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Old 08-18-2008, 01:48 PM
Location: Chino, CA
1,458 posts, read 2,961,202 times
Reputation: 547


Originally Posted by Humanoid View Post
Well, if you are only doing it to try to make yourself feel better about your home purchase near the peak of the bubble than yeah.....stop and enjoy something else. The damage is already done.

Some people on the other hand (like myself) enjoy economics and thinking about such things.
I find this stuff interesting as well... and I can probably talk about it a lot... But, my wife doesn't like it if I ignore the family... and you know how wives are

And, just FYI, I used 4% appreciation because even during the duration of the last downturn early 90s... California's GDP had higher than 4% annual growth. Currently we're at ~1%? growth.

I'm not randomly choosing date ranges. I'm using the data I have available. I don't have P/I data before the 80s so hence why I'm using P/I ratios in the last 26 years. Historically rates were in the 8% range pre-80s... but like I said I don't have P/I ratios for that time period. So, I used 2001/2002 P/I (pre-bubble) with a rate of 7% which showed 4.7X and 5X P/I ratios.

I wasn't assuming there's a linear relationship between interest rates and nominal home values. The relationship between Interest Rates and Nominal Values would require a larger study. That is why I pointed toward the HOI for a better measurement of affordability than P/I ratios and interest rates.

I don't think it's funny to laugh at a 9% unemployment rate... a lot of people are struggling. In the early 90s we had double digit unemployment rates. Either way... it's not funny that people are struggling.


Last edited by chuck22b; 08-18-2008 at 02:00 PM..
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Old 08-18-2008, 02:40 PM
Location: Humboldt Park, Chicago
2,686 posts, read 7,003,906 times
Reputation: 1185
Default Chuck you are smart too


I am perhaps less optimistic than you as I am looking to pick up another property. So long as rents hold out I don't really care too much about home price declines. Bigger declines will help me in the short-run. In the long run (10-15 years from now), what I bought in 2004 and 2006 will appreciate, even in real terms, though Humanoid may disagree.

You are both smart people, just have differing opinions. It will be interesting to see how this whole thing shakes out with regards to bottom. Clearly, we aren't there yet. Even my realtor in Chicago this afternoon told me she thinks it will be mid summer next year before we see bottom. This to me means it will be after Summer 2009 before prices bottom, perhaps early to mid 2010.
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Old 08-18-2008, 05:25 PM
Location: Los Angeles Area
3,306 posts, read 3,456,745 times
Reputation: 592
I am a little more optimistic than you Humanoid, perhaps not as optimistic as Chuck
The problem is you are looking at Chicago. I really have no idea what the situation is like in Chicago. Clearly real estate is inflated there, but to what degree? Don't know. But from looking at the data at a distance it doesn't seem Chicago is going to decline as much as the Los Angeles area.

Just curious, when would be a good time for someone like me to buy property (non-foreclosure) in California as an investment?
I suggest you investment in something more useful!

Inland Empire: early/mid next year 2009
LA General: mid/end next year 2009
LA/OC Affluent/Coastal: mid 2010
This prediction is odd given the available loan data. The majority of the subprime foreclosures should have worked there way through the system by the end of 2009, but the coming wave of At-A foreclosures will last well into 2011. The At-A foreclosures will effect more of the med/high end homes, but as the med/high end homes drop in value so will the low end (Why buy a crappy house when for a little more you can get a nicer one).

Also, the inland empire may be weak for much longer. It was way more overbuilt than other areas and the main reason people moved out there was not because its nice but rather because they could not afford to live in LA/OC. As prices falls in the more attractive areas not only will people move from the inland empire to them, but less people will move from them to the inland empire. How you see a "bottom" in the inland empire next year with 9% unemployment is really beyond me (The unemployment numbers are getting worse each month, not better).

Humanoid, can give a set time frame for his "predictions" since he's the smart one.
There are too many wild cards to give realistic long term predictions, but assuming the economy stabilizes (both nationally and in California) than prices should decline into 2011. Real estate will likely remain weak until around 2015. If the tax/spend democrats remain in power, the situation could be worse, currently the state is bleeding both business and talent.

what I bought in 2004 and 2006 will appreciate, even in real terms, though Humanoid may disagree.
Of course I will because it MAKES NO SENSE. What you are imply here is there is going to be another multi trillion dollar credit bubble. The last time this happen was in the 1920's. You lost at least $100k, there is no way to sugarcoat it.

Even my realtor in Chicago this afternoon told me she thinks it will be mid summer next year before we see bottom.
Its sort of a funny thing, but in major market corrections like this so long as people are talking about "the bottom" coming soon the bottom is years away. When amature real estate investors as yourself stop talking about "picking up deals", then that will be a indication that the bottom is near.

Perhaps you should start to think which bank is going to be stupid enough to lend someone who is underwater in two properties money to purchase another one. I would love to be the underwriter on that loan application!

I don't think it's funny to laugh at a 9% unemployment rate... a lot of people are struggling.
Haha! I love every minute of it! Its truly awesome to see the free markets punish the leeches in this economy. Of course there will be innocent victims, but the majority of people that are struggling deserve every minute of it.
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Old 08-18-2008, 10:17 PM
Location: Columbia, SC
9,096 posts, read 18,097,739 times
Reputation: 6728
Originally Posted by chuck22b View Post
What do you guys think? Would this be a possible way to somewhat "right" price a house? Take the 2001 price and multiply by (1.04)^8... basically taking 2001 price and adjusting it for inflation. Could that be the "right" price of the house today. Multiply the result with (1.04)^X (where X is the number of years you plan to stay there) and that is the "potential" price you will get when you sell. Based on that information you can determine whether or not it is "worth" it to stay or sell now.

Say a house was 200k in 2001. In 2008 the nominal price should be at
200 * (1.04)^7 = 263k. So if you paid 350k you'll have to sell it at around 263k or a lost of ~90k to get it to inflation adjusted price. Otherwise, you can wait X years for inflation to catch up to break even.

P * (I)^X = F

P = Past price (base year pre-bubble)
I = Inflation rate OR traditional/historical appreciation rate
X = Years
F = Future price

To get number of years from P until F price:
X = ln(F/P) / ln(I)

So, X = ln(350/200) / ln(1.04) = 14.25 years from P (2001)
or 7 years from now 2015, until someone who purchased for 350k will see break even.

Calculate your situation accordingly.

What do you guys think? It depends on what you consider is the "base" year pre-bubble for your area and not counting any upgrades to the house since 2001. For a new development that wasn't around pre-bubble, you would have to find something comparable built in the pre-bubble time period.

No...different areas appreciate at different rates. Don't try and complicate it because there is no universal formula. A home purchased at 200k in 2001 in my market may have never attained 263. Just price the area accordingly with comparable sales.
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