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expecting 90% decline in CA home prices


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#1 greenie

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Posted 21 December 2006 - 12:59 PM

It is based on a typical house in bay area, although I saw similar ratios of numbers in many other houses all around Northern and Southern California. The place I was renting last year had rent of $1650 for each part of the duplex. Total rent was $3300. The price for which the house sold this May was 1.2Million. Price to rent ratio = 363. Fair value of price to rent ratio = 120 (10 times yearly rent, this is what the real estate people use in normal markets) Price to rent is out-of-whack by 3 times. After the market corrects, I expect prices to correct equally in the other direction before stabilizing. The reasons are (i) when prices reach fair value, people will still be reluctant to buy because of previous history of decline, (ii) people will not have enough cash to buy and borrowing will be no-no at that time. So, I expect price to rent to go to 40 at the bottom. For the mentioned house, price will be 132000. Therefore, there will be 90% decline. If all houses decline by 90% in prices around the state, and there is no civil war, I will be very surprised. Expected time-frame of the decline - 8-10 years. Peak was in 2005. So, I expect the bottom around 2014-16.
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#2 Jnavin

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Posted 21 December 2006 - 01:02 PM

I hope that Traders Talk does not become a "real estate prices" board.

#3 IndexTrader

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Posted 21 December 2006 - 01:03 PM

:lol: Greenie...that ain't gonna happen in your lifetime, or your unborn childrens lifetime. IT

#4 traderpaul

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Posted 21 December 2006 - 01:09 PM

Greenie, It is the price of the land.....There are often times that the lot worth more than the house in CA.....Down 90%?.....Very unlikely.....my friend.....
"Inflation is taking place now. Prices may not appear to be rising because they are making packaging smaller. " Rickoshay

#5 S.I.M.O.N.

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Posted 21 December 2006 - 01:13 PM

If your going off the debacle in texas in the mid 80's, cali is a completely different animal, as long as Prop 13 is in effect prices here will continue their upward climb, maybe level off a bit for a few years if your lucky.
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#6 vitaminm

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Posted 21 December 2006 - 01:26 PM

It is based on a typical house in bay area, although I saw similar ratios of numbers in many other houses all around Northern and Southern California.

The place I was renting last year had rent of $1650 for each part of the duplex. Total rent was $3300. The price for which the house sold this May was 1.2Million.

Price to rent ratio = 363.

Fair value of price to rent ratio = 120 (10 times yearly rent, this is what the real estate people use in normal markets)

Price to rent is out-of-whack by 3 times.


After the market corrects, I expect prices to correct equally in the other direction before stabilizing. The reasons are (i) when prices reach fair value, people will still be reluctant to buy because of previous history of decline, (ii) people will not have enough cash to buy and borrowing will be no-no at that time.

So, I expect price to rent to go to 40 at the bottom. For the mentioned house, price will be 132000.

Therefore, there will be 90% decline.

If all houses decline by 90% in prices around the state, and there is no civil war, I will be very surprised.

Expected time-frame of the decline - 8-10 years. Peak was in 2005. So, I expect the bottom around 2014-16.



Monthly mortgage on 1.2m > monthly rent!
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#7 kc135a

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Posted 21 December 2006 - 01:26 PM

Therefore, there will be 90% decline.


During the Great Depression the average house lost 40% in value. Premium locations held and/or went up.

I researched this a year ago since that is what I expect ot happen beginning early 2010.

KC.

#8 arbman

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Posted 21 December 2006 - 01:39 PM

I'd say 30% max over the next 5-6 yrs and that's if the dollar can not bounce and the rates have to stay elevated for a long time. The ratios you are mentioning will correct, but probably with the inflation in living as well as the correction in the prices, imho. Look at the past patterns in the early '80s and early '90s. The previous generational top for the housing was probably in the '80s. The stocks had a generational top in '90s, while the housing had a generational bottom since the late '90s. The performance of the two should switch their places around the middle of the next decade and the stocks should outperform over the following 15-20 yrs. I wouldn't be surprised if the housing doesn't top until 2008-2009, it was my forecast date anyway. The rates will come down eventually next year...

#9 johngeorge

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Posted 21 December 2006 - 01:45 PM

It is based on a typical house in bay area, although I saw similar ratios of numbers in many other houses all around Northern and Southern California.

The place I was renting last year had rent of $1650 for each part of the duplex. Total rent was $3300. The price for which the house sold this May was 1.2Million.

Price to rent ratio = 363.

Fair value of price to rent ratio = 120 (10 times yearly rent, this is what the real estate people use in normal markets)

Price to rent is out-of-whack by 3 times.


After the market corrects, I expect prices to correct equally in the other direction before stabilizing. The reasons are (i) when prices reach fair value, people will still be reluctant to buy because of previous history of decline, (ii) people will not have enough cash to buy and borrowing will be no-no at that time.

So, I expect price to rent to go to 40 at the bottom. For the mentioned house, price will be 132000.

Therefore, there will be 90% decline.

If all houses decline by 90% in prices around the state, and there is no civil war, I will be very surprised.

Expected time-frame of the decline - 8-10 years. Peak was in 2005. So, I expect the bottom around 2014-16.





greenie



You got the Q's and the bonds right. So.........I am not discounting your real estate forecast either. :rolleyes:
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#10 OEXCHAOS

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Posted 21 December 2006 - 02:14 PM

Can I sell you a put, Greenie? At 90% down, I'm moving! M
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