Why the Housing Market is At or Near Bottom

[Beet]

[muon2]

Nice chart. I hadn't realized how flat to declining housing prices were through the 1990s. I bought in 1988 and knew that there was a decline in the recession of the early 90's, but since there was so much new construction growth in my area after that, I didn't pick up the lack of price growth.

[Senator Sbane]

Why hasn't the 20 city composite come down to the national level? Supply constraints in high demand areas like NYC, Bay Area, parts of LA and OC? Although if we look from the peak, prices relative to rent have come down a little more in the 20 city composite than nationally. 

[Torie]

I know we have hit bottom absent further general economic deterioration when the rate of return on buying and renting out a reasonably nice house begins to generate a nice return compared to other investments - say 4%-5% NOI in Socal (not for a fancy house, but not for a dump either).  And with fixed interest loans at that rate, that means basically you can buy a house in theory for nothing down, and still not have any negative cash flow. That to me creates a floor. It would require a decline in rents really to break through it.

[Senator Sbane]

And if anything rents have been rising. The rental and condo market are in much better shape than the SFH market.

[Senator Snowstalker]

Damn you, Andrew Cuomo!

[opebo]

Nice chart. I hadn't realized how flat to declining housing prices were through the 1990s. I bought in 1988 and knew that there was a decline in the recession of the early 90's, but since there was so much new construction growth in my area after that, I didn't pick up the lack of price growth.

That chart doesn't necessarily imply flat-to-declining house prices during the 1990s, does it?  Just that they were not increasing at any rate higher than that of rents.

[muon2]

Nice chart. I hadn't realized how flat to declining housing prices were through the 1990s. I bought in 1988 and knew that there was a decline in the recession of the early 90's, but since there was so much new construction growth in my area after that, I didn't pick up the lack of price growth.

That chart doesn't necessarily imply flat-to-declining house prices during the 1990s, does it?  Just that they were not increasing at any rate higher than that of rents.

True, but I went to the web site and saw that adjusted for inflation house prices were flat in the 90s.

[○∙◄☻¥tπ[╪AV┼cVê└]

And yet prices are still insane around here. 

[greenforest32]

And yet prices are still insane around here. 

Even renting is crazy in the Bay Area:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2012/05/09/BU551OD1PL.DTL

San Francisco rents rose 15.8 percent in the first quarter of this year compared with the same time last year, to an average of $2,663 for all size units, according to RealFacts. Studio apartments average $2,075, up 16.5 percent in a year. The steepest rise came in one-bedroom, one-bathroom apartments, which are now $2,611 - up 19.9 percent in the past year and up 30 percent from just two years ago.

Growth was also strong in San Mateo County, where units of all sizes average $2,003, a 15.6 percent annual increase, RealFacts said. In Santa Clara County, the $1,857 average rent is a 12.5 percent annual increase. For Alameda County, the $1,519 average rent is up 7 percent - still a big increase compared with other areas of the country.

"When you see markets like Oakland with rental growth, it's because it has proximity to San Francisco rather than in and of itself doing anything," Bridge said.

San Francisco is the most expensive metropolitan area in the country for renters, according to a recent report from the National Low Income Housing Coalition, which compared rents to wages. The going rate for a two-bedroom apartment in the counties of San Francisco, Marin and San Mateo requires a $76,200 annual income, the report said. By contrast, the New York metropolitan area, which includes eight counties, requires a $56,950 annual salary.

[opebo]

Prices may have ceased falling in some areas, such as the above mentioned San Francisco metro, but in many parts of the country they will have to fall quite a bit more.  The median income level in much of the country has no prospect of improvement, and will likely continue to head downwards. 

In map terms something like this:



Basically the West Coast stabilized, the East Coast and a few special cases like North Dakota going up, and most of the rest of the country still going down, simply because there is nothing really for those parts of the country or the people in them to really do in the globalized marketplace.

[greenforest32]

Prices may have ceased falling in some areas, such as the above mentioned San Francisco metro, but in many parts of the country they will have to fall quite a bit more.  The median income level in much of the country has no prospect of improvement, and will likely continue to head downwards.  

Yeah, the average home price (and rent) nowadays is really unaffordable: http://www.trulia.com/home_prices/





Most of this cost isn't the house, but the land. Lately I've been starting to think it would be a good thing to abolish private land ownership and replace it with a rent permit system as cities have increasingly become exclusive wealth zones.

What's progressive about paying 20-40% of your income in housing costs?

[True Federalist]

Most of this cost isn't the house, but the land. Lately I've been starting to think it would be a good thing to abolish private land ownership and replace it with a rent permit system as cities have increasingly become exclusive wealth zones.

What's progressive about paying 20-40% of your income in housing costs?

What's progressive about replacing private property with a system loaded with opportunities for graft and corruption?  It's the poor who get the shaft when private property rights are not available as they can never be secure that what they do have will remain theirs.

[greenforest32]

Most of this cost isn't the house, but the land. Lately I've been starting to think it would be a good thing to abolish private land ownership and replace it with a rent permit system as cities have increasingly become exclusive wealth zones.

What's progressive about paying 20-40% of your income in housing costs?

What's progressive about replacing private property with a system loaded with opportunities for graft and corruption?  It's the poor who get the shaft when private property rights are not available as they can never be secure that what they do have will remain theirs.

I really fail to see how private land ownership benefits anybody but the real estate flippers who purchase it as a commodity and let the investors come in to drive up the price. Housing is no longer a public service, but a market and this market thrives at the expense of the service. Forget how many homeless people we have or how affordable housing is for people, how many homes were sold last month? That's what matters.

The only reason we haven't solved the issue of homelessness is because we don't allow free housing to the poor as the real estate industry sees no value in a building that does not generate profit.

That is far more corrupt than the government owning it and any government corruption would no doubt come mainly from the pressures of private industry.

[True Federalist]

Most of this cost isn't the house, but the land. Lately I've been starting to think it would be a good thing to abolish private land ownership and replace it with a rent permit system as cities have increasingly become exclusive wealth zones.

What's progressive about paying 20-40% of your income in housing costs?

What's progressive about replacing private property with a system loaded with opportunities for graft and corruption?  It's the poor who get the shaft when private property rights are not available as they can never be secure that what they do have will remain theirs.

I really fail to see how private land ownership benefits anybody but the real estate flippers who purchase it as a commodity and let the investors come in to drive up the price. Housing is no longer a public service, but a market and this market thrives at the expense of the service. Forget how many homeless people we have or how affordable housing is for people, how many homes were sold last month? That's what matters.

The only reason we haven't solved the issue of homelessness is because we don't allow free housing to the poor as the real estate industry sees no value in a building that does not generate profit.

That is far more corrupt than the government owning it and any government corruption would no doubt come mainly from the pressures of private industry.

You want to throw out not just the baby with the bathwater, but also the bathtub.  There are ways to achieve the goal of adequate housing for all without eliminating private property.

[greenforest32]

Most of this cost isn't the house, but the land. Lately I've been starting to think it would be a good thing to abolish private land ownership and replace it with a rent permit system as cities have increasingly become exclusive wealth zones.

What's progressive about paying 20-40% of your income in housing costs?

What's progressive about replacing private property with a system loaded with opportunities for graft and corruption?  It's the poor who get the shaft when private property rights are not available as they can never be secure that what they do have will remain theirs.

I really fail to see how private land ownership benefits anybody but the real estate flippers who purchase it as a commodity and let the investors come in to drive up the price. Housing is no longer a public service, but a market and this market thrives at the expense of the service. Forget how many homeless people we have or how affordable housing is for people, how many homes were sold last month? That's what matters.

The only reason we haven't solved the issue of homelessness is because we don't allow free housing to the poor as the real estate industry sees no value in a building that does not generate profit.

That is far more corrupt than the government owning it and any government corruption would no doubt come mainly from the pressures of private industry.

You want to throw out not just the baby with the bathwater, but also the bathtub.  There are ways to achieve the goal of adequate housing for all without eliminating private property.

Sure you could have a compromise like the government purchasing land and using it for non-profit housing but if there was no public benefit to this private commodity market in the first place, you'd be unilaterally compromising like this just to pay deference to needless greed.

The baby is not in water, but in poison.

[True Federalist]

The greed is only needless if you actually want new housing built, or existing housing taken care of.  Why on earth would any rational person build something permanent on land they didn't own or at the very least have a long-term unbreakable lease?

[greenforest32]

The greed is only needless if you actually want new housing built, or existing housing taken care of.  Why on earth would any rational person build something permanent on land they didn't own or at the very least have a long-term unbreakable lease?

It's needless because allowing this market to exist means everyone's cost of housing (whether they rent or own) goes up above the cost of the service just for greed. The cost of profit is now the 'cost of living'. That's a dirty way to make money.

[phk]

Once household formation begins taking off with 'Echo boomers/Gen-Y' cohort, than we'll see some sort of revival, but nothing like 2002-2006.

[Senator Sbane]

Once household formation begins taking off with 'Echo boomers/Gen-Y' cohort, than we'll see some sort of revival, but nothing like 2002-2006.

I wonder how long it will take for inflation adjusted prices to be as high as in 2006-2007. Probably never?

[Torie]

Once household formation begins taking off with 'Echo boomers/Gen-Y' cohort, than we'll see some sort of revival, but nothing like 2002-2006.

I wonder how long it will take for inflation adjusted prices to be as high as in 2006-2007. Probably never?

Well assuming the Feds don't demand and then create a subprime leveraged world again, improbable, but if 1) the economy bounces back, and 2) interest rates stay near zero, then yes, we could get back there. The odds of 1 and 2 going together however, are about as high as you and jmfcst becoming fungible on social issues. Another avenue is to just make green zones out of whatever buildable land is left out there, the better to save the planet while at the same time, say doubling my net worth. I like it!

[Senator Sbane]

Yeah, barring some other constraints prices shouldn't rise as much as they did, but they will to some extent. But I do think the bottom is more or less here, though I wouldn't be surprised if we stay around here for another 3-5 years with housing prices just bouncing around at the same spot. A decline in inflation adjusted prices perhaps. Do you think prices will fall in LA County and OC more, or will they stay relatively high due to demand? "Saving the hills" does help keep prices higher but in California, the topography pretty much makes high prices inevitable.

 For example, if the Santa Ana mountains weren't there, another freeway or large road could be easily built into Riverside County and housing prices would go down in OC. But building a road through the hills, even after clearing the environmental hurdles, would be a highly expensive proposition and would likely get saturated quickly in any case. Thus, we are left with the  mess on the 91 and the differential in housing prices between the two counties.

[Torie]

Yeah, barring some other constraints prices shouldn't rise as much as they did, but they will to some extent. But I do think the bottom is more or less here, though I wouldn't be surprised if we stay around here for another 3-5 years with housing prices just bouncing around at the same spot. A decline in inflation adjusted prices perhaps. Do you think prices will fall in LA County and OC more, or will they stay relatively high due to demand? "Saving the hills" does help keep prices higher but in California, the topography pretty much makes high prices inevitable.

 For example, if the Santa Ana mountains weren't there, another freeway or large road could be easily built into Riverside County and housing prices would go down in OC. But building a road through the hills, even after clearing the environmental hurdles, would be a highly expensive proposition and would likely get saturated quickly in any case. Thus, we are left with the  mess on the 91 and the differential in housing prices between the two counties.

Well there is also a difference in climate and air quality and well, ambiance, between Riverside and OC, perhaps, that might generate some of the price differential action.  

Yes, given NOI rates versus the cost of money, I think we are basically at the bottom (some places are really bouncing back up now, like well, where most of my real estate empire is ), except maybe in a few of the center of the storm subprime pockets, like out there in Stanislaus County, and Desert Hot Springs and whatnot, provided CA's economy does not tank, driving down rental rates. Just how much stress CA's near terminal fiscal problems, combined with its out of this world dysfunctional governance (where basically the game is for special interest groups to loot the state for all its got, with politicians they own, while the looting is still good), will put on CA's economy is beyond my pay grade. But it's out there.

[phk]

Nice chart. I hadn't realized how flat to declining housing prices were through the 1990s. I bought in 1988 and knew that there was a decline in the recession of the early 90's, but since there was so much new construction growth in my area after that, I didn't pick up the lack of price growth.

That chart doesn't necessarily imply flat-to-declining house prices during the 1990s, does it?  Just that they were not increasing at any rate higher than that of rents.

True, but I went to the web site and saw that adjusted for inflation house prices were flat in the 90s.

Was it just because of Gen X'ers relatively small size?

[Torie]

Nice chart. I hadn't realized how flat to declining housing prices were through the 1990s. I bought in 1988 and knew that there was a decline in the recession of the early 90's, but since there was so much new construction growth in my area after that, I didn't pick up the lack of price growth.

That chart doesn't necessarily imply flat-to-declining house prices during the 1990s, does it?  Just that they were not increasing at any rate higher than that of rents.

True, but I went to the web site and saw that adjusted for inflation house prices were flat in the 90s.

Was it just because of Gen X'ers relatively small size?

In general, over the long haul, to wit the long term secular trend, housing prices simply go up at the inflation rate, absent some perturbation, like a change in demographics, or a slash in property tax rates, or cheap and loose credit (sub-priming gone wild) or whatever. In fact, when you strip out the leverage, they kind of act, at least for apartments, like a long term TIP. Someday, I will try to match the value changes of my real estate portfolio with long term TIPS. The subprime thing did however generate a variance, as the cap rate for real estate went up a bit, while going down for TIPS.