expecting 90% decline in CA home prices
#1
Posted 21 December 2006 - 12:59 PM
It's the illiquidity, stupid !
#2
Posted 21 December 2006 - 01:02 PM
#3
Posted 21 December 2006 - 01:03 PM
#4
Posted 21 December 2006 - 01:09 PM
#5
Posted 21 December 2006 - 01:13 PM
#6
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!
#7
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
Posted 21 December 2006 - 01:39 PM
#9
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.
johngeorge
#10
Posted 21 December 2006 - 02:14 PM
Mark S Young
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