If you were going go pick up a home during the Great Post-Bubble, After-Ponzi-Scheme Firesale, would 50% off of peak price seem about right? Ah, America loves a good half-off sale!
Or maybe just offer the home's 2001 value?
Or of course, you could do the math and offer the price that would guarantee that if you financed the home, after all net expenses and payments you could rent it out for positive cash flow. But that would make sense. Too much sense for this upside-down market.
February 08, 2007
HousingPANIC Stupid Question of the Day
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For years and years and years the formula for RE investment (not gambling or BS Speculation) has been the same: approx. 120 times monthly rent = Value
or, the better way is ALL costs of ownership subtracted from true market rent value minus some vacancy should give you an Net Operating Income that's positive 5 - 15%, and hopefully cover the financing costs as well.
Trading property formula on the other hand, has been:
After Repaired Market Value
minus costs of repairs
times 70%
===============
Maximum Purchase Price
That formula works in almost any market except a RAPIDLY (not sticky) falling price market.
It also does not rely on any rapid appreciation or gambling to show a profit.
So, there it is in the simplest and most proven terms.
Positive NOI if you're going to Buy & Hold.
70% of After Repaired Value - Repairs if you're going to buy, fix and sell (trade)
See... it's NOT different this time! :-)
Of course if you're buying a house to live in for the next 1-10 years, there are principles for that as well, but that's another post.........
Back to 1995 prices.
1995 prices were actually higher than 1997, btw.
Where's the coverage on CNBC?
Nothin' so far...
Whatever the 2001 price was, adjusted for inflation, local cost of living, and improvements. And I'd still low ball that sucker!
50% off.....and that's for starters.
Robert Precther, the Elliotwave guy, predicted some time ago that real estate would decline 90% from its peak, just as much of it did in the 1930s. Of course, after being brillant during much of the 1980s, Precther hasn't been all that great during the past 20 years or so. I think his target for gold is still under $200 before it explodes, and that sure doesn't look very likely. Anyway, his real estate target, if correct, such take several years and by then the dollar may not be around so we may be measuring prices in the "new dollar."
I think that I would bite at 40-50% off current prices as I am getting to that age (35) where I want a home of my own to do with what I want.
Accordingly, at 40% off, while things may go lower, i.e., 50-60% off current prices, I think that I would, nonetheless, at least break even at 40% after 20 years or so and/or possibly see some appreciation by that time. As it stands, if I bought now there is no way that I would ever see any appreciation.
So, I will wait and if it prices do not drop to levels that I deem reasonable, I will move to a low cost area.
Thanks boomers
I agree with the comment that prices need to fall back to 1995 levels.
Actually in the bayarea, prices were rock bottom in 1995-1996 - and by early 1997 most sellers were getting their exact asking prices, and homes were selling in about 1 month, vs much much longer.
01 was inflated a plenty in some markets. In other markets like charlotte NC, 01 was a year where it neared bottom with 02 being the real bottom. I'd say 96-97 in some markets and 01-02 in others. CA definetly 96-97, and may not even be that, cos 96-97 had tech jobs comming into the region with people from India and China, comming in by the planeful. now those jobs are all in India and china and then some.
Cool.
Cow_tipping.
In some areas 50% definitely!
In others, possibly more (i.e., coastal florida, phoenix, orange county)
50%? That would certainly be nice.
Ultimately, beyond the realtor pollyanna nonsense, all I desire is a situation where we have returned to historical norms. Where general housing in a specific area matches the salary demographics and falls within the historic P/E ranges between home ownership versus renting.
I think many home owners have taken exception to sites such as this one because they consider it a personal attack. And to some degree, there have been posters who gloat and sneer and home ownership "sheeple".
But ultimately, I believe the spirit of this blog and others like it is to foster education on how housing has operated historically and to also draw attention to the shady and subversive tactics utilized by realtors and those in the lending industry. This will become more apparant when congressional investigations begin. And if I was a betting man, I would wager dollars to donuts that David Lereah will be forever immortilized as the Henry Blodget of the housing bubble.
Anon said:"CA definetly 96-97, and may not even be that, cos 96-97 had tech jobs comming into the region with people from India and China, comming in by the planefuls".
Agree. I knew two couples who bought In 1996 & 1997.
Both women were co-workers of mine at that time. The first co-worker and her husband put an offer on a older SFH in a very nice district of Daly City, CA in 1997. She told me they had to offer higher than the asking price because they already had lost 3 previous homes by only offering the asking prices.
I also worked with another co-worker who in march of 1996, she and her husband purchased a home for $360K up in the San Carlos hills which had been sitting vacant for more than 2 years prior because the that owner in 1990 or 1991 paid 650K for it and then proceeded to dump an additional 100K to convert the lower level into an "huge grecian indoor sauna room". That FB tried to rent out some bedrooms to offset the mortgage, because the house was a huge multi-leveled cliffhanger, but ultimately ended up loosing it to forclosure in 1993 after the market tanked.
So anyone who doesnt think the market will tank at least 50% is not looking at history of housing prices.
Now, where's my popcorn??
50% OR MORE IN SEATTLE
Maybe WalMart can start selling discount houses. I bet the quality would be better than the current crop being slapped up by illiterate illegal immigrants.
how about 30% off in Boston?
Mid Hudson Valley, NY.
60% - 65% drop from current prices would be about were it should be.
"than the current crop being slapped up by illiterate illegal immigrants."
Actually its not the immigrants doing a shitty job, its the cheap ass builders supplying shitty material. I know blue collar Mexican construction workers that run circles around trailer trash wanna be workers. Those illegals know their work.I should know. They just did my landscaping, new sprinkler system, cememnt work, in ground spa all in about 3 weeks. QUALITY AND CHEAP so there, fuck you.
1998 prices, plus rate of inflation between then and now, which would translate to 1999-2000 prices overall. 1998 appears to be the jumping off point where RE diverged from its typical inflation trendline and started moving above trendline. However, with some mean reversion thrown in it's easy to see how we could wind up with 1996 or 1997 prices before the bottom is in.
I wouldn't worry as long as I could buy for 1998 prices plus inflation. Any more downside from this level would likely be short-lived.
We all may see drops of 40% to 70%.....No joke!
Anon said:"Actually its not the immigrants doing a shitty job, its the cheap ass builders supplying shitty materials".
It's both. Builders using below standard materials to build McMansions that sell for 700K, and hiring workers who dont understand what components go into building houses.
Which is why El Dorado hills now has thousands of homes not built to factor in the elevation C winds in that area, and hiring inexperienced labor who forgot to properly install rebar and waterproofing which is causing even more problems. Think how many homes will have structual problems in a couple years.
I read today that a majority of the homebuilders are making 9%-13% profit on each house. These numbers just seem bogus to me.
It's probably more like 300% per house...who knows? maybe I've got it all wrong.
HP:
" But that would make sense. Too much sense for this upside-down market."
How about a home that, PITI, cost 30-35% of my net monthly income?
That sounds like a nice, common- sense, conservative guideline, doesn't it?
Problem is, there ARE no homes of the size I and my family need in that range around here.
So....raise MY wages, lower YOUR prices, or beat up your long line of serial seller's agents...and kiss my buyer's wallet bye-bye!
Regards;
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