Is Real Estate a "Buy" in your neck of the woods yet?

[justin]

Originally Posted by Cute Fuzzy Bunny

But I dont feel like I need to wear a mask and carry a gun to the closing like I usually do.

Why do you usually wear a mask and carry a gun to the closings?


I thought cheap money is still out there. sub-6% loans are still plentiful for good credit borrowers. If mortgage rates go up a few more points to 8-9% and lenders continue increasing their risk-adversity, things could get real ugly.

[wabmester]

Originally Posted by justin

I thought cheap money is still out there. sub-6% loans are still plentiful for good credit borrowers. If mortgage rates go up a few more points to 8-9% and lenders continue increasing their risk-adversity, things could get real ugly.

Forget the rates. Just the lack of 100% financing and higher required credit scores knocked over 1 million potential buyers out of the market. Ugly is coming.

[brewer12345]

Originally Posted by wab

Forget the rates. Just the lack of 100% financing and higher required credit scores knocked over 1 million potential buyers out of the market. Ugly is coming.

I largely agree. The question now is when and how much the Fed cuts rates. Enough of a rate cut will offset the impending mess, although it is likely to be a bit bumpy.

[wabmester]

Originally Posted by brewer12345

I largely agree. The question now is when and how much the Fed cuts rates. Enough of a rate cut will offset the impending mess, although it is likely to be a bit bumpy.

A lower fed funds rate may save some of the ARM'd folks who would otherwise see foreclosure, but I don't think it'll help much on the demand side as long as underwriting guidelines are kept "sane."

[al_bundy]

there is a book i'm reading with a nice chart that says that the historic average of mortgage payments is 30% of income with a big spike to 50% in 1981. I live in NYC and the wife and I make over $100,000 gross income. how many houses in a good suburb do you find here for $300,000? what about when you take property taxes into account?

what about in other areas where the average income is less?

[spideyrdpd]

Just cause the market isnt a buy doesnt mean that there arent "buys" in your neighborhood. Its not like someone says here take this house for below "todays values" . Unless your the guy with the we buy houses sign.
And the oheo does have historical data. Which can be interesting. Of course I will be beat you guys to the punch and say
Past performance is not indicative of future performance.

[jazz4cash]

Wab Says............
"1) Nothing in the last few years happened to increase the demand of housing on a national (or international) scale."

Originally Posted by tryan

Some would say imigration. I think this is bunk ... minimum wage jobs won't pay a mortgage.

Well actually minimum wage jobs WILL pay a mortgage........if you have enough of them in a household. It appears that immigrants may be willing to have more extended family occupants than average. In many areas of Northern Virginia local communities are trying to implement limitations on the number of extended family occupants for "SF" rental units. A lot of the subprime market is based on no-doc mortgages, so I say this is may not be bunk

Here in DC and suburbs, price regression is to 2005 levels or so.........don't think we've bottomed. Real Estate might be a buy if you are in need, but not for investment.

[tryan]

Well actually minimum wage jobs WILL pay a mortgage........if you have enough of them in a household. It appears that immigrants may be willing to have more extended family occupants than average.

Come to think of it ... I did sell a 3 family to 2 Walmart plus 1 McDonald's employee. Plan was to put extended family in the other 2 units. Happy as clams ... and now have ~200k equity.

[cute fuzzy bunny]

Originally Posted by justin

Why do you usually wear a mask and carry a gun to the closings?

Its a good idea when a robbery is in progress and you're the perp. Or for anonymity and protection from grumpy sellers.

Wabby, heres another twist to your stat...million dollar mcmansions in sacramento werent particularly common 10-15 years ago whereas you cant turn around without smacking into a 5000 square footer these days. So the demographic of the homes changed and also created a significant updraft in median prices along with base valuation.

[wabmester]

Originally Posted by Cute Fuzzy Bunny

Wabby, heres another twist to your stat...million dollar mcmansions in sacramento werent particularly common 10-15 years ago whereas you cant turn around without smacking into a 5000 square footer these days. So the demographic of the homes changed and also created a significant updraft in median prices along with base valuation.

I'm not sure that means the demographic changed. It just means that builders wanted to target the higher end market, which is even more saturated than the overall market (i.e., many months worth of million-dollar home inventory). The good news is that mansions will be cheap. Bad news is that those white elephants might change the mean, but probably not the median.

There were some real bargains on Newport Beach mansions during the last pop. I'll be tempted if that happens again....

[haha]

Originally Posted by wab

There were some real bargains on Newport Beach mansions during the last pop. I'll be tempted if that happens again....

Oh man, I wish I played in that league

[wabmester]

Originally Posted by HaHa

Oh man, I wish I played in that league

We'll invite you to hang out in our new pool casita.

[Sam]

Originally Posted by Cute Fuzzy Bunny

My buy is going to make a lot of people in the neighborhood that bought in the last 18 months pretty angry when they see the comp.

That's their problem now. Would it become yours 18 months from now?

[cute fuzzy bunny]

It might...

Wabster...quite serious in my assessment...I believe a larger than average percentage of homes transacted in this, and many other 'hot' areas are both larger and more 'done over' than they were in the past. Median numbers that dont consider the changes in the 'median' may not have a lot of tractability.

[wabmester]

Originally Posted by Cute Fuzzy Bunny

quite serious in my assessment...I believe a larger than average percentage of homes transacted in this, and many other 'hot' areas are both larger and more 'done over' than they were in the past. Median numbers that dont consider the changes in the 'median' may not have a lot of tractability.

I think you're right about the big new McHomes, fuzzy-wan, but I'm not sure it skews the median much. The median doesn't care how expensive the high-end is. If all of the new builds were billion-dollar homes, the median wouldn't change much. The mean would, of course.

The chart I posted showed the Sac median at around $375K (probably last quarter's data). Does that buy a monster home in Sac? Or is that something that the mid-range buyer would be buying?

Anyway, this is not rocket science. It's all about wages. Homes are paid for with wages. Wages either have to skyrocket, or home prices have to crater.

[honobob]

Originally Posted by wab

I found a fairly simple way to predict when prices have corrected to their fundamental value, assuming the bubble started in the year 2000.


Some areas do appreciate faster than inflation.


There were some real bargains on Newport Beach mansions during the last pop. I'll be tempted if that happens again....

Wab
I'm in for a bargain. I've always bought at market and have been happy with beating inflation with yearly appreciation of 9-11% but I'm all about a better way! My time in Orange County was too short to purchase but a deal now on a Newport mansion has my interest.

Why don't we put your prediction machine to the test? But first lets clarify the parameters.

1. Why are you assuming the "bubble" started in 2000? Here in the Bay Area homes purchased in 1997 had already doubled by 1999. Is 2000 the Newport Beach time frame?

2. Did you mean "appreciate more than inflation" instead of faster? Faster doesn't make any sense.

3. When was the last "pop" and what do you consider a bargain? Can you share some examples of those bargains? If you're only talking 10% or less than a previous sale why bother.

You'll have to help me out here since I'm not that familiar with the area. Hopefully we're talking about established neighborhoods. What's our price range/square foot/etc.?

Then predict the price (fundamental value) and the time and we're good to go. Working on my tan as I type.

[honobob]

Originally Posted by wab

I think you're right about the big new McHomes, fuzzy-wan, but I'm not sure it skews the median much. The median doesn't care how expensive the high-end is. If all of the new builds were billion-dollar homes, the median wouldn't change much. The mean would, of course.



Anyway, this is not rocket science. It's all about wages. Homes are paid for with wages. Wages either have to skyrocket, or home prices have to crater.

Actually the median is often skewed by the sales of high end properties. In Honolulu it happens when a large luxury condo closes alot of sales in a time period or here in California I've seen it happen a couple of times when large golf course communities (Ruby Hills etc.) have large initial sales.

[wabmester]

Good questions. I'm glad to see you've changed tactics from the "house prices always go up" rah-rah. Well, I guess you didn't have much choice since they stopped going up, eh?

Originally Posted by honobob

1. Why are you assuming the "bubble" started in 2000? Here in the Bay Area homes purchased in 1997 had already doubled by 1999. Is 2000 the Newport Beach time frame?

2000 was the point just prior to Greenspan engaging the liquidity machine. He started this whole mess, but I made some money on the deal, so I'm not complaining.

2. Did you mean "appreciate more than inflation" instead of faster? Faster doesn't make any sense.

You've probably heard of inflation *rates* and appreciation *rates*, right? Rate is a measure of velocity, so "faster" is probably a better word than "more." But I'm not a stickler for semantics.

3. When was the last "pop" and what do you consider a bargain? Can you share some examples of those bargains? If you're only talking 10% or less than a previous sale why bother.

The last SoCal pop started in 1990 and lasted till about 1996. The high end was hit the hardest. About 50% discount on mainstream stuff, and the very high end stuff went for a much larger discount in some cases. Some bozo bought a hotel-sized mansion on Lido Isle that I used to sail past. It went from about $6M in 1989 to $1M a few years later.

You'll have to help me out here since I'm not that familiar with the area. Hopefully we're talking about established neighborhoods. What's our price range/square foot/etc.?

I almost bought a place in Newport Coast in 1999, well after the bubble had popped. Ocean view, about 3000sqft, around $700K.

Then predict the price (fundamental value) and the time and we're good to go. Working on my tan as I type.

I calculated the real long-term rate of appreciation at about 3% for SoCal. So, let's buy that Newport Coast place. $700K in 1999 should be $886K today, but it's more like $2M. So, let's shoot for half-price.

Edit: oops, I forgot to factor in inflation. That $700K place should be $1.1M today, but it's probably still twice that.