Thursday, August 24, 2006

1990 All Over Again

From Marketwatch:


From Financial Sense Online:

Real Estate: About to Get Worse

It’s looking like 1990 all over again…

1990 was the last time homes were unaffordable. The confidence of homebuilders was at a record low (and about to go lower). And the U.S. economy was starting to cool…

Home prices fell hard. Nationwide, new home prices fell from around $200,000 in 1990 to around $175,000 by 1992 (in inflation-adjusted terms).

By 1993, home prices were affordable once again. Home buyers slowly crept back into the market. Prices crept higher, and they didn’t surpass the 1990 highs for over a decade (in inflation-adjusted terms).

Over a dozen years have passed since new home prices bottomed back then… enough time for people to forget real estate is not always a sure thing. Just ask the Japanese how bad it can get… they just lived through 16 straight years of falling home prices.
...
We’re setting up for a repeat of 1990. Back then, new home prices nationwide fell by double-digits, percentage-wise, over two or three years. Speculators got crushed.

Again, the last time around, prices peaked around 1990. It took a decade for new home prices to get back to 1990 levels (in inflation-adjusted terms).

We could see the same today… a fall in prices for a couple years… and then a slow rise again, as people who got burned are slower to touch the fire.

So if you’re looking to buy real estate, but don’t have the money now… there’s no hurry. If we see a repeat of 1990, you may be able to buy cheaper two years from now.

And if you’re overextended in real estate, but you’re holding out for your price, you’re doing the wrong thing. Get out now. The cost of carrying that real estate will eat you alive.

If you’re overextended in real estate, think about this: What if real estate prices fall for two or three years instead of rising as you hope? Then you’ll lose even more money. You’ll have wasted three years paying interest, and then you’ll take a loss on the property.

It’s better to take a small loss now than wait and potentially take a bigger loss in a few years, while paying interest along the way.

28 Comments:

Blogger chicagofinance said...

http://tinyurl.com/pvz8p

8/24/2006 03:03:00 PM  
Blogger NJGal said...

That is the most bearish I have ever seen Barbara Corcoran.

8/24/2006 03:13:00 PM  
Anonymous Anonymous said...

Wasn't Barbara another talking head pumping away just weeks/months ago?

IT IS FRIGGEN DISGRACEFUL TO SEE THESE LOSERS NOW ADMITTING THAT THINGS ARE OUT OF WACK!

They should apolgize for their incompetence.

BOOOOOOOOOOYAAAAAAAAA

Bob

8/24/2006 03:20:00 PM  
Blogger chicagofinance said...

She should apologize for calling me wrong on national televsion 5 months ago for bubble sitting (#@&%@$#)*&)@!

8/24/2006 03:24:00 PM  
Anonymous Anonymous said...

1990? Sellers wish it could be that good. We have never seen a bubble like this in real estate before. We have never seen this level of speculation, we have never seen this level of leverage, and we have never seen the price to income ratio anywhere near where it is today. The early 90s are going to look like a picnic next to this thing.

Chaka Chong

8/24/2006 03:25:00 PM  
Blogger Metroplexual said...

Amen CF,

She should have you back on for a na! na! nuh! na! na! interview.

8/24/2006 03:31:00 PM  
Anonymous Anonymous said...

This Bubble Today is much bigger and the consumer more leveraged than ever seen before.

We have oversupply finance companies/banks who made dumb decisions last 3-5 years.

It's payback time for this reckless consumer lending.

Bababababa

8/24/2006 03:33:00 PM  
Blogger NJGal said...

Can I ask you all a question? How do assessed values come into play? The town we're looking in is going to be basing its taxes (in the next yr or two) on sale price. So some people with lower assessments paying bubble prices will get screwed. Now, when making lowballs - say something is offered for several hundred K above assessed, meaning taxes will go up no matter what - how do you appropriately lowball? Based on the assessment or the asking price, knowing that if you use asking price taxes will be sheer idiocy in a year or two?

We're looking into two multi-fams, one of which would be a great rent out for now, fantastic forever house (we're talking huge, old, beautiful but too much house for us now). That one is asking not much more than the assessed value (about 45K more, but yes, I would still lowball like mad!). The other is assessed low but asking way high (about 250K over assessed), and nice, but not a forever house at all.

Sorry for the long post but was hoping for thoughts from folks who know more...

8/24/2006 03:34:00 PM  
Blogger Metroplexual said...

NJGal said...
Can I ask you all a question? How do assessed values come into play? The town we're looking in is going to be basing its taxes (in the next yr or two) on sale price. So some people with lower assessments paying bubble prices will get screwed.

To my knowledge, they can't legally have an uneven tax rate. I think what your town is saying is a 100% assessment, whereas other towns do not do that and assess at a percentage of actual value. It is all a numbers game and the reason for the different methods used I have heard is so less money goes to the county.

8/24/2006 03:47:00 PM  
Blogger NJGal said...

Thanks Metro. Yes, I think it's 100% assessment, with people who bought ages ago taxed on the basis of some kind of formula - it's meant to stop the folks who bought for 60K 30 yrs ago who's homes are worth millions from paying less taxes than the owner of the 700K newer homes next door.

It's going to hurt newer buyers, since so many paid well above older, lower assessed values, especially in the less nice areas of the town.

8/24/2006 03:55:00 PM  
Anonymous Anonymous said...

Helping the bubble crash softley:

I have seen many people doing lowball offers and prices being reduced.

My way of bidding on a home is simple.
Do rent to own, but on your own terms. Non of this 30% will go towards the purchase price.

If a house is listed for 400,000.00
than you offer to pay 1111.12 + taxes. 400,000.00/360 (30 Years)
Most likley they are already making a profit @ 400K so don't let them snow you to get more.
Yeah people are greedy and want there profit upfront but to me I would rather get all of my money over a period of time than get less upfront.
If you do rent to own its cheaper in the log run, yeah you are paying the full 400,000 but if you got a normal mortage and paid 270,000 for the same place at 6.5% with no money down you are going to pay $614,250.00 over 30 years. You do the math. I would rather pay the 400,000.
If doing this make sure that the house is fairly priced with others in the market in that area. If they are asking 500K and people with pretty much the same thing are listing at 400K try and offer it at 400K but do the rent to own idea.

And if the rent to own price is less than what they pay on a mortage, well than there just an idiot for paying to much on there place. Find places that were bought many moons ago.

This may not work for evey situation but this is just another alternative.

8/24/2006 03:57:00 PM  
Anonymous Anonymous said...

Good luck getting a house that way. The seller would have to be a real sucker. Let us know how you make out.

8/24/2006 04:08:00 PM  
Anonymous Jay said...

Corcoran is a saleswoman, and her professional spin will always be "it's a great time to buy" even when the market is crashing around her head. Her job is simply to make deals happen, regardless of the current conditions or consequences for the buyer and seller, or whether it's a good investment or a money-loser. Anything she says has to be measured against this bias.

JAY

8/24/2006 04:20:00 PM  
Anonymous Jay said...

And yes CF, she owes you a big apology but you will never hear it.

JAY

8/24/2006 04:22:00 PM  
Anonymous Anonymous said...

She should apologize for calling me wrong on national televsion 5 months ago for bubble sitting (#@&%@$#)*&)@!

CF,

I've only been posting for a few months. I would be interested in hearing about that one.

Thanks,

BC Bob

8/24/2006 05:53:00 PM  
Blogger Metroplexual said...

NJGAL,

I believe it is meant to level out that kind of inequity. You can appeal taxes based on comparble in your neighborhood. If you have a house that is identical to yours and there is a differential in taxes you can appeal your tax. Assessors generally do not like to be questioned.

8/24/2006 06:16:00 PM  
Blogger Metroplexual said...

njgal

Oh! the weird part of this is California has prop 13 which is against the law here. You pay based on when you bought.

8/24/2006 08:03:00 PM  
Blogger Metroplexual said...

I had an idea today. Go to a subdivision with alot of for sale signs and then look the addresses up on NJACTB.org and see what the number were bought in the last 3 0r 4 years. just an idea and a way that others can contribute. This will establish an idea of the reset effect.

Please help if you like the purpose of this blog. More data could not hurt.

8/24/2006 08:36:00 PM  
Blogger Math, like gravity, is law. said...

Anonymous said...
1990? Sellers wish it could be that good. We have never seen a bubble like this in real estate before. We have never seen this level of speculation, we have never seen this level of leverage, and we have never seen the price to income ratio anywhere near where it is today. The early 90s are going to look like a picnic next to this thing.

Chaka Chong

8/24/2006 04:25:01 PM

Chaka Chong: The weight and tone of your words are dead on!

8/24/2006 08:52:00 PM  
Anonymous Anonymous said...

Like I said the houses in East Hanover just sit, then reduce, then sit, then reduce, etc... Realtors, don't tell me you just sold a house in East Hanover at the inflated asking price. Stick to your guns... stick to your guns! I tell everyone I talk to - hold out and wait for the correction, and I mean everyone!

8/24/2006 09:13:00 PM  
Anonymous Anonymous said...

I just found this blog and would appreciate some advice on our uncertain situation;

We have been looking to buy as our but our personal circumstances (baby) and our nyc rent(3500) make buying seem like the right thing to do.

Just made an offer that was accepted; Original asking was 699K and after some back and forth we have an accepted for 649K.

Can put 20% down with a 30 fixed.
Our combined gross is 250K so we can easily make our payments/taxes.
Expect to be in the house for 6-7 years.

Should we move forward with the deal or back out now?

8/24/2006 09:29:00 PM  
Anonymous Anonymous said...

Grim,

I'm interested in the scandals that are starting to appear. Do you have anything to substantiate that appraisers were taking under the table fees from realtors and realtors were taking payments from speculators to receive preferred listings? I see the next 6-9 months just like the aftermath of the tech wreck w/ respect to scandal headlines becoming the norm.

On a side note, watch the securitization mkt to get a jump on the financing drying up. Some of the the big wirehouses are pulling in their risk appetite to resi mortgages after getting stung with some bad loan purchases meant for securitization.

Thanks

8/24/2006 10:12:00 PM  
Blogger lindsey said...

First, I'm totally with Chaka Chong (and I love the name)

njgal,

A couple of example are probably the best way to go here.


Lets say a town last reassessed/revalued in 1997.

At the time, the house you want to buy was assessed at $200K and there have been no improvements. After you buy it, your assessment is still $200K no matter what you paid.

Now if someone built a replica of the house in 2004 on an identical lot across the street, it would get assessed at 2004's value (let's say $400K) and the owner would therefore pay about (don't ask) twice as much in taxes as you.

Should the town reassess in 2008 (very unlikely) the taxes on the two properties should, theoretically, become equal with you paying a bit more and him paying a bit less.

There are a lot of things that could cause some variation, but that's about the jist of it.

Also,
If, in 2005, you put an addition on the 1998-assessed house you got socked with a sizable tax increase because the the addition is going to be assessed at "market" value.

Now let's talk tax appeals...

8/24/2006 10:13:00 PM  
Blogger lindsey said...

To anon 10:29

I have no idea what it might cost you to get out of the deal, so there's no way to know if it's worth it.

You would have to answer a lot more questions to get a good answer, here are some of them:

You say you're combined gross is $250K, but does the baby change that? By how much? For how long?

Are you going to spend anything on improvements to the house after you move in?

What are taxes like in the town where the house is?

Are you OK with losing money? (because that is a real possibility)

Is there an acceptable alternative in the rental market?

8/24/2006 10:25:00 PM  
Blogger Richard said...

anon 10:29, considering your NYC rent, combined income, cost of the house you're purchasing and the plan to stay for 6-7 years i don't think your decision to buy is a bad idea, IF you don't mind over the next couple of years potentially seeing the paper worth of your residence drop to $600k. when you sell you might only be walking away with what you paid off in principal.

while you are probably overpaying a bit sometimes the best financial decision isn't always the one you can make. good luck. what town are you buying in?

8/24/2006 10:26:00 PM  
Anonymous tin425 said...

Homes are unaffordable because the inflation rates continue to rise as well as commodities. That is the result of poverty. Seems like the entire world is suffering from this dilemma. How can we get away from the reality?

8/24/2006 10:36:00 PM  
Blogger NJGal said...

So, now a relative tells me they've been talking about the 100% assessment for 30 years and it's never happened. What I think he fails to understand is that when property values increase 100% in a few years, town gov't become MUCH more motivated to get as much $$ as possible. I have to look into it further.

8/25/2006 07:48:00 AM  
Blogger chicagofinance said...

Bergs:

http://www.abcnews.go.com/Video/playerIndex?id=1710092

chicago

8/25/2006 03:57:00 PM  

Post a Comment

<< Home