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Old 10-30-2007, 03:10 PM
 
453 posts, read 1,058,452 times
Reputation: 294

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Quote:
Originally Posted by sirwinston73 View Post
In addition, when you say it's based on what a buyer is willing to pay, you forget that buyers buy payments, not price. The past 5 years was full of funny-money mortgages, especially in Arizona, where they bought a low payment without looking at the big picture. Now that the funny-money liar's loans & subprime are gone and we're going back to real 30-yr fixed with down payments and good credit required (THE HORROR! SO UNFAIR!) you're going to see prices dropping hard.

The McMansion that was had for a $1,500 teaser payment is now back to a real $4,000 payment. So, those buyers who were willing to pay $1,500 but who are now forced to pay $4,000 will be dropping out of the pool of qualified buyers very quickly.

It's always about the P/E.

EXCELLENT points.
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Old 10-30-2007, 03:58 PM
 
285 posts, read 499,821 times
Reputation: 198
There are actually several ways of attempting to assign a market value to a house. Unfortunately for the people holding mortgage debt, the industry standard is using the comparative sales approach. In other words what current sellers and buyers are agreeing upon. The flaw to this approach, is that it helps perpetuate a bubble by including the newest "inflated" sales in the comp pool.

The more rational approach used by investors who know what they are doing is the income approach somewhat described in previous posts. This approach assigns a desired rate of return "CAP rate" to a rental income stream that can be realized after certain expenses like management and maintenance. This is known as the discounted cash flow method for those of you who took any finance classes in college. The formula would be something like this (market rent $1,100 - expenses $100 = $1,000 X 12 = 12,000 annual net operating income. $12,000 / 8% cap rate = $150,000). Therefore, an investor who has many options out there on where to invest his money should not pay much more than $150,000 for a house that rents for $1,100. If this method was used for all those so called "investors", we would not be in this mess right now.
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Old 10-30-2007, 04:32 PM
 
Location: Gilbert - Val Vista Lakes
6,066 posts, read 8,381,959 times
Reputation: 3677
The cap rate is not going to work on a single family home whether the home is used for rent, or to live in. Sellers will not give their homes away. As buyers we might wish for that, but I do not foresee it happening.

Appraisers, realtors and home sellers are going to use the comparative market analysis approach because it works best for single family properties. When there is a very high and a very low comp, then the highest and lowest are dropped so as to have a more realistic average.

With all homes in a specific small area selling at 159 per sf, and one that is a distress sale, estate sale, etc sells for 118, possibly to a relative, a good appraiser is going to know that and exclude that comp; the same as if there is one that sells for 180 in the same area because it has gold faucets that the buyer was willing to pay for. That does not make it an average comp in the area so it's discounted.

Bill
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Old 10-30-2007, 04:44 PM
 
419 posts, read 1,047,898 times
Reputation: 172
Regardless of which valuation you prefer, unless incomes in the area rise, then the home prices will continue to fall.

Phoenix had, and still has, LOTS of growth, some white collar, but mostly working class people. The housing growth should reflect this, with more affordable houses being built, not ridiculous price increases that aren't supported by any real earnings.

And I disagree about something: As long as I can remember, it's NEVER been assumed that owning should be cheaper than renting. Owning has always been more expensive until several years into the mortgage.
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Old 10-30-2007, 05:48 PM
 
66 posts, read 23,443 times
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What do you mean? I am having trouble finding a two-storey-detached-house-w/private-pool in the $225,000 range. What would that have started at price-wise 2 years ago?
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Old 10-30-2007, 05:54 PM
 
Location: Tucson
42,844 posts, read 54,396,375 times
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Quote:
Originally Posted by arun196 View Post
the light at the end of the tunnel
You sure it's not the oncoming train?!
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Old 10-30-2007, 06:48 PM
 
124 posts, read 281,399 times
Reputation: 57
It all comes down to what a buyer is willing to pay for a house aka DEMAND! Yes, many homes will lose value very fast (Suprise, Ocotillo, Queen Creek) However, homes in Paradise Valley and other areas with strong demand will continue to increase in value

Last edited by cxray; 10-30-2007 at 07:11 PM..
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Old 10-30-2007, 06:54 PM
 
Location: Mesa, Az
21,157 posts, read 26,433,604 times
Reputation: 3660
For whatever it is worth; I live in S Scottsdale within a stone's throw of Tempe and single family houses here are definitely dipping in price.

And; that is not counting core inflation which can knock about 3% off the real value of any property each year if the 'dollar' amount remains the same.
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Old 10-30-2007, 07:17 PM
 
124 posts, read 281,399 times
Reputation: 57
Quote:
Originally Posted by sirwinston73 View Post
Actually, in a normal market, yes they are. It's always about the P/E.

Before the bubble started around 2001, it was cheaper to own than to rent. That's the whole point of owning. That's the whole point of buying rental properties - to get more coming in via rent checks than you're paying out to the mortgage company.

When the bubble is over, and we finally hit bottom, it will again be cheaper to own than to rent. This has been the case in every real estate boom/bust cycle and this one is no exception. The free market simply won't bear out inflated prices that make ownership more expensive than renting.

I know this is not consistent with the NAR spin you're force-fed, but they have a marketing agenda and I don't. This is simple economic fact.

In addition, when you say it's based on what a buyer is willing to pay, you forget that buyers buy payments, not price. The past 5 years was full of funny-money mortgages, especially in Arizona, where they bought a low payment without looking at the big picture. Now that the funny-money liar's loans & subprime are gone and we're going back to real 30-yr fixed with down payments and good credit required (THE HORROR! SO UNFAIR!) you're going to see prices dropping hard.

The McMansion that was had for a $1,500 teaser payment is now back to a real $4,000 payment. So, those buyers who were willing to pay $1,500 but who are now forced to pay $4,000 will be dropping out of the pool of qualified buyers very quickly.

It's always about the P/E.
These "funny money" loans are not limited to the subprimes and "liars loans" There are people still buying homes on interest only loans over a 5-7 year period. Their intent is the value of their home will escalate to the point they can sell it off before then and make a slight profit and then redirect that sum into a new home. This is still happening today in droves and it won't likely cease any time soon.
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Old 12-04-2007, 11:50 PM
 
89 posts, read 325,151 times
Reputation: 53
Quote:
Originally Posted by arun196 View Post
Have you been watching the 30yr rates since last fed cut????. Visit this thread in 3 weeks, will see where the 30 yr rates will stand, compared to now IF fed cuts the rates.

Right on.........
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