[(former)FormerSanDiegan]

This was brought up previously in a thread titled “S&P500 dropping to 600 by spring 07”.

Since I don’t know how to do links to threads, I’ll add a comment to that thread to bring it near the top of the stack.

[(former)FormerSanDiegan]

But, if median (despite it not being a great measure of RE
value) was largely flat from 91 to 96

The median was not flat, it actually declined by ~ 8-10%. It just looks flat because of the large (2x to 3x) run-ups during the boom times.

[(former)FormerSanDiegan]

powayseller

A nice gauge of the current Poway market would be to compare the current price and rent rates. Can you make an educated guess at where both stand in Poway ?

[(former)FormerSanDiegan]

GRM of 8 means that value = gross rent x8.

That’s equivalent to a cash-on-cash yield of 12.5%. Did I get that right ?
With bond rates as competing investments in the 5% range that is not realistic.

If bond rates go to 9% or more, your valuation would make sense. If I got the interpretation right, your value estimate is as out of whack (today) as home prices are.

I agree with your general assessment, but not the numbers.

[(former)FormerSanDiegan]

I think the general experience you describe and the impact on outlying areas is definitely relavant and provides an analogue to our current situation in San Diego. It can definitely get U-G-L-Y.

[(former)FormerSanDiegan]

“pull the trigger” and “getting a haircut” have also long been used in discussion stock market trading and stocks taking a price hit. Greater Fool has been around a long time as well.

Now, FB and MEW are fairly unique to the housing bubble.

[(former)FormerSanDiegan]

My Forecast Model says …

[img_assist|nid=1571|title=Housing Forecast Model|desc=|link=node|align=left|width=400|height=388]

[(former)FormerSanDiegan]

VCJIM – If you read the post carefully, he considered selling it for 17K when he moved. Instead he kept it.
From that point forward it quadrupled. Deciding not to sell it then quadrupled his take when he finally sold in 2000. He was definitely better off holding on to it then selling for 17K. (assuming the rents covered at least half of the carrying costs).

Let me illustrate:

Case 1 : he sells at 17K for a 33K loss.
Case 2: He rents it out for 10 years and sells it for 70K, a 20K gain.

The difference = 53K.

As long as his carrying costs minus rents was less than 53K over the 10 years, he came out ahead (monetarily) by keeping it.

So, to reiterate.

Bad Decision = Buying at a peak
Good Decision = Not selling something you already own at a trough

[(former)FormerSanDiegan]

Good thing you didn’t sell at 17 K pounds, since it quadrupled to your selling price of 70K pounds.

My thoughts:

1. Buying it was a mistake.

2. … but holding it, rather than selling after you moved was pure genius
(4x your money in 10 years … not bad)

What would its value be today ?

[(former)FormerSanDiegan]

Brian –

“Can the rental market actually put pressure *against* correction in the RE market?”

Absolutely. Doesn’t everyone compare the cost of renting versus buying when deciding to go from being a renter to a homeowner ?

Rent rates are also a proxy for wages. If wages go up and rents go up, it will soften the home price decline in nominal (not inflation-adjusted) dollars.

Now as for predicing rental rate trends, they have recently accelerated, but who knows where they go next ? Depends on employment, growth vs recession, local economy.

[(former)FormerSanDiegan]

What part of town ? SFR or condo ? Rental rate ?

[(former)FormerSanDiegan]

At least your period covers both down and up markets.

However, all you’ve shown is that you can fit a curve, with a set of input parameters based on other data. If you have enough input parameters and knobs you can fit anything.

An experiment to test your model is to predict the value from 1982 to 1990 (if you can find the input data) and then post that, without tweaking parameters.

How far forward do you project ? Since you have “Fed funds rate today” as pone of the input parameters does that imply you can’t project forward ?

[(former)FormerSanDiegan]

perhaps he should have priced it higher

[(former)FormerSanDiegan]

I believe that we have already reached the point where the media is bearish and the slope is slippery and everyone knows that home prices are falling. If the decline does not accelerate now, I would be surprised.

[(former)FormerSanDiegan]

Peace – When that day comes, wait 6 months, then buy a house. The days of big-balled low balling are coming !

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