when do you seasoned veterans of the re industry think the house prices will start to appreciate?
when would be the best time to buy a house in california?? next year?
Ask that question of five real estate “seasoned veterans”, as you call them, and you can expect to receive five different answers.
No one can say for certain when the market will turn. It’s an educated guess, at best. Instead, focus on buying right in today’s market and you’ll do fine.
I’ll give you MY opinion…
We just went through a real estate boom that made the rise after WWII look like a ripple in a pond. Go to www.itulip.com and look at their charts of U.S. housing prices going back to the 1920’s. Take a good look at it…It will take YEARS for this thing to unwind. Those charts are some of the scariest I have EVER seen, and I’ve been doing this for over 20 years.
A LEGENDARY real estate investor named Sam Zell built a MULTI BILLION dollar fortune by buying real estate during down turns and selling during booms. HE JUST SOLD VIRTUALLY ALL HIS COMMERCIAL HOLDINGS…I’ll give you all ONE GUESS, who bought them???
…PRIVATE EQUITY!!!
Now go immediately to Google and look up " Bank of International Settlements warns of depression"
This isn’t some off shore bank that sells newsletters, this is the CENTRAL BANKERS, Central Bank. When these guys start worrying about liquidity because of the various EASY money lending that’s gone on for the last 7 years we ALL better pay attention.
The question isn’t when are housing prices going to RISE? It’s how far are prices going to FALL? In my opinion we haven’t even seen the BEGINNING of this unwind. Cash is KING, those who have it will, in the next few years, be presented with buying opportunites that our grandchildren will look back on and just be amazed. I live in Southern New England, in todays paper they have 10 FULL PAGES of foreclosures, (over 250!) it’s so big that they now devote an ENTIRE separate SECTION of the paper to it EVERY WEEK! Right now those banks are biting the bullit, but that will only go on for so long. In 2008 the pain is really going to get bad and they (the banks) WILL throw in the towel. Why do we care??? because when those banks decide to unload watch out below!!
Combine that with the article I hope you read from the BIS and things look very ugly.
This is the part were the “Chicken Little” analogies start flying. Let 'em rip. I’ll build my cash, and keep anyone here updated who WANTS to know.
Get your plans in order and your cash set aside.
DITTO! As usual, I agree with petemfa. Historically, after a boom-bust cycle, it takes 8-10 years for inflation adjusted prices to reach their previous highs.
Mike
Here are some quick thoughts as to why I am not nearly as pessimistic as some others…
First, the DJIA is typically a leading indicator. RIght now, the DJIA is doing well.
Second, unemployment is low.
Third, to just look at “housing prices” since WWII is misleading. Houses have just gotten bigger with more features. A house that is 2-3X as big should cost 2-3X as much.
Fourth, it goes without saying that prices have gone up because affordability has been increased with the introduction of the 30-year loan in the '30s. I’m not going to debate whether a financing option makes something more valuable, but I do think that 30-year loans played a role in prices going up, and 30-year loans are not going away.
Having said this, I know that some areas are hurting, and some are only hurting a little. But the idea that housing prices are just going to plummet…well, I just don’t see it.
“The man who brings an umbrella to work every day looks like a genius when it unexpectedly rains.”
Paul,
I’ve read a lot of your posts and you always give excellent advice.
Very good point about the size of houses now compared to WWII.
I have to disagree with you as far as the DOW being a LEADING indicator. I know what the books say about the averages usually leading by 6 months, but go back to August of 1929, that market looked good. Same thing in September of 1987. Crashes occur because EVERYTHING LOOKS OK. If it looked like Sh*t no one would be in those markets. Remember how quick the dot com bust happened? The interesting thing is how these markets decline. They don’t just drop. They fall, then come roaring back, (anyone here remember March of this year???) the people who pulled the plug look like idiots. Then the market goes even higher. But it falls back again, NOW they buy MORE!!! Then just when everyone feels SMART the bottom drops out.
Great book out there called “Markets, Manias, and Bust’s, a history of financial disasters” This stuff happens over and over because PEOPLE NEVER change and the markets ARE the people in them.
As far as WWII pricing goes let’s take an example closer to home and our time. My friend has a small 3 bed 1 1/2 bath Cape in a nice neighborhood. He paid $80,000 for the house in 2001, it wasn’t a steal, he paid market price through a realtor. 6 years later that house, and ones near it, sell for $250,000. Has ANYONE here received a 300% raise at their job in the last 6 years??? His 30 year mortgage had nothing to due with that price increase. What did was GREED, HOPE and FEAR!! The three horsemen. Plain and simple. Come on, you guy’s didn’t forget the stories already???
You know the ones…from 2001-2005
Get in now because next year that same house will be $25,000 more. (FEAR)
Realtor says… “We have 3 offers over asking already, it just went on the market this morning, all I can say is put in your best number and (HOPE) for the best.”
Did you hear about my neighbor?? He made $100,000 on a pre-construction condo in Florida, he never even saw it!!! We should buy 2!!! I have a realtor friend down there she said If we wire her $25,000 TONIGHT she can get us in on a new phase 1 project in Del Boca Vista!!
They’ll all be sold by tommorow morning, so we need to move fast.(GREED)
Not one single sentence of that is not true, it ALL happened, I watched it, heard it, and saw friends buy into it.
Now we all pay for it. Some of us will just make MORE than others because of it.
If you look at the appreciation of homes over a 80 year period it averages about 6%/year. In the past 6 years that house should have increased to about $140K to $150K in a normal market, but it didn’t, instead the MANIA took over and inflated that price by another $100,000. It has NOTHING to do with the size of the house, this example is a 50 year old 1300 sq. ft. CAPE.
No disagreement that there are markets where prices are higher than they should be, but not every house in the country has seen that sort of appreciation. There are places where there will be price declines, and there will be places where prices will remain stable or even go up.
For me, I look at rents relative to mortgage payments. In my case, my mortgage payment is about $2,700 a month. If I were to rent my house, it might rent for–I’m just guessing–about $2,000 a month. Because I foresee modest appreciation and because most of that mortgage payment is tax deductible, my true cost of ownership is much lower than $2,700 a month. Result: I am better off owning than I am renting.
I think where you have issues are markets where a mortgage payment on a house is, say, $4,000 but the property would rent for only, say, $1,500 or less. Here the “value” of the property is clearly based more on what people can afford to pay (when financed) as opposed to what it’s really worth. In a case like that, I think you’d be better off as a renter at $1,500, enjoying the use of an asset that is supposedly worth $700,000.
Not every market is like this, however. I know mine is not.
It seems pretty clear that the sub-prime market was responsible for a lot of the recent price increases. Houses were being financed like cars, with buyers focusing only on “the monthly.” Who cares what it costs, the only question that was important was, can I make the monthly?
Now that this financing option has been taken away, a somewhat meaningful chunk of the buyer pool has evaporated. And given that this chunk was probably among the less financially educated, the sellers are sorry to see them go.
Having said that, the entire market was not driven by sub-primes, and not all sub-primes are in default. My thinking remains that certain markets will suffer, others will stay neutral, and some will just continue to thrive. I just don’t think that real estate will crash universally across the whole country.
Good discussion. I agree with Paul. Real Estate should always be viewed as local in nature. Know your markets and act accordingly.
Petemfa, while you seem intelligent, your promotion of itulip disturbs me. Obviously, this is a liberal alarmist website. Mahmoud Ahmadinejad, Iran's leader, was directly involved in the 1979-80 hostage crisis, and he took British soldiers hostage this year. He is refining uranium as fast as he can and, as an open supporter of terrorism, will have nuclear missile capability within a few years. Since there are Americans who are tired of our war with Iraq (which is really with Iran, where do you think the money, arms, troops, clothing, food, and military strategy for continued resistance is coming from?), and since there are liberals who are more than happy to placate them, people want to believe that Al qaeda, Jihad or the Taliban can be ignored. This is a very dangerous opinion. If enough people adopt it, your real estate will be worthless indeed after their next attack on American soil.
Alan Greenspan noted "irrational exuberance" in the real estate markets in America, and, I believe, his observation proved correct. After one year of the Federal Open Market Committee keeping the prime interest rate steady, the overvalued markets seem to have corrected.
Nationally, builder confidence is lagging, sub prime mortgage companies are being investigated, and inventory is high, but a federal regulatory agency, the Office of Federal Housing Enterprise Oversight reported that average U.S. home prices rose 0.5% in the first quarter of '07 from the prior quarter, but that this is the lowest rate of appreciation in 10 years. Those figures have been disputed by other index tracking entities, but undeniably, home prices are appreciating in Seattle, Manhattan, Charlotte, Portland, Atlanta, and Dallas.
Interest only adjustable rate mortgages, almost unheard of in the jumbo loan market in 2002, account for 20% of jumbo loans now. Meanwhile, traditional fixed jumbo loans have dropped almost 40%. These changes should contribute to property appreciation.
I believe that Paul is right that many people no longer care whether they can afford to pay off their home, just whether they can afford to make the monthly payments. This also should contribute to property appreciation.
I agree with Petemfa that the DOW is not a reliable indicator for the value of real estate. The 1986 DOW crash, in my opinion, did not cause the subsequent real estate crash cycle, changes in tax law did. When the DOW crashed in '00, I believe that people took their money out of paper assets and started investing in real estate instead. Future problems with mutual fund fraud or securities/commodities market downturns will probably result in the same effect.
Scarcity and demand will continue to drive appreciation in California's real estate market.
Funder,
I don’t promote Itulip any more than I promote many of the books I’ve read in a life time and referenced in my posts. I simply point out the info available there and let people make their own judgements. Itulip has a track record of being right on a lot of their predictions, that, and only that, make it worth reading to me. Couple what they’ve been saying with the recent DEPRESSION WARNING from THE BANK OF INTERNATIONAL SETTLEMENT and that’s pretty good info in my book. I do agree with you that itulip takes it too far, that doesn’t mean FACTS are not FACTS however. The thing I do is to use various “outlets” of information then cross reference them against another source. The charts on Itulip are VERY informative and I’ll continue to mention them just for the beneifit of other readers here. But, take it with a grain of salt. It’s ALL opinion when you boil it down. Charts and stats can say whatever YOU want them to say. One question though?? Where in Hell’s creation are prices increasing in California? My brother lives and invests out there and it’s a blood bath. Foreclosures are through the ROOF! (HIGHEST IN THE COUNTRY!!!) That doesn’t equate to a rising real estate market. Check your info.
As far as your Iran/Iraq point? Well yea, I guess if the Sun blew up tommorow morning my real estate would be worthless too. One year ago Tim Russert had 8 U.S. Senators on Meet the Press, half Republicans half Democrats, he asked one question…
Will there be a terrorist nuclear device detonated on U.S. soil in the future???
EVERY SINGLE SENATOR SAID YES!!! They went on to say it was a matter of WHEN not IF…
Iran will probably be the supplier, whether we’re there or not. And as far as Iran launching a Nuclear weapon from a intercontinental missle?? Are you kidding??? They’re WAY to smart to do that. They launch something like that from IRAN and THEIR DONE! Iran’s a Parking lot 15 minutes after. They’ll hide it in a brief case or something like it, who do we attack then???
THE GENIE IS OUT OF THE BOTTLE FOLKS, and all the U.S. Military might in the world can’t put it back in. that’s a FACT. They’ve been TAUGHT how to make nuclear material, it really doesn’t matter WHERE they are. THEY KNOW HOW! … GET IT?.. You can’t bomb or invade knowledge. Look at Germany, before WWII even ended, those rocket scientists just moved around, some to the Soviets, others to the U.S. and we bombed the livin’ sh*t out of that country. Didn’t matter, the know- how SURVIVED!!!
Let me set the record straight right here. Personally, I think we should have made a nice sheet of glass out of that whole country (IRAN) years ago, but we didn’t, and now, like everything else, we’ll pay for it, like it or not.
Greenspan’s famous “irrational exuberance” speech was actually about the STOCK MARKET in 1999. His later real estate speech that “some people may benefit from some of the new financing methods now available for home buyers” lit the fuse on these ridiculus mortgage programs that started this meltdown. I find it ironic that AFTER he made the comment about “special and new variable rate mortgages may prove helpful to home buyers” he warned of a possible housing bubble in certain areas. Ya THINK ALAN??? Gee, let’s drop interest rates to levels so low we have to go back 50 YEARS before we find similar rates and see what happens??? Yea, that won’t create a future problem. Imagine this market IF he had let rates stay higher, and didn’t allow these ridiculus mortgage products like no docs, interest only, ect. ect. What would have happened is a slow steady 6-8% yearly increase LIKE WE’VE HAD SINCE the 1920’s.
As far as pockets of appreciation in real estate your right, there will ALWAYS be areas of the country were prices have not seen the INSANE appreciation that the Northeast, Florida, California, Arizona ect. have seen. But…Those are some big geographical areas with HEAVY populations, when those people start feeling scared or uneasy IT can flow over to other areas.
Long term you are right. Real Estate can’t be beat!!! I just throw this stuff out there because I PERSONALLY have seen friends of mine lose EVERYTHING (early 90’s) because they thought it wouldn’t get that bad.
Go to itulip and look at that real estate appreciation chart. the late 80’s boom looks like a bump compared to what we just went through. I lived through that correction. BAD, BAD, BAD. But, I did get some great properties out of it, eventually.
Good points, made by everyone, as usual!!!
Oh! and thanks for the “you SEEM intelligent” comment. I guess if anyone just reads ANYTHING that falls into the “liberal” realm your really not smart. Maybe even mentally unstable ???
THAT way of thinking has REALLY served our country well in the last 7 years!!! It’s the root cause for the destruction of the once GREAT Republican party. (Thanks George & Karl)
Think it’ll take a long time for the real estate mess to unwind? Wait to you see how long it’ll take for this country to unwind the MESS our BRILLIANT leader has created for us. Sadam was a lot SMARTER than we gave him credit for. Apparently, he treated those idiots like they HAVE to be treated inorder for them to co-exsist with each other. Glad we straightened that out. :banghead
Petemfa, My remark regarding intelligence was not meant to offend or insult you. I would not consider someone intelligent if they look at a website, which obviously has a political agenda, in the name of researching how our economy is doing under President Bush. Itulip is as predictable as it is inaccurate. It amounts to liberal propaganda with very little commitment to objectivity.
I don't want to turn this into a political exploration on a real estate website, but the problem is that too many people have a political grievance, so they distort the facts to reflect their angst with politics.
I definitely do not associate political orientation with intelligence.
Greenspan was following Japan's lead (whose overnight lending rate was essentially 0%) to deal with economic recession.
I found a house for sale in Sacramento just now, 5bd 2ba 1car, built in 1929 (remodeled updated) lot size 0.15 ac, 2245 sqft $799,000. How about this one: 3bd 1.5ba 2car built in 1924 lot size 0.07acres 1753 sqft $618,000? Or maybe 2bd 1.5ba, no garage, lot size 0.07ac built in 1900, 1263 sqft for $583,000? I guess no one told these guys about the blood bath.
A developer in a Sacramento suburb built 25,000 homes in 2004-2007. This is only one example sprawl and there are many more. Some of these homes have depreciated, as there is now a glut of homes in suburban sprawl areas, and it takes about an hour in rush hour traffic to get to the city. This does not constitute some blood bath or unwinding, but developers having to accept what the market will afford.
The real estate market is faring very well in my area for anyone who does research before they buy, and exercises any degree of prudence when they put the deal together. As is always the case, buying a bad house in a good neighborhood and shedding a little sweat in the name of gaining a little equity works just fine.
You found OVER PRICED houses in California? SHOCKING REVELATION!!! That must mean the market is going GREAT! Hey, I can send you info on an 80 year old Ocean Front 2 bed Bungalow in Newport that’s been for sale for 2 years for $1.8 million. I’ll call my local newspaper and tell them they misprinted the 250 foreclosure notices that were in the paper last WEEK because the market must be going great and those 250 houses will just sell themselves.
Greenspan’s rate lowering had NOTHING to do with Japan, it was a DIRECT response to the dotcom implosion that occured on Wall St.
Greenspan HIMSELF has acknowledged that. Go to www.moneycafe.com and look at their rate charts for yourself. Those rate cuts DIRECTLY tie into the dot com bust timeline.
Your point is well taken though, and you are 100% correct, if you do your home work and buy undervalued homes, in good neighborhoods and put in some work you can make money. My point, an YOU acknowleged it is, the market IS falling in California. This is when people get HURT. It was hard to screw up in 2004-05 when you could buy a house, CUT THE LAWN and make $25,000 THOSE DAYS ARE OVER!!!
Thanks for your comments, I always enjoy reading other peoples insights into markets. As far as your political statements? I never write off something because it has an agenda. That’s like saying anything on FOX news is not true because they have an agenda. (they ALL have agendas) you read between the lines. Look no futher than your own post. “there is now a glut of homes and some of them have depreciated” well I don’t know about economics on the West coast but back East there is ONE way that a glut of houses gets dealt with…BIG SIGNS THAT READ…PRICE CHANGE!!! Usually found attached to realtors signs on the front lawns of homes for sale!
Sounds like you made my point. THANKS.
I have always been somewhat moderate in terms of where housing prices are going… I don’t think we have hit bottom, but i certainly also don’t believe we will crash. DR Horton #'s out this morning sound awful. Also, Home Depot lowers guidance significantly. I’m starting to think there’s a lot more downside from here. Couple some of these basic housing numbers with subprime issues, including Hedge Funds having issues and needing to DELEVER, and you’ve got a lot of possible negative downside, with not a lot of positives to push the market higher.
I would be very careful folks… get in and get out.
I hate to remind you NJREstudent but about 9-10 months back we had a pretty good sparing session when I said we could be looking at a stock market crash/depression. (couldn’t resist) My compliments to you. I’m sure you’ve forgot more about stocks than I’ll ever know, but you obviously can read the tea leaves.
It’s all there… EVERYTHING…The negative savings rate, hyper inflated real estate, stock market making new all time highs while the foundation crumbles around it.
It’s coming folks, like it or not, BUT IT IS COMING! Things never repeat exactly, you won’t see anything like what happened in the 1930’s, BUT a depression is defined as a fall in GDP over 10%. All the pieces are in place for that. Coupled with what Brian is talking about with deleveraging out of these INSANE CDO’s and yea, can we all say “snow ball effect”
the prices in newport are ridiculous…i wish i had the houses that we let go for ppeanuts in the 80s lol
my uncle still lives in newport and the prices are ridiculous…
my family moved there in the 1920s
still have quite a bit of friends there,there are no employment opps up there
my 2 cents
Robert A. Doncaster, Jr.
Import/Export Entrepreneur & Investor
*** DO YOUR HOMEWORK ***
Chicago Illinois USA
& sometimes Salzburg, Austria
No. I did not find OVER PRICED houses in California; I found a market in California that no one else on this website seems prepared to admit are houses priced according to what the market will bear, because houses in California exist in an economy and a population density like nowhere else in the country. This is not a bubble. This is not a blood bath. This is a real estate market in an economy where the prevailing wage for a construction laborer is $50/hour. I don’t care to hear about the prices of homes that sit on the market for 2 years; that is irrelevant. Newport? Newport CA? We were talking about CA right? Next to Fort Bragg? Population 10? Or Newport Beach down in So Cal? You are either talking about a depressed economy (like Ohio or Michigan) or a population that is so huge that 250 houses is an insignificant percentage of properties in the market.
Greenspan, being the chairman of the Federal Open Market Committee, evaluated the economic outlook during 2000 -2001, as they always do, and determined, LIKE THE COUNTRY OF JAPAN, AT THAT TIME, was facing a recession, thanks in part to the collapse of the NASDAQ, and that inflation did not present a threat. Evaluation of economic indicators including new home sales, existing home sales and consumer confidence (especially with regard to 9/11/01), showed economic pessimism, which warranted lowering interest rates. It seems to me to be a waste of time to argue semantics.
I don’t mind a political opinion. I don’t even mind a political motive. But I can’t stand to entertain things that seem to be absolute bigotry in total denial of the facts. The first time I went to itulip, I read a forecast which predicted a DIRE economic future for the U.S. following a rise in oil prices which was triggered by Condoleeza Rice making a statement to offend Mahmood Ahmadinejad. Let’s not offend his sensitivities. Not that Condoleeza ever did or ever would.
The next time I went to itulip, I read obtuse analogies that had to do with the real estate market and a guy riding his bike on the weekends. The association was adolescent and schizophrenic. Do not compare this alarmist liberal nonsense with Fox News.
If you had a point, frankly the longer I continue this conversation, I doubt it, I have not served it. I have pointed out the facts while you have spewed panic, gloom and doom. Time and economics will prove you, and itulip wrong.
Once again, why would you throw out an entire source of info because you don’t agree with it’s political views. Who cares what their agenda is. When I read info there it takes about 3 seconds to confirm it using the internet. Your summary is, in itself, too one sided. But whatever…
The “guy riding his bike” as you refer to him is Jim Roger’s, It may be of interest to OTHER readers here to know that Jim along with another “know nothing” by the name of GEORGE SOROS started the Quantum Fund in the 1970’s that fund returned over 20% annually to investors for over 15 years. (GEORGE “know nothing” SOROS is one of the richest men on the planet) Hey, why take advice from these dopes?? Jim Rogers went on to call and invest in just about every major move in commodities and emerging markets for the next 20 years. But hey, if he’s giving interviews on itulip I guess he’s just “a guy riding his bike” You could have a bright future writing for FOX news with white washing abilities like that.
We’ll see who’s right. From everything I read and watch you’re on the losing end of this one buddy.
By the way…Jim Roger’s latest thoughts, GET OUT OF EMERGING MARKETS NOW. CHINA’S STOCK MARKET IS A BOMB WAITING TO EXPLODE and when it goes guess what they do with all that U.S. Debt they own. Answer… Wait and see what interest rates do?? Hint… they won’t be going down. Let’s sprinkle a little of the “ALL TIME LOW” set by the U.S. dollar yesterday on top and we can all hope that the “economy like nowhere else in the country” can overcome economic factors that will see entire countries hurting. But hey “California is DIFFERENT.” That maybe the scariest statement I’ve ever read on this site.
This is exactly why I don’t comment on people asking about real estate in California. I don’t understand how to make money in that kind of economy. I know that there is someone who does and I defer to them.
If the CA real estate market was a goldmine all of that money wouldn’t be heading your way and being invested in TX. From what I can see most people AREN’T making money in CA.
Rich_in_CT I can’t see how either. But I am not qualified to say that. I believe that there is someone making money in real estate in California. It could be buy all your property in 1995 and sell it today, but there is somebody that knows how to do it. I don’t believe in saying anything can’t be done just because I don’t know how to do it.