Wayne's formula for when to buy real estate again...

[Chocaholic]

I'll bet she looks forward to your e-mails!

[red-beard]

In the 1990 cycle, the LA prices peaked at about 60% above the mean. In 2006, they peaked at 170% above the mean, or about 3 times what they did in 1990.

I expect the reversion point will be about 400-425 and will take about 7 years from the peak, a little longer than the previous cycle. Think Tokyo in the 1980's. The next uptick will be about 15 years from peak, after baby boom echo (Generation Y) start to mature and buy houses (10 years from peak).

[KaptKaos]

James,

How do you factor in immigration into these types of calculations? (I don't want to make this political people) Simple supply and demand type stuff.

The California population growth would have been negative without immigration. I have to believe that it's supporting the market, at least a little.

[grudk]

CA immigration is primarily low-income. Out-migration is higher income.

Immigration isn't going to support the CA housing market anytime soon

[hytem]

Well, that's California. But California isn't representative of the country. For example, in PA real estate prices haven't bubbled. They have been increasing 3-6% per year, pretty much constant. Lately, about 3%. The market has been hurt some by the media overplaying the real estate situation in the country.
Too many buyers are waiting for the market to bottom more. But interest rates aren't going to stay this low forever. For sure.

As I've said, it's bad in Florida and other resort property areas because there was a bubble due to overspeculation and greed. And a lot of overbuilding in Beach areas. Market prices have corrected substantially in Florida, but it will take awhile longer because the inventories are huge. Miami Beach is very attractive to Europeans right now because of low prices and cheap dollar. The media's false prediction of hurricanes the past two years in Florida has tripled homeowner's insurance there, and the residents aren't too happy about it. Condo fees have gone up 30% because of it.

[Jim Bremner]

what about commercial realestate?

[Moses]

That graph is amazing. Like you, I expect prices to get very close to the green line. In the Nor-Cal suburbs we are in a very similar situation. Right now there are LOADS of houses on the MLS. Sellers won't go upside down on a sale and buyers seem content to wait. The foreclosure rate is very steadily increasing. It's like waiting for a dam to break.

I expect the fall to baseline will be pretty rapid. Just a guess, but I'm thinking 18-24 months. This could all be undone if Obama decides to bail out the subprime borrowers with more of my tax dollars.

[onewhippedpuppy]

Very well reasoned argument Wayne, I would tend to agree. One of the #1 rules of economics is that prices tend towards the mean, with fluctuations +/-. By that rule, SoCal was certainly due for an adjustment. While I have no doubt that it will not adjust to KS levels of affordability, $750k for a middle-class home is simply not sustainable.

Funny how the bubble markets have affected everyone. We have radio commercials touting "a great time to buy" real estate, despite Wichita's constant 3-6% rate of appreciation. I suppose it has probably made everyone a bit skittish.

[legion]

Originally Posted by Chocaholic

I'll bet she looks forward to your e-mails!

My thoughts exactly. In my personal dealings with RE agents, they seem like people of slightly below-average intelligence who think they are big dogs now and like to spout overly-simplified (or flat-out wrong) truisisms.

"The market never goes down!"

"They aren't making more land!"

"Location. Location. Location."

"Now is a GREAT time to buy!!!"

[the]

My beloved graph!

There is a chart that goes along with that, which shows the price increases and declines per quarter for each of those areas in So. Cal. (and other areas, too). It is really amazing, because it can be used to very accurately predict the future.

It takes a few minutes to study it and see how it works (with the colors and all), but it is well worth it. Look at the patterns (So Cal is in around where it was in 1991/1992 in the last cycle), and you'll see not only where So Cal has been, but where it is going.

Be sure to look down at the bottom, to see what the different colors represent. As you will see, historically, cycles take a long time. In other words, once you get into a color, that color stays for many, many years. As you will also see, So. Cal. has just entered into the "red" phase. San Diego (which lead the bubble) has been there for over a year now, Orange County is a quarter behind, and LA is a quarter behind that. Fill it out for the next 7 years, and send that to your realtor!

http://www.housingbubblebust.com/OFHEO/Misc/92SoCalRecession.html

I first printed this chart out in '05 or so. At the time, I filled it out all the way to 2010. To get the numbers, I just used them from the last cycle. By doing so, I was able to very accurately predict the future. You can fill it out to the end, starting now, and see the future.

There are many, many, many years of red numbers ahead for So. Cal. The chart don't lie.

[legion]

Originally Posted by onewhippedpuppy

Funny how the bubble markets have affected everyone. We have radio commercials touting "a great time to buy" real estate, despite Wichita's constant 3-6% rate of appreciation. I suppose it has probably made everyone a bit skittish.

Same here. Bloomington has been in the 3%-6% range my entire time here.

In my company newsletter, there were about 6 houses for sale last February. This February, there are over 70.

My thoughts:

-People who can afford to buy are buying. We have a lot of people who can put 20%+ down and have 700+ FICO scores. Many are locking in low rates and "moving on up". The giant middle of the local market ($125k-$250k) is doing well.

-At the bottom end of the market, people are in trouble. These are people who got an ARM to buy a 100-year-old house in a not-so-good neighborhood for $40k. Their ARM has readjusted (or will soon) and they can't afford to stay and they can't sell. No one who has the credit/downpayment wants to live there and no one who wants to live their has the credit/downpayment.

-The top end of the market is dead too. People in the giant middle can't get the risky financing to break into the top of the market. People in the top aren't buying/selling as they take a wait-and-see approach or realize that getting a jumbo is tougher.

[Porsche-O-Phile]

I predict it will dip BELOW the inflationary green line a bit, then return. Similar to '83'-'87 and '93-'98.

[911Rob]

Originally Posted by Moses

That graph is amazing, Like you.

couldn't resist.
Thanks Wayne!

[Dixie]

Wayne, I see where you're coming from with respect to the real estate market, but how will you know when to buy?"

Silly Wayne. She wasn't looking for an answer. She wasn't really asking a question. She was really saying, "Quit being ornery and buy something you fool! I need a commission check!"

[turbo6bar]

Hundred bucks says we could get Wayne to buy right now if we could get him remarrried to a less stable woman and hooked up with super-_realtor Suzanne. After all, Suzanne researched this!!!

[Moses]

Perfect buyer. She looks desperate.

[the]

Is that for real?!?!?!?

[nostatic]

agents of change? Maybe Obama is a realtor.

I prefer agents of fortune:

[red-beard]

Originally Posted by KaptKaos

James,

How do you factor in immigration into these types of calculations? (I don't want to make this political people) Simple supply and demand type stuff.

The California population growth would have been negative without immigration. I have to believe that it's supporting the market, at least a little.

I don't think the type of immigration going to California is going to help at all. As was said earlier, it's all low income stuff. Plus, the median age of the baby busters is around 34, so expect a down tick in babies from the non-immigrant groups. The leading edge of gen Y is 28 this year, and most of those aren't ready for house ownership. Maybe 15 from peak is too long for the next upturn, but I wouldn't expect it before 2016, when I'm running for President.

[Moses]

Originally Posted by Wayne at Pelican Parts

...she does respond and ask questions, and has a dialog, so maybe...

-Wayne

She has loads of free time. She's certainly not busy selling houses.