Falling home prices

[lazygood4nothinbum]

Quote:

Originally Posted by twaddle I aim to please. Is San Diego close enough to Florida? Well, they're both warm and bubbly.

thanx. maybe that should have been a pie chart.

[TBPu]

Wow. Blamo. Twaddle is rockin. Facts. Nice. Busting a gut laughing at the 2 (I f'd up and bought at high) dudes.

Haw, haw, haw. OK, just kidding. I do wonder how far (in a psychology sense) some will go to lie in order to cover a mistake.

[FinallyRetired]

Quote:

Originally Posted by twaddle Watch it, buddy, or I'll post some graphs.

What the heck is a "standard" house by Case Schiller? Is that a house whose value is good enough to be included in their graphs? In the dot com bust, the "standard" stock had a great depression type fall, if by standard you meant a dot com. But the blue chips pretty much survived.

When one looks at graphs showing median home prices, the graphs don't look quite as scary:

[twaddle]

The Shiller data is good, but it looks scarier than it would if the graph origin started at zero rather than 60.

The main point was that this is our biggest housing bubble ever. We have "biggest ever" stuff happen all the time, but for some reason people get defensive when it's used to describe the housing bubble.

And here's one of those tin-foil hat wearing d00ds who like to invoke the Great Depression:

Wells Fargo CEO says housing worst since Great Depression - Sacramento Business Journal:

That doesn't mean it's the end of the world. It means something economically significant is happening. There's no point in wishing it away.

[cute fuzzy bunny]

Quote:

Originally Posted by twaddle Home prices are a function of future home prices. OK, let me write that down.

Let me help you with this one, since you seem to have trouble with the process.

Whats the pitch that a real estate agent uses to get a buyer to buy a home more expensive than they can afford today?

1) they'll be making more money in a few years

aaaand...

2) the home will be worth more

Since more buyers buying up means more price support, that means that buyers who buy up because the house will be worth more causes prices to rise.

The whole upsurge we just watched was due to these two functions, plus the "and the mortgage on that more expensive house wont cost you as much because we'll get you in a 40 year interest only arm, so you can afford more house, you'll be able to make the payments a lot easier in 5 years due to 5 years of raises - that'll offset any interest rate changes - and (pay attention to this part, because it happens again) when you sell, the house will be worth so much more that it wont matter that you havent created any equity, cuz you'll still make money!!!"

So yes, presumption of future home values does have an effect on current prices.

Want it another way? Home prices are reduced now vs last year because there are fewer active buyers and more buyers are waiting for future prices to be lower. So expectations of future lower prices are driving prices down right now.

Equity prices are set on expectations of future earnings. Its the same thing.

Do we need a fourth explanation or ya got it now?

[twaddle]

Do you want me to post a graph of wage inflation vs house prices? Please tell me you don't.

The reasons for the bubble are well publicized. The subsequent rise in inventory and drop in sales is well publicized. And you know better than most what happens when supply goes up and demand goes down. We are nowhere near the clearing prices for this market. And we won't be until the low-end of the market is affordable to entry-level buyers who can then move up in a few years.

In the meantime, the whales will die of starvation waiting for those move-up plankton.

PIMCO Bonds - Global Central Bank Focus- March 2007 "The Plankton Theory Meets Minsky"

[cute fuzzy bunny]

Well then I'm confused. According to a bunch of folks, there are homes in their neighborhood selling for six dollars, and hundreds of them sitting vacant and foreclosed for four dollars.

What are the entry level buyers waiting for?

[haha]

I would like all of you for trying to make this board a better place for ill-humored men who don't enjoy feel-good threads.

If this hadn't come along I might have had to pay good money to go see a boxing match.

Ha

[Moemg]

It's like a car wreck . You can't look away .

[REWahoo]

Quote:

Originally Posted by Moemg It's like a car wreck . You can't look away .

Are you referring to falling home prices? Or to this thread?

[cute fuzzy bunny]

All of you should look to the left a little.

Or do without, so 'they' can have more...

[cho oyu]

Quote:

Originally Posted by honobob TBPu I was only using Cho Oyu figures that he was complaining about. Using his figures for appreciation you're still almost $300,000 to the good but he again was using "average returns". And that would be tax free profit! And it would only be 13 years left of mortgage, but for the real answer to that see post 78 and get back to me.

Assuming 5% inflation, a $200k house in 1980 would certainly be worth $458k now. However, the rest of your math is shaky at best, and intended to mislead at worst.

If there are still 13 years left on the mortgage, that money must be removed from the $458k selling price (at least $100k based on low 5% interest rates and $40k down). In addition, you also need to remove realtors fees (@5%, this is around $20k). So now we are down to $338k. With approximately a $250k gain ($458k-$200k), there will be minimal taxes if the house was owner-occupied.

In comparison, $40k invested in the stock market (and not even on margin) would return $220k or so.

But this still isn't the complete math. We would also need to take into account taxes (property), tax-writeoffs (based on salary, other deductions), maintenance, and equivalent rents (and rent inflation) to get a better idea whether this purchase makes financial sense. (This neglects intangibles.) In other words, the $338k vs. $220k is a best case scenario given equity vs. housing appreciation.

Purchasing a house can often make sense financially - but often is not always. And as the plots Twaddle has posted indicate, now is a very precarious time to be purchasing property in the US.


So feel free to keep on posting about your investing genius - but I (and I am sure others) would appreciate a bit more care on your part when posting numbers. Because if these "errors" of yours continue, I'll start to question whether you've slid past enthusiasm and into the realm of dishonesty.

Cheers.

[TBPu]

Prof Shiller speaks: Biggest increase means biggest decline. Mentions CA.
Paper Economy - A Real Estate Bubble Blog
Calls home investors non-professional compared to Wall Street.

Example:
An immigrant (legal), Mr. Imnothingspecial, arrives in the US in 1978 and has the cash to either buy a home or invest.

Roman Polanski's home is unexpectedly available for $100,000.
A Vanguard fund tracking the S&P 500 is available for $100,000.

Basic high school math assuming both are purchased outright.
1. Whichever one appreciates at a higher rate will "seem" to be worth more.
2. Each investment will incurr certain amounts of fees. Fund incurrs mgmt fee. House incurs property tax, repairs, maintenance.
3. Fund owner can't live at Vanguard so has rental costs.

So it appears that an assumption that rent is equal to (ptax+rep+main) makes both investments equal. Winners all around. Unless a housing crash happens. Timber.

And so Mr. Fuzzy Bob is only in need of Mr. Blind Fool in order to reap his home investment rewards. BUT, according to Prof Shiller, there won't be any blind fools buying until this thing is done in 5 years, yes 5.

[FinallyRetired]

Quote:

Originally Posted by TBPu Prof Shiller speaks: Biggest increase means biggest decline. Mentions CA. Paper Economy - A Real Estate Bubble Blog Calls home investors non-professional compared to Wall Street.

Thank goodness for the pros. If Wall Street was as crazy as the non-professional home investors, Enron and WorldCom might be wiped out today. Not to mention Pets.com

[Moemg]

Quote:

Originally Posted by REWahoo Are you referring to falling home prices? Or to this thread?

Both !

[cute fuzzy bunny]

I always enjoy how these real estate threads devolve into a couple of people talking about how you can make money if you invest in quality real estate in a desirable area and another group who swears you'll lose money by buying pieces of crap in a bad area not known for any long term appreciation.

I made a lot of money buying real estate in improving areas at what I felt were below fair market value and selling when they'd appreciated.

I made a lot of money in equities that were value priced with good prospects for improvement, and selling when they'd appreciated.

Stupidity in one area of investing is no different from stupidity in some other area of investing. Pointing out the stupid decisions some people have made does not invalidate the entire class of investments.

As far as the economy falling down around our ears, all thats happened is that over the last 4 years a lot of smart people built and sold or resold homes at a fat profit which was paid for by some people who werent as smart.

Some other idiots took out HELOCs and blew the money. Their houses will be bought up at bargain prices by smart people who didnt do that.

Hmmm, taking money from idiots and giving it to smart business people. That oughta really ruin the economy. :

[HFWR]

What's wrong with hummers?

[armor99]

Quote:

Originally Posted by cute fuzzy bunny I always enjoy how these real estate threads devolve into a couple of people talking about how you can make money if you invest in quality real estate in a desirable area and another group who swears you'll lose money by buying pieces of crap in a bad area not known for any long term appreciation. I made a lot of money buying real estate in improving areas at what I felt were below fair market value and selling when they'd appreciated. I made a lot of money in equities that were value priced with good prospects for improvement, and selling when they'd appreciated. Stupidity in one area of investing is no different from stupidity in some other area of investing. Pointing out the stupid decisions some people have made does not invalidate the entire class of investments. As far as the economy falling down around our ears, all thats happened is that over the last 4 years a lot of smart people built and sold or resold homes at a fat profit which was paid for by some people who werent as smart. Some other idiots took out HELOCs and blew the money. Their houses will be bought up at bargain prices by smart people who didnt do that. Hmmm, taking money from idiots and giving it to smart business people. That oughta really ruin the economy. :

Great post CFB!!! Not everyone fails at real estate all at the same time. Like all other things in a free market, there are winners and loosers, and smarter investors tend to prevail, and less savy investors tend to fail. The world is not safe, there are no guarantees, and no there is not a Santa Claus either (sorry to the kiddies that may be reading ). You either accept the mistakes you have made in life, or you can wallow about in self pity.
I am now paying a personal price for other peoples stupidity (as are lots of us here). My home price has gone down, and my stock portfolio WAY down because of it. All of these folks that were lured by the seductive promise of "something for nothing". Should I have the right to sue the govt, or the banks, or a class action lawsuit collectively against some hundred thousand bankers and individules that were morons? I would love to... but the reality is when I bought my house, and made my investments, I understood that there was risk involved, and there is still. Ok... rant is over...

[cute fuzzy bunny]

Just wait a while.

Time heals all wounds. Oh yeah, and it wounds all heals.

[FANOFJESUS]

Quote:

Originally Posted by cute fuzzy bunny Well then I'm confused. According to a bunch of folks, there are homes in their neighborhood selling for six dollars, and hundreds of them sitting vacant and foreclosed for four dollars. What are the entry level buyers waiting for?

Are these in Detroit?