patrick.net

> What year, in the past, best describes where you think home prices (nationally) should be… > 2002/2001/2000/1912/????

Sure, 1912 :-)

I think this is the bottom if current conditions remain.

Clearly we're at some sort of equilibrium now as prices are at 2003 levels.

It's all the doom stuff that gives us a further downside from here, and you can't model those effects.

What if 2011 is worse than 2010? Entirely possible. We'll get another leg down going.

What if the yuan doubles to 3 and gas goes to $12/gallon? Say goodbye to home values outside oil-producing areas (and areas Chinese want to buy).

What if government goes kablooey and the 20M+ government jobs get cut 10 or 20%?

The key thing for me is I just don't see any agencies of recovery. "It's time to recover now!" doesn't really work, as the 1930s demonstrated, and as have Japan's experience with a balance sheet recession.

One thing is clear though, and that's the 2004-2007 period was unsustainable. I think we're still running on fumes to support 2003 prices.

Now the Republicans are even campaigning against the Fed's money drops coming next year.

This place is insane.

I would say 1996. You could argue inflation would demand a higher price level, but we haven't had wage inflation for ten years. We are, through lays-offs and gov/Corp austerity, overall going through wage deflation to some extent. If interest rates rise significantly affordability falls. Is this really an environment you would expect a strong real estate market? Guess we'll see. I won't be looking at places at today's prices. Still too high. Just my two cents.

Interest rates won't rise without inflation. The fed won't allow it.

If you are making any decisions based on the idea that we're going to have high interest rates without inflation, you're making a big mistake.

Dunno about other places, but just for my county... I'd say 1998, though 2001, even 2002 price is acceptable to me.

You can call me a dreamer or anything, but I personally think average family that earns average HH income should be able to buy a condo at 2X HH income, at 2.5X for a townhouse, and at 3X for SFH. I am talking about ordinary mid level 3/2 in the area. Average 3/2 SFH price to average HH income ratio back in 2000 was about 3 in my county. That become 5.5 in year 2007, and is 5 now. So that means home price is acceptable when, either the home price crash down 40% from here, or HH income goes up quite dramatically. Which I don't think is happening here any time soon.

seaside says

average HH income should be able to buy a condo at 2X HH income

~$110,000? Thing is, over the life of the loan that's MUCH cheaper than rents, so renters will push purchase prices past that if banks can give them the money, and for good reason.

A 1000' condo costs around $200,000 to build. It has a life of what, 75 years? Wanting it for $100,000 seems a non-starter -- the monthly payment is around $1000/mo. $12,000 housing expense on a $55,000 income is just too good a deal for that to last.

The only way to get some daylight under prices is for supply to be in oversupply, and just about the only way to do that is for the gummint to pay to have lots of new condos built at cost : )

deanrite says

I would say 1996. You could argue inflation would demand a higher price level, but we haven’t had wage inflation for ten years. We are, through lays-offs and gov/Corp austerity, overall going through wage deflation to some extent. If interest rates rise significantly affordability falls. Is this really an environment you would expect a strong real estate market? Guess we’ll see. I won’t be looking at places at today’s prices. Still too high. Just my two cents.

I think you mean we haven't had real (inflation adjusted) wage inflation for ten years. But houses are priced in nominal dollars, not real dollars. So to compare apples to apples you need to look at nominal wage inflation--which has definitely been greater than zero.

Troy, 110K is average HH income in my county, not a condo price should be I was talking about.

I don't expect condo price getting lower to 110K, that will be me expecting too much. The thing I want to see is, current 350K garden style 3/2 1150sqft condo in good location that used to be 140K back in 2000, 420K back in 2007 is becoming 250K or something. (which I don't think is happening any time soon though). Back in 2000, average HH income was about 82K/yr in the county. So, basically what I am saying is I can take over 60% appreciation in 10 years even if the wage increase for the same time period was about 30%, and I am willing to pay 110K more than 2000 price. Do you think its not reasonable enough?

seaside says

Do you think its not reasonable enough?

You're not accounting for the fact that interest rates are about half what they were in 2000. This is artificially boosting areas that aren't as hard-hit as LV and other over-built disaster areas.

current 350K garden style 3/2 1150sqft condo in good location that used to be 140K back in 2000

Back in 2000, interest rates were 8.5%. Now they're half that. Back in 2000 the conforming limit was $252,700, now it's $417,000 or $730,000 depending on the area.

As you note, people who have jobs have seen salaries rise 20% since 2000, too. Left alone, this rise in monthly income will not be evenly distributed among all consumption, it will tend to go entirely into housing (at least if the theory of the "All-Devouring Rent" is true).

$350,000 @ 4.25% has an initial monthly outgo of $2000, but over the 30 year life of the loan the average monthly cost (not including amortization) is $1150, plus another $630/mo for the loan payback.

The $630/mo though is a form of savings and shouldn't be compared against rents, but against other forms of savings.

$1150/mo housing cost doesn't strike me as particularly out of line with the median income, or rents for that matter.

If history is any guide inflation will continue and rents will be $3000 within 30 years.

Troy, believe me, this is my local market, and I have some idea about it. No offense intended, but things are not working that way in the area. If it works that way, I would be a nut who is renting apartment with the kind of money made me able to live in much better home that I can actually own. I do have quite different view on some financial concepts such as forced saving etc though, that's different issue, I think. :)

Anyway, I think this thread is about hearing where the home price should be, so that's my personal version of the thing should be. That's about it.

late 1990's

1999

I'll guess 2013 - 2014, and that prices are back to 2000 level.

But I hope to buy before then.

marcus says

History shows that during the 70s when the cost of many consumer items doubled, and inflation was very high, housing was barely going up because of increasing interest rates. Housing was pretty flat during this time

Only in inflation adjusted terms. The actual price of a house went up significantly...

Troy says

Clearly we’re at some sort of equilibrium now as prices are at 2003 levels.

??

Looking at Troy's chart above. Why is that clear ? I thought it was clear that extreme measures by the government stopped the free fall. (ie. tax credits and support of mortgage market (availability of credit and purchases keeping rates lower than they otherwise would be).

So that's equilibrium, and it will take terrible news to take things lower. Really ?

I would say, maybe we are just past the inflection point. And the rate of decrease going forward will be nothing like it was in 2007 to 2009.

marcus says

Yes, I guess in some regions, but then not in others. But you are right. Although there were a couple 3 to 5 year periods of nice downswings (flat to decreasing in real terms).

I just meant that the chart you posted was in real prices (inflation adjusted). So for the US in general, prices rose significantly in the 70s.

tatupu70 says

I just meant

I understood what you meant, and I said you were right.

My best guess of the next several years. (just a worthless guess).

See Troy's chart above.

marcus says

tatupu70 says

I just meant

I understood what you meant, and I said you were right.

ok--my apologies

marcus says

So that’s equilibrium, and it will take terrible news to take things lower. Really ?

I would say, maybe we are just past the inflection point. And the rate of decrease going forward will be nothing like it was in 2007 to 2009

I generally agree with your future estimate above.

Unknowns are how many QEs the Fed has in them. QE2 is getting demagogued all to hell and it hasn't even started yet.

But we are by any means out of the woods yet. No jobs, no inflation, no recovery.

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

and

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

and

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

and

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

are pretty ugly in their confluence. If the Republicans start walking their talk, they're going to want spending cuts -- which have to hit health and education since military spending is holy -- when they take over next year.

Hello 1937.

Or if that was just their usual BS and they just want tax cuts, then the debt pileup is going to be interesting. China has already stopped buying treasuries I guess.

http://www.ustreas.gov/tic/mfh.txt

Hello $10 gas and $5 hamburger.