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Old 08-13-2008, 03:46 PM
 
Location: Chino, CA
1,458 posts, read 2,958,572 times
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Quote:
Originally Posted by gbone View Post
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.
Yup, of course... there's no simple solution... but just trying to get a ball park figure is nice to have in one's mind. I agree, all that extra information are local factors that a simple calculation would not be able to get... so a market expert is always good to have. Of course, after getting a ball park number too

-chuck22b
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Old 08-13-2008, 03:58 PM
 
9,568 posts, read 27,038,241 times
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Exclamation E=mc2

I'm guessing Charles is either a software developer or a chemical engineer.

Either way, that OP makes my head hurt!
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Old 08-13-2008, 04:09 PM
 
Location: Chino, CA
1,458 posts, read 2,958,572 times
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Quote:
Originally Posted by North_Raleigh_Guy View Post
I'm guessing Charles is either a software developer or a chemical engineer.

Either way, that OP makes my head hurt!
Sorry, wasn't trying to make peoples' heads hurt ... and ... good guess you are right

-chuck22b
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Old 08-13-2008, 04:13 PM
 
3,191 posts, read 8,243,147 times
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chuck...we have only been here a short while so I have no real feel for the local economy. Wichita is just weird
End of '06 and first of '07, this particular neighborhood had homes selling as high as the low 200's, but this year it has dropped. There are currently 2 over 200K but one is horrible and the other has an owner living in la la land. This is a nice neighborhood, on the lower end of prices for the immediate area. I consider in between the starter homes areas<125K and the higher end, say >250 ish. And this price point seems to be the sluggish one.
I know one thing, if those Union people from Hawker Beechcraft don't get their fannies back to work and play right, then there might be a whole lot more houses 'emptying' IMO
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Old 08-13-2008, 04:34 PM
 
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
6,958 posts, read 19,165,100 times
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So Chuck, My parents bought a house in Sunnyvale, CA in 1958 for $14,500, added a 2 bedroom addition to it in 1960 for $4000. Data & Graphs - Real Estate Value, Local Real Estate Trends | Zillow Real Estate

In 1979 they sold it for $180K and today zillow (I know I know) says it's around $1.26M now and that it was worth $480K 10 years ago. I like the concept of what you're trying to do, but I just don't think it works that way in the real world.

Good luck at perfecting your algorithm.
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Old 08-13-2008, 04:42 PM
 
Location: Olympus Mons, Mars
5,677 posts, read 8,588,145 times
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If you want a ballpark figure then take 2.5-3.0 times median income for the median home price in an area, that is a historic relationship with the higher priced areas like SoCal closer to 3.0. Rents are also another metric, a first time buyer usually will not want to spend more on the total cost than what he is paying for rent, so PITI+HOA+Maintainence = monthly rent.

Example: 1800sqft townhome in Mission Viejo, CA will rent for $1800/month. That same townhome is priced at about $450,000 now. Work with those numbers to estimate how much prices should fall. Also figure in that 20% down for a $450k home is a staggering $90,000, an amount MOST first time home buyers do not have, even 10% down $45,000 saved up in these tough times is a TALL ORDER!
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Old 08-13-2008, 05:35 PM
 
Location: Chino, CA
1,458 posts, read 2,958,572 times
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Quote:
Originally Posted by k374 View Post
If you want a ballpark figure then take 2.5-3.0 times median income for the median home price in an area, that is a historic relationship with the higher priced areas like SoCal closer to 3.0. Rents are also another metric, a first time buyer usually will not want to spend more on the total cost than what he is paying for rent, so PITI+HOA+Maintainence = monthly rent.

Example: 1800sqft townhome in Mission Viejo, CA will rent for $1800/month. That same townhome is priced at about $450,000 now. Work with those numbers to estimate how much prices should fall. Also figure in that 20% down for a $450k home is a staggering $90,000, an amount MOST first time home buyers do not have, even 10% down $45,000 saved up in these tough times is a TALL ORDER!
I've always wondered where the 2-3X income comes from and how they determined this ratio. Historically, LA area has had 4.5X (average from 1980 - 2000) median income and nationally it'd be around 3X income (1980-2000). I excluded the years above 2000 since they were "special/bubble" years.

Bonus table

According to city-data... estimated median household income for Mission Viejo in 2005 was 90,855 so let's say it's at 95k now? So 4.5 X 95 = ~$428k

In 2000, Mission Viejo Medium home was 293k (city data). So, using appreciation formula 293k X (1.0577)^9 = 485k

According to City-data, Medium Home Price for the second quarter is around $465k?
http://www.city-data.com/city/Missio...alifornia.html

So, does this mean prices are currently in the "right" range? 428k-485k

-chuck22b

Last edited by chuck22b; 08-13-2008 at 06:28 PM..
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Old 08-13-2008, 06:48 PM
 
Location: Olympus Mons, Mars
5,677 posts, read 8,588,145 times
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Quote:
Originally Posted by chuck22b View Post
I've always wondered where the 2-3X income comes from and how they determined this ratio. Historically, LA area has had 4.5X (average from 1980 - 2000) median income and nationally it'd be around 3X income (1980-2000). I excluded the years above 2000 since they were "special/bubble" years.

According to city-data... estimated median household income for Mission Viejo in 2005 was 90,855 so let's say it's at 95k now? So 4.5 X 95 = ~$428k

In 2000, Mission Viejo Medium home was 293k (city data). So, using appreciation formula 293k X (1.0577)^9 = 485k

According to City-data, Medium Home Price for the second quarter is around $465k?
http://www.city-data.com/city/Missio...alifornia.html

So, does this mean prices are currently in the "right" range? 428k-485k

-chuck22b
Median home price in Mission Viejo is around $530,000 as of June 2008 (I averaged halfway between the 2 zips 480k-580k).
http://www.ocregister.com/articles/h...2083216-estate

Well using your own tables and information you can see that 2006 price to income ratio was 10X and during the pre 90s bottom it went down to 3.8, during 97 bottom it went down to 4.0. So that's 60% drop peak to trough.

Taking a 4.0X factor on income even on 90k that's $360k, or 32% drop from current prices. The median has already dropped 27% according to DataQuick so that a total peak to trough drop of almost 60% just as expected.

All using your own data!!!

As for why I kept income at $90k, you've heard of inflation right? Incomes are not even rising to keep pace with inflation so whatever increase in income is being eaten away by higher cost of living and then some. Affordability is decreasing not increasing.
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Old 08-13-2008, 07:03 PM
 
Location: Chino, CA
1,458 posts, read 2,958,572 times
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Quote:
Originally Posted by k374 View Post
Median home price in Mission Viejo is around $530,000 as of June 2008 (I averaged halfway between the 2 zips 480k-580k).
Money: 28 O.C. ZIPs up for sale, 3 for price | home, median, real, estate - OCRegister.com

Well using your own tables and information you can see that 2006 price to income ratio was 10X and during the pre 90s bottom it went down to 3.8, during 97 bottom it went down to 4.0. So that's 60% drop peak to trough.

Taking a 4.0X factor on income even on 90k that's $360k, or 32% drop from current prices. The median has already dropped 27% according to DataQuick so that a total peak to trough drop of almost 60% just as expected.

All using your own data!!!


As for why I kept income at $90k, you've heard of inflation right? Incomes are not even rising to keep pace with inflation so whatever increase in income is being eaten away by higher cost of living and then some. Affordability is decreasing not increasing.
Of course if you pick and choose the lowest P/I ratio in the 20 year period and choose the lowest income (2005), and use median price from a difference source... things would come out differently. You previously stated 2.5-3 P/I as the "historic" relationship (which I went ahead and looked up from the Harvard Joint center for Housing Studies) . I took Median Income and Price from city-data, and took a historical average pre bubble < 2000 P/I ratio. So, I was trying to be "unbiased" in my calculations. But obviously if you take the lowest P/I and discount "inflation"/increase in wages but don't care about inflation in home values... etc. you can make things look worse.

Also, we're talking about Mission Viejo here which should have a higher P/I than the average for LA metro area. So using 4.5X P/I is still conservative. Secondly, the 95k can be derived from looking at the difference between 2005 and 2000 (90k-78k = 12k and divided by 2 would give 6k or ~95k in 2008).

-chuck22b

Last edited by chuck22b; 08-13-2008 at 08:22 PM..
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Old 08-13-2008, 07:42 PM
 
Location: Wouldn't you like to know?
9,114 posts, read 15,666,769 times
Reputation: 3695
Quote:
Originally Posted by chuck22b View Post
Of course if you pick and choose the lowest P/I ratio in the 20 year period and choose the lowest income (2005), and use median price from a difference source... things would come out differently. You previously stated 2.5-3 P/I as the "historic" relationship (which I went ahead and looked up from the Harvard Joint center for Housing Studies) . I took Median Income and Price from city-data, and took a historical average pre bubble < 2000 P/I ratio. So, I was trying to be "unbiased" in my calculations. But obviously if you take the lowest P/I and discount "inflation"/increase in wages but don't care about inflation in home values... etc. you can make things look worse.

-chuck22b
Chuck, most of what you say is correct in regards to historicals and income to home value ratios......I've been echoing here for a long time that many, many markets will need to come back closer to historicals...(ie phoenix couldn't obv sustain where it was 2-4 years ago...LOL)

Good work
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