usually have property taxes of 12K a year. More like 8K or 9K, and then add in 1800/year on insurance. Thats $816 a month, not $1200.
$9k + $1,800 ins. is $900/mo…
Even $9k cannot include village taxes. Are you crediting the original owner/current seller (or their estate) with the benefit of e-STAR exemptions that will not pass to the much younger family buying from them to get down to $8-9k taxes?
Consider 78 Wampum: $11.7 k taxes with $1k village on top; that will be lucky to sell for 90% of wishing price, or $450k; the buyer will not win a assessment grievance in this environment just because the actual arms-length sale price is less than the fantasy number the taxman uses as ‘fair market value’. At the very least a buyer would be foolish to count on winning a tax grievance to make the numbers work. $11.7k + $1k + $1.8k = $14.5k/yr. or almost exactly $1,200/mo T+I. I still maintain that the tax difference (lower school tax and no village tax) of your W. Babylon example more than devours your $314/mo. ‘saved’.
In discussing the school choice I wasn’t even considering true special needs/special ed., I was just thinking garden variety differences in learning style or extra help needed. Interesting choice of words because “take it or leave it” is exactly how I’ve characterize the public school attitude, not the private school. If you don’t like what the public school is offering, you have to write a check. If you don’t like what the private school is offering, you can choose public school. On the special ed. front, those I’ve known who have dealt with the issue have had to sue the local school district to even get a plan implemented, then sue again because the court ordered plan was implemented poorly. That truly was an aside — we’ll have to agree to disagree on that point.
However, since you think I was too pessimistic in my cost estimates then in that case you necessarily must admit that $165k gross annual income is more than enough to ‘afford’* the “Village”, whether or not the buyer chooses to cash you out. (or you can simply dodge the question yet again…).
*usual caveats apply