When will the market turn around? - Posted by J. Mack

Posted by Bob Smith on June 18, 2007 at 17:09:52:

That was about the time California was demanding “smart growth” everywhere leading to permanent undersupply. The coastline was made mostly unavailable to development (see California Coastal Commission) which was a huge boon to existing owners. The time (years) and expense ($$$$) of getting development approvals enormously increases costs. Per-house “impact fees” exceeding $100k (revenue foolishly not regulated by Prop 13) further exacerbate the problem.

San Jose, for example, has thousands of acres of worthless “farmland” under development moratorium. Land outside its development boundary goes for about 10x land inside it. The extra time and fuel wasted on the longer commute? Not our problem. People burdened by unnecessarily high housing costs? Screw 'em.

When will the market turn around? - Posted by J. Mack

Posted by J. Mack on June 13, 2007 at 20:51:52:

I posted this message on our club board in response to another member that had read an article in forbes magazine about a turn around being predicted for Real Estate in New England in 1q 2008. I am reposting it here looking for your thoughts and comments:

No one can pick a bottom or predict when appreciation will happen with any accuracy. The magazines take wild *** guesses to sell magazines. My wild *** guess is that I think the bottom will come around the spring of 2011. I think the market was about 30 % overvalued when I think it peaked at the end of 2004. I think the market develops “real” value at a rate of about 5-7 % per year. This would make the market fairly valued at the end of 2010, and a good spring 2011 will turn prices around.

But it’s a total guess. None of the "experts are even any good at predicting the major events that will affect the market. For example, how many of the so called experts predicted the sub prime collapse? Answer: None, that I know of, though it must have been obvious for a long time to a lot of people on wall street.

I guess if you’ve been in the business for any length of time, you know to be really careful of people who set themselves up as “experts”, almost all are charletons. Likewise most of the "experts who are predicting an iminent turn around in the market have some vested interest in the market turning around. Or, like forbes (or economy.com, who are behind most of these predictions) they just want publicity or to sell their publications, so they write what people want to read.

Real Estate prices are sticky, and react really slowly on the way down, and of the 3 factors killing the market now, only one has currently been priced in, the loss of really low ARM rates. I think the other 2 factors, the cascading effect of the banks tightening , and the increase in long term rates will be priced in over the next 2 to 4 years, before the market bottoms. Ben B’s goal of 1 to 2 % inflation is just silly, and he will drive the nation into a big recession before realizing his mistake and cutting rates. If real inflation does occur and long term rates go much higher than now, the pain in real estate will get longer and worse.

I do think we will have an average of 4 to 6 % appreciation in New England in the years 2010 to 2020. It probably won’t happen smoothly though. The market will probably be pretty flat for a lot of years, then jump, as it has in the past, with a decades worth of appreciation happening in the space of a few years, as it did here at the beginning of this decade.

What are your thoughts and comments?

Re: When will the market turn around? - Posted by Doug Pretorius

Posted by Doug Pretorius on June 14, 2007 at 08:02:38:

You have to also consider that the US has seen a steady migration of people from colder to warmer climates and from farmland to coastal areas. That’s the main reason why prices in states like Ohio, Kentucky and Alabama have remained low or even declined. While states like California, Florida and Arizona have gone through the roof.

Similarly, here in Canada the most expensive market in the country is Vancouver with 500 sqft condos going for $500k+. Why? Because everyone wants to live there, it’s arguably the most beautiful place in the country and it has the best weather. But there’s only so much coastline available, so prices rise as people compete for the land.

Compare that to Regina, Saskatchewan. You can pick up 3 bedroom houses for $10-$20k because most people don’t want to live there. Not much competition so prices stay low.

Re: When will the market turn around? - Posted by Rich-CA

Posted by Rich-CA on June 13, 2007 at 21:19:28:

I would only partially agree. One of the fundamental changes we have seen recently is the change from a nationwide, fairly homogeneous pricing of housing to a situation where you can get middle class houses for $50k to where I live and middle class houses are ten times that. Much bigger regional differences. It also does not price in the economy boosters - job and investment growth vs areas with a negative in those factors. It also simplifies the effect of the tax and regulation burden drags on the reaction of price in the market.

Control the controlables - Posted by M. Osterman

Posted by M. Osterman on June 13, 2007 at 21:18:41:

That way you can focus on making money now…not when.

Re: When will the market turn around? - Posted by John Vosilla

Posted by John Vosilla on June 14, 2007 at 21:07:08:

It’s not just about the growth because if it was then Houston would be number one for appreciation. I think they built 130k+ new homes the past year…

Re: When will the market turn around? - Posted by John Corey

Posted by John Corey on June 14, 2007 at 06:05:47:

Rich said:

One of the fundamental changes we have seen recently is the change
from a nationwide, fairly homogeneous pricing of housing

I would state that there the market was never so homogeneous. I lived
in CA for a while and the prices there were very much higher than
other parts of the country. I was there for almost 10 years and it was
in the 1980’s. Silicon Valley was high and no one had invented the web
or web browsers yet. It was just a normal place with an industry that
was something like number 12 at the time. Long before the dot.com
wealth was created.

John Corey

California - Posted by Gene

Posted by Gene on June 15, 2007 at 11:22:23:

Your advise might be true for some areas but I invest in CA and I strongly disagree.

Understanding trends is critical to CA investing. Our markets have always been a roller coaster and look like they will continue to be for the forseeable future.

Many of new investors are loseing everything right now because they ignored the trends. I sold much of my portfolio because I studied what was happening and I am sure glad I did.

In CA you cannot have an exit plan if you don’t understand the trend as catching a falling knife can cut you bad.


Re: Control the controlables - Posted by John Corey

Posted by John Corey on June 14, 2007 at 06:03:00:

“Control the controlables”

Well said.

Make your money when you buy and do not worry about the overall
market. If you are holding long term focus on the cash flow. If you are
in and out in the short term then the market will not move much.

A number of cities are up substantially for the year. Hence the
correction is not evenly spread. Some areas never saw the boom so
they are wondering what all the fuss is about.

John Corey

Re: When will the market turn around? - Posted by JohnVosilla

Posted by JohnVosilla on June 14, 2007 at 21:11:59:

California seemed much more reasonable prior to the 1980’s run up from all I’ve studied. Not as overinflated versus the rest of the country… Maybe Prop 13 around 1978 had a lot to do with it along with controlled growth and envinromental concerns capping new contruction to some degree? Perhaps a small ranch in Santa Barbara was 2-3 times a typical ranch in the midwest in 1978. Now it might be 7-10 times higher…

short sale in CA - Posted by james

Posted by james on September 14, 2007 at 12:39:38:

Anyone is doing it now? Thanks