Housing Prices Near Bottom according to MotleyFool

[Deal Hunter]

Why Housing Prices Are Nearing Bottom http://www.fool.com/investing/general/2008/02/25/why-housing-prices-are-nearing-bottom.aspx

So my question to this forum is:

Have you seen any "reduction" in quality in the new builds in SD?

If so, what exactly are they cutting back on?

[sd_bear]

I don’t buy it.

Houses are fancier with better gadgets and wiring and materials? Even if its true, it doesn’t mean prices won’t fall. If the price is too high for someone to buy no matter how much it cost to create, it won’t get sold.

If fancy houses with nice wiring is too expensive to build then it will no longer be built. Meanwhile prices will continue to fall until someone can afford to pay that price for the ones that exist. And on top of that, there are 50 year old homes that are still grossly inflated – what is the reasoning for their skyrocketing prices?

[sd_bear]

I don’t buy it.

Houses are fancier with better gadgets and wiring and materials? Even if its true, it doesn’t mean prices won’t fall. If the price is too high for someone to buy no matter how much it cost to create, it won’t get sold.

If fancy houses with nice wiring is too expensive to build then it will no longer be built. Meanwhile prices will continue to fall until someone can afford to pay that price for the ones that exist. And on top of that, there are 50 year old homes that are still grossly inflated – what is the reasoning for their skyrocketing prices?

[sd_bear]

I don’t buy it.

Houses are fancier with better gadgets and wiring and materials? Even if its true, it doesn’t mean prices won’t fall. If the price is too high for someone to buy no matter how much it cost to create, it won’t get sold.

If fancy houses with nice wiring is too expensive to build then it will no longer be built. Meanwhile prices will continue to fall until someone can afford to pay that price for the ones that exist. And on top of that, there are 50 year old homes that are still grossly inflated – what is the reasoning for their skyrocketing prices?

[sd_bear]

I don’t buy it.

Houses are fancier with better gadgets and wiring and materials? Even if its true, it doesn’t mean prices won’t fall. If the price is too high for someone to buy no matter how much it cost to create, it won’t get sold.

If fancy houses with nice wiring is too expensive to build then it will no longer be built. Meanwhile prices will continue to fall until someone can afford to pay that price for the ones that exist. And on top of that, there are 50 year old homes that are still grossly inflated – what is the reasoning for their skyrocketing prices?

[sd_bear]

I don’t buy it.

Houses are fancier with better gadgets and wiring and materials? Even if its true, it doesn’t mean prices won’t fall. If the price is too high for someone to buy no matter how much it cost to create, it won’t get sold.

If fancy houses with nice wiring is too expensive to build then it will no longer be built. Meanwhile prices will continue to fall until someone can afford to pay that price for the ones that exist. And on top of that, there are 50 year old homes that are still grossly inflated – what is the reasoning for their skyrocketing prices?

[Bugs]

His argument seems to be based mostly on costs. Nationwide and in the average this might make some sense but it doesn’t apply as directly here. On a nationwide basis hard costs (excluding developer profit margins) have increased in the last 10 years by a total of about 47%, or right at about 4% per year. That means that – on a nationwide basis – a $100,000 construction project in 1998 would have an equivalent cost of $148,000 today. So yeah, it’s more; but it’s not 100% or 200% more.

So where did all the other “costs” come from during the interim that caused these properties to double and triple in value? Profit margins. Not just at the developer level, but at every level. That includes the markup of the materials, the markup of the labor, the markup of the marketing and financing, and of course the increases in local development fees and permits.

And before someone starts talking about oil, that’s already included in the hard costs.

Now the increases in fees and permits will stay no matter what, ’cause that’s the nature of government. But all the other “gas” in those costs can and are being bled off as we speak. Land costs have already dropped by over half in some areas – I just saw an example of that last week. There’s lotsa room left in those costs to drop yet.

Once our local costs get back in line with the national costs then there’s no reason the $200,000 new home from 1996 won’t be equally profitable to build with a 2008-equivalent sale price of about ~$285,00o plus another $5k or so of additional fees that have come online since then.

BTW, in 1998 that 200k would have bought you a new home of about 2,000 SqFt in any of the towns along the Hwy-78 corridor and with 5% down your PITI payment with a 7% mortgage would have been about $1,500/month.

Whether the retail pricing on new homes in these size ranges will actually get to the $290k is a different question entirely, but from a COST basis it is certainly possible.

Those contractors just won’t be driving new 4×4 crew cab assault vehicles every year.

[kev374]

How is the cost of building a house in Texas that much different than building a house in Los Angeles? And if it’s not much different then how come they can sell brand new construction in Houston for $180k and here that same place is $650k. That cost argument doesn’t add up for SoCal being so high!

[surveyor]

Time

A house in Texas costs less because Texas does not have stringent land requirements like California. A subdivision in Texas will take a year from conception to finished construction. The same process in California not only costs more in fees and requirements and environmental studies, but it also takes FOUR to FIVE years.

I hope that answers your question.

edit: although I should note that this fact does not in any way justify current prices of houses…

[Bugs]

Most areas of Texas have hard costs that are about 10% below the national average, whereas most of Southern California (excluding coastal communities) have costs that are about 18% higher.

Part of the differences in costs are in these so-called indirect costs. Much of Texas is notoriously lenient on land planning issues, which is how you end up with oil refineries being located adjacent to residential subdivisions.

The entitlement process in California absolutely does add to the construction costs. And like I said before, those costs aren’t going away.

Part of that is due to the limitations of Prop 13. Since the local governments can’t significantly raise property taxes to pay for infrastucture it all has to be paid up front, either in the form of the additional fees that get rolled into the construction costs or in the form of Mello-Roos.

That’s why property tax rates in Texas (and other areas) are double what they are here. So while you only pay $200k for the house, you’re also paying $4,800/year in property taxes. That adds up after a while. $200/month in additional property taxes is equivalent to making an additional mortgage payment on another $30,000, so that right there makes your $200k home purchase in Texas the equivalent of a $230k home here in California.

Lastly, there’s also the workman comp premiums and other labor-related costs other than wages. Those aren’t going away either.

So yeah, there’s lots of good reasons why new construction in California will always be higher than in Texas. But there’s no real reason for it to be double or triple, and there never was. The only reason it was higher was because people were willing to pay more.

[jpinpb]

“The only reason it was higher was because people were willing to pay more.”

All back to teaser rates, allowing for low monthly payments for a year or two, just in time for you to flip and make $$$ be retired – or retarded if the plan doesn’t work.

[Deal Hunter]

I like that…

“teaser rates…[lead to being] retired or retarded!” LOL!

[cr]

I normally find Motley Fool reliable but in this instance I am reminded of David Lereah and Jim Cramer 2 years ago: ignorant, lying, and spreading propaganda.

I’d be less surprised if the fool was put up to this article by the NAR than if even one of their arguments held water.

It’s not ever worth refuting because the primary key to housing affordabililty is not once mentioned in that entire article.

[Bugs]

In appraising we often have occasion to use the following cliche:

Cost does not equal value.

Trite and overused, but true nonetheless. That’s where the MFs reasoning fails.

[Bugs]

In appraising we often have occasion to use the following cliche:

Cost does not equal value.

Trite and overused, but true nonetheless. That’s where the MFs reasoning fails.

[Bugs]

In appraising we often have occasion to use the following cliche:

Cost does not equal value.

Trite and overused, but true nonetheless. That’s where the MFs reasoning fails.

[Bugs]

In appraising we often have occasion to use the following cliche:

Cost does not equal value.

Trite and overused, but true nonetheless. That’s where the MFs reasoning fails.

[Bugs]

In appraising we often have occasion to use the following cliche:

Cost does not equal value.

Trite and overused, but true nonetheless. That’s where the MFs reasoning fails.

[JWM in SD]

JWM in SD

The fool seems to be very schizophrenic on this subject. Seth Jayson of the fool has written some of the most scathing articles about the RE market and the NAR in particular that i have seen on the net.

This seems very peculiar for them to run this story.

I just scanned Seth Jayson’s article archive by month for 07 and into 08. Negative RE stories almost each month in 07 and nothing going into 08.

Hmmmmmmmm

[kev374]

Yes, but those hard costs (and the weather tax) have always been higher than Texas which is why houses have always cost more in CA than in TX.

However, if the cost of construction has skyrocketed in the last 5 years and the author is saying that it is the reason homes are so expensive in CA, then by that same logic homes in Texas should have increased by that same ratio.

[patientlywaiting]

Kev374, I don’t remember exactly when but I believe that before WW2, house prices in California were about the same as Illinois.

[patientlywaiting]

Kev374, I don’t remember exactly when but I believe that before WW2, house prices in California were about the same as Illinois.

[patientlywaiting]

Kev374, I don’t remember exactly when but I believe that before WW2, house prices in California were about the same as Illinois.

[patientlywaiting]

Kev374, I don’t remember exactly when but I believe that before WW2, house prices in California were about the same as Illinois.

[patientlywaiting]

Kev374, I don’t remember exactly when but I believe that before WW2, house prices in California were about the same as Illinois.

[kev374]

Yes, but those hard costs (and the weather tax) have always been higher than Texas which is why houses have always cost more in CA than in TX.

However, if the cost of construction has skyrocketed in the last 5 years and the author is saying that it is the reason homes are so expensive in CA, then by that same logic homes in Texas should have increased by that same ratio.

[kev374]

Yes, but those hard costs (and the weather tax) have always been higher than Texas which is why houses have always cost more in CA than in TX.

However, if the cost of construction has skyrocketed in the last 5 years and the author is saying that it is the reason homes are so expensive in CA, then by that same logic homes in Texas should have increased by that same ratio.

[kev374]

Yes, but those hard costs (and the weather tax) have always been higher than Texas which is why houses have always cost more in CA than in TX.

However, if the cost of construction has skyrocketed in the last 5 years and the author is saying that it is the reason homes are so expensive in CA, then by that same logic homes in Texas should have increased by that same ratio.

[kev374]

Yes, but those hard costs (and the weather tax) have always been higher than Texas which is why houses have always cost more in CA than in TX.

However, if the cost of construction has skyrocketed in the last 5 years and the author is saying that it is the reason homes are so expensive in CA, then by that same logic homes in Texas should have increased by that same ratio.

[bearnanke]

Laurence got him. That or the ghost of David.

[bearnanke]

Laurence got him. That or the ghost of David.

[bearnanke]

Laurence got him. That or the ghost of David.

[bearnanke]

Laurence got him. That or the ghost of David.

[bearnanke]

Laurence got him. That or the ghost of David.

[JWM in SD]

JWM in SD

The fool seems to be very schizophrenic on this subject. Seth Jayson of the fool has written some of the most scathing articles about the RE market and the NAR in particular that i have seen on the net.

This seems very peculiar for them to run this story.

I just scanned Seth Jayson’s article archive by month for 07 and into 08. Negative RE stories almost each month in 07 and nothing going into 08.

Hmmmmmmmm

[JWM in SD]

JWM in SD

The fool seems to be very schizophrenic on this subject. Seth Jayson of the fool has written some of the most scathing articles about the RE market and the NAR in particular that i have seen on the net.

This seems very peculiar for them to run this story.

I just scanned Seth Jayson’s article archive by month for 07 and into 08. Negative RE stories almost each month in 07 and nothing going into 08.

Hmmmmmmmm

[JWM in SD]

JWM in SD

The fool seems to be very schizophrenic on this subject. Seth Jayson of the fool has written some of the most scathing articles about the RE market and the NAR in particular that i have seen on the net.

This seems very peculiar for them to run this story.

I just scanned Seth Jayson’s article archive by month for 07 and into 08. Negative RE stories almost each month in 07 and nothing going into 08.

Hmmmmmmmm

[JWM in SD]

JWM in SD

The fool seems to be very schizophrenic on this subject. Seth Jayson of the fool has written some of the most scathing articles about the RE market and the NAR in particular that i have seen on the net.

This seems very peculiar for them to run this story.

I just scanned Seth Jayson’s article archive by month for 07 and into 08. Negative RE stories almost each month in 07 and nothing going into 08.

Hmmmmmmmm

[cr]

I normally find Motley Fool reliable but in this instance I am reminded of David Lereah and Jim Cramer 2 years ago: ignorant, lying, and spreading propaganda.

I’d be less surprised if the fool was put up to this article by the NAR than if even one of their arguments held water.

It’s not ever worth refuting because the primary key to housing affordabililty is not once mentioned in that entire article.

[cr]

I normally find Motley Fool reliable but in this instance I am reminded of David Lereah and Jim Cramer 2 years ago: ignorant, lying, and spreading propaganda.

I’d be less surprised if the fool was put up to this article by the NAR than if even one of their arguments held water.

It’s not ever worth refuting because the primary key to housing affordabililty is not once mentioned in that entire article.

[cr]

I normally find Motley Fool reliable but in this instance I am reminded of David Lereah and Jim Cramer 2 years ago: ignorant, lying, and spreading propaganda.

I’d be less surprised if the fool was put up to this article by the NAR than if even one of their arguments held water.

It’s not ever worth refuting because the primary key to housing affordabililty is not once mentioned in that entire article.

[cr]

I normally find Motley Fool reliable but in this instance I am reminded of David Lereah and Jim Cramer 2 years ago: ignorant, lying, and spreading propaganda.

I’d be less surprised if the fool was put up to this article by the NAR than if even one of their arguments held water.

It’s not ever worth refuting because the primary key to housing affordabililty is not once mentioned in that entire article.

[Deal Hunter]

I like that…

“teaser rates…[lead to being] retired or retarded!” LOL!

[Deal Hunter]

I like that…

“teaser rates…[lead to being] retired or retarded!” LOL!

[Deal Hunter]

I like that…

“teaser rates…[lead to being] retired or retarded!” LOL!

[Deal Hunter]

I like that…

“teaser rates…[lead to being] retired or retarded!” LOL!

[jpinpb]

“The only reason it was higher was because people were willing to pay more.”

All back to teaser rates, allowing for low monthly payments for a year or two, just in time for you to flip and make $$$ be retired – or retarded if the plan doesn’t work.

[jpinpb]

“The only reason it was higher was because people were willing to pay more.”

All back to teaser rates, allowing for low monthly payments for a year or two, just in time for you to flip and make $$$ be retired – or retarded if the plan doesn’t work.

[jpinpb]

“The only reason it was higher was because people were willing to pay more.”

All back to teaser rates, allowing for low monthly payments for a year or two, just in time for you to flip and make $$$ be retired – or retarded if the plan doesn’t work.

[jpinpb]

“The only reason it was higher was because people were willing to pay more.”

All back to teaser rates, allowing for low monthly payments for a year or two, just in time for you to flip and make $$$ be retired – or retarded if the plan doesn’t work.

[Bugs]

Most areas of Texas have hard costs that are about 10% below the national average, whereas most of Southern California (excluding coastal communities) have costs that are about 18% higher.

Part of the differences in costs are in these so-called indirect costs. Much of Texas is notoriously lenient on land planning issues, which is how you end up with oil refineries being located adjacent to residential subdivisions.

The entitlement process in California absolutely does add to the construction costs. And like I said before, those costs aren’t going away.

Part of that is due to the limitations of Prop 13. Since the local governments can’t significantly raise property taxes to pay for infrastucture it all has to be paid up front, either in the form of the additional fees that get rolled into the construction costs or in the form of Mello-Roos.

That’s why property tax rates in Texas (and other areas) are double what they are here. So while you only pay $200k for the house, you’re also paying $4,800/year in property taxes. That adds up after a while. $200/month in additional property taxes is equivalent to making an additional mortgage payment on another $30,000, so that right there makes your $200k home purchase in Texas the equivalent of a $230k home here in California.

Lastly, there’s also the workman comp premiums and other labor-related costs other than wages. Those aren’t going away either.

So yeah, there’s lots of good reasons why new construction in California will always be higher than in Texas. But there’s no real reason for it to be double or triple, and there never was. The only reason it was higher was because people were willing to pay more.

[Bugs]

Most areas of Texas have hard costs that are about 10% below the national average, whereas most of Southern California (excluding coastal communities) have costs that are about 18% higher.

Part of the differences in costs are in these so-called indirect costs. Much of Texas is notoriously lenient on land planning issues, which is how you end up with oil refineries being located adjacent to residential subdivisions.

The entitlement process in California absolutely does add to the construction costs. And like I said before, those costs aren’t going away.

Part of that is due to the limitations of Prop 13. Since the local governments can’t significantly raise property taxes to pay for infrastucture it all has to be paid up front, either in the form of the additional fees that get rolled into the construction costs or in the form of Mello-Roos.

That’s why property tax rates in Texas (and other areas) are double what they are here. So while you only pay $200k for the house, you’re also paying $4,800/year in property taxes. That adds up after a while. $200/month in additional property taxes is equivalent to making an additional mortgage payment on another $30,000, so that right there makes your $200k home purchase in Texas the equivalent of a $230k home here in California.

Lastly, there’s also the workman comp premiums and other labor-related costs other than wages. Those aren’t going away either.

So yeah, there’s lots of good reasons why new construction in California will always be higher than in Texas. But there’s no real reason for it to be double or triple, and there never was. The only reason it was higher was because people were willing to pay more.

[Bugs]

Most areas of Texas have hard costs that are about 10% below the national average, whereas most of Southern California (excluding coastal communities) have costs that are about 18% higher.

Part of the differences in costs are in these so-called indirect costs. Much of Texas is notoriously lenient on land planning issues, which is how you end up with oil refineries being located adjacent to residential subdivisions.

The entitlement process in California absolutely does add to the construction costs. And like I said before, those costs aren’t going away.

Part of that is due to the limitations of Prop 13. Since the local governments can’t significantly raise property taxes to pay for infrastucture it all has to be paid up front, either in the form of the additional fees that get rolled into the construction costs or in the form of Mello-Roos.

That’s why property tax rates in Texas (and other areas) are double what they are here. So while you only pay $200k for the house, you’re also paying $4,800/year in property taxes. That adds up after a while. $200/month in additional property taxes is equivalent to making an additional mortgage payment on another $30,000, so that right there makes your $200k home purchase in Texas the equivalent of a $230k home here in California.

Lastly, there’s also the workman comp premiums and other labor-related costs other than wages. Those aren’t going away either.

So yeah, there’s lots of good reasons why new construction in California will always be higher than in Texas. But there’s no real reason for it to be double or triple, and there never was. The only reason it was higher was because people were willing to pay more.

[Bugs]

Most areas of Texas have hard costs that are about 10% below the national average, whereas most of Southern California (excluding coastal communities) have costs that are about 18% higher.

Part of the differences in costs are in these so-called indirect costs. Much of Texas is notoriously lenient on land planning issues, which is how you end up with oil refineries being located adjacent to residential subdivisions.

The entitlement process in California absolutely does add to the construction costs. And like I said before, those costs aren’t going away.

Part of that is due to the limitations of Prop 13. Since the local governments can’t significantly raise property taxes to pay for infrastucture it all has to be paid up front, either in the form of the additional fees that get rolled into the construction costs or in the form of Mello-Roos.

That’s why property tax rates in Texas (and other areas) are double what they are here. So while you only pay $200k for the house, you’re also paying $4,800/year in property taxes. That adds up after a while. $200/month in additional property taxes is equivalent to making an additional mortgage payment on another $30,000, so that right there makes your $200k home purchase in Texas the equivalent of a $230k home here in California.

Lastly, there’s also the workman comp premiums and other labor-related costs other than wages. Those aren’t going away either.

So yeah, there’s lots of good reasons why new construction in California will always be higher than in Texas. But there’s no real reason for it to be double or triple, and there never was. The only reason it was higher was because people were willing to pay more.

[surveyor]

Time

A house in Texas costs less because Texas does not have stringent land requirements like California. A subdivision in Texas will take a year from conception to finished construction. The same process in California not only costs more in fees and requirements and environmental studies, but it also takes FOUR to FIVE years.

I hope that answers your question.

edit: although I should note that this fact does not in any way justify current prices of houses…

[surveyor]

Time

A house in Texas costs less because Texas does not have stringent land requirements like California. A subdivision in Texas will take a year from conception to finished construction. The same process in California not only costs more in fees and requirements and environmental studies, but it also takes FOUR to FIVE years.

I hope that answers your question.

edit: although I should note that this fact does not in any way justify current prices of houses…

[surveyor]

Time

A house in Texas costs less because Texas does not have stringent land requirements like California. A subdivision in Texas will take a year from conception to finished construction. The same process in California not only costs more in fees and requirements and environmental studies, but it also takes FOUR to FIVE years.

I hope that answers your question.

edit: although I should note that this fact does not in any way justify current prices of houses…

[surveyor]

Time

A house in Texas costs less because Texas does not have stringent land requirements like California. A subdivision in Texas will take a year from conception to finished construction. The same process in California not only costs more in fees and requirements and environmental studies, but it also takes FOUR to FIVE years.

I hope that answers your question.

edit: although I should note that this fact does not in any way justify current prices of houses…

[kev374]

How is the cost of building a house in Texas that much different than building a house in Los Angeles? And if it’s not much different then how come they can sell brand new construction in Houston for $180k and here that same place is $650k. That cost argument doesn’t add up for SoCal being so high!

[kev374]

How is the cost of building a house in Texas that much different than building a house in Los Angeles? And if it’s not much different then how come they can sell brand new construction in Houston for $180k and here that same place is $650k. That cost argument doesn’t add up for SoCal being so high!

[kev374]

How is the cost of building a house in Texas that much different than building a house in Los Angeles? And if it’s not much different then how come they can sell brand new construction in Houston for $180k and here that same place is $650k. That cost argument doesn’t add up for SoCal being so high!

[kev374]

How is the cost of building a house in Texas that much different than building a house in Los Angeles? And if it’s not much different then how come they can sell brand new construction in Houston for $180k and here that same place is $650k. That cost argument doesn’t add up for SoCal being so high!

[Bugs]

His argument seems to be based mostly on costs. Nationwide and in the average this might make some sense but it doesn’t apply as directly here. On a nationwide basis hard costs (excluding developer profit margins) have increased in the last 10 years by a total of about 47%, or right at about 4% per year. That means that – on a nationwide basis – a $100,000 construction project in 1998 would have an equivalent cost of $148,000 today. So yeah, it’s more; but it’s not 100% or 200% more.

So where did all the other “costs” come from during the interim that caused these properties to double and triple in value? Profit margins. Not just at the developer level, but at every level. That includes the markup of the materials, the markup of the labor, the markup of the marketing and financing, and of course the increases in local development fees and permits.

And before someone starts talking about oil, that’s already included in the hard costs.

Now the increases in fees and permits will stay no matter what, ’cause that’s the nature of government. But all the other “gas” in those costs can and are being bled off as we speak. Land costs have already dropped by over half in some areas – I just saw an example of that last week. There’s lotsa room left in those costs to drop yet.

Once our local costs get back in line with the national costs then there’s no reason the $200,000 new home from 1996 won’t be equally profitable to build with a 2008-equivalent sale price of about ~$285,00o plus another $5k or so of additional fees that have come online since then.

BTW, in 1998 that 200k would have bought you a new home of about 2,000 SqFt in any of the towns along the Hwy-78 corridor and with 5% down your PITI payment with a 7% mortgage would have been about $1,500/month.

Whether the retail pricing on new homes in these size ranges will actually get to the $290k is a different question entirely, but from a COST basis it is certainly possible.

Those contractors just won’t be driving new 4×4 crew cab assault vehicles every year.

[Bugs]

His argument seems to be based mostly on costs. Nationwide and in the average this might make some sense but it doesn’t apply as directly here. On a nationwide basis hard costs (excluding developer profit margins) have increased in the last 10 years by a total of about 47%, or right at about 4% per year. That means that – on a nationwide basis – a $100,000 construction project in 1998 would have an equivalent cost of $148,000 today. So yeah, it’s more; but it’s not 100% or 200% more.

So where did all the other “costs” come from during the interim that caused these properties to double and triple in value? Profit margins. Not just at the developer level, but at every level. That includes the markup of the materials, the markup of the labor, the markup of the marketing and financing, and of course the increases in local development fees and permits.

And before someone starts talking about oil, that’s already included in the hard costs.

Now the increases in fees and permits will stay no matter what, ’cause that’s the nature of government. But all the other “gas” in those costs can and are being bled off as we speak. Land costs have already dropped by over half in some areas – I just saw an example of that last week. There’s lotsa room left in those costs to drop yet.

Once our local costs get back in line with the national costs then there’s no reason the $200,000 new home from 1996 won’t be equally profitable to build with a 2008-equivalent sale price of about ~$285,00o plus another $5k or so of additional fees that have come online since then.

BTW, in 1998 that 200k would have bought you a new home of about 2,000 SqFt in any of the towns along the Hwy-78 corridor and with 5% down your PITI payment with a 7% mortgage would have been about $1,500/month.

Whether the retail pricing on new homes in these size ranges will actually get to the $290k is a different question entirely, but from a COST basis it is certainly possible.

Those contractors just won’t be driving new 4×4 crew cab assault vehicles every year.

[Bugs]

His argument seems to be based mostly on costs. Nationwide and in the average this might make some sense but it doesn’t apply as directly here. On a nationwide basis hard costs (excluding developer profit margins) have increased in the last 10 years by a total of about 47%, or right at about 4% per year. That means that – on a nationwide basis – a $100,000 construction project in 1998 would have an equivalent cost of $148,000 today. So yeah, it’s more; but it’s not 100% or 200% more.

So where did all the other “costs” come from during the interim that caused these properties to double and triple in value? Profit margins. Not just at the developer level, but at every level. That includes the markup of the materials, the markup of the labor, the markup of the marketing and financing, and of course the increases in local development fees and permits.

And before someone starts talking about oil, that’s already included in the hard costs.

Now the increases in fees and permits will stay no matter what, ’cause that’s the nature of government. But all the other “gas” in those costs can and are being bled off as we speak. Land costs have already dropped by over half in some areas – I just saw an example of that last week. There’s lotsa room left in those costs to drop yet.

Once our local costs get back in line with the national costs then there’s no reason the $200,000 new home from 1996 won’t be equally profitable to build with a 2008-equivalent sale price of about ~$285,00o plus another $5k or so of additional fees that have come online since then.

BTW, in 1998 that 200k would have bought you a new home of about 2,000 SqFt in any of the towns along the Hwy-78 corridor and with 5% down your PITI payment with a 7% mortgage would have been about $1,500/month.

Whether the retail pricing on new homes in these size ranges will actually get to the $290k is a different question entirely, but from a COST basis it is certainly possible.

Those contractors just won’t be driving new 4×4 crew cab assault vehicles every year.

[Bugs]

His argument seems to be based mostly on costs. Nationwide and in the average this might make some sense but it doesn’t apply as directly here. On a nationwide basis hard costs (excluding developer profit margins) have increased in the last 10 years by a total of about 47%, or right at about 4% per year. That means that – on a nationwide basis – a $100,000 construction project in 1998 would have an equivalent cost of $148,000 today. So yeah, it’s more; but it’s not 100% or 200% more.

So where did all the other “costs” come from during the interim that caused these properties to double and triple in value? Profit margins. Not just at the developer level, but at every level. That includes the markup of the materials, the markup of the labor, the markup of the marketing and financing, and of course the increases in local development fees and permits.

And before someone starts talking about oil, that’s already included in the hard costs.

Now the increases in fees and permits will stay no matter what, ’cause that’s the nature of government. But all the other “gas” in those costs can and are being bled off as we speak. Land costs have already dropped by over half in some areas – I just saw an example of that last week. There’s lotsa room left in those costs to drop yet.

Once our local costs get back in line with the national costs then there’s no reason the $200,000 new home from 1996 won’t be equally profitable to build with a 2008-equivalent sale price of about ~$285,00o plus another $5k or so of additional fees that have come online since then.

BTW, in 1998 that 200k would have bought you a new home of about 2,000 SqFt in any of the towns along the Hwy-78 corridor and with 5% down your PITI payment with a 7% mortgage would have been about $1,500/month.

Whether the retail pricing on new homes in these size ranges will actually get to the $290k is a different question entirely, but from a COST basis it is certainly possible.

Those contractors just won’t be driving new 4×4 crew cab assault vehicles every year.

[Anonymous]

I think Motley Fool is one of least useful analysis sites out there. They were eternally bullish and always justifying tech stock prices back in 1999 by using “it’s different now” analysis, and it seems they are still that way – now with houses.

[Anonymous]

I think Motley Fool is one of least useful analysis sites out there. They were eternally bullish and always justifying tech stock prices back in 1999 by using “it’s different now” analysis, and it seems they are still that way – now with houses.

[Anonymous]

I think Motley Fool is one of least useful analysis sites out there. They were eternally bullish and always justifying tech stock prices back in 1999 by using “it’s different now” analysis, and it seems they are still that way – now with houses.

[Anonymous]

I think Motley Fool is one of least useful analysis sites out there. They were eternally bullish and always justifying tech stock prices back in 1999 by using “it’s different now” analysis, and it seems they are still that way – now with houses.

[Anonymous]

I think Motley Fool is one of least useful analysis sites out there. They were eternally bullish and always justifying tech stock prices back in 1999 by using “it’s different now” analysis, and it seems they are still that way – now with houses.

[DWCAP]

Patientlywaiting,

It wasnt that long ago. My parents bought houses in Santa Barbara CA for about 70k in the early 70’s. The median in Indiana at that time was about 76k from what I can find. Now those same houses appraise out at 1.2-1.4 mil, while the same houses in Indiana appraise out at what mid 200k? Sure am glad my parents bought out here.

[DWCAP]

Patientlywaiting,

It wasnt that long ago. My parents bought houses in Santa Barbara CA for about 70k in the early 70’s. The median in Indiana at that time was about 76k from what I can find. Now those same houses appraise out at 1.2-1.4 mil, while the same houses in Indiana appraise out at what mid 200k? Sure am glad my parents bought out here.

[DWCAP]

Patientlywaiting,

It wasnt that long ago. My parents bought houses in Santa Barbara CA for about 70k in the early 70’s. The median in Indiana at that time was about 76k from what I can find. Now those same houses appraise out at 1.2-1.4 mil, while the same houses in Indiana appraise out at what mid 200k? Sure am glad my parents bought out here.

[DWCAP]

Patientlywaiting,

It wasnt that long ago. My parents bought houses in Santa Barbara CA for about 70k in the early 70’s. The median in Indiana at that time was about 76k from what I can find. Now those same houses appraise out at 1.2-1.4 mil, while the same houses in Indiana appraise out at what mid 200k? Sure am glad my parents bought out here.

[DWCAP]

Patientlywaiting,

It wasnt that long ago. My parents bought houses in Santa Barbara CA for about 70k in the early 70’s. The median in Indiana at that time was about 76k from what I can find. Now those same houses appraise out at 1.2-1.4 mil, while the same houses in Indiana appraise out at what mid 200k? Sure am glad my parents bought out here.

[DWCAP]

Forgot to add,

I dont think we’ll see appreciation like that ever again. How could we? In my home town median income is something like 45k and median house prices are 1.1 million. And we think San Diego is screwy….

[DWCAP]

Forgot to add,

I dont think we’ll see appreciation like that ever again. How could we? In my home town median income is something like 45k and median house prices are 1.1 million. And we think San Diego is screwy….

[DWCAP]

Forgot to add,

I dont think we’ll see appreciation like that ever again. How could we? In my home town median income is something like 45k and median house prices are 1.1 million. And we think San Diego is screwy….

[DWCAP]

Forgot to add,

I dont think we’ll see appreciation like that ever again. How could we? In my home town median income is something like 45k and median house prices are 1.1 million. And we think San Diego is screwy….

[DWCAP]

Forgot to add,

I dont think we’ll see appreciation like that ever again. How could we? In my home town median income is something like 45k and median house prices are 1.1 million. And we think San Diego is screwy….

[Author]

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