The NAR is a complete joke…

[Bugs]

I believe what you meant to say is that the EFFECTIVE demand creeps up. As the prices come down, a larger percentage of the population can afford to satisfy their desire to buy. I wouldn’t expect this region to ever get to 40% affordability, but there’s no reason it can’t get to 30% or more. Especially when considering that nationwide it’s usually over 60%.

—————

The NAR position that buyer psychology is the problem is hilarious. I never heard them complain about the psychology when they were feverishly stoking it to run the prices up. Buyer psychology IS one of the economic fundamentals. It built this house of cards in the first place and as it reverses it will dismantle that house just as quickly.

A couple of you guys are flirting with making the same mistake I made back in the 1990s. I thought then that enough people had gotten burned badly enough by the last bust that they’d remember their lesson and refrain from doing it again. Now I know better. Individuals may be smart, but PEOPLE are as dumb as a bag of rocks and have a memory span that’s only half as long.

It’ll happen again. The question is when will it happen and how bad will it be next time.

[HLS]

Ignorance is Bliss…

This is the foundation of the “greater fool theory” in any market of any product. I have a background in other volatile markets, which many people haven’t been exposed to.

With ANY product,
What is popular, hot or in demand at any point in time, has absolutely no bearing on where the future price will be.
Some people think that it can only drop XX%. That’s nonsense.
Could the housing prices drop 90% ? yes they “could”… but they won’t, because you and I and many others will step in at a level that makes sense to us, based on a return that we anticipate.

Where are the genius investors from 2-3 years ago ? Prices are cheaper now, they should be lining up and camping out.
What happened at the seminars that they attended ??

What you cannot lose sight of is that about 80%-90% (maybe more)of the local population isn’t affected by the drop in housing prices, other than a drop on paper, in net worth.

Many people have mortgages of 50% or less of today’s reduced values. They bought over 5 years ago and are quite happy with where they live.

There have been millions of dollars already received through investments, inheritance etc. Plenty of people are OK financially. Many baby boomers will be receiving inheritances beyond their wild dreams of 20-30 years ago.

I don’t think that ANYBODY expected a 300%+ rise in local property after 1996. The bottom line is that millions of people got very lucky, for one reason or another.

Our local market will probably never get back to a level that I would want to buy rentals. That’s OK with me. There are plenty of other areas that do make sense from a cash flow standpoint.

You seem to be looking for a logical answer, which I gave up on long ago. Many people have rentals today with a pile of equity, and they don’t need the cash. I spoke to one who gets $2200 a month on a home worth $600k today. He bought it over 30 years ago.

In his mind, he’s getting $26,000 a year (less maintenance etc) for nothing. He doesn’t care if the house is $400k or $800k.

You and I might say that on a $600K asset, he could get over $30K without any risk or tenant hassles, in cash, HOWEVER tax consequences keep it from truly being $600k.

He’s a happy camper. There are thousands like him. Of course nobody lives forever, so the property will get passed on to the next generation or sold by the heirs.

I would never buy a property expecting appreciation. I’d want it to pencil out, including a return on my investment, from day one, and have any appreciation be a bonus.

A big trigger for me a few years ago was the realization that probably 80%+ of those living in Southern CA could not afford to buy the home that they were living in, and that continued to worsen. I think that there is something VERY wrong with that, but it’s true in many parts of the world.

You get zero return on equity that is tied up, and most people don’t care, including me.

I think that the underlying force supporting prices is ignorance, not education. It’s easy to do something silly and profit from it when there are more just like you behind you, willing to pay more than you did, whether it makes sense or not.

It’s why I call it the greater fool theory, and in my opinion it’s also what has propelled the stock market to new highs. It could last many more years, it doesn’t have to stop yet.

(Sorry for the long post)

[HLS]

Ignorance is Bliss…

This is the foundation of the “greater fool theory” in any market of any product. I have a background in other volatile markets, which many people haven’t been exposed to.

With ANY product,
What is popular, hot or in demand at any point in time, has absolutely no bearing on where the future price will be.
Some people think that it can only drop XX%. That’s nonsense.
Could the housing prices drop 90% ? yes they “could”… but they won’t, because you and I and many others will step in at a level that makes sense to us, based on a return that we anticipate.

Where are the genius investors from 2-3 years ago ? Prices are cheaper now, they should be lining up and camping out.
What happened at the seminars that they attended ??

What you cannot lose sight of is that about 80%-90% (maybe more)of the local population isn’t affected by the drop in housing prices, other than a drop on paper, in net worth.

Many people have mortgages of 50% or less of today’s reduced values. They bought over 5 years ago and are quite happy with where they live.

There have been millions of dollars already received through investments, inheritance etc. Plenty of people are OK financially. Many baby boomers will be receiving inheritances beyond their wild dreams of 20-30 years ago.

I don’t think that ANYBODY expected a 300%+ rise in local property after 1996. The bottom line is that millions of people got very lucky, for one reason or another.

Our local market will probably never get back to a level that I would want to buy rentals. That’s OK with me. There are plenty of other areas that do make sense from a cash flow standpoint.

You seem to be looking for a logical answer, which I gave up on long ago. Many people have rentals today with a pile of equity, and they don’t need the cash. I spoke to one who gets $2200 a month on a home worth $600k today. He bought it over 30 years ago.

In his mind, he’s getting $26,000 a year (less maintenance etc) for nothing. He doesn’t care if the house is $400k or $800k.

You and I might say that on a $600K asset, he could get over $30K without any risk or tenant hassles, in cash, HOWEVER tax consequences keep it from truly being $600k.

He’s a happy camper. There are thousands like him. Of course nobody lives forever, so the property will get passed on to the next generation or sold by the heirs.

I would never buy a property expecting appreciation. I’d want it to pencil out, including a return on my investment, from day one, and have any appreciation be a bonus.

A big trigger for me a few years ago was the realization that probably 80%+ of those living in Southern CA could not afford to buy the home that they were living in, and that continued to worsen. I think that there is something VERY wrong with that, but it’s true in many parts of the world.

You get zero return on equity that is tied up, and most people don’t care, including me.

I think that the underlying force supporting prices is ignorance, not education. It’s easy to do something silly and profit from it when there are more just like you behind you, willing to pay more than you did, whether it makes sense or not.

It’s why I call it the greater fool theory, and in my opinion it’s also what has propelled the stock market to new highs. It could last many more years, it doesn’t have to stop yet.

(Sorry for the long post)

[JWM in SD]

“It could last many more years, it doesn’t have to stop yet.”

Here’s where I diverge with your assertions. It will stop because the institutions lending the money to those greater fools do need to be worried about ROI and that is exactly what is happening right now.

[JWM in SD]

“It could last many more years, it doesn’t have to stop yet.”

Here’s where I diverge with your assertions. It will stop because the institutions lending the money to those greater fools do need to be worried about ROI and that is exactly what is happening right now.

[Arraya]

“FYI, for my house to get back to rental range it would have to get down to the purchase price a decade ago net of installing landscaping, appliances, window treatments etc and rates would have to be around 5.5% and you would need to put down more than 25%.
Good luck on that one.”

Are you bragging about you house being in a great area or are you trying to say I don’t know what I am talking about?

I guess it depends where you are looking….

Here is a house from my area that I picked at random. This would rent for above $2500

http://www.sdlookup.com/Property-4B35E3C4-1111_Washington_Pl_San_Diego_CA_92103

If prices drop 30% and I put 20% down @ 6.25 I’m right there…

Like I said I don’t see it being to far off in some areas. La jolla etc… that is a different story.

FYI…if you track that place back a decade and put 25% down you would be at ove 1K positive cash flow. I don’t see that happening either..

[Arraya]

“FYI, for my house to get back to rental range it would have to get down to the purchase price a decade ago net of installing landscaping, appliances, window treatments etc and rates would have to be around 5.5% and you would need to put down more than 25%.
Good luck on that one.”

Are you bragging about you house being in a great area or are you trying to say I don’t know what I am talking about?

I guess it depends where you are looking….

Here is a house from my area that I picked at random. This would rent for above $2500

http://www.sdlookup.com/Property-4B35E3C4-1111_Washington_Pl_San_Diego_CA_92103

If prices drop 30% and I put 20% down @ 6.25 I’m right there…

Like I said I don’t see it being to far off in some areas. La jolla etc… that is a different story.

FYI…if you track that place back a decade and put 25% down you would be at ove 1K positive cash flow. I don’t see that happening either..

[temeculaguy]

The greater fool theory is what caused the bubble but the same ignorant sheeple will cause it collapse. A portion won’t be allowed to line up because of their credit score and income. Another group won’t be able to line up because they lack a down payment. Future landlords won’t line up because it doesn’t pencil out. Speculators/flippers won’t line up because they don’t expect appreciation. High paying jobs are not being created and all demographic studies on migration indicate a flight of high earners and an influx of low wage/low skilled people. Some that could buy before, now can’t and some that would buy before won’t and there’s no new demographic on the horizon to save the day. Yes, your friend has a cash positive rental and he won’t be ruined if his property falls to 400k, when the tide goes out he will have a bathing suit on but not everyone will and they will drag him down just like they dragged him up. Baby boomers inheriting money cannot be counted on as a large enough group to keep things status quo. The ignorant sheeple have changed their mindset and they won’t change back for a few years (the wise investor beats them to it), the watercooler talk has switched from how much money your co-worker made in r/e to who’s in foreclosure, there’s no stopping the invisible hand of economics.

Another poster has said before that as soon as Time magazine puts a picture of a foreclosure on the cover and declares that real estate is dead, that’s when he will buy, more and more I am subscribing to that theory.

[temeculaguy]

The greater fool theory is what caused the bubble but the same ignorant sheeple will cause it collapse. A portion won’t be allowed to line up because of their credit score and income. Another group won’t be able to line up because they lack a down payment. Future landlords won’t line up because it doesn’t pencil out. Speculators/flippers won’t line up because they don’t expect appreciation. High paying jobs are not being created and all demographic studies on migration indicate a flight of high earners and an influx of low wage/low skilled people. Some that could buy before, now can’t and some that would buy before won’t and there’s no new demographic on the horizon to save the day. Yes, your friend has a cash positive rental and he won’t be ruined if his property falls to 400k, when the tide goes out he will have a bathing suit on but not everyone will and they will drag him down just like they dragged him up. Baby boomers inheriting money cannot be counted on as a large enough group to keep things status quo. The ignorant sheeple have changed their mindset and they won’t change back for a few years (the wise investor beats them to it), the watercooler talk has switched from how much money your co-worker made in r/e to who’s in foreclosure, there’s no stopping the invisible hand of economics.

Another poster has said before that as soon as Time magazine puts a picture of a foreclosure on the cover and declares that real estate is dead, that’s when he will buy, more and more I am subscribing to that theory.

[HLS]

JWM, sorry that I wasn’t clear.
I was saying that the stock market rise can continue.

The housing bubble wasn’t my point..

[HLS]

JWM, sorry that I wasn’t clear.
I was saying that the stock market rise can continue.

The housing bubble wasn’t my point..

[Sandi Egan]

As the prices come down, a larger percentage of the population can afford to satisfy their desire to buy.

Demand is desire times ability.
Once the streets are overflown with alt-A blood, the “desire” part is going to shrink. The common wisdom will change from “you can’t go wrong with RE” to the opposite. People will be able to afford a house they like, but won’t buy it.

[Sandi Egan]

As the prices come down, a larger percentage of the population can afford to satisfy their desire to buy.

Demand is desire times ability.
Once the streets are overflown with alt-A blood, the “desire” part is going to shrink. The common wisdom will change from “you can’t go wrong with RE” to the opposite. People will be able to afford a house they like, but won’t buy it.

[cr]

I didn’t read all the posts in detail but I agree with the affordability issue.

Some of the trollers we get here with agendas alligned with the NAR point to other things like inventories as the reason prices will drop.

That clearly shows they don’t understand the fundamentals of why we are still in a bubble.

[cr]

I didn’t read all the posts in detail but I agree with the affordability issue.

Some of the trollers we get here with agendas alligned with the NAR point to other things like inventories as the reason prices will drop.

That clearly shows they don’t understand the fundamentals of why we are still in a bubble.

[Author]

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