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  • Craigy
    replied




    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.

    Leave a comment:


  • StateOfMyHead
    replied
    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.

    Leave a comment:


  • Dont_know_mind
    replied
    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.

    Leave a comment:


  • StarTrekDoc
    replied
    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.

    Leave a comment:


  • AZPT
    replied




    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.

    Leave a comment:


  • Perry Ict
    replied




    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.

    Leave a comment:


  • Dont_know_mind
    replied
    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 ?

    Leave a comment:


  • MPMD
    replied




    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.
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    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%.

    Leave a comment:


  • Infinity
    replied
    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.

    Leave a comment:


  • Craigy
    replied







    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.
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    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?
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    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.

    Leave a comment:


  • AZPT
    replied







    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?

    Leave a comment:


  • AZPT
    replied




    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.

    Leave a comment:


  • hightower
    replied




    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

    Leave a comment:


  • Craigy
    replied
    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.

    Leave a comment:


  • AZPT
    replied
    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.

    Leave a comment:

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