patrick.net

I don't think we will hit bottom until the incentives are gone. Too much government involvement in the way of tax credits and FHA BS loans for us to find a true bottom. They want you to think this is bottom and buy, but I refuse to until the monkey business with housing stops.

Agree with Tude. It's impossible to call it a bottom because there is so much in play right now to prop up prices. Pull the plugs on those, see what happens, then we can talk of a market bottom if that is the case.

Def. not in 11229, 11230, 11235; with 2/3 "luxury*" Bedroom condos selling for 500K-1.4 million and old crusty single-family homes starting at 500K, it's far from the bottom here. I think the developers, agents and owners are still running on bubble vapor.

* Featured "luxuriates" include: in-door plumbing and sears/kenmore appliances.

klarek says

Agree with Tude. It’s impossible to call it a bottom because there is so much in play right now to prop up prices. Pull the plugs on those, see what happens, then we can talk of a market bottom if that is the case.

How can one even think of buying a house while the government is so actively propping up housing prices?

Can the government do this forever? If the government backs away prices must fall.

Nationwide, which is pretty non-specific, we may be at or near a bottom, but many (me included) expect a long, extended 'L' shape so-called "recovery". I.e. no serious increases for some time. I predict people expecting a big re-inflation (and there are many in SF bay area saying this) will be sorely disappointed.

In CA and SF bay area in particular, this tells you a lot, from today's Patrick news:
http://www.washingtonpost.com/wp-dyn/content/article/2009/09/08/AR2009090803507.html?ref=patrick.net

"The most severe problems have surfaced in states with the steepest price drops. About 75 percent of option ARMs financed homes in California, Florida, Nevada and Arizona, where prices have plunged on average 48 percent from the second quarter of 2006 to the first quarter of this year, according to Fitch."

There are a ton of over-paid houses in my area, often bought with option ARMs and prices have not fallen much ... YET!

Even with the tax credit home sales in Southern California fell by 11 percent in August.
The average "price increase" is less than the 8,000 dollar tax credit so it is really a price decrease and means nothing.
It should be interesting to see what happens after the tax credit goes away and the
"prime sales season" is over. Hopefully they won't create another tax credit for a while so we can see what
prices ought to be like.
I am seeing more "bank repo" open house signs on the weekends so I get the feeling that banks are worried about the tax credit ending. They apparently are taking back about 80 percent of foreclosed properties even though "investors" are supposed to be buying up everything. Sooner or later they will have to unload it all.

pinnacle says

Even with the tax credit home sales in Southern California fell by 11 percent in August.
The average “price increase” is less than the 8,000 dollar tax credit so it is really a price decrease and means nothing.
It should be interesting to see what happens after the tax credit goes away and the
“prime sales season” is over. Hopefully they won’t create another tax credit for a while so we can see what
prices ought to be like.
I am seeing more “bank repo” open house signs on the weekends so I get the feeling that banks are worried about the tax credit ending. They apparently are taking back about 80 percent of foreclosed properties even though “investors” are supposed to be buying up everything. Sooner or later they will have to unload it all.

Tax credit program will not be allowed to expire. When housing sales figure decline in the coming months - NAR will lobby Congress for program extension/expansion. I think that Congress will increase the amount from $8000 to at least $10,000.

It is interesting that they came up with 8,000 in the first place. If they wanted to stimulate sales, the five figure tax credit sounds much more lucrative.

The tax credit is not the big government intervention. Private banks are practically not backing mortgages. The government is backing something like 80% of all mortgages, and there still is the 3.5% downpayment nonsense.

The government is the only one with any skin in the housing game.

I agree with Tude. The government needs to get their grubby hands out of the market and the chips just need to fall where they may. We are prolonging the decrease in house prices. Lets just get it over and done with. When China stops lending the US money, then all h*ll will break lose. Then the government can't do anything!! We need to go back to reality. We are living in a fake economy.

I doubt we have hit bottom due to a few things.

1) we still have 19 or so million EMPTY houses in the USA. That's quite a number. Yes it isn't exactly a natural market but still. On my daily commute first I noticed an abandoned house...then I noticed one in foreclosure. Now I see one living in combination truck and tent!

2) Where will the baby boomers retire to? This has serious ramifications. How can everyone downsize? When people get older they buy fewer things not more. If they can't climb stairs how much sense does it make to have a bathroom or shower on the 2nd floor? etc

Tell me what could possibly cause prices to rise? Wages are still dropping, unemployment is still rising. People have lost a lot of their savings in the stock market. Banks are being more conservative in their lending. And even if the govt is still lending liberally, it's downright stingy compared to what the Countrywide's were doing during the boom. Credit is contracting. So someone please tell me what possible justification they have for house prices going up anytime soon. Stabilizing, maybe. But I think unemployment will keep going up and housing will keep going down. If interest rates jump for whatever reason house prices will crash even harder as people won't be able to qualify for as large of a loan.

If you think we've hit bottom, go buy a house?

Kevin says

If you think we’ve hit bottom, go buy a house?

Do you go out and buy everything that is a good price? If I put a good price on a pump will you go out and buy it?

I'm looking for value for my money. I probably could go out a buy a house tomorrow, but most of the stuff in my area is still, IMO, overpriced. That said, I am cognizant of my bias towards lower prices, and am trying to stay as objective as possible.

Prices in the county I live in have returned to 2004 levels. In the school district I had hoped to buy into, I have seen some home seelin for close to what they sold to in 2002 in some instances, but these typically are neglected (foreclosures) and need some work.

What it comes down to is, as much as I think that prices still need to come down more, given the income of the area, I don't think that they will come down as much as logic dictates they should, given the amount of government intervention going on.

Is this as good as it gets? or is this a false bottom. I can make the argument for the latter, but I fear it is the former. As much as I tell myself that most of the sales in the past six to twelve months have been to first time home-buyers, that many of these have been financed using FHA + the tax credit, and that it stands to reason that as much as 10% of these transactions may default in the next year (winter is setting in, and I doubt that all of the first time buyers had the foresight to consider heating costs when they were house hunting this spring)...

It could just be that spending 38 to 40% of one's gross income on housing is the new normal, and I can either keep up (and be house poor) or shut-up. (and keep renting where I am at).

Given that I need to make a decision on renewing my lease in the next few weeks, the decision (To by or not to buy, that is the question) has been weighing heavily on my mind.

At the very least I don't expect prices to go up sharply in the near future, but that urge to simply "get this overwith" and take the plunge into ownership is real, and it is hard to ignore.

EastCoastBubbleBoy says

I’m looking for value for my money. I probably could go out a buy a house tomorrow, but most of the stuff in my area is still, IMO, overpriced. That said, I am cognizant of my bias towards lower prices, and am trying to stay as objective as possible.
Prices in the county I live in have returned to 2004 levels. In the school district I had hoped to buy into, I have seen some home seelin for close to what they sold to in 2002 in some instances, but these typically are neglected (foreclosures) and need some work.
What it comes down to is, as much as I think that prices still need to come down more, given the income of the area, I don’t think that they will come down as much as logic dictates they should, given the amount of government intervention going on.
Is this as good as it gets? or is this a false bottom. I can make the argument for the latter, but I fear it is the former. As much as I tell myself that most of the sales in the past six to twelve months have been to first time home-buyers, that many of these have been financed using FHA + the tax credit, and that it stands to reason that as much as 10% of these transactions may default in the next year (winter is setting in, and I doubt that all of the first time buyers had the foresight to consider heating costs when they were house hunting this spring)…
It could just be that spending 38 to 40% of one’s gross income on housing is the new normal, and I can either keep up (and be house poor) or shut-up. (and keep renting where I am at).
Given that I need to make a decision on renewing my lease in the next few weeks, the decision (To by or not to buy, that is the question) has been weighing heavily on my mind.
At the very least I don’t expect prices to go up sharply in the near future, but that urge to simply “get this overwith” and take the plunge into ownership is real, and it is hard to ignore.

It is still regional my friend. IMO some parts of the country have already bottomed out(mostly low end houses where cash is enough) but correction is far from over from areas like in Bay area and Socal(High end is still few years to go due to no move up and very low jumbo loan availibility)

True, very true. I do my best not to disclose my location for privacy's sake, but needless to say, it's on the East Coast... and in an area that is still (somewhat) overpriced.

We are no where near bottom, at least in the Baltimore - Washington DC area.

I think it's premature to call a bottom because we don't know the direction of the economy--our retail economy?
No doubt realtors and Wall St. cheerleaders would lead you to believe the worst is passed--so buy, buy, buy! Damn.
I don't buy it for a second. We haven't quantified the downside on the biggest bubble of all: the credit bubble.
Has the credit contraction backwashed over corporate salaries and relevant to SFBA--venture capital? Not yet?
I'll buy we're at bottom when the BS fog clears and we finally see the total sum of damages--not before then.
But that's just me.

What Tude said. The incentives the goverment is giving are completely distorting the market. Barney Frank just sayed it was *policy* to write bad FHA loans to keep prices from falling too fast. And just like cash-for-clunkers the policies are pulling forward demand. Once that pull is gone, the market will be weak again.

Still, I think some markets are indeed close to the scraping bottom phase, and won't fall much more. That's assuming we don't go into a double dip recession, which is a big if.

High end markets like the city of San Francisco? We're just getting started. My friend who's been in the market for 2 years told me a few days ago that 10% down has evaporated (Used to be 80% first, 10% second, 10% down for many first time buyers on standard loans), and now the only deals getting done are 80/20. The bottom just dropped out of the market, and the foreclosures on options ARM borrowers isn't even underway yet.

Gosh, I better rush out and buy right now! If the bottom is in it will only be a matter of weeks before the market is back to it's bubble valuations!

With all the unemployed suddenly employed again there's sure to be a mad scramble for all this oversold housing.

Can someone recommend a good realtor to help me?

lmao ....... welcome to the club BrotherBrian

BrotherBrian says

Gosh, I better rush out and buy right now! If the bottom is in it will only be a matter of weeks before the market is back to it’s bubble valuations!
With all the unemployed suddenly employed again there’s sure to be a mad scramble for all this oversold housing.
Can someone recommend a good realtor to help me?

I know a RE guy, but I think he is buried in mortgage troubles and is busy trying to rent out his garage to someone.

To look at it another way, what are the pros and cons of buying now vs later.

If you buy now and prices go up, they will likely go up at a more normal rate, probably in the 4-7% range that we have seen over the 20 years or so (minus the bubble times) If you buy now and prices go down, the bottom is unknown, and losses could be fairly large.

Your losses likely out weigh buying now, vs locking in a years worth of gains. Don't try and catch the bottom, catch on the way up, when you are sure things are stable and going to return to a stable uptick. You'll lose the absolute bottom, but hopefully won't take a large loss. On the flip side you add a year to your mortgage and you retire it one year later in life.

The complaint about housing prices jumping in the bay area, different people moving in and people moving here en mass is just a city growing up. Instead of a single neighbourhood changing, it's an entire city. If people don't like what the majority have "done' to the bay area they can obviously leave and go somewhere else and find a city with demographics that they enjoy. But it's the masses who decide the values on homes and what they're willing to pay or give up.

So far only about 3 percent of mortgage modifications have been made permanent so it it does not look like
the flood of foreclosures is going to stop any time soon.
This does not even include the Alt-A and Option Arm loan problems coming in the next year.
Also 20 percent of California workers will be unable to get loans due to unemployment and
wage cuts that will make them "bad credit risks" for several years.

Others had said it, but it's useful to remember that all real estate markets are local. A "bottom" in Akron, OH will occur at a different time than in Stockon, CA. It seems that this board is dominated by northern CA people, which isn't unusual because that's one of the places where the bubble hit hard. The best way, IMO, to know if a bottom is near in the area you are looking at is to look at the historical ave. price or historical price/rent ratio. Those charts have been posted on here several times on different forums... Keeping in mind that after a bubble and recession, you usually end up below the mean.

HISTORY HAS SHOWN A LONG CYCLE GOING FROM INFLATION TO DEFLATION CLEAR BACK TO THE REVOLUTIONARY WAR. IN TERMS OF ECONOMIC THEORY, JAPAN ADOPTED MONETARISM FIRST, & WAS CITED IN FRIEDMANS BOOK ABOUT HOW TO CURE INFLATION: "FREE TO CHOOSE", WRITTEN BACK IN THE 1980'S. WHAT FRIEDMAN'S THEORIES OF MONETARISM NEVER FORSAW WERE THE LONGER TERM CONSEQUENCES OF MONETARISM: DEFLATION IN JAPAN. AT THE FED, WE USE THE SAME BASIC MONETARISTIC MODEL AS JAPAN. THUS, ITS HARD TO SEE HOW WE ARE GOING TO GET DIFFERENT RESULTS USING THE SAME APPROACH. MAYBE HISTORY, JAPAN, & HUMAN NATURE HAVE ALL CHANGED--SO "THIS TIME ITS DIFFERENT", BUT AGAIN, THAT IS HARD TO SEE OR BELIEVE....GIVEN THE CONTINUING CONSEQUENCES WE SEE ON A DAILY BASIS TO OUR ECONOMY SINCE THE BUBBLE HAS POPPED................ERIC WALTON

Raginggg:

How long would you suspect this current cycle of downturn will last? My estimates are 4-6 years

Lorenzo

I have been reading many of the comments on this stie for years now. In times of frustration, they give me hope that equilibrium will one day be restored, and reassure me that renting isn't all that bad.

As a non-homeowner, it's in my own best interest to want prices to fall as much as possible, particularity if interest rates stay low due to government pressure on the underlying market forces that drive the interest rates. The reality is, I could buy now. It would be very tight, but I could. If this is as good as it gets, if the market starts its slow recovery, then I may buy sooner (within the next six months to a year) rather than later (a few years from now). Let me be clear, I am not trying to catch the bottom, but I am trying to time the market.

With many so bearish on housing here (not that I would expect anything different) I can't hep but wonder if there is an almost amusing parallel between our "it has to come down more" to the bubble mentality that "real estate only goes up"

the market needs a reset....thats what a recession is all about.

MAYBE HISTORY, JAPAN, & HUMAN NATURE HAVE ALL CHANGED–SO “THIS TIME ITS DIFFERENT”, BUT AGAIN, THAT IS HARD TO SEE OR BELIEVE….

Japan didn't enter it's economic hinterland with as many monkeys on it's back as Uncle Sam did - especially the loss of our industrial base - and this makes quite a difference.

I seriously question daily, whether or not the US will be able to recover from this HUGE MESS, that was created and popped in a couple years time....

I'd like to hear some input from those who know a little more about real estate...

"wish i was lucky" had some excellent points... how does it make ANY SENSE at all-that "starter houses" in the bay area, are 350,000-500,000. IF, (and I don't know why anyone would)...you DO buy a starter home, IN THIS ECONOMY-what are the chances that you will be a move-up buyer in a couple year, when say your family expands in the next few years and you cannot live in your 3 bed, 1 bath house... HOW will you have enough equity to make your money back??? esp, if we are talking about in the next 5 years....

my mom bought her house when she was like 20 years old, I believe it was around 50,000$ (I'm not exactly sure--)... she put 20% down (like a normal person should) and still has it today as a rental... By purchasing that house, she was able to make enough equity and finance our "move-up" house, and then so on and so forth...

Prices for a house like her first one, are in the range of 300,000$ (6 TIMES AS MUCH) however, my salary today--is VERY comprable to hers back then... so please tell me how on earth would I buy a house 6 times as much, making the same salary....

NOT TO MENTION--- IF (and thats a big if) people stick to buying a house within their limits (aka-3x annual income)..how many "first time home buyers" are making 100,000$ to buy that 300,000$ starter home??? I'm 24, and NONE-literally none of my friends make 100,000$ a year... so please tell me who these first time buyers are, and why they are still purchasing homes at 400,000$....makes no sense....

I can't speak for everywhere but I've been literally swamped with contract programmer job offers here in the Charlotte area. Maybe its bailout money. Maybe the Great Recession was only for places with housing bubbles. Who knows. The housing here is overpriced for what you get but probably underpriced for any other large city. (CLT is 19th largest in the USA.)

Some houses in my neighborhood sold. E.g. one was $214K. Sold. The one next to it: $265K. Did not sell. So, when all the houses look basically the same, the yards are the same, and the community center the same: price alone sells houses.

I suspect the market for houses/pay/prices is fairly priced. Its a much lower price than 2-3 years ago; but, as someone points out "jobs gone", "pay dropping", and "benefits canceled". So, US government and State of CA must float credit to keep floating themselves above reality. Who would loan to them? I guess those who benefit from the bubble. FWIU, the Basel equity requirement to cover AAA rated government loans is 0.

So, governments can continue to borrow infinite amounts of money as there is 0 cost to the bank to loan it to them. So, they can borrow up and until they cannot service the loans. Hmmm, does that not sound like the LIAR loans of yesteryear?

lil--

Any chance you could move somewhere outside of the bay area? That is one of the most expensive places in the country to live. I can assure you that it doesn't take $300K for a starter home in most of the US... I think most of the people there have to have 2 incomes to afford their house.

lil - I travel throughout the northeast, and most "stater homes" within commuting distance to the major urban centers are priced such that the HH income would need to be at our near $100k if one were to apply the 3x income rule, so I know what you mean.

I was having this conversation with a friend of mine, and the conclusion we came to is that perhaps there are more $100k+ households than we though there were. For a young couple who is college educated in an "employable" field, working a professional job, they would only have to make $50k each, and a salary of $50k is not unreasonable for urban areas. The same can be said for tradespeople and skilled laborers. Granted, the guy or gal who serves your your coffee at the local coffee shop dosen't earn anywhere near $50k, but that's probably their second (or third) job.

So, as much as I hear what your saying... if you need to earn $100k to buy a starter house, then things are out of whack, there may be more $100k+ households (not individuals, but households) than we realize.

That median household income chart always set me off. We are in the top 35% (60-70K) yet feel like we are in the bottom 35%. Are there that many people living off of such few $'s!?!?! Man, compare this to our home buying frenzy over the past 7 years and it is just unbelievable!

I strongly believe that people are NOT contributing to 401K's etc but instead are trying to support their lifestyle. Are folks that hopeless? Or that optimistic?

While I do agree that people are neglecting factors such as retirement in order to support their lifestyles, there are other things to consider.

As income declines, eligibility for government services does increase, and that makes it possible to live on an income at the lower end of the spectrum. Which probably does not make it fun. But various levels of government do provide housing assistance, preschool tuition, school lunches, reduced price community college tuition, health insurance, and food stamps. And of course taxes are lower in the lower brackets. Also, there are a number of lower-income second jobs which can happen under the table--child care and yard care come to mind, and while they do not pay much, they do pay cash. Additionally, a number of lower income people come from cultures that allow for closer living situations, making group purchases of homes--and of course all of the things you might need to furnish a home--possible and reasonable. I used to work with a Russian sysadmin who bought a home with a bunch of roommates as soon as he landed his first job. They sold the place, as agreed, after a few years, then split the profits and kept moving up. There are lots of ways to make the most of a little.

There is also established or inherited wealth, which may not show as income but certainly matters when you consider security and purchasing power. That could mean anything from an inheritance from dear Great-Uncle Stan to a good severance to years of prudent saving. I know another guy who works as an engineer for about two years at a time, then takes a year off to travel and make art. On the off years, his income is close to zero, but he is never broke. Just prudent. Similarly, at any given time, some percentage of two-income households become one-income households so that someone can stay home with the babies. Some people are even wise enough to save for that possibility.

Finally, I doubt that median income includes standard roommate situations, or unmarried couples living together and sharing expenses while filing separate tax returns. Again, ways to make a lot from a little.

So while I can't quite see the possibility of surviving on 15K per year or even quite a bit more than that in the Bay Area, I also think that median income is not necessarily representative of purchasing power. Poorer people get perks. Some people save a lot during the good years, or throw in with others to make the most of what they have.

I guess I don't see these numbers as having absolute meaning.

Eliza says

Finally, I doubt that median income includes standard roommate situations, or unmarried couples living together and sharing expenses while filing separate tax returns. Again, ways to make a lot from a little.

The US Census factors the above.

Cool. That is useful to know.

"the market needs a reset….thats what a recession is all about."

Market corrections already began prior to recession some 2 years back.

http://www.housingbubblebust.com/OFHEO/Major/NorCal.html

You need to compare the local income distribution to your local price distribution, not the national one. In the suburbs of DC, the median household income ranges from ~90-110k, thus at today's interest rates ... if everyone holds onto the collective delusion that the housing ladder is a good idea, and buys $300k THs, then house prices might be supported.

Problem of course being that if there's no one left to buy the $400-500k starter-sized SFHs... eventually they will come down in price and pull demand away from the THs.