Jan

10

Long Island Real Estate Market: How The Subprime Is Impacting You

Filed Under Sellers, Sellers & Buyers |

On Long Island, it doesn’t take a brain surgeon to figure out that the prices of homes are really high. In comparison to the national average of single family homes, the average asking price for a home on Long Island is basically double the national average. As of October, 2007, the average home price nationwide was about $205,000 or so. In order for a bank to finance a residential home purchase here on Long Island, they’ve got to lay out quite a bit of money.

When a bank lends money, it takes time to get that money back. If a bank sets aside $100,000,000 to lend on real estate mortgages, on Long Island, that’s 250 homes (at an average of $400,000 per loan). Liquid assets of any banking institution is a vital aspect which keeps any financial institution on its feet.

With an estimated 1.8 million subprime mortgages scheduled to reset to higher interest rates during the next 2 years, these same financial institutions that have lent out all this money, will be scrambling to get paid. Many people are focusing on only one aspect of this credit crisis.

The issue that is most talked about is how many mortgage companies have closed down - Over 200 mortgage companies have closed within the last year or so, to give you an idea. This has been counteracted by the banking industry tightening their lending practices. This “tightening” has impacted the buyer pool because banks/lenders have made the process of getting a mortgage more challenging.

However, this is only a part of how the subprime market is impacting homeowners, especially on Long Island. First, if ONE foreclosure occurs in any respective neighborhood, this impacts values of surrounding homes. The more foreclosures that pop up, vacant houses or PUBLIC NOTICE signs calling for an auction of a property, the home values will decline sharply. The average loss of market value from a foreclosure in your neighborhood could cause your home value to drop anywhere from 5% to 20%. They don’t look good, especially when they get boarded up. Buyers see a run-down house close to yours and they drive right by.

Secondly, lack of money is a major issue. Without investors, lenders do not have the capital to close as many loans. In addition to this, with a fluxuating real estate market, lenders may choose not to fund purchase prices. Remember all appraisals are “estimated”. And with prices dropping, a lender may not want to lend $400,000 on a property that will be worth $350,000 8 months from now.

Treasury Secretary Henry Paulson has pointed out the current market correction was inevitable, “After years of unsustainable price appreciation and lax lending practices, a housing correction is inevitable and necessary.”

I don’t know about you, but as a homeowner, when I hear the term, “market correction”, I get a little weary. The important thing to do is know how this will impact you. If you’re sitting there saying, “Well I don’t have one of these crazy loans, so this doesn’t hurt me,” you’re not fully understanding what is happening. Each foreclosed home that’s around your own sells for about 25% less than the actual property value.

Foreclosures are increasing throughout the country. Just open the paper and look in the Legal Notice section and you’ll see lists of auction dates on properties set for foreclosure. Of course this doesn’t include what happens before this, with the property usually falling into disrepair and eventually being vacant.

So what do we do? The mere fact that you’re paying attention is a good thing. I’m not saying to panic. If you’re thinking of selling, consider using a Realtor who can price your home correctly and market it effectively. Prices have dropped so find where you’re homes value will sell at and you will find that it will sell rather quickly while still putting money in your pocket. If you’re not selling, then don’t worry about all this so much. If foreclosures are creeping up in your neighbhorhood, get involved.

The time to be neighbors again, rather than strangers is now. Society has changed over the last three decades. Years ago, towns were different. Neighbors actually knew each other. It’s time for people to come out of their homes and say hello to the people that live around them. Now many people don’t want everyone to know their business. That’s understandable. So don’t go prying into other peoples business. Just be a good neighbor. If you suspect that a neighbor is having trouble, get some information together for them and drop it on their door step, anonymously.

With every “crisis” comes opportunity. There are many attorneys that specialize in real estate. Homeowners having difficulty with their mortgage payments should contact a good real estate attorney. If you know one, discretely broker a meeting between your neighbor and the attorney. There are also new businesses that focus on actually helping homeowners negotiate with lenders to avoid foreclosure. There are a number of steps for any homeowner to follow in order to avoid foreclosure. Get this information to your neighbor. Get involved, just use discretion.

It’s time to wake up and realize there’s more to the world than just the little space we call home. Our homes are a part of a community and right now, perhaps your community needs you! I’ll be the first to say that family and close friends are the first to be tended to, but if their needs are being met, look around and see who else may need some help. Loaning money is not the answer (so don’t do it…like we have it to lend given the taxes and oil prices we’re paying). Information and a helping hand may do the trick and if it doesn’t, you personally will have at least tried to help someone else and this is, in my opinion, what we’re all here to do anyway.

By Tom McGiveron

(c) 2008 tommcgiveron.com


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  1. Tom McGiveron | LI Real Estate on January 29, 2008 5:26 am

    […] my last article entitled, Long Island Real Estate Market: How the Subprime is Impacting You, I talked a little about helping a neighbor who you suspect may be having a difficult time paying […]