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  • #16




    It depends.
    Price:income ratios for cities are like PE ratios for stocks.
    Maybe average house price to household income is : 5:1
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    This is a good point.

    Though I don't know exactly what that price:income ratio is, right now it is fairly high, so there will probably be a reversion to the mean (and will probably overshoot the mean to some degree, since that's the way sentiment works).  Actually, glancing at some news items, it seems that housing prices in many of the hottest cities (NYC, for example) have already started dropping.

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    • #17




      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 ?
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      These words really resonate with me, as it is precisely what I am feeling. I don't have the typical worry that the "rates are going to go up", but instead that my income and savings potential won't increase fast enough relative to the market rise. Even in the 4-5 years since we bought our first house, the values have gone up a significant amount for homes that apparently we should have just been looking at back then for just a littttleeee bit more.

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      • #18
        Having gone through two significant boom-bust cycles of the dot-com and 2007-great recession of the Bay Area --- the central Bay weathered the storm quite nicely compared to the peripheral suburbs.  Places like Stockton dropped 20 and 40% in those cycles and took several years to recover (~5y)   While the central areas dropped only 10 and 20% and recovered within 2-3 years.

        We bought several homes near the bottom when recovery started ~2010 and have done quite well on both rental prices and appreciation.  We were lucky to have the opportunity to cash flow the investments.

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        • #19
          I would not attempt to market time based on valuation for primary residence, particularly if you have a spouse who wants to buy in the area. It might work out but there are a number of things that could go wrong.

          I got vapourised when I held off buying a house at 1.5M and ended up buying a comparably worse house to live in 3 years later for 2.5M.

          I think it is possible to market time residential investments but the added stress of a spouse having FOMO about houses in the area going to infinity is just about the worst thing. It was an unmitigated disaster and probably my worst investment mistake to date. With investments you can just say, ah well I got that wrong, I’ll just look to buy somewhere else. With a house your spouse wants to buy you are short in that area and depending on their (in)flexibility, you may have to cover that short whatever the price!

          The other thing is that with an 80% LVR you are 5:1 levered and short an appreciating asset during a boom, which is the reverse of what you want.

          Who knows what will happen. You could buy a house to live in tomorrow and it could go down 30% or you could delay and it could go up 40% or vice versa. Murphy’s law is that whatever you do, the market will immediately do the opposite of what is optimal for you.

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          • #20
            OP I would bet when it all settles $350,000 will be the new $250,000. A key factor in the housing issues ten+ years ago was predatory lending. Many felt entitled to the home of their dreams and an interest only loan would make that happen....I can barely type that without snorting. Although prices in my area are high this time around I don't see the frenzied sheep who drove the previous housing bubble into a predictable disaster. My guess for this area...it will correct likely 10-15%, which would not be enough to stop me from buying a home I will live in.

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            • #21




              OP I would bet when it all settles $350,000 will be the new $250,000. A key factor in the housing issues ten+ years ago was predatory lending. Many felt entitled to the home of their dreams and an interest only loan would make that happen….I can barely type that without snorting. Although prices in my area are high this time around I don’t see the frenzied sheep who drove the previous housing bubble into a predictable disaster. My guess for this area…it will correct likely 10-15%, which would not be enough to stop me from buying a home I will live in.
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              Inflation alone will cause this to happen.

              People (myself included) tend to look back quite a long time when thinking of real estate prices.

              If I consider how long my wife and I had been shopping, it's easily half a decade, and my baseline for what stuff should cost seems like it's rooted back in 2010-2011 when we were shopping for our first house.  Aside from all the demand, inflation definitely skews the perception.

              In OP's $240k in 2004 example, compounding at 3% gets you to about $385k.  The CPI inflation calculator suggests $332k.  Combine with the fact that real estate is inherently unique and that there are 1) more people with 2) more money to spend now vs then, and the thought of getting that home for $240k or anything close is a pipe dream.

               




              Or is this just my first lesson in getting old and how inflation works? My paycheck sure as ************************ ain’t going up that fast.
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              I missed this when you said it.  :lol:  Yeah pretty much.

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