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ParticipantThe bottom line is that someone has to pay to live in those houses. Our dollars are being rapidly devalued, that’s true, but unless we’re invaded by hordes of Germans and Swedes to purchase all of these $750K homes, the incomes required to make those payments are going to have to come from Americans. And American wages have been stagnant since 2001 or so. House prices went up because of easy lending and speculation, end of story. Home prices may stay high in nominal dollars due to inflation once wages catch up, but they will decline in real dollars. The real question is — do you think wages are going to catch up or not? And if so, how long do you think it will take?
April 30, 2007 at 3:09 PM in reply to: Price drop will be to pre bubble DOLLARS or adjusted for inflation??? #51470ParticipantVery true, an — also don’t forget that once interest rates become high, they’re usually going to go down in the future which makes for good refinancing opportunities. Interest rates are gonna have to go sky-high at some point to keep those foreign dollars rolling in, because we can’t finance this trade deficit by selling mortgages to each other anymore…
ParticipantGoods and services are worth what someone is willing to pay, end of story. The price of the home is determined by the monthly carrying cost and the income of the people in the region. If the average middle class family is willing and able to spend $3K/month in an area for their housing costs, then the average middle class family home will cost around $3K/month. The home price only reflects a part of the carrying cost as mortgage principal and interest. The tax burden isn’t shown, nor are the maintenance and energy costs. These are waaaaaay higher in Texas than in San Diego. Also, homes are bigger in Texas so families buy more crap to put in them which leaves less money for the house payment, energy bills, property taxes, etc…
A more reasonable comparison might be between homes in the IE and Texas since the energy costs would be more comparable (at least in the summer). The tax structure will still be different, however.
Material costs are a little different. Bricks are very cheap in Texas since there is a lot of clay there to make them out of. Texas builders love a California buyer because they can fool them into thinking they’re buying a brick house when in reality it’s just a brick facade covering up crappy 2×4 framing.
Regulation does contribute some to the increased costs here in California, but it is probably not that big of a component. Labor costs will be similar since there is a lot of illegal employment in both places.
ParticipantThis has been covered here on piggington many times. Property taxes are one big reason, in McKinney you’ll be paying at least 2.5%, or around $12K/year. Air conditioning that monstrosity is gonna cost you 400/mo in the summer and heating it will cost you 300/mo in the winter. Mowing that big yard costs money and grass grows fast in Texas. Fire ants, weeds, thunderstorms, all of that adds a lot of maintenance costs. Carrying costs are much higher in Texas and they are always building nice homes and moving jobs farther out so in twenty years your neighborhood will be a lot less nice than it is now.
But you can get a big-ass house there if that’s what interests you.
ParticipantPerhaps with rising real estate prices in Bangalore and Hyderabad, Indian programmers will flood to Southern California where they can cheaply telecommute to their offices (now located in India). Maybe some of those “I can never be outsourced because I’m not a programmer!” MBAs and high-level tech guys will move to new careers in lawn maintenance.
ParticipantThere’s no stock market bubble when measured in inflation-adjusted dollars. It is melting down right along with housing but no one notices because they think their dollars are still the same ones they had back in 2000…
April 26, 2007 at 2:20 PM in reply to: Tech is BACK!….Housing downfall might be limited in San Diego afterall. #51230ParticipantPoint taken whybuy, but it looks like the government’s return on investment is pretty poor in this case. The top ten employers in SD provide almost 500K jobs from those stats (489K to be exact), yet only Qualcomm (6K jobs) actually produces anything (1.2% of the total). Incredible!
ParticipantAnyone who thinks that the market is in a bull run right now must have slept through econ 101. Graph it in inflation-adjusted dollars and see what you think. Remember that a dollar now is worth a whole lot less than it was 5 years ago. Of course I’m sure USA Today will have a giant headline proclaiming “DOW HITS RECORD OF 15000!” in a few years when gas is $6/gallon and a dollar is only worth 0.50 euros…
April 26, 2007 at 9:07 AM in reply to: Tech is BACK!….Housing downfall might be limited in San Diego afterall. #51189ParticipantFederal Government 39,100
State of California 37,100
UC, San Diego 24,790
City of San Diego 20,700
County of San Diego 18,900
Sharp HealthCare 13,872
USPS 11,611
Scripps Health 10,313
Kaiser Permanente 7,386
Qualcomm Inc. 6,000
Looks like a socialist paradise. 9 of the top 10 employers here in SD make payroll either directly with your tax dollars or indirectly through government subsidies and insurance. Also note that only one of the top ten employers actually produces anything other than services.
ParticipantThe trap is set and most Americans are gonna be screwed big time. Our money is being devalued very rapidly, we don’t produce that many exports, and our entire way of life is dependent on imported oil. The middle east wars are a last-gasp effort to try to remain in control of a world that no longer needs the US as much as we need them to need us. The rising Dow is an illusion — with shrinking dollars the real value has been going steadily down for years but because Duh-mericans don’t understand math they think they’re making money.
ParticipantWhat will happen to the HOAs downtown as the FBs start walking away from their toxic voodoo loans? Are the banks obligated to pay the HOA or will the remaining homeowners have to pick up the tab?
ParticipantGood article, but the author fails to mention the “L” word – Leverage. One can (or could?) buy a $300k house by only putting down 3% ($9k). So if the house appreciation yields 3%, that’s 3% on the whole $300k ($9,000). Which actually comes out to a 100% return on the investment ($9k down payment).
Hold on there, this isn’t E*Trade we’re talking about here, it’s a house — after your transaction cost of 6% to sell the place ($36K), you’re actually $27K in the hole. And of course that appreciation knife cuts both ways, so a 3% decline is gonna hurt a lot more on a leveraged investment.
ParticipantI really think this loan mess falls at the feet of the lenders far more than the borrowers who are just speeding down the highway.
Although people must be held to a high standard of personal responsibility, I have to agree with you here. The real culprit behind this is the MBS market and the trading of mortgages. Banks used to carry these risks themselves and had a vested interest in ensuring that they didn’t make bad loans. In the last decade, hot-potato mortgage trading has allowed banks to write bad loans with impunity knowing that they could dump the risk on someone else.
ParticipantIf the banks and hedge funds succeed in convincing the government to bail them out, you’d probably be surprised how many of these they could salvage. Let’s say there are 1M households that need an additional $10K/year in help to make their payments, then that’s $10B. The government probably spends that much every month in Iraq. Be afraid, be very afraid of the bailout, it will hurt everyone who saved and was responsible and help all of the irresponsible ones, most of all the banks that made these crazy loans in the first place.
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