What is home value tied to?

[daney143]

Stock = 100% Investment
Housing = community, a neighbor, roof, a plug for a refrigerator, schools, proximity to a job, stability, pride of ownership… Have these been factored into the recent downward trend in the housing market? Is a house an investment to everyone or are the things above more important as long as the house is affordable?

Comments? and no, I am not a poway owner.. Just curious. I’ve never heard any qaulitative reasoning for the market to go down “everywhere” within SD.

[blackbox]

Let’s see if I can tackle this one.
Buyer buys home he can’t afford with a suicide option arm loan. He crossing he fingers that the house appreciates enough so he can sell or refi into a fixed loan. Prices don’t go up enough to cover the 6% sales comm, and since the buyer does not want to lose ANY money, he holds on to it. More and more unoccupied properties go on the market. Prices start going down slowly. The monster can no longer be fed with GFs. False bottom under peak pricing. Prices head back to 2001~2002 where average income buyers can actually afford the home with a fixed 10 to 20% down.
It’s amazing how emotions can be included for reasons that home prices go up, but logic, charts, and math equations are the only factors that can be used to determine how low home prices can be taken down. There was a huge overshoot on the way up, and there will be a huge undershoot on the way down. Wait for the clearance special soon. Don’t forget to bring the “Take an EXTRA 10% off” coupon that comes with your morning newspaper a couple of years from now.

[blackbox]

Sorry for the spelling and grammer mistakes. I was working the phone when I was typing. I know, I know, but at least I turned the radio down in my car while I typed. Haha

[Cow_tipping]

Yes housing = all of those things … true. Except when it was bought just to flip, no one lives in it, its bleeding money each month and its costing MR, taxes, Interest, utilities, insurance and upkeep/fines for failing to upkeep.
It wasn’t an investment, till people started dat trading it. Now Casey Serin (imfacingforeclosure.com) owns 4 houses and is paying 550 a month rent for sharing a house with his sister in law, a house he doesn’t even own. You’d think he’d be the last person to need to rent wouldn’t you.
So I have presented a concept called “fake” estate.
Real estate is where hubby and wife (and no offence to roommates, or brothers and sisters or friends buying a house and living in it) put up some of their money, buy a house with a loan, and work hard making payments on it, and making the house a home and generally adding to the factor called “neighborhood”. These are Real people’s houses. Hence “Real” estate.
Fake Estate is where a flipper buys it, never intends to occupy it, never expects to pay for it, never thinks of maintaining it, never does anything … and hopes to cash out with some real people to buy it. AKA … “Investment” house. Or “Fake” Estate.
Here is the catch, “Fake” estate is indistinguishable in most cases from “Real” estate. So when the Fake estate dies (its all based on fluffed up demand anyway) it will take the Real estate with it.
Cool.
Cow_tipping.

[lendingbubblecontinues]

Guys…

We are overlooking the simple answer to the question “What is a home value tied to?”:

It’s tied to an ANCHOR that is quickly headed to the bottom of the Mariana(s) Trench!! HA!

[PerryChase]

Cow-tipping, I love your writing. Real Estate vs. Fake Estate is a classic!

A house is a house whether you rent or buy. What difference does it make anyway since most people move within 5 years anyway? You get everything when you rent, expect for pride of ownership. In exchange for that you have savings in the bank. Which would you rather have?

[lendingbubblecontinues]

Let’s not forget that pride often winds up being a fatal flaw. For recent buyers of homes (2004-2007), it is a foregone conclusion. HA!

LBC

[daney143]

Cow Tipping, I see your points. So what we need to find out is how much Fake Estate is out there and when all the Fake Estate is re purchased as Real Estate, the bubble will be gone? that is unless, the Real Estate becomes Elastic Estate because everyone that bought a Fake Estate, but it with Elastic Estate Money and at some point the Elastic Money and cost of it will expland (adj rate mortgages), and the house will not have any equity to re-fi?

Hm that simple… So how do you get rich of a falling market? If you are buying it as an investment vs a property? And does it matter when you buy if you are giong to be in it for 30years plus?

[blackbox]

In other news, “Real Estate Investment Clubs” all over the United States are turning themselves, seemingly overnight, into “Class Action Litigation Clubs”. Their old slogan used to be:
“We’re geniuses, we’re brilliant, and gosh darn it, people envy us”.

Any suggestions what the new slogan should be?

[bigtrouble]

You don’t get rich from a falling market. You get out of it.

Problem is, speculation in fake estate has inflated the price of all real estate.

But what is the value of a property? Most say ultimately it what the next guy will pay for it. Then the next guy, and so on. But real estate is just not liquid enough to be priced that efficently.

Here is how the banking industry determines it. They set an estimate of market value based on appraisals, broker’s opinion, etc, throught the lifecycle of the loan that is then qc’ed by in house appraisers. This value is then tracked to an index valuation. The indexed valuation uses the property valuation at origination as a base. The base value is multiplied by a factor representing area home price appreciation (or depreciation) between the origination date and current. This indexed value incorporates changes in home price appreciation for each area. The indexed value represents the value that the property would be worth if it appreciated consistent with its area, and if the condition of the property remained stable. Thses two very big assumptions are why you need to take avm’s like Zillow, etc with a load of salt. Considering that estimates of value are rendered on distressed assets, they should e lower than the index values, but the difference should be consistent over time.

[daney143]

Is everyone on this blog into investments or is everyone looking to simply own an affordable home and live in it? If everyone is looking at the market as a short term investment opportunity, then it all make sense. Everyone wants it to go down so they can buy at the bottom so when it goes back up, they can cash out. Kind of like what I did with Cisco and XM Radio stocks back in the late 90’s and what everyone tried to do in 2004 with the housing market.

How many real buyers are out there and when will we hit the saturation level of remaining buyers? Also if prices go back to 2002 values, exluding inflation, we’re talking about a 2bed-2bath condo in Mission Valley for about 150k? Is that cheap or am i smoking? I’d pick up 10 at that price. So what is the saturation value of the market’s bottom where people are going to get back in? How many people are just waiting and waiting for the right time? Who is going to be the first back in the market and why and what will be the sign?

[sdduuuude]

The answer to Daney’s question is simple.
Yes, your house is tied to all those things.

But, for any given house, those things didn’t become significantly better between 2000 and 2005, yet prices skyrocketed.

So, when you ask “Have these been factored into the recent downward trend in the housing market” the answer is “no – they shouldn’t be” because we are in a speculative bubble and those things weren’t factored in to the massive price increases.

It’s kind of like the weather. Yes, the weather here is great, but it isn’t 3 times better than it was in 1998.

[barnaby33]

150k for a 2/2 at 02 prices? You would pick up ten of them? Your flaw is that you assume you’ll have a job, that interest rates will be about the same and that someone would loan you the money to buy those residences. None of which is a safe assumption seeing as how we are going through a credit contraction.

Josh

[daney143]

Josh,

So everyone is going to lose their job because of the housing pop? Hm,, interesting. Is America going to fall just like Rome did in 500 AD? It could I guess, but if it does, then why does it matter if you buy now and then lose your house at some point down the road vs trying to wait, lose your job down the road like everyone else and then really not be able to afford a house. Maybe at some point it will be like Cambodia after Pol Pot lost power and everyone re-entered the cities to find free housing on a first come first serve basis. Crap, for all I know we’ll be just like japan and Germany in 5 years. We’ll have 100 year loans that become the burden of our childern… Do any of you use this site for sound investment advice? Or is it more a site to make you feel like other people believe and think just like you? Kind of like Fox News to republicans or KPBS to Librals..

[PerryChase]

$150k for a Mission Valley condo is about right. What’s so different today from 5 years ago? Not much. Houses cost a lot more but income have stagnated.

No matter what housing prices are people will not buy without the expectations of appreciation or rental income. I predict that nominal house prices will continue to drop for 3 more years then they’ll stagnate for 10-15 years. There’ll be plenty of buying opportunties during that time.

[Author]

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