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Actually, that's a very reasonable question. I've had a little (VERY little) experience in living in an area with rapidly rising house prices. Based on my limited experience with this, here's my take on it.
With rapidly rising house prices, the problem that is encountered is "appraisals". It's a never ending problem in such areas because appraisals are always based on "past" sales of comparable properties. So if a homeowner decides that he is going to raise his price 10% to 15% higher than similar properties sold for a month ago, then even if he finds a buyer willing to buy his house, the appraisal won't be enough for the buyer to get his loan.
Consequently, any price increases, even in a hot market, have to be fairly gradual. This means not exceeding the recent past sales by more than 2% or 3% or the appraisal will drag it back down. Stated a different way, prices DO rise in a hot market, but due to the fact that most buyers are getting loans and the loans depend upon appraisals, therefore the price increases must be kept gradual. Of course, even gradual increases can really add up over time, but if someone tries to jump their price too fast, they'll likely have problems with the appraisal. That's my take on it.
Sorry but this is pure nonsense. I was appraising in LA in 1990 and prices were increasing 10% PER MONTH. Nothing gradual about it.
And it has nothing to do with banks appraising. Appraisals will come in at what the comps are. So OP has a valid question. Here's my theory. The high end market in this country is getting crushed. It's by a combination of the Trump tax law changes (that you can only deduct up to $10k for state taxes, property taxes and up to a $750k mortgage and super high state taxes in many places. (Not all). So this sets an upper limit for the market. So if you can get the Taj Mahal now for $1m as an example, you won't buy a nice starter home for $500k. It puts downward pressure on the entire market.
The other part is that buyer's now want fully turnkey and people aren't remodeling because they don't get their $$ out of it. I hear that contractors any many areas have had their business dry up with regard to remodels.
Location: Stuck on the East Coast, hoping to head West
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Quote:
Originally Posted by Grlzrl
The other part is that buyer's now want fully turnkey and people aren't remodeling because they don't get their $$ out of it. I hear that contractors any many areas have had their business dry up with regard to remodels.
Absolutely, 100% agree with this. Also, that disconnect between current available houses that need some work and buyers who only want turnkey is driving the perceived shortage. I don't think there's a shortage as much as a shortage of turnkey houses. And even if I'm okay with buying house that needs some work, I know I'm stuck with it if I cannot afford to keep it updated.
I read somewhere that there are 3 groups of buyers: 1) investors/flippers, 2) buyers who buy an imperfect house, plan to stay for a while, and gradually create what they want and
3) buyers who want updated, remodeled, turnkey properties.
For years, group #2 was the biggest segment. Now they are the segment that's shrinking the most. Group #3 is becoming the biggest group.
Sorry but this is pure nonsense. I was appraising in LA in 1990 and prices were increasing 10% PER MONTH. Nothing gradual about it.
And it has nothing to do with banks appraising. Appraisals will come in at what the comps are. So OP has a valid question. Here's my theory. The high end market in this country is getting crushed. It's by a combination of the Trump tax law changes (that you can only deduct up to $10k for state taxes, property taxes and up to a $750k mortgage and super high state taxes in many places. (Not all). So this sets an upper limit for the market. So if you can get the Taj Mahal now for $1m as an example, you won't buy a nice starter home for $500k. It puts downward pressure on the entire market.
I'm sure that there are exceptions to every rule if a person looks for it. A 10% price increase per MONTH would mean that a house would double in price in less than a year! I can't imagine that that situation would be sustainable for very long.
Also, as regards your theory on the current situation with the "high end market", while Trump's tax law changes are no doubt partly to blame, I think that the largest share of blame is due to the "Greater Fool" theory proving, yet again, that it's still alive and well. When people purchase things with little real thought as to the actual worth of the asset but simply buy it because they are convinced that someone else even dumber will pay them a higher price at a later date, then someone is getting ready to lose their shirt... and a whole lot more! This happens time and again in different markets and with different commodities all over the country and world.
Personally, I'm more of a "value' oriented guy, rather than buying what's hot because it will (supposedly) be worth a whole lot more tomorrow. That doesn't always work out well.
Here's my theory. The high end market in this country is getting crushed. It's by a combination of the Trump tax law changes (that you can only deduct up to $10k for state taxes, property taxes and up to a $750k mortgage and super high state taxes in many places. (Not all). So this sets an upper limit for the market. So if you can get the Taj Mahal now for $1m as an example, you won't buy a nice starter home for $500k. It puts downward pressure on the entire market.
I had thought this was going to happen with the tax law changes, but it hasn’t borne out in my neighborhood. Homes are selling for 10% more than last year, and within days. But this is a fairly low tax state, so perhaps that phenomenon pertains more to the higher tax states..?
Where I'm looking, homes are sold in 2-7 days. If I go to an open house, there are lots of other people looking. So why aren't sellers increasing prices even more due to supply and demand? Couldn't they just increase the price more and still get an offer in a month or less?
Because American banks are not giving out mortgage loans that are 10 times of GROSS salary.
Aussie banks are, and look at the house prices there.
I'm sure that there are exceptions to every rule if a person looks for it. A 10% price increase per MONTH would mean that a house would double in price in less than a year! I can't imagine that that situation would be sustainable for very long.
Also, as regards your theory on the current situation with the "high end market", while Trump's tax law changes are no doubt partly to blame, I think that the largest share of blame is due to the "Greater Fool" theory proving, yet again, that it's still alive and well. When people purchase things with little real thought as to the actual worth of the asset but simply buy it because they are convinced that someone else even dumber will pay them a higher price at a later date, then someone is getting ready to lose their shirt... and a whole lot more! This happens time and again in different markets and with different commodities all over the country and world.
Personally, I'm more of a "value' oriented guy, rather than buying what's hot because it will (supposedly) be worth a whole lot more tomorrow. That doesn't always work out well.
Quote:
Originally Posted by Movn-on
I had thought this was going to happen with the tax law changes, but it hasn’t borne out in my neighborhood. Homes are selling for 10% more than last year, and within days. But this is a fairly low tax state, so perhaps that phenomenon pertains more to the higher tax states..?
You are correct. A couple of years later, I was out doing fee appraisals after the crash. Some loans that had been in process were cancelled because of it. LA is an interesting market for sure.
Yes, I think so. We are in a blue state. I do think there are other factors at play. California has nice weather and Silicon Valley so maybe the issue isn't as pronounced. Where I live, we have no great weather and businesses are laying off.
https://www.zillow.com/sellers-guide...-fall-through/ Low appraisal
In seller’s markets where there’s limited housing inventory, bidding wars often raise prices beyond home values. This can lead to financing trouble when the pre-closing appraisal report comes back.
A buyer’s lender won’t finance a home for more than the appraised amount, so the buyer will have to pay the difference in cash, the seller will have to come down on price, or the buyer can walk away.
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