patrick.net

@Vain

Thanks for the info. Even I may be looking to buy in the US...but likely in Arizona or Hawaii.

Bought a house in the San Gabriel Valley and closed in 12/2010. Price 390K Standard. The price was dropped 20K by the time I made an offer and the appraisal dropped it another 13K. Good interest rate. Very comfortable payment and according to Patrick just above borderline at 7% with a low estimate on rent.

Since I closed, I haven't been on this site but noticed purchases are picking up. Good to know. Hopefully we can see some modest gains in the next few years!

JPB says

The price was dropped 20K by the time I made an offer and the appraisal dropped it another 13K. Good interest rate.

If I tried to sell you my p.o.s. car for $100k, marked down at $20k and at a great interest rate, would you buy it?

JPB says

Since I closed, I haven’t been on this site but noticed purchases are picking up. Good to know. Hopefully we can see some modest gains in the next few years!

Hopefully reality will match your delusions.

uffthefluff says

But yeah, we’ll be buying this year in Chicago for about 60% off of peak. Figure that’s enough to be safe considering historical norms, rents, and incomes.

The person that bought that house before you might have had an Option ARM no-doc loan and bought it from a relative at 50% more than market value at the time.

I really don't get why people still think like this. People who measure the "deal" they get from a bullshit price level rather than actual fundamentals.

klarek says

uffthefluff says

But yeah, we’ll be buying this year in Chicago for about 60% off of peak. Figure that’s enough to be safe considering historical norms, rents, and incomes.

The person that bought that house before you might have had an Option ARM no-doc loan and bought it from a relative at 50% more than market value at the time.
I really don’t get why people still think like this. People who measure the “deal” they get from a bullshit price level rather than actual fundamentals.

So, are you purposely ignoring his statement that the price is right considering historical rents and incomes? Or are you just being an asshole no matter what?

tatupu70 says

So, are you purposely ignoring his statement that the price is right considering historical rents and incomes? Or are you just being an asshole no matter what?

Pay attention to his language. He said it's safe enough "considering" those other factors. I'm not being an asshole, I'm trying to understand the logic in a statement which seeks to validate a purchase based on bubble sales figures. Are you so insecure about the logic of buying today that you'll run to defend every buyer's inane rationale?

klarek says

Are you so insecure about the logic of buying today that you’ll run to defend every buyer’s inane rationale?

No, but I'm tired of you assuming everyone who buys hasn't done their homework. And that you know better than they do. Because you don't.

He looked at rents and incomes. What other "fundamentals" would you have him consider??

tatupu70 says

No, but I’m tired of you assuming everyone who buys hasn’t done their homework. And that you know better than they do. Because you don’t.

I know that using bubble prices as a yardstick is stupid. That was my point, and you're ignoring it completely.

tatupu70 says

He looked at rents and incomes. What other “fundamentals” would you have him consider??

First I would look at historical income levels for the region, town, zip, and city block. Doing a time study and correlation of prices and incomes can reveal a lot more than looking at current income/prices and assuming it's cool without any other context.

He said he looked at rents and incomes, but from his language, it was unclear if they were corroborating the decision to buy or that he used the percentage of peak price to offset it. His words:

"figure that’s enough to be safe considering historical norms, rents, and incomes"

He's using percentage off of a bubble sale as his yardstick. My point is valid.

klarek says

He’s using percentage off of a bubble sale as his yardstick. My point is valid.

OK--we're beating a dead horse. He did say that one factor was that it was down 60% from peak. Which is useful data. If you look at how much the price rose during the bubble and then see that it's since come down the same amount or more, then that's one way to surmise that it's close to fair value. He goes on to say that he also considered historical incomes and rents. More useful data to consider. Which you completely ignored in your usual critical, condescending post. So, your point is not valid.

tatupu70 says

OK–we’re beating a dead horse. He did say that one factor was that it was down 60% from peak. Which is useful data. If you look at how much the price rose during the bubble and then see that it’s since come down the same amount or more, then that’s one way to surmise that it’s close to fair value.

I disagree. I saw countless anecdotal sales from the peak that were so out of whack not just with historical prices (that's a given) but with other comps at the time. I'm talking completely fraudulent sales and appraisals. One guy buying a house for $200k in 2000 and selling for $700k in 2006 to somebody that was probably a friend, relative, or business partner with no intention of repaying his loan. Banks had no idea and didn't care because the appraisal came in okay and they could issue their shitty no-doc loan.

I've seen so many of these "outliers" that it's become obvious to me that in a completely fraudulent environment, no anecdotal sale price is indicative of the house's value today, whether 10, 50, or 80 percent off.

He goes on to say that he also considered historical incomes and rents.

He said he considered them but not whether they supported or took away from the justification. In the case that it's the former rather than the latter, we don't know if there was any real methodology or temporal analysis on those numbers, or if they "looked right". I'm not saying he didn't do a full diligence, but you're throwing your faith behind what was written as a skimpy justification.

More useful data to consider. Which you completely ignored in your usual critical, condescending post. So, your point is not valid.

My point was that an anecdotal peak sales price is a very bad way to evaluate a house's correct price today. YOU completely ignored my point that based on the way he phrased it, it might actually be contrary to those other factors he mentioned. I ignored it in my first post, but you're ignoring this despite three time that I've pointed it out.

klarek says

My point was that an anecdotal peak sales price is a very bad way to evaluate a house’s correct price today. YOU completely ignored my point that based on the way he phrased it, it might actually be contrary to those other factors he mentioned. I ignored it in my first post, but you’re ignoring this despite three time that I’ve pointed it out.

Let me see if I get this right. You're saying he may have looked at the rents and incomes, found that they didn't support the home price, but then bought it anyway? That's really straining reality.

klarek says

I’ve seen so many of these “outliers” that it’s become obvious to me that in a completely fraudulent environment, no anecdotal sale price is indicative of the house’s value today, whether 10, 50, or 80 percent off.

Yes, but if the 80% off gets the house back to pre-bubble, rational levels, then it is an appropriate data point. I would also check rent ratios and price/income ratios as he did--all are useful data and when taken together give you a good idea if the price is reasonable.

I'm anticipating a "housing crush" rather than crash. There will be a time when a surge of people who've been sidelined waiting to buy because prices are falling realize that prices aren't actually falling and
come off the sidelines all at once.

toothfairy says

realize that prices aren’t actually falling

You truly are living in a different world.

vain says

I’ll keep you updated as the purchase progresses. We wanted a 10 days escrow, but the bank countered with 30 days (or sooner) for some reason.

So our deposit check was finally cashed. They held on to it for quite some time. We removed the buyer inspection contingency and the listing agent gave clearance for our agent to hold on to the only set of keys to the the property now that there are no are no more contingencies. I'm just waiting for the escrow company to give me the final amount to pay which should include the closing costs, and etc. I just wished they didn't make the escrow time so long. I'm very excited.

toothfairy says

There will be a time when a surge of people who’ve been sidelined waiting to buy because prices are falling realize that prices aren’t actually falling and
come off the sidelines all at once.

They been saying that since 2006 and kept repeating it as prices actually did fall.

In the SFBAY area, we have a long way to go.

The fallacy in thinking that housing should track "inflation" is that prices for different consumer goods go up at different rates. The inflation number is for a basket of typical consumer goods, very generic items the supply of which is basically unlimited.

Housing in a location where there is no more vacant land is an entirely different animal. Real estate values are based on location and the improvements thereon. It thus becomes a matter of supply and demand. In areas of high demand housing prices can far exceed the rate of inflation.

It's like saying a Van Gogh bought in 1893 should be worth the same price today in inflation adjusted dollars.

Thomas, is that chart showing price per square foot? If so, I'm purchasing at $338/sq foot. Not too much over what your chart is suggesting.

I too "won" against others using cash, but I'm not too sure if there really were others as they asked for a "highest & best" twice.

http://www.housingbubblebust.com/index.html

Index, for santa clara the index is very close to actual prices (,000).

vain says

I too “won” against others using cash, but I’m not too sure if there really were others as they asked for a “highest & best” twice.

Its a shame we (public, media, and govt) are too busy trying to go after evil wall street and banksters to notice someone like realtors are scaming even today the public at large and giving lip service to govt regulators.

So much for "trust but verify". Surely the lady realtors who looks like someones grandmom and drives a new Benz wouldnt rip me off.

bayview6 says

The fallacy in thinking that housing should track “inflation” is that prices for different consumer goods go up at different rates.

oddly the main gist behind Robert Shillers study is RE prices do track inflation. and since shiller predicted the stock bubble in 1999, and housing bubble 2005, leds one to believe he is right.

Shiller chart was updated and posted in a Patrick link on Monday. Still looks grim:

thomas.wong1986 says

oddly the main gist behind Robert Shillers study is RE prices do track inflation. and since shiller predicted the stock bubble in 1999, and housing bubble 2005, leds one to believe he is right.

Even if you accept that RE prices track inflation (which is somewhat dubious--I would expect them to track wage inflation), you have to admit that it doesn't mean that every specific neighborhood or city will therefore exactly track inflation. Detroit, for example, clearly has signficantly lagged inflation. Does that mean Detroit is severely undervalued right now?

You can't look at a specific town and say that because it has outperformed inflation, it is overvalued.

thomas.wong1986 says

Its a shame we (public, media, and govt) are too busy trying to go after evil wall street and banksters to notice someone like realtors are scaming even today the public at large and giving lip service to govt regulators.

We were actually expecting that so our offer was quite low. Then again, their asking price was low. We still got a good price I feel. This house was 340kish around 1998 and 1999. If I factor in 33% inflation to it, it'd be $452k. I'm still paying a lower price than that.

tatupu70 says

Even if you accept that RE prices track inflation (which is somewhat dubious–I would expect them to track wage inflation), you have to admit that it doesn’t mean that every specific neighborhood or city will therefore exactly track inflation. Detroit, for example, clearly has signficantly lagged inflation. Does that mean Detroit is severely undervalued right now?

The fundamentals for housing prices are household income and leverage (loan types, rates, etc). Supply and demand tend to create a constant equilibrium though construction and population shifts/increases. Yes, wage inflation would be a more accurate measure if it is used on a local level. Detroit is a perfect example. Did it really overcorrect, or did the exodus of jobs in addition to the bubble make it only appear that way since the fundamentals tanked as well? Arguably, the fundamentals might support prices being that low. Las Vegas on the other hand is suffering a cyclical (but massive) unemployment which has deteriorated the market fundamentals, but it's a service-sector market for the most part, and unlike Detroit it could see a massive rebound.

tatupu70 says

You can’t look at a specific town and say that because it has outperformed inflation, it is overvalued.

Agreed. My area (nova) outperformed inflation. I don't use inflation to estimate the worth of houses, I use household income data for the areas I'm looking at. But I add one massive caveat to that which is that income levels in the DC region were largely a result of massive govt spending, something that might unwind over the years in proportion to its outperforming the national market over the past decade. I don't adjust how I see the value of houses based on it, but it gives me a lot of reason to doubt that prices will rise, or that the trend will continue.

klarek says

Agreed. My area (nova) outperformed inflation. I don’t use inflation to estimate the worth of houses, I use household income data for the areas I’m looking at. But I add one massive caveat to that which is that income levels in the DC region were largely a result of massive govt spending, something that might unwind over the years in proportion to its outperforming the national market over the past decade. I don’t adjust how I see the value of houses based on it, but it gives me a lot of reason to doubt that prices will rise, or that the trend will continue.

This quite is true I think and, is interesting point.

I am kind thinking about... what if we had government shutdown and it will last for 2 months?
As you know, 13% of fairfax resident, 10% of DC resident are fed workers, 10% of DC resident is DC government workers (which will also be closed if fed gov closed), and about another 10% of all people arround here are contaractors that depends on either fed or DC government. Let say 2/3 of those people can't work due to the shutdown, suppose many of them can't make their payment on time, and local business lose them for few weeks... well... things could've been quite interesting. Will we still can outperform inflation after that?

Another thing is, even if we were able to avoid the shutdown, federal government is not hiring. They don't hire another people when one left the office unless the position is absolutely necessary. And the enormous pressure from the congress the government is facing with now, they may have to cut some government positions in the future. That could affect people's life in DC metro in the future.

seaside says

I am kind thinking about… what if we had government shutdown and it will last for 2 months?

I was thinking more in terms of downsized departments and a lot of terminated contracts/programs. Nobody really thinks they would shut down the govt for that long. Unemployment would reach epic levels.

My less than asking offer was just accepted for my 2nd rental this year in South Puget sound. 3bd2bath 2365 sq ft, built in 2006 for 200k even(bank pays 2% closing costs). Asking was 205k. There were multiple offers supposedly and I was given an offer to give my "best and final" offer. I didn't budge and they still picked me, go figure. Am I proud of my investment. No. It's not an investment, it's my hedge against inflation and will be yet another incomes stream when I retire.

burritos says

Asking was 205k. There were multiple offers supposedly and I was given an offer to give my “best and final” offer. I didn’t budge and they still picked me, go figure.

I was asked to give a highest and best TWICE :(
But I gave in because our offer price was low.

A listing agent for an REO property once told me that the banks will counter you no matter what you offer. If they don't counter you, it's because you made a ridiculously high offer.

burritos says

My less than asking offer was just accepted for my 2nd rental this year in South Puget sound. 3bd2bath 2365 sq ft, built in 2006 for 200k even(bank pays 2% closing costs). Asking was 205k. There were multiple offers supposedly and I was given an offer to give my “best and final” offer. I didn’t budge and they still picked me, go figure. Am I proud of my investment. No. It’s not an investment, it’s my hedge against inflation and will be yet another incomes stream when I retire.

Do you have someone local to manage it?

vain says

burritos says

Asking was 205k. There were multiple offers supposedly and I was given an offer to give my “best and final” offer. I didn’t budge and they still picked me, go figure.

I was asked to give a highest and best TWICE

But I gave in because our offer price was low.
A listing agent for an REO property once told me that the banks will counter you no matter what you offer. If they don’t counter you, it’s because you made a ridiculously high offer.

Those were my thoughts exactly. Of course now I wish I had made a lower offer. However, I was originally going to make a full offer price, but my realtor suggested I offered lower with closing costs. I'm pretty certain I can get it rented out for 1650 maybe 1700 per month. My PITI is going to be around 1200. I've been following this market closely and houses of this size that were ready to move in were selling closer to 215-220. So a few thousand dollars here and there wasn't that big of a concern for me Honestly, both my realtor and I were shocked when we were told our offer had been accepted.

ch_tah says

burritos says

My less than asking offer was just accepted for my 2nd rental this year in South Puget sound. 3bd2bath 2365 sq ft, built in 2006 for 200k even(bank pays 2% closing costs). Asking was 205k. There were multiple offers supposedly and I was given an offer to give my “best and final” offer. I didn’t budge and they still picked me, go figure. Am I proud of my investment. No. It’s not an investment, it’s my hedge against inflation and will be yet another incomes stream when I retire.

Do you have someone local to manage it?

I have a property manager who is already managing 3 of my properties. Her cut is 10%. When I get to 4 properties she decreases her mgmt rate to 8%. If I can get to 10 properties(it'll be a while if ever) that rate goes down to 5%.

Very nice, burritos.

ch_tah says

Very nice, burritos.

Thanks.

burritos says

So a few thousand dollars here and there wasn’t that big of a concern for me Honestly, both my realtor and I were shocked when we were told our offer had been accepted.

burritos says

There were multiple offers supposedly and I was given an offer to give my “best and final” offer. I didn’t budge and they still picked me, go figure.

Kudos on standing ground on your price and congrads on winning. And as you quickly learned this whole notion of multiple best and final offers crap, and all the hype behind it must be taken with lots of salt. And I mean lots of salt. Fake offers will be the last leg of this bubble to fall.

And still today, this problem isnt being addressed by regulators.

American in Japan says

Is anyone buying this month or in May?

AIJ,

Won't that be a huge mistake? unless it is Las Vegas. :)

Tell that to whoever is buying in the overpriced areas...

American in Japan says

Tell that to whoever is buying in the overpriced areas…

Yeah, BA for sure.

I would never buy an expensive house right now but reality is some people have few other options in the bay area I have some insight because I interview a lot of tenants many of them in high tech starting families there are very few rental properties in areas where youd want to raise a family

Interest rates are low house prices are down so people buy because they can afford the payments

I have a contract down on a 2br 1 bathroom Chicago condo for $138k. The original asking price was $165k. I rent a tiny studio right now and wanted more space. If I need the extra income I figure I can rent the 2nd bedroom.

robertoaribas says

1. Are condos a worse investment than homes. Perhaps. I didn’t buy any of these for appreciation however. The average price for the 3 of them I purchased, with rehab and appliances is $40K. I am renting one for $750, one for $825, the third I anticipate $795. They are all close in, near the light rail and near centers of employment, i am much more concerned about future rent trends then future price trends. Factoring in a month of vacancy and $1000 for maintenance, i am making 12 to 14% on each of these, without loans.

Smart boy.

@toothfairy

Sorry about my ignorance here...
About starting a family, are they more concerned with schools, safety or other? (even if the children are under 6).