Tucson, AZ · Member since 2008 · 945 posts · 45 votes
I just got an email from my realtor regarding my decision to wait a little longer for prices to come down more. She said this:
"Sad to say that all indicators show that prices will start ticking up not down. The builders are bringing down their inventory so that isn't an issue. Plus it looks like the mortgage companies will be bailing out the folks who may lose their homes due to subprime or whose ARMs will be too high for them to afford. So there won't be too many of those bargains left. Right now the mortgage companies don't really have a choice. Either they help out or they go under themselves. The gov said that he's going to come down hard on companies if they don't help out but I think it's going to come down on a more national level. "
What do you all think--is that what you all see? What of the forecasts that say that things will continue to get worse for another year or so?
thanks
ofgift
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
18y
If I could predict the future, I'd be a rich man. Really, even a few minutes would suffice.
Honestly, who knows what's going to happen. I think some higher priced areas, especially ones that have seen huge runups, are still due for a fall.
Very difficult, though, to buy at the bottom. Hard to call a bottom, period, except in hindsight. Just like its hard to call a top. Looking back, you can pinpoint the top of the tech bubble pretty much to the day. At the time, it just seemed like another day. No doubt many people bought on that day, applying the "buy on the dips" theory.
I do think we have a period of 12-24 months of significant pain. Even if lenders work out programs, or Hillary freezes foreclosures for 90 days (whatever that means), it will only affect a subset of the people in trouble. I think that if you're looking at lower priced, bread-and-butter houses, we're in a tremendous buying period. We may look back in five years and realize that the bottom occured at the end of '08 or somewhere in '09. But, we could also find things were starting to improve right now. I'm trying to accumulate good properties right now.
Investor · Oklahoma City, OK · Member since 2008 · 28 posts · 3 votes
18y
Originally posted by "ofgift":
"Sad to say that all indicators show that prices will start ticking up not down. The builders are bringing down their inventory so that isn't an issue. Plus it looks like the mortgage companies will be bailing out the folks who may lose their homes due to subprime or whose ARMs will be too high for them to afford. So there won't be too many of those bargains left. Right now the mortgage companies don't really have a choice. Either they help out or they go under themselves. The gov said that he's going to come down hard on companies if they don't help out but I think it's going to come down on a more national level. "
Reeks of desperation. Many of those loans have been sold off and packaged as investment vehicles. Further, due to the lax lending standards in place, a lot of people got into homes they couldn't afford in the first place. There isn't any help for them. Further still, It is becoming increasingly difficult to obtain credit, with jumbo loans( >$400k, I believe) even tougher to come by. This is affecting demand. Where the overall economy is heading isn't going to help any, either. The credit bubble is going to have to unwind on its own.
Although it would be a worst case scenario, look at Japan over the past 20 years to get an idea of how bad it could get.
Depends on your market, but I don't really think the odds of there being an uptick in any market are very good right now. Some will stagnate, many will drop... You might even see a few dead-cat bounces. A few choice locales are probably a good buy, but I wouldn't venture a guess.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
18y
I agree with wsucougz. The realtor is trying to drum up business and like the NAR frequently does is putting an extremely optimistic spin on things. I think prices are headed down, possibly WAY DOWN!
Why do you think the FED is saying that the government needs to do a stimulus package NOW? We could be on the edge of a BIG recession.
Tucson, AZ · Member since 2008 · 945 posts · 45 votes
18y
I'm still sitting on my hands. I get listings from a realtor, and see that prices are coming down. Some of the areas I've looked at are still too high, though they have come down a tad, and some have dropped to where my savings will make a do-able/decent downpayment.
I believe they will come down more over the next several months, and really want to wait. It's hard, when I see some of these prices. Not as low as several years ago, but I think they will come down several thousand yet. Before our local boom started, they were in the range of 65-95K. I'm seeing about 130 now for junk. In a few months, I think I'll join a local REIA, maybe I can do something through someone there.
Real Estate Investor · Atlanta, GA · Member since 2008 · 14 posts · 0 votes
18y
I think prices will eventually increase but I am not sure if they will reach the levels that they were prior to the foreclosure crisis. I believe this crisis is great for overpriced areas (such as San Diego) because it makes homes more affordable.
Real Estate Investor · Portland, OR · Member since 2008 · 1k+ posts · 23 votes
18y
Home values and appreciation is up! What?... (Don’t tell anyone!) In my area, appreciation is up from last year!
I think it's funny to hear the "News" on the real estate market... Yes there are areas going down in value, but there are still many areas that have not changed, or that are still appreciating!
Boy do I love the negative news though! It gets everyone in such a panic and they feel like they need to lower their asking price, and consider seriously your low ball offer…
Real estate is like stock... You do not lose money unless you sell when it’s down! Also, like stock, you buy when it’s low, and sell when it’s high! Have we all forgotten about the “old school” creative real estate investing techniques?... The old "buy low sell high"...
Get in right in the first place, make money on the buy, make money when you hold, and make money when you sell… Ride it out... Personally I do not care if my house is worth $200.... As long as it brings $1200 a month in rent, who cares!
I know I know… It’s pretty easy to be optimistic when you are sitting in an appreciating area… But the point is this… You need to get in correctly, be prepared to make changes as you go along, have a plan “A”, and plan “B” and a plan “C”… Etc… Be flexible and be ready to change and adapt to the market changes…
Investor · Fort Lauderdale, FL · Member since 2008 · 51 posts · 2 votes
18y
I spoke recently with a friend who writes a great investment/economic newsletter, and has been uncannily accurate for the past 10 years. I was asking him specifically about my residence and where he thought prices would come back down to, but what he told me I think could apply to anyone else.
He said that when all is said and done, prices should return to the mean, or historical trendline of prices. He said to go back and figure out what the property was worth in the late '90s (i.e. before the RE bubble began) and add 3% to it per year (what he said is the historical average appreciation for most real estate) up through this year, and that would give me an idea of where the property would likely come back to price-wise.
Doing that on my property puts it $50-60k lower than where it currently is now, which is already $30k below where it was at the height of the bubble... :shock:
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
18y
So, zboy, if you want to collect that 50-60K ... sell now! Eric is right, you only lose if you sell when its down. But, prices are at historical highs vs. the long term trends. Being 30K below the peak still is ahead of the trend. The appreciation seen since the early 2000's has no historical precedent. Your friend is correct about the true values of houses, IMHO. If the value is above the late 90's value +20%, its above its true value.
Jon
Appraiser · Berryville, AR · Member since 2008 · 48 posts · 1 vote
18y
From my understanding of the market and what I have been reading, most of the "experts" are saying that the housing market will rise again in 2010. I know that the areas that I do appraisals in that were increasing at an extremely rapid rate a few years ago are starting to stall and even decrease in value. There are numerous vacant new constructions and vacant lots (some new subdivisions are completely vacant lots). It is sad because some of the nice new subdivisions look like ghost towns. Used to be easier to find comps for sales over $300,000, now it is impossible. In fact it is hard to find comps for anything!!!
Investor · Fort Lauderdale, FL · Member since 2008 · 51 posts · 2 votes
18y
Originally posted by "Wheatie":
So, zboy, if you want to collect that 50-60K ... sell now! Eric is right, you only lose if you sell when its down. But, prices are at historical highs vs. the long term trends. Being 30K below the peak still is ahead of the trend. The appreciation seen since the early 2000's has no historical precedent. Your friend is correct about the true values of houses, IMHO. If the value is above the late 90's value +20%, its above its true value.
Jon
Agreed! I listed my property for sale a couple weeks ago. Got some interested parties, so I'm hoping to do just that, and pocket that extra 50-60K.. :D
Real Estate Investor · Rancho Cucamonga, CA · Member since 2008 · 78 posts · 2 votes
18y
Originally posted by "zboy2854":
I spoke recently with a friend who writes a great investment/economic newsletter, and has been uncannily accurate for the past 10 years. I was asking him specifically about my residence and where he thought prices would come back down to, but what he told me I think could apply to anyone else.
He said that when all is said and done, prices should return to the mean, or historical trendline of prices. He said to go back and figure out what the property was worth in the late '90s (i.e. before the RE bubble began) and add 3% to it per year (what he said is the historical average appreciation for most real estate) up through this year, and that would give me an idea of where the property would likely come back to price-wise.
Instead of multiplying .03 to the 1st value, then adding that 3% to get the 2nd value... then repeating all the way up to now, what's this process called and is there and easier method in doing these calculations? Thanks.
Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
18y
Originally posted by "EricFoster":
What goes up must come down...
Eric,
If you look at the long term trend you know that what goes up continues to go up.
House prices are related to wages and inflation.
Over a long period of time people fully expect inflation to continue and wages to rise over time. No one who expect to hold a job in 30 years would expect salaries not to have risen for the same job they do today.
House prices can go up or down in the short term. House prices can go down long term if there are more houses than there are people. Communities loosing jobs can go into long term decline.
So, expect prices to rise and expect more of the same over the long term. What they do in the next 12 to 24 months is never something can predict.
Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
18y
Originally posted by "zboy2854":
I spoke recently with a friend who writes a great investment/economic newsletter, and has been uncannily accurate for the past 10 years. I was asking him specifically about my residence and where he thought prices would come back down to, but what he told me I think could apply to anyone else.
He said that when all is said and done, prices should return to the mean, or historical trendline of prices. He said to go back and figure out what the property was worth in the late '90s (i.e. before the RE bubble began) and add 3% to it per year (what he said is the historical average appreciation for most real estate) up through this year, and that would give me an idea of where the property would likely come back to price-wise.
Doing that on my property puts it $50-60k lower than where it currently is now, which is already $30k below where it was at the height of the bubble... :shock:
In other words he does not know, he is telling you how to make a guess and it will not be accurate in any precise way.
Lets go back in time. Back to when the average home owner took out a loan to buy a house and the loan had to be refinanced every 5 years. When the economy stalled many people lost their homes as they could not refinance. That was around 1930. In 1936 (maybe 1934) Fannie Mae was started to create a 30 year fixed interest mortgage market. 30 year fixed, fully amortized will drive up prices compared to a rolling 5 year commitment.
Roll forward a bit. To a period when the average family has 1 person working 1 person running the home. They could afford about X using normal multiples.
Move forward where most home owners are couples and both have serious incomes. They can afford more on average without changing the multiples. In parts of CA where most homes have 2 incomes you find the prices are higher than in places where most of the time there is 1 income paying the bills.
I agree with the idea that prices trend towards a a norm. This is standard behavior in many fields of investing, etc. You have to recognize that the norm will shift fundamentally when stuff happens in the market. Back when I started investing ARMs were very new. Few/none had 3, 5, to 7 year fixed periods compared to that being the 'norm' today. A normal interest rate was 10.75 percent with a monthly reset.
When interest rates are low prices rise. When interest rates rise people spend more on interest and less on equity so prices stall, fall or maybe grow less quickly.
Stick with Jon's initial comment. No one can accurately predict. Even with all the press about house prices crashing there are regions around the US where house prices were up for 2007.
Even with the 'crash' prices were down nationally 1.8% if you use the broadest market data. Minus 1.8% is not a crash. First negative year since WWII but not a crash.
Clearly a crash did happen in some markets such as S CA.
Residential Real Estate Broker · Placentia, CA · Member since 2008 · 28 posts · 0 votes
18y
The method is just called inflation. Home prices are roughly tied to it. If home prices rise faster than inflation the next generation would not be able to afford to purchase a home.
If the rate of inflation is 3%, wages rise at 3%, instrest rates remain unchanged the home prices should rise at 3%. This would keep the affordability index unchanged.
year 1 home vallue
100,000.00
Year 2 home value
(100,000.00*1.03)=103,000.00
Year 3 home value
(103,000.00*1.03)=106,090.00
and so on...Kind of like intrest compound on an anual basis.
Hope that helps
For more on this subjuct, look into a guy named Robert Shiller. Just do a search on the net for him, he's good.
Residential Real Estate Broker · Placentia, CA · Member since 2008 · 28 posts · 0 votes
18y
Here is some data from the Case Shiller home price index. I have plotted a graph for a few of the cities including Portland and Seattle.
In looking at the graph, prices will fall until they get closer to the infaltion trend line. This is the histoic level for prices since the end of WWII. Yes, they have veried up and down since that time relative to the trend line, but have been tied closely to it.
Real Estate Investor · Rancho Cucamonga, CA · Member since 2008 · 78 posts · 2 votes
18y
Originally posted by "rws4consulting":
Here is some data from the Case Shiller home price index. I have plotted a graph for a few of the cities including Portland and Seattle.
In looking at the graph, prices will fall until they get closer to the infaltion trend line. This is the histoic level for prices since the end of WWII. Yes, they have veried up and down since that time relative to the trend line, but have been tied closely to it.
Hope you like it!
Yes, that explains it pretty much, thank you. Do you think history will repeat itself?
Fort Myers, FL · Member since 2008 · 59 posts · 0 votes
18y
That's something I'd read elsewhere, and it makes sense, but I can't really see it going THAT low where I am. I've already heard of sales picking up around here, and that almost makes me wonder if there's a second wave of investors looking to pick up the pieces.
If you're wondering about the SW FL market, there's a pretty good report on it at http://www.topagent.com/ Download the State of the Market Report.