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Real Estate in Graphs

By Eman follow Eman   2010 Jun 22, 8:31am 14,620 views   74 comments   watch   nsfw   quote   share    


I've been doing some readings and found some housing data that I would like to share for those that are interested. Although I'm not very articulate, it's somewhat rewarding if you can understand my points.

The first graph shows the median income multiple since 1950. The second graph shows interest rates for the last 40 years. Let's take a look at the CA housing market in the last 30 years.

1) The first HOUSING BOTTOM was in the mid 1980's when the median income multiple (MIM) of about 3.7 and interest rate (IR) at around 12%
2) The second HOUSING BOTTOM was in the mid 1990's when the MIM of about 4 and IR at around 8%
- (40% increase in buying power comparing to 12% IR)
3) Currently, the MIM is about 5.5 and the IR at around 5%
- (37% increase in buying power comparing to 8% IR). On the surface it appears unaffordable from a 5.5 MIM. However, when you factor in the current interest rate environment, we're pretty close to the bottom of the mid 1990's housing market in terms of affordability. If you get 5.5/4.0 MIM, you get 38% decrease in buying power, but the current IR increases your buying power by 37%. Basically, it's almost a wash.

Therefore, if you think interest rate will go higher in the near future, DON'T BUY. If you think interest rate will go even lower, buying now is not a bad hedge.

If you think interest rate will go HIGHER or LOWER from here, please suppport your argument.


This last graph suggests that we have another 22% drop from here. However, it didn't factor in the current historical low interest rate environment comparing to the past. Are we in for a double dip? How many more percent do you think we're going to drop from here?

#housing

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35   gameisrigged   ignore (2)   2010 Jun 25, 7:29am     ↓ dislike (0)   quote   flag      

tatupu70 says

Come on. You can question the strength of the recovery, but there’s no questioning that it is recovering. You have to have your head in the sand not to see that. Consumer confidence has risen, wages are rising, earnings are up, even jobs are turning. Last survey said something like 75% of fortune 500 CEOs plan on hiring next year.
That fact that you can’t see how anyone would think that only strengthens my point that you are refusing to see reality.

Huh? Wages are not rising - where did you hear that? Earnings may be up for the companies that got bailouts (how could they not be?), but small businesses are struggling. Jobs are not "turning" - unemployment is still as high as ever.

36   thomas.wong1986   ignore (3)   2010 Jun 25, 7:42am     ↓ dislike (0)   quote   flag      

tatupu70 says

Come on. You can question the strength of the recovery, but there’s no questioning that it is recovering.

Locally, our last recovery from the dot.com bust as reported by SJMN back in 2005 which state a 4.5% increase in headcount in SV employees. However buried in that article it stated the 4.5% was in other regions outside of the SV. So it turned out to wasted ink and paper.

Before that we had a 91 recession which California was last to the party. It took us additional several years to recover and it was based on private investments to the tune of $150B to make it happen. But that turned out to be rather short lived with too much money chasing too few good ideas.

Overall our recovery will feel sober more like 1993-1997 and not 2011.

37   tatupu70   ignore (0)   2010 Jun 25, 9:27am     ↓ dislike (0)   quote   flag      

gameisrigged says

Huh? Wages are not rising - where did you hear that? Earnings may be up for the companies that got bailouts (how could they not be?), but small businesses are struggling. Jobs are not “turning” - unemployment is still as high as ever.

Let's see. Here's an article I found relatively quickly. Wages have been rising for almost a year now I think.

http://www.marketwatch.com/story/income-growth-outpaces-spending-in-april-2010-05-28?siteid=yhoof

38   pkowen   ignore (0)   2010 Jun 25, 11:30am     ↓ dislike (0)   quote   flag      

Interesting. Scanning these posts it appears it's primarily those invested in rental properties are arguing that housing is on an upswing. Just like some were arguing rents are going up up up right about the time SF rents were being reported as dropping (and as it happens I negotiated a decrease for myself).

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair

39   xenogear3   ignore (0)   2010 Jun 25, 12:49pm     ↓ dislike (0)   quote   flag      

pkowen says

t’s primarily those invested in rental properties are arguing that housing is on an upswing.

At least 50% people on this message board are real estate agents or investors :)
All of them live in Bay Area !!!

These people just like the people who owns the internet stocks in 2000. NASDAQ was down ONLY 40%. They were calling bottoms like crazy on the message board.

When the NASDAQ down to 70%, guess what? They were all disappeared from the message board.

The real estate will bottom when no one talks about it.

40   thomas.wong1986   ignore (3)   2010 Jun 25, 3:48pm     ↓ dislike (0)   quote   flag      

xenogear3 says

When the NASDAQ down to 70%, guess what? They were all disappeared from the message board.

They all moved to real estate by 2001, next they will be selling solar panel door to door.

41   Â¥   ignore (3)   2010 Jun 25, 6:13pm     ↓ dislike (0)   quote   flag      

Goddamit, what don't you understand about the TEN TRILLION HOUSEHOLD DEBT bubble that was blown 2001-2008?

Layered on the household debt was a similar debt expansion in corporate and government debt at all levels.

THIS IS A BALANCE SHEET RECESSION.

THERE IS NO EXIT FROM A BALANCE SHEET RECESSION.

This is NOT bullshit internet stocks blowing up and taking out daytraders.

This is an EXTREMELEY pivotal time in the economic history and fate of the nation. Think of what's going to happen if the Senate Majority leader loses his seat to a Christian Reconstructionist Tea Party twit, Boxer gets booted for Fiorina.

Obama will be a lame duck and that's going to be it for Keynesian intervention. We're looking at a replay of the 1930s IF WE'RE LUCKY.

43   tatupu70   ignore (0)   2010 Jun 27, 10:14pm     ↓ dislike (0)   quote   flag      

UnitedSocialistStatesofAmerica says

If you need to know whether you’ll need an umbrella or not before going out, you NEEDN’T consult a graph for it. You simply look out the F’ing window and see for yourself what the weather’s like.

Interesting analogy. So, you never watch a weather report then? When you leave for work, you just look out the window, right?

44   tatupu70   ignore (0)   2010 Jun 27, 11:55pm     ↓ dislike (0)   quote   flag      

Another report from today. For anyone else who thinks wages are not rising...

"Incomes rose for the sixth time in seven months, boosting household finances and potentially providing fuel for greater future spending."

http://finance.yahoo.com/news/Americans-spend-more-in-May-apf-966568080.html?x=0

45   tatupu70   ignore (0)   2010 Jun 28, 4:58am     ↓ dislike (0)   quote   flag      

UnitedSocialistStatesofAmerica says

Isn’t it an AMAZING concept?
And here’s ANOTHER crazy thing I do; instead of consulting a graph in order to determine if I’m HUNGRY or not, I simply rely on my stomach to tell me. Will wonders never cease?

Again--great analogy. I'd say deciding to eat is pretty much the same as deciding to buy a house...

btw--do you get wet on the way home from work a lot?

46   tatupu70   ignore (0)   2010 Jun 28, 6:17am     ↓ dislike (0)   quote   flag      

UnitedSocialistStatesofAmerica says

No, I DON’T because I always look out the window beforehand to see what the weather’s like.

Maybe you live in a different area than me. Where I live there is very little correlation between how the sky looks at 6AM to how it looks at 5pm

47   tatupu70   ignore (0)   2010 Jun 28, 7:03am     ↓ dislike (0)   quote   flag      

UnitedSocialistStatesofAmerica says

Then may I suggest you look out the window AGAIN @ around 12 pm? After all, THAT’S what a professional meteorologist does right before they flip a coin and prepare the weather forecast anyway

The problem is that I've already left the house. The choice about whether or not to bring the umbrella has to be made at 6AM...

48   Nomograph   ignore (0)   2010 Jun 28, 9:00am     ↓ dislike (0)   quote   flag      

tatupu70 says

The problem is that I’ve already left the house. The choice about whether or not to bring the umbrella has to be made at 6AM…

USSA is a troll.

His first post was a lie, as there was never anybody pumping Vegas RE on this board. He didn't "lurk" on this board for years; in fact he was chomping at the bit so badly to begin trolling that he posted blank comments in the Nursing Home section to get past the anti-spambot four comment rule.

He's just a garden variety troll, and not even a very good one at that. His trolls will become increasingly vitriolic, and he will move away from calling people RE shills and begin accusing everyone of being commie pinko libs who hate America and everything it stands for. They are all the same. A new one comes along every couple months, but they generally don't last.

50   American in Japan   ignore (0)   2010 Jun 29, 10:21pm     ↓ dislike (0)   quote   flag      

E-man,

I don't comment much here. I like this post of yours and find it very informative. (ignoring much of the bickering and name calling following) Thanks!...from Japan.

51   anonymous   ignore (null)   2010 Jul 14, 10:41am     ↓ dislike (0)   quote   flag      

Not sure what the property tax environment is in your specific area, but i know my local gov is cash strapped, and i would have to think that property taxes are going to rise, and that will dissuade people from wanting to buy a house

people have certainly come to question just how good an investment house debtorship really is. with the jobs situation being the mess it is, i don't see young people jumping into massive debt to own a house, you have to desire to be anchored to one spot for an extended period of time, and i'd guess people are rethinking if they really want to be chained to a house, when there's plenty of comparable places to rent.

in order to get to the peak we recently witnessed, it absolutely required the pyramiding, or upgrading of houses over a long period of time,,,,,,,,starter home, small family home, bigger family home. Those starter home neighborhoods are not as desirable as they once were, and while the boomers are downsizing, there isn't a new base of families looking to upgrade, especially with the direction of house equity people no longer hold.

Let's not forget the ravenous pace that HELOC's and the like allowed for expansion in housing. How many 'infestors' were able to leverage to the moon with the combination of rising equity and rising credit availability.

i admit, i look to reinforce my own (negative) view of house price direction. that's what i want to happen, so that's what i see and that's what i seek. I think the only way we get this truck out the mud and get back to house prices going higher is via gov't induced monetary inflation, whatever their gimmicktry/vehicle may be. I do not see where incomes will drive house prices upwards. not that i haven't been wrong before

52   thomas.wong1986   ignore (3)   2010 Jul 14, 2:37pm     ↓ dislike (0)   quote   flag      

E-man says

Thanks to Troy for over-laying these graphs. As shown on the graph and its trend lines, we’re closer to the bottom than the top of the housing market. If you factor in the current low interest rate environment, home affordability in the U.S. should be at historic high.

Now if you can find charts local for each market, like SF Bay Area, you pretty much wind up with SF Bay Area coming down to mid 300K .. and staying there for a long time. So far we havent hit the perm bottom yet. Otherwise yes, you can more likely find great bargins in Vegas and SoFLA.

53   Â¥   ignore (3)   2010 Jul 15, 6:22am     ↓ dislike (0)   quote   flag      

rmm221 says

f we were at 9% tomorrow no one would be buying a home.

$375,000 @ 4.5% is around a $2200/mo commitment.

At 9%, it's $2800/mo. $2200 mo @ 9% would require around $100,000 off the purchase price.

BR had a good post today about how interest rates simply must stay low to keep the game going.

Now, we can argue that .4 may be too high a bar, that with these low interest rates we can get by with more leverage, but at any rate the sheer overhang of mortgage debt to present valuations is sobering, and in-line with my previous predictions from 2007-2008.

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