Where will Real Estate Bottom?

[editec]

Real estate housing prices will bottom when pricing is in line with incomes.

Not before.

 

[GHook93]

Good!

Let me guess, you rent, right?

Tell me again how liberals care about their fellow man? Hypocrite.

You see, much like CEO pay, the price of homes in this country has risen at a more rapid rate than wages in the last 30 years. The money I have saved up for a down payment on a home right now would have bought my parents house outright in 1980. Today that amount of money gets you a nice down payment on half the house in a worse neighborhood. Meanwhile, I am the same age my father was when he bought the house and at about the same career point. That ain't even close to right.

I'm all about house prices dropping so that ... wait for it ... my fellow man and I can afford a decent home at a decent wage.

Cal Girl he has a great point. Home pricing increased so fast in such a short time due to the ill-advised Clinton pushing, Dodds and Frank backing, Brain of Jimmy Fucking Carter - the Community Reinvestment Act! There is no way to sustain it. Look my home I built in '04 might be worth anywhere from $60K-90K less than I bought it for, even with finishing the basement and doing a lot of fixing around the house! Home prices need to go down, since wages are not going to increase for people to afford these homes.

 

[GHook93]

I guess this is good for me if I want to buy a house instead of staying on base when I get my First-Duty-Station?

I have heard some guys combine together and rent a house together and have a room for each guy, sounds like a cool idea too me.

I did that for a little while after college with 4 buddies! We found a shithole close to DT Scottsdale for $900 a month, 4 bedrooms (the garage was turned into a bedroom). Rent was $225 plus we split utilities! At the time I made a nice $35K. I lived pretty damn good!

 

[Toronado3800]

Wait. Should big government be in charge of the amount of money banks should be allowed to lend folks? So Clinton was to hands off with his approach to regulation?

I personally thought so. BC wasnt my first choice.

 

[iamwhatiseem]

No one would argue that this mild and slow as molasses recovery is also fragile...if not volatile.
As I was watching that there are significant signs that Saudi Arabia is next, I asked myself "self - is this middle east "crises" the next spark for the 2nd dip?"

It is quite possible if you ask me. We will see $4.00 a gallon by spring at the latest, if Saudi Arabia starts having a real civil unrest where leadership is in question...oh boy...$5 or $6 per gallon is not unrealistic.
And what would that do? Would it be enough to crack the fragile recovery?

 

[Mr. H.]

Saudi Arabia opens its wallet to stave off protests - Yahoo! News

 

[iamwhatiseem]

Saudi Arabia opens its wallet to stave off protests - Yahoo! News

I would think this would only improve the chances for more riots.

 

[percysunshine]

I suspect that after Libya, alot of people are having second thoughts about stuff. Governments are asking themselves if their military is going to turn on them, and 'protesters' are looking up at the sky wondering if helecopter gunships are about to show up.

Imagine how relieved (lucky?) the protesters in Tunisia and Eqypt are feeling right now.

 

[Toro]

That would be great. I could be some more cheap land.

But I wouldn't pay much attention to the forecast of some economist.

 

[william the wie]

I see three major possible problems coming out of this mess:

It will spur investment in artificial oil production. Cheaper conversion of coal to petroleum and/or biological production will cap prices immediately and start exerting longrun downward pressure on energy prices. Both of those technologies exist now they are just too expensive to use without sustained prices. More investment could change that, possibly quickly.

It will spur energy exploration worldwide. That could cause major problems for OPEC.

The new regimes will need higher US food production since food is largely priced in US dollars that could cause a major change in plans.

 

[william the wie]

Real estate housing prices will bottom when pricing is in line with incomes.

Not before.

The extension of insane levels of credit and lack of savings also have to be dealt with as well and that takes longer so there will be a lag after reaching your buy point before the bottom is reached. Take 20% down payment from savings as a base rule, then a gross salary multiplier of 1.5-2.5 and that leads to some interesting results.

Down payment after taxes (9% minimum for SS), rental payments (20% is a good number) and other fixed expenses should take at least a total of 60% of income. Even with a garden, a crock pot and a bread machine food costs will eat up 15% of salary. So the 30-50% of gross income needed for down payment will take 2-4 years to accumulate and drop consumption to around 50% of GDP. Since savings = investment the product life cycle will take off like crazy and that is deflationary for salaries as well as goods and services not to mention that it makes employment less stable. I would suspect about a three year lag after the bottom is reached before housing starts take off.

 

[Douger]

I have been looking over data for Jax Beach FL and I find the Case-Shiller data even more optimistic than ever. Looking at houses here are the trendlines

By 1990 virtually all land within the city limits had been developed.

In 1972 the house I live in was bought by wife for 10K.

In 1985 we were advised to list at 40K.

In 2000-2 some of my wife's friends bought the same model house at 100-120K for a value based on distance from the ocean of 100K for our home.

At peak based on Zillow numbers value was about 350K.

Current value for comparables about 210K.

I would expect at least another 57% drop to 90K before a bottom is reached.

What are your estimates for future decline and why?

The real factor is how many houses in your area are unoccupied repos and how many are unoccupied new construction ?
The more properties empty, the faster the values drop...(See Detroit and Lost Wages NV).
You can buy a big 2 story in Detroit for $10-20 grand and they'll even toss in a ginzu knife set !

In your area the lower end homes inland and the higher end homes on or near the water, should stabilize at realistic prices.The 250 to 800 K group is probably screwed.
My guess ( and that's all it is) is that it should level at somewhere around 1996-2001 values. That was about the time when all of this stupid shit started. Lucky for you, Jax is still a Yankee magnet.

Gotta love Ponte Vedra beach and St. Augustine!
Too bad they're in murkastan.

 

[skeptic]

I see three major possible problems coming out of this mess:

It will spur investment in artificial oil production. Cheaper conversion of coal to petroleum and/or biological production will cap prices immediately and start exerting longrun downward pressure on energy prices. Both of those technologies exist now they are just too expensive to use without sustained prices. More investment could change that, possibly quickly.

It will spur energy exploration worldwide. That could cause major problems for OPEC.

The new regimes will need higher US food production since food is largely priced in US dollars that could cause a major change in plans.

The problem with this thinking is that that isn't how the world works.

First off, only the cheapest available oil is likely to be exploited in any given present moment. If it costs $70/bbl to produce oil using bio engineered algae, but oil still exists that can be pumped from the ground for $25/bbl no real development of synthetic oil will occur until the cheaper resource is exhausted.

There is a concept called elasticity of demand which basically says that if demand is infinite and a resource is finite there is no upper limit to the potential for price increase. Look at fine art to get a quick example of this phenom in it's extreme.

As resource shortage begins to occur worldwide due to population growth, prices will become erratic and volatile for all essential and strategic commodities. Not only is it possible that a prolonged period of global political instability will occur, I have doubts that we can tame that instability when it occurs.

IOW the OP is probably grossly underestimating the prescience of her/his observations.

 

[william the wie]

I see three major possible problems coming out of this mess:

It will spur investment in artificial oil production. Cheaper conversion of coal to petroleum and/or biological production will cap prices immediately and start exerting longrun downward pressure on energy prices. Both of those technologies exist now they are just too expensive to use without sustained prices. More investment could change that, possibly quickly.

It will spur energy exploration worldwide. That could cause major problems for OPEC.

The new regimes will need higher US food production since food is largely priced in US dollars that could cause a major change in plans.

The problem with this thinking is that that isn't how the world works.

First off, only the cheapest available oil is likely to be exploited in any given present moment. If it costs $70/bbl to produce oil using bio engineered algae, but oil still exists that can be pumped from the ground for $25/bbl no real development of synthetic oil will occur until the cheaper resource is exhausted.

There is a concept called elasticity of demand which basically says that if demand is infinite and a resource is finite there is no upper limit to the potential for price increase. Look at fine art to get a quick example of this phenom in it's extreme.

As resource shortage begins to occur worldwide due to population growth, prices will become erratic and volatile for all essential and strategic commodities. Not only is it possible that a prolonged period of global political instability will occur, I have doubts that we can tame that instability when it occurs.

IOW the OP is probably grossly underestimating the prescience of her/his observations.

Totally agree on your points as made by you where I disagree are in three areas:

The amount of natural oil that can be produced at $80/bbl or less is rapidly shrinking and that is the reason that Brazil, Venezuela and Canada are major producers despite mostly crappy resources. Natural gas substitution is a much better argument because generally that can be produced at below $25/bbl equivalent. However it can not substitute for all oil uses. Dutch disease, natural resource wealth running up local prices of everything else, is another major problem. The labor input price of everything in an economy is driven by the highest pay for low skill available jobs. Roughnecks and roustabouts can be high school grads since a strong back is needed and a weak mind can be used at close to $100K per annum with OT. That means the natural gas and oil boom in say Uganda is driving up the prices of food since farmers make more in gas and oil fields than they can make in the coffee and peanut fields and that keeps going until the wages more or less equalize. So that is another factor to consider: a lot of farm fields are going fallow.

Since food is either labor or petroleum intensive worldwide with rising wages strongly linked to better diet food inflation increases the pressure on housing and the search for cheaper substitutes for oil. Food inflation drives oil inflation. There is no substitute for food on the horizon and there are substitutes for oil.

Wired on Yahoo had an article recently on the Google-X foundation prizes for establishing a presence on the moon. The problem is that TV networks are in the bidding for the video rights so the prizes from Google may never be paid out. Asteroid capture prizes will come not long afterwards and that will produce a lot of resources. Also new forms of processing those resources for higher value added. So yeah there will be a lot of volatility in coming decades but the overall trendline will be down.

 

[skeptic]

FWIW 10 years ago almost half of ME oil could be extracted for less than $10/bbl including royalties, development and exploration costs.

Now obviously as we drill miles below the sea floor for oil the costs are more than $10/bbl. Maybe costs for natural oil are $20/bbl today and the open market price is $100. We are still a long,, long way away from any massive investments into synthetic oil or Coil.

We are already in the grips of an oil shock that may eclipse the 2008 oil shock. And we may see food commodities surpass the food commodity spikes of June 2008. There were riots then. But this is just a harbinger of the new normal we are transitioning toward. And with societal unrest already at a low boil, food shortage shocks could shred the fabric of civilization across the developing world.

I secretly think that is what the social architects within the Pentagon are banking on. The best way to prevent the developing nations from challenging the developed nations is to disrupt their social fabric permanently.

 

[Tank]

Property values will fall untill we are on a equal par with Mexico.

 

[percysunshine]

....I secretly think that is what the social architects within the Pentagon are banking on. The best way to prevent the developing nations from challenging the developed nations is to disrupt their social fabric permanently.

It's not a secret anymore. You just told everyone.

 

[tinkrroyi]

I feel house prices will keep falling in the areas where prices are still dangerously high compared to incomes and rents. Banks say a safe mortgage is a maximum of 3 times the buyer's annual income with a 20% down payment.

 

[Douger]

Xenophobic much??

no, proud and educated craftsman. what you call a house we use for our dogs. Every time i see in the news when a tornado has blown away a hole village i ask myself when you will understand the difference between houses and barracks

Yep. You hit that one on the head. I never understood it. About the only places in murka where they build anything worth a shit is in hurricane or earthquake country. To me, that's anywhere on the planet.
Here's one of mine before it was finished.

 

[Toro]

Xenophobic much??

no, proud and educated craftsman. what you call a house we use for our dogs. Every time i see in the news when a tornado has blown away a hole village i ask myself when you will understand the difference between houses and barracks

Yep. You hit that one on the head. I never understood it. About the only places in murka where they build anything worth a shit is in hurricane or earthquake country. To me, that's anywhere on the planet.
Here's one of mine before it was finished.

What is the difference in cost between building a concrete and wood framed house?