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Old 05-17-2012, 12:20 PM
 
Location: outer space
484 posts, read 877,700 times
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On a related note: The Phoenix market is looking to be almost "hot" again.

http://www.city-data.com/forum/phoen...s-tanking.html

Note: misleading title
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Old 05-17-2012, 12:21 PM
 
11,715 posts, read 37,154,474 times
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Quote:
Originally Posted by DocGoldstein View Post
Even if you assumed a friendly 4%, bubbles always over correct, and we're also assuming that there is normal employment. But most importantly we're also assuming there is wage inflation of at least 4% per year as well since incomes are one of the primary factors that determine what any individual can afford.

I think those assumptions would be flawed, making the "4% inflation back to normal" model flawed as well (IMO).
Look how much the 1990 bubble over corrected relative to the 4% line and that bubble and recession were nothing compared to this one.
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Old 05-17-2012, 12:28 PM
 
Location: Lafayette, CA
2,518 posts, read 3,585,963 times
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Quote:
Originally Posted by EscapeCalifornia View Post
Look how much the 1990 bubble over corrected relative to the 4% line and that bubble and recession were nothing compared to this one.
Exactly, and that graph is assuming a fairly pretty picture of 4% per year. If you assume even a half to one percent lower...

Additionally, during the 1990s bubble which I went through as a young newly married grad, there weren't as many government props having such an effect on the market. No FED pumping money into the failed banking system, no artificially low rates, no HAMP/HARP, artificially constrained supply, and definitely no looming global banking crisis. The downside to housing that exist right now is simply overbearing, like a boulder above buyers heads that is supported by fishing line. Our government has turned this rigged market into a carnival game. The best way not to lose your hat is to not participate.

To say that real estate prices in LA/OC, or the SF Bay Area are back to "normal" is to purposefully put one's head into the sand and ignore all the factors that could potentially sink real estate prices even more. Scary, I know.

But simply look at where prices are now, and where wages are. Do people think it's feasible to buy a $750,000 SFH in Irvine with a $120,000 income? Even with 20% down, the risk would be enormous.
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Old 05-17-2012, 12:44 PM
 
11,715 posts, read 37,154,474 times
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Quote:
Originally Posted by DocGoldstein View Post

To say that real estate prices in LA/OC, or the SF Bay Area are back to "normal" is to purposefully put one's head into the sand and ignore all the factors that could potentially sink real estate prices even more. Scary, I know.

But simply look at where prices are now, and where wages are. Do people think it's feasible to buy a $750,000 SFH in Irvine with a $120,000 income? Even with 20% down, the risk would be enormous.
I think to some degree, the numbers are being skewed by new money coming into the market that won't be reflected in the local incomes. I would be curious to know what percentage of people who've owned their homes for more than 10 years in LA/OC/SF could afford to buy their house at current market prices.
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Old 05-17-2012, 12:53 PM
 
Location: Las Flores, Orange County, CA
26,345 posts, read 85,983,539 times
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Quote:
Originally Posted by DocGoldstein View Post

But simply look at where prices are now, and where wages are. Do people think it's feasible to buy a $750,000 SFH in Irvine with a $120,000 income? Even with 20% down, the risk would be enormous.
People are still buying them though. There doesn't seem to be a shortage of buyers. This discussion has popped up here before....the $120K median income for Irvine and the five or six times median house price. It's unusual but it continues. Yes, the prices continues to drop (about 5% a year in the past two years for SFR in Irvine). I don't have an explanation.

Homes for Sale in 92626 | Redfin
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Old 05-17-2012, 12:55 PM
 
Location: Las Flores, Orange County, CA
26,345 posts, read 85,983,539 times
Reputation: 17614
Quote:
Originally Posted by DocGoldstein View Post
Even if you assumed a friendly 4%, bubbles always over correct, and we're also assuming that there is normal employment. But most importantly we're also assuming there is wage inflation of at least 4% per year as well since incomes are one of the primary factors that determine what any individual can afford.

I think those assumptions would be flawed, making the "4% inflation back to normal" model flawed as well (IMO).

I admit it isn't perfect and 4% is just an assumption but my point is, the current environment doesn't seem to support continued bubble bursting. It may trickle down for a while but it isn't like we're in 2006 again.
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Old 05-17-2012, 12:59 PM
 
11,715 posts, read 37,154,474 times
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What is the average annual change in incomes over the same time period?
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Old 05-17-2012, 01:14 PM
 
Location: Lafayette, CA
2,518 posts, read 3,585,963 times
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I think if the FED and the powers that be had let the correction take place naturally, and hadn't jumped into the mortgage business full force in 2009 in a futile attempt to prop up the market, here in 2012 we might have a normal, fully corrected market.

Instead we have a Frankenstein created by the most destructive implementation of the ZIRP policy ever seen in U.S history.

Japan tried this too, and you know what? 20 years later prices are back to normal, and guess what? Home prices are still falling.

All these props do is kick the can down the road, further and further. But what we do know is all bubbles eventually correct, and all of them also over correct. We haven't even finished the first part (return to normal).

I'm not going to predict the future of the U.S housing market, but I see a long road of correction if the FED continues down this path, and a lot of pain for the middle class.
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Old 05-17-2012, 01:20 PM
 
Location: Lafayette, CA
2,518 posts, read 3,585,963 times
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Quote:
Originally Posted by EscapeCalifornia View Post
What is the average annual change in incomes over the same time period?
I don't have a YOY breakdown from 1980 to 2010, but I do know that wages for the most part are stagnant, while prices of goods are not. As a country we make the same amount of money we did in the 1980s, but pay more for things that we need (food, gas, shelter).

In fact, disposable income for the average U.S citizen is at its lowest point since the Great Depression, and consumer debt is at its highest levels EVER.







Does this sound like all the ingredients for a housing recovery?
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Old 05-17-2012, 05:40 PM
 
Location: Whittier, CA
494 posts, read 1,702,679 times
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Prices longterm track inflation in income, which makes sense. We have not had a 4% steady inflation in income, on the contrary wages have contracted and the job market itself has become more volatile... by this metric home priced should be trending downwards.
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