depends on where you live. housing statistics aggregate data points from a spectrum of socioeconomic levels and geography. the median value is insignificant. A townhouse condo in yeehaw, pennsylvania does not have the same price drivers as a penthouse in park ave, nyc. after their economic meltdown, real estate in tokyo is still four times higher than manhattan prices.
Why is it that you think this will occur indefintely ? The last 25 years have been great - even with the 1991 softening but I think that a lot of things are structurally changing in silicon valley and the bay area economy in general. I am not banking on another 25 years of similar appreciation. Bottom line: people WANT to live where there is a high quality of living AND jobs. The bay area is not turingin out high paying jobs at the same rate is was - even prior to the 1995- 2000 tech bubble. Going forward I just dont see the economic support to allow the sam conditions to occue over the next 25 years .....
oh, you must have misunderstood my tone, because i was being entirely facetious. i think housing is very very likely to be a terrible place to store or grow wealth over the next 10 years - even in SF.
i put .4%...i meant 4%...sorry...homes traditionally about keep up with inflation...maybe a bit less. Negative yes is VERY possible.....i am guessing you have never owned a home? keep in mind we are talking about NORMAL situation, not BOOM situation. figure this: Average mortage (over time, not the past few years) is 1% of the price of the home.. say the house is $250k...the NORMAL payment (without crazy exotic loans and super low rates) is about $2500 per month, if you dont put 20% or $50k down. so, your payment is $2500 Your principal is about 10%, or $250 per month, so you are saving $250 per month...congrats. so you are spending $2250 per month plus insurance..........$250?? maybe depening on differnt factors? Taxes.......................$500 per month on average? Repairs....................$300 per month on average...thing about a new roof or hot water heater General care/upkeep...$200 per month, lawn work, painting, floors concrete, and the equiment to do it. =$3500 per month x 30 years=$1,260,000 (not adjusted for inflation) in COST. After 30 years your house is paid for and you have saved up a whopping $90,000 in principal. appreciation? unfortuantely is completely out of your control. I will be renting for the next 10 years thank you very much!
Often people think their own area is very special and exempt from downturns. The people in Orange County to the south also think thats only other areas will crash. I hear the same from people in pockets in Florida, that "crashes" or severe corrections only occur in other, usually distant, places. Of course historical real estate trends show sharp corrections in Bay area real estate prices, more specifically in the early 80's, and again in the early 90's. While it certainly is possible that real estate could, as you put it, "top off and stagnate for a few years", history is absolutely not on your side! At certain times in history "Bay area" real estate has corrected hard to the downside as the chart shows. The chart is from one of the most desirable counties in the Bay area, and the chart for Los Angeles and San Diego is a PERFECT overlay on top of it. Most all of the counties in California have turned together in agreement. ( there is absolutely nothing "special" or magical about the Bay area!) Further, the chart never shows a "topping off", or a prolonged perfect balance between buyers and sellers. Mass thinking does not seem to work that way...either real estate is a "hot" asset class or people eschew it totally until it eventually bottoms out. Then people pick themselves up, many cleanse themselves through bankruptcy and the next cycle starts anew some years later. Interestingly in this current real estate cycle bankruptcy will be tightened up considerably and this may prolong the time we correct to the downside and try to find the bottom. The following is pasted from a Bay area real estate blog outlining why that area has particular problems. http://patrick.net/housing/crash.html # Prices disconnected from fundamentals. House prices are far beyond any historically known relationship to rents or salaries. Rents are less than half of mortgage interest payments. Salaries cannot cover mortgages except in the very short term, by using adjustable interest-only loans. # Interest rates going back up. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate. 82% of new Bay Area loans are adjustable, not fixed. This means a big hit to the finances of many owners every time interest rates go up, and this will only get worse as more adjustable rate mortgages (ARMs) get adjusted upward. From CBS.MarketWatch.com on 13 Jan 2005: "There is a double whammy inherent in these ARMs," said Frank Nothaft, chief economist for Freddie Mac. "At the end of fixed-rate period you face a hike in interest rates and you have to start paying principal. There is more default risk in these interest-only ARMs than in a fully amortizing product." # A flood of risky house equity loans. Adjustable house equity loans do not have limits on interest demands. When the principal eventually has to be paid back, it can easily double monthly payments. # Massive job loss. More than 300,000 jobs are gone from Bay Area since the dot-com bubble popped. This is the worst percentage job loss in the last 60 years. It's worse than Detroit car problems or Houston's oil bust. People without jobs do not buy houses and owners without jobs may lose the house they are in. Even the threat of losing a job inhibits house purchases. Santa Clara County posted its third straight year of job losses in 2004, so it's not over yet. # Salary declines. From http://www.mccallstaffing.com/need/needsal.html we hear that "salaries have in fact returned to 1997 and 1998 levels." Local incomes are not even half of what they need to be to sustain current house prices. # Population loss. San Francisco continues to lose population at the fastest rate of any city in the US and most of those are professional jobs. The problem is not only the dot-com crash, but also the outsourcing technical jobs to India, which continues at a frantic pace as corporations realize they can pay an Indian only 20% of what they must pay a similarly qualified employee in the Bay Area. Fewer people in the Bay Area means less demand for housing. It recently (Aug 2005) cost $3623 to rent a U-Haul from San Jose to the midwest, but only $1800 to move the other way. This is because far more people are moving out of the Bay Area than are moving in. # Stock market crash. The NASDAQ at about 2000 is still only 40% of the 5000 it was at the peak of the recent stock market bubble. The crash in the NASDAQ probably hit the Bay Area harder than anywhere else because of all the stock held by employees of tech companies. That money would have been spent on housing, but is now gone. # Extreme use of leverage. Leverage means using debt to amplify gain. Most people forget that losses get amplified as well. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss, he's bankrupt in the real world. Even a small price decline will bankrupt buyers with small equity. Buyers foolish enough to buy with no money down are already bankrupt, but still unaware of the fact. # Shortage of first-time buyers. According to the California Association of Realtors, the percentage of Bay Area buyers who could afford a median-price house in the region plunged from 20 percent in July 2003 to 14 percent in July 2004. # Surplus of speculators. Nationally, 25% of houses bought in 2004 were pure speculation, not houses to live in. It is now possible to buy a house with 103% financing. The extra 3% is to cover closing costs, so the buyer needs no money down. All this is on the unwise assumption that housing will rise ever higher, covering interest payments through appreciation. Even the National Association of House Builders admits that "Investor-driven price appreciation looms over some housing markets." # Lightbulbs going on in many brains in the Bay Area: "Hey, I can just go to New Mexico or Oregon, buy a gorgeous house outright, and comfortably retire on the price difference. My neighbors just did it, so I'll have friends there too." # Trouble at Fannie Mae and Freddie Mac. They are now being forced to tighten up sloppy lending. This means they are not going to keep buying very low-quality loans from banks, and the total money available for buying houses is falling. # The best summary explanation, from Business Week: "Today's housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low rates of a weak economy. Either the economy's long-term prospects will get worse or rates will rise. In either scenario, housing will weaken. Caveat emptor."
all worst case scenarios. so basically, if we have a strong economy with more job gains at low rates, none of this is applicable. who thinks the ten year yield will ever hit 5% in the near future. i certainly don't. mortgage interest payments and affordability are a function of downpayment. cannot underestimate the little known or reported buying power of the upper middle class american people. one's payment can be equal or less than rent payment. prices are CONNECTED to fundamentals. fixed mortgage rates are still near historical lows.
Sometimes it takes just a few things to turn the ship and establish a new trend (this time to the downside). Once a new trend is established the speculators, which have been bidding up this market, will avoid real estate as an asset class. Interest rates have headed up only slightly, and immediately real estate inventory levels have increased in California markets 50% to 100% in just the second half of this year! Sales at the same time have gone down often just as much! In the media, words like this are making dozens of stories more and more each day... http://www.signonsandiego.com/news/business/20051123-1339-ca-housingcrunch-buyersmarket.html "We can't seem to get anybody to make an offer,' said Robert Vaughan, whose four-bedroom, three-and-a-half bath home in the San Diego suburb of El Cajon has been for sale since August. 'The market has obviously changed." Almost 500,000 people of quality have left California in the last 5 years, replaced by lower income immigrants. Offshoring, job losses, and wage gains in the Bay area are not a "worst case scenario" prediction, they are a fact and a trend that is well established in that area and occurring right now. We have not had the "strong economy" nor the "job gains at low rates". That thinking is "best case", and the trend in the Bay area is more job losses, more people moving out, and more offshoring. So, are you saying charts like the one I posted will continue rising to the sky, go sideways, or what???? By saying that you are saying historical corrections and shakeouts will not occur, and that this time truly things are different.
Lets not forget that most loans today are tied to adjustables which will continue to sky rocket as the fed continues to raise rates near the 5% threashold. Although the 30 year is still cheap.. its irrlevant because people in the hot markets are not using this type of loan for purchasing homes. I agree that if the long rate yields stay low the housing prices in non prime areas like middle america would have a very muted correction... its the coastal and tri state areas that are heated. Just like the internet stocks vs the value stocks... when the market corrects its all about beta.. --MIKE
It has also crossed my mind that coastal bubble areas seemed like high beta flyers like some Nasdaq issues, and that heartland were like "blue chips" and not volatile. I agree that adjustables will continue to shock and awe the weak hands as they continue to reset to higher market rates. The percentage of loans that reset will continue to rise in 2006-7 big time. http://www.denverpost.com/business/ci_3247039 "As soon as Lorie Limbaugh heard about a 1.25 percent interest rate on a mortgage loan, she figured it was too good to be true." "The Colorado bank teller and her husband, James, a plumber, met with a broker who said he would guarantee the rate for five years, and then they talked to other companies, which couldn't match it." "Things progressed smoothly with their $275,000 adjustable-rate mortgage until the rate began to climb - it's now 6.25 percent - despite what they had been told. Today, they are facing a refinancing penalty and are unable to financially help a son who wants to attend a trade school." "We can't believe it," said Limbaugh, who lives in Larkspur, about 35 miles south of Denver. "We were at 5.7 (percent). We should have stayed where we were at." "Make sure you read everything that is given to you prior to signing anything. Stay away from the ARMs, because they are going to get you in the long run," she said."
I heard a couple of weeks ago that "NISSAN" located in Orange county is relocating. I do not know if it is true. Some other companies have already moved.