patrick.net

Winter solstice, 2012.

The real estate market will have hit bottom when I can pick up a 3 story house overlooking the marina on Marina Blvd in SF for $1.5M I think that will be in first quarter of 1978. Now all I need is a time machine.

*sarcasm*

All real estate is local. Who cares what is happening in Las Vegas if you are in the market for a brownstone in the Upper East Side of Manhattan. You can't have the banks pull comps from Vegas. It just won't work out that way.

Prices are still falling in Phoenix
Everyone who bought last year is now underwater.
There are many, many empty houses.

I'm not sure there are many cities where there aren't alot of empty houses and apts. If someone tells you so, then you should go and check for yourself.

I wonder if insurance costs will affect rent and payments.
If people make 44,000 and pay 3500, it seems that it will cut into their rent/payment budget.
If they make more they pay more, so pple making 50,000 will have less budget too.
also if we get VAT it will make maintaining a house expensive. Paint costs 50-100 dollars a can in New Zealand and many houses are not painted for years.

alibeamish says

also if we get VAT it will make maintaining a house expensive. Paint costs 50-100 dollars a can in New Zealand and many houses are not painted for years.

There is no VAT tax in NZ. There is a GST (goods and services aka sales tax) tax of 13.5%. Everything is expensive here. NZ is 4 million people (about the size of the Philly metro area) living on 2 islands a very long way from anything (6000 miles Shanghai to Auckland), prices reflect the reality of shipping and handling relatively small quantities (no wall mart type purchasing power) of goods over long distances then distributing them in a sparsely populated country with a very limited road system (there is only 15 miles of divided highway in the entire country). That's 50-100 NZ at .66 NZ to the dollar as of last night by the way.

I've seen very few houses in NZ with poor paint. Houses in my area are mostly very well maintained. What part of NZ do you live in that has so many poorly maintained houses?

RayAmerica says

More proof the Homebuyers’ Tax Credits were a flop:
http://www.bloomberg.com/apps/news?pid=20601087&sid=adSkz7WCGd0o

tatupu70 says

lol– you must have a different definition of success than most sane people…

The only thing the tax credits program did is move up the buying date for buyers that would have purchased in the future. Now that those purchases have been made, what's the result? Predictably, a dramatic drop in sales activity. Also, an "unintended consequence" increased our national debt. When you add it all up, it sums up as just another government boondoggle that passes on more debt to future generations and accomplishes next to nothing.

RayAmerica says

The only thing the tax credits program did is move up the buying date for buyers that would have purchased in the future. Now that those purchases have been made, what’s the result? Predictably, a dramatic drop in sales activity.

Well, you're in the minority there from what I've read on this board. And really, looking at sales data, it's hard to defend your conclusion. The number of sales in the months preceding the tax credits program compared to the sales during the program is pretty dramatic, wouldn't you say? How many months of sales at the pre-credit rate would it have taken to equal what you ended up with? That's pulling ahead a lot of sales...

Ray America may be a minority here on this but IMHO he is perfectly correct here. The $8000 tax credit was horrible policy.

You can't just hand out $8000 to EVERY buyer without it distorting the market (ie supporting high prices).

Until we figure out that high real estate prices are a BAD thing in this country we'll never get our act together.

http://www.calculatedriskblog.com/2010/04/home-tax-credit-costly-failure.html

Congress spent $15B to keep home prices high in 2009 and part of 2010. What a great investment.

Is Ray America really a minority? I certainly agree with him.

Don't get me started on the mortgage interest deduction, LOL.

Troy says

Ray America may be a minority here on this but IMHO he is perfectly correct here. The $8000 tax credit was horrible policy.

I wasn't commenting on whether it was good policy or not--just whether it accomplished its purpose...

tatupu70 says

I wasn’t commenting on whether it was good policy or not–just whether it accomplished its purpose…

Distoration of market prices, a false sense of stability, cover up of mistakes by government programs... ? Why yes! It certainly did that.

same thing cash-for-clunkers did ... it made buyers out of stupid people with no money.

I was listening to Bob Brinker's "Money Talk" program on the radio yesterday. He had a substitute host on that had a "guest" that was advocating ... get this ... that the tax credits for homebuyers be "extended for the next 30 years!" He thinks it's a "wonderful program." Oh, by the way, he might have been slightly biased and self-serving being he owned a mortgage company. LOL

that might work on the local level, but Saudiman wants greenbacks today, gold tomorrow.

Bap33 says

same thing cash-for-clunkers did … it made buyers out of stupid people with no money.

It had the side-benefit of getting polluters and gas guzzlers off the streets; the credit was only good if there was a MPG gain in the replacement.

While not my cup of tea, policywise (destroying the old engines with sand was a bizarre part of the deal), it was a lot better than boosting used-home transactions, which do not involve any element of wealth creation, or reduce the consumption of natural resources.

No, vote for me. I want to give every American citizen $100,000. Illegals get the $50,000 as a reward for their gumption on getting here; speaking as a fellow immigrant, I know how hard it is assimilating in a foreign culture.

You have to be kidding? Give illegals $50,000 for breaking the law? I invite all cultures to this country, just do it legally.

It has, and will continue to do so. Wit until the 2011 ARMS adjust.

RayAmerica says

I was listening to Bob Brinker’s “Money Talk” program on the radio yesterday. He had a substitute host on that had a “guest” that was advocating … get this … that the tax credits for homebuyers be “extended for the next 30 years!” He thinks it’s a “wonderful program.” Oh, by the way, he might have been slightly biased and self-serving being he owned a mortgage company. LOL

I turned it off when he has someone else on, so i cant comment on the May 29th show. But Bob has always advocated a market without government involvement like the GSE and crazy spending Congress programs like the Tax Credits. He often stated house purchased should be 20% down fixed loans when it makes financial sense. His sub for this weekend programs is a female journalist and SF resident. As such a heavily biased infavor of buying RE regardless of the consequences.

Troy says

Ray America may be a minority here on this but IMHO he is perfectly correct here. The $8000 tax credit was horrible policy.
You can’t just hand out $8000 to EVERY buyer without it distorting the market (ie supporting high prices).
Until we figure out that high real estate prices are a BAD thing in this country we’ll never get our act together.

I agree!

thomas.wong1986 says

turned it off when he has someone else on, so i cant comment on the May 29th show. But Bob has always advocated a market without government involvement like the GSE and crazy spending Congress programs like the Tax Credits. He often stated house purchased should be 20% down fixed loans when it makes financial sense. His sub for this weekend programs is a female journalist and SF resident. As such a heavily biased infavor of buying RE regardless of the consequences.

Exactly right on all points. The sub was a SF journalist that was highly biased towards extending the Tax Credits, etc. She also had the head economist from the National Assoc. of Realtors on to spew his nonsense. Interesting that while he was on, they didn't field any questions from the audience. I had the feeling while listening to it that the program was financed by the real estate industry.

Troy says

No, vote for me. I want to give every American citizen $100,000.

You got my vote for now. Do I hear anyone promising $1,000,000?

Gina says

2013-2015 in California. Most people here are still in denial about the value of their grossly over inflated property value. Some areas in the Central Valley and Southern Cal are coming close, but the Bay area has maintained somewhat, but 2010 and 2011 will be horrific times if the government doesn’t intervene. If they do, it will pro-long the inevitable housing value corrections forthcoming to Nthe Bay area.

Your right, there is denial, but it will not be prolonged. The govt may induce higher prices while our private industries will react by moving jobs elsewhere as we have seen over the past 10 years. So either way, prices will decline.

The housing market will have bottomed when I (yes me) have an offer accepted by a seller.
I call it the "shultzie" confidence index (TM) Here's how it works: I figure I've lost out on offers because either mine were too low (i've lost out by 5-8k on 3 different occasions) or the seller was too high and someone else bit on it (simple logic I know but stay with me). The day will come when I will be comfortable enough with economic conditions, the job market and overall financial stability that I up my offering price OR the seller will be in such a state of discomfort they take my offer because it is the best one. Either way when that 5-8K gap closes - we have hit bottom.
Hey its as arbitrary a measure as any of the others so why not?

shultzie says

The day will come when I will be comfortable enough with economic conditions, the job market and overall financial stability that I up my offering price OR the seller will be in such a state of discomfort they take my offer because it is the best one. Either way when that 5-8K gap closes - we have hit bottom.

Or when people learn how to make a deal. Ever watch "Pawn Stars" on history channel. Some guy waltz into a pawn store and thinks he can get $10K for some item. The owner laughs and says "not gonna happen, but I will give you $$2K for it".

http://www.history.com/shows/pawn-stars/videos/no-stolen-goods#the-art-of-the-deal

RayAmerica says

She also had the head economist from the National Assoc. of Realtors on to spew his nonsense. Interesting that while he was on, they didn’t field any questions from the audience. I had the feeling while listening to it that the program was financed by the real estate industry.

Wow! That would be a heavy departure from the tone of the shows Bob often does. If i was Bob I get rid of her. Im sure plenty of ticked off listeners had a word or two for the NAR shill.

thomas.wong1986 says

Wow! That would be a heavy departure from the tone of the shows Bob often does.

I listen to Bob Brinker's "Money Talk" often. Around here, it comes on Sat and Sun at 4:00PM. I even fastened a platform to hold a radio to my bicycle, so I can listen as I ride.

Bob Brinker does not seem beholden to Wall St types, as he often advises non-commission paying actions such as lattered CDs and no-load funds. However, Bob is glad when house prices rise. Just a few weeks ago, when he was going over the Case-Shiller stats, he was overjoyed by numbers showing price appreciation in a section of the Bay Area. His take was that he loves it when people make money. Puzzling attitude, considering his comments on non-housing issues.

Although Bob Brinker is very objective about true investments like bonds, stocks, and related products, his take on housing "investment" is not so different from his guest host.

I follow the Shultzie Gap Index rules of bottom finding too.

I believe bottom will hit in about 2015

That gives everyone time to adjust to the "new normal: house prices affordable at declining income levels, hangers-ons and dreamers time to spend down all their savings hoping prices will "stabilize or come back (up) to normal."

While I believe there will be a 30% minimum reduction on homes from here, on the West Coast, I have a question:

In Ashland, Oregon, and in the Bay Area, prices have been above "rental return ratios" and "income to price ratios" for decades have they not? What will ever bring these prices back to 1970's levels? Why and how do people afford to keep the houses as rentals? I am about to sell out my house in Ashland, and appreciate any insights to what keeps markets inflated over time (beyond the latest bubble), even beyond what should be the correct price for affordability. I think this phenomenon of "over price" really affects west coast prices, and I have not found this explained.

andyb says

prices have been above “rental return ratios” and “income to price ratios” for decades have they not?

Once you pay a price, you've locked yourself in. As wages and buying power inflate, the rental return ratio looks bad for new buyers but people who bought in the 80s and 90s are still doing OK.

Also, declining interest rates have been propping up the market since 1982:

http://research.stlouisfed.org/fred2/series/MORTG/

if history is any guide we'll be seeing 3.5% interest rates later this decade. Don't ask me how this works, that's just what the chart says.

Bap33 says

I follow the Shultzie Gap Index rules of bottom finding too.

YAY! move over Robert Shiller

I am new to this forum, to make my story shot... I bought and sold three homes starting from 2003 all the way to 2007 when it went nose dive, landed up breaking even with what I invested. Now I am in a rental apartment in Southern California in one of the hottest places in the country a city called "Irvine". I am not fascinated by this city excepting for the fact that we have plenty of jobs. I see prices are softening in and around this area, I noticed a sudden change in the number of condos active in the market past few months and then everyday I notice homes coming up in the market. Banks don't want to flood the market with REO's I guess.

I am not sure when the bottom will come and go, I have noticed my friends buying 700K homes until last year, I advised them not to. but I guess its too late for that... I still talk to another friend when I was invited to his million dollar home two years ago, parked my sedan next to his 7series BMW... I guess now he is feeling the pinch... Debt cannot make you rich. I can imagine his condition... I am happy where I am, Rentals comes with a pool and a club house its a 600+ sft but still happy... not sure if I would like to own a home....

I was wondering if any of you can advice... if I find a home in today's market at a 2003 price with the current interest rate would it be a good way to go? I am not looking for an investment, but a affordable place to live...

Vee says

I was wondering if any of you can advice… if I find a home in today’s market at a 2003 price with the current interest rate would it be a good way to go? I am not looking for an investment, but a affordable place to live…

1997-98 prices plus inflation would be your best bet. 2003 prices should be around $250K or so and not $400K. California prices went ballistic as far back as 1999-2000. We were way into a bubble by then. So asking for 2003 prices is still buying into a bubble. My two cents.

http://www.housingbubblebust.com/OFHEO/Major/SoCal.html

Vee says

I have noticed my friends buying 700K homes until last year, I advised them not to. but I guess its too late for that… I still talk to another friend when I was invited to his million dollar home two years ago, parked my sedan next to his 7series BMW…

LOL! i know someone who had a 7series as well, once he got the bill for a brake job ($4K) he swapped it for a Honda.

"Southern California in one of the hottest places in the country a city called “Irvine”. I am not fascinated by this city excepting for the fact that we have plenty of jobs."

Irvine is hot because it is the go to place for family with kids. The public schools, amentity and the like are top notch and is suitable for young family. The jobs within Irvine are crappy retail/service like job and likely for UC irvine students, the wealth is made elsewhere.

Irvine has grown a reputation lately for excellent schools.

For what it's worth, If i was going to buy a house to live and raise a family in SoCal, it would be Irvine.

Vee ... Take the time to read the following, in particular the section on real estate.

http://www.safehaven.com/article/16977/real-estatecredit-bubble-deflation-19-next-up-5-years-of-financial-hell?source=patrick.net

Thanks for the advice Thomas, You might be right, I have seen prices holding at or around 2003 prices, I did a quick math, Not sure maybe I was so ignorant all these days, its simple numbers I guess, if I buy a home for 100K at 8% interest and if I buy the same home at 200K at 5%, the numbers turn out to be much less for a 30Year loan, but talking to my Realtor, he says a completely different story, he says buying a home at current interest rates is the best decision you can make. I really don't understand why he could lie to me when I can just do a simple match and figure this out. I haven't spoken to him, but I would like him to explain me why does he think that way...

SF ace, Yeah I tried to figure that out "a go to place" as you mentioned, it takes me 30 minutes from my home to get to Target which is less than a mile away.... I spend all my time beating traffic, I don't have time with my kids to do anything if I plan to step out during the weekend. My best time pass is to stay home and do things closer to my community which is less than a mile. So practically everyone thinks the same thing about Irvine, its just the perspective and about the job part, you are absolutely right there are crappy jobs out here, but Irvine is in the center of all other good paying job cities. I am a contractor I commute 200 miles a day getting to my work sometimes, I haven't moved from this place looking for a job past 12years...

Getting back to buying my dream which I mentioned to my Realtor, he said you should go with what you have been pre-approved. I said to him I want an american dream not a nightmare... :)

Vee says

my Realtor, he says a completely different story, he says buying a home at current interest rates is the best decision you can make.

What your agent probably means is that when you are buying a property with financing, in effect you are "renting" money, and at these interest rates, money is renting out very cheap. What has to be factored in of course is what will happen to the actual value of your property. That seems to be the $64,000 question. Even if you are financing with cheap money, if the value goes down on your property and you need to sell in the future, you might find yourself in the same position millions are now in; upside down on your mortgage, i.e. you owe more than your property is worth.

"its simple numbers I guess, if I buy a home for 100K at 8% interest and if I buy the same home at 200K at 5%, the numbers turn out to be much less for a 30Year loan, but talking to my Realtor, he says a completely different story, he says buying a home at current interest rates is the best decision you can make. I really don’t understand why he could lie to me when I can just do a simple match and figure this out. I haven’t spoken to him, but I would like him to explain me why does he think that way… "

30 year loan at 5% or even 4.5% is the fact but 8% interest but half the price is still a guess. My understanding is a 4BR 2000 -2500 sq ft. single family home rents for around 2800 in Irvine (not the gated community ones).

As far as employment, your biggest employer will probably be the University, local government, a few fortune 500 headquarter and a slew of 10M-300M market cap high tech company and satelite office of bigger companies to serve the SoCal market. Then there are the family owned business' contractors and distributor.

All parts of SoCal is traffic hell, not just Irvine. If you have to travel 200 miles daily for your commute (presuming your commute is based on where your contracting job is at, no house will solve your problem as you'll have the same problem anywhere. Irvine is relatively wealthy and should be a key market for a good contractor.

The thing that separates Irvine with other is Irvine has perhaps the best public school district in the state (especially considering that Irvine has a pop of 200,000, not some small community). The way they separate the city into little villages is quite charming. The roads are tree lined, kids bike to school, the ballyards are stunningly well kept. It is close to Newport and Laguna beach.