Well, I’m pretty sick to my stomach!

[NotCranky]

Bugs was your $300k bottom figure for RB or the county?
Thanks

[NotCranky]

Bugs was your $300k bottom figure for RB or the county?
Thanks

[drunkle]

5k is 16% difference on a 30k price…

how does the back trace work with your new 4% rate?

while the lines fit and things are nicely symmetrical, i have a feeling the reality wont be so pretty…

[drunkle]

5k is 16% difference on a 30k price…

how does the back trace work with your new 4% rate?

while the lines fit and things are nicely symmetrical, i have a feeling the reality wont be so pretty…

[(former)FormerSanDiegan]

5k is 16% difference on a 30k price…

how does the back trace work with your new 4% rate?

while the lines fit and things are nicely symmetrical, i have a feeling the reality wont be so pretty…

I don’t have any data prior to 1976, so +/- 16% based on people’s recollections is all I have.

Assuming a 4% growth rate trends back to about 58 K in 1965. This seems high.

You are right, the lines are pretty, but the reality is that prices swing wildly about these points.

By the way, if I fit all the data from 1976 to 2005 I get a 6.15% growth rate. If I use 1976 to 1998 I get a 5.5% growth rate. So, 4% annual growth underestimates the experience of the last 30 years.

Of course, these graphs are for illustrative purposes only. Consult your own financial advisor. Batteries not included.

I know that this time is different and we should ignore recent history (the last 30 years). We can blow holes in this based on one or more of the following:
a) The last 30 years have been an aberration. The period between 1890 and 1945 is much more relevant, after all that period includes what we will see in the near future (but in reverse) going from a petroleum-based economy back to buggy whips and farming.
b) Baby boomers are getting old and crusty and we have to support them in their old age.
c) Because Harry Dent says that the peak of the real estate boom will be in 2011 and the stock and real estate markets will crash after that with the next null being in 2026, based on a 46-year time lag of births in the US
d) Deflation, Japan-style.
e) peak oil
f) Aliens (the extraterrestrial ones, not the terrestrial ones) will descend on us and make us slaves.
g) Global cooling caused by the next bubble: Excessive purchase of carbon credits.

[(former)FormerSanDiegan]

5k is 16% difference on a 30k price…

how does the back trace work with your new 4% rate?

while the lines fit and things are nicely symmetrical, i have a feeling the reality wont be so pretty…

I don’t have any data prior to 1976, so +/- 16% based on people’s recollections is all I have.

Assuming a 4% growth rate trends back to about 58 K in 1965. This seems high.

You are right, the lines are pretty, but the reality is that prices swing wildly about these points.

By the way, if I fit all the data from 1976 to 2005 I get a 6.15% growth rate. If I use 1976 to 1998 I get a 5.5% growth rate. So, 4% annual growth underestimates the experience of the last 30 years.

Of course, these graphs are for illustrative purposes only. Consult your own financial advisor. Batteries not included.

I know that this time is different and we should ignore recent history (the last 30 years). We can blow holes in this based on one or more of the following:
a) The last 30 years have been an aberration. The period between 1890 and 1945 is much more relevant, after all that period includes what we will see in the near future (but in reverse) going from a petroleum-based economy back to buggy whips and farming.
b) Baby boomers are getting old and crusty and we have to support them in their old age.
c) Because Harry Dent says that the peak of the real estate boom will be in 2011 and the stock and real estate markets will crash after that with the next null being in 2026, based on a 46-year time lag of births in the US
d) Deflation, Japan-style.
e) peak oil
f) Aliens (the extraterrestrial ones, not the terrestrial ones) will descend on us and make us slaves.
g) Global cooling caused by the next bubble: Excessive purchase of carbon credits.

[(former)FormerSanDiegan]

Oops !
I just thought of something. The price history from the 70’s and 80’s is completely irrelevant. Those sales were based on homes built before 1980. Whereas the sales in the last decade are a different mix of homes, some built prior to 1980 and some afterward. Therefore, the upward bias is likely caused by the change in the mix of home sales, not the actual change in price of homes. Therefore, the only way to understand prices is to interview real estate agents from the 1970’s.

(signed Poway Sailor)

[(former)FormerSanDiegan]

Oops !
I just thought of something. The price history from the 70’s and 80’s is completely irrelevant. Those sales were based on homes built before 1980. Whereas the sales in the last decade are a different mix of homes, some built prior to 1980 and some afterward. Therefore, the upward bias is likely caused by the change in the mix of home sales, not the actual change in price of homes. Therefore, the only way to understand prices is to interview real estate agents from the 1970’s.

(signed Poway Sailor)

[NotCranky]

Former,
Do I under stand you correctly? You are saying SFR’s are overpriced by 45%-50% but will only go down 12% and that non-crash will be done in a few years?

Maybe this is worth noting.Since we are all guessing about the future anyway.

Using just your median trace on the graph you provided. I noticed that the 89′ bubble approximately got off the trend by 50%-100%. This bubble got off the median trend by 200% or more.For the first it looks like the correction was about %20 nominal when it bottomed…So it seems this bottom could easily be 45-50% nominal at what ever point in time it hits a trough, or 300k whereas your graph takes us to approximately 400k-450k depending on the 4%or 6% line. Are you not anticipating it swing past?

I’m not trying to be smart just get smart. NTIIWA but I have been pretty good at speculation regarding peaks and troughs even when I was completely lacking in the more formal education I am getting here. I think that collectively we will nail the next bottom if we stay on the blog, Ah!That’s stupid we will never agree on anything.

[NotCranky]

Former,
Do I under stand you correctly? You are saying SFR’s are overpriced by 45%-50% but will only go down 12% and that non-crash will be done in a few years?

Maybe this is worth noting.Since we are all guessing about the future anyway.

Using just your median trace on the graph you provided. I noticed that the 89′ bubble approximately got off the trend by 50%-100%. This bubble got off the median trend by 200% or more.For the first it looks like the correction was about %20 nominal when it bottomed…So it seems this bottom could easily be 45-50% nominal at what ever point in time it hits a trough, or 300k whereas your graph takes us to approximately 400k-450k depending on the 4%or 6% line. Are you not anticipating it swing past?

I’m not trying to be smart just get smart. NTIIWA but I have been pretty good at speculation regarding peaks and troughs even when I was completely lacking in the more formal education I am getting here. I think that collectively we will nail the next bottom if we stay on the blog, Ah!That’s stupid we will never agree on anything.

[(former)FormerSanDiegan]

Rustico –

Do I under stand you correctly? You are saying SFR’s are overpriced by 45%-50% but will only go down 12% and that non-crash will be done in a few years?
Absolutely not.

Sorry if I wasn’t clear, or if you are unable to see the numbers on the charts. The 12% was above and beyond what one might expect when one assumes a 4% growth rate as opposed to the 6% rate I originally showed.

I’ll try again … If one assumes that the ~6% growth rate (which tracks the bottom of the data over the last 30 years), you would end up with ~22% or so decline.

If you assume a 4% rate with a base year of 1998, the result is 12% less than that implied by the 6% growth rate.

Of course the data could overshoot.

My opinion is that inflation will generally be higher over the next decade than the previous one, so I expect the end result to be closer to the 6% line than the 4% line. Just my opinion.

I’ll explain the other ways I have come to this same conclusion in another post.

[(former)FormerSanDiegan]

Rustico –

Do I under stand you correctly? You are saying SFR’s are overpriced by 45%-50% but will only go down 12% and that non-crash will be done in a few years?
Absolutely not.

Sorry if I wasn’t clear, or if you are unable to see the numbers on the charts. The 12% was above and beyond what one might expect when one assumes a 4% growth rate as opposed to the 6% rate I originally showed.

I’ll try again … If one assumes that the ~6% growth rate (which tracks the bottom of the data over the last 30 years), you would end up with ~22% or so decline.

If you assume a 4% rate with a base year of 1998, the result is 12% less than that implied by the 6% growth rate.

Of course the data could overshoot.

My opinion is that inflation will generally be higher over the next decade than the previous one, so I expect the end result to be closer to the 6% line than the 4% line. Just my opinion.

I’ll explain the other ways I have come to this same conclusion in another post.

[Bugs]

Somebody asked if the $300k number I tossed out there was for the county or for RB.

Actually, it was specific to the $575k range price in RB from early this year. Not only that, but it was a purely hypothetical number that was based on the premise of “what if this peak had topped at +25% in 2001, and the market corrected the same way it did in the 1990s?”

The market obviously didn’t top out then, this peak was far larger than a mere +25% above the long term trend, and if for some reason an RB home that sold at $575k in 01/2007 did bottom out at $300k it would just be a coincidence.

[Bugs]

Somebody asked if the $300k number I tossed out there was for the county or for RB.

Actually, it was specific to the $575k range price in RB from early this year. Not only that, but it was a purely hypothetical number that was based on the premise of “what if this peak had topped at +25% in 2001, and the market corrected the same way it did in the 1990s?”

The market obviously didn’t top out then, this peak was far larger than a mere +25% above the long term trend, and if for some reason an RB home that sold at $575k in 01/2007 did bottom out at $300k it would just be a coincidence.

[(former)FormerSanDiegan]

Other ways to get to a similar conclusion.

1. Use Rich’s 2005 analysis to show that prices were as high as double the last two nulls, so a 50% real correction is in order. Assume that a correction takes about 7 years with 3-5% inflation. Inflation takes (roughly, not compounding here for illustrative purposes) 21-35%. That leaves a nominal price correction of ~ 15-29%. I am guessing inflation in the 3.5-4% range, giving me a correction in the mid-20% range. If it happens faster it will go lower. If it takes longer it will not go as low.

2. Think like a first-time buyer, not an economist.
In 1996 at the last RE bottom I bought my first house in San Diego – Clairemont. The premium I paid for buying versus renting (after accounting for taxes) was roughly the equivalent of a car payment ($250 at that time, Mazda Sedan, not a BMW). At the time I put 5% down and didn’t consider the opportunity cost of the down payment. Using the same logic, compare monthly costs to purchase versus renting in a place like Clairemont.
The last time I ran these numbers, I came up with about a 25% nominal price decline from the peak. I assumed 3% annual increases in rent.

The problem with this one, is that it is impossible to agree on projected interest rates and rent rate increases, and even the impact of taxes. But it is good for determining at any given point in time, what the purchase/rent premium is, when you are fishing for the bottom.

3. Think like an investor.
Compute the cash flow as if you were a landlord. When the mix of rents, purchase prices, and mortgage rates converge to the point where you can get break-even cash flow on a SFR with 10% down in San Diego, that would be consistent with the last bottom.

If 2 of these three indicators tell me to buy, then that’s when I would call the bottom.

Disclosure – These methods are colored by my own experiences in Central and central coastal San Diego and may not apply to the areas that have been built out since the last bottom (or since about 1980 for that matter).

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