Housing Bubble Popped but why aren't the prices reflecting it? (Tampa: real estate, rent)

[nychiefsfan]

Originally Posted by rstate

Jim King and NYChiefsfan, 120 is a WRONG value and the rent muliplier formula is the WRONG formula to use to price every home in Florida. Since both of you think you're knowledgeable enough to advise everyone on the price to pay for a house, I'd definitely like to know your experience in real estate.

I've stated all along that I know very little about the RE market, but what JK said makes sense from what I've researched. In a falling market, such as right now, it seems to make a lot of sense.

As for experience, how many times have you ever bought and sold in a market that doubled or tripled its value in a couple years.

I can probably answer that...never.

We've never experience such an inflated bubble in housing in the history of home sales.

While I don't have all the experience you may claim to have (I'm not sure what your experience is at this point), I have enough sense not to buy an overpriced home right now. If that formula gives me a number that is approximately what I believe the house is worth, then I can use that formula as a baseline.

What Mike said is also true. It may not work on every home in every area of FL, but it gives me a "ballpark" price that is more in tune to what homes are worth than what they're currently selling for.

[lostbuyer]

while 120 rent multiplier may not be the best way to determine the value of a home...three times income is,so until prices are more inline with what people actually make,houses are still way to overvalued,and I would say its a bad market until prices return to reality....alot of people will suffer along the way,debt,bankruptcy,divorce,ect..but it will be for the best in the longrun...better some unfortunate people now,than a whole poor generation,in a couple of years.....I dont know about you but I want my son to be able to afford a house when he grows up,without having to be rich...

[nychiefsfan]

Originally Posted by lostbuyer

while 120 rent multiplier may not be the best way to determine the value of a home...three times income is,so until prices are more inline with what people actually make,houses are still way to overvalued,and I would say its a bad market until prices return to reality....alot of people will suffer along the way,debt,bankruptcy,divorce,ect..but it will be for the best in the longrun...better some unfortunate people now,than a whole poor generation,in a couple of years.....I dont know about you but I want my son to be able to afford a house when he grows up,without having to be rich...

3x your income can be an ambiguous number if you have student loans (over 80k) and 2 car payments. We're going with 2x our income, and investing what's left over.

[lostbuyer]

Originally Posted by nychiefsfan

3x your income can be an ambiguous number if you have student loans (over 80k) and 2 car payments. We're going with 2x our income, and investing what's left over.

thats true but even 3xs would be way better than what it is now....people who make 45k buying 300k houses...

[rstate]

Originally Posted by nychiefsfan

I've stated all along that I know very little about the RE market, but what JK said makes sense from what I've researched. In a falling market, such as right now, it seems to make a lot of sense.

As for experience, how many times have you ever bought and sold in a market that doubled or tripled its value in a couple years.

I can probably answer that...never.

We've never experience such an inflated bubble in housing in the history of home sales.

While I don't have all the experience you may claim to have (I'm not sure what your experience is at this point), I have enough sense not to buy an overpriced home right now. If that formula gives me a number that is approximately what I believe the house is worth, then I can use that formula as a baseline.

You need to realize that there are many people who read these forums that live throughout Florida that might not be that knowledgeable with real estate but are thinking about purchasing a home. When you and JK state 120 times rent is THE formula to use, these people might put bids on homes using that formula. That formula does not work for every home in Florida and these people might end up either underpaying or overpaying for a home based on this formula. I don't have a problem if that's what you're going to use to value a home, but I do have a problem when you and JK are advising other people to use this formula.

As for my experience, I have a masters in finance, worked 10 years for one of the largest real estate companies in forecasting and pricing and for the last 14 years owned a real estate company (I'm not an agent or broker). But even with my pricing experience, I wouldn't even come close to accurately calculating home values in your city or most cities (other than where I live) and I'd be the first to admit it. There are too many variables and each housing market is different. It's impossible to use one formula that will work accurately everywhere. You need to look at several factors when pricing a home.

[nychiefsfan]

Originally Posted by rstate

I have a masters in finance, worked 10 years for one of the largest real estate companies in forecasting and pricing

First of all, thanks for contributing your thoughts on this topic. You and Mike have more knowledge in this area than most of us, combined. I'll continue to challenge people in the RE biz until there's concrete evidence of the slump ending (yes, I know that RE is local, but the problem is global).

That being said, lets put your forecasting and pricing knowledge to the test.

1. When will the housing slump end in FL and in the US? (Lawrence Yun can forecast this globally )

2. In your opinion, what will the median price of a home be in the US and FL at the time when the market hits the bottom?

3. Will the country go into a recession by the end of the year?

I'm curious about how everyone would answer these questions, as well!!! The answers are time stamped, so we can look back and say, "Yep, rstate was right and NYCF was completely wrong!" or vice-versa.

I'm not a RE pro, but here's my answers, based on my research (and gut feeling) so far:

1. There'll be spikes both statewide and nationwide, but the bottom won't happen in FL until at least 2009 (or probably later). That doesn't mean I'm willing to wait that long to buy a house. If I (or anyone, for that matter) find a house that matches what I'm looking for at the right price, I'll buy it. Nationwide, the US as a whole will recover quicker, with the exceptions of states like CA, FL and AZ. That being said, with the upcoming reset of ARMs, the sluggish economy and current stagflation, the nation won't recover until at least 2009, too.

2. The median household income for Florida (based on a 3 year avgerage, ironically during the housing boom years of 2003-05) was $42,079. According to Century 21, you can afford a home equal in value to between two and three times your gross income. So if the median Florida salary is $42k, then they can afford a home that's worth between $84k and $126k.

The FL median for home prices probably won't drop that low, but should end up somewhere around $140-$160k when it bottoms. The US median should be a little lower.

This answer ties into question 1:

This slump will continue until people can afford homes!!!

3. This answer ties into question 2. If people overspent on housing, then there's less money to spend in the economy. Factor in the people with $42k household incomes that are tied into ARM's right now. If we we're to go into a recession, the most likely time would be the 1st two quarters of next year, as the slump continues to wear on consumer confidence and the housing market. It could be earlier (but I doubt it) and it could be later (more likely).

[lostbuyer]

Originally Posted by rstate

You need to realize that there are many people who read these forums that live throughout Florida that might not be that knowledgeable with real estate but are thinking about purchasing a home. When you and JK state 120 times rent is THE formula to use, these people might put bids on homes using that formula. That formula does not work for every home in Florida and these people might end up either underpaying or overpaying for a home based on this formula. I don't have a problem if that's what you're going to use to value a home, but I do have a problem when you and JK are advising other people to use this formula.

As for my experience, I have a masters in finance, worked 10 years for one of the largest real estate companies in forecasting and pricing and for the last 14 years owned a real estate company (I'm not an agent or broker). But even with my pricing experience, I wouldn't even come close to accurately calculating home values in your city or most cities (other than where I live) and I'd be the first to admit it. There are too many variables and each housing market is different. It's impossible to use one formula that will work accurately everywhere. You need to look at several factors when pricing a home.

I dont think anyone would mind underpaying...

[JimKing]

Of course 120 times rent is not written in stone. 3 times income is not written in stone. But after the market run up of the last 6 years, not supported by any fundamentals, people need a guideline. When appraisers give inflated values to keep working...people need a guideline. When lenders give money to people who can not afford the payments...people need guidelines.

A potential buyer should start with 120 times rent on a comparable house. This gives you a decent starting point. Your initial offer can certainly be less than this number.

Again, this is a messed up and confusing market. Use 120 times rent and if you go over this figure....do a ton of research as to why a house warrants a higher value.

As far as the fellow who brags about his master of finance, etc....meaningless...worthless economists and academics helped lead us into this mess in the first place.

Use 120 times rent as a guide and go up or down from there based on what you see on the street...inventory, home inspection, how long you will be in the house, etc. Again, ignore realtors and everyone in the industry...they caused the problem and are not part of the solution.

[Mike Peterson]

Originally Posted by JimKing

Of course 120 times rent is not written in stone. 3 times income is not written in stone. But after the market run up of the last 6 years, not supported by any fundamentals, people need a guideline. When appraisers give inflated values to keep working...people need a guideline. When lenders give money to people who can not afford the payments...people need guidelines.

A potential buyer should start with 120 times rent on a comparable house. This gives you a decent starting point. Your initial offer can certainly be less than this number.

Again, this is a messed up and confusing market. Use 120 times rent and if you go over this figure....do a ton of research as to why a house warrants a higher value.

As far as the fellow who brags about his master of finance, etc....meaningless...worthless economists and academics helped lead us into this mess in the first place.

Use 120 times rent as a guide and go up or down from there based on what you see on the street...inventory, home inspection, how long you will be in the house, etc. Again, ignore realtors and everyone in the industry...they caused the problem and are not part of the solution.

Once again I will say 120 times rent is a useless figure.
Oh, and ignore realtors but pay attention to some anonymous person on an internet forum?

[lostbuyer]

I think the best thing to do,is look at prices,pre-bubble on a particular house you are looking at, and then determine how close it is to returning to original price,or close enough where you would feel comfortable making an offer..although alot of houses you will have to pass on,because they cant afford to go that low as they bought into the bubble...but you could look at houses that were bought before 2000...Those people are asking high prices just because that was the trend at the time,once prices lower,they could actually afford to sell for less...unless of course they want to wait 10 years for prices to start picking up again,example...there was a house for sale last year in my neighborhood,they wanted 269k 11months later didnt sell,they took it off the market,now its back for sale buy owner this time,dont know the exact price but I would imagine they are still asking low 200s...so I did research on the house,they bought in 99 for 92k,so my theory is if bottom gets called at 145-165k,they shouldnt have a problem selling for one of those amounts....you just have to give them time,to get over the fact their house is no longer worth what they thought it was...