Home Price Chartfest

Submitted by Rich Toscano on November 28, 2008 - 12:58pm

Kelly Bennett has written extensively on the latest release of the Case-Shiller home price index, so I'm just going to throw a couple extra charts into the mix. OK, and one comment (I just can't help myself).

I'll begin with the charts. First, here is a table showing the last time the Case-Shiller index value for each price tier was lower than September's level. The right-hand column is the same thing but with prices adjusted to remove the effects of inflation.

continue reading at voiceofsandiego.org

(category: )

Submitted by 34f3f3f on November 28, 2008 - 5:18pm.

Anyone like to hazard a guess where they think prices should be by historical norms, and whether we're headed for an over correction? 2001 is close to where I'd like to see prices across the board.

Submitted by 4plexowner on November 28, 2008 - 6:05pm.

Look at the charts in Rich's article from the Bubble Primer section:


I believe we will get back to 1998 levels in all of these ratio charts

I base this mostly on the premise that financial bubbles, once burst, fully retrace themselves (as history shows) - the only question becomes, "when did the bubble start?"

Was the real estate upturn in 1997/8 the start of the local bubble or was it just the typical start of a SoCal RE boom cycle?

Many Piggs say the bubble started 2001/2

2002 is when the bubble became obvious to me and I started selling my properties

Time will tell - my current real estate advice for friends and family is that 2010 is the earliest that a purchase in San Diego MIGHT make sense

Submitted by adelord on November 28, 2008 - 8:40pm.

4plexowner wrote:

I believe we will get back to 1998 levels in all of these ratio charts

I base this mostly on the premise that financial bubbles, once burst, fully retrace themselves (as history shows) - the only question becomes, "when did the bubble start?"

While I am very new to the the RE game, it seems to me that any model based off of that assumption (bursting bubbles reset to previous "normal" level) depends upon other variables remaining rather constant or balancing each other out.

I expect:
- major changes in lending practices due to changing regulation (restricting the number of people who can qualify for a mortgage in my 200k-250k range)
- changes in foreclosure processes and handling of delinquent mortgage (reducing the potential number of future foreclosures and short sales?)
- changes in the fixed 30-year mortgage rate (I have no idea what variables drive this)
- changes in regional employment levels (down), both in terms of gross numbers as well as % unemployed.
- changes in other variables I have not yet identified

I lack the background and years of experience necessary to quantify these and make any prediction I can be confident of, so I am attempting to learn from other people's methodology.

Are you focusing on "bubble start price" as a stand-in "intrinsic value", or as a "buy price" or something else that I'm not catching?

I know I have a long way to go -- I don't even understand why the federal reserve discount rate doesn't show correlation with the average 30-year fixed rate -- so I appreciate seeing predictions that imply that I have another year+ to acquire a deeper understanding.

Submitted by 4plexowner on November 28, 2008 - 9:29pm.

"Price" is such a relative thing in a world of fiat currencies - that is why I like ratio charts [stockcharts.com lets you plot ratio charts - eg, enter $gold:$indu to see how gold is performing relative to the Dow - set Periods to Weekly and Years to 3 then hit Update - ouch for anyone holding stocks!]

Another factor over-hanging the real estate markets that you didn't mention: we have the baby boomers wanting to retire in the next 10 years or so - we are talking about 25% of the American workforce setting off into the sunset - this is a significant change for our economy which will probably affect real estate in some manner - many of these people are counting (were counting?) on the equity in their real estate to fund their retirement - the only way to pull equity out of real estate is to sell the property or borrow against it - some number of boomers will sell and this will add inventory to the market

I didn't say that bubbles retrace to the previous "normal" level - I said that bubbles fully retrace to their starting point - that starting point may or may not correlate to some "normal" level - look at the charts in Rich's article (link from before) - notice the blips in the 2001/2 timeframe - perhaps those blips mark the start of the actual bubble phase of the boom cycle and 1997/8 was a normal upturn

The reason I focus on bubble start price is because that is where history says we will correct to - history also says that the correction will overshoot to the downside - there have been many threads on Piggington inre "where will prices bottom" and I believe the "bubble retracement" fact is one way to answer that question [if interested in history of financial bubbles start with "Extraordinary Delusions and the Madness of Crowds"]

Don't worry about having a learning curve to climb - life is about learning - you have come to a good spot - read Rich's Bubble Primer articles for background

Another thing to keep in mind - we are in unprecedented times - the Federal Reserve (which is neither federal nor has any reserves) and the Treasury Dept have pumped (or promised to pump) $7.4 trillion (with a "T") dollars into our economy in the last few months - there is over $1 quadrillion (with a "Q") dollars worth of financial derivatives floating around this planet right now and the true value of all this paper is zero (with a "Z") dollars - we are truly living in interesting times

Submitted by adelord on November 28, 2008 - 11:51pm.

Thanks for the reply!

In theory, shouldn't retiring boomers pushing their money from the stock market and home equity into "safe" money market accounts and bond funds push down the 10-year Treasury rate, producing a drop in 30-year fixed mortgage rates?

I base that guess off of the reports that the mortgage rate drops this week were due to the Fed pledging to place $600 billion in mortgage-related securities, and this article I clipped about a month ago: http://www.washingtontimes.com/news/2008...

"The yield on the 10-year T-bill has been a loose but reliable gauge to determine the movement of fixed-rate mortgages. If the yield on the T-bill dropped or rose by a quarter percent, we could expect mortgage rates to move in the same direction and by roughly the same amount."

I read stuff like that, and evaluate it as information that is probably reliable, but I have a lingering concern that that relationship could become uncoupled by "new economic realities".

... and I look at things like http://research.stlouisfed.org/fred2/dat...
which seems to show that the last two periods of recession contained drops in 30-year fixed rates, but the previous periods of recession do not show nearly as clear of a relationship.

... I look at http://www.clevelandfed.org/research/Tre... which seems to show that the spread between 30-year mortgages and 10-year T-bills hasn't radically changed in the last 20 years, but had some crazy behavior before that.

I'm actually starting to feel that this may be a good time to "lock in" a low mortgage rate, like all of those scummy advisors have been advising for the last 10 years.

Submitted by 4plexowner on November 29, 2008 - 7:01am.

inre "locking in" a "low" mortgage rate

tough call to make but something for each person to consider

let's say you are looking at buying a $325K house today and can get a (relatively) low down payment mortgage at 6.5% (are these loans still available?)

at the very bottom of the market this house may only cost $275K but the only mortgages available require 20% down payment and have interest rates above 10% (mortgages at 14-18% were not uncommon in the 1980's)

will you be ABLE to buy at the bottom and take advantage of the low price or are you better off buying today with the expectation that prices will continue to drop? again, tough call

some suggestions that Piggs give inre when to buy:
> when you find a house that is ideal for you and you can afford it (no compromises / rationalizations - if you 'need' 2000 SQFT don't try to justify an 1800 SQFT house - if the school district sucks but you tell yourself you will drive the kids to good schools for the next 12 years - what are you smoking?)
> when you find a house that meets the first criteria AND you can easily afford it - don't BS yourself here - if you are counting on overtime pay, a 2nd job that you don't have yet, wife continuing to work forever (what about kids?), etc in order to "afford" the house, the reality is that you can't afford the house and you shouldn't buy it


you hit the nail on the head with "new economic realities" - be very careful trying to correlate today's economy to the past - when every weekend brings a new bailout plan and a few more failed banks (we're up to 22 so far for the year), we are truly in uncharted territory

Submitted by sideline on November 29, 2008 - 9:41am.

Pasado Del Sur sell for $575990 (2165 sqft, 4 bedrooms, upgrades in Del Sur) with 20% down payment,
monthly mortgage about 2700 (30 years fix ~6%), monthly taxes+MR about 911, I assume the deductible amount would be about 2100+911 so about $36k a year. Assuming a 10k-$12k tax refund, in which case the actual monthly payment would be 2700+900-1200=2400. Adding HOA = 2550.
If you compare it to rent, for example, 2200 for 2 bedroom aprtmnt in Carmel Valley.
Is this a reasonable price for Pasado?

Submitted by 4plexowner on November 29, 2008 - 2:24pm.

IMO if you are having to consider tax 'savings' as part of your equation, you can't afford the house

here's another way of looking at the same situation

$36K in interest paid less $12K tax savings is $24K

that is $24K you have taken out of your pocket for housing

that is $2K per month that you will never see again - you have essentially thrown that money down the drain

now look at the renting situation

in this analysis, the first $2K per month of rent is free because you were going to throw that money away anyway

so the $2200 per month apartment really only costs you $200 to rent


I'm not being totally serious here - just trying to point out that the 'tax savings' of owing a home are not the panacea that most people seem to think they are

Submitted by jpinpb on November 30, 2008 - 9:45am.

4plexowner - I think we can disregard 25% of baby boomers. I used to have the same thought, but they all won't be selling. They can rent out and live in nursing home OR they can do a reverse mortgage.

Just those 2 things will diminish further the percentage.

Submitted by peterb on November 30, 2008 - 10:48am.

An investment is either rising or falling in value. Using other measures is just rationalization for taking whatever action is being driven by emotion. Taxes are a good example. It's gravy, but should not be a major influence. Remember, taxes need a profit. So profit rules the roost.
The only logic I can find in buying a house in 2009 would be that one could rent it out for more than the mortgage and other expenses combined. Rents are very sticky and take a real economic melt down to start receeding. Everyone needs somewhere to live. Not everyone needs to own a home. Hence, rents have staying power. But they can come down. So there's risk. Going long on housing at this time is full of risk. Not wise to do on such a highly leveraged and iliquid asset class.

Submitted by sideline on November 30, 2008 - 7:19pm.

Thanks for your reply. So do you think that a builder like Willam Lyon in Del Sur, that priced Phase 1 of Pasado aggressively in June 08 and quickly sold out, will price the next phase on 09 cheaper? Obviously they don't like to do that, so they can delay construction, try to price the same way or try to negotiate the land price and price lower, undercutting the first phase buyers?

Submitted by peterb on November 30, 2008 - 9:17pm.

I doubt the builder will lose money because he's worried about the previous buyers. The market will determine the price. He probably cant afford to float the costs for too long. So look for agressive pricing again. Rich has posted how slow the market above $500K really is. I dont see how this will improve in the near future.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.