Zillow’s latest “Homeowner Confidence” survey came out yesterday, and as usual, provides an interesting look into the psychology of the market.
…in the hardest-hit region of the country, the Western states, homeowners continued to be overly optimistic when evaluating the value of their own homes.
Nationwide, when asked about their own home’s value over the past year:
- 25% think their home’s value has increased
- 26% think their home’s value has stayed the same
- 49% think their home’s value has decreased
In reality, 72 percent of U.S. homes lost value over the past year, and 22 percent of homes increased in value.
Drilling down into the more detailed release (pdf), you can see that out here in the west, homeowners still seem to be the most overly optimistic bunch in the country.
53% of homeowners in the west believe their home has declined in value in the last year, while 28% believe their homes have increased in value. In reality (according to Zillow), 78% of homes have declined in value, and only 17% have increased.
Meanwhile, only 15% of homeowners in the west expect their home’s value to decrease during the next six months, which is not too surprising given that nearly half the people surveyed base their belief in a housing market bottom on “general good news about the economy.”
With the stock market continuing to surge (quite likely due to a growing dollar carry trade) and the mainstream press giddily pumping an alleged recovery while all but completely ignoring the fact that none of the underlying poisons in the economy have been addressed (and in fact many of the problems have been amplified), of course most people would believe that housing has bottomed.
I would agree people probably don’t had a good idea what their home is worth, but I’m not sure I’d look to Zillow to try to quantify that. Actually, I am sure. I wouldn’t look to Zillow to try to quantify that.
RE: Kary L. Krismer @ 1 Kary — Unfortunately, I think much of the attitudes about rising housing prices that the majority of people have stems directly from their belief that Zillow ( and other similar sites) have accurate information. I know people that are checking their home “value” on a regular basis, and they seem to have overly positive ideas of where prices are and where they are headed.
So I think that most people do have a very good idea of what their house is worth. It just happens to be wrong.
I think I need to find one of these people to sell one of my houses to for more than it’s worth :)
I’d love to see a non-owners’ survey. I know a gal who suggested the house next door to her was a bargain at $650,000, yet other homes in the area sold for $400,000. The zoning was different, so I guess I am not using an apples-to-apples comparison. Yet I question just how much more multi-unit zoning is worth today.
RE: Matsayswhat @ 3 – Unfortunately the current owners generally are not buyers. This survey might suggest that either owners need to get realistic right before they sell or fewer sales will take place.
I listened briefly to CNBC today where they said the lower equity market today was due to the fact that home builders weren’t building new homes. Frankly I think that is a POSITIVE. We have more homes than can be absorbed right now in almost every market. Builders need to do something else for a while…
RE: Nell Plotts @ 5 – I think it depends on what you’re looking at, but for house prices to increase less building would be better. For the economy as a whole, probably not so much.
I sort of wonder how much of the housing starts stat was due to the first time buyer credit? Some places actually started building with that, and with it having been set to expire I could see where starts would be down.
Have you guys noticed that the inventory for King and Snohomish counties keep dropping… Yeah go go Bubblebrains!
RE: gomannypacquaio @ 7 – That’s been mentioned before, along with the fact that a lot of that inventory is short sales which many buyers ignore.
I think the scarier part isn’t that they think their homes went up in value it’s by how much people think their homes will go up in value. I can’t find the link, but a few months ago a similar survey was conducted asking people how much they thought their homes would appreciate year over year and they thought something like 5-7% was about right. People have been trained to think that homes are a great way to make money, when in reality based on history, after you take out inflation the value of a house is going to stay flat or increase by MAYBE 1%.
LOL…..General Belief of Good News About the Economy
Do any of you bloggers listen to KJR’s FM 95.7 “Good News”….if you haven’t, put it on in the morning….but don’t eat a big breakfast, you may get sick….LOL
They alleged “Good News”, RE is going to go up in price in 2010….good news for who? Ebenezer Scrooge and the banksters? Certainly not the buyers or even compassionate homeowning parents, looking out for their children’s future.
More of their “Good News”: Instead of 10.2% unemployment, they’ll say 89.8% of us have jobs…LOL
Truth be known, its more like a 20%+ unemployment now calculated the same way we did during the Great Depression….ohhhhh, then KJR would rant, but 75% of the people had jobs during the Great Depression…LOL
RE: gomannypacquaio @ 7 –
I hear a lot about “affordability.” Essentially the claim is made that it does not matter the cost of a given property, it does not matter for how much you could rent a place, it does not matter how much the neighbor’s house might sell for, as long as the payment is “affordable.” I’ve heard that “It’s cheaper to buy, with the right assumptions.”
I use Vegas as an example, mainly because there is little dispute about market conditions.
In 2006 asking prices in the Vegas market were approximately:
25th Percentile:$275k
Median: $345k
75th Percentile: $475k
Source: http://www.housingtracker.net/asking-prices/las-vegas-nevada
In 2009 asking prices in the Seattle area are approximately:
25th Percentile:$240k
Median: $340k
75th Percentile: $539k
http://www.housingtracker.net/asking-prices/seattle-washington
I do not know what the variance in the data is, but I will say this, the 2006 Vegas prices are quite similar to 2009 Seattle area prices.
Today it is well-known that the prices in the Vegas market are closer to 1/3 the above numbers, roughly speaking.
25th Percentile:$94k
Median: $140k
75th Percentile: $220k
Clearly the 1/3 is a rougher estimate on the upper end, but 94/275 is roughly 1/3.
Once again, I wonder what’s the percentile income of those buying around the 25th percentile, median, and 75th percentile? Can someone with a 25th percentile income really support a home that costs the current Seattle 25th percentile asking price of $240k? How about the 2006 25th percentile Vegas area home at $275k? Will the Seattle area market support the current prices, which approximate 2006 Vegas prices?
Oh, I didn’t notice that “the inventory for King and Snohomish counties keep dropping.” Everything is fine. Move along. Sign here. Thanks.
If you dont like Zillow try this outfit.
Tend to be far more conservative.
http://www.eppraisal.com/home-values.mvc
Did anyone see the ‘Flip This House’ last Sat.?
Long story short…a couple in their 50s bought a $560k ocean view home in San Clemente and put an additional million into it. They tried to sell for $2m, then $1.5m and finally $1.1m…well, the bank ended up with the property ($900,000 in liens) after paying the owners a $15,000 fee.
Hey, that was depressing, cause the guy put skin in the game, ~ $600,000, lost his life’s savings as well as his job, and was living in a friend’s camper with his wife and 2 small children. I feel so sorry for these people. At the end of the show, he hung his head and said ‘I guess I bit off a little more than I could chew.’
Folks – live beneath your means.
RE: The_Dude_Abides @ 13 –
Yes, absolutely. Things could always be worse………..This guys wife even left him…
http://www.youtube.com/watch?v=DStwXsmZ3OE&feature=related
RE: The_Dude_Abides @ 13 – About two years ago I read about a truck driver that pulled almost the same thing in California. His case was slightly different. He purchased a at foreclosure auction/REO, I forget the specifics, but he thought he could make an immediate buck. The property was about $750k and he put down $150k. He waited six months and put it on the market for $950k, I forget the exact amount, but it’s not really that important. He ended up reducing the price to $750k, and then he wanted the bank to take the loss–he thought he should be able to recover his $150k, and the bank should take the hit. Needless to say, he was out $150k.
Anyone who still wants to make a quick buck from REO, flipping or renovation in current market is seriously out of their mind. And frankly they don’t have my personal sympathy.
RE: Kevin @ 16 –
Kevin, I’m not sure what you are talking about.. The investors I know have been making a KILLING at the auctions this last 12 months. It all depends on the GEM you buy and do you have the CASH. A 1,200,000 home in Bonney Lake just sold for 1.00 over the minimum at 370k with 120 feet of water front. It was pending on the MLS at 680k. Deal flipped and someone scored. Its happening every single day.
It takes education, patience, and CASH!
Ray Pepper — if you’re going to spend that much effort doing research, and expose yourself to that much risk with that type of investment — the odds of coming out on top are quite slim for most people. It’s a stupid investment based on gambling. Very high risk, May as well go to VEGAS.
Why not be smart and invest in precious metals? Silver is up 42% since the July low. This is a no-brainer trade as long as the Fed keep rates low (till 2012). What do you think is easier — buying silver bullion, or flipping a property in this market? You really think you’re going to make the 200% that you’ll probably make in silver in the next two years. I think not.
RE: AMS @ 11 –
The info you that you just outlined in this post is the single most alarming piece that I’ve seen in a while.
My impulse is to get out one of The Tims graphs and review the one that charts “Change from the Peak Price” on a timeline that shows different markets as they moved through the crash. If I remember my last study of that chart it appeared to me that the Stimulus had modified the shape of the graph line in the markets that came to the crash later, like Seattle.
Of course, the question remains whether the effect of the Stimulus is permanent or will Seattle return to the course charted by early Bubble cities.
RE: AMS @ 4 – RE: AMS @ 11 – RE: AMS @ 15 –
Seriously, in English.
RE: Haybaler @ 18 – I don’t mean for it to be alarming. I am not sure what’s going to happen in the total market. There is so much that really doesn’t follow nice historic patterns. I offer it as an example of an area that was expected to go up, up, up and away for many years, and yet there was very little price support. I also follow Vegas because I have a friend who owns a few properties in the area. Actually he has not spoken with me recently. But anyway, in December 2005 I strongly suggested that he sell all his Vegas properties.
There were all these hand waving motions, talk about how easy it is to rent, and how the market is poised to to up 20-30% per year for many years. I heard about construction, healthy economy, and on and on.
After December 2005 the cracks started to widen in the Florida real estate market and in Vegas. Once the cracks were clear, I heard about “bumps in the road,” “temporary conditions,” and other claims. Next thing I know Vegas properties are fairly difficult to rent, and rents were going down.
It was after that, let’s say about 2 years ago, that he quit talking to me. I don’t take any of this stuff personally.
The other example I like to use, which is not as recent, is how long prices have gone down in Detroit. Both GM stock as well as housing have been hit for many years. Both keep going down, and I kept hearing claims about how the value could go no lower. “It cannot go lower.” Just cannot happen. Yet GM stock went to effectively being worthless from it’s high in the 70s a little less than 10 years ago. The Detroit housing market has been struggling for many years. Some might suggest that the Detroit housing market, a very bumpy ride, has been going down since the race riots, when there was a flight from the city to the suburbs. The first energy embargo of the early 1970s didn’t help, and there is plenty of corruption in there too. I certainly recognize that there are many other problems, including the shift of manufacturing to other parts of the nation and world.
Last year Wayne county was auctioning homes off for $500 and some did not sell. There was an abatement of past property taxes, future property taxes, and all kinds of other incentives. If I remember right the past due utility bills had to be paid, but these generally were not thousands of dollars. Yes, the properties were all in various stages of disrepair. And they were not located in perfect neighborhoods, generally speaking. Some were very nice and located in great neighborhoods, but those sold for $70k-100k. Many of the homes sold for ~$25k, which was the cost of a typical Detroit home sold through the traditional sales process. Most sold for under $25k.
Has the Detroit area bottomed out? I am not going to suggest that, as I have seen low prices get cut down to lower prices. I will say this, however: When you pay $25k for an average home, even if it burns to the ground, you’re only losing a year of gross wages, if you earn $12.50 per hour.
Housing prices on the west coast have been high for decades. With my limited life expectancy, it might take too long to wait, but at the same time a purchase today could be very risky, or rewarding if high prices go even higher.
What do you do when you have a limited life expectancy, yet prices may significantly decline for many years while remaining high? (ie a $400,000 home might decline by 5-10% each year for 10 years, which would result in a total price decline between 40% and 65% at the end of the 10 years. (5% decline each year for 10 years = 40% decline; 10% decline each year for 10 years = 65% decline = 5% decline each year for 20 years.) It’s not quite that smooth, but I’ve watched it happen in Detroit.
Also how long will it take for Vegas to recover? If you were one of the many buyers near the peak, what is your best action?
RE: David Losh @ 20 – lol
RE: AMS @ 11 –
Am I wrong here?
when looking at the affordability of houses, it makes no sense to complain “the person at the 25% income level cannot afford a house in the 25% percentile.”
someone making 15 bucks an hour should not be buying a house. too many expensive variables. Some people are, and always should be, renters. And that’s fine.
I’m not sure what the numbers are, but I’d be more concerned if someone at the 40% income level can’t afford a 25% level house.
RE: Snigliastic @ 23 – I guess we need to use household income, and make a nice assumption that everyone needs housing.
A rental home has market value too, and rentals are included in the sales prices.
RE: gomannypacquaio @ 7 – It’s normal for supply to drop in a climate such as this. The banks are putting off foreclosure like the plague, and homeowners have very little incentive to sell unless they’re in distress or “have” to move. With that being the case, who is left to list their homes? The name of the game is extend and pretend. But is that really the best strategy?
When Japan found itself in a similar situation, house prices didn’t correct overnight. They fell slowly for 15 years. Markets have noise. Sometimes in order to get a sense of where the market is heading, you have to stand back from the daily noise and take a larger interval view. What happens today and tomorrow is inconsequential, but what happens over the course of the next few months will be extremely telling.
http://seattlebubble.com/blog/wp-content/uploads/2008/10/japanes-and-us-housing-bubbles.png
RE: per_se @ 9 – Well, when inflation is running 4-6% a year from all this printing (sorry, ahem “quantitative easing”) then that 5-7% will be 1% over inflation! We can only live on credit for so long as a country and eventually our bankers (China) will start to demand higher interest rates to buy our debt.
Ironically although that would usually be bad for most people I really think the Fed wants to inflate our way out of the debt problem and continued expansionary monetary policy will eventually lead to an increase in asset (house) prices. Since you borrow in nominal terms rather than inflation-adjusted that could be a boon to homeowners and the bankers who hold underwater mortgages.
RE: Jeremy @ 26 – If I can paraphrase the inflation wags on this site, we expect uneven price increases. Look for higher-priced imports and energy, but no increase in wages or home prices.
RE: While It’s Hot @ 18 –
Funny you should mention Gold and Silver. My brother owns the gold and silver exchange in El Paso Tx. He sold all his GOLD today. Buying Gold at 300 was the move at 1150 I find it meager returns at best.
Buying at the auction(when you know what your doing) provides far quicker and SUBSTANTIAL returns, in my opinion, at this time.
RE: AMS @ 21 – RE: Snigliastic @ 23 – RE: AMS @ 24 –
LOL, come on this is a joke, right?
RE: Ray Pepper @ 28 –
The auctions here or in Nevada? The auctions here seem pretty risky.
RE: Snigliastic @ 23 –
Uhmmm…. somebody at the 40th percentile for income CANNOT afford a $240k home. That’s kinda the problem. With the national median household income at approx. $50k a year, what do you suppose the 40th percentile looks like? I’ll make it easy for you. It’s about $15 an hour. :-) Pay attention here Snig, I know you’re more observant than this.
The Kid
RE: The Kid @ 31 – Pay attention yourself. I said “I’m not sure what the numbers are.” it was a general idea post, saying 25 – 25 comparison is worthless. I don’t know where the worth lies, but it sure as hell ain’t there.
You think the drop between median and 40th percentile for incomes is $20k? (15/hr * 2000 hours = 30k).
also, I like how you use national median income and then compare it to the 25% figure you probably made up for local housing prices.
That’s like comparing apples and kumquats.
you sure you aren’t David Losh posting under a pseudonym?
By The Kid @ 31:
The upper 30 – 40% of median income households in a region dictate housing prices. The bottom 35% income households are always renting and those between 26 – 60 on the median scale make big sacrifices to buy (creative financing, family members move in, commute further, smaller houses, etc.).
This is explains why regions with large gaps between the “rich” and “poor” have such high housing costs. San Francisco is a prime example. And other regions with flatter income distributions have much cheaper housing (the mid west).
I guess the point I’m trying to make is the shape of the income distribution (how much income does the top 35% make) is more important then the median income.
RE: Ray Pepper @ 28 – Think the scariest part in gold is the amount of it simply just on paper, without physical delivery, it was a nice speculation move for me at 650ish. Looking at it now having moved out, is way topped out, unless Chinese start filling up their two reserves at rapid pace.
RE: DrShort @ 33 – “I guess the point I’m trying to make is the shape of the income distribution (how much income does the top 35% make) is more important then the median income.”
As Snigliastic pointed out, household income really needs to be used. A two income household where both are below median might be able to afford a median priced place.
Also I find it difficult to believe that the top 35% set the house prices for the bottom 35%. The top end clearly can drive prices much higher (i.e. the difference between the 25th percentile home and the median home is less than the difference between the median home and 75th percentile home). The best homes will always have buyers that have far more capacity than the typical buyer.
RE: David Losh @ 29 – No joke, the pleasure from a “Losh Filter” increases with each one of your posts. I’d have to turn it off from occasionally just to remind myself just how good it is.
RE: Herman @ 27 – Sure, price increases will definitely be uneven but clearly the Fed believes that they need to support home prices in the economy or they wouldn’t be keeping mortgage rates down by buying mortgage-backed securities.
I’d settle for relatively stable prices over time. But for now I’m focused on paying as little interest as possible on a depreciating asset (our house).
RE: The_Dude_Abides @ 13 – I saw that episode of “Flip this House.” I don’t feel the least bit sorry for those people. IMO, they got greedy and paid the price. Did you notice how delusional and snobby they became after the host of the show attempted to rescue them? I mean, the lady had a fit because she wanted the “smooth” finished stucco instead of the cheaper texture. In her opinion, the entire house was ruined. IMO, those ex-snobs belong in a trailer on a friend’s property. They represent everything that went wrong with the housing market. Stupid people who feel entitled to wealth just because they can get a bank loan. The biggest laugher was, instead of looking for work, the guy is sponging off his friends and “writing a book about his experience.” IMO, when fruit picking season comes around, there will be plenty of real work for him. :)
The biggest lesson I took away from that show is never give a contractor money until the work is completed. Always check references, and ask to look at the final completed work. And if your job is not secure, don’t take out a million dollar bank loan.
RE: Ray Pepper @ 28 –
Errr… I feel happy for you, your brother, or whoever you know that have a lot of cash around. Obviously you feel like you need to share it with us, who are mostly earning average income.
If you can offer a few million dollars in cash, yes you can get some very good deal. I just have an acquaintance who paid $1.8 million for a Medina house that was listed at $3 million.
But even for him, there is no quick way to flip the house and sell it for 2 million or more. He is buying for mid or long-term gain. The market is not stupid.
I agree with this post. There was an analysis, a bit cold-heartedly, that declares that home ownership is not a born right to anyone, so the bottom income earners should not expect to own a home, otherwise they will be bitten hard (original subprime crisis). So it’s not reasonable to expect 25% percentile income to afford 25% percentile house.
Also since the market is not closed off locally, for an attractive liveable area like Seattle, I assume there will be a resonable influx of investments (Thank God not on the scale of Vancouver investors!) that makes real estate here more expensive to bear with local income.
I heard on the radio today that gold is going to $2-3,000, so it must be true.
RE: Kevin @ 40 – “There was an analysis, a bit cold-heartedly, that declares that home ownership is not a born right to anyone, so the bottom income earners should not expect to own a home, otherwise they will be bitten hard (original subprime crisis). So it’s not reasonable to expect 25% percentile income to afford 25% percentile house.”
How do you respond to the fact that rental homes are included in the data?
My basic claim is that a 25th percentile earner must live somewhere.
I suppose it also depends on the difference in asset turnover rates between owner occupied and rental units.
RE: Scotsman @ 41 –
You can’t believe what you hear on the radio. For something to be true, you need to read it on the internet.
RE: Snigliastic @ 32
As posted by AMS:
In 2009 asking prices in the Seattle area are approximately:
25th Percentile:$240k
Median: $340k
75th Percentile: $539k
And yes, I am using the national median as opposed to the county median.
So, lets look at county income shall we?
http://www.kingcounty.gov/exec/strategy/PerformMgmt/BenchmarkProgram/Economy/EC02_Income.aspx
Looks like $70,193.
Assuming you’re white. Things go downhill rapidly from there. Follow the link to find info on that.
So hey, looks like, statistically the 40th percentile of incomes for the area could, just barely, get into a 25th Percentile home. Just barely. Once again assuming you’re white.
Oh, and a little bit more respect if you please. I’ve been here a while, I’ve read quite a few of your comments, and frankly I agree with most of your assertations. There is no need for personal attacks.
By Scotsman @ 41:
More likely it means it will soon be $700. ;-)
RE: The Kid @ 44 – That’s household income, which is fair enough.
Maybe I’ll compare the ratio of purchase price-to-household income for a few areas. The data is generally difficult to find, and different data sets are not easy to compare. And then there is the weaknesses even with good data sets.
RE: Kevin @ 39 – Kevin, sorry you got the impression I have ALOT of cash. I do NOT. It seems to all be invested in my 4 kids. My brother has no children and is far more “LIQUID” with his Gold and Silver Exchange and has always hated real estate.
I’m just here to tell you Kevin people are making a killing at the auctions, waiting their 90 days, and flipping homes. Your friend who bought a 1.8 mill home that was 3 mill sounds to me like he/she over paid BIG TIME. Thats a toxic purchase with very limited Buyers. Remember the simple rule of Auction investing: You dont buy anything that you cannot sell the next day for a profit. Its just that simple.
Your Gold and Silver Play (if she continues to run) will not equate to the run we have already seen from 300.00(which is nearly 4 fold). the auction Buyers I know spend weeks searching and looking at the homes and go equipped every Friday to MAYBE purchase 1-2. When they do buy its always returns of greater then 40%.
I don’t have the time to view all these homes. I just place my money in the LLC pot and draw on the returns after I view what they want to buy. 75% of the time I say no. You feel free to jump in Gold and Silver at this level.
RE: AMS @ 46 – I compared King, Pierce, and Thurston median household income to median house price by city in Q2 of each year. I thought the results were interesting, because I only previously saw comparisons to Median Family Income.
http://housingcorrection.com/misc/MPtoMHI3.jpg
http://www.ofm.wa.gov/economy/hhinc/medinc.pdf
http://www.ihsglobalinsight.com/Highlight/HighlightDetail2350.htm
RE: Ray Pepper @ 47 – Ray, are you talking about court house steps auctions? Also, is 40% return before or after all holding fees, fix-up fees, RE fees, taxes etc?
Thanks
RE: Jonness @ 48 – Thanks for the chart. Interesting. It appears that the ratio of median price to median household income peaked in 2006/2007. This is mainly because home prices went up in value much faster than household income, and essentially household income is unchanged while home prices are going down.
It’s also interesting to note that the ratio was, very roughly speaking, about 3, maybe a bit more for King County. King County peaked near 6. It’s a little less than a double because of my rounding, but the price of housing has gone up significantly more than household income. This is no surprise, as we already knew this, but the larger question is (when) will the ratio return closer to 3?
I note that the 2009 household income estimate is the same as projected 2008. The 2009 unemployment, at 8.8, is higher than all the other years, but there are some years with unemployment in the low 7s. The 2009 interest rate, at 5.06, is the lowest, and interest trended lower over the entire 20-year period. Given the high unemployment rate, household income could go down when the actual numbers are compiled, many months from today.
I don’t think it would be too much of a stretch to suggest that King County median house price could return to 3.5 times median household income. If income remains relatively constant, then the target median price is $70k x 3.5 = $245k, a reduction of about $100k (about 30%) from today’s prices. It is my opinion that this is a real possibility, and I would assign a 30% reduction in housing prices a higher probability than any significant increase in prices. I don’t expect incomes to suddenly rise 30%. High inflation is a possibility, which could increase wages, but right now I assign high inflation a low probability.
Based on all of the above, I’m going to put this in the column of downward pressure on home prices. It seems that column is a bit crowded these days. I’m still looking for more to go in the upward pressure on home prices column. Government giveaways, including tax credits, more Dumpsters of cash in the form of loans, and possible inflation are in the upward pressure column right now. Low inventory is only applies upward pressure if a good stream of buyers continues, which I am not sure about. Sure there are buyers willing to take free money, but what happens when the free money handouts end?
RE: AMS @ 50 –
Well that really covers a lot of bases, upward, downward, and sideways.
It’s simple, Real Estate is simple, it never changes. High interest, low interest, income, no income, rain, sun, or sleet, the value of real Estate is based on what it can rent for.
I’ll say it again, it’s the rule of 10. 10% down with 10% interest, will the house rent for the mortgage payment? No? Don’t buy it.
Now if you really want it, the next question is how fast can you pay it off. It’s not a Real Estate until you own it free and clear.
Can’t afford to pay it off? How fast can you sell it for a profit?
RE: AMS @ 50 – “I note that the 2009 household income estimate is the same as projected 2008. ”
Sorry. I forgot to mention I put the same MHI figure for 2009 as 2008 because the 2009 data wasn’t available via the OFM. So the ratio in the chart is off a little for 2009, but I think it’s close.
“The 2009 interest rate, at 5.06, is the lowest, and interest trended lower over the entire 20-year period.”
Isn’t that interesting? I remember people telling me in 2008 I was crazy not to buy a home because any money I saved in house price reduction would be eaten up in higher mortgage rates.
Many of the people who tried to talk me into buying are now underwater.
RE: Jonness @ 52 – The 30% price drop still seems reasonable, even with your estimates. Given the national scene, a 30% reduction is not that extreme.
Once again, I buy plenty of items that go down 30% or more in value. I am not saying it’s a good or bad thing.
“Many of the people who tried to talk me into buying are now underwater.”
Being underwater is not such a bad thing, if you have significant sums of other capital. Unfortunately most people that I find are significantly under capitalized and underwater.
I walked up to the old coffee machine. I put my 85 cents in change into the machine, and received a fine cup of coffee. Behind me was a gal searching for change. No change = no coffee. The new machine takes credit cards and dollar bills, but this happened before the new machine was installed. No problem, I ‘loaned’ her the 85 cents for the cup of coffee. Even if I had some security interest in the cup of coffee, somehow it seems that she’d be underwater as soon as the purchase was made, yet I have no problem lending pocket change to purchase an underwater cup of coffee. I’d have ‘loaned’ her the 85 cents even if she were under capitalized (i.e. was just plain broke).
Too many people treat a $350,000 home purchase like a cup of coffee.
RE: AMS @ 53 – I keep hearing from the national media about how “affordable homes are right now.” As far as I can tell from the Puget Sound area charts, if homes are affordable, it has 100% to do with extremely low interest rates and extremely lax lending standards. Of course, that is for gov. guaranteed loans only, because anything else requires you have money, a downpayment, and a high income stream.
So here I am looking at supposedly affordable houses that are actually 30% overvalued when compared to incomes. What comes to mind is the Fed’s upcoming termination of purchasing mortgage-backed securities, which it states will occur in Q1 of 2010:
http://www.newyorkfed.org/markets/operating_policy_090923.html
So then we will have interest rates shooting up, nobody left with a job to buy the overpriced homes, and an end of the $8K tax credit. Currently, 1 in 7 homeowners in the U.S. with a mortgage are either late on payments or in foreclosure, and that number is not going down anytime soon.
If the Fed pulls out as promised, house prices are going down, because monthly payments will go up. So what’s the alternative? Extend the MBS program to $2.5 trillion since nobody in their right mind will touch this garbage? And since we currently have sub-5% mortgage rates and an $8K tax credit, and few people are biting, the Gov. will have to extend and increase the tax credit as well. It’s as if they are sucking the juice out of the consumer, and the less juice there is, the harder they need to wring.
The freaking game is crazy. The government is attempting to prop up our house prices at a level of 30% overvalued at a time of 10% unemployment. The only weapon they have is to give the big players free money and beg them to create another giant asset bubble and hope the dollar turns into the peso so we can all pay off our loans. Of course, by then, we’ll have had to take out new loans, because that’s the only way our lending-based economy can survive. Thus, the strategy apparently is to repeat this cycle forever–despite the fact that each time we go through it, they have to lower the short-term rate to a new record low, and it is currently at ~0.
Meanwhile, Japan, the world’s #2 economy, has sunk back into deflation.
“Nov. 19 (Bloomberg) — Japan’s government may announce tomorrow that the economy is in deflation, setting off a bond rally that may push 10-year yields to 1 percent, a level unseen since August 2003, Citigroup Global Markets Japan Inc. said.”
http://www.bloomberg.com/apps/news?pid=20601080&sid=aDnw3C5iBf0U
I’m having a seriously difficult time validating all of this good economic news I keep hearing about in the mainstream media and from the consensus of economic experts. I have to keep reminding myself that this is the same media and consensus of economic experts who told me there was no housing bubble and the economy was “healthy.”