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So wait, you're bidding at 45% below the peak pricing, someone else is bidding 50K higher (this number is useless outside of the context of what it represents %-wise in relation to your bid). I.e. if that 50K only represents 5% of the peak price, the guy is still bidding 40% below the peak price, a HUGE drop.
Sure, it doesn't mean you or him are going to get the property at that level, but within a couple of years since the peak, to be bidding at that level? It's an incredible drop. And foreclosures aren't even selling at 1/2 of peak 'values' in the inland, overbuilt areas like the 909/Inland Empire/Riverside and San Berdo counties.
Actually the extra $50K puts the price reduction at about 35 percent ... since the peak price two years ago was $550K. And yes, it's an incredible drop. That's why I'm bidding on these properties NOW ...
Because I don't think these prices are going to be around for long. As Moto pointed out ... the last crash was 20 percent. Maybe this time it will get down to 40+ percent but I don't think prices will stay there for too long ...
For the very reasons I mentioned ... I'm already getting outbid at 40+ percent reductions, even on foreclosures.
As for the inland areas, that's where I'm living now. 70 percent of the sales are foreclosures but, they haven't gone down 50 percent ... at least not yet. It's more like 35 percent.
Motoman ... sorry but, the way you're looking at this is completely screwed up. Look at your chart. For the last 18 years prices appreciated at least 5 percent a year on average.
Of course there are boom and bust cycles. Somehow you seem to think that prices wouldn't have appreciated at all during the boom cycle 2001-2007 ... which is ridiculous.
You can certainly argue that subprime drove up prices out of wack but, you can't argue that home prices wouldn't have gone up at all. It was, afterall, a real estate boom driven by lower interest rates.
And, you're conveniently forgetting that prices increased by more than 80 percent before we saw the 20 percent drop from '92-'96 ... still leaving 60 percent price appreciation in the market overall.
We can argue about how much homes appreciate but you can't deny that homes do appreciate over time. Even during a bust cycle, you have to factor in some price appreciation overall when trying to call the bottom of a market.
Sure, if you have a long enough holding period, say 10+ years, then yes, you MIGHT get some price appreciation. Would you have thought a 1.3% annual appreciation from 1991 to 2001 a good investment? Yes, prices went up, but you had to wait a decade for it to happen. And you didn't even keep up with inflation.
From 1982 to 1991, prices increased 7% per year on average, for a total appreciation of 83%, as you said. By 1996 prices came down 21% from the top. Had you bought in 1982, by 1996 your annual return would have been just 2.7%. Again, not even keeping up with inflation.
From 1991 to 2007, even with the bubble, prices in LA rose just 5.8% per year. That's at the peak. If we use the DataQuick number of $440,000, then your return over that period is just 4.5% per year. That's barely over inflation.
Had you bought back in 1982, at $440,000 now, your annual return is a little over 5.1%. Oh wait, you have to back out 6% for commissions, sorry. Your return is 4.9%.
And when I say return, that is just your price appreciation. That doesn't include all the money you threw into a mortgage, taxes, maintenance, etc. Not a great investment.
So, yes, I would agree, assuming you buy at the right time and your holding period is sufficiently long, you might be able to squeak out 5% or so per year. But you'll need a good 10, 15, 20+ years to do it, unless you are lucky enough to buy at a market bottom and sell at the top.
Also realize that this 4.9% return over a 26 year period assumes prices will not fall below $440,000. But they will. At even $400,000, the return from 1982 is 4.8% before commissions and 4.5% after commissions. Not a stellar return.
Had you bought back in 1991, at $400,000, your return 17 years later would be 3.6% before commissions and 3.25% after. That's terrible. Oh wait, what is that? 3.25%? That's about the long-term rate of general inflation. Well, well, well. Imagine that.
If you grow prices 3% per year from 1991, in 2008 prices should be about $360,000. Do we have another $80,000 to fall? Probably.
Moto ... all of this is theory. It really doesn't matter until you put your money where you mouth is ...
I suggest that you go out and start bidding $250K on some houses and see what happens.
If you get a decent property at that price then, you'll prove I'm wrong. But don't be surprized if you're offers are rejected out right ...
Because I'm bidding at $300K and I'm still getting out bid. Granted ... I'm bidding on newer homes that were built just two years ago. I could probably pick up a much older, much smaller home for a lot less but ...
Again, what you are saying is that every homebuyer in LA is making $150,000-$200,000 per year. You have to be in the top 5% of wage earners in the entire country to afford a house in LA? Do you not see the flaw in that logic?
When you say top 5%, do you mean nationally? There are plenty of people in this city who make that much money. Sure its not 50% of the population, but there are plenty. Anyways, unless everyone who has the types of homes that I mentioned in my last post decides to sell at the same time(which would honestly be great for me), I have a feeling that there are plenty of willing buyers to pay for these homes at 20% reduced prices.
The problem with your logic, especially considering the wealthier parts of LA (santa monica, marina del rey, los feliz, westwood, etc.), is that you're not taking into account the income disparity between the haves and have nots. You can go on quoting average/median incomes all you want, but its not the have nots trying to buy in these areas. Obviously we're talking about the haves here, and the haves in LA make a lot of money.
Moto ... all of this is theory. It really doesn't matter until you put your money where you mouth is ...
I suggest that you go out and start bidding $250K on some houses and see what happens.
If you get a decent property at that price then, you'll prove I'm wrong. But don't be surprized if you're offers are rejected out right ...
Because I'm bidding at $300K and I'm still getting out bid. Granted ... I'm bidding on newer homes that were built just two years ago. I could probably pick up a much older, much smaller home for a lot less but ...
Those aren't the homes I'm interested in.
Sheri, that isn't theory. I'm stating historical facts.
I am fully aware that I couldn't find a decent house for $300,000 right now. I am fully aware of that. But I also know that this is just the beginning of it all and that prices will continue to fall for at least a few more years. So I am in no hurry.
Realize that the majority of the mortgage resets are happening in the second and third quarters of this year, so you'll see a lot more foreclosures come on the market later this year and early next year.
I was in a meeting at work the other day and it was mentioned that some homebuilders still haven't reduced their prices, even though they aren't selling any homes. They are choosing to sit on the inventory and lose money rather than reduce prices. Why? Who knows? But it doesn't make economic sense.
People are still high from the bubble. They see a house sell for 20% below its peak price and think it's a bargain. Relative to what?
If I told you I'd sell you a stapler for $1,000, would you buy it? Probably not. If I said I'd reduce the price 50% and sell it to you for $500, would you buy it? It's a bargain, right? The price has been reduced 50%.
Remember that price has nothing to do with value. And it is rare that the value of anything is accurately reflected by its price. Price is what you pay. Value is what you get.
At the top of the bubble people thought what they were buying was "worth" what they were paying. They have obviously been proven wrong.
Don't be in an hurry. Reality hasn't hit most of the market yet. It takes time. People do not readily throw their houses away like you might see in the stock market. Real estate is much more illiquid and markets take a lot longer to adjust.
Let's talk a year from now and see how things are going.
Whew~ I'm exhausted reading all the past posts! Good info though, thanks everybody. I'll be moving when my house here (out of state) sells, but then will probably get an apartment to start out in California. Then I can monitor local prices a little more closely, and buy at a good time.
If I told you I'd sell you a stapler for $1,000, would you buy it? Probably not. If I said I'd reduce the price 50% and sell it to you for $500, would you buy it? It's a bargain, right? The price has been reduced 50%.
This sounds very familiar... Were you a contracted supplier to the Fed. Govt. by chance. ?
I am fully aware that I couldn't find a decent house for $300,000 right now. I am fully aware of that. But I also know that this is just the beginning of it all and that prices will continue to fall for at least a few more years. So I am in no hurry.
Remember that price has nothing to do with value. And it is rare that the value of anything is accurately reflected by its price. Price is what you pay. Value is what you get.
Well ... the price drops you're talking about are unprecedented. During the Great Depression prices dropped 30 percent. We're already there and then some so ... you could very well be at the bottom of this market right now.
You seem to think that what happened in the '90s is going to happen here. At first I did too until I got in there and started bidding on properties. Markets by nature are unpredictable. It became pretty obvious to me that the same rules won't apply this time.
If your theories were true then, you shouldn't be afraid to low ball some bids on homes. Afterall ... what have you got to lose? Nothing.
Seems like you're willing to lecture everybody else about what they should do but ... aren't willing to get into the game yourself. How convenient ...
Don't be suprized if you miss the boat entirely while you're still waiting for prices that may never come.
When you say top 5%, do you mean nationally? There are plenty of people in this city who make that much money. Sure its not 50% of the population, but there are plenty. Anyways, unless everyone who has the types of homes that I mentioned in my last post decides to sell at the same time(which would honestly be great for me), I have a feeling that there are plenty of willing buyers to pay for these homes at 20% reduced prices.
The problem with your logic, especially considering the wealthier parts of LA (santa monica, marina del rey, los feliz, westwood, etc.), is that you're not taking into account the income disparity between the haves and have nots. You can go on quoting average/median incomes all you want, but its not the have nots trying to buy in these areas. Obviously we're talking about the haves here, and the haves in LA make a lot of money.
I am not saying there isn't a lot of money here. There was also a lot of money here back in 2000/2001 when prices were half what they peaked at in 2006/2007. Why weren't prices in 2000/2001 just as high then as they were in 2006/2007? It's the same people, the same money. The wealth in LA certainly didn't double over that time period.
What I am saying is that it isn't statistically possible for 60% of families nationwide making a good six-figure income to live in a state that makes up just 12% of the population. That is all I am saying. As such, it isn't possible that the median home price in the entire state of California can be $500,000. There just aren't that many people making that kind of money.
There are something like 130 million households in the US. Let's say 10% of those make $100,000+ per year. (I'll find the stats later, I have them somewhere). That means 13 million households IN THE ENTIRE COUNTRY make $100,000+ per year.
California represents roughly 12% of the US population. If we start with a normal distribution, we can assume that there are roughly 1.56 million households in California making $100,000+ per year. But let's assume there is some skewness to the numbers, which there probably is. So let's bump that number up to 2.5 million households making $100,000+ in California.
With 130 million households nationwide, we can imply 15.6 million of those live in California. Assuming 2.5 million households make $100,000+ per year in California, then we can say 16% of California households make $100,000+ per year.
Given that it takes a $100,000+ per year income to buy a median priced home in California, what we are then saying is that just 16% of the California population can afford to buy a home. Looking back to California Association of Realtor statistics, that number falls within the range of their affordability measure. So it's probably not a bad guess.
To put it another way, what these numbers say is that 16% of the California population supports 100% of the California housing market. Do you really believe that?
Certainly looking at a median anything doesn't necessarily tell you the full story. What is the distribution around that median would be very important to know, for example. But the idea that there is so much wealth in LA, California, whatever, that everyone can afford a $500,000 house is just absolutely ridiculous.
Well ... the price drops you're talking about are unprecedented. During the Great Depression prices dropped 30 percent. We're already there and then some so ... you could very well be at the bottom of this market right now.
You seem to think that what happened in the '90s is going to happen here. At first I did too until I got in there and started bidding on properties. Markets by nature are unpredictable. It became pretty obvious to me that the same rules won't apply this time.
If your theories were true then, you shouldn't be afraid to low ball some bids on homes. Afterall ... what have you got to lose? Nothing.
Seems like you're willing to lecture everybody else about what they should do but ... aren't willing to get into the game yourself. How convenient ...
Don't be suprized if you miss the boat entirely while you're still waiting for prices that may never come.
It's obvious you have no clue what drove this housing bubble. I've explained it before, so there is no need to do it again. And it's also clear you seem to believe history never repeats itself and that it's different this time. I must thank people like you, for it is people like you that drive bubbles. I shall be rather happy to profit from your ignorance.
Yes, the price drops I am talking about are unprecedented, because this bubble was unprecendented. Never before in the history of real estate has non-conventional lending so permeated the market. NEVER before. How many times do I have to say it? If you take away all of the loans that should never have been made to begin with, you take away much of the demand for housing in California. I don't have the stats at my finger-tips, but between 2004 and 2006, when the market peaked, 25%-40% of the mortgages made in California were unconventional. Prior to the boom that number was less than 5%.
Go on believing all you want that prices can't go down. I'm sure people thought that in 1991, and then sat there for the next 5 years watching their "equity" disappear.
Good luck to you and your search for an overpriced home. Perhaps I'll buy it from you in 10 years for what you paid for it.
Miss the boat? What boat am I missing? The boat of delusional real estate investors? I'll gladly miss that boat. Why would I buy when I can rent for less than half the cost?
And why would I try and "lowball" and inflated house? Why wouldn't I wait for prices to continue to fall for the next few years and then lowball? I am putting my money where my mouth is by being patient, letting people like you perpetuate the delusions of the bubble. I'll happily sit this one out.
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