Do you think housing prices are STILL going down in California? (Twain: credit, loan)

[BRinSM]

I took a pacific rim finance course in college and we learned in the class that at one point in the late 80s, the real estate value of the city of tokyo was worth more than the ENTIRE UNITED STATES!!!!! Talk about a bubble that was bound POP! Luckily for our economy, the price run ups were not anywhere near that drastic.

[motoman]

Originally Posted by BRinSM

I took a pacific rim finance course in college and we learned in the class that at one point in the late 80s, the real estate value of the city of tokyo was worth more than the ENTIRE UNITED STATES!!!!! Talk about a bubble that was bound POP! Luckily for our economy, the price run ups were not anywhere near that drastic.

Holy smokes!

[sheri257]

Originally Posted by motoman

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.

Good grief ... you really have an inflated opinion of yourself.

I understand what drove the bubble. I avoided the bubble by buying into a cheap area that doubled in value in two years. I never borrowed on it. Now despite the housing crash, I already have a buyer and will still be able to sell my current house for profit ...

Most people can't sell their houses right now but I can ... at a profit. But hey, I'm just ignorant.

I'm not necessarily disagreeing that prices can go down further. I just don't think they'll go down as much as you say ... especially in an area like LA.

But the fact is ... markets are unpredictable. Maybe you are right but, you could just as easily be wrong. Maybe that's why you have to resort to insults to try to support your arguments.

There's always a time lag with the data ... which is why I've been out there checking out the market first hand. Too bad you aren't doing the same.

[ParkTwain]

Originally Posted by karkyco

[In Japan] Prices dropped tremendously from their peak and just plateaued for the last few years if I'm not mistaken. They're just now beginning to trickle upward ever so slowly, still at half or less what they were at the peak, about 15 years ago.

Be careful when comparing banking practices in Japan to those in the U.S. Japanese banks are generally loathe to "write off" bad loans. They carried the bad loans on overpriced R.E. transactions for many years, thus leaving them hamstrung and unable to lend for other kinds of business needs, thus contributing to the overall slowdown of their economy. It's also a much bigger deal in Japan for a bank to fail than in the U.S. Many banks should have been allowed to fail in Japan in the aftermath of the R.E. boom, but their public policy prevented it, with the effect of leaving their economy in a no-growth state for a long time.

[Caliann422]

Thank you for this excellent advice, Mr. Motoman! I appreciate this sound advice!

[sheri257]

Originally Posted by motoman

Go on believing all you want that prices can't go down ... Good luck to you and your search for an overpriced home.

Try to listen to what I'm saying. I'm not bidding on conventional properties. Obviously most of those people owe too much and are asking too much. I'm bidding on foreclosures at severe discounts of 40-50 percent ... because the banks can take less money at the prices close to what you're talking about (although obviously they don't want to).

However: if the property is not gutted, doesn't need tens of thousands of dollars work and is in good shape ... I am seeing people who are willing to pay more and outbid me at a 30-35 percent discount instead. Especially with newer, bigger homes which are obviously more valuable than older, much smaller homes.

This is why I'm starting to think that 30-35 percent may be the bottom price point in this market where demand picks up for decent properties. Sure ... you could pick up a trashed property at a 50 percent discount and more but you'd have to spend so much money fixing it ... that number would be meaningless.

This is why the data can be very misleading. A cheaper price doesn't mean much if the new owner has to sink tens of thousands into the property.

Nevertheless ... maybe you're right. Maybe prices will get down to 50 percent even with better quality properties over time. But it's definitely a risk waiting and hoping for that, IMO, because I am seeing people who are willing to pay more than what you're talking about.

[shannon94]

Yes ...data SURE CAN be misleading!! And yes...I believe prices will continue to plummet....how can they not??!! I remember people arguing with me just last year that prices wouldn't fall as far as they have already.

[wehotex]

Originally Posted by mommabear2

Well... Alan Greenspan recently said that housing markets are expected to slide for two more quarters then we should see an increase (though probably modest increase). I'm no Alan Greenspan but I think it's a great time to buy if you can talk a lender into giving you money. The fruit is ripe for the picking and my husband and I are looking into buying another place. With so much inventory, you can probably snag a really good deal. Just my opinion though so take it with a grain of salt.

i don't believe anything that the pundits are saying. how many times (for years) did we hear when the prices had topped out, and then they continued to rise. likewise, i think that there will be many that will say that the market has bottomed out, but will continue to decline even further.

[sheri257]

Originally Posted by shannon94

Yes ...data SURE CAN be misleading!! And yes...I believe prices will continue to plummet....how can they not??!! I remember people arguing with me just last year that prices wouldn't fall as far as they have already.

Well ... I didn't think you were wrong at that time. It all depends on the price point where demand picks up. I'm just not convinced that prices will fall 50 percent ... at least in high end markets such as LA.

Since people have been fond of citing history on this thread ... look at the Great Depression. They had a very similar situation with the same speculation and crazy loans that drove this boom. Yet prices fell 30 percent ... not 50 percent.

LA has already fallen 30-35 percent. If you read the realtor section of this board, they're saying demand is picking up at 2004 price levels so ... LA may go down a little further to 40 percent with $400K on average instead of the current $440K ...

But I wouldn't be surprized if demand starts picking up at those levels. Of course ... I could be wrong.

[motoman]

Originally Posted by sheri257

Try to listen to what I'm saying. I'm not bidding on conventional properties. Obviously most of those people owe too much and are asking too much. I'm bidding on foreclosures at severe discounts of 40-50 percent ... because the banks can take less money at the prices close to what you're talking about (although obviously they don't want to).

However: if the property is not gutted, doesn't need tens of thousands of dollars work and is in good shape ... I am seeing people who are willing to pay more and outbid me at a 30-35 percent discount instead. Especially with newer, bigger homes which are obviously more valuable than older, much smaller homes.

This is why I'm starting to think that 30-35 percent may be the bottom price point in this market where demand picks up for decent properties. Sure ... you could pick up a trashed property at a 50 percent discount and more but you'd have to spend so much money fixing it ... that number would be meaningless.

This is why the data can be very misleading. A cheaper price doesn't mean much if the new owner has to sink tens of thousands into the property.

Nevertheless ... maybe you're right. Maybe prices will get down to 50 percent even with better quality properties over time. But it's definitely a risk waiting and hoping for that, IMO, because I am seeing people who are willing to pay more than what you're talking about.

Sheri (I am assuming that is your name), just because someone is willing to outbid you doesn't mean what they are willing to pay represents the true value of the property. There are plenty of people out there that think anytime a price goes down just a bit that it's a bargain. "Hey, it was outrageously overpriced before, but now it's just kinda overpriced. Let's buy it." Obviously you don't think it's worth what they are paying, otherwise you'd be happy to increase your bid to match or beat theirs.

I think what you're doing is probably the most prudent move of all. You see a potential opportunity, you attempt to take advantage of it. But when you think the price is irrational, you say no thanks. Obviously the person willing to outbid you doesn't think that. And good for them. Let them make a bad investment. You wait for a good one.

Let me ask you. These properties you're looking at. Do they make sense from an investment perspective? Can you rent them for enough to pay the mortgage, property taxes, insurance, maintenance, and your required compensation? If not, then they're overvalued. If you can't make a decent income return, then, by buying, what you are hoping for is that you'll get enough long-term price appreciation to offset your loss in the shorter-term. Will you? Something to think about.

One of the reasons I am not even looking at houses is because at these prices levels I can rent for significantly less than what it would cost to own.

In California, the long-term differential between owning and renting has been about $600 per month, with it costing about $600 per month more to own than rent. At the peak of this bubble, that differential was about $1,800 per month. Maybe now it's $1,200 or something, I don't know. But whatever it is, it's too damned high and it doesn't make financial sense to me to buy.

Assuming I were to look at buying a $500,000 house and I was willing to fork over $100,000 for a downpayment, my mortgage payment and property taxes alone would be about twice what I am paying in rent. Why would I do that? Am I going to get an additional $18,000 per year in return from "owning" a property? Not a chance.

I am not saying there are not pockets of opportunity out there. But I am saying the opportunities will get better. Just realize we have a way to go with this correction. No, prices will not go to zero, certainly not. But they will get cheaper.

Look back at the state-wide data from 1991 to 1996. Prices rose about 80% from 1982 to 1991. Then from 1991 to 1996 they fell a cumulative 11%. But in no single year did prices fall more than 5%.

But now look what has happened. The numbers seem to vary by source, but I think it's safe to assume prices have fallen 15%-20% in many areas, including LA. Think about that. After the last bubble burst in California, it took prices five years to fall 11% (it was 21% in LA). This time, in just one to two years, they have already fallen 15%-20%. Two years into the last bubble in LA, prices were down just 10%. That should give you some sense of the relative magnitude of this bubble.

My suggestion to you. Continue to watch the market. Look at overall trends. Look at specific deals. Make sure they make good investment sense from a cash flow perspective, not just price appreciation. If you find a good deal, jump on it. If it doesn't make financial sense, let someone else have it and take the loss.