The Bay Area is the definition of overvalued real estate market. Who, exactly, is going to buy this house? A Startup worker who just struck it rich? :rolleyes:Quote:
Originally Posted by woodstocksez
Printable View
The Bay Area is the definition of overvalued real estate market. Who, exactly, is going to buy this house? A Startup worker who just struck it rich? :rolleyes:Quote:
Originally Posted by woodstocksez
At least you've got a positive attitude and outlook on this... :)Quote:
Originally Posted by coreshot-tourettes
Curious where your knowledge/experience on the 10% remaining value in commercial is coming from? Also, when you suggest a 50% drop in prime residential areas, are you saying you think that's from todays already lowered values, or from the paper high back a couple years ago? I know the fringe areas have probably already hit that half off point, but where do you see the current drop in these "prime" areas so far?
That's some serious wreckage you're forecasting there, Monsieur Tourettes. Hope you're wrong.
The foot traffic in and out of that building is at a crawl now compared to when I started working across the street. I know a number of the tenants are dumping/have dumped space over there, interesting to see what happens in the next year under the new owners.Quote:
Originally Posted by GoEhuge
I'm still trying to figure out how far the residential market will drop here. A coworker just lost a bid in Melrose offering $15K above ask. I'm looking to buy in the next few months, but still cautious because it doesn't seem like it's dropped as much as it should have yet.
Houses have to hit 2.5x incomes in order to stabilize. Overshooting to the downside is a given. Nationally, we're at 5x incomes as of right now (Feb 2009). A 50% fall from current levels is what I'm targeting, and the last time we were at 2.5x present income was 1995. In my county, we went from 240 home sales in the month of Jan 2008 to NINE in Jan 2009. The upside is that RE recoveries are not L shaped, so you will have 7-10 years to pick the real estate bottom and buy. Rent for the next couple years. You'll know the bottom is in when "conventional wisdom" says that a house should no longer be considered an investment. Also expect to see bulldozing vacant housing developments to become mainstream "to increase residential RE prices", as simply decreasing interest rates isn't working (can't force people to take out a loan, so destroy the supply).Quote:
Originally Posted by mocwvmit
Commercial RE, of course, is worse. You've got some major players like GGP that are already zombies, and at vacancy rates of 18% and rising, owners aren't going to be able to service short term CRE loans of 5-7-10 year maturities and will go into default very quickly. Sqft inventories in major metros are huge, with years of supply in some places. CRE demand is elastic, so in order to deal with that giant inventory prices will have to drop precipitously, just to keep people in the building.
You'll know this bomb is starting to go off when you see churches renting spaces in malls and industrial parks (which is where that last 10% is going to come from).
Done? Har.
Come on over to Westchester County and try to buy a house if you're a mere mortal without a trust fund. There was an article the other day about how young people were so overjoyed about finding a decent one bedroom in NYC for less than 2500. That will be changing soon, too.Quote:
Originally Posted by Hugh Conway
I'd say Miami and Las Vegas (and some places in Arizona?) were better definitions of an overvalued real estate market. But, yeah, lots of parts of the Bay Area have declined significantly in value from the peak, some pretty dramatically (50% or more). Of course, a few haven't, based on the last data I remember seeing. Nice to own there, hunh? Save your pennies.Quote:
Originally Posted by Hugh Conway
Co-workers of the people who just bought the house down the street. I'm sure you know them because you know everybody in the Bay Area. And I'm sure you knew that because you know everything about the Bay Area.Quote:
Originally Posted by Hugh Conway
A CPR 2002 prediction, for old times sake.
http://www.cepr.net/documents/public...ng_2002_08.pdf
Only suburbia in bay area was grossly overvalued. I dont think its dropped much in price in places like the city, marin county, silicon valley area. Main reasons is all of those areas have Jobs. The other reason is there probably isnt a better place to live in the united states. The Ocean, mountains, gambling, beautiful city and did i mention its sunny 90% of the year. Theres a reason its expensive here. Its a great area to live and there are jobs. Layoffs are massive right now but biotech, tech and healthcare jobs are everywhere. The only buddies i have that are having problems getting jobs are management type and sales. Everyone i know at work that got laid off picked up a job rather quickly. Alot had to take a 10-20K paycut though. Great time for employers to lowball which they were due. we've been high balling them for years. But most said buddies refi'd there houses and can easily afford a 20K paycut.Quote:
Originally Posted by woodstocksez
Started reading it... but it's way too long. Please just tell me how it ends... was there a bubble? :redface:Quote:
Originally Posted by Benny Profane
my house is still for sale....rented right now. The market in the area is starting to thaw a bit. I have it leased until September, then maybe lease it again for 6 months, til spring next year and then try and sell it again. I dunno, just want it gone.
My house in Truckee is coming up on 2 years on the market and is a positive cash flow property.
From yesterdays WSJ.
http://online.wsj.com/article/SB123853857749575441.html
Quote:
Home Prices: Low, But Still No Bargain
Forget low mortgage rates and the buyer's market. Real-estate prices still have a long way to fall.
By BRETT ARENDS
Homeowners are watching anxiously for any signs of housing market stabilization. So, too, are all those who believe the market may hold the key to the economy.
And yet the most recent data makes for more gloomy reading.
The closely watched Case-Shiller index, which tracks prices across twenty major cities, shows that through January the crash was getting worse, not better.
And yet, even after these declines, homes overall still may not be that cheap relative to wages. More on that later.
The headline numbers are grim enough. January's Case-Shiller index showed a 19% slump from a year earlier. The usual suspects fared very badly: Phoenix was down a remarkable 35%. Las Vegas fell 32% and Miami 29%.
The crash has really spread, too. Minneapolis is down 20% and Chicago 16%. San Francisco, which had held up pretty well, has now turned in spectacular fashion. Prices there have fallen 32% in the past year, worse even than San Diego or Los Angeles.
San Francisco prices fell 11% in the last three months alone, according to Case-Shiller.
New York is down 10% over the last year, including a 4% decline in the last three months. That is still better than the average. Whether the market can withstand the crisis on Wall Street and widespread layoffs there remains to be seen.
How much further will prices fall across the country? Nobody knows, of course. But history says the bigger the bubble, the bigger the crash.
Those "professionals" in the market continue to be wrong-footed. Early last year I wrote that even though prices in Florida and California had collapsed, those markets were still overvalued. Naturally I was on the receiving end of lots of angry emails from real estate brokers who told me I was an idiot (or worse). Events since then have borne out my analysis.
(Incidentally: During the bubble, did a single broker ever complain to a media outlet that reporters were being "too optimistic" about house prices, or were "talking the market up" during a dangerous mania?)
House prices nationwide have now fallen about 30% from their 2006 peak. At these levels the contrarian, inevitably, starts to wonder if they have fallen far enough.
Certainly there are great deals out there. It is a buyer's market. The aggressive and opportunistic can probably find the worthwhile bargains.
But for the market overall the picture isn't as hopeful as you'd like.
Even today, prices overall have only reverted to levels seen in late 2003. Yet by that stage the bubble was already well inflated. You would expect a crash of this scale to retrace its steps much further. To find pre-bubble prices you have to go back to about 2000 – when values overall were about a third lower than they are today.
It's true that mortgage rates, now at 4.5% to 5%, are currently very low. But relying just on that is far too simplistic. Rates were also low from 2003 through 2005 – as many pointed out, disastrously, at the time.
Is there a bullish scenario for house prices? Sure. If all the government spending to turn around the economy reignites inflation in a year or two—as some predict—house prices could begin climbing again. But if the current price deflation continues, look for house prices to keep dropping.
Over the long term, average home prices have tended to track average earnings. And by this measure the market may have much further to fall.
I looked at Case-Shiller's index back to 1987 and compared it to federal data on average earnings. The result, rebased to 100 in January 1987, can be seen here. And it's alarming. By this (admittedly very simple) measure, today's home prices are actually more expensive, in relation to average earnings, than at the peak of the 1989 property bubble.
Equally noteworthy is that when the last property bubble burst, it took about eight years before the market showed really strong signs of revival. This bubble was far, far bigger.
ATM, absolutely correct. Buying now is a terrible financial decision if you want to sell anytime in the next 10 years - to say nothing of "investment" properties. Given that the current thesis is asset deflation, staple inflation (houses fall 50-60%, bread doubles), if you're a landlord how are you going to keep up your property when market rents fall 50% but copper pipe and drywall double? Think about that now.
Don't forget that they're going to correct down to 2.5x gross income, which *right now* means a drop of 50% in residential RE, but because incomes are likely to decline MORE due to people getting laid off, we might see a 60% or more drop from current house prices. Not even kidding. If you haven't factored this in, best do so now because it's coming. If you need to sell and are waiting for "home prices to recover", sell now for what you can - or wait 10 years to get your money back.
And if through all of this you've not even considered having 20lb of rice, 20lb of beans, 20 lb of lentils, 5lb of peanut butter, medical supplies, 1 month of cash, and 15 gal water (1 tsp bleach per 10 gallons) stored away in sealed containers, you're well behind the curve and need to start on that *now*. Not kidding. Go spend $60 at Costco. I'll sleep better.
Just curious, what is your background?Quote:
Originally Posted by coreshot-tourettes
edit - where did you get the 2.5x earnings?
Should I pick up gas masks, iodine tablets and an assault rifle while I'm out?
hurry before obama bans them. go out today and don't forget the duct tape.Quote:
Originally Posted by iceman
No point. Ammo all sold out.Quote:
Originally Posted by iceman
im going to have to call bullshit, hehe. I just paid only 2.x my income. They already did drop below 2.5x. Have you even looked at house prices? :confused:Quote:
Don't forget that they're going to correct down to 2.5x gross income, which *right now* means a drop of 50% in residential RE
These macro trend discussions are very interesting, but I am seeing some drastic differences between markets. Real estate is still all about location.
cramer, you ninny. Home prices are going to correct down to 2.5x gross income, which is AVERAGE home price divided by AVERAGE gross. Not you personally. Could I go find a decent house now for 1.5x my gross income? Sure. Does that mean home prices have corrected? No.
Again. Average home price divided by average gross (nationwide) reaching 2.5x or lower will signal we're close to a bottom.
2.5x to 3x income is simply the rule of thumb that's been around for years on how much house you can afford. Don't
ask why, it just works.
And it doesn't matter WTH my background is (though you might be able to tell I'm a safety engineer by my avatar). When various states' tax revenue crashes this year or next, do you think that living in a mountain town you're going to get dug out next winter faster or slower? Having 3-7 days of canned/dry food and water, flashlights, and other basic stuff is simple common sense and costs virtually nothing. Owning a gun depends on your own personal choices, sense of responsibility, and local laws - so of course it wasn't included.
Pete, I agree it's still about location, but my thesis is only that it's not going to correct until you see "home is simply a place to live and not an investment" become mainstream, "houses are an investment" cheerleading die, and average home prices correct nationally down to 2.5X average gross income. Correction down to 2.5x gross don't mean that rich people making $4M gross won't find great locations or markets to buy their $10M houses in, it means that it will be a $10M house instead of a $20M house.
Quote:
Originally Posted by coreshot-tourettes
Ummm... OK.Quote:
Originally Posted by coreshot-tourettes
Hey, can we have an admin change the thread title to "Real Estate Crash Thread & Survivalist Training" ASAP?
there is no need to get butt hurt about it. if your employment had anything to do with the real estate industry, your words would carry more weight.Quote:
Originally Posted by coreshot-tourettes
being a safety engineer reveals a lot about you. you probably are very risk averse and tend to over analyze things. look at specific numbers vs the overall picture. averages, etc etc. real estate is about location, and the front range is starting to look ripe for investment.
I am in the real estate industry and in the trenches every day btw. you go off of reports and numbers that lag behind what is happening in the now.
there are still people making money out there despite what the news tells you, and people like to spend a little more on a better home. 2.5x earnings is a thing of the past.
mocwvmit, it's just common sense to have supplies around. It's a fact that tax revenues are going to decline, and public services like snow removal are going to get cut - hell, they've already started cutting snow removal in my state. So, thus endeth the thread drift. Back to the regularly scheduled crash thread.
Yeah, I think getting housing prices closer aligned with incomes is happening broadly, but I think the "home as investment" thing is not entirely going away either. Look at how shitty americans are at saving now -the government has to push housing as an investment - and their support of it through tax incentives proves my point (no way is that changing). I don't think we're going all the way back to Glen Beck's chart of "since 1890" or even all the way back to the 1950s - the US economy itself has changed and consumer behavior leads more than ever, that's how this is going to settle in. I don't have the specific predictions that many folks have, but I do know that people will still want to own houses, rent houses, and move from home to home for various reasons - and nobody wants to get fucked in their pocketbook during any of those phases.Quote:
Originally Posted by coreshot-tourettes
"2.5x earnings are a thing of the past."Quote:
Originally Posted by H0G
"DOW may go to 36,000!"
"The subprime mortgage defaults are contained."
See a pattern?
I know there are people out there that are still making money, I'm one of them. Shorting REITs, whee! :) 2.5x earnings is what I've targeted as I think we're going to overshoot to the low side as layoffs hit, salaries fall, rents fall, and people reach debt saturation points. If you as a realtor can get people into houses, you make money anyway (regardless of if they can pay the loan). So you're fine and will continue to be fine, they saved your butts when they jammed the $250K FDIC limit and stimulus through to get LIBOR down and prevent a bond market dislocation. If that had blown up, house sales would be settling in cash on the barrelhead right now. :)
That is what the realtors around here were touting. House prices were holding, but the length of time on the market was getting longer and longer. That has now translated into falling prices. A 1 bedroom condo in glacier was listed at 179k 2 years ago, then 189k a year ago, now listed at 114k. Long market times = denial about falling prices.Quote:
Originally Posted by Platinum Pete
Some markets are holding up better than others. Many just took longer to start falling.
I somewhat agree, but also note the most excellent turnaround in the USA savings rate (from negative to +4%) as people stop spending. They haven't fully realized that with interest rates at near zero and stimulus money getting stuffed in, inflation is going to diminish the value of their savings anyway.Quote:
Originally Posted by Platinum Pete
Exactly. If your local market has some desirability, it's going to take longer to fall. We're just seeing this start now in desirable areas like NYC and CO.Quote:
Originally Posted by grrrr
the inflation bit is going to get to people, and fold back onto the consumer behavior, and the general populations long term habits with savings - then blam-o people will want to get back into making money wi9th their money again. Here comes "owning a place of my own, not throwing money away on rent" mind set rushing back in. My view on the bubbles in the stock market or real estate market are like a person getting huge fat - they go through a miserable crash diet and get skinny again, but the capacity is still there and they creep back to that bloat. We'll see this again and it won't feel so bubblicious - look at the Dow, we're at the levels of 97, 98, 02 - and this is being called the depths of the worst crash since 29.Quote:
Originally Posted by coreshot-tourettes
Hell, there are some people calling for a fall to Dow 3,000 levels. I think it would take a major Black Swan to get us there, and that event isn't tradeable.Quote:
Originally Posted by Platinum Pete
yeah i do. I only said one of those things. I need to start quoting your posts bc you keep changing them every time you find a new figure on the interwebs.Quote:
Originally Posted by coreshot-tourettes
Prices in Denver have been falling for quite some time now. Some areas are even on the rise. It just depends on the location. I am not a realtor btw, but thanks for playing. But I did sleep at a holiday inn last night.
If you're actually trying to profit by shorting REITS (whee!), then you're a big part of the fucking problem. Stop spending your time trying to propogate fear on the Internet and make sure someone's hand doesn't get caught in a machine.
If I decided to take a complete bath and low ball my house and get the fuck out.....how would/could I come up with the money to pay the amount I would be upside down?
House was bought for 260k....gave up trying to sell it and rented it when the price fell to 230k roughly. I don't have 30k or more sitting around that I can just write a check for...(see: bought a house in Vail). I really want to be done with the thing but don't want to go broke just to be done with it either.
If I change something, it's because I doublechecked my data. How's your 401k doing, BTW? If someone's book is up 20% instead of down 40% (not me, but a guy I follow), that's a pretty solid indication that they understand the way things are swinging better than permabull "old rules don't apply anymore" realtors.Quote:
Originally Posted by H0G
We're all just shouting into the wind anyway. Best of luck to you.
Housing starts are running 400,000 annual rate this year. That's less than half the long term average. Prices may stay low but at that rate there will be a shortage in a few years.
REITs were going to go crunch anyway, why not profit from it? Virtually everyone knew it was coming since 2007, if not 2005, (except the realtors. My "short like hell" signal was the premiere of the show "Flip This House!"). :)Quote:
Originally Posted by DictatorShooter
If you're upside down on a positive cashflow house, keep it. Asset's an asset. Upside down, negative cashflow, keep it if you can ride it for 10 years. Rents may bounce back or they might not. Otherwise, your lender might be amenable to a reduced principal if you have to sell, so call them and
try to get a principal reduction, I don't know if CO has that program in place. Also try and find out if it's a recourse loan.
Word on the last. My test run just finished. Out.
Shouldn't this depend on prevailing interest rates? Sorry for asking why.Quote:
Originally Posted by coreshot-tourettes
Also, I don't eat lentils. Am I fucked?
Housing starts are zero in my community. Literally. I have been tracking it to try to figure next years tax projections. Last month the building division in this county of 190,000 issued zero building permits. Zero.Quote:
Originally Posted by 4matic
There are 206 houses on the market in a population of 8600. There will only be a shortage if all those prices fall to where the current market can bear them, and somehow lending in the next few years returns to easy money allowing the rental crowd to start buying. While the first might happen, I really wouldn't count on the second occurring in any big hurry.
20 pounds each of beans and rice won't last you a month. All c-t is advocating is that when state and local governments are literally broke, we should all be prepared for short-term disruptions to public utilities and government-provided services, including infrastructure.Quote:
Originally Posted by mocwvmit
Let's say the water stopped running in your house for a week. What would you drink?
Let's say the electricity in your area goes off for a week. What do you do about all the food in your refrigerator? Can you cook food? Can you heat your house?
Let's say that there's a financial dislocation and credit cards and ATMs stop working for a week or two. How do you feed yourself?
Let's say the local supermarkets stopped getting food deliveries for a week or two. What would you eat?
And let's say you're prepared for minor disruptions like this. Most people in your area won't be. What do you think they'll start doing once they get cold and hungry and thirsty? How will they act once they realize that you're not?
We're not talking about complete societal collapse AT ALL. We're just talking about what might happen when we have to start dealing with the sort of short-term disruptions the rest of the world has to deal with all the time. You know, the stuff you see when you're a tourist in the Second or Third World.