The inner workings of house prices and housing markets


By golfplan18   Follow   Wed, 26 Dec 2012, 7:50am   905 views   14 comments
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http://ochousingnews.com/news/the-inner-workings-of-house-prices-and-housing-markets-redux?source=Patrick.net

Most people do not understand real estate prices — they think they do — every Californian is an expert on real estate, after all, we have about half a million realtors, but few people really understand markets.

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  1. fedwatcher


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    Valencia, CA

    1   9:15pm Thu 27 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    The strange thing is that California has experienced many housing booms and busts. So you would think that they would understand real estate prices. However, they can buy into the social mood that the media pumps out.

    It is employment that is the ultimate driver and when it is strong, low interest rates or easy terms can drive prices higher.

    But when employment is down within commuting distance, prices must fall.

    Today's environment is due to an artificial decline in supply. This will end, howerver real estate is local so that declines will be local and rises will be local.

  2. ELC


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    2   3:21am Fri 28 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    fedwatcher says

    Today's environment is due to an artificial decline in supply. This will end, howerver real estate is local so that declines will be local and rises will be local.

    Interest rates aren't local. Terms aren't local. Employment isn't local. What makes you think real estate is "so local." Did a Realtor tell you that?

  3. Kevin


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    3   3:38am Fri 28 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    ELC says

    fedwatcher says

    Today's environment is due to an artificial decline in supply. This will end, howerver real estate is local so that declines will be local and rises will be local.

    Interest rates aren't local. Terms aren't local. Employment isn't local. What makes you think real estate is "so local." Did a Realtor tell you that?

    Interest rates and terms aren't local, but Employment sure as hell is. Some cities have near-zero unemployment rates while others are over 10%.

    Real Estate is absolutely "local", too. That's why a house in Detroit goes for $50k and the same house in San Jose goes for $700k. NYC isn't Oklahoma City.

  4. ELC


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    4   5:47pm Fri 28 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    Kevin says

    Real Estate is absolutely "local", too. That's why a house in Detroit goes for $50k and the same house in San Jose goes for $700k. NYC isn't Oklahoma City.

    No kidding. Houses in Detroit were never priced the same as houses in San Jose. That's not what RE being inaccurately called local means. It would mean the same house in Detroit would devalue to a different percentage than one in San Jose. There are exceptions but in general houses in all markets will eventually rise and fall by the same percentage eventually. If you think San Jose isn't going to decline back down to where it was before the bubble just the way Detroit or Phoenix or any place in this country will you're engaging in magical thinking. Of course booms and busts are delayed or minimized in different areas, so if that's your definition of RE being local, so be it.

    The saying was created by local Realtors who want you to think that you need their local expertise.

  5. bmwman91


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    5   5:50pm Fri 28 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    FHA loans are indeed local. In Santa Clara County and a neighboring one ("The Silicon Valley") you can borrow $729k on 3.5% down with a FICO of 580. That isn't the case in most of CA, or the nation. There are indeed numerous "local" factors that can impact local areas' prices.

  6. ELC


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    6   6:30pm Fri 28 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    bmwman91 says

    FHA loans are indeed local. In Santa Clara County and a neighboring one ("The Silicon Valley") you can borrow $729k on 3.5% down with a FICO of 580. That isn't the case in most of CA, or the nation. There are indeed numerous "local" factors that can impact local areas' prices.

    FHA is adjusting to local needs so that a particular area isn't impacted more than another. If FHA didn't do that for Santa Clara then houses for the local population would be less affordable there than somewhere else. I'm sure if they see no one getting funded in a particular area they are going to do something about it.

    My point is that "opportunity" to profit or lose money is about the same anywhere.

  7. lostand confused


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    7   6:37pm Fri 28 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    ELC says

    My point is that "opportunity" to profit or lose money is about the same
    anywhere

    Are you saying someone who buys a 800k home vs a 80k home has the same opportunity to profit or loss?

  8. ELC


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    8   7:02pm Fri 28 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    lostand confused says

    Are you saying someone who buys a 800k home vs a 80k home has the same opportunity to profit or loss?

    No, I'm saying there's equal opportunity in San Jose, Detroit or Phoenix if you know what you're doing and equal opportunity to go broke if you don't.

    But since you mention it, you can make the same amount profit off one 800k house as ten 80k houses, and with a LOT less work. Even more if were talking land. People who buy low end houses are not the brightest stars in the sky (to put it mildly).

  9. bmwman91


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    9   12:57am Sat 29 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    What about the case of someone that likes the area that they live in and want to live in the house indefinitely rather than sell+move later in life? A house's "value" means squat if you plan to die in it, and I think that a lot of people actually wouldn't mind staying-put.

  10. ELC


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    10   4:44am Sat 29 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    bmwman91 says

    A house's "value" means squat if you plan to die in it, and I think that a lot of people actually wouldn't mind staying-put.

    I always felt prices were a little higher than their value in retirement areas. Here in South Florida many people come to die. In Phoenix they just wish they were dead.

  11. lostand confused


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    11   9:08am Sat 29 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    ELC says

    No, I'm saying there's equal opportunity in San Jose, Detroit or Phoenix if
    you know what you're doing and equal opportunity to go broke if you don't.


    But since you mention it, you can make the same amount profit off one 800k
    house as ten 80k houses, and with a LOT less work. Even more if were talking
    land. People who buy low end houses are not the brightest stars in the sky (to
    put it mildly).

    Wrong. Plenty of people in the bay area bought an 800k house that sank to 500-600k or worse and now seems to be on the up. Now if you live in an area where the average house is 80 or 90k -even if you lose half-you only take a40k hit.

    Buying with leverage is always good on the way up-but horrible on the way down. In an expensive area-you need 800k of capital-wether you put up your own or borrow is another issue. In an inexpensive area, you want to buy a house-you only put up 80 k. Wether you choose to buy 10 houses is another matter-but you don't have to. not the case in the former. There is no need to sink 800k -so the chance of loss is much , much lesser.

  12. swebb


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    12   10:01am Sat 29 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    bmwman91 says

    What about the case of someone that likes the area that they live in and want to live in the house indefinitely rather than sell+move later in life? A house's "value" means squat if you plan to die in it, and I think that a lot of people actually wouldn't mind staying-put.

    It's actually worse than that. The taxes on the more valuable house are very likely going to be higher than the taxes on the cheap one.

  13. HEY YOU


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    13   10:17am Sat 29 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    One could make a slight change in the link:"every Californian is an expert on real estate,"

    everyone on Patrick.net is an expert on real estate,

    That's better.

  14. ELC


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    14   12:32pm Sat 29 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    lostand confused says

    Buying with leverage is always good on the way up-but horrible on the way down. In an expensive area-you need 800k of capital-wether you put up your own or borrow is another issue. In an inexpensive area, you want to buy a house-you only put up 80 k. Wether you choose to buy 10 houses is another matter-but you don't have to. not the case in the former. There is no need to sink 800k -so the chance of loss is much , much lesser.

    That's why you need to know what you're doing. People who deep down know they're clueless diversify and/or take baby steps. If you have 800k to invest, leveraged or not you're better off investing it in one pop. The people on these forums shouldn't be called investors and anyone who thinks they can learn something valuble from them is batty. Buying and selling and renting out little houses isn't investing. It requires constant effort. It's a job. And a scroungy job at that. Investing is having your money or credit work for you.

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