patrick.net

Just visit Detroit once and you'll see why it's still no bargain at $1,000. I would not live there even for free.

It's very dangerous, there are few jobs, lots of racial tension, high property taxes, corrupt city government, and poor services. Oh, and a brutal winter.

http://www.forbes.com/2007/11/08/murder-city-danger-forbeslife-cx_de_1108murder_slide_2.html

Lately Detroit has only half as many murders per year compared to when I lived in Michigan. Michigan. But it's still the WORST in the United States.

Chicago has the same winter, but it's an infinitely nicer place to live. Safer, cleaner, lots to do on the north side at least.

They should just demolish the houses already. NOBODY wants them.

shrekgrinch says

Yeah, that is why I bumped up the proposed grant and let anyone qualify. You’d be surprised by how many people would take up the offer. I am sure you wouldn’t take a job at Wal-Mart either, but over 20,000 people applied at the Super Wal-Mart in Oakland right before it opened.

On Walmart's wages, a $1,000 house would be affordable. I know people who work at Walmart that qualify for food stamps.

i would extend the offer to any military veteran, who is willing to live in the house for 2 years.

Just visit Detroit once and you’ll see why it’s still no bargain at $1,000. I would not live there even for free.
It’s very dangerous, there are few jobs, lots of racial tension, high property taxes, corrupt city government, and poor services. Oh, and a brutal winter.
http://www.forbes.com/2007/11/08/murder-city-danger-forbeslife-cx_de_1108murder_slide_2.html
Lately Detroit has only half as many murders per year compared to when I lived in Michigan. Michigan. But it’s still the WORST in the United States.
Chicago has the same winter, but it’s an infinitely nicer place to live. Safer, cleaner, lots to do on the north side at least.

I disagree with you Patrick, if just a little. Chicago seems nicer, but the groups of angy black youths who routinely go "wilding" on the north side of Chicago is an ever growing problem. Even if the media doesn't cover it.

The schools are gladiator academies, and a precusor to Cook County Jail, just in time to get a real penetentiary-style education.

Racial tension? Please Chicago takes the cake, as whites quickly walk past ignoring blacks, hoping not to get raped, mugged or robbed. And let's not foget to throw in the those who march and protest for every right not granted as citizens of Mexico.

Corruption is something that Chicago excels at, as Mayor Daley has bankrupted the city through no-bid contracts, capital (contractor-welfare) improvement projects, fake minority hiring (as related by the Federal courts), nepotism; his son makes 74k as his Admin assistant for a job he doesn't show for, etc., etc.

Chicago has the worst water system in the nation, which contrasts with the 200% increase in water bills.

Gas and light utitilies have gone up over 150% in the past 5 years.

Lets not talk about the 100% property tax increases, as well as undermanned police force that is still budget for full strength put not fully staffed, thus returning the unused monies to Daley's pockets through the City's general fund.

The 50 thieves masquerading as alderman, are corrupt rubber stampers of Daley's agenda. I guess their million dollar budget and 90k salaries each, help make their spineless actions easier.

We even had an alderman, Sharon Dixon, arrested for DUI and refusing to take a breathalyzer. She had obvious signs of intoxication, and became combatitive. That did not stop a corrupt judge for finding that the officers had no probable cause, opening them up for her civil suit. What a joke.
You are right though. Chicago is cleaner. The bums are allowed to sleep and congregate in any police station, library, and city building, with the exception of City Hall.

All of this only makes my strategic default and subsequent 16-month squat even sweeter.

romeotybalt says

Chicago seems nicer, but the groups of angy black youths who routinely go “wilding” on the north side of Chicago is an ever growing problem. Even if the media doesn’t cover it.

Is the media in on it? Why isn't this out there - or have we become desensitized to the point that we're used to it and want something more shocking. I mean like Detroit becoming an industrialized ghost town.

Just curious. I'm spoiled, live in a rural area with so little crime that when someone gets a ticket we're all shocked.

HousingWatcher says

They should just demolish the houses already. NOBODY wants them.

Are you being serious? I'm sure they could sell somewhere in the middle of what they were and the 1,000 they are asking now.

I bet for every empty house in Detroit, somewhere there's somebody just busted up and besides them selves that they lost that house.

Its kind of like cash for clunkers idea. Basically the way to raise real estate prices is to create artificial demand for it. They'll probably create a local bubble out there if they let it get out of control (which fickle/corrupt government always does).

been to Detroit 3 times, got asked for money 3 times. The KFC in some places has iron bars on the window and the cashier area is like a ticket booth in the theater. Worse than Oakland? U bet.

Baltimore sold a bunch of pretty bad houses that they acquired for a section of I270 that was never built for $1.00 each in the 70's with stipulations that you had to live there and fix it up. Loans were available from the city for fix up. Baltimore at the time wasn't any better than Detroit is today. I used to run a concession at the Baltimore street fair every year in the early 70's (college job). We were armed and working behind very heavy chicken wire. These are really nice places now, so a program like this can work if set up properly.

Chicago high rise projects are getting torn down so the government created leeches are moving to their new free digs out in the south suburbs where the murder rate has skyrocketed! All my college roommates used to live in the upper middle class suburb of South Holland. It's now a freaking ghetto!!!

moonmac says

Chicago high rise projects are getting torn down so the government created leeches are moving to their new free digs out in the south suburbs where the murder rate has skyrocketed! All my college roommates used to live in the upper middle class suburb of South Holland. It’s now a freaking ghetto!!!

When was South Holland an upper middle class suburb? 1940?

"Are you being serious? I’m sure they could sell somewhere in the middle of what they were and the 1,000 they are asking now."

No they can't. Who wants a house in a city with high crime and absolutely no jobs? Countless hosues in Detroit are in horrible condition and make no economical sense to renovate. They have been stipped down to the studs or even have fire damage from arson. These houses are unsellable.

bob2356 says

Baltimore sold a bunch of pretty bad houses that they acquired for a section of I270 that was never built for $1.00 each in the 70’s with stipulations that you had to live there and fix it up. Loans were available from the city for fix up. Baltimore at the time wasn’t any better than Detroit is today. I used to run a concession at the Baltimore street fair every year in the early 70’s (college job). We were armed and working behind very heavy chicken wire. These are really nice places now, so a program like this can work if set up properly.

Yes, but $1000 for a house the parts of Detrioit where these houses are might be above market.

elliemae says

On Walmart’s wages, a $1,000 house would be affordable. I know people who work at Walmart that qualify for food stamps.

Don't forget that the property taxes are probably several times more than the house. And then there's the daily cost of ammo for defense.

patb says

i would extend the offer to any military veteran, who is willing to live in the house for 2 years.

Good idea. Military training is probably essential for anyone who moves in. And Marines in particular tend to be a good influence in bad neighborhoods, IMHO. Everything would be in ship shape, at least at their house.

romeotybalt says

I disagree with you Patrick, if just a little. Chicago seems nicer, but the groups of angy black youths who routinely go “wilding” on the north side of Chicago is an ever growing problem. Even if the media doesn’t cover it.

Yes, Chicago has major problems, but compared to Detroit it's pretty safe and cushy. Which just shows you how bad Detroit is.

romeotybalt says

Corruption is something that Chicago excels at, as Mayor Daley has bankrupted the city

Old Mayor Daley is buried just two blocks from where I lived ages 0 to 9, in the same Irish cemetery as my paternal grandparents, aunts, uncles (Holy Sepulchre Cemetery). And my other grandfather worked for Daley's organization, in the Daley building downtown. One of my earliest memories is visiting him there. It was the first time I was in a tall building and kind of magical. Anyway, I know the Daleys are crooks but I can't hate them.

Mr.Fantastic says

Detroit, Oakland, and Camden are all cities that should be paying people to live in vacant houses within their borders. Preferably military men with basic combat training.

Where is apocalypse when his insight in this would be so good.

To comment on the original post though, I'm just not sure whats with this political fetish for police and firefighters, what the hell makes them so special compared to everyone else.

Mr.Fantastic says

Would you buy a $1,000 house in the middle of Kabul, Afghanistan or Mosul, Iraq? These cities are probably more safe than Detroit.

Despite most Americans believe, US is NOT a safe country.
This is why the houses in safe areas are selling for 700k+ easily.

Ammo and silver for me. Those bomb shelters made in the 60's are looking mighty cozy! I used to laugh when I thought of my father looking at homes with the hidden bomb shelter. Maybe he aint so dumb after all.

At this point, it is very difficult to make generalizations about the entire housing market. Some cities are seeing significant price drops, others are not. A few places are even seeing slight increases in prices.

Inflation will be the big difference maker. If oil goes to $200 things will be very different than if it remains around $100.

Who knows ?

http://www.zillow.com/local-info/#metric=mt%3D34%26dt%3D1%26tp%3D5%26rt%3D14%26r%3D102001%252C394913%252C394806%252C394463%26el%3D0

This time two years ago there were more incentives on the horizon. The question it seems to me is how highly motivated the sellers and buyers are. The winner will be the less motivated one, right ? Speaking as a potential buyer, I can tell you it's not just price that is important its the selection, the lack of choices that holds me back. If more of the people who are waiting to sell finally put what they have on the market, then I am more likely to buy. But I guess what i am really wanting is nicer homes to come to my price point, which is no different than waiting for further reductions.

http://piggington.com/shambling_towards_affordability_yearend_2010_edition

I've argued a million times that price-based ratios are much more important than payment-based ratios in determining whether housing is fairly valued on a sustainable basis.

price-to-income and price-to-rent are still high.

if you go to a car dealership, the used car salesman always asks what payment you can afford and will never tell you the out-the-door price. that's because through creative financing, a ridiculously priced car can be made to have affordable payments using various strategies (for RE these would be: option arms, i/o loans, increase the term, low rates, etc). housing is the same, you can make over priced houses almost affordable through "payment magic".

only the financially ignorant fall for this at a used car dealership.
i also claim, it's these same people that are happy to overpay for their house because the payments are so affordable.

low rates promote over borrowing and over leveraging.
i can't wait for interest rates to go to 9% or higher (probably won't see it for 10 years or more), then this nonsense with creative financing would be greatly reduced.
at 10% interest most won't put 0% down, they'll put a decent down payment and actually try to pay the mortgage off.

i'm beginning to think buying in a low rate environment, regardless of price, is a mistake.

I'm not sure if this graph is right or just made up.

I have never seen an area in LA you can find housing near 4% of income. Here it's often close to 70%~80% for quite many.

Unless I know the data what exactly they are sticking into the graph, its just a pretty ugly picture with no real information. I can manipulate graphs all day long with data, it's pretty easy to do that.

San Diego is in the same pot as Miami and Vegas. They received lots of media attention.

I see no fault with Piggintons analysis. But do take some time to read his narrative and conclusion.

But why any particular number? The thing with metals is that every price seems about as reasonable as every other price.

The only connections to reality that I've heard are the cost of getting an ounce out of the ground, and the cost of replacing industrial silver with some other metal.

LOL

That's a dangerous game though. Bubbles tend to reverse just as suddenly as they rose, and it's really hard to know exactly when.

If you’re predicting a further crash in the real estate market, how do you reconcile that with the reality that real estate might be more affordable now than at any time during the last 34 years?

Well, for one, the annual per capita income of me, Bill Gates, and Warren Buffett is ~$5B, but that's not going to help me pay the rent.

2ndly, unemployment is 10% in SD:

http://research.stlouisfed.org/fred2/series/SAND706URN

SD has lost 100,000 jobs:

http://research.stlouisfed.org/fred2/series/SAND706NAN and it's unclear if they're ever going to get those jobs back.

Fraud was the major tractor of the economy 2003-2007, and the jobs that were supported by fraud are gone now.

Affordability has been helped by very low interest rates, but it's unclear whether that trend will continue (a la Japan) or reverse (as it arguably has now).

Nominal prices:

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

are still high compared to 2000, even though there are less well-paying jobs now than in 2000:

http://research.stlouisfed.org/fred2/series/SAND706PBSVN
http://research.stlouisfed.org/fred2/series/SAND706MFGN
http://research.stlouisfed.org/fred2/series/SAND706INFON
http://research.stlouisfed.org/fred2/series/SAND706FIREN

The two bright spots are government sectors: health, education, and defense.

http://research.stlouisfed.org/fred2/series/SAND706EDUHN

Health & education are immense bubbles given the $20B+ state deficit and the overall medicare situation. If medicare blows up this decade, retirement communities like SD are going to get slaughtered. SD is no doubt receiving an immense amount of the $500B/yr medicare outgo.

Plus SD is still dependent on military:

http://research.stlouisfed.org/fred2/series/SAND706GOVTN

With our current $900B/yr defense bill there is not any more growth left in that sector and SD will be lucky to retain what defense jobs it has this decade and next.

Maybe the snarky method of debate doesn't work afterall, because there are always others out there who are snarkier and smarmier than you.

That said, do snarky and smarmy comments -- based in emotion ultimately (anger, frustration, fear, etc.) -- constitute some sort of worthwhile "debate"?

Or is it more of a pissing match to see who has the biggest ego? If I want to see people exercise unlimited power over others, I'll watch execution videos for that, thank you. It's more to the point and wastes less time.

That said, it would be nice to watch some of you go at it with rusty butterknives, on live streaming video, to see who really does have the biggest ego and who is willing to kill other people to prove it. That process is covered in Robert's Rules of Order (parliamentary procedure), is it not?

BTW, it's "jibe" and not "jive," you jive turkey.

tatupu70 says

Nope–I’m asking you. Because you posted this: “OK! so you actually did read his narratives/conclusion and have ignored it because it doesnt jive with your own opinion.”

And he said "yes" he has his own opinion what ever that may be...
so ask him that same question...

If you are not in silver then you are in an investment (including cash) other than silver.

Name the other investment and demonstrate that it is as undervalued and in greater demand than silver. I'd also like to see your prediction/profit rates and your ability to analyze a chart (use silver).

Markets do follow rules/patterns. The most predictable are known as Fibonnacci sequences. Chart patterns are also very predictable.

You are correct -- fundamentals do not matter. I had lunch with chief trading strategists from Oppenheimer and also Wachovia a few years ago. Even they agreed with me on this point. Most hedge funds use technical analysis (price, volume and put/call ratio sentiment) instead of fundamentals to make buy/sell decisions. It has been this way for many years.

I am a quant analyst and I build profitable automated trading systems. I have been doing this for 12 years now.

Are people actually buying physical silver now (instead of gold)? I mean literally, buying up the metal itself?

Or are people actually investing into something related like mining, exploration, companies that use it?

That’s a dangerous game though. Bubbles tend to reverse just as suddenly as they rose, and it’s really hard to know exactly when.

Long-term bull cycles tend to collapse when they enter a "bump and run" chart pattern. I recommend educating yourself about this so you know what it is. The term "bubble" is completely meaningless if you are truly interested in making money.

http://stockcharts.com/help/doku.php?id=chart_school:chart_analysis:chart_patterns:bump_and_run_reversa

ChrisLA says

Are people actually buying physical silver now (instead of gold)? I mean literally, buying up the metal itself?
Or are people actually investing into something related like mining, exploration, companies that use it?

Who knows? A better question to ask is, "Will silver bullion be more profitable than silver mining stocks"?

Historically, mining stocks perform better than the metals. However, I recommend owning both long-term due to the current nature of the market.

Like I said, I agree with the Pennington's chart and narratives.

Would you like to add now some comments to his narratives ?

thomas.wong1986 says

Like I said, I agree with the Pennington’s chart and narratives.
Would you like to add now some comments to his narratives ?

So you agree that prices are about right historically. That interest rates don't typically have a large effect on nominal home prices. And that nominal home prices should be flat to slightly higher in the near future?

tatupu70 says

So you agree that prices are about right historically

Like I said many times over.. its a good time to buy in Miami.. be sure not to trip over the dead homeowner lying in the streets. Pretty sure you will find the same in Vegas and parts of San Diego..

tatupu70 says

That interest rates don’t typically have a large effect on nominal home prices.

As I have said many many times over and used San Diego as an example how prices fell along with interest rates in tandem post 1990. Pannington wrote about this back a few years back.

tatupu70 says

And that nominal home prices should be flat to slightly higher in the near future?

We have a long way to go in SF Bay Area. So no! expect plenty of correction in the BA to occur.

Wow--how about that for 3 non-answers?

That’s a dangerous game though. Bubbles tend to reverse just as suddenly as they rose, and it’s really hard to know exactly when.

People were on this site saying it was dangerous play to go all in when it dropped from $22 to $10. They thought it was going to $3. It's 1000% above the predictions that were prevalent on this board. Silver is going to $50.

Paraphrasing here a bit but the main take aways of the Piggington's analysis are:

1 - To general affordability if you are willing to stay in possession of the house up to 10 years, put very little down of your own money, and buy something that is not overvalued, it is probably favorable to buy in those conditions.

I don't think many will argue with this here on the forum. A good buy is a good buy. The trick is finding it and for an owner being willing to stay put in order to gain the benefit. Overall to me the market activity seems pretty stagnant. Everyone seems to be waiting to see which way the wind blows and not many seem willing to hold a house for a long period of time.

2 - Home prices are in the middle of their historical range and could move up or down. Typically after booms there is an undervaluation that occurs. Based on headwinds to the housing the author believes home prices will drift downward overall but not a radical cliff dive in value.

The alternative or counter to that? They go up slightly? Again, basically the market seems boring and kind of stalled.

--

Are we strongly arguing over a "flat with a slight up" or "flat with a slight down" trend in home prices? Or are we arguing really a huge crash in prices versus a huge boom in prices? To me, major movements in price in either direction seem unlikely in the short term but I base that off of gut and a sense that "we" are trying to figure out how to breathe life back into the market.

I feel often that the debates here on the forums rage back and forth between a viewpoint of those seeing homes/rentals as investment and business opportunities versus those simply looking for a decent place to live. There are commonalities in interest, homes/rentals, but the overall motives and conclusions are very different.

How's this for a crazy view point: it's a good time for investors to buy but not a great time for a would be owner to buy. Wait a minute? Wouldn't a good buy for one be a good buy for the other? I don't necessarily think so. A buyer would rather put more money down, own more of the home outright, and have less debt over them. An investor on the other-hand cares less about these things than simply can they make money on it.

One is purely seeing benefit from any monetary gain that can be made off the house while the other is seeing benefit from investment as well as the roof over their head, location, and features of the property. This leads to the tactics of sellers emphasizing all the things outside the investment/price angle and toward the features and "quality of life" angle.

That's actually pretty minor, though very emotional, compared to the real difference between an investor and a buyer/owner: length of exposure to risk and risk aversion. If you can throw your money in and get out quickly conditions actually look favorable for that right now. I think people will work much harder right now to move a single home than they have in the past though. There just isn't much action. If you are going to buy and hold that seems to have a fair amount of risk involved in it unless you can hold for a long time. So being a shorter term owner doesn't seem to be very favorable right now. Being a flipper or a long term investor still looks good.

We know the gov. and the market will remain irrational longer than we can "stay solvent" as the saying goes. Go Wall Street! There are some big open questions about the future of how home buying will occur, the nature of mortgages, and financial law. Couple this with a flat economy, and most people knowing at-least second hand of numbers of people being laid off recently, and you don't have a lot of risk takers in the buyer/owner category. People are taking cash out of the game in favor of mobility and flexibility with where they invest. The result is a pretty sluggish housing market.

Investors I am sure are busy positioning themselves, licking their lips, and thinking that the time is looking near. They will see the positive before a buyer will otherwise they won't be an investor for long, or be a sub-par investor.

--

Isn't this the real debate we have in many different flavors across the forum? Or maybe I just have no clue what I'm talking about. (shrug) One thing is pretty certain to me here in the bay area, overall prices have moved a little, but in general the game hasn't changed from "put almost nothing down and buy something very expensive". When something exciting happens or that changes to "put a lot of money down and buy something reasonable" wake me.

Until then rent is far more attractive to me and cheaper than I have seen it in 9 years. If home prices shoot up again in California/the BA I'll expect we might consider moving out of the area for better quality of life elsewhere when we are ready to buy. Investors need not be scared. I'm sure there will always be those much less risk adverse than I. When you are talking about moving at-least 450K around, in the US of A, there is always money to be made off fees/interest/handling/transactions/etc., right?

bravo rewrew7, couldn't have said it better myself