Homes More Affordable Now Than Ever? (1%, investment, comparable, property)

[elflord1973]

[quote=fairmarketvalue;7491018]

You still didn't break it down as it should be. I didn't say 30% off the 1Mil as it's priced TODAY, in an already declined market.

But that's what the people who talk about an upcoming 20-30% drop are referring to -- they are talking about 20-30% drop compared to today's prices.

Anyway, I agree that for the most part, it won't quite drop that much. I'm predicting about 40% off peak values in my area (North NJ) .

This is the problem, in that many still think homes are priced where they were at peak. They are not, not by any measures!

The asking prices are often close to peak values, which can mislead. Sales prices are a more reliable measure (the places that are "on the market" at peak values don't sell).

And we haven't even discussed what the "foreclosure" market has done to the value of homes.

That's how prices correct -- it's not pretty, but if no-one sells voluntarily, then the market is driven by forced sales. There are reasons that people don't sell voluntarily -- psychologically, they won't accept a loss, or in many cases they have no equity and can't afford to take a loss.

Where are you, by the way, if you want to tell me. Perhaps your in one of the states where 500k gets you nothing.

North NJ. It's expensive, but I think one could do OK with 500k. The 277K median price in the NAR survey wouldn't go very far though.

[Humboldt1]

You are a smart guy. You sound like one of my analysts or perhaps you are an engineer.

You may be slightly less optimistic than I regarding price declines, but I agree that we will not hit bottom in 2009. I actually see 10-15 percent future declines here in Chicago and another 15-20 percent nationally. We are both pretty close in where we prices headed over the next few years.

FMV is a smart guy too, just diagree with him regarding the next 1-2 years of declining prices in the suburban Chicago marketplace. FMV seems to be convinced that prices are at bottom, which I disagree with, even in nice land locked communities such as Wheaton and Itasca (even more landlocked).

[aneftp]

Originally Posted by Humboldt1

You are a smart guy. You sound like one of my analysts or perhaps you are an engineer.

You may be slightly less optimistic than I regarding price declines, but I agree that we will not hit bottom in 2009. I actually see 10-15 percent future declines here in Chicago and another 15-20 percent nationally. We are both pretty close in where we prices headed over the next few years.

FMV is a smart guy too, just diagree with him regarding the next 1-2 years of declining prices in the suburban Chicago marketplace. FMV seems to be convinced that prices are at bottom, which I disagree with, even in nice land locked communities such as Wheaton and Itasca (even more landlocked).

I have homes in both the Washington DC area and Orlando area. The places where I've seen take the biggest hits are areas in crappy school districts or so far away from the core center of the city.

I believe in very highly desirable locations (like McLean, VA), we are nearing the bottom. (sure it may drop another 5% in these great locations). The far off suburbs is where people are in most danger. These could drop another 10-15% like you said (this is in addition to the 30% drop they have experienced already). The reason I say this is because the "far off suburbs" had the vast majority of first time homeowners/investors/zero down type of mortgages. The higher end higher (although they have taken a hit, have been more protected because these tend to have higher income earners who can withstand a financial loss, thus less foreclosure activity in those areas).

[fairmarketvalue]

[quote]
[quote=elflord1973;7492403]

Originally Posted by fairmarketvalue

But that's what the people who talk about an upcoming 20-30% drop are referring to -- they are talking about 20-30% drop compared to today's prices.

I know that. I wasn't giving my example on "today's prices". I said a home that was priced at peak (originally 1Mil), then took another 30% from the already discounted 50%. My math is still dead on. Home prices in states like CA are already listed at these precentages from peak, and your suggesting the market needs to correct ANOTHER 30%. That is what your wording has said from the beginning, and anyone reading it would understand it the same way. Predicting "total" percentages from peak prices is much different than an already reduced market and then another 30% off of that. That is what you are assuming and then changing your position on, all together. My example is what many think, when talking about price bottoms and when and by how much they will hit. Many complain about the "current prices" which I think is rediculous. Current prices (list or sell) are NOT at peak, anywhere.

Anyway, I agree that for the most part, it won't quite drop that much. I'm predicting about 40% off peak values in my area (North NJ) .

This is still a hefty amount! In our area, this would take prices back to the late 90's. Anything sold in the last year saw a modest, yearly appreciation of about 30%-40% over long term ownership. You're suggesting that is now wiped out and no longer has anything to do with peak and high prices.

The asking prices are often close to peak values, which can mislead. Sales prices are a more reliable measure (the places that are "on the market" at peak values don't sell).

This is not ture, at all, at least in our area. I would also suggest that their isnt' a market out there, in the US, that is listed at peak prices, as everyone involved knows the market declined, over a span of a year and a 1/2 ago, and are pricing their homes according to these market conditions. It is completely false to say and assume that "prices are often close to peak values", they are not. You would need to look at specific markets, see what homes were bringing when it was peak, and you would find that those numbers are long gone. You can't possibly think this is true, not even in NJ.

That's how prices correct -- it's not pretty, but if no-one sells voluntarily, then the market is driven by forced sales. There are reasons that people don't sell voluntarily -- psychologically, they won't accept a loss, or in many cases they have no equity and can't afford to take a loss.

Also not true. This would suggest that all selling/all homes on the market, will eventually just have to give into foreclosurer prices, if they want to sell. Foreclosures are full of folks defaulting on their mortgages, with a few who "lost jobs" and bad times thrown in the mix. It is not the end all reason a home is on the market. The retail housing market works very differently than the foreclosure market. When you have newer developements that drew in first time buyers with stars in their eyes and no money down, adjustable rate loans, and homes they simply could not afford, this is much different than one out of hundreds that might have come accross misfortune in a neighborhood/community that has that only "one" good deal at foreclosure price. Many, many, have equity, they have built over the years of ownership, by large down payments, paying down principles, purchasing and owning them before the words "peak prices" came about, etc. and should not have to expect to "take a loss".

[theS5]

"and should not have to expect to "take a loss"."

FMV, you are correct, they do not have to take a loss. But, they may end up not selling at all. Of course, they can wait for this housing debacle to correct itself, but that may take years.

[fairmarketvalue]

Originally Posted by aneftp

I have homes in both the Washington DC area and Orlando area. The places where I've seen take the biggest hits are areas in crappy school districts or so far away from the core center of the city.

I believe in very highly desirable locations (like McLean, VA), we are nearing the bottom. (sure it may drop another 5% in these great locations). The far off suburbs is where people are in most danger. These could drop another 10-15% like you said (this is in addition to the 30% drop they have experienced already). The reason I say this is because the "far off suburbs" had the vast majority of first time homeowners/investors/zero down type of mortgages. The higher end higher (although they have taken a hit, have been more protected because these tend to have higher income earners who can withstand a financial loss, thus less foreclosure activity in those areas).

I should have read this post before posting my last one. You are absolutely correct, and this is EXACTLY how it plays out in the Chicago Suburbs. Humbolddt and I disagree and your reasons and examples of the "far out suburbs" of DC is what I have been saying about the "far out suburbs" of Chicago. mine or his (Wheaton and Itasca) are NOT far out suburbs with the "urban sprawl, cheap built homes" that went up during the RE boom. Same exact scenario. The closer in, more affluant, good schools, established communities will not see another 10-15% drop. This is just to unrealistic and for lack of better words, HOPEFUL, to assume or expect.

Humboldt, I do not see Wheaton and Itasca as similar communtiies either. I think they are quite different, and perhaps you may think Itasca will drop another 10-15%, but if it does, it's because it demographics are much different than Wheaton's. Itasca is close to O'Hare, has a lot more lower income areas mixed in with some higher, and the entire school dist. consists of 2 elem. schools, one middle school, and feeds into the Lake Park HS dist. These are hardly comparable districts to Wheaton CUSD200 with 14 elem,. 4 middle, and 2 HS. You yourself, have said you live in a 2/3 flat? and that you live in the crumiest unit of your own "investment" property. This type of housing hardly even exists in Wheaton or any of the surrounding suburbs we live wthin, including Glen Ellyn, Winfield, Lisle, St. Charles, Geneva, and even Carlo Stream. Itasca is near Woodale, Bensenville, Elk Grove Village, Roselle, Addison, etc. and these characteristics are much different than the suburbs I listed. Land locked or not, Itasca and Wheaton have very few similarities. Perhaps this is why we disagree on where our RE markets will go. I would guess that like Elmhurst, where huge homes were slapped up right along North Ave. or other similar busy (4 lane) streets or near the highways, when anyone was paying top dollar to be "in a certain community" no matter how bad the lot location, Itasca has similar problems. This "type" of home, even though high end, certainly hurts that market more than others. Wheaton and the towns like it, do not have this situation. Not at all. I always have respected you, and still do, even more as I realize that we are not really "argueing" about apples to apples here, but apples to oranges. Have a good day!

[le roi]

FMV,
I understand what you are saying. My great uncle recently passed. The family didn't even list his house, and within 2 days, there were cash offers on his home (very safe, very stable, very desirable for retirees) for $350k. I went to look at comps - all essentially the same house - turns out that every single comp in the area was between $325k and $375k, from 1998 until today, with no discernable trend; in some cases people were paying more in 1998 than in 2006. Basically there was no bubble, hardly any appreciation outside the norm.

However, just across a major road, there were better-than-average starter homes I am looking at. During that same time period they went from around $110k, to about $300k at peak, and people want about $220k these days. (rough estimates).

Same school district, same area, but for whatever reasons the two neighborhoods have totally different price dynamics, and I expect that they will perform (as investments) differently in the near future. I wouldn't be surprised if those bubbly houses lose another 15% or so, or a cumulative fall of 40% from peak. The prices across the street, in my uncle's neighborhood, appear to be on sure footing. Apples-to-oranges.

[elflord1973]

My math is still dead on.

You wrote, and I quote:

You can't honestly think that after some areas have already fallen 30%, they go another 20-30? That would really mean 50-60%.

You're adding the percentages here, a very basic math error. When I ran the correct numbers, you didn't understand them. I'd rather not labor the point, but you got it wrong.

That is what your wording has said from the beginning, and anyone reading it would understand it the same way.

Go on, find a quote. The Case-Shiller number in NY region is down about 13% from peak to Nov 2008. You would need another 30% drop for a cumulative total of 40%.

I can only comment on markets I am familiar with, I didn't make any claims about markets that have already tanked. However, I'll point out that NONE of the Case Shiller numbers for CA show a 50% drop (I'm getting 36%, 38%, 38% for LA, San Diego, San Francisco, for peak to Nov 08) . Where are you getting your numbers from ?

Predicting "total" percentages from peak prices is much different than an already reduced market and then another 30% off of that.

OK, but 30% down isn't way out of the ballpark in NY region for a cumulative 40% drop.

That is what you are assuming and then changing your position on, all

Please find a quote that demonstrates the "change in position".

together. My example is what many think, when talking about price bottoms and when and by how much they will hit. Many complain about the "current prices" which I think is rediculous. Current prices (list or sell) are NOT at peak, anywhere.

It took me only a few seconds to find an example on trulia: first property in Montclair with any kind of history that comes up is MLS 2611872 (Hitchcock PL). 2003 price: 240. List price: 379. Rebase the 2003 price to 2006 ( NY case shiller at peak / avg NY case shiller in 2003) = 338.

Maybe that was a fluke ... I find one more that's 20% off peak, then one that's 10% off peak, then another two that look like 2006 prices, using the same method.

This is still a hefty amount! In our area, this would take prices back to the late 90's.

No, prices here have roughly doubled since 2000, while incomes have increased 20%. That would take price/income ratios to 2000 levels, the prices themselves would be about 20% higher.

Anything sold in the last year saw a modest, yearly appreciation of about 30%-40% over long term ownership.

I'm having trouble parsing this. A *yearly* appreciation of 30-40% is not "modest" at all. A cumulative 30-40% appreciation over "long term ownership" would indicate a very stable market. There are very few places where prices only increased that much since 2000.

It is completely false to say and assume that "prices are often close to peak values", they are not.

But I showed that they are.

Also not true. This would suggest that all selling/all homes on the market, will eventually just have to give into foreclosurer prices, if they want to sell.

No, it doesn't "suggest" that. It's as simple as this -- if no-one wants to sell at current market price, the sellers are those who don't have a choice. They may or may not be foreclosures (e.g. could be short sales or people who are moving). Trying to argue against this is like trying to argue against gravity.

Many, many, have equity, they have built over the years of ownership, by large down payments, paying down principles, purchasing and owning them before the words "peak prices" came about, etc. and should not have to expect to "take a loss".

I have no idea what you're trying to say -- but I suspect that these people I suspect will probably not sell in this market. BTW, if they purchased before 2000, I don't think they would lose anything.

If by "should", you are invoking some moral order, I'd argue this is a fallacy. Investing means taking on financial risk. If you don't like risk, don't use leverage to buy into bubble markets.

[Humboldt1]

I respect your opinion but Itasca is every bit as affluent as Wheaton. It is a smaller version of Elmhurst and has almost no apartments except a few downtown and west of the expressway. The average household income is 83K in 2000, which has grown since then. Itasca is surrounded by less affluent communities of elk grove, addison and wood dale.

There are certainly some smaller ranch homes near downtown and on the wood dale side, but I doubt itasca is that much less affluent than wheaton.

Itasca is bounded by 290 and 355, separating it from addison as well as song bird forest preserve.

Irving park road is only 2 lane thru Itasca and most of teardown activity has happened around its quaint downtown (population 8300).

My multiunit that I live in is in humboldt park, chicago. With the exception of 4 3flats along prospect road, next to mcdonalds there are no such buildings in itasca. I also own a townhome that I rent out.

Lake Park is a decent school, much better than addison trail or elk grove village, comparable with schaumburg. Certainly, there are some higher rated schools such as naperville or stevenson or new trier.

Please refer to several threads on itasca for more information. Itasca is not all that different than Wheaton, though it is closer in with more expressway access. Don't think that Itasca is like its less affluent neighbors.

Please research itasca further before making future judgments.

[Humboldt1]

Fmv,

I am going to start a thread on itasca vs wheaton on the chicago suburb forum. Check it out later this afternoon. Thanks.