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Old 10-08-2007, 01:27 PM   #21
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BTW, I should point out that my methodology is pretty simplistic.

The federal reserve publishes a balance sheet each quarter, and one of the line items is total real estate value owned by households. In the latest report, that value is about $21 trillion.

Historically, the total value of housing has been pretty close to the total size of GDP. It really started to grow much faster than GDP starting in about 1997. Current GDP size is about $13.5 trillion, so the delta is now $7.5 trillion ($7 trillion was from 2006). I don't really expect value to get down to 100% of GDP again, but even at 120% of GDP, we'd be looking at a $5-6 trillion drop in value.

For comparison, google tells me that the NASDAQ drop from peak to valley was $4.2 trillion.
Fascinating analysis!! I guess the hard part for me to understand would be how low the value could be expected to go. Why 120% instead of 130%, in other words?
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Old 10-08-2007, 01:31 PM   #22
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If it really falls by that much, it'll be similar to the magnitude of the NASDAQ drop. I think the NAZ lost around $6 trillion. It "hurt" a lot of people, but there were also a lot of people who sold and captured a bunch of the upside.
True. But it's much easier to unload a few hundred shares of QQQ (or whatever) than it is to sell a house in a depressed market.
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Old 10-08-2007, 01:38 PM   #23
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Fascinating analysis!! I guess the hard part for me to understand would be how low the value could be expected to go. Why 120% instead of 130%, in other words?
No way to know, really, but I assume that housing prices are primarily a function of wage growth. Wages historically have grown at about CPI+2%, and housing prices have also historically grown by CPI+2% on a national basis.

GDP has grown at something like CPI+3%, so it seems like they should all trend together pretty closely. Generally, the only time we have a permanent trend separation is after some big structural change (like WWII).

I just don't see that this time, but home ownership rates have gone up in the last few years due to easy credit, so if that remains a permanent state, I suppose it would justify a one-time growth spurt.
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Old 10-08-2007, 01:48 PM   #24
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Read a few items concerning the housing market today that are an eye-opener:

Seems that in many areas, builders are slashing prices on inventory homes by 50-100K, (300k-400k range homes) trying to sustain some cash flow to pay debt. This puts further pressure on those in the same area or subdivision who are upside down on their houses, and can't sell for what they want/need.

Many homeowners have not yet realized that in order for their house to sell, they will HAVE to cut the price, without regard to how much is owed on it, or don't sell it. In Bruce Williams' advice article today, a couple was looking for advice on what to do about their house that wouldn't sell at the asking price. they stated that the house was worth $150,000.00, but the highest offer had been $115,000.00 Bruce told them that first off, the house was worth $115K, not 150K because that's what someone was willing to pay for it. Difficult situations for many people, and apparently all the air is not out of the market yet.....
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Old 10-08-2007, 01:51 PM   #25
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True but everyone has to live somewhere. It seems to me the people hurt by the housing market other than the subprime borrowers who may not be able to keep their homes (and does anyone know how significant a percentage of homeowners they are?) will be real estate investors (and maybe the capital pumped into RE when stocks skittered has something to do with the inflated prices), not those of us whose only real estate holding is our own home. If people like me have to sell now, and therefore sell low, we will also presumably be buying a replacement home at the low end (or could rent low, too, it seems).

Too many parentheses, I know. Sorry.
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Old 10-08-2007, 02:27 PM   #26
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Down here the RE market is a bit slow (though it's always a bit slow here, maybe because we 're in the south!), but prices keep going up at a moderate pace (according to Money magazine, we are now in the top 15% RE markets in the US for home price appreciation). Early summer was bad for RE, lots of properties for sale and in foreclosure, but since early September, things have stated to move again. The 3 houses for sale on my street sold with a week of each other (though after small reductions in asking prices), "for sale" signs are rarer, and I haven't seen an "auction" sign for a few weeks now.
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Old 10-08-2007, 03:11 PM   #27
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Historically I thought 4x average income - now we're 8x.
Yikes! I have no idea what the right numbers are, but I was at 2.0x when I bought my house in 1990, and I am at 0.72x now on it's appreciated value. I feel sorry for those of you who live in over-appreciated states and have to choice but the pay the local prices.
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Old 10-08-2007, 03:22 PM   #28
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Sooo - has everybody read today's Yahoo about Detroit housing - reminds me of some ex mining and logging towns growing up out West.

Or - 'Will the last person leaving Seattle please turn out the lights.' Always remember that one since I had left and gone to Denver.

heh heh heh - my BIL is a mining engineer and has lost money on every house they've owned for 30 yrs. Buy high, move low. Renting south of Seattle. And you wonder why I say don't buy if you can rent at a decent price. 'Agile, mobile and hostile.' .
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Old 10-08-2007, 03:44 PM   #29
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Sooo - has everybody read today's Yahoo about Detroit housing - reminds me of some ex mining and logging towns growing up out West.

Or - 'Will the last person leaving Seattle please turn out the lights.' Always remember that one since I had left and gone to Denver.

heh heh heh - my BIL is a mining engineer and has lost money on every house they've owned for 30 yrs. Buy high, move low. Renting south of Seattle. And you wonder why I say don't buy if you can rent at a decent price. 'Agile, mobile and hostile.' .
Yea, I've got houses in my neighborhood (metro Detroit) that have been on the market for a year. They keep changing agents and dropping the price, but - no buyers.
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Old 10-08-2007, 04:03 PM   #30
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True but everyone has to live somewhere.
That's why this housing bubble is different than the stock market bubble. In the stock market, people can sell and hide away in cash for a while. But a house is not liquid, it may not sell very fast if at all, and even if one sells, there is the problem of having to buy somewhere else.

I think the housing bubble will resolve itself in a different way than everyone is speculating. Sure, prices will come down, but I don't know if they will regress to that inflation curve for a long time if ever. The US housing market has been of a different nature than those in other countries, where renting is much more common, and where properties are often left to heirs instead of selling on the open market. I recall when I lived in Holland that houses were leased by families for 100 years, since few could afford to outright buy them (may be different now). I don't know if the US market will go this way, but as the population keeps increasing, construction decreases, and people have a harder time finding affordable housing, I think the rental market may be the next bubble.
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Old 10-08-2007, 04:47 PM   #31
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Yea, I've got houses in my neighborhood (metro Detroit) that have been on the market for a year. They keep changing agents and dropping the price, but - no buyers.
Could be that Detroit, Cleveland, and others turn into ghost towns. I remember, however, many rust belt cities were in similar condition in the 70s/80s, and have since reinvented themselves to an extent. Heck, NYC was a basket case not that long ago.

Wonder what happens when water shortages become untenable in the SW and Kalifornia. Go west midwest, young man?
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Old 10-08-2007, 05:04 PM   #32
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Therein lies a big advantage of ER - a J O B is not required!

That opens up a lot of flexibility location wise.

heh heh heh - my Mom was born in Detroit and later wanted to go back at times. 'Mom - Detroit is not like the 1920's anymore when you were a kid.'
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Old 10-08-2007, 05:24 PM   #33
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I agree that the Leavitt-town type developments have limited long term (or for that matter, short term) appeal.

You're buying into a commodity product, and appreciation potential is unlikely to be much greater than mobile homes...
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Old 10-08-2007, 05:39 PM   #34
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Could be that Detroit, Cleveland, and others turn into ghost towns. I remember, however, many rust belt cities were in similar condition in the 70s/80s, and have since reinvented themselves to an extent. Heck, NYC was a basket case not that long ago.

Wonder what happens when water shortages become untenable in the SW and Kalifornia. Go west midwest, young man?
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Therein lies a big advantage of ER - a J O B is not required!

That opens up a lot of flexibility location wise.
EXACTLY!!! It's as though there is two different countries within our country. In the expensive east/west coast areas, jobs pay a lot but expenses and housing are high, so effectively the dollar has less value. In the cheap middle America areas, high paying jobs are rare but expenses and housing are low, so effectively the dollar is more valuable. Yet, the "exchange rate" is $1:$1!!

For those of us who can somehow manage to enjoy living in middle America, and have no ties elsewhere, moving to middle America for ER is a no-brainer. For various valid reasons, it seems that most people can't do it, though.

Now, if I had had half a brain when I was younger, I would have spent my working years on the East or West Coast. Instead, I am here in New Orleans which is cheap but not quite as cheap as the midwest. Too soon old, too late smart. I couldda hadda V-8.
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Old 10-08-2007, 05:45 PM   #35
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I agree that the Leavitt-town type developments have limited long term (or for that matter, short term) appeal.

You're buying into a commodity product, and appreciation potential is unlikely to be much greater than mobile homes...
Slidell, LA - in the 70's on and off tied with Prescott??, Arizona as the fastest growing spot in the US(based on housing permits).

The sub - division house held value/went up more than the single/one off houses.

Can't prove it - but I suspect the quality/reputation of the developer was the key - different developments, different reps, 'known' commodity.

When I got take out at Domino's Pizza - their delivery map(behind the counter) had the area layed out by subdivision development names - and they always asked if you called in an order.

Strange - neighborhoods named after developers names.

heh heh heh
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Old 10-08-2007, 05:54 PM   #36
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Yup, each week I scan the new development section of the LA times and each week it's the "best time to buy ever" and prices are slashed by $100k at a time!
Well that's pretty accurate. The only better time being ......next week.

One of the Realtor-gurus in our 'hood (suburbs of DC)has started publishing a monthly newsletter tracking home sales in the neighborhood. It shows only 5.5% decline for homes that have sold. Sales vs. asking price is 98.2% which is also fairly stable. Look between the lines and the inventory is 50% higher than a year ago, most of them being priced too high for the current buyers market. This area is much more stable than others job-wise, so I expect more of a flat market for several years, except for new construction. New construction premium is maybe half of what it was at the peak from my observation. Developers in the new condo/townhome market are slashing prices like mad. Today's paper had a story titled "Builders Using Auto Dealer's Sales Tactics".......auctions, lotteries, etc.
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Old 10-08-2007, 06:07 PM   #37
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Keep us posted - my nephew got back(to Coronado, CA) last weekend from a house hunting trip in D.C. - nailed by military rotation - supposed to have made an offer on a house according to my sister - didn't talk long cause the Saints lost/ the Pats won and she hadn't called CA yet.

He thought he had CA nailed via TAR? - until they(Navy) made him an offer he couldn't refuse. The only other time they rolled the dice(not renting) was Norfolk in the 90's - gambled on house ownership for three years and won.

heh heh heh
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Old 10-08-2007, 07:15 PM   #38
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EXACTLY!!! It's as though there is two different countries within our country. In the expensive east/west coast areas, jobs pay a lot but expenses and housing are high, so effectively the dollar has less value. In the cheap middle America areas, high paying jobs are rare but expenses and housing are low, so effectively the dollar is more valuable. Yet, the "exchange rate" is $1:$1!!
I think my wife and I have the best of both world: high paying jobs in low cost middle America! And that's why we are not in a hurry to move out of here!
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Old 10-08-2007, 07:47 PM   #39
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I think my wife and I have the best of both world: high paying jobs in low cost middle America! And that's why we are not in a hurry to move out of here!
That sounds wonderful! I don't blame you for not wanting to move. I wouldn't either!

When I bought my house in 2002, I planned to retire here and live in it until I drew my last breath. I bought it with that in mind. It's within walking distance of a nice grocery and other businesses, but a quiet and a nice neighborhood in which to grow old. Katrina changed everything for a lot of people, me included, but I think that Frank and I will enjoy retiring to a place with even lower cost of living - - southern Missouri.
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Old 10-08-2007, 08:40 PM   #40
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Keep us posted - my nephew got back(to Coronado, CA) last weekend from a house hunting trip in D.C. - nailed by military rotation - supposed to have made an offer on a house according to my sister - didn't talk long cause the Saints lost/ the Pats won and she hadn't called CA yet.

He thought he had CA nailed via TAR? - until they(Navy) made him an offer he couldn't refuse. The only other time they rolled the dice(not renting) was Norfolk in the 90's - gambled on house ownership for three years and won.

heh heh heh
In addition to inherent stability of the DC area, there is another factor which is the military base realignment and closure (BRAC) that is shuffling things about. A good place to exchange thoughts on housing, neighborhoods, schools and commutes is City-Data.com Forum: Relocation, Moving, Local City Discussions
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