The best article about housing in ages…

[djrobsd]

Finally, the news media comes up with a story that’s true…

http://finance.yahoo.com/real-estate/article/103872/Real-Estate:-Buy,-Sell,-or-Hold;_ylt=AoYhL5ognSwCfrwaIJ3.KbC7YWsA

Here’s the gist…

“Take a deep breath. We can’t tell you what your house would fetch tomorrow. But we can help you through the fog of whipsawing prices and vacillating views to develop a clear picture of what your house will most likely be worth in five years or so. Over long periods housing, like stocks and bonds, follows a set of economic fundamentals. No matter how far prices get unhinged in a speculative craze – and we’ve just witnessed a blowout – those basic forces eventually regain their grip.

Many factors determine the value of a house. A family would consider the quality of local schools, the number of bedrooms, the size of the yard. Economists assessing a region look at interest rates, employment, and population growth. But over time the most reliable guide to home values is rents.”

[djrobsd]

I should have further elaborated before clicking the post button…

They say to bring housing in line with the price/rent ratio, San Diego needs to drop 34%. I would say, they are dead on with that number. My house rents for only $1650, but I paid $345,000 for it, a 34% drop would bring it down to $227,000, and even with 100% financing, that makes the payment much closer to the rent, @ 7% mortgage would be $1324 a month, plus $208 in property taxes, $131 in HOA, makes it almost dead on with the rent I’m collecting right now. On the other hand, they are assuming in this article that interest rates won’t go back up to their original levels back in the 80s and 90s. 😉 If they go back up, the price correction would have to be MUCH higher.

[djrobsd]

I should have further elaborated before clicking the post button…

They say to bring housing in line with the price/rent ratio, San Diego needs to drop 34%. I would say, they are dead on with that number. My house rents for only $1650, but I paid $345,000 for it, a 34% drop would bring it down to $227,000, and even with 100% financing, that makes the payment much closer to the rent, @ 7% mortgage would be $1324 a month, plus $208 in property taxes, $131 in HOA, makes it almost dead on with the rent I’m collecting right now. On the other hand, they are assuming in this article that interest rates won’t go back up to their original levels back in the 80s and 90s. 😉 If they go back up, the price correction would have to be MUCH higher.

[djrobsd]

I should have further elaborated before clicking the post button…

They say to bring housing in line with the price/rent ratio, San Diego needs to drop 34%. I would say, they are dead on with that number. My house rents for only $1650, but I paid $345,000 for it, a 34% drop would bring it down to $227,000, and even with 100% financing, that makes the payment much closer to the rent, @ 7% mortgage would be $1324 a month, plus $208 in property taxes, $131 in HOA, makes it almost dead on with the rent I’m collecting right now. On the other hand, they are assuming in this article that interest rates won’t go back up to their original levels back in the 80s and 90s. 😉 If they go back up, the price correction would have to be MUCH higher.

[djrobsd]

I should have further elaborated before clicking the post button…

They say to bring housing in line with the price/rent ratio, San Diego needs to drop 34%. I would say, they are dead on with that number. My house rents for only $1650, but I paid $345,000 for it, a 34% drop would bring it down to $227,000, and even with 100% financing, that makes the payment much closer to the rent, @ 7% mortgage would be $1324 a month, plus $208 in property taxes, $131 in HOA, makes it almost dead on with the rent I’m collecting right now. On the other hand, they are assuming in this article that interest rates won’t go back up to their original levels back in the 80s and 90s. 😉 If they go back up, the price correction would have to be MUCH higher.

[djrobsd]

I should have further elaborated before clicking the post button…

They say to bring housing in line with the price/rent ratio, San Diego needs to drop 34%. I would say, they are dead on with that number. My house rents for only $1650, but I paid $345,000 for it, a 34% drop would bring it down to $227,000, and even with 100% financing, that makes the payment much closer to the rent, @ 7% mortgage would be $1324 a month, plus $208 in property taxes, $131 in HOA, makes it almost dead on with the rent I’m collecting right now. On the other hand, they are assuming in this article that interest rates won’t go back up to their original levels back in the 80s and 90s. 😉 If they go back up, the price correction would have to be MUCH higher.

[robson]

That 34% correction is composed of a 10% increase in rents and a 24% decrease in home values. As far as interest rates, they say “Today average real rates for all mortgages, fixed and adjustable, stand at 4.7% (adjusted for inflation), which is roughly in line with the long-term average.” I wonder just how “rough” that average is, and why they would think it would trend below the average, rise back up to the average and then simply stop.

[robson]

That 34% correction is composed of a 10% increase in rents and a 24% decrease in home values. As far as interest rates, they say “Today average real rates for all mortgages, fixed and adjustable, stand at 4.7% (adjusted for inflation), which is roughly in line with the long-term average.” I wonder just how “rough” that average is, and why they would think it would trend below the average, rise back up to the average and then simply stop.

[robson]

That 34% correction is composed of a 10% increase in rents and a 24% decrease in home values. As far as interest rates, they say “Today average real rates for all mortgages, fixed and adjustable, stand at 4.7% (adjusted for inflation), which is roughly in line with the long-term average.” I wonder just how “rough” that average is, and why they would think it would trend below the average, rise back up to the average and then simply stop.

[robson]

That 34% correction is composed of a 10% increase in rents and a 24% decrease in home values. As far as interest rates, they say “Today average real rates for all mortgages, fixed and adjustable, stand at 4.7% (adjusted for inflation), which is roughly in line with the long-term average.” I wonder just how “rough” that average is, and why they would think it would trend below the average, rise back up to the average and then simply stop.

[robson]

That 34% correction is composed of a 10% increase in rents and a 24% decrease in home values. As far as interest rates, they say “Today average real rates for all mortgages, fixed and adjustable, stand at 4.7% (adjusted for inflation), which is roughly in line with the long-term average.” I wonder just how “rough” that average is, and why they would think it would trend below the average, rise back up to the average and then simply stop.

[robson]

1 other thing i noticed was the longterm p/r they cite is a 15 year average. i imagine this graph to look a lot like Rich’s price/income graphs in “evidence of a housing bubble.” A 15 year average captures 1 cycle of p/r downswing and upswing successfully, however, in the case of the last 15 years it captures a normal downswing (92-98, 05-07) and an enormous upswing (98-05). Therefore, the “longterm” p/r of the last 15 years is higher than the actual longterm p/r of say, the last 45 years. This means the needed 34% correction is probably a bit higher.

[robson]

1 other thing i noticed was the longterm p/r they cite is a 15 year average. i imagine this graph to look a lot like Rich’s price/income graphs in “evidence of a housing bubble.” A 15 year average captures 1 cycle of p/r downswing and upswing successfully, however, in the case of the last 15 years it captures a normal downswing (92-98, 05-07) and an enormous upswing (98-05). Therefore, the “longterm” p/r of the last 15 years is higher than the actual longterm p/r of say, the last 45 years. This means the needed 34% correction is probably a bit higher.

[robson]

1 other thing i noticed was the longterm p/r they cite is a 15 year average. i imagine this graph to look a lot like Rich’s price/income graphs in “evidence of a housing bubble.” A 15 year average captures 1 cycle of p/r downswing and upswing successfully, however, in the case of the last 15 years it captures a normal downswing (92-98, 05-07) and an enormous upswing (98-05). Therefore, the “longterm” p/r of the last 15 years is higher than the actual longterm p/r of say, the last 45 years. This means the needed 34% correction is probably a bit higher.

[robson]

1 other thing i noticed was the longterm p/r they cite is a 15 year average. i imagine this graph to look a lot like Rich’s price/income graphs in “evidence of a housing bubble.” A 15 year average captures 1 cycle of p/r downswing and upswing successfully, however, in the case of the last 15 years it captures a normal downswing (92-98, 05-07) and an enormous upswing (98-05). Therefore, the “longterm” p/r of the last 15 years is higher than the actual longterm p/r of say, the last 45 years. This means the needed 34% correction is probably a bit higher.

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