Posted by Nike on March 27, 2006 at 08:02:00:
C’mon Marc–pay attention. Mike said every boom is followed by a bust–he then went out on a limb and defined what a bust is. He’s wrong–every boom is not followed by a bust.
What will happen in the future is not knowable–that is why I challenged Mike’s statement.
Crash or No Crash, buyers or sellers market - Posted by David Krulac
Posted by David Krulac on March 25, 2006 at 06:01:47:
all real estate is local, and there is no stock market selling houses like Microsoft stock. Here is Pa. the spring fever house buying spree is in full swing. I’ve sold 10 properties this week, many are multiple bid situations, several are more than asking price and several of the more than asking price were all cash with no continguencies.
That does not look to me like either a crash or even a buyer’s market. One property was on the market 3 days, had multiple offers. Another was on the market 2 days, had multiple offers. Another property was on the market 7 days had multiple offers ALL CASH above asking price.
I know that this is not the situation everywhere, but at least here the much announced crash has not arrived. Prices have escalated but there are still relatively cheap compared to other sections of the country. I have a handyman’s special for $24,900, a remodled bungalow for $99,900 and a farmette w/ buildings for $159,900.
So articles of doom and gloom may be accurate for some areas, but as far as here, it just hasn’t happened yet, or may never hit here. The generalities of published articles and the variety of real estate markets through out the country, make almost all of those articles misleading,overstated, or just plain untrue.
Re: Crash or No Crash, buyers or sellers market - Posted by Chris (WI)
Posted by Chris (WI) on March 25, 2006 at 17:45:30:
David,
It is nice to have multiple cash offers above asking price. How much money did you leave on the table? It’s a rhetorical question and I’m asking it because I believe you are in the perfect position to auction some of your properties. Why set an artificial ceiling on the value by listing a price? Yes multiple bids in a private treaty negotiation will go a little bit above the list price but the excitement of the auction and head to head competition of bidding can often go much higher. You can set a reserve and don’t have to sell if you don’t get the money you want. Have you sold by auction before?
Re: Crash or No Crash, buyers or sellers market - Posted by Mark (SDCA)
Posted by Mark (SDCA) on March 25, 2006 at 15:24:05:
San Diego RE is WAY off- residential at least. And that is mostly true for the west in general. Per the commerce Dept report, sales were off 29.4% from January.
Newly opened escrows in SD were off 40.8% from 1 year ago.
Certainly not at the bottom but very much a changed market.
Re: Crash or No Crash, buyers or sellers market - Posted by Rob FL
Posted by Rob FL on March 25, 2006 at 08:31:40:
However, there are many national or global factors that affect real estate markets nationwide.
Things like interest rates, gas prices, material costs, inflation rates, federal law changes, etc. These things can affect the broader real estate market across the entire nation and cause people to move their money into or out of the real estate and mortgage market.
Re: Crash or No Crash, buyers or sellers market - Posted by Mike-OH
Posted by Mike-OH on March 25, 2006 at 07:03:02:
David,
I agree with you that all real estate is local. Additionally, I agree with you that the big bust will not occur in every market. However, historically everytime that there is a big RE boom, there is a big RE bust. I believe that we are at the peak or slightly past the peak right now. If you look at the historical charts, the bust normally takes 2 years to play out and results in a 20% decline in inflation adjusted prices. It normally takes about 10 years to get back to the price at the previous peak. So, if you live in an inflated area, you should be seeing these same housing prices again in about 10 years. Those that bought right and can hold on, should be fine in the long run. Those that were speculating on inflation will lose everything and won’t return to REI.
It happens every time and is as certain as the sun coming up - unless you believe that history won’t repeat itself this time! Seems to me that I heard that just before the stock market crashed.
Mike
Re: Crash or No Crash, buyers or sellers market - Posted by David Krulac
Posted by David Krulac on March 25, 2006 at 19:24:52:
I’ve done the Wm. Effros 5 day auction sucessfully and have bought a bunch at auction but haven’t done much selling with auctions. They do draw the crowds, but certain properties command higher prices at auctions and certain properties command lower prices at auction, IMHO.
Re: Crash or No Crash, buyers or sellers market - Posted by Rich
Posted by Rich on March 25, 2006 at 11:27:34:
This is very true. One of the factors fueling the price increases is investor money. I have friends who sold 10 houses in Phoenix last summer. All were multiple offers over asking price on the first day the properties were listed. Not one offer came from an owner occupant. Much of the money used by my investor friends to buy Real Estate came from the surviving stock investments after the dot com bust. When stocks are down, the money flees to Real Estate.
However, as prices rise, returns drop because buyers become more scarce. As interest rates go up, the great multiplier of leaverage drops off as well. There are several markets I’ve identified that are far below the national Median, so that if the median drops these markets still have room to grow before hitting the more national limiters of interest rates and competition from other investments.
I live in No. CA and invest in Phoenix (among others). This summer we hit the wall on price and the current sales in my own neighborhood are as much as $40K below what the summer had (that’s only a 5% drop at local market prices). In Phoenix we hit a partial wall for prices above the upper 200s. DOM extended to60 and more days. In the middle of that I sold a house in 2 weeks in the lower $200s. Just means that the market price and asking prices have a bit of a gap.
I think what people need to watch for is changes in economic conditions, bother overall (this affects lenders) and locally. For example you can get low priced houses in Detroit, but the market is a dog. Highly taxed and regulated areas get downturns first because taxes and regulations take money out of the market that could be used to bid higher prices. Hostile local governments send builders elsewhere. For example, we live near Berkeley, one of the most owner hostiole places in the country. There is a severe housing shortage there as many places go vacant rather than put up with the anti-landlord government. Up the freeway in Richmond there is an apartment boom, because the local government treats owners more like people.
Even in a particular area, the market varies from town to town. I think what we need to take away from the warnings of doom is that it is foolish to COUNT ON appreciation in the future just because it happened in the past. I worked in the industry that collapsed when the doit com bubble burst. I watched $1 million dollar homes sell for half that. Many of my friends and family members lost more than they invested with the crash. ANY market can crash, so do your homework and hedge your bets. Do not believe the salespeople who’s next commission depends on a fast sale at a higher price.
Re: Crash or No Crash, buyers or sellers market - Posted by Rich
Posted by Rich on March 25, 2006 at 11:29:19:
Thank-you. Much shorter and to the point that the comment I just posted.
Crash - Posted by Nike
Posted by Nike on March 25, 2006 at 09:10:24:
“…as certain as the sun coming up”? C’mon–you can’t be serious. And who told you history must repeat itself?
The only thing certain around here is that self-styled market wizards will employ banal cliches to make their points.
not universal… - Posted by David Krulac
Posted by David Krulac on March 25, 2006 at 07:29:32:
Mike,
My experiences and market may be diffferent than yours.
I’ve been investing in real estate in my market for 4 decades and there was never a decline in prices here during those 4 decades. The worst time was in 1981 when properties languished on the market for a year or more, 50% of the agents dropped out of the business and interest rates were as high as 20%. But even then prices plateaued but did not drop. There were disscretionary sellers who either withdrew their property or never listed them so the number of properties for sale declined. It was buyer’s market as there were a lot less buyers primarily due to the historically high interest rates. The people who had to sell offered seller financing, or closing costs help to move their property, but most sellers just stayed out of the market. There were no multiple offers and I don’t recall seeing any property sell above asking price.
In another market that I have invested in there was a 10 year plateau from 1987 to 1997, where prices remained the same during that whole 10 year period. People would buy a property hold it for 10 years and sell for the same price that they bought.
In my area there has been either a slight appreciation like 3% a year or plateau situation. That has been the normal pattern. However since 2000 prices have doubled. I don’t have a chyrstal ball but I think the greatest likely hood is that there will be worst case a plateau. The 1981 market was the worst that I experienced and I expect the next few years to not get to that extreme.
Some of the factors include:
David Krulac
Central Pennsylvania
Re: Crash or No Crash, buyers or sellers market - Posted by Bob Smith
Posted by Bob Smith on March 25, 2006 at 15:20:48:
Doesn’t the People’s Republic have rent control? Plus as I recall it’s extremely hostile to new development (read: extortionate developer’s fees and ass-kissing of the liberal establishment).
That’s funny! - Posted by Mike-OH
Posted by Mike-OH on March 25, 2006 at 11:06:14:
That’s funny! I remember just before the last stock market crash how the experts were saying that this time things would be different. There had been a fundamental change in the world and the high tech stocks could very easily double. Up Up Up!!! Somehow, the old rules didn’t apply anymore! Well, history did repeat itself (as it always does) and it will again - at least until the sun stops coming up each day.
Good Luck,
Mike
Re: not universal… - Posted by Rich
Posted by Rich on March 25, 2006 at 11:45:22:
If prices “plateau” for 10 years, then they are actually going down since there is always a systemic level of inflation built into the economy. Your items 1 - 5 are some of the factors contributing to inflation. So you have to adjust the prices to the losses in buying power of the money (inflation) to find out if flat was really flat.
Some of the inflationary factors are local. For example, take gas prices. In No. CA we have had higher gas prices than the rest of the country for a while. Then the rest passed us after Katrina. Why are we not affected the way the rest of the country is? Because all of our oil is refined at the 5 local refineries, so when they are offline for maintenance, prices go up. There is no infrastructure to ship additional supplies into the area in amounts that would impact the market, so we’re pretty much isolated from the market forces that affect other parts of the country.
Additionally, in terms of normal business cycles, 10 years is not necessarily long enough to experience a full cycle.
Its helps to take a full picture of a local economybecause Real Estate usually moves to the beat of the rest of its environment. Some places are slow and steady, others are given to wild swings. The fture can be guessed at but not predicted. And its never certain, which what I think other posters have been getting at.
Re: not universal… - Posted by Mike-OH
Posted by Mike-OH on March 25, 2006 at 08:12:49:
David,
I agree with everything you said. However, if you look at a chart of historical housing prices in the US (nationwide prices, not local prices), the declines in housing prices that I described are historically accurate. You can Google historical housing prices and see for yourself.
Mike
Re: Crash or No Crash, buyers or sellers market - Posted by Rich
Posted by Rich on March 25, 2006 at 17:52:40:
In 1978 (I may have the exact year wrong but it was around then) the State took rent control away from the localities. Anything built after that date or meeting a minimum remodeling cost and a % of vaule is not subject to rent control no matter what the city or county may prefer. Santa Cruz County lost a court case a few years back when they tried to have rent control anyway. The state Supreme Court told the county that had no right and they get to pay attorneys fees as well.
Now the rest is right on. They are extremely jealous of Emeryville, just south of them, which is seeing a major revitalization because of their pro business (at least compared to neighbors Berkeley and Oakland) environment. Sometimes I think these folks (the liberal establishment) must think people got their money by being stupid or something they way they squeeze business people and expect them to stay put and take it. Bottom line: the more government interferes in business either by regulation, taxes or an inequtable judicial system, the more businesses will go elsewhere. And that includes housing.
funny! - Posted by Nike
Posted by Nike on March 25, 2006 at 18:00:08:
Wondering what has you babbling in absolute certitudes I took your advice and Googled: historical housing prices. One of the first entries was a link to an FDIC study titled- U.S. Home Prices: Does Bust Always Follow Boom?
Their conclusion? No- it is relatively rare for housing booms to result in a price bust. Here’s the link- http://www.fdic.gov/bank/analytical/fyi/2005/021005fyi.html
But don’t let the facts get in the way of a wrong-headed theory you can always fall back on a dull cliche.
Re: That’s funny! - Posted by Rich
Posted by Rich on March 25, 2006 at 11:36:50:
The downward adjustments that always occur in business cycles are simple from the fact that prices can increase from two things (1) increases in actual value -like bigger houses, new ideas and so on or; (2) perceived increases in value often fueled by optimism and not much more. The market adjusts when there are too many of something, like houses, for the number of people who want to buy them. Since construction needs to be forecast, there is a lag between when suplly exceeds demand and prices adjust to reflect the excess of supply.
There are currently reports of a decline in new home starts. Here in No. CA builders don’t usually start construction without a sales contract, so a decline means fewer houses being sold. This does not filter down to resales right away because builders tend to push the envelope on price where resales react to market conditions faster.
However, I can drive down the street on the way to the freeway and see builder’s signs saying “Prices Reduced, $30K in upgrades”. And this is within 20 minutes of San Francisco, so its a pretty good location (bad school district, which is why only “pretty good”). There is always a downturn because the assumption that prices only go up is not supported by any facts anywhere.
Re: not universal… - Posted by lukeNC
Posted by lukeNC on March 25, 2006 at 19:46:08:
The only way there will be a universal bust in the RE market is if everyone simultaneously lost their source of income.
I dont see that happenning anytime soon. People will always be making money somewhere in this country and will be in most places. Someplaces have employment / income dips and in those places the prices may drop until things change.
Maybe a little too simplistic…but thats how I see it.
Re: Crash or No Crash, buyers or sellers market - Posted by RichV(FL)
Posted by RichV(FL) on March 26, 2006 at 05:41:14:
“Bottom line: the more government interferes in business either by regulation, taxes or an inequtable judicial system, the more businesses will go elsewhere. And that includes housing.”
Rich…you said it all right there sir. If thats not the truth I dont know what is.
RichV(FL)