patrick.net

A house down the street from where I live sold for over $1million. It took 8 months and multiple price drops to sell. As soon as it did, 5 homes on the same block went up for sale, all listed over a million. 4 months have gone by with none selling.
I don't know what to make of it except:

-in no way shape or form are those homes worth a million dollars. Standard rent would be about $3k per month on those houses. They should reasonable sell in the high $800's if recently renovated, in the mid-high $700's in original early 70's condition or with an 80's-90's renovation.

-apparently $1 million is the make me sell mark for this neighborhood.

In San Diego, you should be able to live outdoors all year round, so indoor homes should be at least two to three times their present price.

you are not doing your homework.

you need to take the number of sales per month for the last few months for a given zip code and then look at how many houses are for sale right now. that will tell you the absorption rate which has been at a very steady 2-3 months for years on end, in the hot micro-markets. that is indicative of a very tight supply.

also, your price range is ridiculous - no one is in the market for a house at a certain price tag and another house for almost double that price tag.

landtof says

you are not doing your homework.

Thanks Dad.

I saw slowdown in my area(Chula Vista) starting last spring/summer. I think we've peaked and are heading downward. But I'd wait for the next collapse to buy. Otherwise, any small reduction between now and then will still leave you underwater.

SHADOWSTATS!!!!!!!!!!!!!!!!!!

just any guy says

Thanks Dad.

ok, you don't want any help.

@ Nuttboxer and all,

"the price people are paying RIGHT NOW is locked into inflation-proof debt"

This comment taken alone, doesn't appear to make any economic sense to me. Could someone please explain this to me? Thank you.

landtof says

just any guy says

Thanks Dad.

ok, you don't want any help.

Sure I do, just not from someone who is patronizing.

NuttBoxer says

I saw slowdown in my area(Chula Vista) starting last spring/summer. I think we've peaked and are heading downward. But I'd wait for the next collapse to buy. Otherwise, any small reduction between now and then will still leave you underwater.

I agree.

I bought my house in Carlsbad (Northern San Diego County) in 2011. Smaller houses in my neighborhood are now $300K-$400K higher than when I purchased just 5 years ago.....it's ridiculous. There are houses in my neighborhood that have been on the market for over 6 months.

I'd recommend waiting.

I still just look at the rent / buy ratio. If you can pay less rent than the cost of owning the same thing (interest + taxes + ins + maint), well, fuck owning then.

Maybe you lose out on some leveraged appreciation, but that could just as well go the other way: you could rapidly be underwater due to leveraged depreciation. Can't happen? Heard that before.

TL;DR: What would it cost you to rent the same thing long term?

just any guy says

Sure I do, just not from someone who is patronizing.

bullshit - if i were patronizing i would say: yes, there's a pullback somewhere on the horizon. keep your hopes up.

Michael Cooke says

@ Nuttboxer and all,

"the price people are paying RIGHT NOW is locked into inflation-proof debt"

This comment taken alone, doesn't appear to make any economic sense to me. Could someone please explain this to me? Thank you.

inflation typically causes interest rates to rise.

in california, the base tax rate is also mostly shielded.

long term, housing is appreciating.

"I still just look at the rent / buy ratio. If you can pay less rent than the cost of owning the same thing (interest + taxes + ins + maint), well, fuck owning then. Maybe you lose out on some leveraged appreciation, but that could just as well go the other way: you could rapidly be underwater due to leveraged depreciation. Can't happen? Heard that before."

You have to account for the fact that debt payments are constant while rent rises with inflation. So, owning gets cheaper wrt renting every year after you buy. That's why you have to use a rent/buy calculator to really see the best buy.

Fucking White Male says

-in no way shape or form are those homes worth a million dollars. Standard rent would be about $3k per month on those houses. They should reasonable sell in the high $800's if recently renovated, in the mid-high $700's in original early 70's condition or with an 80's-90's renovation

Wow, in my area you cna get 2k rent on a 350k-400k 4b house . Townhomes are still 120-170k for which you cna get 1-1.3k a month in rent. property taxes are sky high-sometimes exceeding 3% and are not locked in.

Farther away in bullet riddled land, you can buy a 4b home for 30-50k , that rent for 500 bucks a month or so-but that is crime central.

"No one makes more money during inflation, because salaries rarely keep up with the rising cost of goods."

That's not true at all. I've seen no evidence that real incomes perform worse under high inflation environments. If anything, it appears that real incomes do better.

joeyjojojunior says

You have to account for the fact that debt payments are constant while rent rises with inflation. So, owning gets cheaper wrt renting every year after you buy.

Yes, rents could rise higher, but never higher than what people can afford, otherwise they go un-rented. Owning a huge debt in the face of economic collapse is not a good thing. You need liquidity, which you won't have. You need a higher percentage of your income for basics like food and gas, which a locked in debt doesn't allow adjustment for. You need a job, which a down economy and layoffs doesn't provide, and again you can't just move to a cheaper rent because you're locked in.

In a bright economic future I agree with these guys 500%. But that's not reality, sorry Trumpers.

joeyjojojunior says

That's not true at all. I've seen no evidence that real incomes perform worse under high inflation environments. If anything, it appears that real incomes do better.

Tell me what inflation does, I have a feeling you are clueless based on the oxymoron you just posited.

"Tell me what inflation does, I have a feeling you are clueless based on the oxymoron you just posited."

No offense, but I almost guarantee I know much, much more on this topic than you. Inflation is generally defined (outside of Dan) as in increase in the prices of goods and services.

And as you probably don't realize, inflation also increases wages and salaries. That's why, historically, real income does fine under inflation and why what I posted is a historical fact, not an oxymoron.

joeyjojojunior says

as in increase in the prices of goods and services.

What causes inflation, you are speaking of effects, not root cause.

joeyjojojunior says

And as you probably don't realize, inflation also increases wages and salaries.

Of course it does, but not at the same rate as essential goods and services. Again, you're missing the root driver.

"Yes, rents could rise higher"

And by could--you mean, they pretty much always do. Rents go up with inflation.

"Owning a huge debt in the face of economic collapse is not a good thing. You need liquidity, which you won't have. You need a higher percentage of your income for basics like food and gas, which a locked in debt doesn't allow adjustment for. You need a job, which a down economy and layoffs doesn't provide, and again you can't just move to a cheaper rent because you're locked in."

Most people are locked into leases too so it's not all that different. If there's an economic collapse, you're screwed no matter what. And nobody should buy if it impacts their ability to have an emergency fund.

"What causes inflation, you are speaking of effects, not root cause."

Typically inflation is caused when the demand for goods and services outstrips the supply of said goods and services.

"Of course it does, but not at the same rate as essential goods and services. Again, you're missing the root driver."

History doesn't agree with you. Real incomes typically rise during periods of inflation.

joeyjojojunior says

"Of course it does, but not at the same rate as essential goods and services. Again, you're missing the root driver."

History doesn't agree with you. Real incomes typically rise during periods of inflation.

Folks, inflation on essential goods and services cannot exceed for very long wage inflation.
For a simple reason.

1. There's good inflation and there's bad inflation.

2. There are factors other than inflation that can affect interest rate changes.

3. Interests rates can increase faster than inflation (and wages) for a period of time.

4. Historical periods of rising inflation in the US are only a few. They do not represent a statistical sample that covers all combinations of economic factors. Therefore, one cannot rely blindly on historical precedence as far as the relationship between wages, inflation, and rates is concerned.

"4. Historical periods of rising inflation in the US are only a few. They do not represent a statistical sample that covers all combinations of economic factors. Therefore, one cannot rely blindly on historical precedence as far as the relationship between wages, inflation, and rates is concerned."

Of course. You can import inflation. The US could default on it's bonds. Lots of things could happen. But, I'm just pointing out what happens 99% of the time.

FP says

1. There's good inflation and there's bad inflation.

What do you mean by good inflation? I didn't know such thing exists.

joeyjojojunior says

But, I'm just pointing out what happens 99% of the time.

99% of two times

FortWayne says

What do you mean by good inflation? I didn't know such thing exists.

Inflation, which is the results of increased economic activity, leading to rising incomes of a large part of the population, rising consumption, and hence upward pressure on prices.

Actually 100% of the two times you are arbitrarily calling inflation

joeyjojojunior says

Actually 100% of the two times you are arbitrarily calling inflation

OK 100% of the two times.
Uncertainty goes as sqrt(sample size)

FP says

OK 100% of the two times.

Uncertainty goes as sqrt(sample size)

Yep--but you are arbitrarily restricting sample size.

joeyjojojunior says

Yep--but you are arbitrarily restricting sample size.

I suspect that you are the one doing it, by not looking beyond the USA

FP says

I suspect that you are the one doing it, by not looking beyond the USA

True, and you are doing it by pretending that there are only two periods of inflation in the last 200 years of US History.

Which are the periods of rising inflation in the US that you think are relevant to this conversation?

Let's see:

1916-1920
1941-43
1946-48
1951
1969-70
1973-75
1978-81
1989-91

http://www.usinflationcalculator.com/inflation/historical-inflation-rates/

That's only the last 100 years, but its a good start.

rando says

What would it cost you to rent the same thing long term?

There's no doubt that renting is cheaper than buying. If I were to buy a $900K home here, my guess is that it would rent for $3,500-$3,800 / month.

Bought with cash in March 2012 for 43k. 15k for renovation. Renting out for $1250 mo. Current appraisal is $130k. Property tax still assessed at 43k. Hoa is $250. If I would have been paying even $900 rent this whole time, which cumulatively, was the cost of the entire home, I would have nothing to show for it today. Basically, the way I look at it is this, I have a $130k home for free which is now giving me free rental income. Paying rent is throwing money out the window. How can you even compare it to home ownership?

"There's no doubt that renting is cheaper than buying. If I were to buy a $900K home here, my guess is that it would rent for $3,500-$3,800 / month."

It actually depends on how long you plan to stay. As long as you plan to stay at least 5 years, it's cheaper to buy. And gets significantly cheaper with each additional year past 5 that you stay in the house.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

joeyjojojunior says

1916-1920

1941-43

1946-48

1951

1969-70

1973-75

1978-81

1989-91

1916-1920, 1941-43, 1946-48, 1951 -war, postwar years
Then you have one decade (the 70's) and two isolated years.

What I wrote:
"Historical periods of rising inflation in the US are only a few. They do not represent a statistical sample that covers all combinations of economic factors. Therefore, one cannot rely blindly on historical precedence as far as the relationship between wages, inflation, and rates is concerned."
remains valid. Pay attention especially to the last sentence.

What I wrote:
"Historical periods of rising inflation in the US are only a few. They do not represent a statistical sample that covers all combinations of economic factors. Therefore, one cannot rely blindly on historical precedence as far as the relationship between wages, inflation, and rates is concerned."
remains valid. Pay attention especially to the last sentence.

Which sentence? One cannot rely blindly on historical precedence as far as the relationship between wages, inflation, and rates is concerned? Yes, I already acknowledged that. It's the correct default position until someone can present evidence for why this time will be different, however.

Do you acknowledge that there are a lot more than 2 periods of inflation?