Comments on: The Next Round of Real Estate Price Drops http://criticalmas.com/2009/02/the-next-round-of-real-estate-price-drops/?utm_source=rss&utm_medium=rss&utm_campaign=the-next-round-of-real-estate-price-drops Blog for Michael Allen Smith of Seattle Fri, 10 Feb 2012 17:20:48 +0000 hourly 1 http://wordpress.org/?v=3.1.4 By: Jim http://criticalmas.com/2009/02/the-next-round-of-real-estate-price-drops/#comment-1249 Jim Fri, 20 Feb 2009 05:51:44 +0000 http://criticalmas.com/?p=2349#comment-1249 Big Picture had a good article on this yesterday: http://www.ritholtz.com/blog/2009/02/homes-still-too-pricey-to-stabilize/ Even good chart porn! :) Big Picture had a good article on this yesterday:

http://www.ritholtz.com/blog/2009/02/homes-still-too-pricey-to-stabilize/

Even good chart porn! :)

]]> By: Matt http://criticalmas.com/2009/02/the-next-round-of-real-estate-price-drops/#comment-1246 Matt Thu, 19 Feb 2009 21:53:10 +0000 http://criticalmas.com/?p=2349#comment-1246 According to the US Census Bureau, the median US household income was $50,233 in 2007. So, the median house price should be in the $150k range (that's about $30k down @ 80% and a mortgage in the $900/mo range @6% if you're escrowing taxes and insurance). If your gross is $4200/mo minus, let's say, 30% in total taxes, your net take home is roughly $3,000/mo. So, that $900 is about right if you want to keep your total mortgage as close to 30% of take home pay as possible (a good rule of thumb in my opinion). The latest median home price data I could find shows that the median US home price right now is $180,100. I'd say that's about right based on this analysis. So, nationally, we're getting back to normal (still a bit out of whack in many areas though). Matt According to the US Census Bureau, the median US household income was $50,233 in 2007. So, the median house price should be in the $150k range (that’s about $30k down @ 80% and a mortgage in the $900/mo range @6% if you’re escrowing taxes and insurance). If your gross is $4200/mo minus, let’s say, 30% in total taxes, your net take home is roughly $3,000/mo. So, that $900 is about right if you want to keep your total mortgage as close to 30% of take home pay as possible (a good rule of thumb in my opinion). The latest median home price data I could find shows that the median US home price right now is $180,100. I’d say that’s about right based on this analysis. So, nationally, we’re getting back to normal (still a bit out of whack in many areas though).

Matt

]]> By: Matt http://criticalmas.com/2009/02/the-next-round-of-real-estate-price-drops/#comment-1244 Matt Thu, 19 Feb 2009 20:40:28 +0000 http://criticalmas.com/?p=2349#comment-1244 I like what Jack is saying. Most companies are valued based on an earnings multiplier (as well as commercial real estate - cap rate). So, too, should residential real estate. I think that multiplier should be household income. The problem (opportunity?) is that residential real estate operates in an imperfect market so there will always be 'irrational' price fluctuations because people make emotional decisions about their 'home' (i.e. American Dream). Until it settles into a 3x household income generally, it (being wherever 'it' is) is over-inflated. When I see homes starting to trade in my area in the $200k median range more often, I'll feel that we're back to 'corrected' valuations (about where they were in the late 1990s, which is where wages still are generally). Then, if wages increase so too shall appreciation (assuming supply stays constant and demand does not suddenly increase dramatically). Supply/demand dynamics and absorption is another topic obviously. I like what Jack is saying. Most companies are valued based on an earnings multiplier (as well as commercial real estate – cap rate). So, too, should residential real estate. I think that multiplier should be household income. The problem (opportunity?) is that residential real estate operates in an imperfect market so there will always be ‘irrational’ price fluctuations because people make emotional decisions about their ‘home’ (i.e. American Dream). Until it settles into a 3x household income generally, it (being wherever ‘it’ is) is over-inflated. When I see homes starting to trade in my area in the $200k median range more often, I’ll feel that we’re back to ‘corrected’ valuations (about where they were in the late 1990s, which is where wages still are generally). Then, if wages increase so too shall appreciation (assuming supply stays constant and demand does not suddenly increase dramatically). Supply/demand dynamics and absorption is another topic obviously.

]]> By: Bernard http://criticalmas.com/2009/02/the-next-round-of-real-estate-price-drops/#comment-1242 Bernard Thu, 19 Feb 2009 17:29:49 +0000 http://criticalmas.com/?p=2349#comment-1242 I wanted to agree with Edward, and also add that property taxes and homeowners insurance are HUGE factors that are going to accelerate the fall in property values. With tourism down, not many people are going to step up to pay inflated mortgages, insurances and property taxes. I wanted to agree with Edward, and also add that property taxes and homeowners insurance are HUGE factors that are going to accelerate the fall in property values. With tourism down, not many people are going to step up to pay inflated mortgages, insurances and property taxes.

]]> By: TigerAl http://criticalmas.com/2009/02/the-next-round-of-real-estate-price-drops/#comment-1241 TigerAl Thu, 19 Feb 2009 16:46:37 +0000 http://criticalmas.com/?p=2349#comment-1241 Bullfinch, Remember what I said about correlation not being the same as causation? Here is a press release that has some interesting information even though it is from Oct 2008: http://www.bankers.asn.au/Australian-banks--sound-lending-practices-have-protected-customers-from-a-US-style-sub-prime-crisis/default.aspx Also, I have not seen any "health checks" done like this in the US (and this release is from 2003): http://www.apra.gov.au/media-releases/03_22.cfm Please note that I'm definitely not saying that Australian lending practices are perfect by any means but they do seem to be somewhat more regulated and stringent than we are. Bullfinch,
Remember what I said about correlation not being the same as causation? Here is a press release that has some interesting information even though it is from Oct 2008:
http://www.bankers.asn.au/Australian-banks–sound-lending-practices-have-protected-customers-from-a-US-style-sub-prime-crisis/default.aspx
Also, I have not seen any “health checks” done like this in the US (and this release is from 2003): http://www.apra.gov.au/media-releases/03_22.cfm
Please note that I’m definitely not saying that Australian lending practices are perfect by any means but they do seem to be somewhat more regulated and stringent than we are.

]]> By: Jack http://criticalmas.com/2009/02/the-next-round-of-real-estate-price-drops/#comment-1240 Jack Thu, 19 Feb 2009 15:23:51 +0000 http://criticalmas.com/?p=2349#comment-1240 Well, to add to it in California what about Santa Monica or Culver City those two Westside "Leave It To Beaver" type areas, or in terms of Culver City "Twilight Zone" most of that series WAS filmed there as it is home to MGM, what made anyone think that houses of an average ideallic American nature were worth 750K? Who was fooling who? Those houses were averaging 75K a pop around 1977 sorry they ain't worth ten times the money - not to my wallet. Let's be real and get out of the fog. That is an example of how far these places have to fall in my view. Come on, time for REALITY CHECK - yes, perfect, where is MADtv I think they could do a show on this lunacy. Well, to add to it in California what about Santa Monica or Culver City those two Westside “Leave It To Beaver” type areas, or in terms of Culver City “Twilight Zone” most of that series WAS filmed there as it is home to MGM, what made anyone think that houses of an average ideallic American nature were worth 750K? Who was fooling who? Those houses were averaging 75K a pop around 1977 sorry they ain’t worth ten times the money – not to my wallet. Let’s be real and get out of the fog. That is an example of how far these places have to fall in my view. Come on, time for REALITY CHECK – yes, perfect, where is MADtv I think they could do a show on this lunacy.

]]> By: Edward http://criticalmas.com/2009/02/the-next-round-of-real-estate-price-drops/#comment-1239 Edward Thu, 19 Feb 2009 15:15:47 +0000 http://criticalmas.com/?p=2349#comment-1239 I agree John. I see FL is collapsing but frankly, what are most average Florida houses anyway but cinder blocks on a concrete slab? Come on, yes location is location but what goes into a structure comes into it too. Cinder blocks on a slab? That is a garage in most parts of the country. The Florida economy cannot sustain very high prices in 99.9% of the state. Florida wages are very low, you have to run air conditioning year, food prices are sky high, crime is out of control and reality is that there is NOT a lot of money there, contrary to what "some" would like the the public to believe - The Town of Palm Beach is part of but NOT the same as Palm Beach County in general - that is a perfect example. I agree John. I see FL is collapsing but frankly, what are most average Florida houses anyway but cinder blocks on a concrete slab? Come on, yes location is location but what goes into a structure comes into it too. Cinder blocks on a slab? That is a garage in most parts of the country. The Florida economy cannot sustain very high prices in 99.9% of the state. Florida wages are very low, you have to run air conditioning year, food prices are sky high, crime is out of control and reality is that there is NOT a lot of money there, contrary to what “some” would like the the public to believe – The Town of Palm Beach is part of but NOT the same as Palm Beach County in general – that is a perfect example.

]]> By: john http://criticalmas.com/2009/02/the-next-round-of-real-estate-price-drops/#comment-1236 john Thu, 19 Feb 2009 13:55:57 +0000 http://criticalmas.com/?p=2349#comment-1236 I can't agree more wholeheartedly with the observations made in this article. I am seeing Florida house prices drop in earnest since just after the 1st Quarter of 2008. The decline has definitely picked up since October. Thanks for the good article! I can’t agree more wholeheartedly with the observations made in this article. I am seeing Florida house prices drop in earnest since just after the 1st Quarter of 2008. The decline has definitely picked up since October. Thanks for the good article!

]]> By: Thomas http://criticalmas.com/2009/02/the-next-round-of-real-estate-price-drops/#comment-1235 Thomas Thu, 19 Feb 2009 13:02:02 +0000 http://criticalmas.com/?p=2349#comment-1235 Look until prices collapse to mid-1975 levels when they were in line across the board and realistic, and you HAD to put 20% down which gives the lender a reason to trust you - you have a valid stake in the property and its value - honest value not Wizard of Oz crap that we have seen lately. Real estate especially in the states of CA and FL is still way out of wack - the owners are still delusional that their shack is worth ten times value, sorry it isn't. Let the foreclosures continue, the banks have to eat it they were stupid or greedy enough to make loans knowing damn well there was NO underlying value, let the people lose their houses they were stupid enough to buy them to be part of the crowd again knowing damn well they weren't worth what they were paying. Just do not look to me - who kept renting, and paid down credit debt - to pay for their stupidity. Look until prices collapse to mid-1975 levels when they were in line across the board and realistic, and you HAD to put 20% down which gives the lender a reason to trust you – you have a valid stake in the property and its value – honest value not Wizard of Oz crap that we have seen lately. Real estate especially in the states of CA and FL is still way out of wack – the owners are still delusional that their shack is worth ten times value, sorry it isn’t. Let the foreclosures continue, the banks have to eat it they were stupid or greedy enough to make loans knowing damn well there was NO underlying value, let the people lose their houses they were stupid enough to buy them to be part of the crowd again knowing damn well they weren’t worth what they were paying. Just do not look to me – who kept renting, and paid down credit debt – to pay for their stupidity.

]]> By: Bullfinch http://criticalmas.com/2009/02/the-next-round-of-real-estate-price-drops/#comment-1234 Bullfinch Thu, 19 Feb 2009 08:54:01 +0000 http://criticalmas.com/?p=2349#comment-1234 You don't need to be a clairvoyant let alone the Doyen of All Things Economic to recognize basic patterns in the market. It boils down to common sense/street smarts; the charts and indexes tell us our collective tit is in the wringer and Fannie and Freddie pretty clearly want a little more CYA in what will be a majorly flagging economy for many years to come. BTW, it is hardly any secret that Australia is one of the hardest hit countries in this national economic downturn, but ESPecially in the housing sector; referring to their superior lending practices needs more citation. You don’t need to be a clairvoyant let alone the Doyen of All Things Economic to recognize basic patterns in the market. It boils down to common sense/street smarts; the charts and indexes tell us our collective tit is in the wringer and Fannie and Freddie pretty clearly want a little more CYA in what will be a majorly flagging economy for many years to come.

BTW, it is hardly any secret that Australia is one of the hardest hit countries in this national economic downturn, but ESPecially in the housing sector; referring to their superior lending practices needs more citation.

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