Missing Research Document on Long Term Appreciation Premium

[patientrenter]

“it does not attempt to explain the cyclical changes in the 7-10 year cycle in which we are currently experiencing a decline. If the thesis holds true, we should see a higher bottom than last time for these areas.”

I agree. It’s a very interesting article. It makes me more confident that we’re seeing a normal up and now down real estate cycle superimposed on underlying growth in the best “superstar” areas that’s a little higher than the average for the country/world.

It fits with what’s happening in the market. Although the trigger is a credit squeeze hitting the low end, that’s just a withdrawal of unsupportable demand at the low end, bringing it closer to the long term national average in price appreciation. If that’s true, then expect more big price drops there.

At the top end, prices will be affected some by the credit squeeze and contagious psychology of a downturn, like in any normal cycle. But in the very best areas, barring external shocks, the impact might be modest. [Some people get very offended when I share my personal guess that some prices might not decrease a very large amount, so for them, I am saying here that all prices will drop by at least 50%.]

Patient renter in OC

[patientrenter]

“it does not attempt to explain the cyclical changes in the 7-10 year cycle in which we are currently experiencing a decline. If the thesis holds true, we should see a higher bottom than last time for these areas.”

I agree. It’s a very interesting article. It makes me more confident that we’re seeing a normal up and now down real estate cycle superimposed on underlying growth in the best “superstar” areas that’s a little higher than the average for the country/world.

It fits with what’s happening in the market. Although the trigger is a credit squeeze hitting the low end, that’s just a withdrawal of unsupportable demand at the low end, bringing it closer to the long term national average in price appreciation. If that’s true, then expect more big price drops there.

At the top end, prices will be affected some by the credit squeeze and contagious psychology of a downturn, like in any normal cycle. But in the very best areas, barring external shocks, the impact might be modest. [Some people get very offended when I share my personal guess that some prices might not decrease a very large amount, so for them, I am saying here that all prices will drop by at least 50%.]

Patient renter in OC

[(former)FormerSanDiegan]

patientrenter – Well said. I tend to agree, with a minor twist. I do think the premium areas will get hit nearly as hard as other areas, but they will be impacted for a shorter time. Last areas down… first areas up. Therefore the impact of this downturn in these most desirable areas will be less.

[(former)FormerSanDiegan]

patientrenter – Well said. I tend to agree, with a minor twist. I do think the premium areas will get hit nearly as hard as other areas, but they will be impacted for a shorter time. Last areas down… first areas up. Therefore the impact of this downturn in these most desirable areas will be less.

[patientrenter]

I sure hope you’re right, FormerSanDiegan. If I have to buy in a (sorta) crappy area that I can afford, I will. But I have a little hope in the back of my head, which I try not to get too fixated on, that something better will also become affordable during a brief irrational window of opportunity. If too many of us get smart about the long term trends, that’s less likely to happen. If we were totally smart and selfish, we would ‘go quiet’, but I’m not smart enough to do that.

Patient renter in OC

[patientrenter]

I sure hope you’re right, FormerSanDiegan. If I have to buy in a (sorta) crappy area that I can afford, I will. But I have a little hope in the back of my head, which I try not to get too fixated on, that something better will also become affordable during a brief irrational window of opportunity. If too many of us get smart about the long term trends, that’s less likely to happen. If we were totally smart and selfish, we would ‘go quiet’, but I’m not smart enough to do that.

Patient renter in OC

[youngster]

Buy Now! Your return on the most expensive houses will be outrageous!!

Larger price appreciation means more room to drop. I consider the higher housing to rent prices to be an ownership bubble that will likely pop in depression. The unaffordability in these “superstar” cities has recently been causing people to take their money out of the areas rather than an influx. While the rich are getting richer, there are increasing fewer of them, so ultimately only the top property will show extreme appreciation.

I think the high end will fall the hardest, just as high end economic markets suffer the worst in recessions.

[youngster]

Buy Now! Your return on the most expensive houses will be outrageous!!

Larger price appreciation means more room to drop. I consider the higher housing to rent prices to be an ownership bubble that will likely pop in depression. The unaffordability in these “superstar” cities has recently been causing people to take their money out of the areas rather than an influx. While the rich are getting richer, there are increasing fewer of them, so ultimately only the top property will show extreme appreciation.

I think the high end will fall the hardest, just as high end economic markets suffer the worst in recessions.

[patientrenter]

youngster, no one intended to leave an impression that prices for what you plan to buy won’t drop a lot. I hope that you will buy your future home at a 50%+ discount off today’s prices.

But if I were planning to buy a beach house in Corona del Mar, I just wouldn’t count that 50%+ drop before it happens. If wealthy people get whacked by a big drop in stock prices, or a deep recession, then it could happen, but probably not if it’s just a credit contraction.

Patient renter in OC

[patientrenter]

youngster, no one intended to leave an impression that prices for what you plan to buy won’t drop a lot. I hope that you will buy your future home at a 50%+ discount off today’s prices.

But if I were planning to buy a beach house in Corona del Mar, I just wouldn’t count that 50%+ drop before it happens. If wealthy people get whacked by a big drop in stock prices, or a deep recession, then it could happen, but probably not if it’s just a credit contraction.

Patient renter in OC

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