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Home prices are down, now is the time to buy!!!

Original post made by Homeowner on Feb 27, 2008

OK, just kidding. Prices have a LONG WAY TO GO DOWN - 40% by some estimates. Don't buy now and watch your value drop.

See this WSJ article -

Homes in Bubble Regions Remain Wildly Overvalued
by Brett Arends
Friday, February 15, 2008


If you own a home in a former bubble region like California or southern Florida, there's bad news… and really bad news.

And they suggest that it is still way too early to go bargain hunting in these markets, although -- of course -- there is always the occasional deal around.

The bad news is fresh market data published Monday night by real-estate Web site Zillow.com. They show prices, as expected, kept slumping through the end of last year.

But the really bad news is that, even after a year of misery and falling prices, homes in many of these regions still aren't cheap. They remain wildly overvalued compared to average personal incomes.

More from The Wall Street Journal Online:

• Keeping Watch for Burglars

• Earlier Subprime Rescue Falters

• Beyond Auctions: Ways to Buy Foreclosed Homes

There is a strong long-term correlation between the two figures. And in many regions, house prices would still have to fall a very long way to get back into line.

How far?

Try around a third in Florida and Arizona -- and closer to 40% in California.

Yes, from here. The long-term chart for California is shown below.

Even if house prices stabilized, it would take a decade or more for rising incomes to catch up.

The data on median house prices and per capita personal income in these states have been tracked by Karl Case, economics professor at Wellesley College. (He is one half of the duo behind the closely-watched Case-Schiller real estate index).

Professor Case's numbers ran through the end of the third quarter. I decided to see how they might look today, using Zillow's data for the fourth quarter.

The company hasn't posted statewide data, but the price falls across the many cities it tracks give a pretty strong picture. From these I assumed, for the sake of calculations, that California prices fell 8% last quarter from the third quarter, a huge number by historic measures but not out of line with Zillow's data. For Florida and Arizona I assumed declines of 5% and 5.5%. You could use other, more modest estimates for the recent declines: They won't change the outcomes much. I also assumed personal incomes in these states rose in line with recent and historic averages."


The results? In all three markets, the prices are well off their peaks when compared to incomes. But they remain far above historic averages.

Median prices in California peaked in 2006 at 13.3 times per capita incomes. Hard to believe, but true. They may be down now to about 11.1 times.

But that's still way above the ground. Throughout most of the 80s and 90s they ranged between six and seven times incomes.

Just to get down to seven times incomes, prices would have to fall 37% tomorrow.

Those who bought at the peak of the cycle may be pinning their hopes instead on "incomes catching up" instead. But they had better be patient. Even if house prices stayed exactly where they are, it would take around 10 years for rising incomes to bring the ratios back into any sort of alignment.

And it would take even longer before prices started to look very cheap again.

That's based on average personal income growth of 4.6% a year in California and Florida and 4.2% in Arizona.

Yes, these are projections and estimates. Time and chance will play their usual roles. And there will doubtless be different pictures within regions of the same state.

Nonetheless the overall picture is pretty clear. And, if you are a homeowner in any of these regions, none too appealing.

Comments (14)

Posted by aaron, a resident of Highland Oaks
on Feb 27, 2008 at 11:23 am

As long as people continue to quickly pick up the REO's/ BANK OWNED PROPERTIES, the housing market will stabilize itself. I handle alot of BEO's, and they are going fast. people see a chance to buy a property in some cases 100k under current market value. which is probably 100k under the value from 2 years ago.

There are also many pockets in the declined market, which are barely effected. Like Pleasanton, San Ramon, Danville. And Santa Clara county is yet to hit a declined market and might not.

People shouldn't have bitten more than they can chew. That caused alot our problems today.

It is definately not the time to sell. If you try, good luck. Now is only the time for people to pick up the slack that others dropped. And eventually it will fix itself. If the trend continues, it should not go much further down. But only time will tell.

Good luck to the sellers, and to everyone else pick up BEO's, they are gonig for a steal, and is a way for people with good credit and assetts to help themselves and the economy.


Posted by Homeowner, a resident of Ironwood
on Feb 27, 2008 at 11:56 am

Aaron - $100k under "market value" is still way, way too much at this point.

My favorite MLS listings tout, "$150,000 under appraised value!" It should then say, "Still only $200,000 overpriced!"


Posted by aaron, a resident of Highland Oaks
on Feb 27, 2008 at 12:22 pm

under appraised value sounds like a great investment to me. how low would you want it to go if it is overpriced?
anytime you walk into a house with 100k equity already in the house, you are in a great situation. you could almost immediately pull cash out if need be. people encounter all sorts of hardships and being able to use the biggest assett most people have, their house, to help them out of that situation is how alot of people in Pleasanton have survived so long. my family included.

when you say "My favorite MLS listings tout, "$150,000 under appraised value!" It should then say, "Still only $200,000 overpriced!"".
do you think it's a gimick? how so?

what that means is there is numerous people with a comparable houses in that neighborhood, that paid that amount. that owe that amount and will eventually sell for that amount. how is that a gimick?
to sell a house that cheap under value, must be a real hard time for those people, or if it's a bank, they probably only need what they bought the old loan out for. hence the lower price.


Posted by Value?, a resident of another community
on Feb 28, 2008 at 11:50 am

"Value" is sooooo subjective... In my book value is simply what someone else is willing to pay not what someone "thinks" a property is worth. Simply using "comps" can be extremely misleading.

The real estate industry plays a very interesting roll in what makes/helps properties move. When listings are down, the industry kind of magically pitches a message of "its a sellers market" and bingo more listings. Vice versa when listings are high.

The real question in my book is: Is your house a home?, or Is it an investment? If more folks treated it as a home, alot of this other stuff goes away.


Posted by aaron, a resident of Highland Oaks
on Mar 4, 2008 at 12:02 pm

when listings are down it is a buyers market. when the are on the rise it is a sellers market. now is a buyers market. and value is very subjective. but people are willing to pay. so that is what it is worth. that's how business works, sell to the highest bidder. then approximate your average sale. which determines the current value.
example, a client of mine just bought a house in a very nice neighborhood in san jose at a auction for $459k, i sent my appraiser out there, the value came up at $574k, purchased $125k under value. which means she is now at 79% ltv. which is awsome. i wish i had $125k in equity on a new purchase. good time to buy!


Posted by WHAT?, a resident of Another Pleasanton neighborhood
on Mar 4, 2008 at 12:07 pm

Aaron -- I think you're a tad confused. When inventory is low, it's a SELLERS market. When inventory is HIGH, which it currently is, it's a BUYERS market.

P-town is at 189 active listings. That's down from November, when there were 199 on the market. There are no homes in foreclosure in P-town. Frankly, if realtors were smart they'd be leveraging that fact as a reason to pay P-town prices -- but apparently some would prefer to get a deal and by just over the county line in San Ramon where foreclosures are a whole different animal.


Posted by aaron, a resident of Highland Oaks
on Mar 4, 2008 at 12:20 pm

WHAT? it seems like you have mls access. try looking for the term BEO. it means bank owned. there is at least 5 i saw last week on there. one on tulipwood, 94588. check it out. there are many more. i wouldn't buy when houses are high priced. but maybe you would. be upside down like many people who had 100% FINANCING on properties that went down in value. a buyers market is determined by what someone is willing to negotiate their price for. when there house isn't selling. they will go lower and lower, until they sell. that is where we are now. look at your neighbors if they have been having problems selling, look at the price, i magically goes down. who would've figured, a lower price means buyers market not a sellers market.
it takes a long time to sell right now if your trying. my neighbor has been on and off the market for almost a year now. they are still asking too much, but they bought it 2-3 yrs ago when value was much higher. now they can only drop so much before they take a hit. not a sellers market!


Posted by WHAT?, a resident of Another Pleasanton neighborhood
on Mar 4, 2008 at 12:38 pm

BEO is different than formal foreclosure, aaron. Investigate the term "Short Sale." Many BEO homes are just that -- and yes, I wouldn't be surprised if there are a few of those in P-town.

I agree with you relative to people being upside down in their homes. I fortunately am not. I still have equity to play with. We are in a buyers market because inventory is relatively high/stable and people are eager to sell. The home fronting Hopyard that Kris Moxley w/Alain Pinel has absolutely reinforces your point. They wanted to sell, so they were willing to keep dropping the price. They are long term owners -- maybe even original. They had play room -- even with adding on the second story. It went sale pending after being on the market since prior to June and coming down significantly in price. Not everyone is willing to do that.

I have a few more years left in town. If things haven't improved, I'm prone to simply renting my house or negotiating a "lease/option to buy" with someone. As "Value?" above stated, the real question is whether your house is a house or a home.


Posted by AARON, a resident of Highland Oaks
on Mar 4, 2008 at 2:23 pm

BEO IS NOT A SHORT SALE!!!! IF YOU THINK IT IS WOW!!! A SHORT SALE, OR SHORT PAY TANSACTION IS A SHORT SHALE, PRIOR TO FORECLOSURE, THIS IS NORMALLY WHAT HAPPENDS PRIOR TO FORECLOSURE, IT IS TAKEN OF MLS WHEN IT IS FORECLOSED ON, THE BANK THEN GETS A BPO (BROKERS PRICE OPINION), THEN PRICES AND PUT IT BACK ON THE MARKET AS A BEO, BANK OWNED. A SHORTSALE IS STILL OWNED BUY THE BORROWER NOT THE BANK. YOU ARE CONFUSED.
But it is definately a good idea to rent out for the time being, instead of selling, at least cover the mortgage, and let the economy return. having equity in the house does allow wiggle room. but why waste it. find a good renter for a few years, then make back that 100k lost over the past few years.


Posted by WHAT?, a resident of Another Pleasanton neighborhood
on Mar 4, 2008 at 2:52 pm

aaron -- Perhaps you should be a realtor. I've clearly been misinformed.

As for renting -- I'm hoping things will improve before my time is up completely here in P-town. I'm not out to make a bundle, so breaking even would thrill me.

BTW, all caps in a post is like yelling at someone. Kinda rude.


Posted by Homeowner, a resident of Ironwood
on Mar 4, 2008 at 3:34 pm

Aaron - Given the litigation brewing with regard to inflated appraisals and their role in the creation of the housing bubble, you should know that an appraisal may not be accurate, or worse yet, skewed with the intent to mislead.

If a realtor is advertising a home $150k below appraised value, then why isn't it selling at the appraised value? Don't you think they would sell it for that if they could? That appraisal may not be worth the paper its printed on.

I hope we can all agree that increasing inventory and decreasing prices is generally a buyers market (is it that confusing - you have it correct What?). That said, if I were a buyer right now, I would be very cautious as price pressure will be down for next couple of years if not more. Yes, I know, Pleasanton is different, the credit crunch won't impact us.... Time will tell.


Posted by aaron, a resident of Highland Oaks
on Mar 4, 2008 at 3:55 pm

agreed some appraisal can be shady, but all appraisals that go through major banks go through an appraisal review. verifying its truthfulness. People will loose their licences/ companies for inflating value to pass loans. but appraised value isn't always what you can sell for. in a good market people have gone above, in the bad market they go below.

sorry WHAT? no intention of being rude. i work in real estate and finance. and currently work with many people on the beo's , appraisals, and finance. some are finding great houses. very cheap. but time will tell. people are simply happy to buy something 2-3 yrs ago they couldn't afford on a fixed rate, and now they can.

i wouldn't sell now, not until short sales and foreclosures lighten up. it's like trying to sell a BMW for sticker , when someone else is selling it at wholesale. wholesale will sell quicker.


Posted by WHAT?, a resident of Another Pleasanton neighborhood
on Mar 4, 2008 at 4:28 pm

aaron -- I have no need to sell now. We'll see what an additional 18+ months holds.

If things don't improve, then we move to Plan B....or even Plan C.


Posted by Homeowner, a resident of Ironwood
on Mar 5, 2008 at 8:23 am

Why doesn't the PleasantonWeekly print what is really happening in the real estate market, like this..

Housing is in its "deepest, most rapid downswing since the Great Depression," the chief economist for the National Association of Home Builders said Wednesday, and the downward momentum on housing prices appears to be accelerating.


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