Housing market drop, how far? (real estate, foreclosure, mortgages, buy)

[Humanoid]

So far the housing market in California has dropped faster than I thought it would, how far do you think it will drop from peak? Not only that rents seem to be dropping too (I find this funny given all the arguments as to way they would increase).

So for those of you that are thinking of buying in the next 1-3 years what events are you waiting for before you buy? That is what events do you think will signal that we are near the bottom of the correction?

[CouponJack]

Humanoid, I personally think much of California is still due for a major haircut. Too much inventory and not enough qualified buyers. Just like Vegas, NJ/NY/LI and Florida.

Contrary to what people are hearing in the media, The crash in bubble areas has affected a good portion of my area (Charlotte) because we are so reliant on Transplants.

When the good people from CA, LV, NY/NJ, FL, can't sell their homes they are left w/1 of 2 scenerios. Either commit financial suicide and carry two mortgages or let the deal fall through....

Also, throw in the negative news that's going to happen this year w/all the ARM's still needing to reset and it ain't gonna get pretty anytime soon.

To me, I'd be surprised if we reached a bottom in those areas this year.

[Philip T]

Looking at past regional downturns -- The "Rust Belt" in the late '70s/early '80s and the "Oil Patch" late 80's -- it takes about 4 to 5 years to let things settle down and start again. But those were only regional.

Comparing to the 1930s, it took 10 years and a geniune war to clear the mess.

To get past the mess, you have to clear the folks who want to sell but are holding on for past fantasy, and you have to clear the REOs and foreclosures, and then their discounted resales. And by the time the 4 to 5 years passes, the entire market driving the prior mess has shifted away. So it never recovers to what it once was, just something later and (hopefully) different.

To call all this a "correction" is at best a euphemism that attempts to conceal what America has been trying to do is simply not workable.

[StealthRabbit]

I'm betting on the 5 -7 yr recovery plan, tho I will will be buying and selling during the process if the prices and activity is worthwhile. I don't plan to sit and wait if screaming deals are popping, (that would not include residential, unless on acreage with view) but for signals, I'd keep a close eye on total inventory + days on market (including those that are pulled from the market due to inactivity.) and activity in your chosen area, including rents / vacancies, both commercial and residential. I'd be less inclined to listen to the news, professional analysts, or (r)ealtors. It would be good to have a friendly banker to take to lunch on a monthly basis to get a feel for regional economic activity.

[businezguy]

Originally Posted by Humanoid

So far the housing market in California has dropped faster than I thought it would, how far do you think it will drop from peak? Not only that rents seem to be dropping too (I find this funny given all the arguments as to way they would increase).

So for those of you that are thinking of buying in the next 1-3 years what events are you waiting for before you buy? That is what events do you think will signal that we are near the bottom of the correction?

Normally a drop in housing brings about an increase in rentals. The problem with this market is that forclosures are bringing so much inventory on the market at affordable prices, it's actually competing with rentals. Also, those who are trying to save their homes (especially speculators), are trying to rent them out, bringing the amount of rental inventory up.

These are historical times of which can only be compared to The Great Depression, but without the MAJOR downturn in the economy (so far).

[tallrick]

When the median home price of an area is 3 times the median income. Otherwise it's all a bubble.

[Bob The Builder]

Originally Posted by tallrick

When the median home price of an area is 3 times the median income. Otherwise it's all a bubble.

I agree. It is almost as simple as that. The bottom up fundamentals approach to valuation is the only currently justifiable method of valuation.

In the past few years people relied on "comps", "trends", "wishful thinking", "psychology","hype","puffing"... anything but fundamentals. And here we are.

I don't see returning to crazy financing of a home at 8-10 times median income as a solution, but the root of the problem. Very few people would agree since this conflicts with their self interest in believing their homes values are safe and it's the other guy's house that is dropped in value.

When I started hearing EVERYONE say "we could not afford to buy our current house at the current price", that's when I knew something was very seriously wrong.

[goodbyehollywood]

I agree with tallrick's assessment, from a logic standpoint, but I just don't see how that will happen in coastal CA. Back in the late 90s, when people were gambling with tech stocks instead of real estate, housing didn't hold to that multiple. You had people with way under $100K incomes buying $400K cottages... and being happy to do it.

IMO, it wouldn't have to get anywhere near a 3:1 multiple before buyers would be rushing back into the desirable coastal areas. If I could buy my old beach bungalow back for anywhere near what I paid for it back in 2000, I'd do it all over again and not care if it appreciated a penny. It would be a lifestyle decision, not an investment, and I suspect there are a lot of like minds out there.

[baystater]

On a national level? Who knows you guess is an as good as mine. But I been watching certain areas of the country and I’m find that how well your real estate market is doing or is going to do is a end result of what is going on or has happened in those regions for the past couple of years. Here are some observations. I’ve made.

1. So States like Fl., CA, and NV. Where speculators when wild for a couple of years. You’re seeing a sharp and steep drop in prices and there seems to be no end in sight on inventory. I actually think these places in the end will stop bleeding first and will start making a recovery sooner. I know it sounds insane. But here’s my reasoning behind it. Since there were a lot of speculators in these markets. These people are more willing to walk away from the home and let the bank foreclose on the home. The Bank wants to get rid of these homes because basically BANK ARE NOT IN THE BUSINESS OF RENTALS. And even though the thought of taking a loss on a home seems counter productive to the banks best interest. Hang on to the home and hoping to get the money back on a home that has loss value is just a stupid idea at this point. Plus on top of that they have to pay for the up keep and pay taxes for the home while they have possession of the home. So I think the bank will be willing to take a huge up front loss on the home in order to dump the burden of the house. So my guess is that it will take a while to clear out the inventory of homes but these market will correct themselves soon rather than later. My guess is bottom in 2 – 3 years, flat for 3 years then maybe some growth there after.

2. I markets like my birth state of MA. It going to be a slower decline but probably almost as serve as the speculation states. We have a situation here of people that either did speculate on own a home but were not necessarily flippers. I think a lot of the folk in these type of areas bought home to live in at inflated because they thought in the end they would still make a big profit by the time they decide to sell the home. Which is still possible if you can wait 10 years for the market of fully recover. I think these areas are the slow leak areas the people who bought are not going to let go of there homes for rock bottoms prices and also are less likely to let the homes go into foreclosure even if they are losing value as the present time. These markets are going to take a lot longer to recover. I guessing 3 years to stop the falling prices and 5 years, then flat for 5 years, Then maybe some growth after that.

3. I’m markets like OH, southeast MI, and western NY. I not sure when those market will come back. These markets really didn’t have a bubble to begin with. But the home prices are down and the inventory is up. I think these areas problems have more to do with local economies than with home prices. I also think it going to take these places a long time to right themselves. Granted because I’m more of a venture capitalist type (a.k.a. crazy) in real estate. I prefer these types of places to invest. Yeah the risk is high but the rewards are good if there is a turn around. You just have to be patient.

4. Now this might be a weird statement but I think this is going to be true. That is Manhattan NY. Will either not lose any value or will only lose a little value. This is because of Capt. Bernake cutting rates and making the Euro worth more to our dollar. I the case as of recent that foreign investors are buying up the island with the higher currency exchange. Even hear that some stores in NYC are taking Euros for payment of goods. With this type of activities happening in Manhattan this will allow for the areas immediately around the Island to hold value. Remember the workers on the Island have to live some where so if they are forced out of Manhattan then they have to either go to the other boroughs or to part of northern NJ. So I don’t see much change in these areas.

But these are just guess and really mean nothing but that’s my view as of current.

[car54]

To keep home prices up, I think we need 100 year mortgages like they have in Japan.

Yeah, let the great great grandkids pay that sucker off!