The Premier Online Community for Real Estate Appraisers!
-
Welcome to AppraisersForum.com, the premier online
community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.
Market Decline
- Thread starter Bill Rose
- Start date
- Status
Mike Simpson
Senior Member
- Joined
- Jan 30, 2002
Mike...you're a funny man!
George...I've got nothing but respect for you, but I disagree strongly with the Housing Bubble theorists.
Now for the big question - if the big metro areas do prove to have bubbles and those bubbles do end up popping, are all the bulls going to be willing to admit to the same degree of fallibility as the bears have had to do for the last 3 years?
Mike's already stated what I've been thinking all along.
As for making money, it's not how much you make; it's how much you end up with. If you lose everything because you don't modify your activity, does that mean we win the debate? Or alternatively, if you don't lose everything because you do modify your activity, do we get any credit for that?
My money is where my mouth is...a 25% loss would definately sting. However, if I saw something coming...I'd definately modify my activity. I think some have lost sight of the fact that real estate markets are in a constant state of flux (cycles)--not building for an inevitable decades long burst. I think those sames folks are failing to see a new paradiegm, and it's costing them dearly.
Elliot-
I'm very familiar with the Palm Springs & surrounding area, and your example is extremely rare. This is what the media does--find a SENSATIONAL exception to the rule & sell it to stir up interest.
...meanwhile, the bad guys are buying another investment property and trading the '04 Lexus for and '05.
Bill-
I know you're probably kidding, but this idea that those making money investing are somehow "bad guys" or criminals is what I expect from the lunatic fringe. It's also why I've found it so hard to share ideas on the Forum.
-Mike
George...I've got nothing but respect for you, but I disagree strongly with the Housing Bubble theorists.
Now for the big question - if the big metro areas do prove to have bubbles and those bubbles do end up popping, are all the bulls going to be willing to admit to the same degree of fallibility as the bears have had to do for the last 3 years?
Mike's already stated what I've been thinking all along.
As for making money, it's not how much you make; it's how much you end up with. If you lose everything because you don't modify your activity, does that mean we win the debate? Or alternatively, if you don't lose everything because you do modify your activity, do we get any credit for that?
My money is where my mouth is...a 25% loss would definately sting. However, if I saw something coming...I'd definately modify my activity. I think some have lost sight of the fact that real estate markets are in a constant state of flux (cycles)--not building for an inevitable decades long burst. I think those sames folks are failing to see a new paradiegm, and it's costing them dearly.
Elliot-
I'm very familiar with the Palm Springs & surrounding area, and your example is extremely rare. This is what the media does--find a SENSATIONAL exception to the rule & sell it to stir up interest.
...meanwhile, the bad guys are buying another investment property and trading the '04 Lexus for and '05.
Bill-
I know you're probably kidding, but this idea that those making money investing are somehow "bad guys" or criminals is what I expect from the lunatic fringe. It's also why I've found it so hard to share ideas on the Forum.
-Mike
Mike Simpson
Senior Member
- Joined
- Jan 30, 2002
"You should know I'm only addressing the scofflaws. I didn't make that distinction, did I?"
Bill-
Nope...that wasn't aimed @ you, just using your example for some past critics
XoXoXo back atcha
Bill-
Nope...that wasn't aimed @ you, just using your example for some past critics
XoXoXo back atcha
Couch Potato
Elite Member
- Joined
- Mar 15, 2004
- Professional Status
- Certified Residential Appraiser
- State
- North Carolina
The people who experienced the entire cycle would still have a gain of 50%, but anyone in the last half of the run up would have lost money.
Personally I don't expect a big drop in housing prices, but rather a large run up in the price of everything else. A general inflation trend would offer the same correction of the relative price of housing. I'll get back to everyone with more of the details as soon as my wife is finished polishing the crystal ball.
Couch Potato
Elite Member
- Joined
- Mar 15, 2004
- Professional Status
- Certified Residential Appraiser
- State
- North Carolina
As long as the job they used to have stayed in SoCal, the residence they left will be wanted by someone else.
George Hatch
Elite Member
- Joined
- Jan 15, 2002
- Professional Status
- Certified General Appraiser
- State
- California
Mike (S) and Greg,
Dollar amounts count. There's no such thing as a $200K house in this region, and there hasn't been for a couple years now. If you're talking about inflation eating up the difference, think about how much you'd have to make to pay $7.50 for a gallon of gas and $60,000 for a Toyota Tercel. We are still in a gobal economy, right?
Some economists here aren't talking about 25% drops, but rather 45% drops, and that's only to bring it back to the 25 year historical trendline of prices vs. wage and population trends. For reference, the drop in the early 90s that wiped out so many people around here was an average of 28%, and that's when we were talking about typical homes under 180K that are now selling in the mid 600K range. There are percentage losses, which are hard enough to visualize, and then there are dollar losses - the potential for which is staggering right now. As hard as it was to recover from a $50K loss in the mid '90s, do you think it will be as easy to recover from a $100K loss, even though that only represents 15% of a yr2004 salesprice?
In the last 50 years (and with the exception of the run up after Prop 13), the corrections never stop at the trendline, they tend to drop below it which is what makes up the lower point of the trendline in the first place. I wouldn't think we'd take a 45% hit this time, but you never know. Has anyone seen Japan's performance since the 1980s? On a graph adjusted for inflation the trendline looks like a giant hill, with steady increases up until the early 90s and an equally steady decrease to present; it's currently at about the same level now (after adjusting for inflation) as it was when it started. And this is in an area with real shortages of land relative to its population. It's not like it can't happen here.
Rent vs. sales prices - after adjusting for inflation over the last 5 years, average rents have increased about 15%, which is slightly ahead of average wage and population increases here during the same time period. During this same period. average mortgage payments have increased by 75%, and this is during a cycle of ultra-low interest rates when the rate of increases should have been less than the increases in wages and population. Now, it makes sense for an owner-user to stretch like this when the markets are increasing, but when they stabilize out (not to mention drop) the buyers have no economic incentive to keep paying that much of their incomes for housing.
They economists are already noting outmigration from California, and it ain't all renters. The last time we saw that was during the 90s bust. So much for popluation driving price increases. Wages? A total of 9% of our wage earners can afford an average priced home here. Actually, that number might be high because it's been a while since I heard it.
If you guys are talking about 10-year plans and such then I agree, RE is a solid long term performer. But that's not the same thing as saying a 25% drop in our market is just going to sting a little.
Dollar amounts count. There's no such thing as a $200K house in this region, and there hasn't been for a couple years now. If you're talking about inflation eating up the difference, think about how much you'd have to make to pay $7.50 for a gallon of gas and $60,000 for a Toyota Tercel. We are still in a gobal economy, right?
Some economists here aren't talking about 25% drops, but rather 45% drops, and that's only to bring it back to the 25 year historical trendline of prices vs. wage and population trends. For reference, the drop in the early 90s that wiped out so many people around here was an average of 28%, and that's when we were talking about typical homes under 180K that are now selling in the mid 600K range. There are percentage losses, which are hard enough to visualize, and then there are dollar losses - the potential for which is staggering right now. As hard as it was to recover from a $50K loss in the mid '90s, do you think it will be as easy to recover from a $100K loss, even though that only represents 15% of a yr2004 salesprice?
In the last 50 years (and with the exception of the run up after Prop 13), the corrections never stop at the trendline, they tend to drop below it which is what makes up the lower point of the trendline in the first place. I wouldn't think we'd take a 45% hit this time, but you never know. Has anyone seen Japan's performance since the 1980s? On a graph adjusted for inflation the trendline looks like a giant hill, with steady increases up until the early 90s and an equally steady decrease to present; it's currently at about the same level now (after adjusting for inflation) as it was when it started. And this is in an area with real shortages of land relative to its population. It's not like it can't happen here.
Rent vs. sales prices - after adjusting for inflation over the last 5 years, average rents have increased about 15%, which is slightly ahead of average wage and population increases here during the same time period. During this same period. average mortgage payments have increased by 75%, and this is during a cycle of ultra-low interest rates when the rate of increases should have been less than the increases in wages and population. Now, it makes sense for an owner-user to stretch like this when the markets are increasing, but when they stabilize out (not to mention drop) the buyers have no economic incentive to keep paying that much of their incomes for housing.
They economists are already noting outmigration from California, and it ain't all renters. The last time we saw that was during the 90s bust. So much for popluation driving price increases. Wages? A total of 9% of our wage earners can afford an average priced home here. Actually, that number might be high because it's been a while since I heard it.
If you guys are talking about 10-year plans and such then I agree, RE is a solid long term performer. But that's not the same thing as saying a 25% drop in our market is just going to sting a little.
George Hatch
Elite Member
- Joined
- Jan 15, 2002
- Professional Status
- Certified General Appraiser
- State
- California
Greg,
Demand vs. effective demand. There's a difference between having a job here and being able to afford a home here. Companies are already moving out of town because of the cost of living. Other companies are staying away because of the cost of living. Buck Knives just relocated to Idaho - there goes 1500 jobs out of this economy. It's not all doom and gloom but it's not all roses either. Had the price increases stopped in 2002 we'd be in pretty reasonable shape for a sluggish but reasonably stable market. But now, the balance has been so stretched out of proportion that the next swing could be equally extreme. It's not just residential real estate either. Our commercial markets and industrial markets have had some price gains too, and when those companies have to compete on a national and even global scale the resulting increases in RE and payroll do not contribute to their competitiveness. It's not just houses we have to worry about.
Demand vs. effective demand. There's a difference between having a job here and being able to afford a home here. Companies are already moving out of town because of the cost of living. Other companies are staying away because of the cost of living. Buck Knives just relocated to Idaho - there goes 1500 jobs out of this economy. It's not all doom and gloom but it's not all roses either. Had the price increases stopped in 2002 we'd be in pretty reasonable shape for a sluggish but reasonably stable market. But now, the balance has been so stretched out of proportion that the next swing could be equally extreme. It's not just residential real estate either. Our commercial markets and industrial markets have had some price gains too, and when those companies have to compete on a national and even global scale the resulting increases in RE and payroll do not contribute to their competitiveness. It's not just houses we have to worry about.
- Status