WatchMake your case as to why it's a good time to buy. I, for one, would like to see why the prices (particularly in the Bay Area) should command a price higher than they would have sold for had there been no bubble.
Are they selling above the trajectory they would have been on?
Facebook cash didn't materialize the way one might have anticipated. Are there that many Chin-dian gazillionaires who will pay all cash and not know a single thing about real estate prices?
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Laguna Beach, CA
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It's a good time to buy because moral hazard is the name of the game these days.
Squat for 2,3, even 4 years for FREE. The banks won't foreclose, they want to keep inventory artificially low to create a false bottom.
Can you imagine if you were given the opportunity to save 3 years of salary, with no housing cost? It's win-win.
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Low interest rates making the monthly payment more affordable and in some cases lower than a comparable rental.
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This is a fantastic time to buy! What better time to double down then at the beginning of the Great Age Of Contraction? Go deep into debt just as the world teeters on the remorseless never ending down slope of Peak Oil. Show the world you have balls!… where your brains should be.
And most importantly help prop up the prices around here, cause I owe on more than 1 depreciating money pit. Oh yeah, and don’t forget Realtors™ need to eat too.
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Emeryville, CA
zesta says
What if rents come down? What if the house you buy today becomes even more affordable in the future?
You would have been better off waiting, and investing in something else.
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CL says
Sure.. what if it doesn't?
Your question was... "why the prices (particularly in the Bay Area) should command a price higher than they would have sold for had there been no bubble"
That's one reason why they might. Inflation up & interest rates down could account for it, right?
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Emeryville, CA
I'll buy that--but do we have any empirical evidence of inflation being up? Up enough to account for the still inflated prices?
What I see is prices in some good locations around 2003 or 2004 levels. The bubble began in the late '90s, right? And many properties increased by 50% or more during that time, and have come down some.
Where is the evidence of any verifiable parity?
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I'm not trying to argue that home prices are going up or down, there's plenty of that already here..
I'm just stating inflation and interest prices could account for the difference you're seeing. Obviously that difference depends on the area you're looking at and time frame of when you believe the bubble started.
If you say the bubble started in 1999, you're looking at 25 - 30% total inflation in that time period and 8% or so interest rates.
I don't know what the rent/monthly mortgage payment ratio was in the late 90s and what it is now, but it's probably close due sub 4% rates
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Emeryville, CA
zesta says
That's what I'm looking for. Some data to justify why it may have bottomed (although I appreciate your speculation).
RE: Inflation, it seems to me that inflation can't really occur when there is so much slack demand. Even in housing one would need to account for the former homeowners who have been sidelined, tighter lending standards, low immigration, high unemployment, etc.
Less customers, unable to buy goods keeps inflation in check, no?
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Here's some harder data, payment to income ratio for SF/Oakland/Fremont. I'm guessing the 2011 numbers will be a little lower than the 2010 numbers.
1995:1-41.19
1996:1-34.52
1997:1-37.39
1998:1-36.66
1999:1-38.67
2000:1-53.54
2001:1-52.21
2002:1-52.42
2003:1-47.49
2004:1-54.92
2005:1-62.86
2006:1-66.67
2007:1-66.25
2008:1-58.75
2009:1-30.26
2010:1-38.84
Source is: http://www.jchs.harvard.edu./sites/jchs.harvard.edu/files/son2011_appendix_tables.xlsx
Maybe you can argue that increasing home prices can't occur due to demand etc, but inflation is inflation. Your dollar is worth less now than it was 15 years ago.
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Alrighty---help me read those numbers you pasted, and to what they refer? (I've read through the spreadsheet and it's alot of f$%*&^ing data!).
Also, an article about inflation that I'd like you to counter if you could (it's brief)
http://theweek.com/bullpen/column/218505/americas-imagined-inflation-problem/1
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The numbers calculate the ratio of mortgage payments of a median home to median income, assuming a 10% DP. It's simply a price-income ratio, but with interest rates taken into consideration.
The article you've linked is arguing against worrying about future inflation, and concentrating on stimulus.
One can argue how much inflation we're experiencing right now, but I don't think anybody would argue that we've had no inflation in the last 15 years. If anything, people would probably argue that we've had higher inflation than BLS reports.
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Emeryville, CA
My understanding on inflation is that the prices have been kept in check due largely to the still anemic demand. Maybe going back to the fake Bush economy distorts that a bit too.
I'm no expert on inflation, but if I read your numbers right, most folks are and have been paying a large chunk of their wages to housing.
2 scenarios:
House prices are high (as % of income), and inflation for other goods are higher
House Prices are high (as % of income), and inflation for other goods is low or in check
In either case, wouldn't there be negative pressure on home prices, proving this is no time to be a bull?
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I'm not using the #'s to predict home prices either way.
Just using it as one stat to show that current monthly affordability isn't way out of line with the late 1990s. Yes, this means people in coastal CA are and have been spending a large portion of their income on housing.
My original comment on inflation was that it could account for home prices being higher than in 2000. A house that sold for 100k in 1998 should sell for ~130k in 2012 IF it tracked BLS inflation which historically has been the case.
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Emeryville, CA
Good facts!
Not a single bull here? Most of the replies on this post's bear twin agreed with the bear points.
Does nobody think this is a bull market? Or is it that prices have bottomed and will likely stay there, bouncing for years?
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San Jose, CA
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CL,
Let the numbers do the talking. Do you see how affordable it was in 2009 compared to the last housing bottom in the mid 90's? Say the number for 2011 would come in around 34 to 36. How affordable is housing now compared to the last housing bottom.
How's the economy now compared to 2009? How' the stock market now compared to 2009? well, maybe you forgot how scary it was during that time period. ;)
Why do you think 10% of the population own 70% of the wealth? Could it be because they don't think like the 70% of the bear? Caution is good, but pessimist is not good your health and state of mind.
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Emeryville, CA
E-man says
I'm no pessimist, but I'm no optimist either. Is the glass half-empty or half-full? I'll tell you you have a half a glass of water, and skip the value judgements.
Bottom line I think is that there cannot be enough buyers to justify the supposed demand that is out there. And prices haven't corrected enough, have they?
I'm open to this and other facts. Do we have any?
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Let's set some goalposts.
Crush The Liars says
I'm curious.. If C/S next week shows a YOY increase would your opinion change?
CL says
How can one determine if there are enough buyers to justify the "supposed demand"?
And how does one determine if prices have corrected enough?
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San Francisco, CA
CL says
Assuming you already have a rent-controlled place that you like.
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Emeryville, CA
zesta says
That's exactly what I'm wondering. Is there a graph that would show, adjusted for inflation, what average home prices would have been sans bubble?
Or the trajectory leading up to the mid-late 90's, accounting for inflation or other variables?
I want empiricism! :)
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CL says
I understand what you are looking for, but I think it may be misguiding. You can't just ignore the bubble. From many threads here, it seems like supply is the big problem right now. There is plenty of demand for the current limited supply (take a look at most SV cities on redfin - look at the current houses for sale and the sales of 1 month - cupertino for example currently has 33 listings and over 50 sales in a 1 month period.) Part of the lingering issue of the bubble is that it has diminished supply because of people stuck in their homes. Plus, with prop 13, the rise in prices hasn't significantly increased people's property taxes for anyone who bought before the bubble. Another possible issue that the bubble has caused is a lot of pent up demand. Many people with money waited from 2003 or later until 2009 or later for the bubble to pop. That's 6 or so years of pent up demand. Plenty of people on p.net talk about waiting since 2003 or longer. It's not the same demand as when there were no lending standards, but based on the current sales numbers, it's pretty strong.
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Emeryville, CA
Thanks Tina. What are the sales numbers compared to 2002-2006 compared to today? Are they better than they were last year, but still half of what they were then?
What metric could we use to gauge that, and still believe it's legitimately on its way back up?
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Here are sales numbers for Cupertino:
http://www.julianalee.com/cupertino/cupertino-statistics.htm
Palo Alto:
http://www.zillow.com/local-info/CA-Palo-Alto-home-value/r_26374/#metric=mt%3D24%26dt%3D1%26tp%3D6%26rt%3D8%26r%3D26374%252C343608%252C343609%252C343611%26el%3D0
But sales #'s alone doesn't tell much. It looks like Cupertino sales are down, but that is likely just because inventory is so low. Pretty hard to sell 80 houses when only 33 are for sale.
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Crush The Liars says
While I appreciate your complete lack of providing anything of substance, doesn't this fall under the "direct attack" doctrine?
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Emeryville, CA
tiny tina says
So, that would confirm that supply is abnormally tight. Many people are waiting, for example, for prices to come up so they can unload their underwater property. Not having enough homes on the market doesn't mean a real increase in prices, right?
It means people believing the hype about a bottom, and thinking they might miss it. Or investors.
Wouldn't the unemployed, the underemployed, underwater borrowers, former owners and others disqualify 25% or more of the population from the pool of buyers?
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CL says
Well, this poses another question of what is "enough homes." With so many unknowns, it's hard to know if 33 homes in Cupertino is a temporary blip or a new trend.
CL says
I'm not sure what you are saying with this, but in Cupertino, with prices so high, I'd bet less than half (maybe only 10-25%) can afford to buy now total. But with inventory so low, those few are driving up prices.
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Emeryville, CA
I was saying that there are so many who cannot join the fray and must stay on the sidelines. This will drag on prices, and prices being held down will prevent the underwater folks from moving, moving out or moving up.
It would seem like the pent up demand would be more than neutralized by the offsets.
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San Jose, CA
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CL says
Haha. Go read the latest post from iwog on the 22 facts.............Looks like iwog did your homework. :)
I have to go make a living now. No time to debate with you. All I can say is that opportunities are plentiful during each economic down turn. View it as an opportunity rather than an obstacle.
Cheers. :)
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Emeryville, CA
That's fine. No debate needed, but I do look for information besides a vested interest's beliefs. These are good discussion points.
Yes, you can make money in a downturn. Question is, is housing one of the ways one should be investing? To rent out, or as shelter?
You referenced the 1% being smart, and how they got that way. I am wondering aloud if they aren't smart enough to screw you at this level too.
Peace