Call the bottom

<p>Like I have mentioned before. I am so lucky I was able to refi. back in August when my rates were about to reset. Within a week of signing, the lenders started to tighten the "noose". </p>

<p>I really feel the pain of those who aren't able to refi. their terms. Once their rates reset, I doubt they will be able to hang on. I have heard the next wave of ARMS resetting is Oct. It's going to be a disaster for the real estate market. And let cross our fingers, it won't spill over to other parts of the economy.</p>
 
<p>reason,</p>

<p>Just look at it this way. Prices always and I mean always return to fundamentals. I even have reports from two prominent real estate economic analysts that show it always comes back to fundamentals. A one bedroom could be $219k in 2012 and that is only off by 27% in nominal terms but would be off by over 60% in real terms because if it kept up with inflation the price should be $343k which would be a real drop of 64%.</p>

<p>Now if you look at homebuilder profit margins the gross is profitable but with the writedowns and walking away from land options the net profit is negative. You may think we are joking when we say which builder will go BK first but it isn't a joke. I speak with a SVP of homebuilder on a somewhat regular basis and one of us will be buying lunch on which builder goes down first. He has 30+ years of experience and I have about 6 so it will be interesting to see who is right.</p>

<p>Honestly we would be fine if RE appreciated at a normal rate but it didn't. This just hurts us all whether we like it or not and believe me I wish it wouldn't happen. But you reap what you sow. You will be upside down and so will I when adjusted for inflation. In nominal terms you and I should be fine but in real terms adjusted for inflation we will be negative. Welcome to the REAL world huh?</p>
 
<p>I see your explanation, thanks! As for builders going under, you need not say more. Just look at their stock prices </p>

<p>Yes, it's scary. Live and learn as the old saying goes.</p>
 
Forget clouding the prediction with inflation.......I believe that housing prices will fall 40% from the highs reached in 05/06. The average square foot price for a condo will be about $220. per square foot and for SFR the average will be about My $240 . The bottom of the market will occur in 2012.


Between now and 2012 we will witness the bankruptcy of one or two major home developers as they run out of cash. There will be a large government program started to regulate mortgages.





The only thing that is not clear to me is who the scape goat will be. The last go round, with the saving and loan scandal it was Mr Keaton who ended up in Jail.......with junk bonds it was Mr. Milken..........with Enron it was.....er I forget his name....The funny thing about this debacle, is there is no single person to blame and throw into jail.........and you can't throw the director of the fed reserve in jail.........
 
<p><em>and you can't throw the director of the fed reserve in jail</em></p>

<p>That woudl be hilarious though. . .BB sharing a cell with Alan Greenspan </p>
 
This market is going to take some significant time to unwind. I think it will be shorter than it was for the Japanese Real Estate experience. That took 9-10 years to correct. So lets say 5-7 years. Thats 2012-2014. Several of the homebuilders will fail soon enough. And the poster child or scape goat for this mess will be Countrywide Financial and its CEO Mozillo. The money he sucked out at the top. I just hope the Government does not step in and save his company when it comes time for Chapter 11. As far as him going to Jail, thats a possibility. But this artilce in the LA Times from Friday did not help his cause. <a href="http://www.latimes.com/business/la-fi-mozilo29sep29,0,3110113.story?coll=la-home-business">http://www.latimes.com/business/la-fi-mozilo29sep29,0,3110113.story?coll=la-home-business</a>
 
<p>What is going to happen to all the new developments like Portola, VOC, Woodbury East, and others that have already started building but cannot continue to move their products within their current pricing structure? In reading IR's postings, he believes that IrvineCo has no choice but to lower their land prices for these developers to continue to develop and sell these neighborhoods at a lower price, but what about the rest of you? Will these new developments hit the bottom along with the rest of the market, and how closely do you think it will tread downward with the rest of the resale market?</p>

<p>2015, and 70% inflation adjusted. I think nominal prices will flatten out by 2010 or so, but the loss of real wages for all wage earners will surely keep prices deflated for many years after. </p>
 
I believe we are going to hit a "pseudo bottom" by the 4Q10 where we will see homes down between 40% to 55% depending on the area in the OC. After that I think we will see another 2 to 4 yrs of very slow depreciation, 2.5% to 6.5%, last till around 2013 which should allow for all the Subprime mess to fully play out. And yes that last 2 to 4 yrs could be alot worse if job growth curtails even more than what we are seeing today.
 
Eh ANALyst thinks the builders <a href="http://www.marketwatch.com/News/Story/Story.aspx?column=The+Ratings+Game">have hit bottom</a>.
 
I still think that if Jim Cramer says that now is not the time to buy then it is (but after another Fed rate cut).





Of course it depends on the location. Areas like Compton, Stockton, San Bernardino, Richmond, Beaumont need to see prices drop at least another 65% and that will take at least another year or two.





Areas with heavy manufacturing like Indiana, Michigan, Ohio will see the bottom sometime before spring next year especially if the value of the dollar keeps rapidly decreasing the way it has and America starts to manufacture its own crap again.
 
<p><em>There is no right or wrong answer; just your speculation is good enough.</em></p>



<p>For South County,</p>

<p>30% off the top market value. Bottom out in 12/2009.</p>

<p> </p>
 
<p>5/2010 48%</p>

<p>Reason, when you make a mistake in your post, look in the upper right hand corner of the post...there is a little hyper link that says "edit". Click on that and edit your posts, then click on "save changes". You don't need to type a new post saying "oops", just correct it with the edit </p>

<p> </p>
 
<p>I like to look at 2 things when I try to estimate how much homes are overpriced:</p>

<p>1-The differences between rentals and new homes. IR, did a wondeful job at showing this, if I understand this right it's 39% peak to bottom (53% after adjusting for 3% inflation)</p>

<p>2-The median home price vs the the median household income. This is less reliable and doesn't track as well. But I've seen numbers saying the median household income to be 83k. But you have to adjust for all the lower income people renting in Irvine. If there are 40% rentals and 60% home owners, should you only take the average household income of those 60% home owners? That would probably be much higher, maybe 150k. 150k x 3.2 x 1.2 (20% down payment) = 576k. My numbers are boggus, but would that kind of analysis make more sense than only looking at median home price vs median household income?</p>

<p> </p>
 
<p><em>"The median home price vs the the median household income. This is less reliable and doesn't track as well."</em></p>

<p>This is true but you need to adjust for interest rates. It changes everything and by calculating the annual mortgage and the annual household income in makes more sense. It gets complicated when you throw in inflation. Without inflation incomes since 1998 grew by 22% and annual mortgage payments grew by 96% when adjusted for interest rates. I guess lower rates do not really mean lower costs. I can tell you that inflation was higher than 22% so incomes actually decreased.</p>

<p>When you look at it this way it tracks very well and always comes back to the norm.</p>
 
<p>That would fit with Moody's opimistic attitude towards housing...</p>

<p>Moody's, Standard & Poor's could feel impact of mortgage turmoil - Feb 27, 2007</p>

<p><a href="http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20070227/FREE/70227004/1048">http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20070227/FREE/70227004/1048</a></p>
 
lawyerliz - Why not? It is just a guess. I have read some incredible analysis, but when predicting events that far in the future, it seems like there are so many variables and unknowns which can not be accounted for. 70% sounds as good as 30% to me. What do you think?
 
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