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  • Housing prices

    Question of opinion for you all.

    Being in my early thirties and only having completed one home transaction, I don't have much experience with the fluctuation of housing prices over time as some of you. Housing prices to-date are no doubt inflated and have been trending up in most areas for the past few years. I've been looking at homes near us on Zillow in suburbia Phoenix which are quintessential "middle class", that were going for $240k in 2004-05 and are now up to $400-500k.

    With the crash in 2008, I don't think some of my generation really understood at the time what a dramatic event that was. Homes were losing hundreds of thousands of dollars in value, which wasn't simply a "downturn". With this, in talking with friends and colleagues recently I hear phrases being thrown out like "when the housing market comes down again..." or "I'm waiting for the prices to drop". I'm not an economist, but unless something catastrophic happens it doesn't seem like we will see the 2008-type collapse again in such a short time.

    So my question is, when the market does eventually "downturn", how far do you think home prices will realistically decline? 5%? 10%? 20%? Will the house that is currently going for $500k in suburbia Phoenix, without much land or anything special about it, ever return to a $400k range? Or has the old $250k home become the new $450k home and is here to stay?

     

  • #2


    So my question is, when the market does eventually “downturn”, how far do you think home prices will realistically decline? 5%? 10%? 20%? Will the house that is currently going for $500k in suburbia Phoenix, without much land or anything special about it, ever return to a $400k range? Or has the old $250k home become the new $450k home and is here to stay?
    Click to expand...


    It'll be very region specific.

    Comment


    • #3
      Unscientifically I think you should expect more of a slowdown in volume and rapidity of sales rather than a collapse in value. In my area we're already seeing this according to some realtors I have spoken to.

      As fresh as 2008 is in our minds from a historical standpoint that is a very rare event.

      My only concern about this housing market, and keep in mind I have no idea what I'm talking about really, is that while prices are continuing to rise it isn't like salaries really are right? My hood is simply awash in million dollar+ properties. Granted I live in a nice area (though FAR from the nicest) of a big city but I mean how many people in America can afford a million dollar home? Let's say you have $200k for a downpayment (generous assumption) and you are pushing to 3x income for mortgage. That's $266k/year which is a 98th percentile income. Again this is to afford a $1M property in a way that most of us wouldn't try to do it. It's just a bit unclear to me how the market can bear all of these expensive properties but what do I know?

      My wife and I are both fairly well-paid docs w/ no non-mortgage debt and we walk around and say "who the ************************ buys these places??!?" You can't throw a rock in our hood w/o hitting a $3M single family home.

      Comment


      • #4
        A while back the median house price in a neighboring community was $600K, with many homes $1M+, while the median household income in the area was $90k. This is insanity.

        I get that some might have existing home equity or savings for a downpayment to bring that mortgage number down, but still, there has to be a lof of folks that are getting mortgages at many multiples (4-5x?) of their income. Maybe soon we will be seeing 40 year home loans to make housing "more affordable."

        Comment


        • #5




          Unscientifically I think you should expect more of a slowdown in volume and rapidity of sales rather than a collapse in value. In my area we’re already seeing this according to some realtors I have spoken to.

          As fresh as 2008 is in our minds from a historical standpoint that is a very rare event.

          My only concern about this housing market, and keep in mind I have no idea what I’m talking about really, is that while prices are continuing to rise it isn’t like salaries really are right? My hood is simply awash in million dollar+ properties. Granted I live in a nice area (though FAR from the nicest) of a big city but I mean how many people in America can afford a million dollar home? Let’s say you have $200k for a downpayment (generous assumption) and you are pushing to 3x income for mortgage. That’s $266k/year which is a 98th percentile income. Again this is to afford a $1M property in a way that most of us wouldn’t try to do it. It’s just a bit unclear to me how the market can bear all of these expensive properties but what do I know?

          My wife and I are both fairly well-paid docs w/ no non-mortgage debt and we walk around and say “who the ************************ buys these places??!?” You can’t throw a rock in our hood w/o hitting a $3M single family home.
          Click to expand...


          Big deal, I can't throw a rock without hitting a 500k home, a small child or a dog (non-emotional support) where I live.

          Comment


          • #6




            A while back the median house price in a neighboring community was $600K, with many homes $1M+, while the median household income in the area was $90k. This is insanity.

            I get that some might have existing home equity or savings for a downpayment to bring that mortgage number down, but still, there has to be a lof of folks that are getting mortgages at many multiples (4-5x?) of their income. Maybe soon we will be seeing 40 year home loans to make housing “more affordable.”
            Click to expand...


            that's what i'm talking about.

            it's not like talking about market highs it's a genuine comparison between the number of people who could possibly afford a $1M home (even with a huge stretch) and the sheer # of them out there.

            there are (conservative estimate) 15 properties on my block in the $1M+ range. this is far, far, far from the nicest block in the hood an far from the nicest hood in the city.

            Comment


            • #7
              You're all essentially having similar thoughts as I, even though not expressed in the OP. I just don't understand how home prices seem to continue to increase at such an alarming rate for what you get. I understand beach homes in California are going to be expensive, but the 4BR/2BA 2400sqft home sitting on a <5,000sqft lot in suburbia Phoenix with basic features going for half a million dollars? Huh?

              Or is this just my first lesson in getting old and how inflation works? My paycheck sure as ************************ ain't going up that fast.

              Comment


              • #8
                Home prices are definitely going to fall.

                We just don't know when.

                By the time we get a big drop, could easily be 20-30% or better.  But if it takes another 3, 4, 5 years to get there, with the property continuing to appreciate in the meantime, do you really save anything?  And how much of your life did you spend coveting that house that you wanted?

                In our case we finally found ourselves a teardown.  We definitely overspent on the lot, but I'm OK with that.  I'd rather overspend 20%++ on a lot that costs $250k or $500k than overspend 20%+++ on a house that costs $1.2M, $1.8M.

                Comment


                • #9




                  Question of opinion for you all.

                  Being in my early thirties and only having completed one home transaction, I don’t have much experience with the fluctuation of housing prices over time as some of you. Housing prices to-date are no doubt inflated and have been trending up in most areas for the past few years. I’ve been looking at homes near us on Zillow in suburbia Phoenix which are quintessential “middle class”, that were going for $240k in 2004-05 and are now up to $400-500k.

                  With the crash in 2008, I don’t think some of my generation really understood at the time what a dramatic event that was. Homes were losing hundreds of thousands of dollars in value, which wasn’t simply a “downturn”. With this, in talking with friends and colleagues recently I hear phrases being thrown out like “when the housing market comes down again…” or “I’m waiting for the prices to drop”. I’m not an economist, but unless something catastrophic happens it doesn’t seem like we will see the 2008-type collapse again in such a short time.

                  So my question is, when the market does eventually “downturn”, how far do you think home prices will realistically decline? 5%? 10%? 20%? Will the house that is currently going for $500k in suburbia Phoenix, without much land or anything special about it, ever return to a $400k range? Or has the old $250k home become the new $450k home and is here to stay?

                   
                  Click to expand...


                  I actually think we're going to see a significant slow down in the "extreme markets" places like Los Angeles, San Francisco, NYC, etc.  Meanwhile, I think homes in more reasonably priced areas like Columbus Ohio for example, are going to remain relatively stable, but not climb much more.  I think it's all going to come from the recent tax law changes.  People with over priced monstrosities on the coasts are going to start seeing how much money they're losing now compared to when they could deduct all of that mortgage interest and they are going to want to downsize to "cash out."  This will flood the market with high priced homes that no one wants any more and prices will plummet.  I see it happening over the next 5 years.

                  Someone remind me of this post in 5 years so I can see if my crystal ball was correct! Haha

                  Comment


                  • #10




                    Home prices are definitely going to fall.

                    We just don’t know when.

                    By the time we get a big drop, could easily be 20-30% or better.  But if it takes another 3, 4, 5 years to get there, with the property continuing to appreciate in the meantime, do you really save anything?  And how much of your life did you spend coveting that house that you wanted?

                    In our case we finally found ourselves a teardown.  We definitely overspent on the lot, but I’m OK with that.  I’d rather overspend 20%++ on a lot that costs $250k or $500k than overspend 20%+++ on a house that costs $1.2M, $1.8M.
                    Click to expand...


                    This is a really good point, but one that I don't like, as it screams realtor-scare-tactic of "better get in now before prices go up, Up, UP!"

                    I know, hindsight is 20/20 and we can't predict the future, but still.

                    Comment


                    • #11







                      Question of opinion for you all.

                      Being in my early thirties and only having completed one home transaction, I don’t have much experience with the fluctuation of housing prices over time as some of you. Housing prices to-date are no doubt inflated and have been trending up in most areas for the past few years. I’ve been looking at homes near us on Zillow in suburbia Phoenix which are quintessential “middle class”, that were going for $240k in 2004-05 and are now up to $400-500k.

                      With the crash in 2008, I don’t think some of my generation really understood at the time what a dramatic event that was. Homes were losing hundreds of thousands of dollars in value, which wasn’t simply a “downturn”. With this, in talking with friends and colleagues recently I hear phrases being thrown out like “when the housing market comes down again…” or “I’m waiting for the prices to drop”. I’m not an economist, but unless something catastrophic happens it doesn’t seem like we will see the 2008-type collapse again in such a short time.

                      So my question is, when the market does eventually “downturn”, how far do you think home prices will realistically decline? 5%? 10%? 20%? Will the house that is currently going for $500k in suburbia Phoenix, without much land or anything special about it, ever return to a $400k range? Or has the old $250k home become the new $450k home and is here to stay?

                       
                      Click to expand…


                      I actually think we’re going to see a significant slow down in the “extreme markets” places like Los Angeles, San Francisco, NYC, etc.  Meanwhile, I think homes in more reasonably priced areas like Columbus Ohio for example, are going to remain relatively stable, but not climb much more.  I think it’s all going to come from the recent tax law changes.  People with over priced monstrosities on the coasts are going to start seeing how much money they’re losing now compared to when they could deduct all of that mortgage interest and they are going to want to downsize to “cash out.”  This will flood the market with high priced homes that no one wants any more and prices will plummet.  I see it happening over the next 5 years.

                      Someone remind me of this post in 5 years so I can see if my crystal ball was correct! Haha
                      Click to expand...


                      So in terms of my initial question it seems you would say the new $400k house has taken the place of the previous $250k house, and - even with a "down turn" - we likely won't see the 400k house return to a lower price tier?

                      Comment


                      • #12







                        Home prices are definitely going to fall.

                        We just don’t know when.

                        By the time we get a big drop, could easily be 20-30% or better.  But if it takes another 3, 4, 5 years to get there, with the property continuing to appreciate in the meantime, do you really save anything?  And how much of your life did you spend coveting that house that you wanted?

                        In our case we finally found ourselves a teardown.  We definitely overspent on the lot, but I’m OK with that.  I’d rather overspend 20%++ on a lot that costs $250k or $500k than overspend 20%+++ on a house that costs $1.2M, $1.8M.
                        Click to expand…


                        This is a really good point, but one that I don’t like, as it screams realtor-scare-tactic of “better get in now before prices go up, Up, UP!”

                        I know, hindsight is 20/20 and we can’t predict the future, but still.
                        Click to expand...


                        Agree, best not to buy just because you think prices are going to continue to go up.

                        You have to decide if something is worth it to you, or if it's not.  And if the market does take a __, are you ok with having spent a little too much or not.

                        In my local market, I don't really buy into the idea that prices are just going to keep rocketing up.  Already we've seen the market getting soft, stuff sitting longer, fewer properties closing, especially where I am.

                        IMO there is only so much intrinsic value some of these homes can have.  Particularly in areas where you can just drive a few more minutes out and build brand new.  And there is only so much house that a buyer can afford.  There are plenty of high income, generational wealth, overborrowers, etc, but eventually they run out and there is only so much the market will bear.










                        Question of opinion for you all.

                        Being in my early thirties and only having completed one home transaction, I don’t have much experience with the fluctuation of housing prices over time as some of you. Housing prices to-date are no doubt inflated and have been trending up in most areas for the past few years. I’ve been looking at homes near us on Zillow in suburbia Phoenix which are quintessential “middle class”, that were going for $240k in 2004-05 and are now up to $400-500k.

                        With the crash in 2008, I don’t think some of my generation really understood at the time what a dramatic event that was. Homes were losing hundreds of thousands of dollars in value, which wasn’t simply a “downturn”. With this, in talking with friends and colleagues recently I hear phrases being thrown out like “when the housing market comes down again…” or “I’m waiting for the prices to drop”. I’m not an economist, but unless something catastrophic happens it doesn’t seem like we will see the 2008-type collapse again in such a short time.

                        So my question is, when the market does eventually “downturn”, how far do you think home prices will realistically decline? 5%? 10%? 20%? Will the house that is currently going for $500k in suburbia Phoenix, without much land or anything special about it, ever return to a $400k range? Or has the old $250k home become the new $450k home and is here to stay?

                         
                        Click to expand…


                        I actually think we’re going to see a significant slow down in the “extreme markets” places like Los Angeles, San Francisco, NYC, etc.  Meanwhile, I think homes in more reasonably priced areas like Columbus Ohio for example, are going to remain relatively stable, but not climb much more.  I think it’s all going to come from the recent tax law changes.  People with over priced monstrosities on the coasts are going to start seeing how much money they’re losing now compared to when they could deduct all of that mortgage interest and they are going to want to downsize to “cash out.”  This will flood the market with high priced homes that no one wants any more and prices will plummet.  I see it happening over the next 5 years.

                        Someone remind me of this post in 5 years so I can see if my crystal ball was correct! Haha
                        Click to expand…


                        So in terms of my initial question it seems you would say the new $400k house has taken the place of the previous $250k house, and – even with a “down turn” – we likely won’t see the 400k house return to a lower price tier?
                        Click to expand...


                        IMO that really depends on your local market.  How much inventory is there.  How much raw land is out there.

                        There is no raw land in the bay area, e.g. and thus there is real scarcity.

                        Markets like Florida, Vegas with swaths of new construction got absolutely hammered.  50% off, no sweat. But it takes waves of bankruptcies and foreclosures to hit those sort of discounts.

                        Comment


                        • #13
                          I think the chance that house prices drop >15-20% is very low.

                          If you ready to buy and find the right house, I would buy it.

                          If you wait for the price to drop 10-15%, you probably will never get a house.

                          Comment


                          • #14




                            I think the chance that house prices drop >15-20% is very low.

                            If you ready to buy and find the right house, I would buy it.

                            If you wait for the price to drop 10-15%, you probably will never get a house.
                            Click to expand...


                            Despite everything I said I do think this is the most rational take.

                            For housing prices to drop people are going to have to start accepting offers and losing money. I don't think that would happen even if the market went down by 40%.

                            Comment


                            • #15
                              It depends.
                              Price:income ratios for cities are like PE ratios for stocks.
                              Maybe average house price to household income is : 5:1
                              But if household income increases significantly then it may still appreciate.
                              I tend to think residential house prices are a call option on the local population’s future income potential.
                              What will your region and the population, their income trajectory, demand and supply be in 20 years ?

                              One thing to bear in mind is that if you are short a house and your partner really wants to live there then you’ll have to buy whether it’s 500k or 1M or 2M. My preference would be to cover that short when I can afford it. The addage buy when you can afford it makes sense to me. The risk people sometimes don’t appreciate is a hot housing market can appreciate faster than you can save. A 40% appreciation during a boom can hurt you as much as a 40% decline. What is your actual position- are you neutral, may never have to buy a house in that area or definitely short 1 house in the area ?

                              Comment

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