patrick.net

Just thinking as someone who knows a little about markets, and considering the graph above.

On the way up, everyone who felt they didn't want to miss out bought in if they could, while many others borrowed against their new found wealth.

On the way down, buyers came out of the woods to jump on deals (relative deals that is, hey 50% off what somebody paid for it 3 years ago). More buyers jumped in with incentives from the federal and or state government.

Here is my question. With stagnant economic employment numbers and low inflation, who is going to provide the "demand" side, that is the bids for the next leg up in real estate prices ?

The euro is down, so it won't be Europeans.

Perhaps it will come from those of us who are still waiting for lower prices. No, that doesn't make any sense, we are waiting for lower prices.

Hmmmm.....

I'm not saying prices have to go down from here, but it's pretty hard to imagine a scenario where they go up any time soon. Everyone who would be "long" real estate, already is.

That just leaves sellers.

marcus says

Here is my question. With stagnant economic employment numbers and low inflation, who is going to provide the “demand” side, that is the bids for the next leg up in real estate prices ?

Well, I agree that if employment stays stagnant, then it will be difficult for housing to go up, but I think that's far from a given. Also--you kind of answered your own question earlier in the post:

marcus says

On the way down, buyers came out of the woods to jump on deals (relative deals that is, hey 50% off what somebody paid for it 3 years ago).

Unless you think we ran out of those buyers, I guess...

Also look at the national Case/Shiller index. It seems very clear to me that what's going on currently is not just a seasonal variation. Does anyone disagree?

California real estate is back to 2003 levels, nearly double what it was priced a decade earlier.

I think that whether we are at or near a bottom in Real Estate is dependent on where the economy goes from here ( rocket science, right ? ).

If things get progressively better with the economy and there is no depression, then maybe housing kind of bottoms out for a couple years and then goes up.

If on the other hand this turns in to a full blown depression ( or protracted worsening great recession ), then all bets are off.

marcus says

California real estate is back to 2003 levels, nearly double what it was priced a decade earlier.

2003 in the Bay Area is still very much ubber bubble ! We doubled from 1998 to 2000 and then went up much more higher by 2003. So yes we will have what some call DEPRESSION! But actually it will feel more like 1996-1997. Sorry to disappoint you, you wont be in a soup line.

He was always referencing NAR stats and projections instead. Now that Las Vegas is UNDENIABLY in the craphole, I’d like to know whatever happened to this douchebag so I can rub his fraudulent forecasts in his face. It ANGERS me to think of all the people he might have potentially MISLEAD into buying at great financial loss to themselves. Particularly the financially unsavvy elderly people who may have been victimized. I sure didnt see any Bank point a gun to buyers heads forcing them to buy, and certainly Congress is too busy chasing evil bankers to even consider going after the NAR and their Realtor elves who have been pumping misinformation.

schmitz_kris says

Are you going to admit you victimized countless people by telling them real estate was going to continue to fall

There is no reason why today you cannot go out and make an offer, its about knowing what your buying and a realistic price. Seller wants $500K you offer $300K and back up why they are wrong.

Nomograph says

I purchased two properties in coastal San Diego following the crash

please clarify as there is a bit of a difference between IB and Del Mar. Side note, SD will always be skewed due to military housing allowance of around 2k per month - in case anyone was wondering how SD people can foot the 5k mortgage payment plus cars & kids on 140k combined salary...

UnitedSocialistStatesofAmerica says

You must mean “UP …in FLAMES”.
Wow, I haven’t seen these levels of denial since approx. January of ‘45 when Adolf Hitler told his people that they were still on the brink of winning the war. I bet you keep a copy of the NAR Bible under your pillow to ward off evil spirits. And REALITY.

Yea - invoking Hitler will win you friends. Why are you here, if all you want to do is be inflammatory while lacking substance?

robertoaribas says

after the crash… a bit presumptuous!!! No wonder nomorethinking… doesn’t like my data! He’s very likely to watch values plummet!!!

good one. When you resort to name calling, that usually means the facts aren't supporting your case...

UnitedSocialistStatesofAmerica says

So according to YOUR logic, when Goldman Sachs -for example- put together a portfolio of WORTHLESS mortgage derivatives which was MEANT to fail, yet at the same time RECOMMENDED that same portfolio to unwary investors as being AAA rated, NO FRAUDULENT FORECAST was committed. Funny, the SEC seems to disagree with you on that.

A recommendation isn't a forecast. UnitedSocialistStatesofAmerica says

And when the U.S. government does it “thinking for me” by providing me with DOCTORED OFFICIAL stats for everything from GDP, to CPI and unemployment numberr, it’s actually NOT fraud either, it’s MY fault for not doing my own “due dilligence”.

I'd suggest wearing a tinfoil hat. The practice in your article wouldn't even affect the mainstream unemployment number at all. It would actually make it worse because these people would be filing for unemployment each time they were laid off, so the new filings number that everyone looks at would be worse. As to GDP or CPI, keep reading your shadowstats, if it makes you feel better...

UnitedSocialistStatesofAmerica says

tatupu70 says

UnitedSocialistStatesofAmerica says

So according to YOUR logic, when Goldman Sachs -for example- put together a portfolio of WORTHLESS mortgage derivatives which was MEANT to fail, yet at the same time RECOMMENDED that same portfolio to unwary investors as being AAA rated, NO FRAUDULENT FORECAST was committed. Funny, the SEC seems to disagree with you on that.

A recommendation isn’t a forecast. UnitedSocialistStatesofAmerica says

Noun 1. financial forecast - a forecast of the expected financial position and the results of operations and cash flows based on expected conditions forecast, prognosis - a prediction about how something (as the weather) will develop

thank you for illustrating what I was saying.

Woah, people! O.K., his post was over-the-top, I will grant. But spare the histrionics about him mentioning Hitler. He said it's like the time when Hitler said Germany was winning the war when they were not. That was the extent of the analogy. He didn't say anyone WAS Hitler, or that they did any of the other things that Hitler was infamous for.

---------------------------------------------------------------
The fallacy of the Extended Analogy often occurs when some suggested general rule is being argued over. The fallacy is to assume that mentioning two different situations, in an argument about a general rule, constitutes a claim that those situations are analogous to each other.

Every time an analogy is used it is used to state that A is similar to B in a particular way. It does not (necessarily) insinuate that they are alike in any other way. However, often opponents will attempt to attribute your use of the analogy to extend it to something not analogous as proof of your lack of logic.
Examples

Here's real example from an online debate about anti-cryptography legislation:
"I believe it is always wrong to oppose the law by breaking it."
"Such a position is odious: it implies that you would not have supported Martin Luther King."
"Are you saying that cryptography legislation is as important as the struggle for Black liberation? How dare you!"

This is a "real estate bubble" forum. Shouldn't everyone say "yep. It is overvalued" instead "I just bought 2 investment houses"? The internet message board trolls are everywhere. Thus you will be a fool to believe everything you read here.

So I've save $200k for a down payment on a home. That buys a $1 mil house- not much in SF or Marin. While I've been looking (6 months) house prices have fallen. Not sure what the OP is looking at, but I'm looking at homes on my "favorites" list where the prices keep getting reduced. Usually, de-listed and then reduced.

I'm waiting and renting a nice house for 3k/month. Once a house that went for $1.4 goes for 800k, I'll buy. Right now those houses are at about 950.

UnitedSocialistStatesofAmerica says

Try NOT to use NAR or government numbers, it’ll only make you look MORE stupid.

Bap33 says

We are all on the same page here

No, we're not. OTS is back. Or his brother.

UnitedSocialistStatesofAmerica says

Try NOT to use NAR or government numbers, it’ll only make you look MORE stupid.

You do realize that all the articles you posted are commenting on government numbers, right? New home sales, existing home sales, etc. are put out by the commerce dept. which last I checked was part of the Federal Government. But it's OK to trust the numbers when they say what you want them to say, huh?

UnitedSocialistStatesofAmerica says

What you REALLY meant by your comment is that you want posters like me sidelined into a separate forum so that we don’t disturb your misconceptions of the FACTS.

Once again, I must reiterate that your style is boorish and you're late to the party. Your feined indignance is tedious, in that it appears that all you wish to do is attack anyone who disagrees with you. Just because you believe that repeatedly calling people stupid is a method of conversation, it doesn't make it so. You're hard to take, is all. Tone it down and say something without accusations and attacks, and perhaps you'll be taken seriously and responded to accordingly.

robertoaribas says

USSA: don’t confuse them with facts, they have their minds made up already! Even after prices resume the very likely downward trek, they will post long tortured explanations why:
1. their state is different.
2. Their state is dropping? well, their city is different.
3. Their city is dropping? well, not their part of the city, that part is different.
4. Well, their are some cheaper homes in their part of the city, but only ugly foreclosures, their home is not dropping, its going up!

Really? Wow, we must really be uneducated, unlike you. Thank godess you're here to save us all, 'cause you're so smart.

We must be reading different boards, because many, many people have posted that property values have dropped and the only question is whether they'll continue to do so, or whether the worst is over. Some feel one way, others the opposite.

USSR - why are you yelling at me? I thought you wanted to slip me the tongue.

Roberto -
We don't live in the Arizona area, which was devastated by the RE market and continues to lose ground. There are many areas that didn't have huge jumps in property values, and haven't experienced the losses that surround you.

There are other places in the country besides the big cities, you know...

At no point was I referring that you should be segregated from others in terms of conversation. But regardless if you venting, I was actually thinking about myself. I vent alot and am just trying to think of a solution to protect others from me. But sounds like you are saying you're like me.

thomas.wong1986 says

Thanks for pointing out that the phantom multiple bids charades are still practiced by REA. We wont be at any bottom until these REA practices are eliminated and made illegal.

Should we make it illegal for the car salesman to say that he has another interested party in the car you're looking at? How about the guy selling on craigslist saying that he has someone coming at 6pm to look at it?

tatupu70 says

Should we make it illegal for the car salesman to say that he has another interested party in the car you’re looking at? How about the guy selling on craigslist saying that he has someone coming at 6pm to look at it?

Lucky for the car buyer, you will never hear that from car salesman. Its first come first served.

I think it could be time to sell then for a swing trade...no ?

thomas.wong1986 says

Lucky for the car buyer, you will never hear that from car salesman. Its first come first served.

Not sure what you mean about first come, first served. I guess if you offer full sticker price, then he might be obligated to sell to you--I'm not sure about the rules on that. But if you are offering less than sticker, then the car dealer can always say that he has another customer interested and decline your offer. You can either raise your offer or walk away--just like you can with a house.

Makes sense that China and others would use gold and other hard assets to hedge their currency risk (especially dollar risk).

We are in such uncharted territory. The "crash course" that Patrick posted for today is pretty interesting, although I have yet to watch it in its entirety.

Nomograph says

They are well-located, relatively inexpensive, easy to rent, and a 3/2 SFH cosmetic fixer can be found in the high 3’s to low 4’s.

ok, thx. 2k per month is a reasonable rent price for clairemont 3/2. ok, maybe 2250... still, for purchase price of 400k, how does 2k per month in rent income equate unless you paid cash or substantial down payment? i'm seeing a loss or at least a razor-thin margin if holding an average mortgage. If paid up in full, is it true that "income" will not appear until the rent payments exceed what your initial investment was, plus any follow-on costs? maybe it's true that in X number of years you will be making profit, but right now, aren't you in the hole for a great deal of money? are you at all concerned that if a price adjustment occurs in the next year, that rent will decrease or that renters will simply buy another property for the same, or less, monthly payment? worst case, if you were to sell the property under those conditions, that you would take a significant loss?

also, i truly don't care what any of you do with your money - i'm just interested in the theory/strategy behind the moves. i would REALLY like to know about the risk mitigations...

landtof If 100% cash paid. 24k in annual rent vs. 400K house is about 6% yield. Less property tax, insurance and maintenance, the net yield is closer to 4%. Then there is the benefit of cash flow through tax deferral of depreciation and ability to pretax expense. An equilvalent investment may need to return 6% to be comparable from a cash flow perspective. With an average mortgage, it depends on interest rate. A 320K mortgage @4.625%, interest, tax and insurance is around 1800, with tax benefits, ITI may be as low as 1400. that's a 7200 return on 80000 investment, A ROI of 9%. Leverage increase margins. It really depends on a lot of other factors including tax bracket, AGI, and other passive income. If paid in full. Income will be net rent less interest, tax, insurance and deduction, direct expense and the non cash expense like depreciation. With investment properties, you do want to account for a margin of safety but rents are pretty stable. For the most part, the best yields are also the worst place so I don't overweigh yields. When I read financial statements of a REIT, I start with cash flow, balance sheet than income/loss. Cash flow in rental property is the key metric. Most renters are renters because majority of them are check to check and are really stuck. If they can get a loan, they will surely buy in this environment. The big drawback is housing is not very liquid currently. It is hard to undo a transaction. That is essentially why most people put down as little as possible to secure the best rates. If you invest for cash flow, the capital will take care of itself. As rob points out there are risks involved and that is why it is not a good idea to go "all in", but there are plenty of rewards as well.

SF ace says

If 100% cash paid. 24k in annual rent vs. 400K house is about 6% yield. Less property tax, insurance and maintenance, the net yield is closer to 4%. Then there is the benefit of cash flow through tax deferral of depreciation and ability to pretax expense. An equilvalent investment may need to return 6% to be comparable from a cash flow perspective. With an average mortgage, it depends on interest rate. A 320K mortgage @4.625%, interest, tax and insurance is around 1800, with tax benefits, ITI may be as low as 1400. that’s a 7200 return on 80000 investment, A ROI of 9%. Leverage increase margins. It really depends on a lot of other factors including tax bracket, AGI, and other passive income.

you're basing almost every positive on tax benefits. need to investigate further. at face value, the perspective doesn't entice on it's own (without the tax code loopholes), and still appears to leave little room for error, like a major price adjustment. SF ace says violently disagree that renters of 3/2 homes in decent neighborhoods are stuck.

Most renters are renters because majority of them are check to check and are really stuck

More mice taking the bait. Tax credits and false consumer confidence. We will see how the story holds up next month.

I always like to see three data points before I call a trend.

I agree---there will be a few months of weak housing numbers. The government $8K certainly pulled ahead some demand. The question is really--what will happen 6 months from now?

I think the answer to that depends on what other government actions are put in place to prop the market up further. Without additional incentives or delaying tactics the trend should be clear.

tatupu70 says

thomas.wong1986 says

Lucky for the car buyer, you will never hear that from car salesman. Its first come first served.

Not sure what you mean about first come, first served [. . .] if you are offering less than sticker, then the car dealer can always say that he has another customer interested and decline your offer. You can either raise your offer or walk away–just like you can with a house.

Actually, cars are not like houses in this scenario. There's always 5 more Dodge Watermelons in Sensible Silver coming on the trailer tomorrow, so bidding wars do not happen on a dealer lot. You can't have bidding wars on an item that is mass produced and instantly available in multiple quantities. A dealership'll take any reasonable offer, and usually pad the backend on the payments and financing to make up the differeance--not to mentinon screwing you on the trade-in for good measure. Believe me, car salesmen *are* first come, first served, as they are trained not to let you off the lot without buying. Like used-home salesmen, car salesmen have their own tricks and games, but bidding wars is not one of them. Tenouncetrout says

There was big Tropical landscape culture here, with old growth. It was for a reason many of these houses were built before Air conditioning, so the Royal Poinciana, Black Olive Trees, Boogan Villa on the side of the house, and general Yard and Roof Canopy kept these houses cool in the summer. Probably lost now, is land scape crews that were custom to Sofl local plants, and knew how to care for them. For ten years the way they’ve dealt with them was with a chain saw and wood chipper.

TPB, I am a native Floridian and this makes me teary for a Land Remembered. Don't forget some of the worlds most beautiful beaches from St. Petersburg up to Mobile, AL that are also going to be lost--in Pensacola, the sand would squeak when you walked on it, so powdery fine it was. I've been looking at moving back to south or central Florida, but the scenario you describe is what I see getting worse and worse every year I visit friends back there. The houses get cheaper both in price and "remodels". Many of my favorite neighborhoods have lost their character.

tatupu70 says

The question is really–what will happen 6 months from now?

The next leg down will become even more obvious?

Interesting article about many buyers being unable to close in time to get the credit. I don't think this will result in a waive of cancellations because unless the buyers included a contingency in their contract in that they would only close if they got the tax credit, they will lose their deposit if they walk.

http://www.northjersey.com/realestate/97366859_It_s_crunch_time_to_qualify_for_tax_credit.html

inflection point says

More mice taking the bait. Tax credits and false consumer confidence. We will see how the story holds up next month.

Keep in mind C/S is 3 month smoothed, so "April" numbers reflect sales in feb/march/april. If there is a double dip due to expiring tax credit + expiring Fed purchase of MBS, it will not show in full until the July report, which will reflect sales in may/june/july.

There clearly was a "pull-forward" of demand effect of the tax credit, given how sales plunged after April, so it would surprise me if the upward trend holds in the overall C/S index. But if the overall index does go to a new low, I doubt it will be a whole lot lower.

What I find most interesting is the disconnect between the different market segments. Prebubble they tracked each other well. Post bubble more expensive market segments are still being stubborn, with about a 25% disconnect.

San Francisco is up big time showing a 2.2% gain between March and April and increasing the one year gain to 18%.

Again, C-S's own non-adjusted numbers don't show that.

Low Tier is up 12% YOY and down 1% YTD, and down .3% for the month.
Middle Tier is up 11% YOY and even YTD, and up 1.1% for the month.
High Tier is up 10.7% YOY and up 2.6% YTD, up 2.5% for the month.

SF's "big time" gain is only evident in the upper tier, which currently starts at $600,000.

Philistine says

Actually, cars are not like houses in this scenario. There’s always 5 more Dodge Watermelons in Sensible Silver coming on the trailer tomorrow, so bidding wars do not happen on a dealer lot. You can’t have bidding wars on an item that is mass produced and instantly available in multiple quantities

In most cases I agree, but keep in mind there are many new car models that sell for over list price. Dealers add a surcharge because they are in high demand. In any event, it was a mediocre analogy at best, just meant to show that real estate agents behave exactly like other salespeople...