House Value Calculator

[barbarus]

If you would like to know the proper value for a house, find its price(or the price of comps) in 1997 and multiply by the CPI over that time.
As a crude approximation, multiply the '98 price by 1.3 and you'll see the value in '07.

Lotsa fools paid much more in recent years.

Now we must pay for their moronicity.

Housing never goes down.
It's different here.
Everybody wants to live in __________ .
Buy now or be priced out forever!!!!!

"Every minute they make another sucker."
P.T Barnum

 

[jazz4cash]

What if you live in an area that's growing rapidly and adding jobs that are recession resistant? That formula may work well for macro evaluation...not so sure about individual cities, towns, and neighborhoods. Especially since the CPI is fixed and not everyplace has the same inflation rate.

 

[cute fuzzy bunny]

Mmm...no. You also have to measure quality of life changes, demographics, crime, schools, and a million other potential influences on the price of real estate.

Where I live now...well...it was kind of an armpit 15 years ago. Now it has a lot of employment, lots of quality of life improvements, better schools, lower crime, etc. Somewhat supports an improvement over inflation for housing.

 

[twaddle]

Yeah, a better metric is 1997 + area-specific wage inflation.

But all that really matters is finding a willing buyer at your price. As we've seen in the last few years, most buyers don't look at fundamentals as part of their purchase decision. It was price anchoring + "houses always go up" + cheap loans.

 

[dumpster56]

If you would like to know the proper value for a house, find its price(or the price of comps) in 1997 and multiply by the CPI over that time.
As a crude approximation, multiply the '98 price by 1.3 and you'll see the value in '07.

Lotsa fools paid much more in recent years.

Now we must pay for their moronicity.

Housing never goes down.
It's different here.
Everybody wants to live in __________ .
Buy now or be priced out forever!!!!!

"Every minute they make another sucker."
P.T Barnum

Hummm. Back then I owned a home in NJ that we had appraised for a refinance. It was 265K we paid 240 in 1996 for it. So when I was offered 520 in 06 for it I TOOK THE MONEY AND RAN! 265X1.3 =344K

 

[donheff]

Seems like a lot of speculative BS. The value is what it would sell for.

 

[Rustic23]

I worked for a senior appraiser that had been in the Houston market for a long time. In 1990 the housing and especially the apartment market was in the toilet. We were using 10 year discounted cash flows to figure the value of properties. It was just about the only way to do it, as most projects were operating at a loss and there were very few sales. This method required us to forecast the rents for a 10 year period. His view was to look at a time the market was stable, i.e not inflated by super heated demand or depressed by the opposite. Take the rents from that period and bring them forward at 3.5 to 4% to a time 10 years in the future, or the time your think the market will be stable again. That represents your stable value.

I think the same could be said for a housing market. You would go back five or 10 years find the value of your homes escalate them at say 4 to 5%, as that seems to be a realistic home rate, and bring it forward. Would this work in all area ..... NO! Of course not. Nothing works everywhere all the time. If it did, you would not need professionals that get paid big bucks to figure these things out. You have to look at your neighborhood and make you own decisions.

 

[twaddle]

There are a lot of valuation metrics. Discounted cash flow. Price/Rent multiple. Cap rate. Price/Income multiple. Debt/income ratio. I'd be happy to see any of them make sense again.

Just for fun, here's San Diego's median home price / per capita income with a projection for how long a correction might take....

 

[Tiger]

In the 7 years that we have owned our house the price has increased 2 1/2 times over what we paid. For me the value of a house is what you have to pay for it.

 

[FinallyRetired]

Maybe house bartering will come in style. Say one person has a home they paid 250 for, and it went as high as 550 but now wouldn't sell for anywhere near that. Why chance a lowball sale and hope they can pick up another home on a lowball offer. Instead, how about matching with another seller in a similar situation and just swap homes at whatever artificial price they want. Save a bundle on commissions too. Bet that would work across similar communities.

 

[honobob]

There are a lot of valuation metrics. Discounted cash flow. Price/Rent multiple. Cap rate. Price/Income multiple. Debt/income ratio. I'd be happy to see any of them make sense again.

Gosh Twaddle. Why do you want to keep insisting that the numbers make the market!!?? It's the market that makes the numbers!!! The buyers anticipation, right or wrong, is what results in the GRM/GIM/OAR.

When all jeans and all tennis shoes are selling for cost plus 10% then I'll agree to live in your la la land. When I can force any owner to sell me his property at 10 times his annual rents (as long as that provides positive cash flow) then I'll proudly live in Twaddleville.

You want to set up market metrics based on your parameters. Fine, unfortunately in the world I invest in that makes you a bystander not a participant in the market.

 

[Rustic23]

The San Deigo market is quite unusual and certainly not typical.

 

[twaddle]

Gosh Twaddle. Why do you want to keep insisting that the numbers make the market!!?? It's the market that makes the numbers!!! The buyers anticipation, right or wrong, is what results in the GRM/GIM/OAR.

Ah, you're taking me back to fond memories of the dot-com bubble. P/E stopped making sense, so we used new metrics like eyeballs.

What should we be using now for real estate, honobob? I liked how CAR changed their affordability index, but clearly that wasn't enough.

Instead of affordable, let's just say that the market is bubblicious. And you just want it to be even more bubblicious, right?

 

[honobob]

Ah, you're taking me back to fond memories of the dot-com bubble. P/E stopped making sense, so we used new metrics like eyeballs.

Avoidance, next step denial. Twaddle, stick to the subject.
Bubblicious? No way, I'm in the market to buy and my market offer was rejected. I told the realtor I have no problem paying market today and that is what my offer was based on and I agreed to up my offer to any value the seller could support even though I think value will drop $30K in the next year. Unfortunately they subscribe to Twaddlenomics and think things have an "intrinsic" value based on nothing else but "metrics". Well it should sell for this. No more irrational if it's on the high or low side, eh Mr. T?

 

[twaddle]

So, you've abandoned all metrics? No intrinsic value? Anything goes? The sky's the limit?

I guess that might make sense for rare irreproducible works of art by the great masters.

I'm not sure it makes sense for sticks and bricks on a patch of dirt, though.

 

[honobob]

So, you've abandoned all metrics? No intrinsic value? Anything goes? The sky's the limit?

I guess that might make sense for rare irreproducible works of art by the great masters.

I'm not sure it makes sense for sticks and bricks on a patch of dirt, though.

What the MARKET will bear. So let's compare results. You sold 2002/2003? you're down $400/600K?. OK you orginally bought in a suck area to begin with so with your imagined appreciation you would probbly only be up $200/300K/

I bought 2003 and 2004 and am up $350K on a $50K+ investment. Wow, if I'd only listened to the metrics of only buying if positive cash flow!!

Quit avoiding the question!!!!

 

[twaddle]

What was the question? If you're OK with whatever the market will bear, then you'll be OK if prices get cut in half over the next few years, right?

But you're right. If I had known that the market would get this crazy, I should have leveraged myself up the wazoo and bought everything in sight. I might even consider that once the market bottoms.

Which is why I think this thread might be useful. You can't detect a bottom without some idea of fair value. I think homes were *below* fair value in 1997, and the run-up to fair value gave the market enough momentum that it was able to scream once the fed threw some gasoline on the fire. That was amazing to witness, and I hope I get to see it again.

 

[honobob]

What was the question? If you're OK with whatever the market will bear, then you'll be OK if prices get cut in half over the next few years, right?

But you're right. If I had known that the market would get this crazy, I should have leveraged myself up the wazoo and bought everything in sight. I might even consider that once the market bottoms.

Which is why I think this thread might be useful. You can't detect a bottom without some idea of fair value. I think homes were *below* fair value in 1997, and the run-up to fair value gave the market enough momentum that it was able to scream once the fed threw some gasoline on the fire. That was amazing to witness, and I hope I get to see it again.

Cut in HALF? I'll take any action you want to back on that!
You would have known if you weaned from the teat of "wouldof, couldof, shouldof". You're saying what market hasn't bottomed?

Please define "FAIR VALUE"! Learn me and the other doofuses who deal with what is and not what should be.

 

[twaddle]

I'm not understanding something. Why would it bug you if prices got cut in half? It's whatever the market will bear, right?

As far as fair value, I'll consider buying at a cap rate of t-bill + 3%, but I'd rather get t-bill + 5% like the good old days. I'll also consider where we are in the economic cycle. If residential investment starts to pick up again, my ears might perk up.

 

[honobob]

What was the question?

Are the metrics (GRM OAR GIM) predetermined or are they the result of market activity?

My vote is market activity. Why do you think otherwise?

 

[twaddle]

Are the metrics (GRM OAR GIM) predetermined or are they the result of market activity?

My vote is market activity. Why do you think otherwise?

Which came first, the chicken or the egg?

Market participants, like you and me, look at a myriad of factors. You're looking at hoped-for appreciation. I'm looking for pocketable cash flow.

At the top of the dot-com bubble, the NASDAQ P/E peaked at an incredible 165 times trailing earnings. That was obviously market determined, and the market was full of hopefull honobob's willing to wait 165 years to get paid back for their piece of the earnings pie.

Does that mean a P/E of 165 was fair value? It wasn't for some market participants, like me, who sold. Eventually, there were more guys like me than there were guys like you, and the market settled down a bit.

So, to answer your question, the current multiple reflects market activity. But there are rational actors in the market who will look at the risk premium and decide whether they are a buyer at the current multiples. I am not.

 

[honobob]

Which came first, the chicken or the egg?

Market participants, like you and me, look at a myriad of factors. You're looking at hoped-for appreciation. I'm looking for pocketable cash flow.

At the top of the dot-com bubble, the NASDAQ P/E peaked at an incredible 165 times trailing earnings. That was obviously market determined, and the market was full of hopefull honobob's willing to wait 165 years to get paid back for their piece of the earnings pie.

Does that mean a P/E of 165 was fair value? It wasn't for some market participants, like me, who sold. Eventually, there were more guys like me than there were guys like you, and the market settled down a bit.

So, to answer your question, the current multiple reflects market activity. But there are rational actors in the market who will look at the risk premium and decide whether they are a buyer at the current multiples. I am not.

WTF?

 

[twaddle]

WTF?

Dude, that's exactly what I've been saying! Isn't it great when it finally hits you? Now get out there and sell!

 

[cute fuzzy bunny]

 

[honobob]

Which came first, the chicken or the egg?

Market participants, like you and me, look at a myriad of factors. You're looking at hoped-for appreciation. I'm looking for pocketable cash flow.

At the top of the dot-com bubble, the NASDAQ P/E peaked at an incredible 165 times trailing earnings. That was obviously market determined, and the market was full of hopefull honobob's willing to wait 165 years to get paid back for their piece of the earnings pie.

Does that mean a P/E of 165 was fair value? It wasn't for some market participants, like me, who sold. Eventually, there were more guys like me than there were guys like you, and the market settled down a bit.

So, to answer your question, the current multiple reflects market activity. But there are rational actors in the market who will look at the risk premium and decide whether they are a buyer at the current multiples. I am not.

Ok You're mixing pork and chicken. I thought we wuz talkin real estate. If you are "not a buyer at current multiples" then you do have some affect on the market that is obviously DIMINISHED by the active (real) market participants. Just because you wrongly choose(again) to not participate at the current market multiples does not invalidate your hundreds of thousands of dollars loss or my hundreds of thousands gain.