Home values still going down? Why? (Phoenix, Scottsdale: rental car, HOA fees, loft)
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Home ownership has been a great investment for me, and many many more Americans. And I'm referring to the homes that I've lived in.
My first house was purchased for $15k in 1963 in Dayton, OH. Lived in it for 3 years because I got the job with Pan Am and moved to Danville, CA. Rented it out for 2 more years and sold it for $25k in 1968. Had cash flow on the rental, tax deductions, plus the appreciation.
Bought our second house in 1968 for $35k. Sold it in 1974 for $69k. Bought the third one in 1974 for $88k. Sold it in 2007 for $1.2 mil. Rented with a 3 year lease to a Standard Oil exec when we moved to AZ in 2004.
Bought our 4th house in 2004, and the current value is probably 50k less than we paid. It's a custom home on a prime waterfront lot in a gated community in Val Vista Lakes. It's in the luxury home price so the price may decline further because of the current difficulty financing luxury homes, but it will recover.
So homeownership has been a great investment for us, although our main purpose for owning has been the satisfaction of having our own home, that we can do with as we please, stay in as long as we choose, plus the tax advantages, and not having to rent.
I think most Americans would completely disagree with your opinion that living in an apartment complex is the best deal for them, at any time. While it seems to be perfect for you, it is not for everyone else. If it were, then the apartments would be full, with waiting lists, and increasing instead of dropping their rents.
Of course your 13 years for recovery is a wild guess in my opinion, and I don't think many ecomonists would attempt to forecast out that far.
When I factor in the trend for the past 18 months, the current supply/demand, and the programs that are in place and being developed to mitigate future problems, and to stimulate the housing market and the economy, I find that I can't share your opinion.
And we must not overlook that people all over the world understand that the Phoenix prices are very low now. That is one of the reasons why we presently have the greater demand than supply.
Unless we are absolutely flooded with foreclosures on the market that take the supply back up to 8 months, along with a reduction in buyers at these prices, then I can't see your forecast happening.
As we've seen, when houses reach a certain price point, the buyers come rushing in. How many more will come rushing in if the prices drop lower?
Prime example right here! Must be nice to make a million dollars just for living in a place! Why is your last house worth so much more now? Just because? Or are people that stupid to actually pay that much?
And when you say houses are selling below what it would cost to build are you refering to the cost to build when that particular house was built or the cost to build now? Because most of the houses I've looked at in the low to mid 200 range aren't priced below what thier build cost was. People just think that they are such a great deal now because thay are 100k below what they sold for in the peak, which was a farce, when in reality these same houses sold for 160-170k ten years ago and haven't been improved much if at all, certianly not enough to warrant 100 grand more in ten years. But people have short memories and will pay it. People are only rushing in because they THINK prices are low in comparison to the fake bubble induced prices of a few years ago when in reality they are not really that low. Maybe in the ghetto areas but not where normal people actually would want to live.
Prime example right here! Must be nice to make a million dollars just for living in a place! Why is your last house worth so much more now? Just because? Or are people that stupid to actually pay that much?
And when you say houses are selling below what it would cost to build are you refering to the cost to build when that particular house was built or the cost to build now? Because most of the houses I've looked at in the low to mid 200 range aren't priced below what thier build cost was. People just think that they are such a great deal now because thay are 100k below what they sold for in the peak, which was a farce, when in reality these same houses sold for 160-170k ten years ago and haven't been improved much if at all, certianly not enough to warrant 100 grand more in ten years. But people have short memories and will pay it. People are only rushing in because they THINK prices are low in comparison to the fake bubble induced prices of a few years ago when in reality they are not really that low. Maybe in the ghetto areas but not where normal people actually would want to live.
Home prices move up in response to wage increases - always will in the longer term. If they get much above that trend as a couple years ago, they will fall back. Below, they will rise. It's like the movement of the waves of the sea. One poster (MN?) is trying to make the point the wages are going to suffer in the US if we are to compete globally and he may have a point. That would cause prices to fall, of course. The worst case would be rising prices and falling wages and while that it possible, I don't think it is goign to happen. The two will move in tandem one way or the other. Anyhow, that's all you have to pay attention to over the longer term - wage growth and contraction (if any). Wages have been going up about 3-4% for some time now. So a house purchased for 160K ten years ago would go for around 210K now in a normal market - some higher, some lower depending on many secondary issues.
Some housing in AZ is way below wage trends right now. It's going to zoom up IMO. Some other areas (locally, but more so nationally) are above trend and will correct down before this is over. The low ones here are the "cheap seats" big houses on tiny lots in the periphery. Expect to do well if you can get your hands on one of those before the investors do.
Maybe someone can explain the "real estate market" to me because I just don't get it. Why is it that people expect houses to appreciate? Where did this expectation originate? What else do you know of that you can buy besides a very few select items that will actually GAIN value while being used? But yet houses should always go up? Why? A car is the 2nd biggest investment in most peoples life but yet a car is always considered a declining asset i.e it will always depreciate. It also doesn't make sense that a house will just appreciate all by itself with no improvments done but they sure did here. Thats why even at the >200k price range (hardly the "bottom") it's hard to find anything that had substantial improvements done because people bought them knowing they would just appriciate to the moon so why lift a finger right? Why put any money or effort into it? And now with this market good luck finding anyone who is willing to put money into a house. So now we're left with a bunch of underwater owners trying to unload their un-updated, unmaintained overpriced houses. The real estate market is in a world of it's own if you ask me. It defies all logic, as in we have rising unemployment and more foreclosures but yet prices go up? How does that make sense? We have more demand? Where are these buyers coming from and where are they working?
Homes are different. Once a town fills up, you cannot buy a new home (short of tearing it down) so you pay what it take to get into that area. So as a town grows, the desirable locations are already built. So the "dirt" increases in price pushing up the value which compensates for depreciation of the items wearing out. If an area isn't taken care of, then the location becomes an undesirable area and the value falls as you talk about with old cars. But if old cars are taken care of they become more expensive than they were new (when the supply diminishes).
Since new homes go up from inflation, a used home also goes up (economic substitutes). It's as basic as that.
To support my position, if you buy in an area that isn't full, appreciation takes a lot longer to happen. Why buy a used home for the same money as a new home in Buckeye (for example)?? Yea, some want it all finished but that isn't the driving factor. So used homes are always less than it costs to rebuild in wide open undeveloped areas.
Last edited by MN-Born-n-Raised; 09-02-2009 at 01:14 PM..
With regard to building houses, I agree that maybe as a rule, it costs more to buy used than build new when examining sq footage costs. However, with regard to the luxury housing market, it costs more to build new. If you were to build a 5000+ sq foot home in a nice part of the valley whether that be a Chandler, Gilbert, Scottsdale, Ahwautukee etc, the lot itself will probably cost you close to 500K. And then to build the house, you are looking realistically at 1.3-1.5 million. I've done my homework on this in addition to observing friends building homes. Based on their experience, contractors underestimate building costs and it has consistently been significantly more than what was quoted because building issues arise. You can buy a used 5000 sq foot home for significantly less than building a custom right now. I suppose if you are real estate savy and know contractors etc, you can get it built cheaper but for the average person who has no connections or experience, it will cost you more to build. This is why a lot of custom built luxury homes are not dropping in value because it cost those owners a significant amount of money to build their homes, they are not really asking much more than what they built their homes for.
With regard to building houses, I agree that maybe as a rule, it costs more to buy used than build new when examining sq footage costs. However, with regard to the luxury housing market, it costs more to build new. If you were to build a 5000+ sq foot home in a nice part of the valley whether that be a Chandler, Gilbert, Scottsdale, Ahwautukee etc, the lot itself will probably cost you close to 500K. And then to build the house, you are looking realistically at 1.3-1.5 million. I've done my homework on this in addition to observing friends building homes. Based on their experience, contractors underestimate building costs and it has consistently been significantly more than what was quoted because building issues arise. You can buy a used 5000 sq foot home for significantly less than building a custom right now. I suppose if you are real estate savy and know contractors etc, you can get it built cheaper but for the average person who has no connections or experience, it will cost you more to build. This is why a lot of custom built luxury homes are not dropping in value because it cost those owners a significant amount of money to build their homes, they are not really asking much more than what they built their homes for.
Agreed. My response was in relation to a stable market.
Homes are different. Once a town fills up, you cannot buy a new home (short of tearing it down) so you pay what it take to get into that area. So as a town grows, the desirable locations are already built. So the "dirt" increases in price pushing up the value which compensates for depreciation of the items wearing out. If an area isn't taken care of, then the location becomes an undesirable area and the value falls as you talk about with old cars. But if old cars are taken care of they become more expensive than they were new (when the supply diminishes).
Since new homes go up from inflation, a used home also goes up (economic substitutes). It's as basic as that.
To support my position, if you buy in an area that isn't full, appreciation takes a lot longer to happen. Why buy a used home for the same money as a new home in Buckeye (for example)?? Yea, some want it all finished but that isn't the driving factor. So used homes are always less than it costs to rebuild in wide open undeveloped areas.
So how do you explain why prices went up here when the metro area has pretty much like tripled in land area? This area was far from "full" or out of land area to build new homes but prices still skyrocketed?
So how do you explain why prices went up here when the metro area has pretty much like tripled in land area? This area was far from "full" or out of land area to build new homes but prices still skyrocketed?
Because property was ridiculously cheap here to begin with so when prices doubled or tripled, it wasn't telling the entire story. I remember in 1999, houses in Ahwautukee facing the golf course could be had for less than 200K. In the LA metro, such a home would cost you 3 or 4 times that amount. Phoenix was just ridiculously cheap and as the valley began to develop and look similar to Southern California, people began to realize that Phoenix was a steal and as more people moved here, prices began to rise.
Because property was ridiculously cheap here to begin with so when prices doubled or tripled, it wasn't telling the entire story. I remember in 1999, houses in Ahwautukee facing the golf course could be had for less than 200K. In the LA metro, such a home would cost you 3 or 4 times that amount. Phoenix was just ridiculously cheap and as the valley began to develop and look similar to Southern California, people began to realize that Phoenix was a steal and as more people moved here, prices began to rise.
Yeah I currently rent in the tukee area and thought with this market maybe I could finally afford to buy here. What a pipe dream! If you don't have close to 300k to spend you're getting a house that was built in 1985 with no pool and everything inside is original.
Yeah I currently rent in the tukee area and thought with this market maybe I could finally afford to buy here. What a pipe dream! If you don't have close to 300k to spend you're getting a house that was built in 1985 with no pool and everything inside is original.
There are homes for sale there that are newer and more contemporary but they will be less than 2000 sq ft, no pool and early 90's build. Those homes are running around 230-250K. Look around Foothills country club. I bet there are some deals there because people still paid less than that for their home and would be willing to unload it.
So how do you explain why prices went up here when the metro area has pretty much like tripled in land area? This area was far from "full" or out of land area to build new homes but prices still skyrocketed?
The "better" dirt will have more desirable views and shorter commutes to popular attractions like the airport, your job, etc. Being in a nice area with a nice view that is central will be premium pricing (think South Scottsdale).
When I mean "full" I am talking about a specific town or area. Goodyear (for example) is considered "full" inside of the beltway when their is no more land there. Hence, the land went up in value. As growth pushes outward, people will pay more for the land that is developed in the center of town and buy existing to get closer to wherever they want to be.
The bubble was a whole different animal. Everyone is busy, labor rates got hiked year after year; plumbers for example were charging $120 an hour. Material prices rose as production facilities were being added. They could not keep up and they had to charge more to cover the new plants.
Why did it go up so fast?? Money was (too) cheap and (too) plentiful. Since pricing rose so fast, investors were building and people were buying. Agent's, mortgage brokers, subcontractors were "worth" their $200K- $1M a year (in their mind anyways). Builders kept on raising their percentages and people paid them. Those people spent money on things other people made (things that I sell) and I also bought "valued" over priced property. Paying too much is another word for appreciation.
In the end. Homes were sold to people that should not have bought them including investors, leveraged people, etc. Simple..
There was also a sense of urgency that drives sales. People figured "they better get in now while the getting is good". Banks loaned assuming that the run-up was going to continue. Economists gave the math and charts to "prove" there wasn't a risk and the majority bought it hook line and sinker.
I over simplified the a lot of the history but it is a good overview.
Last edited by MN-Born-n-Raised; 09-02-2009 at 03:30 PM..
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Maybe someone can explain the "real estate market" to me because I just don't get it. Why is it that people expect houses to appreciate? Where did this expectation originate? What else do you know of that you can buy besides a very few select items that will actually GAIN value while being used? But yet houses should always go up? Why? A car is the 2nd biggest investment in most peoples life but yet a car is always considered a declining asset i.e it will always depreciate. It also doesn't make sense that a house will just appreciate all by itself with no improvments done but they sure did here. Thats why even at the >200k price range (hardly the "bottom") it's hard to find anything that had substantial improvements done because people bought them knowing they would just appriciate to the moon so why lift a finger right? Why put any money or effort into it? And now with this market good luck finding anyone who is willing to put money into a house. So now we're left with a bunch of underwater owners trying to unload their un-updated, unmaintained overpriced houses. The real estate market is in a world of it's own if you ask me. It defies all logic, as in we have rising unemployment and more foreclosures but yet prices go up? How does that make sense? We have more demand? Where are these buyers coming from and where are they working?
