Going Up! Real estate prices - where does it end... does it matter?

[Deschodt]

Dunno... I agree California is overvalued on the whole, which is why I moved to FL.. But anyway, real estate is all about location. A nice property with a nice view in a nice area will not go down. EVER... If you're waiting on a 50% drop on those, you'll wait a while!

Also, lots of people complain that it takes a 1/2 million to buy a house. Just move ! Plenty of 2000 sqft home for $70K to $120K in the rest of the country. No view, no tofu, not so many IT jobs, but hey...

Thing is, I wonder if the bubble will burst or just burp a bit and prices will stabilize instead. Too many peole and organizations have too much vested in this to allow the market to drop, govt included. Thnk the govt will let freddic mac collapse? Plus the impact on the economy would be terrible. Sure, if it happens you can buy something at 1/2 price but who's to say by then you'll still have a job ?

so I for one hope it calms down but remains where it's at... I'm cashing in on my house now, and will buy somethign smaller, more fixer upper to repeat the profits or at worst lock in my past increase.

[Groesbeck Hurricane]

Hmmm, we built our 2850 under roof home last year for under $100K. Antique wood floors, custom plan, 8' island, granite countertops, custom cabinets, 3 bedrooms, 3 bathrooms... Of course, we can see no where from there. Just sold my old 3/1 house for $22,000.

[vash]

i am in my first home, so basically i am still on some learning curve. so when this bubble explodes, is the bubble multileveled? i mean, does the most expensive homes take the first hit? i picture the folks with the multimillion homes that overextended, will need to sell and buy a cheaper home right? does this float the value of the smaller, affordable housing? can the big houses act as the "canary"?

i see california differently. there are crazy amounts of people living here. with the crowds they have to find homes, and they have to buy things right? as long as the crowds stay, i think homes will still sell.

[grudk]

Originally posted by Deschodt
A nice property with a nice view in a nice area will not go down. EVER...

History does not support that. In the early 90s in CA, there was a 20% drop in RE value pretty much across the board. The most dangerous thing in investing is to think 'this time it's different.'

Even if the prices only 'level off,' one has to ask if it's a sound financial investment to have all you cash tied up in a very expensive home (as many are doing now) for years, paying (higher) interest on an asset which is not appreciating.

Time will tell. I just do the common sense appraisal. The house I saw three years ago at 500K is now one million? (true in L.A. area). What has fundamentally changed that has made the house DOUBLE in value in such a short time? Incomes have doubled? (no) Population up? Immigration of wealthy people? (no. new L.A. immigrants are low income). The only thing that has changed is interest rates, and public perception. Those are both on the move.

[grudk]

Originally posted by vash
i am in my first home, so basically i am still on some learning curve. so when this bubble explodes, is the bubble multileveled? i mean, does the most expensive homes take the first hit?

I'm no expert, but I think that it's logical to think that the home which have appreciated the most also standsto drop the most. In L.A., it's middle income homes which have appreciated most in value. So, ....

VERY few people can afford home above 1.5-2 million. There's not as much demand, and so the most expensive homes have NOT gone up as much. But speculation HAS driven 'average' homes up to silly prices. When you take away the speculation and the low interest rates, average homes are still... AVERAGE!

[turbo6bar]

Originally posted by Deschodt
Too many peole and organizations have too much vested in this to allow the market to drop, govt included. Thnk the govt will let freddic mac collapse? Plus the impact on the economy would be terrible. Sure, if it happens you can buy something at 1/2 price but who's to say by then you'll still have a job ?

I recall similar words re: the stock market in 1999.

There are so many variables affecting the RE market. Anyone who speaks in absolutes is either a fool or unknown genius. Want to wager on the fool to genius ratio?

Wayne's comment regarding long-term vs. short-term mortgage rates should be considered heavily. Consider a scenario where long-term 30 year rates increase from 5.5% to 6.5%. The monthly payment is 11.5% higher. To qualify for this mortgage, your monthly income would need to increase by 34.5% (for 33% debt-income ratio), or 23% (for 50% debt-income ratio). So, if housing is overvalued, then higher interest rates crimp affordability even further.

The best we can do is analyze the variables and market conditions and predict how people will react.

[turbo6bar]

Originally posted by vash
i see california differently. there are crazy amounts of people living here. with the crowds they have to find homes, and they have to buy things right? as long as the crowds stay, i think homes will still sell.

Sure, homes will still sell, but at what price?

Originally posted by grudk
Time will tell. I just do the common sense appraisal. The house I saw three years ago at 500K is now one million? (true in L.A. area). What has fundamentally changed that has made the house DOUBLE in value in such a short time? Incomes have doubled? (no) Population up? Immigration of wealthy people? (no. new L.A. immigrants are low income). The only thing that has changed is interest rates, and public perception. Those are both on the move.

Da. What changed in the last 5 years to make CA real estate so good? I can understand Vegas real estate going up (everybody wants to be like tabs) , but otherwise, nothing has changed except lending regs and rates.

[grudk]

vash, one more thought

As long as you are in a home that you like and plan on staying in for the long haul (I think 10 yrs or more in the current environment), and as long as you have a fixed interest rate and are not paying too high a percentage of your income towards the home, you will probably STILL come out ahead even if the 'bubble' pops.

The problem is, there are a lot of people who have stretched their finances to buy a bigger place than they need, and financed with ARMs or interest only mortgages in the hopes of rapidly generating wealth. And the banks are writing loans they would NEVER have approved a few years ago. I think it's potentially a VERY volatile situation.

A home can and should be an important PART of most financial plans, and it is after all worth paying for a nice place to live. But homes are not a risk-free method of printing money. History has shown this, and unless something has fundamentally changed, it will repeat itself.

All just my opinion, of course, based on watching the RE market for too long.

[Deschodt]

>A nice property with a nice view in a nice area will not go down. EVER...
--------------------------------------------------------------------------------
>History does not support that. In the early 90s in CA, there was a 20% drop in RE

Well, we're nitpicking here, but I think history is on the side of good locations with good views. There may be rare cases of overvalued homes (idiot buyer) droping, or ncie ones which temporarily lose a bit in a big bubble bursting situation, but I betcha they'll return to their prices faster than the rest. If you can wait 2 years, it never happened! Location, location, location... A 4 Mil house in Tiburon with view on the SFO bay will not sell for 2 mil, ever !!! A 1Mil dump in the silicon valley might, but my point is good locations will not go down "historically", over the years... I agree with most of what's been said, there are some crazy pricesout there, but in most cases they are up there because the market will bear it... High demand, scarce offer!

[Porsche-O-Phile]

It all comes down to preference though. . . Personally I'd rather rent in paradise than own in a dump. "Dump" to qualify constitutes any area where (1) I can't walk down the street 24/7 without concern over getting mugged, (2) Anywhere with snow more than once every 25 years, (3) pretty much any "red" state (some exceptions), (4) Anywhere that Nascar is more popular than baseball, etc. Unless a REALLY good opportunity falls into my lap, I'm staying put.

[JavaBrewer]

Lennar won the bid for the former El Toro base in Orange with $1.02B. Story says that comes to $1.2M per developable acre despite concerns about possible "contaminated" soils.

Union Tribute Article

[Moneyguy1]

Intersting listing of 99 cities re: real estate prices and whether thay are overvalued or undervalued:

http://sev.prnewswire.com/banking-financial-services/20050210/clth0180022005-1.html

a few examples:

Chico Cal: 43% overvalued
Tucson AZ dead center
Rochester NY 13% undervalued

[turbo6bar]

link isn't working

[Moneyguy1]

Try again..

http://sev.prnewswire.com/banking-financial-services/20050210/clth01810022005-1.html

Don't know why it truncated the frst time

[Moneyguy1]

It did it again.....

Just go as far as the word banking and search within the sight.

I know I typed the whole thing in...

Wayne?

[adomakin]

House prices over here in the UK are mental. in the last ten years house prices have more than trebbled. you don't know how lucky you usa lot are, the houses/land that you get for your dollars are unreal. Im in the south east (dearest area) and I bought a three bed flat in 99 for £59000. I just sold it for £190000. yes thats right £190000. yeah we went right through it, new kitchen bathroom electrical plumbing decoration etc but £190000?? mental.


Andy

[turbo6bar]

Originally posted by Moneyguy1
Try again..
Don't know why it truncated the frst time

The article linked by Moneyguy1:
Real Estate Study Finds Growing Risk of Housing 'Bubblettes'

[motion]

Lot's of conflicting data out there. Here's a more bullish forecast:

http://money.cnn.com/pf/features/lists/topzipcodes/index.html

[grudk]

That info is from CSW, pretty much in bed with the mortgage industry. Kind of like asking a diamond broker where the price of diamonds is going. There's just no rational reason why real estate will continue to appreciate, especially in CA. But that doesn't mean it can't rise for a while more. Sooner or later the bubble will pop. It's not 'if,' but 'when.'