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Bill, I'm surprised that you're asking a basic question that most everyone agrees needs to happen.
I'll put it simply this way.....
Affordability in the RE market is basically the price to income ratio for a given market which is attainable.
Say its 1999, John Q Public and his wife make a combined 60K. They are looking for a starter home in Phoenix. A decent 3br/2ba home is 150K. This is AFFORDABLE to them because of their income levels
Fast forward to 2008. John Q Public and his wife make 68K combined. They are looking for a starter home in Phoenix. A decent 3br/2ba home is 300K. This is NOT AFFORDABLE to them because of their income levels.
You can cut and paste that situation to NJ/NY/LI, CA, LV, FL, etc.....
Can anyone else please explain to Bill the definition or add on to what I said?? I can't make this any simpler IMO.
Price to rent and price to income ratios compared to historical norms are a good start.
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John Doe can't afford a one million dollar house today. Does that mean that houses must come down to his affordability level so he can buy a million dollar home? Why shouldn't he just buy a home that costs less?
If they came down to his affordability level, they wouldn't be million dollar homes anymore. You need to get away from assuming a house has any intrinsic value outside of what the market will pay for it. There's no such thing as a "million dollar house" until it sells for a million dollars. Until then, it's just a house with an asking price based on educated guesses about what the market will bear. What the buyer is telling you is that he disagrees with your estimate - nothing personal there.
And it could be that John can afford a million, he just doesn't think that the house's value is a million. After you advise your seller to ignore the offer, he'll move on and make the same offer on the next identical house. Eventually someone will accept and now you have a lower comp and a house still for sale.
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I'm talking about today's "current market value" in each of these.
If you knew the "current market value" of each of those, they'd be sold - that's the only way to find out the true market value. Without selling, any other number (including both comps and offers from buyers, lowball or not) is just an estimate.
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Jane Que can't afford a 300k house. Does that mean prices have to come down to her affordability level? Why shouldn't she just buy a $200k house if that's what she can afford? Or wait?
Because what used to be $200K houses are now selling for $150 to buyers who can afford $150K, and so on down the chain.
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I have a home in California that's listed for just under $1.3mil. It's in a highly desirable location, remodeled, updated, and is priced lower than the comps. I've had two lowball offers in the 900k range. If 900k is all the buyer can afford, then why don't they offer on a 900k home? Or wait?
If the only offers you got on the house are in the $900K home, then the market is telling you that this is a $900K home. Basically, they are making offers on a $900K home, you just don't know it yet. They're letting you know that the estimate of $1.3M is off by a bit.
And why is it in anyone's best interest to wait? How do you think home prices come down over time? It's not like all the sellers sit around until the next seller's meeting where they agree to drop prices in lockstep by 20%. Prices come down as similar properties sell for less. If your concerned about the magnitude of the drops, it could be you've overpriced by quite a bit. Don't blame the buyers for that.
And if the home's going to sell for $900K eventually (after the buyer waits), why not get it over with now? This will save the seller lots of money in interest, taxes and insurance compared to sitting on the market for 2 years.
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I don't know what this market will do in the next few months, or the next 12 months. I have some idea, and will continue to look at the trends and watch for merging of the trend lines, and keep track of all of the economic data that I can, which will help me to understand more about the market, and give me indications of where it's going.
In the case of current offers, it looks like the buyers are concluding something different than you are. They're the ones writing the check for the house, so their opinion is the one that matters. They could be wrong, but until you get enough buyers with an opinion closer to yours, your sellers are stuck. Hopefully they can afford to hold out.
KC, you and some others continuously ignore that it takes two to make a market, not just a willing buyer. There are some sellers who are telling the buyers that by removing their homes from the market. It is the ones who must sell that have the problem.
As for my house, I have had other offers that were not lowballs, and negotiated two of them, but the terms were never acceptable to me.
Bill, I'm surprised that you're asking a basic question that most everyone agrees needs to happen.
I'll put it simply this way.....
Affordability in the RE market is basically the price to income ratio for a given market which is attainable.
Say its 1999, John Q Public and his wife make a combined 60K. They are looking for a starter home in Phoenix. A decent 3br/2ba home is 150K. This is AFFORDABLE to them because of their income levels
Fast forward to 2008. John Q Public and his wife make 68K combined. They are looking for a starter home in Phoenix. A decent 3br/2ba home is 300K. This is NOT AFFORDABLE to them because of their income levels.
You can cut and paste that situation to NJ/NY/LI, CA, LV, FL, etc.....
Can anyone else please explain to Bill the definition or add on to what I said?? I can't make this any simpler IMO.
But at the same time there will always be a John Q Public and his wife with a combined income that allows them to easily afford the home regardless if it is $150K or $300K.
Affordability is in the eye of the beholder. Just because you can't afford a $500K house doesn't mean the next guy can't.
I can't afford to drink starbucks coffee every morning. Others can and they do. I don't see Starbucks lowering their price anytime soon just so I can afford to drink a cup of Joe every day!
Location: Halfway between Number 4 Privet Drive and Forks, WA
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But at the same time there will always be a John Q Public and his wife with a combined income that allows them to easily afford the home regardless if it is $150K or $300K.
Affordability is in the eye of the beholder. Just because you can't afford a $500K house doesn't mean the next guy can't.
I can't afford to drink starbucks coffee every morning. Others can and they do. I don't see Starbucks lowering their price anytime soon just so I can afford to drink a cup of Joe every day!
I agree...and all homes are not created equal...
and I like your username...HP fan?
But at the same time there will always be a John Q Public and his wife with a combined income that allows them to easily afford the home regardless if it is $150K or $300K.
I think Jack was intentionally comparing median income to median house price, and for a good reason. You can always imagine a buyer who makes enough to buy your particular house for whatever price you want. Heck, Bill Gates could come along any buy all the houses in my neighborhood without even blinking, so I might as well list for 20% above the comps!
But back in reality, each individual buyer is going to try to get the most for their money. In this case, when you try to match up the average buyer (median income) with the average house (median price) and realize the numbers don't work, you've got a problem. You need an above average buyer to buy an average house, and a exceptional buyer to buy an above average house, and an super buyer to buy a exceptional house, and so on. There's not that many above average to super buyers to begin with - that's just how the math works out - otherwise every house would sell for a billion dollars and no one would have to worry about a real estate downturn.
And you've also cut out the way below average buyer who can no longer afford the way below average house, so you've suddenly got more houses for sale than buyers. This is a classic economic problem of supply exceeding demand, and the way it usually gets resolved in the free market is to drop prices. This will line up the average buyer back with the average house, and things will start moving again.
Or, you can complain that buyers don't understand that it's a million dollar house so why are they offering less, and wonder why you never come up with an acceptable offer.
But at the same time there will always be a John Q Public and his wife with a combined income that allows them to easily afford the home regardless if it is $150K or $300K.
The point about affordability is the "gap" between incomes and home values for a particular market.
If you take Bill's, olecapts, or palmcoasting respective markets, they are still experiencing "bubble" prices. Basically there is a huge "gap" between average home prices vs. median incomes.
Pricing has been reverting to the mean so to speak since basically '06 in markets like these.
[quote=butterbeer;2521947]Affordability is in the eye of the beholder. Just because you can't afford a $500K house doesn't mean the next guy can't. QUOTE]
LOL, don't you understand that there are very few "next guys" who can actually AFFORD these expensive homes? There is not an unlimited supply of them.
You guys are really missing or not understanding basic concepts about affordability and the large "gap" in many markets between income and home values.
Unfortunately, LB's market did not experience appreciation values like olecapt's/bill's market, however she is feeling the effects because of the slowdown in these bubble markets...
That's why there IS a national market to a degree...
Although it was scary for me to be a seller in this market, I am relieved to see prices and interest rates coming down. Working people who diligently apply themselves to their jobs and to handling their money responsibly deserve the opportunity to purchase a home at a fair price through fair lending institutions. There will always be luxury homes of course, but when an area reaches the point where even a basic decent home is out of financial reach of the average working family, I don't believe that is right or fair. So although I got a lot less out of my house sale now than I would have gotten a few years ago, I am hopeful that causes of the current housing mess will be addressed and fixed, and get all of us back on a saner financial course. Just my .02 cents.
Well shame on me for not waiting by my computer for the new numbers so I could be the first to post them. I'll try to do better next time.
I do appreciate you posting them.
I agree with that statement, however, there are many other factors and statistics that one should study in order to make an educated guess for themselves regarding the market.
Let's look at the new listings from 2001, plus the year end total new listings.
Year........Dec......Total New Listingsfor year (not total inventory)
2001........5509........114,402
2002........7663........125,738
2003........8008........133,424
2004........7117........127,625
2005........8653........143,988
2006........8565........173,363
2007........8837.......165,615
Looking at all the new listings year over year gives a larger picture for anyone to use. You'll see that The Total New Listings for the year declined from 2006.
The Homes Sold in December was 3430 vs 3318 in November.
Here are the Total Homes Sold YOY
CJ, you're mixing my numbers. I didn't say it would take 14 years to get to the 04 levels. Some here have said that prices should go back to the 01 levels. At the 6.7% decline I figured it would take about 14 years to get back to the 2001 level.
Do you see anything in the national, or the Arizona economic news that suggests that will happen? I don't. I can't see anything that even suggests the 2004 level.
The statistics we see here are only a small part of what we should be looking at to make our educated guesses.
I'll keep looking at all the data, and especially the trend lines that are a great help. Plus the number of people entering AZ, the job market, the interest rates, and everything else that affects the real estate market.
Last night at the AZREIA meeting, the executive director showed about 15 charts with various statistics with graphs and trendlines. These were from a company that compiles all of these statistics. It will be posted on the AZREIA site on Wednesday. Members of the club will have access to them. I'm anxious to study them because they were just breezed over last night.
Bill, did you look at those #'s from your meeting?
How do they stack up with the Urban Land Institute?
Who in your opinion is more/less objective??
New housing outlook: 5 years to recover (broken link)
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I'll try to do better next time. 
