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Caligirl43
Posts:133
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| 08/27/2008 8:14 AM |
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| This article is in the UT Business section this morning and this is why I think San Diego has a lot further to fall and why there's no reason to get excited about the price drops just yet. |
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sleepybear
Posts:116
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| 08/27/2008 8:22 AM |
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| Au contraire!! It might mean that even if "prices" in general fall another 20%, values will still be well above 2000. There's "glass half full," there's "glass half empty," and then there's (most popular on this site) "What glass? I don't see a glass? There are no more glasses? We're going to die of thirst." |
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Caligirl43
Posts:133
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| 08/27/2008 8:29 AM |
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| Of course I don't think prices will fall 75%, back to 2000 prices, but I do think they have farther than 20% to fall. Why? Because, plain and simple, prices are still just way too high for most San Diegans. |
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78TTop
Posts:88
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| 08/27/2008 8:37 AM |
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Caligirl43,
The article said the 'median price' is 75% higher today. It didn't say houses are 75% higher. The word 'median' is somewhat equal to the word 'typical.' If you look around San Diego, the typical home is much larger today than it was 8 years ago. Since the typical home is larger, the typical price will be larger.
Also, 8 1/2 years is a long time. In your opinion, what appreciation percentage would you consider acceptable for a home that sold in 2000 and again in 2008? Assume the home is in the city of San Diego, in a nice area, and is well maintained.
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sleepybear
Posts:116
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| 08/27/2008 8:39 AM |
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"Most" San Diegans aren't looking to buy a home. Prices, in particular geographical areas, at particular cost ranges, need only to be priced right to attract the number of buyers that roughly correspond to the number of properties available.
It has always been a journalistic myth that the ability of the person with the "average/median" income to buy the "average/median" home is a relevant statistic for describing the marketplace. |
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Brian
Posts:2210
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| 08/27/2008 9:11 AM |
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If the mean price increase 75%, it only needs to fall about 40% to bring us back to Year 2000 prices.
Look at the
Monster Price Drops Thread. We are already there in many areas of San Diego, what makes the real (inflation) adjusted price much lower then nominal prices.
Temecula is at $100/sf for near new houses.
And yes, houses in San Diego are larger then they used to be. They also have better amenities such as central air, granite everywhere and better appliances. |
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TotoMMB66
Posts:98
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| 08/27/2008 9:14 AM |
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I think "median" is a fair term. If you tell me the median price in $400K (I'm sure it's closer to, or over $500K), that tells me I can afford roughly 1/2 of all the houses in the area. I think "average" may distort that price point. If you have 3 houses valued at $100K, $500K and $2M, the median is $500K, but the average is $866K, which doesn't really reflect the level of pricing.
Granted, I imagine that a good number of people interchange "average" for "median". At least, the average person would... |
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Caligirl43
Posts:133
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| 08/27/2008 9:15 AM |
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| Okay, you people are way too analytical and way too smart for me. Actually, most people I know who live here DO want to buy a house but, like myself, have been priced out. 10 years I could have afforded a house here - my husband and I were actually looking back then - but down payment was an issue and we procrastinated and then before we knew it things were just out of control and our dream of buying a home became just that - a dream. Now down payment is not an issue but home prices are and I refuse to become a slave to a house payment so, again, I will sit and wait a bit longer to see what happens and if I'm still priced out then I've decided to just move. Don't get me wrong, San Diego's a beautiful city with beautiful weather but I'm older now and I think wiser and I'm not about to pay somebody else's mortgage for the rest of my life by way of rent or be a slave to my own mortgage. |
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Caligirl43
Posts:133
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| 08/27/2008 9:19 AM |
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Oops - I mean 10 years AGO.
And, Brian, I actually have been researching the Temecula area and points slightly beyond and am strongly considering that area.
Oh, by the way, I love Brian's posts too. I think anyone who has issues with him actually has issues with themselves. |
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78TTop
Posts:88
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| 08/27/2008 9:45 AM |
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Caligirl43,
My wife and I struggled to buy our first house for many years. So I know what you're going thru.
If you look north, give the Fallbrook area a shot. Fallbrook is still in San Diego county and offers quicker access to the San Diego metro area. It's not as cheap as Temecula but long-term resale value will probably be better.
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SDEngineer
Posts:16
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| 08/27/2008 9:49 AM |
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Posted By 78TTop on 08/27/2008 8:37 AM
Caligirl43,
Also, 8 1/2 years is a long time. In your opinion, what appreciation percentage would you consider acceptable for a home that sold in 2000 and again in 2008? Assume the home is in the city of San Diego, in a nice area, and is well maintained.
That's actually a fairly easy calculation to do. House price appreciation typically is slightly higher (roughly 1/2 %) than the inflation rate (it's tied, for obvious reasons, to wage inflation). This correlation goes back decades, and after all previous bubbles the deflation of the bubble eventually pulls the housing prices back down to that sustainable level.
So 8 1/2 years of price appreciation should result in (using 4.5% as the appreciation rate, which is probably on the high side as wage inflation has actually run under the inflation rate for the past 8 years, and over the long run, house price appreciation is generally lower than 4%):
((1.045) ^ (8.5) - 1) * 100 = 45.4% appreciation from 2000-2008.5.
This suggests that we have about another 15-20% left in the bubble price deflation (from current prices, about 10% more from peak prices, putting total decline at roughly 40% from peak) before we reach a historically supportable pricing range. Incidentally, this also agrees with a fair market rent vs. mortgage PMI (with 20% down) analysis (which also suggests another 15% leg down to reach historical parity).
Of course, in several previous post-bubble fallouts, the housing market overcorrected in the bear-market direction and for a time housing prices were actually lower than that trendline (e.g. in '96-97 it was cheaper to buy a house than to rent it), so while this is a supportable threshhold, I would be hesitant to call a bottom even once that pricing range occurs (especially considering all the foreclosures coming down the pipeline over the next 2-3 years or so). I might very well buy once that last leg down occurs however.
Cheers,
SD Engineer |
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Caligirl43
Posts:133
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| 08/27/2008 9:57 AM |
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Whew SD Engineer - That went way, way, way over my head - but I believe you. It just supports my much less intellectual opinion that home prices still have a ways to go in terms of coming down.
And 78TTop - I actually have taken a few trips up to the Temecula, Menifee, Hemet area but not Fallbrook yet - but I will. I'm also somewhat intrigued by the pictures of Canyon Lake, Lake Elsinore. I'm hoping to land a nice house for $175,000-$200,000 with 20% or more down and have a collective mortgage/insurance/tax payment that is less than my current rent. That is actually doable right now up in those areas; however, I think if I hold out a little longer I can actually get a pretty fabulous house in my price range up there instead of just a nice house. |
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78TTop
Posts:88
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| 08/27/2008 9:58 AM |
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>>> ((1.045) ^ (8.5) - 1) * 100 = 45.4% appreciation from 2000-2008.5.
Wow... did you use a similar calculation when you got married or had your first child? :)
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SDEngineer
Posts:16
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| 08/27/2008 10:15 AM |
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Posted By 78TTop on 08/27/2008 9:58 AM
>>> ((1.045) ^ (8.5) - 1) * 100 = 45.4% appreciation from 2000-2008.5.
Wow... did you use a similar calculation when you got married or had your first child? :)
Eh, I'm a geek, I know it (fortunately, being a geek pays pretty well). I just don't want to buy a house until I'm pretty sure that my down payment equity isn't going to disappear in a wave of alt-A NINJA loan foreclosures (or at least that if it does, that it should rebound pretty quickly).
Looking at historical fundamentals is the best way to be reasonably certain when it makes sense to buy something as expensive as real estate. |
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Brian
Posts:2210
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| 08/27/2008 10:17 AM |
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Housing has nothing to do with inflation.
It's has to do with proportion of income you have to spend on housing.
Think about it, your grand parents spent a certain proportion of income on on their house, so did your parents.
If housing inflation keeps on out-pacing wages, then housing, would represent a larger and larger proportion of income and eventually, nobody, who didn't inherit wealth, would be able to afford a house.
How did we increase standards of living in the last 100 years? By holding housing costs down so that for the same proportion of income, each generation would afford more house for the same proportion.
Do your parents have a nicer house than your grand-parents who had a nicer house than your great-grand-parents?
We are a richer society today because for that same 100% of income we can afford more stuff. Sometimes, things go out of whack, but prices do revert back.
Here's an example.
Your grand parents back in the 1940s probably bought a 900sf, 1-bathroom house for 30% of income. It had no central air and bad insulation. It only had a carport and no sprinkler system or alarm, or microwave.
Now for the same 30% of income, you can get a 2500sf house with 3 bathrooms, with double pane windows and all the amenities.
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HighRiser
Posts:41
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| 08/27/2008 10:17 AM |
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| I found out that a dollar invested in the S&P 500 over the same time period as I owned my house Aug 2000 - Apr 2008 would still be worth just $1. |
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78TTop
Posts:88
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| 08/27/2008 10:27 AM |
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"I found out that a dollar invested in the S&P 500 over the same time period as I owned my house Aug 2000 - Apr 2008 would still be worth just $1."
True. However, had you bought one dollar of Exxon stock or one dollar of unleaded gasoline you'd be way ahead.
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Eugene
Posts:258
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| 08/27/2008 10:30 AM |
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((1.045) ^ (8.5) - 1) * 100 = 45.4% appreciation from 2000-2008.5.
Also don't forget that mortgages were 8-8.5% in 2000 and it factors into affordability.
The article said the 'median price' is 75% higher today. It didn't say houses are 75% higher. The word 'median' is somewhat equal to the word 'typical.' If you look around San Diego, the typical home is much larger today than it was 8 years ago.
Journalism at its best. The original article refers to Case-Shiller index, which tracks resale values of the same properties. June 2008 aggregate Case-Shiller index for San Diego was 175.37. Index is normalized so that January 2000 level = 100. It really means that, if you bought a bunch of single-family residences at random in Jan 2000 and then sold them all during April, May, and June of 2008, you'd make a 75.37% profit.
There's a lot of internal variations, a house in Vista or Santee might sell for 40% profit, but a house in Carmel Valley would sell for 90% over its Jan '00 price. The index takes all those changes and averages them together.
BTW a typical house is not MUCH larger. True, the construction mostly took place at the high end. But the number of houses in San Diego Country did not increase by more than 10% in 8 years. |
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SDEngineer
Posts:16
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| 08/27/2008 10:32 AM |
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Posted By Brian on 08/27/2008 10:17 AM
Housing has nothing to do with inflation.
It's has to do with proportion of income you have to spend on housing.
Think about it, your grand parents spent a certain proportion of income on on their house, so did your parents.
If housing inflation keeps on out-pacing wages, then housing, would represent a larger and larger proportion of income and eventually, nobody, who didn't inherit wealth, would be able to afford a house.
How did we increase standards of living in the last 100 years? By holding housing costs down so that for the same proportion of income, each generation would afford more house for the same proportion.
Do your parents have a nicer house than your grand-parents who had a nicer house than your great-grand-parents?
We are a richer society today because for that same 100% of income we can afford more stuff. Sometimes, things go out of whack, but prices do revert back.
Here's an example.
Your grand parents back in the 1940s probably bought a 900sf, 1-bathroom house for 30% of income. It had no central air and bad insulation. It only had a carport and no sprinkler system or alarm, or microwave.
Now for the same 30% of income, you can get a 2500sf house with 3 bathrooms, with double pane windows and all the amenities.
If you'll note, I said that housing prices were tied specifically to wage inflation in my post. Historically, wage inflation is slightly ahead of the inflation rate, and it's easier to find numbers on the inflation rate than wage inflation, which is why I used that instead. Inflation and wage inflation do become disconnected at times, but over the long run, they do tend towards very similar levels (with wage inflation slightly higher than inflation over the long term for the US). Over the past 8 years however, they are virtually identical (wage inflation has actually lagged inflation by a small amount, meaning that the average Joe today makes a salary that, inflation adjusted, is a percent or two less than Joe made 8 years ago).
Yeah, houses have been getting nicer over time, but that's built into the overall market analysis (if a market appreciates x% over 10 years, the larger newer homes built in the more recent years are part of that market, and responsible for some proportion of that appreciation).
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Eugene
Posts:258
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| 08/27/2008 10:37 AM |
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Changes in house prices in 8 1/2 years across the nation
Atlanta +25%
Boston +62%
Chicago +50%
Cleveland +10%
Denver +32%
Las Vegas +59%
Los Angeles +96%
Miami +90%
Minneapolis +41%
NY +94%
Phoenix +53%
Portland +75%
San Diego +75%
San Francisco +60%
Seattle +78%
Tampa +75%
DC +97%
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