I wonder whether you are right. True enough that prices increased the most at the low end, but now that Fannie and Freddie represent 95% of the mortgage market, credit is really only available for conforming loans. Surely that will have a disproportionate impact on the high end?
Virginia. I don't want to be a full-time attorney, instead doing contract work on the side, with poorly-compensated policy stuff being the main dish. so i'm somewhat fortunate that the two areas in which i'm most prepared and interested are BK and patent law.
"Leaving Scotland, John Paul commanded a London-registered vessel, the Betsy, for about 18 months, engaging in commercial speculation in Tobago. This came to an end, however, when John killed a member of his crew with a sword in a dispute over wages.
During his second voyage in 1770, John Paul viciously flogged one of his sailors, leading to accusations of his discipline being "unnecessarily cruel." While these claims were initially dismissed, his favorable reputation was destroyed when the disciplined sailor died a few weeks later.
...During this six week voyage, Jones captured sixteen prizes and created significant damage along the coast of Nova Scotia. ...
As a result, he was given assignment in Europe in 1783 to collect prize money due his former hands. At length, this too expired and Jones was left without prospects for active employment, leading him in 1788 to enter into the service of the Empress Catherine II of Russia, who placed great confidence in Jones, saying: "He will get to Constantinople." He took the name Pavel Dzhones."
When the powers that be dedollarize, it's quite possible to reignite the housing bubble, as it might just be one of the few things that can't be exported out of the country to buyers overseas, and all imported items will be cost proportionately much more than they do right now, so that's a no-go.
When one observes the Case-Schiller anomaly, surely the question must arise, "WTF caused that"? It is not a question of what the 'norms' are or how/when they shall be returned, but a question of the impulse function itself. Is there a precedent? What was its cause and outcome.
Sadly I think back to Rome and WWII.
Meanwhile I read on blogs about lines being crossed because its accepted default on debts. I don't think anyone here has paused to consider the consequences What a bunch of selfish bastards Americans are.
At age 4 s success is . . . Not piddling in your pants.
At age 12 success is . . . Having friends.
At age 17 success is . . Having a driver's license.
At age 35 success is . . .Having money.
At age 50 success is . . . Having money.
At age 70 success is . . . Having a drivers license.
At age 75 success is . . . Having friends.
At age 80 success is . . . Not piddling in your pants
It looks to me like the top tier is set too low to capture what's going on in the high end.
Look at SF for example. Over $481.916 is defined as the bottom of the top tier, yet it's more like the bottom of the market. I don't know where they even got data for sales under that price since 2000, unless the numbers include someplace other than SF.
Nemo, yes - there are financing problems for the high end, and few move up buyers. But on the other hand, there will be fewer foreclosures as a percent of houses in a neighborhood (high end owners usually have more resources).
In my neighborhood - a high end area - almost half of the homes were purchased with cash during the bubble - those people aren't in danger of foreclosure (although they might have to sell for other reasons). And there are many long term residents too - although I don't know how many treated their homes at ATMs.
I think the dynamics will be different for the high end. Prices will fall significantly, but probably over more years than at the low end (with the flood of distressed homes)
Does anyone have a LT chart for the level of selfishness by bastard Americans? I'd like to see if this is truly a bubble or it is just an average cyclical high. If it is a bubble, how do I short American bastards? Does ProShares have a 2x short?
"Brazil, Russia, India and China on Tuesday called for a more diversified international monetary system" ""a more democratic and just multipolar world order"
who actually thinks that the tax credits will be allowed to expire? Doesn't look like there's an exit strategy for stimulus crack...
Europe Fears End of Incentives Will Dent Car Sales Halting the incentives is proving much more complicated than introducing them. Germany has already extended the deadline of its program once, and French automakers want them to continue beyond their scheduled elimination at the end of 2009.
Whoops. Someone is going to have to rewrite Maria's closing bell copy. Looks like the script got changed from "the indexes rallied this afternoon to finish positive and well off their intra-session lows."
As to general time lines for the bottom, Now while I can accept the possibility of going back to 1998 or so, but would a 1985 time frame be even possible?
In my neighborhood of sunny CA we're definitely seeing price denial and extremely long times to sell. The few foreclosure properties which are for sale seem to also be suffering from price denial too. I'm not seeing any real short sales, which leads me to speculate that there are not so many properties over-leveraged.
Since leverage is prevalent as a tool for buying a home in the US, the crash in home prices can easily have a widespread effect on the high end. Much higher than some believe especially as we enter a long-term, brutal, economic time.
A few years ago on a economic blog, a guy that was a higher-up in a lending institution came on and described just how wretched supposedly rich people's finances were, Doctors, Lawyers, Professional People, etc.
He of course got to look over their financials, and was the guy that rendered the decision whether to loan them sawbucks or not...
I suspect that despite all appearances to the contrary, these sort of people are hanging on by the skin of their teeth~
Keep in mind, this was before everybody lost 50% on their homes & stocks.
Hey HomeGnome, are you the Commenter Formerly Known as Homedad43? The beer connection.
We have some great beer bars in Brooklyn and a few in Manhattan where I regularly get to sample obscure west coast wares.
And you can buy a lot in stores out here too. The Whole Foods in SoHo area actually sells growlers - and unlike the rest of their wares, the prices are good.
"it's quite possible to reignite the housing bubble, it might just be one of the few things that can't be exported out of the country to buyers overseas,..."
Funny things happen when absentee foreigners have bought up all the skyscrapers. Renters vote in some wild stuff. Commercial rent control, eviction moratoriums,tax breaks for resident owners only...What kind of firepower do the Koreans have? Oh, wait.
@ Gary
Nope. I have always been just a HomeGnome.
Here in scenic and progressive South Carolina, we just started getting some of Bear Republics wares.
$13 a sixer. Yeah, I'm sticking with my GnomeBrew.
Cheers!
broward (homepage, profile) wrote on Tue, 6/16/2009 - 2:48 pm
I don't think anyone here has paused to consider the consequences. What a bunch of selfish bastards Americans are.
On the contrary, I've thought about it often.
I think there' s a good probability that the culture is hopeless corrupt now and will never recover.
The triumph of cultural evolutionary selection pressures. Our best chance to avert the course was probably women's lib, voting rights and entry into the intellectual strata and higher positions in the workforce, but that didn't exactly turn out like de Beauvoir might have hoped either. Same power games, different gender, less overt aggression, more covert manipulation.
The summit of Brazil, Russia, India and China (BRIC) in Yekaterinburg, Russia, concluded on June 16 with the group issuing a statement calling for increasing the power of international financial institutions and the United Nations, Agence France-Presse reported. A senior adviser to Russian President Dmitri Medvedev said the leaders of the BRIC countries discussed the possibility of placing some of their reserves in partner countries’ financial instruments. Bloomberg reported that the BRIC nations also hinted at support for a diversified system to replace the dollar as the world’s reserve currency,"
"On the contrary, I've thought about it often.
I think there' s a good probability that the culture is hopeless corrupt now and will never recover. "
Really bad times are a really good time for people to reevaluate what they're entitled to and what they'll accept. Most people are able do this -- when they have no choice, and choices are increasingly limited. There was a fair amount of personal reevaluation going on back in the '30s, if I'm told correctly.
So I'm hopeful, though not counting out the possibility that you raise. Of course we could simply accept endless refugees from all the industrious cultures and let them rebuild a healthy culture for us; why not, we import or outsource everything else
Closely followed analyst Meredith Whitney continues to caution investors away from U.S. financial stocks as consumer fundamentals are now worse than her previous bearish expectations. And they are devolving rapidly.
Maybe you are being a bit conservative CR, but that's fine. That's what disruptive people like me are for
It was back in 2003 when I first understood the reasonability of the prediction on real estate prices, first the inflating of the bubble and then the inevitable correction. That's the nature of human-induced asset bubbles. Fortunately, there is one very simple and proven formula to assess how far away from the theoretically correct prices the observed "market" prices are: it is based on rentals. Even the FED knows there is a very strong fundamental relationship between rentals and house prices. In CA, the factor long-term, "old-school" investors have used for decades to determine the "correct" valuation for a RE investment ranges from a low of 150 times monthly rent to a max of 180 monthly rent. This is just a shortcut to doing a full-blown PV cash-flow model, which as a professor of finance and an experienced practitioner with 20 years of finance and investments work I obviously prefer, but this thingy does work. using this method, it is easy to see why we should indeed expect significant downward corrections in prices in the high-end, maybe not 60%, but at least 40% from current values (which are already reduced by 5% from the peak on average)
Very similar properties like the Lion one currently rent at a max of $ 6000 a month, (just 5 blocks from the Lion property), check this link: craigslist | Page Not Found
$6000 / 6br - 2.5ba: Spacious 2 Level Updated Victorian. 23rd @ Diamond. Coombs (noe valley) (map)
For simplicity, let's just do the max estimate:
180 * 6000 = $ 1,080,000 this should be the value of this RE property.
In other words, even at the reduced price of $ 1,895,000 this property is significantly overvalued by around 43% give or take. I believe it wouldn't be insane to think that the Lion property could go down by at least 30% from current "market" price. Of course, unless some short-term desperate and insane buyer purchases it now. Which would be total insanity. So the JPMorgan Chase analysts may not be that far off. I think they are a being little overly aggressive but not too much. Of course, it goes without saying that I'd rather rent the Victorian at $ 6000 a month than buying this Lion thing at the still insanely high price it is sitting on right now.
I live in Danville, Central Contra Costa Co., which has some very posh and tony areas, and I am seeing the correction happening, as it was predicted it would. Condos and townhouses in this town have already dropped by around 40% from the peak. This correction still has quite some legs to go, and now it is the turn of the high-end.
"I think there' s a good probability that the culture is hopeless corrupt now and will never recover. "
I haven't been reading CR closely today, so I don't know who posted this, but there is insight in it. You are not alone. I don't know, however, if I would use the term 'probability.'
The financial crisis is not the basis of our troubles, which is in fact cultural.
Lately I have been comparing homes in Napa and Sonoma currently listinged from 400K to 500K with their prior bubble sale prices or trend data and using that price as the base line for the BLS inflation calculator to give me a better idea how close the current listing price compares . Short sales and REO's clearly are the closest usually within 25% to 30% of the BLS mark but long time home owners selling in this market that purchased back in the early to mid 90's tend to overshoot and price the property at bubble levels. Clearly we have another good leg down before we hit even pre-bubble prices inflation adjusted.
At least in the SF Bay Area, I suspect that the bigger proportional bubble in the cheaper tiers is largely due to a relatively unchanging dollar premium for houses with short commutes. When houses near the center went up by $300K, it seemed like houses in the less-desired outer suburbs went up by almost as much in dollars. But of course that implies a much greater proportional increase in the suburbs before 2007, and a bigger proportional crash now.
When you ask people if homes are dropping in value they indicate that yes they are/will. However, when you ask them about their own homes they tend to say their own home's prices are not or will not be affected. I submit to you that many people who bought on high end areas were not really high end owners but wana be high end owners. Just like many people who use to buy at Tiffany are now buying at Wall mart. The delusional syndrome wealth was nation wide
CR, your coment hit it on the head - lower end buyers is where the leverage was maxed. I rarely saw someone at a mil with less than 20% down. Never less than 10%. But like you said, the really high end market is mostly cash and Shiller isn't really looking at it above $500K in SF?
During the rush, many buyers took the "Zillow" approach, square footage equating value, never mind the crack house next door. Garbage at worst, was only slightly discounted from gold.
High end buyers are funny, they "want what they want." Often, except for the prior bubble, they will buy some place for over a mil, put a bunch more money in it to get it the way they want, and stay, not really worrying if it sells for more than their investment. Reminds me of my old hot rod.
The more I look at these charts, CR, the more it gets me mad at what transpired. It looks so much like a sudden change in policy at a particular point in time that targets different income brackets discriminately but mostly seeks to take advantage of everyone. These are really extraordinary compact pictures of the whole story. You just don't see data this clear all that often. I mean there just had to have been truly miserable policies in place to cause such dislocation. Yeah, I know you've been talking about it for years, but sometimes it doesn't really sink in and then at other times it does. Today, it just really sunk in.
I'm not a statistician, but one potential flaw with the tiering with Case Shiller is the tiers seem to be range restricted in a way that is not demonstrative of the market. I live in Seattle, and the difference between low tiers and upper tiers isn't (that) material (if I'm reading the data correctly).
In other words, the "high end homes" are 2x what the cutoff is for the high end price tier. That would seem to make the tiered approach of Case Shiller not that valuable in understanding what is really going on with the upper end of the market.
I have many family members in Western Sonoma County, and have kept an eye on that market since forever.
Way, way too early.
First, the buyers for these places will be few and far between. INMHO really mostly going to be late 20 to 30 something folks looking for first homes -- very little 2nd home demand, INMHO, unless it is 100k or under -- and they probably pull in 70 - 80k gross in income. And right now more of those folks are looking at the deals in all those brand new subdivisions and in central SR older neighborhoods.
Many, many pipers will need to be paid soon (lots of option and funny money loans), the area as a whole is overbuilt, jobs are generally lower wage and there's fewer of 'em, (forget all the self-employed), crime on the increase in the SR area. Many now 30-somethings up there fell for the whole home porn thing hook, line and sinker; my cousin, who is (now was) a good independent appraiser couldn't believe the kind of deals that folks were doing.
And meth labs etc are always a problem in Guerneville and west. Where bikers go to grey n' play... (sorry respectable riders, just the way it is up there)
For most of the late 80s - 90s, a small SFH property in the RR area was at about 120k, 10% plus or minus, depending on the degree of decrepitude/view/amenities such as hot tub, pool. Fancier, more modern places were at 140k, same plus or minus depending on amenities. Oh, and whether it was in the flood zone or not... So frankly that's where I'd put the bottom, at those price points.
There are so, so many homes for rent in that area, and very few reliable, reasonable service providers if your friends don't live nearby or can't come up to do the clean-up/guest prep/rental agreements themselves. Forestville will see similar declines as well, I think, but it is now both a pretty stable rental and full-time community, so if they are desperate to buy, that would be the area that I would recommend watching for a year or so.
I had vacation property rental home there, on a sunny (rare) ridge right outside town. It was my first buy, in partnership with a friend. We were both renters in SF & this was both an escape and what we could afford. We bought in 1987, sold in 1998, when our lives had changed to the point that we didn't go there very much.
All expenses considered, I was a tiny bit up on the deal, had gotten a bit of a tax benefit and used the place a lot with my friends.
Now I have a friend who owns a gorgeous Forestville place -- sunny, pool, very well decorated and spacious. He now rents it out as much as he can. (Since last year he needs the cash.)
IMHO this is really only sensible if they don't count AT ALL on making a profit -- I didn't, and didn't. And want to own, rather than rent, because of hobbies/pets/desire to have friends/family come to stay. But still... wait, wait, wait. Rent some places, watch zillow & redfin, vulture around.
Looking at that DC chart: I think it makes sense to think that places like Prince William County and Calvert County will have more severe price falls, as folks were driving to qualify, and as the prices drop, they can live closer to work. But some of that low-price rapid appreciation was in the city as formerly crack-plagued neighborhoods underwent transformations over the decade. Those places will have a far different pattern.
stick save in progress
Whom do you trust, JP Morgan or Calculated Risk?
I supose it's no surprise that in general, the tiers track pretty closely until underwriting started to disappear in '03.
I heard that it's legal for all registered CR members to pitch a tent in any parking lot in OC, priority given to see through high rises....
Calculated Risk --
I wonder whether you are right. True enough that prices increased the most at the low end, but now that Fannie and Freddie represent 95% of the mortgage market, credit is really only available for conforming loans. Surely that will have a disproportionate impact on the high end?
Tiers for Fears
Which state?
Virginia. I don't want to be a full-time attorney, instead doing contract work on the side, with poorly-compensated policy stuff being the main dish. so i'm somewhat fortunate that the two areas in which i'm most prepared and interested are BK and patent law.
Trail of Tiers
See. 1998 seems to be the reference point for where home prices are headed. I strongly recommend using 1998 for future bottom call temperance.
I see future home prices as always being around a 1984 level, Winston.
I've been using 1995 or so as my target; but in the SF Bay Area chart, the difference between '95 and '98 is pretty much a quibble.
Too good to be pigged:
"Leaving Scotland, John Paul commanded a London-registered vessel, the Betsy, for about 18 months, engaging in commercial speculation in Tobago. This came to an end, however, when John killed a member of his crew with a sword in a dispute over wages.
During his second voyage in 1770, John Paul viciously flogged one of his sailors, leading to accusations of his discipline being "unnecessarily cruel." While these claims were initially dismissed, his favorable reputation was destroyed when the disciplined sailor died a few weeks later.
...During this six week voyage, Jones captured sixteen prizes and created significant damage along the coast of Nova Scotia. ...
As a result, he was given assignment in Europe in 1783 to collect prize money due his former hands. At length, this too expired and Jones was left without prospects for active employment, leading him in 1788 to enter into the service of the Empress Catherine II of Russia, who placed great confidence in Jones, saying: "He will get to Constantinople." He took the name Pavel Dzhones."
Aaargh
since each city has different price breaks, what are these tiered by?
it will all end it tiers...
-splat
Anyone want to speculate on the bottom in Sonoma County? Russian River area.
% down from here?
Time frame?
Friends considering a vacation house / part-time rental. Way early in my book - far to fall yet.
When the powers that be dedollarize, it's quite possible to reignite the housing bubble, as it might just be one of the few things that can't be exported out of the country to buyers overseas, and all imported items will be cost proportionately much more than they do right now, so that's a no-go.
@ Gary
Russian River Brewing Co.
Oh YEAH!
When one observes the Case-Schiller anomaly, surely the question must arise, "WTF caused that"? It is not a question of what the 'norms' are or how/when they shall be returned, but a question of the impulse function itself. Is there a precedent? What was its cause and outcome.
Sadly I think back to Rome and WWII.
Meanwhile I read on blogs about lines being crossed because its accepted default on debts. I don't think anyone here has paused to consider the consequences What a bunch of selfish bastards Americans are.
What will you have for Dessert?.
The secret of Success:
At age 4 s success is . . . Not piddling in your pants.
At age 12 success is . . . Having friends.
At age 17 success is . . Having a driver's license.
At age 35 success is . . .Having money.
At age 50 success is . . . Having money.
At age 70 success is . . . Having a drivers license.
At age 75 success is . . . Having friends.
At age 80 success is . . . Not piddling in your pants
What will you have for Dessert?.
Mr. Creosote
THE FOUR STAGES OF LIFE:
1) You believe in Santa Claus.
2) You don't believe in Santa Claus.
3) You are Santa Claus.
4) You look like Santa Claus.
"I don't think anyone here has paused to consider the consequences What a bunch of selfish bastards Americans are. "
What about the women?
It looks to me like the top tier is set too low to capture what's going on in the high end.
Look at SF for example. Over $481.916 is defined as the bottom of the top tier, yet it's more like the bottom of the market. I don't know where they even got data for sales under that price since 2000, unless the numbers include someplace other than SF.
I don't think anyone here has paused to consider the consequences
What a bunch of selfish bastards Americans are.
On the contrary, I've thought about it often.
I think there' s a good probability that the culture is hopeless corrupt now and will never recover.
Nemo, yes - there are financing problems for the high end, and few move up buyers. But on the other hand, there will be fewer foreclosures as a percent of houses in a neighborhood (high end owners usually have more resources).
In my neighborhood - a high end area - almost half of the homes were purchased with cash during the bubble - those people aren't in danger of foreclosure (although they might have to sell for other reasons). And there are many long term residents too - although I don't know how many treated their homes at ATMs.
I think the dynamics will be different for the high end. Prices will fall significantly, but probably over more years than at the low end (with the flood of distressed homes)
best wishes
Indeed. but when I'm out there we drink a lot of my BIL's homebrew - which is fantastic.
CR - I agree with that idea about the high end.
It can only be fundamentally supported by true wealth and not by "flipping ones way to the top".
Does anyone have a LT chart for the level of selfishness by bastard Americans? I'd like to see if this is truly a bubble or it is just an average cyclical high. If it is a bubble, how do I short American bastards? Does ProShares have a 2x short?
@ Gary
Then there is Bear Republic Brewing in Healdsburg....
Racer 5.
Russia, China, others urge diverse monetary system - Wall Street Examiner Forums
"Brazil, Russia, India and China on Tuesday called for a more diversified international monetary system"
""a more democratic and just multipolar world order"
Oh well.
Is multipolar better than bipolar?
-- Does anyone have a LT chart for the level of selfishness by bastard Americans? --
Who's your Daddy?
how do I short American bastards?
See preceding reference to multipolar world.
who actually thinks that the tax credits will be allowed to expire? Doesn't look like there's an exit strategy for stimulus crack...
Europe Fears End of Incentives Will Dent Car Sales
Halting the incentives is proving much more complicated than introducing them. Germany has already extended the deadline of its program once, and French automakers want them to continue beyond their scheduled elimination at the end of 2009.
Whoops. Someone is going to have to rewrite Maria's closing bell copy. Looks like the script got changed from "the indexes rallied this afternoon to finish positive and well off their intra-session lows."
Show me a house in san francisco for under 400k.
@ Basel
Relax, they are only temporary.
Like assistance for amtrak.
As to general time lines for the bottom, Now while I can accept the possibility of going back to 1998 or so, but would a 1985 time frame be even possible?
06/15/2009 $1,400,000 Current asking price.
12/09/2003 $1,000,000
06/10/1999 $625,000
06/01/1999 $625,000
10/01/1985 $275,000
That would be a massive reality change for so many people. Of course the current reality is a little off.
In my neighborhood of sunny CA we're definitely seeing price denial and extremely long times to sell. The few foreclosure properties which are for sale seem to also be suffering from price denial too. I'm not seeing any real short sales, which leads me to speculate that there are not so many properties over-leveraged.
Is multipolar better than bipolar?
if you are multipolar you should take dilithium
Since leverage is prevalent as a tool for buying a home in the US, the crash in home prices can easily have a widespread effect on the high end. Much higher than some believe especially as we enter a long-term, brutal, economic time.
Interesting Times
"CR - I agree with that idea about the high end.
It can only be fundamentally supported by true wealth and not by "flipping ones way to the top"."
~~~~
LoL ... was is true wealth ? What category of investment hasn't been crushed ?
The "high end" will come down too ... to the same year level prices that lower end homes end up at
a smaller percentage but a much larger nominal drop ...
Is multipolar better than bipolar?
For everybody except the U.S.
Looks like we're getting a global restraining order put on us.
A few years ago on a economic blog, a guy that was a higher-up in a lending institution came on and described just how wretched supposedly rich people's finances were, Doctors, Lawyers, Professional People, etc.
He of course got to look over their financials, and was the guy that rendered the decision whether to loan them sawbucks or not...
I suspect that despite all appearances to the contrary, these sort of people are hanging on by the skin of their teeth~
Keep in mind, this was before everybody lost 50% on their homes & stocks.
Hey HomeGnome, are you the Commenter Formerly Known as Homedad43? The beer connection.
We have some great beer bars in Brooklyn and a few in Manhattan where I regularly get to sample obscure west coast wares.
And you can buy a lot in stores out here too. The Whole Foods in SoHo area actually sells growlers - and unlike the rest of their wares, the prices are good.
"Show me a house in san francisco for under 400k. "
That's why I have so little confidence in the C-S numbers. You don't have to look very deep to see serious problems with the numbers.
Mr. Market took the business end of that stick-save and plugged somebody's green chute with it.
close near the lows today
I think the CS numbers are SF metro which includes a lot of cheaper areas in the east bay
Juvenal Delinquent
Exactly ... there's a lot of pretenders in those multi million dollar homes ...
And a lot of small business owners and investors who are getting crushed ...
"it's quite possible to reignite the housing bubble, it might just be one of the few things that can't be exported out of the country to buyers overseas,..."
Funny things happen when absentee foreigners have bought up all the skyscrapers. Renters vote in some wild stuff. Commercial rent control, eviction moratoriums,tax breaks for resident owners only...What kind of firepower do the Koreans have? Oh, wait.
@ Gary
Nope. I have always been just a HomeGnome.
Here in scenic and progressive South Carolina, we just started getting some of Bear Republics wares.
$13 a sixer. Yeah, I'm sticking with my GnomeBrew.
Cheers!
broward (homepage, profile) wrote on Tue, 6/16/2009 - 2:48 pm
I don't think anyone here has paused to consider the consequences. What a bunch of selfish bastards Americans are.
On the contrary, I've thought about it often.
I think there' s a good probability that the culture is hopeless corrupt now and will never recover.
The triumph of cultural evolutionary selection pressures. Our best chance to avert the course was probably women's lib, voting rights and entry into the intellectual strata and higher positions in the workforce, but that didn't exactly turn out like de Beauvoir might have hoped either. Same power games, different gender, less overt aggression, more covert manipulation.
"I think the CS numbers are SF metro which includes a lot of cheaper areas in the east bay "
If they do, what about Marin?
MSAs in the areas that I am familiar with are far to big and heterogeneous to produce useful medians or other averages.
I am in the BWI metro and your chart is right. It was the low end that saw the most price movement.
"Deficits don't matter"
What a Dick!
Then there is Bear Republic Brewing in Healdsburg....
While you're on that bear's tour you might also check out Short's Brewing Company in Bellaire MI.
Disagree with CR and you get a graph in your face!
I hear the Streets of San Francisco (a Quinn-Martin Production) are strewn with homeless all over the place...
That can't be good for keeping property values up.
" June 16, 2009
The summit of Brazil, Russia, India and China (BRIC) in Yekaterinburg, Russia, concluded on June 16 with the group issuing a statement calling for increasing the power of international financial institutions and the United Nations, Agence France-Presse reported. A senior adviser to Russian President Dmitri Medvedev said the leaders of the BRIC countries discussed the possibility of placing some of their reserves in partner countries’ financial instruments. Bloomberg reported that the BRIC nations also hinted at support for a diversified system to replace the dollar as the world’s reserve currency,"
"On the contrary, I've thought about it often.
I think there' s a good probability that the culture is hopeless corrupt now and will never recover. "
Really bad times are a really good time for people to reevaluate what they're entitled to and what they'll accept. Most people are able do this -- when they have no choice, and choices are increasingly limited. There was a fair amount of personal reevaluation going on back in the '30s, if I'm told correctly.
So I'm hopeful, though not counting out the possibility that you raise. Of course we could simply accept endless refugees from all the industrious cultures and let them rebuild a healthy culture for us; why not, we import or outsource everything else
@ Yalt
Thanks for the heads up.
Hadn't seen this linked yet....
More from Meredith
Whitney: Consumer Still Chewed Up - Forbes.com
Closely followed analyst Meredith Whitney continues to caution investors away from U.S. financial stocks as consumer fundamentals are now worse than her previous bearish expectations. And they are devolving rapidly.
Maybe you are being a bit conservative CR, but that's fine. That's what disruptive people like me are for
It was back in 2003 when I first understood the reasonability of the prediction on real estate prices, first the inflating of the bubble and then the inevitable correction. That's the nature of human-induced asset bubbles. Fortunately, there is one very simple and proven formula to assess how far away from the theoretically correct prices the observed "market" prices are: it is based on rentals. Even the FED knows there is a very strong fundamental relationship between rentals and house prices. In CA, the factor long-term, "old-school" investors have used for decades to determine the "correct" valuation for a RE investment ranges from a low of 150 times monthly rent to a max of 180 monthly rent. This is just a shortcut to doing a full-blown PV cash-flow model, which as a professor of finance and an experienced practitioner with 20 years of finance and investments work I obviously prefer, but this thingy does work. using this method, it is easy to see why we should indeed expect significant downward corrections in prices in the high-end, maybe not 60%, but at least 40% from current values (which are already reduced by 5% from the peak on average)
For example, check this very beautiful Victorian in the Noe Valley in SF:
The One With The Deer Lions On It (3859 21st Street) at SocketSite™
3859 21st Street
Very similar properties like the Lion one currently rent at a max of $ 6000 a month, (just 5 blocks from the Lion property), check this link:
craigslist | Page Not Found
$6000 / 6br - 2.5ba: Spacious 2 Level Updated Victorian. 23rd @ Diamond. Coombs (noe valley) (map)
For simplicity, let's just do the max estimate:
180 * 6000 = $ 1,080,000 this should be the value of this RE property.
In other words, even at the reduced price of $ 1,895,000 this property is significantly overvalued by around 43% give or take. I believe it wouldn't be insane to think that the Lion property could go down by at least 30% from current "market" price. Of course, unless some short-term desperate and insane buyer purchases it now. Which would be total insanity. So the JPMorgan Chase analysts may not be that far off. I think they are a being little overly aggressive but not too much. Of course, it goes without saying that I'd rather rent the Victorian at $ 6000 a month than buying this Lion thing at the still insanely high price it is sitting on right now.
I live in Danville, Central Contra Costa Co., which has some very posh and tony areas, and I am seeing the correction happening, as it was predicted it would. Condos and townhouses in this town have already dropped by around 40% from the peak. This correction still has quite some legs to go, and now it is the turn of the high-end.
You're welcome.
"I think there' s a good probability that the culture is hopeless corrupt now and will never recover. "
I haven't been reading CR closely today, so I don't know who posted this, but there is insight in it. You are not alone. I don't know, however, if I would use the term 'probability.'
The financial crisis is not the basis of our troubles, which is in fact cultural.
It was broward.
Lately I have been comparing homes in Napa and Sonoma currently listinged from 400K to 500K with their prior bubble sale prices or trend data and using that price as the base line for the BLS inflation calculator to give me a better idea how close the current listing price compares . Short sales and REO's clearly are the closest usually within 25% to 30% of the BLS mark but long time home owners selling in this market that purchased back in the early to mid 90's tend to overshoot and price the property at bubble levels. Clearly we have another good leg down before we hit even pre-bubble prices inflation adjusted.
Humm in this case I don't know is CR's house in a high priced area?
At least in the SF Bay Area, I suspect that the bigger proportional bubble in the cheaper tiers is largely due to a relatively unchanging dollar premium for houses with short commutes. When houses near the center went up by $300K, it seemed like houses in the less-desired outer suburbs went up by almost as much in dollars. But of course that implies a much greater proportional increase in the suburbs before 2007, and a bigger proportional crash now.
When you ask people if homes are dropping in value they indicate that yes they are/will. However, when you ask them about their own homes they tend to say their own home's prices are not or will not be affected. I submit to you that many people who bought on high end areas were not really high end owners but wana be high end owners. Just like many people who use to buy at Tiffany are now buying at Wall mart. The delusional syndrome wealth was nation wide
CR, your coment hit it on the head - lower end buyers is where the leverage was maxed. I rarely saw someone at a mil with less than 20% down. Never less than 10%. But like you said, the really high end market is mostly cash and Shiller isn't really looking at it above $500K in SF?
During the rush, many buyers took the "Zillow" approach, square footage equating value, never mind the crack house next door. Garbage at worst, was only slightly discounted from gold.
High end buyers are funny, they "want what they want." Often, except for the prior bubble, they will buy some place for over a mil, put a bunch more money in it to get it the way they want, and stay, not really worrying if it sells for more than their investment. Reminds me of my old hot rod.
The more I look at these charts, CR, the more it gets me mad at what transpired. It looks so much like a sudden change in policy at a particular point in time that targets different income brackets discriminately but mostly seeks to take advantage of everyone. These are really extraordinary compact pictures of the whole story. You just don't see data this clear all that often. I mean there just had to have been truly miserable policies in place to cause such dislocation. Yeah, I know you've been talking about it for years, but sometimes it doesn't really sink in and then at other times it does. Today, it just really sunk in.
I'm not a statistician, but one potential flaw with the tiering with Case Shiller is the tiers seem to be range restricted in a way that is not demonstrative of the market. I live in Seattle, and the difference between low tiers and upper tiers isn't (that) material (if I'm reading the data correctly).
In other words, the "high end homes" are 2x what the cutoff is for the high end price tier. That would seem to make the tiered approach of Case Shiller not that valuable in understanding what is really going on with the upper end of the market.
I have many family members in Western Sonoma County, and have kept an eye on that market since forever.
Way, way too early.
First, the buyers for these places will be few and far between. INMHO really mostly going to be late 20 to 30 something folks looking for first homes -- very little 2nd home demand, INMHO, unless it is 100k or under -- and they probably pull in 70 - 80k gross in income. And right now more of those folks are looking at the deals in all those brand new subdivisions and in central SR older neighborhoods.
Many, many pipers will need to be paid soon (lots of option and funny money loans), the area as a whole is overbuilt, jobs are generally lower wage and there's fewer of 'em, (forget all the self-employed), crime on the increase in the SR area. Many now 30-somethings up there fell for the whole home porn thing hook, line and sinker; my cousin, who is (now was) a good independent appraiser couldn't believe the kind of deals that folks were doing.
And meth labs etc are always a problem in Guerneville and west. Where bikers go to grey n' play... (sorry respectable riders, just the way it is up there)
For most of the late 80s - 90s, a small SFH property in the RR area was at about 120k, 10% plus or minus, depending on the degree of decrepitude/view/amenities such as hot tub, pool. Fancier, more modern places were at 140k, same plus or minus depending on amenities. Oh, and whether it was in the flood zone or not... So frankly that's where I'd put the bottom, at those price points.
There are so, so many homes for rent in that area, and very few reliable, reasonable service providers if your friends don't live nearby or can't come up to do the clean-up/guest prep/rental agreements themselves. Forestville will see similar declines as well, I think, but it is now both a pretty stable rental and full-time community, so if they are desperate to buy, that would be the area that I would recommend watching for a year or so.
I had vacation property rental home there, on a sunny (rare) ridge right outside town. It was my first buy, in partnership with a friend. We were both renters in SF & this was both an escape and what we could afford. We bought in 1987, sold in 1998, when our lives had changed to the point that we didn't go there very much.
All expenses considered, I was a tiny bit up on the deal, had gotten a bit of a tax benefit and used the place a lot with my friends.
Now I have a friend who owns a gorgeous Forestville place -- sunny, pool, very well decorated and spacious. He now rents it out as much as he can. (Since last year he needs the cash.)
IMHO this is really only sensible if they don't count AT ALL on making a profit -- I didn't, and didn't. And want to own, rather than rent, because of hobbies/pets/desire to have friends/family come to stay. But still... wait, wait, wait. Rent some places, watch zillow & redfin, vulture around.
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Looking at that DC chart: I think it makes sense to think that places like Prince William County and Calvert County will have more severe price falls, as folks were driving to qualify, and as the prices drop, they can live closer to work. But some of that low-price rapid appreciation was in the city as formerly crack-plagued neighborhoods underwent transformations over the decade. Those places will have a far different pattern.