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Why we should not aim to restore housing prices to bubble pricing

 
 
Reply Mon 23 Feb, 2009 12:37 am
http://static.seekingalpha.com/uploads/2009/1/30/saupload_case_shiller_chart_updated.png
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Type: Discussion • Score: 4 • Views: 1,088 • Replies: 5
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Slappy Doo Hoo
 
  1  
Reply Mon 23 Feb, 2009 09:17 am
I don't think the point is to try to get values back to bubble pricing, but slow the bleeding on foreclosures, and spark some buying activity...

Maybe a stupid assumption, but doesn't it make sense homes would be ahead of the inflation curve today? Back then there was land everywhere. Now, especially in urban areas, you can't build more homes. And today potential rental income plays a big factor on what a home will market for as well.

Then again, if the 80's were in line with the 1900's...my point doesn't really make sense. Either way, that graph looks like what Al Gore used in his global warming documentary.
rosborne979
 
  1  
Reply Mon 23 Feb, 2009 11:30 am
@Robert Gentel,
Interesting that housing prices rose during the great depression.
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Robert Gentel
 
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Reply Mon 23 Feb, 2009 01:17 pm
@Slappy Doo Hoo,
Slappy Doo Hoo wrote:
I don't think the point is to try to get values back to bubble pricing, but slow the bleeding on foreclosures, and spark some buying activity...


Depends on who you ask. The failing banks have "assets" that depend on the bubble pricing. But most people agree that what we need to do is get the pricing to stabilize, whether or not that means falling and additional 75%.

Quote:
Maybe a stupid assumption, but doesn't it make sense homes would be ahead of the inflation curve today? Back then there was land everywhere. Now, especially in urban areas, you can't build more homes. And today potential rental income plays a big factor on what a home will market for as well.


There's plenty of land. The bubble is not real value, it reflects the huge increase in the use of real-estate as a short-term investment vehicle and the use of the loans to sell them as another new investment vehicle.

Quote:
Then again, if the 80's were in line with the 1900's...my point doesn't really make sense.


Yeah, it comes down to what makes sense to spend on housing for the average person. Right now, the amount the average household spends on housing is very high when put in historical perspectives. It is just not sustainable to have housing prices at house-flipping prices because salaries are not growing like that.

I want to see housing prices drop another 75% as soon as possible. And I don't mind the foreclosures. If you bought at those prices a foreclosure is fair (the prices people were paying for houses is simply stupid in some areas) and good for you (for most people, a foreclosure and bankruptcy is better than to keep paying that mortgage for a value that shouldn't ever come back). If they are paying for a $300,000 mortgage when the house should only be worth $80,000 then they should initiate the foreclosure themselves.
dyslexia
 
  1  
Reply Mon 23 Feb, 2009 01:26 pm
@Robert Gentel,
Quote:
The bubble is not real value, it reflects the huge increase in the use of real-estate as a short-term investment vehicle and the use of the loans to sell them as another new investment vehicle.

well yeah.
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Slappy Doo Hoo
 
  1  
Reply Mon 23 Feb, 2009 06:10 pm
@Robert Gentel,
I guess when I say there's no more land, I'm thinking of the part of state I'm in, and other city areas. I just can't see prices in Boston/surrounding Boston dropping 75%. That would mean for one of my condos, I would basically be making a TON in rental income if I paid 75% of what I did...so rent would have to go way down too, or investors would just start eating up properties left & right to rent...which would just drive demand anyway. I just see the two tied together. But rent here isn't much different than it was 10 years ago..it's gone up, come down, and gone up a little, but nothing crazy overall, minus areas that have experienced a lot of growth.

My residence, I bought in '07 with 0 down, actually appraised higher this past month, so I could refinance...so it's not that bad here.

BUT, prices have come way down in areas like FL and AZ, where the values were very stupid...not that they aren't stupid here either, they are. Multi-family properties in the expensive areas came back down, because selling prices were reflected assuming the buyer were to flip into condos. In rural areas here, you can still buy multi families that turn a profit based on zero down, but you're buying in crappier areas...but if they turn a profit, how is a 75% drop going to happen? Again I'm just thinking out here...I'm sure there are plenty of places where the prices blew up so quick they're coming down to 75% or so at some point.

And I just put an offer on a house today, for the same amount a flipper bought it for in 1994-95...he put money into it, and sold it for $100K over what he paid. I don't know if that's scary, 15 years later and it's going to sell for the same or close to. My offer was a little low, see what happens tomorrow.
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