Media Doom & Gloom - Home Values

onewhippedpuppy · 12-31-2010, 04:27 AM

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.

Porsche-O-Phile · Porsche-O-Phile's Garage

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.

turbo6bar · 12-31-2010, 05:31 AM

Quote:

Originally Posted by onewhippedpuppy

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.

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.

targa911S · 12-31-2010, 06:21 AM

Quote:

Originally Posted by Porsche-O-Phile

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.

You are a very smart man.

KFC911 · 12-31-2010, 06:36 AM

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...

GH85Carrera · GH85Carrera's Garage

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.

tabs · 12-31-2010, 08:54 AM

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?

MysticLlama · 12-31-2010, 12:29 PM

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.

WolfeMacleod · 12-31-2010, 01:33 PM

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.

genrex · 12-31-2010, 01:55 PM

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.

flatbutt · 12-31-2010, 05:10 PM

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

Porsche-O-Phile · Porsche-O-Phile's Garage

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.

CurtEgerer · CurtEgerer's Garage

Quote:

Originally Posted by Porsche-O-Phile

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

daepp · 01-01-2011, 07:07 AM

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

cgarr · cgarr's Garage

Quote:

Originally Posted by flatbutt

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

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!

red-beard · red-beard's Garage

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

red-beard · red-beard's Garage

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.

A930Rocket · 01-01-2011, 08:01 AM

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.

jcommin · jcommin's Garage

Quote:

Originally Posted by tabs

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?

Yep Tabs - you are spot on.

Rick Lee · Rick Lee's Garage

Quote:

Originally Posted by DAEpperson

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

Where? In Victorville?