patrick.net

What do you mean "the next downturn"?

Housing prices are falling in every statistical area in the country.

This guy again

We never left kiddo.

freak80 says

Are they? I'm not rushing out to buy a house, but nationally the bubble is mostly deflated:

http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/

True, I should have said specifically in the BA. Right now the only area that I care about.

I guess I don't understand the reasoning behind these arguments. Obviously those who invest in real estate and have a financial interest in seeing it rise are going to likely put a positive spin on things. Those that rent and want to buy obviously have an equally compelling reason to see prices fall. But in the end if all you want is a place to live in then it boils down to dollars and cents and that is going to depend on individual financial situations. If you can afford to buy and want to, have your ducks in a row, then you can do so. If you'd rather rent, then do so. If you can't afford to buy then continue to save money. Its really as simple as that.

In the meantime, prices are falling.

Phil -- when interest rates go down, asking prices go up. That has been my experience over nearly 40 years as a home buyer

Philistine says

So, for me, nothing's changed. We continue to sock away our money because it's always been roughly $1500 month cheaper to keep renting.

If I tell you to keep renting I'm just gonna sound like a landlord preaching his sermon, but if I were in your shoes, I would keep on with the deal you got now. I told my daughter the same thing, and she's all worked up about owning a house so she can have herself a sewing room.

Like the guy says in that link I posted, we don't have a succulent bottom.

JodyChunder says

Like the guy says in that link I posted, we don't have a succulent bottom.

The ladies seem to like mine, so speak for yourself.

CL says

The ladies seem to like mine, so speak for yourself.

I lost my ass both in the financial sense and the anatomical sense in my liftetime. I got the first one back but I fear the second one is probably gone forever. : (

Philistine says

So, intrigued by all this Rah Rah the Bottom's In stuff, we went tirekicking last weekend in our preferred neighborhoods in LA.

Even with 3.5% interest rates, our estimated mortgage comes out to $3500/mo all in for a house of the same quality and location of the house we are currently renting for $2000/mo. Just our experience, though; anecdotes are anecdotes.

We have paid $2000/mo since 2008. Never had an increase.

I have the same experience. I'm renting in a gated community for about 60% of the PITI to mortgage the home. My rent has been stable since 2009.

edvard2 says

I guess I don't understand the reasoning behind these arguments. Obviously those who invest in real estate and have a financial interest in seeing it rise are going to likely put a positive spin on things.

I hope you stop this fallacy. No, investors don't want to see prices going up. We invest for income. We like a stable/flat market. Rising prices are putting us on the fence because the yields are getting squeezed.

You guys, the buyers, are the ones that drive home prices up. We, investors, like to buy them cheap. The cheaper, the better. You guys, the stupid speculators, the tree huggers, the environmentalists, the bought and paid for politicians, the anti-development, and the NIMBYs, are the ones that drive home prices up to unaffordability. You have no one to blame, but the person that you look in the mirror every morning. Why is it always someone else's fault when things don't work out the way you want it?

Nicely wrapped.

Real Investors are not the same as those who Invest in RE.

E-man says

You guys, the buyers, are the ones that drive home prices up [not] we investors,

Exactly! I agree 400%. That's four times more than is necessary, but I still agree that much! The infestors like us are the ones who simply want to collect what some turkeys like to call 'unearned income' by way of supplying interim shelter for people who think they are too wise to leverage up and buy a propped-up asset. I am providing a service in the way of a haven for the sane and frugal and I THINK I SPEAK FOR ALL LANDLORDS WHEN I SAY THAT I WOULD LIKEY SOME GRATITUDE!!! It's the maniacs that are actually buying and holding right now that are driving up prices!

Delurking says

I'll raise you. ^_^;

That's 0.6% for 1-year fixed, 1.18% for 5-year fixed, and 1.58% for 10-year fixed. I suppose they don't ened to offer a 30-year fixed, because at these interest rates any prudent buyer should have their loan paid off in much less time than that!

I don't think we'll see massive swings down or up. Just a slow permanent deflation in the markets. Possibly another crash around 2014.

Probate sales are starting to tick up, buyers are obviously are not financially set to handle mortgages where they are now. Add to that higher unemployment and looming economic crisis, especially the big one with the drought and things aren't looking good for our nation in every aspect... forget housing... housing isn't an issue anymore.

As a student of the markets I'm well aware how interest rates keep RE markets afloat. And everyone knows that rates will have to jump up. This will really hit investors playing cindirella and some average Americans who got suckered into high prices under low interest rates.

FortWayne says

everyone knows that rates will have to jump up.

I'll play devil's advocate. When do u think interest rates will jump? 5, 10, 15, or 20 years? What's your guess?

In late 2009, many of us here on Patnet predicted that interest rate would go to 6% in 2010. At that time, the housing market made a nice little U turn, and things were looking up due to the $8,000 incentive, the bail out, and uncle Sam pumped all kinds of money into the economy. Interest rate was at 5.25%. Almost 3 years later, we're at 3.5%.

Don't fight it. The current is too great. Go with the flow, or you will get drowned.

E-man says

Don't fight it. The current is too great. Go with the flow, or you will get drowned.

You're a pathetic liar.

E-man says

I'll play devil's advocate. When do u think interest rates will jump? 5, 10, 15, or 20 years? What's your guess?

I'm guessing mid 2014. Fed promised to keep them low until that point. Doesn't mean they'll rise, that will depend on other factors dictating how much can kicking can ensue.

Bottom line is that RE is too risky, because of the inevitable rise of the rates.

E-man says

I hope you stop this fallacy. No, investors don't want to see prices going up. We invest for income. We like a stable/flat market. Rising prices are putting us on the fence because the yields are getting squeezed.

You guys, the buyers, are the ones that drive home prices up. We, investors, like to buy them cheap. The cheaper, the better. You guys, the stupid speculators, the tree huggers, the environmentalists, the bought and paid for politicians, the anti-developm

That statement more or less proved what I had already mentioned: Regardless of outcome, those who invest in real estate have a vested interest in its performance. Either way- house investors "invested" and thus when that happens, naturally that means accepting risk, performance, and outcome. That's a given.

And I don't for one second agree that real estate investors didn't or don't drive up prices. When my Wife and I were looking, there were scads and scads of foreclosures, short sales, and otherwise dirt cheap ( by local standards) houses. Guess who bought almost all of them? Investors and they did it usually with all-cash. We could not in any way compete with that. So what that did was it effectively set the "real" prices for what we could buy higher because anything remotely close to the 300-400k mark was usually bought outright. So yes- investors have a huge effect on the market.

As far as that bit about "Tree huggers" or whatever driving up prices, well if that was the case then it would indicate that conservatives don't buy homes. Sorry- but some of the areas that popped spectacularly were conservative havens.

lastly, I really do not care about the performance of real estate. As often states, anyone who cares to crack open a basic econ 101 book can see that stocks and ordinary stock market investments are a way better way to make money than buying up wooden boxes and slapping on a coat of paint. My house is something to live in. Our investments are in better performing assets.

edvard2 says

When my Wife and I were looking, there were scads and scads of foreclosures, short sales, and otherwise dirt cheap ( by local standards) houses. Guess who bought almost all of them? Investors and they did it usually with all-cash. We could not in any way compete with that.

See the difference? Investors buy with cash. Speculators buy with 100% financing. Why would these people drop $300k to $400k cash for a house? Because the yields are there. If the yields are there, that generally means that it is cheaper to own than to rent when taking into account all expenses.

The investors that actually buy high end houses with low yields are the ones just have too much money, and that's just part of their diversification, inflation hedge or asset protection.

You would be glad looking back 10 years from now since you bought. RE will only get more and more expensive after each boom/bust cycle because of the anti-development reasons I listed above, and because the experienced investors just keep locking up more and more housing supply after each cycle, and they would only sell them once it's over-valued only to buy them back after the bust for 1/2 the price.

It's pretty simple from a math standpoint. After each cycle, the investors go from owning 1house to 2 house; 2 houses to 4 houses, 4 houses to 8 houses, and etc. If you play the numbers correctly, you're looking at 1 to 4 houses, 4 to 16 houses, and etc. after each cycle.

Of course, we have to agree to disagree in our investment strategies so there's no reason for us to compare housing and stocks again. :o)

Congrats on your new home purchase.

FortWayne says

E-man says

I'll play devil's advocate. When do u think interest rates will jump? 5, 10, 15, or 20 years? What's your guess?

I'm guessing mid 2014. Fed promised to keep them low until that point. Doesn't mean they'll rise, that will depend on other factors dictating how much can kicking can ensue.

Bottom line is that RE is too risky, because of the inevitable rise of the rates.

Freedom 1789-2012

I'm afraid that you will be proven wrong again. I was one of those in 2009 predicted that interest would go to 6%. Who would have thought? So I don't mind for being wrong again.

Good luck with your bet. :o)

I'll repeat this for everyone's benefit since its worth repeating. Pull up any chart showing average stock market performance over the last 100 years and do the same with housing. On average, stocks tend to go up 7-10% annually over the long term. As in 30-40 years or more, or about the same amount of time that it takes for the average American to retire. If you pull up a similar chart for real estate, that percentage is about half of that amount.

Now- we're talking about broad general statistics. Of course real estate in different locations might do better than in others. The same goes for stocks. Some of my stocks are now pulling in a little over 15% YOY, which is not bad given the state of the economy. Real estate in the BA seems to be in a weird position but some indicators show it doing better. But if we're talking historical averages, stocks perform better than real estate.

My opinion has not changed after buying. In fact, I'd even got one step further and say that investing in houses seems even less appealing to me given that as a homeowner, these things require maintenance and care that stocks otherwise do not.

But anyway, to each their own.

Not investment advice.

edvard2 says

some indicators show it doing better.

I've never seen you post this when you were renting and looking to buy. :o)

This is the reason why I like BMWman. The guy is extremely honest with his opinions and his observations.

Of course, to each their own. As long as you and your significant other are doing well, it's good for the economy.

Cheers.

Philistine says

I hear you--that's fundamental. The interesting thing is this is the situation I have been in since 2008. So, for me, nothing's changed. We continue to sock away our money because it's always been roughly $1500 month cheaper to keep renting.

Finally, some truth factoring into the thread. Renting ROCKS! Sorry owners, you greedy...

E-man says

I've never seen you post this when you were renting and looking to buy. :o)

This is the reason why I like BMWman. The guy is extremely honest with his opinions and his observations.

Of course, to each their own. As long as you and your significant other are doing well, it's good for the economy.

And why would I have? The market has changed. I have never claimed that I expected everything to remain the same. I fail to see anything dishonest about that previous assessment. Besides- you know what the saying is about opinion, right?

edvard2 says

Besides- you know what the saying is about opinion, right?

That some people's are worth more than others.

hrhjuliet says

When do you think the next real estate downturn will occur? Why?

When the new fallguy/girl has to slam on the brakes!

hrhjuliet,

1.5 years later, you and most housing bears are still renting while home prices have appreciated 25%-30%. Some condos have appreciated 100%. That's the down side about Patnet. It helped you to stay on the sideline during the bubble years, but didn't tell you when you should enter the market. You missed an opportunity once in a lifetime. It was an 80-year Great Recession cycle.

You forgot the fundamental of investing. Buy when there's blood in the streets. Now, when the sky is almost clear, and the economy has been slowly recovering, home prices have already shot up. Had you study the American history and followed the data, not someone else's opinion, you would have bought in 2011.

It was fantastic that you were able to avoid the bubble, but it was somewhat unfortunate that you didn't buy in the recent years. It sucks to wait for the next market down turn, which might happen in the next 5-10 years, when you had already waited 7-8 years. That's a looooong time to wait. There's much much more to life than waiting to buy a house at the exact bottom of the market while renting and paying off someone else's mortgage and enrich them.

This is how I see it. Housing will get a little more expensive after each cycle. Eventually, the few will own the majority of the properties. Getting 3% yield on real estate is better than buying a 10 year bond paying 3% interest rate. Housing has been one of the best inflation hedge. There's no reason to own gold or other hard assets when they produce no income.

With respect to the the peak of the housing market, it looks like 2016-2017 might be it if history is any indication. That means the next housing bottom would likely be 2020. Again, if history is any indication, the next housing bottom might have home prices at 2014 prices in nominal terms. So waiting another 6 years might get you back to square one. Only if we all have a crystal ball.

I sincerely wish you the best of luck.

E-Man

edvard2 says

As in 30-40 years or more, or about the same amount of time that it takes for the average American to retire. If you pull up a similar chart for real estate, that percentage is about half of that amount.

Have you considered that the average joe can get a loan to buy that real estate with 5:1 leverage (or 20:1 in many cases), reap the shelter dividend and (assuming a high enough income) take a tax deduction on the interest....and enjoy tax advantages when it sells, too.

Don't overlook the leverage advantage...it's real.

Thank you, but I own a home in the Bay Area, and if we would curb foreign investors and invest in our own country and community then we would all have a better quality of life. I find it disturbing that almost every hard working family I know of in the Valley has no hope of owning in this grossly inflated market and are paying outrageous rental costs. It is sickening, and I can not understand why good and mindful citizens do not stand against things like the schumer-lee-bill and bail outs. We are propping up a market that clearly needs to go down, not up. I own a home, but what about my friends and students? I own out of luck and being part of a system that is corrupt. I am not content with knowing my country and community are both going to hell while I hide in my fortress. We are going towards a new and sick form of feudalism and have already replaced the Republic with a plutocracy. We have slavery, but we renamed it, so everyone turns away in ignorant bliss. I can not validate injustice because I was born into wealth. Proud selfishness is very cool these days, but I am not overly concerned with being cool. We have to stand together and fix our country. We must look out for the health of the community, not just our own little square of land that we own. And what makes us think we own it? Because our government says we do? And governments are stable and forever? Ask the Russian aristocracy where their property went after communism, or the French monarchs after the revolution. Remember, it is a piece of paper that says you own that land, and that paper is only as valid as the system that stands behind it. Ignore the hijacking of our once great country at all of our own risk.

Everything is still running on smoke and Mirrors

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/12/27_Art_Cashin_-_Fed_May_Disastrously_Have_To_Reverse_Course.html

E-man says

This is how I see it. Housing will get a little more expensive after each cycle.

if this was always true, all of us would still be living in the cities. but that isnt the case, millions of families have spread westwards and outwards... the next boom area may well be in the north bay.. ah what paradise. just like what santa clara county became, a growth area... you might see regions north of Santa Rosa emerge as well. then again it might be in a different state.

when regions become not economically feasible, business and people move.

Housing is simply following inflation, and inflation in the bay area runs higher than the country side, like all big cities. That's why e-man said that housing will get more expensive after each cycle -- it will, because each year, inflation will push it up a bit and hold it there.

The north bay might expand, it might not, but that won't diminish the increases we will see around the bay area, which will reflect inflationary numbers, while the north bay might see faster rates as higher competition pushes people out.

Businesses are already paying an arm and leg to do business in the bay area, or downtown SF, they're doing it for a simple reason -- the best talent is here, and with that, the best talent is always in contact with more of the best talent, bouncing off ideas and becoming better. It's possible to steal a few people away and move them to another state, but you'll never be able to steal away a company's worth of employees and then keep them from wandering back or wandering off to another company. Then you're left with hiring local talent, which just isn't the same. It's not necessarily bad, it's just different, and doesn't scale as well when teams scale because everyone is on a different page. Never underestimate the talent in this area, it's amazing.

pkennedy says

Housing is simply following inflation, and inflation in the bay area runs higher than the country side, like all big cities.

The words are, "like all big cities". From what I know, prices in big cities hardly correct, and recover quickly to a new high. Although SV is a suburb, it is so well-known that many apolitical techies from all over the world prefer SV than elsewhere. In SV, technical skills are more critical than ability to navigate corporate and playing office politics. In other places, the opposite is true.

E-man says

I'm afraid that you will be proven wrong again. I was one of those in 2009 predicted that interest would go to 6%. Who would have thought? So I don't mind for being wrong again.

Good luck with your bet. :o)

I don't think it'll be a crash. But I think (in retrospect) easy money is over for that temporary explosion of flippers. Maybe some parts of the country is still going to be flipper ahoy... after all there are those constant reality tv shows showing constant flips.

pkennedy says

Businesses are already paying an arm and leg to do business in the bay area, or downtown SF, they're doing it for a simple reason -- the best talent is here, and with that, the best talent is always in contact with more of the best talent, bouncing off ideas and becoming better.

How do you explain why SV companies employ more outside CA than Santa Clara County... Just like GE, United Technology, or any other companies... Locations are no longer limited to one region. What you said, was only true during the 70s and 80s.... it stopped in the 90s as SV companies expanded far more in other states.

If your a head of operations, paying arm and leg will get you fired for being financial irresponsible.
these people are looking at margins and bottom line returns ... not what some Landlord or Realtor has some delusions about.

Just look at any Career page for a SV company... its pretty obvious.

hrhjuliet says

Thank you, but I own a home in the Bay Area, and if we would curb foreign investors and invest in our own country and community then we would all have a better quality of life. I find it disturbing that almost every hard working family I know of in the Valley has no hope of owning in this grossly inflated market and are paying outrageous rental costs. It is sickening,

Huckers and Scammers have come to the valley and twisted our economic success for their own benefit... there are not interested in any balance in this market. Ask your local realtor how long they been here ?

pkennedy says

Housing is simply following inflation, and inflation in the bay area runs higher than the country side, like all big cities. That's why e-man said that housing will get more expensive after each cycle -- it will

Inflation is a national statistic and there is no evidence that prices increase faster in the bay area - except housing.

But housing prices have increased faster than inflation nation wide since the 80's. People who think this is a normal and permanent trend don't make any sense. Wages are increasing slower than inflation, but housing will permanently increase faster? This doesn't make sense. What we are seeing is an historical anomaly due to macro trends, that will change eventually. In this context, a 2 years jump in prices means absolutely nothing.

People who think the bay area is so rich that housing can permanently stay at prices that are now above the top of the housing bubble, are suffering from short term bias. The region is simply under the money tap. It is disproportionally impacted by larger policies. And this too will change in time.