Media Doom & Gloom - Home Values
 

U.S. Property Values Decline More Than Forecast in S&P/Case Shiller Index - Bloomberg

All I've seen on the news the last few days are reports that American home values have continued to decline, fueling news of a "double dip" housing recession. Check my logic here - home values rose exponentially over the 1990s and early 2000s particularly in bubble markets, causing some home "values" to as much as double in less than a decade. Now we're seeing values starting to correct to reality, therefore reducing home values. I know expecting common sense from our media is expecting too much, but the nonsense surrounding this is ridiculous. A simple single family home in SoCal for $800k is not sustainable, a drop was inevitable. Now if you watch the news you'd think that the world was ending. I know that it must suck for those who are upside down in their house, but I'm getting tired of the stupidity surrounding the issue.

Human beings can rationalize anything.

Simple common sense usually prevails over a lot of the so-called "analysis" surrounding speculative investing.

Virtually any "analyst" you talked to five years ago would have claimed that RE was on an endless upward cycle and backed it up with all kinds of jargon and fancy multicolored graphs. However I (and a few others I know) stayed out of that market based largely on the simple common sense belief that millions of $30k-a-year people simply would not be able to afford the $500k and $600k (and up) places they were lining up to compete for in any sort of sustainable way, and that what we were seeing was eventually going to end VERY badly.

It took great restraint and was very frustrating to sit on the sidelines while people making far less than my wife and I smugly moved off into "their own" places and we continued to pay rent every month. VERY maddening at times. But the prediction I made has come to pass, huge corrections are underway, foreclosures are in the millions and despite suffering a layoff myself last year I'm sitting pretty well with cash in my pocket and excellent credit. The time to reap the fruits of earlier patience and restraint is almost here.

I'm in the market now - actively looking - there are some great deals and I suspect I may very well jump on one soon. I'm also not looking to flip nor to leverage on a HELOC - I'm simply looking for a place to live and to serve as an inflationary hedge for some of my money over a 20-30 year time horizon. If I end up moving in the future, I'll keep it as a rental property. One benefit of buying at an affordable, well-below-ones-means level.

For around $200k (+/- $30k) you can do very well around here. That represents a total out-the-door payment (taxes, insurance, mortgage, etc.) of less than 1/3 my income level. That's affordable. I'm fine with that. I do not need a $500k place, nor do I want one, despite the fact that I can get approved for one and have had several people try to talk me into one (undoubtedly to maximize their own commissions, which are pegged to sales price). I want more cash in my pocket over the next 15-20 years instead. I don't need a 20-room house.

People are amazingly stupid and able to rationalize anything. "Common sense" is not so common. If you have it and have the restraint to listen to it, it will seldom steer you wrong.

Well, I agree the media is prone to sensationalizing. However, several cities in the Case/Schiller index have dipped below 2006 lows. 3 other cities are near lows and will go below previous lows if the current trend lasts. This isn't good for housing. This isn't good for the economy. Surely, the world isn't coming to an end, but if your household has negative equity, times are not so good. Currently, nearly 1 in 3 borrowers is under water.

You are a very smart man.

OK, I'm done with Pelican for this year...I can't absorb any more great wisdom from all sides. Happy New Year everyone and be safe...

We we were looking for houses the bank qualified us for a staggering sum. No way in heck would I want to owe that much. We could have bought a 5,000 sq foot 6 bedroom house on 1.5 acres. Why a couple with no kids would want that is beyond me. I guess it is just to impress your friends that come to visit.

We are very happy with our current house. Especially since we paid it off in 12 years.

I know a few people that had very ordinary jobs that leveraged everything to buy the huge house. They live paycheck to paycheck and if the A/C system quits they will not have the money to fix it. I could never live like that.

Overall homes resales fell year over year in the East, Rust Belt, Midwest and only in the West were they up 4/10 ths of a percent...

I guess one could say that the Great Bull run in housing that started in the 70's is now over. I think if one wanted to do an analysis of residentail housing inflation over the past 30 years or so as a portion of the growth in the US economy one might be surprised at what a prop it was to the economy. The question is what is the US going to do now?

My fiance and I bought our house October a year ago. In theory, it looks to be worth a little less now than we paid for it, but a lot of that is because many of the smaller houses in the neighborhood are the only ones to have turned and it pulls the average down more than comping to similar houses.

What we did that several people we know didn't do, is buy a house we wanted to live in for 10-15+ years. It was more to lock in our cost of living for a long period of time in a house we wanted vs. the whole two years in a "starter home", flip, move up, etc. I just didn't see that possibly working on paper long term with all the money tied up in commisions and closing costs.

So while it still might be slipping, I think more and more people are doing like we are slowly and buying in order to stay put, which over time should help things stabilize.

My landlord is a guy who needs to see the reality and realize this house is not worth what he wasn't for it. $400,000. For a home with several major issues... a flat roof in Seattle? Not wise...
Wiring that should be totally redone. Many remodels over the years that weren't what they should have been. Thin, single-pane indows, tiny bathrooms. The only thing it's got going for it is a large master BD, Kitchen, and the piece of land it sits on. Other than that, the house should be gutted with a do-over.
I'd give him $300k for it, TOPS.

MysticLlama, that is an excellent reason for buying. Some people are doing that, but many potential buyers can't get past the fear of losing value for at least the short term. The declining values every month are quite sobering. One wonders what things will be like a year from now.

I never thought of my house as an investment and never intended it as such. Silly to do so IMHO.

There is no "double dip". Because there was never a real recovery. We just haven't hit bottom yet. We're close, but not quite there. Probably another 5%-10% for most markets. Some (cities, bubble areas like LA, Phoenix, Vegas, FL, etc.) will probably drop another 20% or so before leveling off. And they will level off - prices are not going to rise appreciably for several years - and when they do it will be because of inflationary effects rather than actual real-dollar increases in value.

Generally agree, but I think you're optimistic. The Baby Boomers who created and drove the housing market beginning in the 1970's are, as a group, done buying houses. None of the predictions appear to take this into account. The generation behind them doesn't have the numbers, nor the income (and maybe not even the desire to own homes). We're moving into unexplored territory here.

Of course, the first Baby Boomers turn 65 today and will be doing a tsunami move on the Medicare and Social Security offices when they open Monday morning. A tsunami that will last about 20 years. But I'm sure our government is well-prepared :cool:

New cheap houses are selling in the west. 140K-180K. Can't build them fast enough!

Indeed....I could never understand why as soon as people found out their house was worth less than they owed all of a sudden they could not afford it! Its the same house, same payment, JC unless you pay cash for a new car as soon as you drive it off the lot your upside down in it! :rolleyes:

What happened to the OFHEO graphs? The website seems to have changed names and the data is only in line item form.

http://forums.pelicanparts.com/off-topic-discussions/234129-more-bad-re-news-101.html#post5757684

Well the names have changed, but the guilt remains the same

OFHEO is now FHFA

I still think we need an inflation crossing before the market can truely recover. If that is correct, then there is about a 25-30% ways to go in price reduction.

SmileWavy

http://forums.pelicanparts.com/uploa...1293901198.jpg

Having worked for a large homebuilder in the SE, I've built my last five homes and had sweat equity and good deals in all of them, which allowed me to sell them 2-4 years later at a profit. Not always great, but decent. Now getting a construction loan is next to impossible and we're looking for a small house that we can buy, fix up to our liking and hold onto it for a long time.

Yep Tabs - you are spot on.

Where? In Victorville?

Could be a price drop - or could be several years/a decade of price stagnation until overall inflation catches up to house prices.

All over the 909 - Chino, Menifee, Murietta etc. etc.

Cheap sells. Big time. You'd be surprised what you get right now for $160K - very modern, well constructed home with a yard and irrigation. Decent finish work, granite, tile, super-insulated. Much nicer than my first home!

I wouldn't want to sell a McMansion tho...

I wish we had those here...

and then you can spend 5 hours a day commuting! Special bonus feature...

True dat!

plus you can get the bulk discount on grafitti removal. Yo.

Is that Riverside you are referring to?

Man that sucked driving thru on a Friday night.. I swore I would never move there. They have traffic reports that run @ 10PM..

rjp

They also have commuter trains from there which makes me wonder why anyone on earth would ever drive to/from there given the alternatives that actually do exist.

We considered this when we were out there and tested it out a few times - it's a viable alternative to sitting on the hell-hole of the 91 day after day - or agreeing to the extortion terms of the "91 Express Lanes".

If you live in Riverside you should seriously question why you bother to live in SoCal at all. I mean, it's not like you get any of the benefits of living here. It's cold in the winter, hot as hell in the summer, ugly, and more than likely you commute for hours to LA. Low humidity tho.

I took a quick look at Chino real estate. Almost everything under 220k is condo/complex, no individual homes.

Unless things have changed significantly in the last two years, that will be the case anywhere in southern CA. The only place we found single-family homes less than $250k was in the hood/ghetto, or very specific areas that were far away from the cities - Oceanside, Big Bear/Arrowhead, Lake Elsinore, etc.

Anything in "the sprawl" will be a glorified apartment until you get to about the $350k-$400k range, unless you want to live in a place with occasional bullet holes.

I said the same thing for people who lived in El Cajon when I lived in San Diego. They might as well have lived in Dallas (we had facilities in Dallas) and paid no income tax and had housing and cost of living for 1/2 the price.

James, El Cajon now has an 8.75% sales tax, so they might be able to spruce it up a bit. That sales tax rate seems to be all the rage in the area lately. At the height of the feeding frenzy, I always saw twenty somethings buying McMansions, cruising around in Escalades, buying motorcycles, dune buggies, etc., etc., etc. I knew it would all fall down and the twenty something cuties might end up giving up their shopping sprees and lattes for a job somewhere down the line. I'm still wondering about the long term social effects that will have in terms of the divorce rate and other things that may indirectly have some economic impact.

Oh, thing have changed out in So. California quite a bit in the last few years.

To the tune of prices falling 40-50% in a lot of areas. Like in Riverside. Houses by the blocks for under $250K, well under, including houses with pools, etc.

Just a quick search, random example.

Riverside CA Homes for Sale & Riverside Real Estate - Zillow

These were pushing twice as much just a couple of bubbly years ago.

You must not have looked in the right place. Looks like tons of single family houses currently available in Chino for under $220K

(Also looks like half of Chino is in foreclosure, so wait a year or two and there will be lots more).

Chino CA Homes for Sale & Chino Real Estate - Zillow

Orange county, ca is still obscene. what really rattles me is the taxes. 2% on a 600k house. Ouch. i read recently that the infrastucture bonds " mello roos " that are tied to each property can be increased by 2% each year. I'm sure someone has a calculator handy but if your " mello " is 5k today whats that in 2033 when the bond expires........

Part of the motivation for my rant - I wish our media could show some DATA like this chart. Prices went too high, they're largely adjusting back to this inflation adjusted normal, we've still got a ways to go. Done deal. There's never any suggestion that home values went far too high in a bubble market and that the adjustment is normal, it's always the sky falling.

In areas where prices never went too high, nothing has really changed. Our local market is reportedly fairly slow but homes in my neighborhood are still selling. I've checked the sale prices (listed online), sellers aren't having to significantly drop their prices to sell them either. But this is Wichita where you can expect a steady 3-6% yearly increase in your property value, no bubbles here.

Like I mentioned in the More Bad RE News thread, no one talks about that (except for guys like Peter Schiff--but he is/was openly laughed at by just about everyone in medialand) because no one wants to believe that. It doesn't make us feel good, so we don't want to believe in the basics of economics. But hey, our government is now creating us lots of new jobs. Unemployment isn't rising as fast as it used to. The economy is getting better. Retailers are having a better Christmas. More people are buying cars. Housing prices (or sales--whichever is better but usually not both) are rising. It's just a matter of time before we're all fine, again. Good thing we just waited out this whole thing. Phew.

If Peter Schiff's predictions come true, housing will be down by another 30% from here. New construction will cease (as if it is alive even today). Home sales will suffer further as half of the nation's housing will have negative equity. Refi activity is predicted to plummet over the next few years. What happens to municipalities as housing values remain flat to down? How do they generate additional income to maintain a rapid growth in infrastructure?

This stuff worries me and it should worry you. Forget the media. I don't watch TV. I listen to NPR, but they sugar-coat the stories. You have to be willing to ingest the information and form conclusions. Otherwise, if you run with the pack, don't be surprised when you see that cliff. Like Noah says, the pack doesn't want to see charts. That requires thought and attention span.

I really do not see anything positive on the economic front. The media attaches itself to every little positive blip and declares recovery is in effect. Per the media even the threat of a double dip is evaporating. Trouble is they are right but only because there never was a dip in the first place. The dip of which they speak was merely a pause in the decline. I think the media is in the throes of the bitter realization that they have duped themselves and their brethren at their wine and brie parties. Fear is keeping them together, traveling in a pack; none wanting to stray from the center mass of the herd.