U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Real Estate
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 08-13-2008, 02:18 PM
 
Location: Chino, CA
1,458 posts, read 2,958,817 times
Reputation: 546

Advertisements

Quote:
Originally Posted by leavingbyron View Post
My equation is take the price someone paid for it, multiply the "historical" appreciation (in our case 3-5%/per year) x how many years the sellers had it.

I don't take into account inflation.
Yup, that's pretty much what I did... except I didn't take the price they paid for it in the last 5 years since that could still be "bubble" prices. I'd take a price pre-bubble and do the same calculation.

Using the Case-Schiller Report... Los Angeles historically has a 5.77% annual appreciation (average since 1987). For the 10 major metropolitan area, it had a 5.02% annual rate of appreciation (since 1987), and for the 20 major metro areas, had an 8% appreciation (since 2000).
S&P | Indices > Alternative Indices - S&P/Case-Shiller® Home Price Indices - Home Price Values

So, historically speaking, houses appreciate faster than inflation rate as also seen in the Census Data since the 1940s.
Historical Census of Housing Tables - Home Values

So, using inflation rate of 4% appreciation is still being very conservative in calculating the "right" price. Considering that in the first quarter we were at around 2004 prices... I think we're pretty close to a bottom in prices. If lending returns to 2002 standards, and buyers/sellers finally agree that prices are where they should be it should stabilize around the inflation/appreciation adjusted price range.

In January 2000 median price in LA was: 198k (dataquick archive)

with 5.77% appreciation then 198k * (1.0577)^9 = 328k

In June 2008 it was: 355k (dataquick)

So, in June 2008, we're about 27k from the inflation/appreciation adjusted price... or 7.36% from fair value. I think we'll see a potential price bottom here in LA sometime early to mid next year. If lending practices return back to normal, and the economy is somewhat back to normal.

-chuck22b

Last edited by chuck22b; 08-13-2008 at 02:51 PM..
Reply With Quote Quick reply to this message

 
Old 08-13-2008, 02:18 PM
 
43 posts, read 94,295 times
Reputation: 32
Chuck, I've been doing the exact same calculation when looking at houses. We're looking to buy in the next three months, and we're only going to look at homes that fall with that reasoning.

Historically, homes have increased in value at around the same pace as inflation. By eliminating the bubble years (2002-2006) you can very quickly determine what a fair price for a home is. Odds are, once the market has finished correcting, the house's value will be in that ballpark.
Reply With Quote Quick reply to this message
 
Old 08-13-2008, 02:25 PM
 
Location: GA
2,753 posts, read 9,590,851 times
Reputation: 1126
chuck, you're thinking too much
Agree that it depends on area, so a calculation won't work.
Reply With Quote Quick reply to this message
 
Old 08-13-2008, 02:54 PM
 
Location: Chino, CA
1,458 posts, read 2,958,817 times
Reputation: 546
Quote:
Originally Posted by brookdaleresident View Post
chuck, you're thinking too much
Agree that it depends on area, so a calculation won't work.
Can't help it , I like numbers and am uber analytical by nature...

You can always look up local data (local appreciation rates, local median price or price of the house you want to purchase/sell) and apply a similar calculation to get a "ballpark" figure.

-chuck22b
Reply With Quote Quick reply to this message
 
Old 08-13-2008, 02:59 PM
 
Location: Chino, CA
1,458 posts, read 2,958,817 times
Reputation: 546
Quote:
Originally Posted by mdesler View Post
Chuck, I've been doing the exact same calculation when looking at houses. We're looking to buy in the next three months, and we're only going to look at homes that fall with that reasoning.

Historically, homes have increased in value at around the same pace as inflation. By eliminating the bubble years (2002-2006) you can very quickly determine what a fair price for a home is. Odds are, once the market has finished correcting, the house's value will be in that ballpark.
That's great mdesler! so, there's some validation to the equation Historically speaking though... houses appreciate a little more than inflation... which could be seen by averaging appreciation rates historically with the Schiller report (even taking the bubble years out), and through the census data reports since 1940s.

Good luck on your search!

-chuck22b
Reply With Quote Quick reply to this message
 
Old 08-13-2008, 03:20 PM
 
3,191 posts, read 8,243,924 times
Reputation: 2177
Okay then. Previous owner just happened to buy this in 2003 for 165k. the formula gives me 201, 300 for now. We would never get that now and I would be shocked to next year. Not with all these shortsales and foreclosures and walkers as comps.

Applying the formula to that 2oo3 price, back to 2007 when we bought, the house would have been 193050...we paid 185K...close,hmm.
Reply With Quote Quick reply to this message
 
Old 08-13-2008, 03:28 PM
 
Location: Nashville, TN
1,177 posts, read 3,732,370 times
Reputation: 937
chuck, it's a nice attempt to try to simplify house pricing but it leaves to many other factors out. A couple of those factors include buyer demand and seller motivation, which in the end will determine market price. Using your formula, you still could either be paying too much for a house or selling it for two little. Also, all prices that are the same are not necessarily equal when you factor in any concessions, contingencies, type of financing, etc. In many areas your house appreciation number could change from subdivision to subdivision, convenience factors, crime factors, school factors, transportation factors, etc.
It would be nice if it was as simple as you are proposing it but their are just to many other factors that also have to be considered, including the human factor.
Reply With Quote Quick reply to this message
 
Old 08-13-2008, 03:33 PM
 
Location: GA
2,753 posts, read 9,590,851 times
Reputation: 1126
Quote:
Originally Posted by chuck22b View Post
Can't help it , I like numbers and am uber analytical by nature...

You can always look up local data (local appreciation rates, local median price or price of the house you want to purchase/sell) and apply a similar calculation to get a "ballpark" figure.

-chuck22b
Actually, I am too. I'm just so overwhelmed right now with selling, packing and buying, my head is spinning
Reply With Quote Quick reply to this message
 
Old 08-13-2008, 03:33 PM
 
Location: OK
2,743 posts, read 6,484,569 times
Reputation: 1890
Appraisers use that method if they need to use comparable sales that go back in time in order to bring it up to today's value.Of course the reverse is true as well in a declining market.

But you would have to start out with solid numbers.
Reply With Quote Quick reply to this message
 
Old 08-13-2008, 03:43 PM
 
Location: Chino, CA
1,458 posts, read 2,958,817 times
Reputation: 546
Quote:
Originally Posted by crazyma View Post
Okay then. Previous owner just happened to buy this in 2003 for 165k. the formula gives me 201, 300 for now. We would never get that now and I would be shocked to next year. Not with all these shortsales and foreclosures and walkers as comps.

Applying the formula to that 2oo3 price, back to 2007 when we bought, the house would have been 193050...we paid 185K...close,hmm.
Interesting... so it seems that your area's rate of appreciation is less than 4%/inflation ... historically speaking... is the economy growing/shrinking in your area? is the population growing/shrinking in your area? Housing inventory growing/shrinking in your area (or have had unusual build-up levels in the past years)? Would it be possible to find the historical growth rate (pre-bubble) in your area via zillow?

If the economy and population is growing and there isn't much inventory... then the foreclosures/walkers are causing a short term anomaly in pricing in your area... and in the most part I would wait it out. If the economy and population in your area is falling and you can see it falling in the future... than your area may have a negative appreciation rate.... Detroit, and parts of the Mid-west have had negative appreciation rates because of economic/population factors.

Take all of this with a grain of salt... I'm not an expert... and my opinion is just an opinion *disclaimer*

-chuck22b
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Real Estate
Follow City-Data.com founder on our Forum or

All times are GMT -6.

© 2005-2019, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top