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Here is some advice.. needs a little Tommy Vu sparkle....
Bikini Babes and slick marketing jingle...
"Are you man enough to get off your lazy American ass and go to Vu’s seminars?"[1]
"A lot of your friends will tell you, 'Don't come to the seminar. It's a get-rich-quick plan.' Well, tell them, it is a get-rich-quick plan because life is too short to get rich slow."
"Tom Vu says his system is different than other experts'."
"Okay. You've seen me make a lot of money. You've seen my students who are average people make a lot of money. Isn't it about time for you to go out and make a lot of money?"
"I will not tolerate other immigrants."
"There's two kinds of work in America: hard work and smart work. Which one are you doing now?"
"This is not a country club! This is my house!"
"Are you afraid to ask your Boss for the day off to come to my seminar? Well then you don't deserve to be rich"
"Today I'm gonna show you how to drive a sports car. First, you need a lot of money!"
"Don't listen to your friends. They're losers!"
"Do you think these girls like me? NO, they like my money!"
"At first I got lots of discouragement from friends and stranger who are loser! You know what these people kept telling me? They kept saying, 'Well Tom Vu, you a crazy nut, here you are, a poor immigrant, poor minority, speak no English, no contact, on and on, and you trying to be rich in America! You crazy, man! Look at people out there! They smarter than you are, they not even rich! Who are you to try?' And you know what? I have to keep telling these people every time, I kept saying, 'You are loser! Get out of my way! I make it somehow!'"
1. You're right, it should be 'advice'. Thank you.
2. It's hard to give a definitive answer about a particular property without knowing the area. $550k is a huge disparity, but I really think that says more about how incredibly inflated values are in that area than it does about how accurate the tool is.
The median income, according to the 2000 census, is $127,000 a year. The list price of $950,000 is more than 6 times that. That is the whole point, keeping values in line with incomes. You said, 'maybe if the absolute worst happens, that house will come down to that in 5 years...'
I say, unless a miracle happens - median income in the area rises to more than $300k - the value will almost certainly come down that much because the only way to support values higher then that is through the use of the same unstable loans that have already proven 'toxic'.
And if you acknowledge that "the worst" might happen, why take the chance.
This looks like a good tool.It gives the idea , how inflated the prices are.
This looks like a good tool.It gives the idea , how inflated the prices are.
Thank you.
however, it showed my house's value at less than 50% of what it is now and that's 1980's territory. I don't think it's applicable across the board. Might be in the bubble areas.
The advice/advise thing bothered me too, but I held my keyboard (tongue)...
however, it showed my house’s value at less than 50% of what it is now and that’s 1980’s territory. I don’t think it’s applicable across the board. Might be in the bubble areas.
The advice/advise thing bothered me too, but I held my keyboard (tongue)…
Unfortunately, the basic (pre-calculated) MSV is not applicable across the board. It's based on census data at the block group level which works fine for most properties and areas, but not all. In the help section under Evaluating MSV Accuracy I've tried to point out the weaknesses as well as a way to correct for inaccuracies with the Custom MSV.
I am going to be adding some 'caution' messages that pop up under certain circumstances (very large geographic areas, wide distribution of incomes, etc), and perhaps confidence scores as well - as soon as I figure out how to do it! I am also looking at adding other data sources to fill in the gaps, but that will be down the road.
So, it's not perfect, and some of what I have done can be done better and presented in a more 'user friendly' fashion. That's why I'm looking for feedback before I market it anywhere else.
As for the 'advise' vs 'advice' issue, it's embarrassing. My spelling ability has always been questionable, and it's only become worse with an over-reliance on spell check. So I'm going to blame technology for that - the stupid computer should know the difference between a noun and verb.
I like the concept, but knowing the address down to the zip code is a bit much... I don't know that many of the local zip codes; only the city and state.
Also, I'd rather put in a town or city, rather than a specific address, complete with house #, street, and zip. Often I look in generality, rather than specifics.
Just my two cents... but I do like the concept.
EastCoastBubbleBoy
Right now, I need the entire address for the census geocoder to work - which I guess you discovered. But I'll give that some thought - maybe I can come up with a way to enter the city and have the zip code options come up. Hmm...
Iggyman,
I do see one fundamental problem here:
In most locations, the price is not determined by the income of the people that *already* live there, but rather by the income of the people *that want to move there*. Only a small percentage of houses in a given area change hands each year. All the others have owners with varying years of tenure, purchase prices, payments and loan balances.
Your formulation is more along the lines of "who can no longer afford to live there if they had to buy the same house on the open market today" (assuming a nominal down payment).
If you really want to know what prices are realistic, you would have to look at all houses and all owners. But it is not sufficient to look at income statistics, you have to have individual numbers.
You would have to look at the loan balances, payment amounts, perceived/estimated equity and the income of each owner. And in California, also consider the prop.13 tax base.
I think your site is a good start, but it remains to be seen how meaningful the numbers can be.
I don't mean to be a downer, just want to point out that the methodology has some limitations. Best of luck with the web site!
You are not taking into account retirees that have relatively low incomes but huge savings. Some areas are more attractive to retirees than others. There are a lot of rural golf communities where your tool would be way off.
justme & Nomograph
I actually like your posts, because it gets at the fundamental assumptions, which should always be questioned.
justme said "justme says
Iggyman,
I do see one fundamental problem here:
In most locations, the price is not determined by the income of the people that *already* live there, but rather by the income of the people *that want to move there*. Only a small percentage of houses in a given area change hands each year. All the others have owners with varying years of tenure, purchase prices, payments and loan balances.
By the same logic, you could also say that market values (appraisals) are inaccurate because they only measure what people have paid for similar houses in the past, and what we really want to know is what they will pay in the future! With an appraisal you make the assumption that what other people have paid for similar houses in the area is a good predictor of what other are going to be willing to pay in the future.
For the MSV Estimate, the assumption is that residents of a neighborhood are similar to each other socioeconomically. Yes, individual residents come and go, but the makeup of the neighborhood remains substantially the same over time. It's unlikely that in a neighborhood of school teachers and low level office workers, for example, someone is going to move out and a doctor is going to move in in their place. Are there circumstances where this won't be true? Of course, but those circumstances are the exception, not the rule. I cover this a bit in the HELP section of the site, under Evaluating MSV Accuracy.
You are not taking into account retirees that have relatively low incomes but huge savings. Some areas are more attractive to retirees than others. There are a lot of rural golf communities where your tool would be way off.
That is a good point, I am making the assumption that the majority of houses in an area were (and will be) purchased with a mortgage. In areas where this is not true - people pay cash for the houses or make very large down payments - this is not as reliable.
Also, I’d rather put in a town or city, rather than a specific address, complete with house #, street, and zip. Often I look in generality, rather than specifics.
Just my two cents… but I do like the concept.
I missed the significance of this part of your post before. The problem with doing a more general calculation based on a city or town is that there is too much variability (in incomes and property types) in larger geographic areas. You couldn't say for example "Oh, the MSV in this town is $100,000 and there is a house for sale there for $50000. What a great investment!" You would probably find that the house is not in the best neighborhood.
Your breakdown of median incomes is based on the 2000 census? It might be hard to convince people to use numbers that are almost 10 years old. I assume there will be updates based on the 2010 census.
It is a useful tool for buyers. I don't see the same problem as Just me and Nomograph. In a working free market, buyers and sellers negotiate price. Sellers like to use comparables to set their asking prices. Buyers should be using either area incomes and/or sales history of a given house to determine their offering price. Makes perfect sense for a buyer to tell a seller, "Wait a minute, you're asking price is out of touch with local incomes. Come down or no deal."
@ Ryan
Yeah, I kind of expected the age of the income data to be the biggest objection. The 'good' news is, incomes for almost every group has remained basically flat (except for high level executives of course - but they can take care of themselves).
Assuming I can get the site to take off, I will be updating the data with the 2010 census as soon as it's available. I'm also looking at integrating other data sources in the mean time.
My biggest worry though is just making sure people understand the basic concept - especially casual users of the site that haven't made decoding the housing crisis their personal hobby.
While I am a housing bear and think housing is generally overpriced in my area, this comes up with values waaay lower than even I think they should be. I checked against a house I bought and sold between 2000 and 2005 and the calculation was extremely low relative to reality.
Also get this all the time:
Zestimate: Zillow Did Not Find a Match
Fatal error: Call to a member function getChart() on a non-object in /home/sbradt/public_html/content/plugins/php-execution/includes/class.php_execution.php(273) : eval()'d code on line 173
@ pkowen
Without knowing the specific address you searched, I can't really comment on why the numbers are so low in relation to 'reality.' It could be that this is an area where the data needs to be looked at more closely in which case you would have to run a custom MSV, or it could be that prices are just that inflated (or of course, you could just conclude that the whole concept wacko).
The errors you got mean that Zillow.com did not have the address in their database (although the second error you got shouldn't have looked like that - I've got to correct something in my code).
Are you sure that you entered the address correctly? Usually when I get an error like that from Zillow I find that I've entered the address wrong.
Hey, this is a nice tool, but one thing I believe you are failing to take into account is the difference in quality or even quantity of the square footage of a house.
So, I keyed in a house in my area that Zillow values for about $450K, and you came back with median income $81K and the house has MSV of $249K. That's about 3 times median income, so what you would expect the area to support.
What I think you are failing to take into account is that the house could be a 1 bedroom, 100 year old hole in the wall, or it could be a 5000 sq. ft. new construction McMansion. Just like median income doesn't mean everyone in the area makes $81K, MSV for every house won't be the same.
However, your tool is a good way to check and see if prices are generally in line with the median incomes in an area, which is always a good check to see if you're overpaying for the neighborhood or house you're purchasing.
I think the only way to make your tool more accurate is to come up with a model that includes price per sq. ft for 1, 2, 3, and 4+ bedrooms, and combines that with median income to determine a more accurate MSV for each individual property.
I hope this input is helpful. It's a great start, but it needs to have a more complex equation behind it to truly provide insight beyond a simple census check.
@ lyoungblood
"However, your tool is a good way to check and see if prices are generally in line with the median incomes in an area, which is always a good check to see if you’re overpaying for the neighborhood or house you’re purchasing."
You've got it! The MSV is not the market value. It's a 'check' on the market value.
One of the assumptions is that most of the properties in the area will be similar (in square footage etc). If that's not the case, then you have to break down the data further - that's what the income distribution and property type tables are for - and run a Custom MSV.
Hopefully, this can explain of this a little more clearly ... Evaluating MSV Accuracy
That is a pretty cool site. I like the explation of income leveraging by lenders. I've never seen it broken down like that before.
Once I got my head around the value tool, I liked that too. I think getting people to understand it will be your biggest problem though.
@ will
Thanks.
As far as getting people to understand it, I agree with you. I don't think the concept is difficult to understand, I just think it's not what people expect. People assume that it's telling them the market value is $x, when it's just telling them a value more than $x can't be sustained given the income for the area.
Last week I posted (New Home Value Tool Based on Area Incomes) about a new site I've been working on - ValuSage.com. I have had some visits to the site and views on the post, but not much feedback. In looking at the post, I see it looks a little spammy and I didn't do a very good job of explaining what it is all about. So...
I tried to create an easy to use tool (a la Zillow) that the average person can use to calculate the "Maximum Stable Value" or MSV for a neighborhood. It's based on the median income of a neighborhood. It's essentially a souped-up mortgage payment calculation run in reverse. Interestingly, I noticed last night that the results correspond closely with the rule of thumb "don't pay more than 3 times your annual income for a house" that I've seen referred to on Patrick.net.
Aside from helping people make smarter real estate decisions, I am hoping that it can be an effective new weapon for the defenders of commonsense (that's you and me). NAR, big banks etc. have inertia, popular misconceptions, infrastructure, and all the tools to support business-as-usual on their side. We have thoughtfulness, logic, and prudence on ours. While in a perfect world that would be enough, in this one we end up too often as voices in the wilderness, preaching to the choir.
But if all someone has to do is type in an address and get back a big, red, official looking number and a message that says "Don't pay more than this for this house" or "Don't refinance for more than this or you will end up upside-down on your mortgage" people will pay more attention. We end up with more people making rational decisions without having to understand the evils of securitization or price vs. income ratios. In other words, we make it easy for people to do the right thing.
So, since the central ideas of the two sites are identical - prices are too high in relation to incomes - I thought that Patrick.net would be the place to come to:
So, what do you think? Any thoughts, suggestions, opinions?
#housing