what's ahead for home values?

The probelms with selling, renting and then jumping back in to buy are: it's difficult (or just lucky) to sell at the absolute peak, commissions and other selling costs are a big chunk, moving is a real pain, it's likely living in the rental will not be as nice as living in your home and it's difficult (or just lucky) to get back in at the right time.
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Yeah, timing the market with the primary residence is a fools game. There's a quality of life issue.
 
tryan said:
Speaking for the east coast, rents have been flat for the last 3 years.  I was able to push through 5-10% increases every year from 1997-2002.  But now the tenants are simply tapped out.  Landlords will try listing a vacancy $200 over market rent (they may have no choice given what they paid for the place) but then settle back to market rent after a couple/few months vacancy.  Tenants simply don't have the cash to play along with the housing boom; so lots of new homeowners are taking a bath in negative cash flow.

Personally I think prices will reset before wages rise enough to close the rental gap.  Home prices are simply alot more dynamic/volitile than wages.
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I'll second that, also from the east coast.
 
The individual residential real estate investor seems to have either never learned or forgotten a very basic rule that is well understood in commerical real estate investing. Rents are the basis for value. The residential values are so disconnected from appraising at a rental/income basis, and so over valued at a pure market comparaison approcah to value that they are bound to adjust to what a rental income to the property would justify. And rents are based on demand, and one large element of demand is prevailing wages. I said elements, as this is never a perfect equaition). If wages do not increase in a given location, and the borrowing costs remain about the same, the home prices will tend to lower to meet the wage scale in that market. There are of course other issues that contribute to price, but renting (or its equivalent value in residential ownership) is about one of the best long term value indicators. A 500,000 dollar home price will not stay at that level of appraised value if the pool of renters is too small to create a demand that services that rate of capital investment. Investors will move on to where they can best obtain a higher return on capital. That last investors in will eventually be holding the "air filled bag" from the speculative "auction fever" and be forced to sell at the discount to real rental income. This situation is as real as any piston driving the value cycle.
 
tryan said:
Yeah, timing the market with the primary residence is a fools game.  There's a quality of life issue.
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That's a blanket statement. I sold, and am renting a house about 100 times better than the old house. The family hasn't been this happy since before we bought the last house. Worked perfectly for us, and I believe it will only get better.

When the old house was overvalued about 60% from what I thought it should be valued, I knew it was time to sell.
 
Here's an option for those playing the sell-house, rent for much less arbitrage. This applies if you are worried about rental rates shooting up as the housing prices crash (don't know if this will happen). When you negotiate your lease wherever you rent, get a long term lease (3-5 years) or a 1-2 year lease with annual options to renew for 3 years. Offer an annual rental rate increase so the landlord agrees to it. You may be forced to pay increases in your rent this way, but at least you will know what they are going in to the agreement. Setting up this kind of deal would require a flexible landlord willing to take on a long-term renter at a predetermined rate.

This still leaves you unprotected 5 years out in the event housing prices keep going up. You won't have the money to buy back into the housing market, plus rents might be significantly higher. As always, it is a trade-off between risk and reward.
 
tryan said:
Yeah, timing the market with the primary residence is a fools game. There's a quality of life issue.
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You're right, but if I was to rent I could go from an 1800 square foot house on 1/4 acre that I can sell for ~$430k (bought for $250k) and rent a 2500 square foot house on 5-10 fenced acres near a lake for ~$1400 a month. Aside from the huge el crappo task of moving, and the small el crappo task of figuring out where to invest nearly a half million additional dollars...not such a big hit on QOL.

With homes like mine renting out for $1100-1200 a month at BEST, and selling in the low to mid 400's...somethings gotta give. Theres no huge high earning workforce around here. No big white collar employers. No raft of super shopping and fine dining. No lakes or other big recreational draws. Lots of sprawling farm land, rice paddies, wide open swaths of space. In short, no restrictions on building like crazy and no big draws to support real estate this expensive.

I cant see people that are renting able to take 100%-200% upward movements in rent, or people holding onto a half million dollar piece of real estate they can only rent for a grand a month, or people continuing to buy a house then can rent for far less than half the mortgage cost.

If I was single, I wouldnt be writing this cuz i'd be packing...but with a wife and 1 yr old, we're gonna stay put for now.
 
I tell you, I've gone round and round with this whole home equity thing. I eventually end up deciding that I really like where I am, I enjoy the house and neighborhood, so I'll just stay and not worry about employing the big fat 400k. Then I start looking at my balance sheet and think, hmmm, how nice it would be to put some of that to work. Then I'm back in the whole cycle of indeciciveness.

Maybe I should just be happy that I live in a nice home in San Diego. Ten years ago that would've sounded just fine. Oh the curse of home equity ;)
 
A Man buys a House, a Woman buys a Home.

The Nesting instinct will always beat the Investing Common Sense, don't fight it, that's just the way it is.
 
Howard said:
A Man buys a House, a Woman buys a Home.

The Nesting instinct will always beat the Investing Common Sense, don't fight it, that's just the way it is.
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So you're saying to forget about ever cashing out unless your wife is tired of the house and wants to move?
 
Howard said:
A Man buys a House, a Woman buys a Home.
The Nesting instinct will always beat the Investing Common Sense, don't fight it, that's just the way it is.
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I was single when I bought my "house/home". I am still single, and now, I am selling my investment property.

MJ :D
 
Jay, Yup, unless she wants to move, you are staying.

I have always trusted my wifes' instinct on Housing, I believe that women ,in most cases , are better in this area.

They look at South facing gardens, schools,etc etc.

We have owned 7 homes in our life so far, a $20,000 hovel I owned as a bachelor to a $500,000 we sold at retirement, to this new one we built.

She made the decision, with my input, I looked after paying for them.
 
if you are worried about rental rates shooting up as the housing prices crash (don't know if this will happen).
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Unlikely .... when the last housing boom cycled down in the early 90's, rents tanked with home values. Figure your neighbor bought for less than you did and can rent for less. This - of course - excelerates the fall of home values as each vacancy causes a new negative cash flow homeowner (and the smart tenants force rent reductions by threatening to leave).
 
tryan said:
.... when the last housing boom cycled down in the early 90's, rents tanked with home values.
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Campbell and Norris (the two prognosticators I've paraphrased on this thread) both say, contrary to popular thinking, landlords do not get a pricing advantage when house prices go down. Many people think landlords have it made because people are selling their homes and, therefore, must be looking for a place to rent. In reality, rents go down.
 
califdreamer said:
Thanks Zeb for the info on the housing futures and options. I will be curious to see how expensive San Diego housing puts will be.
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I'm sure the puts will be expensive. Shorting the futures contract would probably be a better way to go (put up your margin and roll your contracts until the correction). An interesting way to lock in the current MV of your home.
 
I sold, and am renting a house about 100 times better than the old house. The family hasn't been this happy since before we bought the last house. Worked perfectly for us, and I believe it will only get better.

When the old house was overvalued about 60% from what I thought it should be valued, I knew it was time to sell.
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Ok, renting MIGHT "work-out", but it might not. Why take the risk?

My neighbor told me about a co-worker who sold his house and rented. 2 years with an out of state landlord, the wife is miserable. He's doing all the repairs himself - else nothing gets done - just like before. Make a long story short, they bought back into the same neighborhood for a 100k more than they sold for. Biggest mistake of their life.

Another friend sold to move to a better school district. Thought they would find a house in 6 months. Been renting for the last year and a half. Now feels priced out of the market. Refuses to buy at these prices. 4 kids in a 900 sq ft apartment. Parents are bordering on depression. Biggest mistake of thier lifes.

Why take the chance ... there's a quality of life issue here.
 
tryan both of those cases you gave concern people who in hindsight should not have sold their homes because they failed to benefit from real estate appreciation after selling. The idea is that you shouldn't sell because you risk missing out on future appreciation. I think most people are in agreement at this point that there's not going to be much more near term appreciation. If anything the risk is the opposite, that you would fail to sell and therefore miss the opportunity to sell at todays inflated prices.

I'm not saying that one should or shouldn't sell, just that it's not at all obvious that it's riskier to sell.
 
CNBC today featured the Real Estate Bubble, most of California, Southern Florida, Boston and Washington area, 25 % drop in prices, but gradual, not sudden.
 
most people are in agreement at this point that there's not going to be much more near term appreciation
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The two sellers in my previous example were certianly believers that the peak had past (why else would one try to time the market) ... but that's exactly the point - no one knows the future .... and your betting quite a bit (timing the market with the primary residence).
 
Tryan, I certainly agree that the transaction costs involved in selling a home make it extremely unsuited as a vehicle for market timing.

It wasn't clear that the sellers in your example were trying to time the market; there are many good reasons to sell besides trying to time the market. One good reason is simply that doing rent versus owning calculations for your situation strongly favors renting.

At any rate, I agree that when there's no strong indication that selling or holding a property is the right way to go, it's best to err on the side of holding.
 
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