From the New York Times, economist Karl Case of Case-Shiller fame says: Buy!
This financial crisis has made us all too aware that we live in a Catch-22 world: the performance of the housing market drives the economy, and the performance of the economy drives the housing market. But housing has perhaps never been a better bargain, and sooner or later buyers will regain faith, inventories will shrink to reasonable levels, prices will rise and we’ll even start building again. The American dream is not dead — it’s just taking a well-deserved rest.
Michael Cook says:
I dont think it can get much worse, the only question is when will it start to get better. New York City is weather the storm well enough, when does a market like Phoenix or Las Vegas start to get better?
September 2, 2010 — 7:04 am
Greg Swann says:
> when does a market like Phoenix or Las Vegas start to get better?
When, for whatever reasons, people again feel themselves free to move. Both markets are overbuilt right now, and both have always depended on population growth as the solution to all problems. For my investors, positive cash flow is an easy target to hit right now, and growth in values, when it comes, could be dramatic. We’re selling at <50% of replacement cost, so we could go up a lot before it becomes cost-competitive to add significant new inventory. I am burning up with the desire to buy as many rental properties as I can get my mitts on. It's what we'll be doing when the market repays us for surviving the last five years.
September 2, 2010 — 7:40 am
Michael Cook says:
“I am burning up with the desire to buy as many rental properties as I can get my mitts on.”
Isnt this the problem? Every investor is saying the same thing. When I get done working out my investment issue or cash flow issue or fill in the blank issue, I will be buying like crazy.
You would be hard pressed to convince me that over 50% of the growth in those areas came from sheer population growth. Investors drove up the prices and now they are licking their wounds.
With the large amounts of inventory to choose from, how do prices go up without substantial buying. I think that involves both investors and personal homebuyers. Personal homebuyers have taken a beating and will probably not be back to the market in size for the next few years.
The Doctor/Dentist armchair investor might be gone for 10+ years given their experience. Of course the stock market didnt provide a great alternative, so if we are lucky they will choose to come back to the real estate market for investment opportunities.
What are you seeing out there? I would expect to see smart investors back in the market right away because they would have taken a smaller hit. But I dont expect the investor pool to be nearly as deep as it was in 2007.
September 2, 2010 — 11:00 am
Michael Cook says:
“We’re selling at <50% of replacement cost, so we could go up a lot before it becomes cost-competitive to add significant new inventory."
Does this include the steep land devaluation that occurred? I think people in many markets underestimate how much land values have declined. I would also expect to see even further declines in raw material prices as well.
I am quite sure there is still a discount, but it would surprise me if it was truly 50%. Buyers can certainly buy newly built homes for less than their costs to construct, but I would argue if you constructed those same houses today you could probably do it 20-30% cheaper. Strike 50% from land costs, 10 – 20% for the cost of materials and 10-20% for the cost of labor (even union labor surprisingly) and you arrive at a very different replacement cost number.
September 2, 2010 — 11:22 am
leann anderson says:
I AGREE,INVESTORS ARE ONLY BUYING REAL LOW END AND NOT MUCH OF IT. AT BEGINNING OF YEAR THEY WERE PREDICTING WORST OVER WHICH I DISAGREED WITH D/T STILL BEING IN AN ARM YEAR AND UNEMPLOYMENT AND GUESS WHAT NOW THEY ARE SAYING WORSE THAN LAST YEAR. I THINK WE HAVE A LONG ROAD BUT PRAY I AM WRONG.
ALL THE BEST,
LEANN ANDERSON
NAPLES FL
September 2, 2010 — 11:24 am
Jim Klein says:
“For my investors, positive cash flow is an easy target to hit right now, and growth in values, when it comes, could be dramatic.”
Careful…the use of “values” there is the same error as confusing money for wealth. Yes I know what you mean, but my point is more important…IMO of course. Personally I see virtually no chance of increasing /value/ in any real estate except maybe ag land, for the foreseeable future. That’s what happens with a declining birth rate and families doubling and tripling up. Increasing prices, though? Sure, maybe dramatic and maybe soon. Or maybe not. What absolutely nobody seems to get, is that it doesn’t matter. As a society, our focus has turned 100% to the denomination side of the equation with not a moment’s thought about the production side, or what’s being denominated. It’s the old map/territory switch, but in the financial realm! Deadly mistake, that one.
The good news is that irrespective of money or production issues, positive cash flows figure to be around for a good long while, subject to the unintended (intended?) consequences of hare-brained schemes like the one about which Brian posted. This itself might have a decreasing value, but “as good as it gets” is pretty darn good.
September 2, 2010 — 8:12 pm
Greg Swann says:
All real estate is local, Jim. I have no idea when better days will start, or how to quantify better, but Phoenix will do better, when the market turns, than other cities. Our population will grow, and the supply of housing can’t grow by much for quite a while.
September 2, 2010 — 8:59 pm
JB says:
I believe we’re going back to 2003 in values. If that’s the case we going down another 10-15%. Then we will bottom and go up 1% over inflation for the next 30 years.
September 2, 2010 — 8:48 pm
Jim Klein says:
JB, I think you’ve got the near-term pegged perfectly. 10-15 is exactly the number I’ve been saying, though some pretty smart people guess it could be closer to 20. And I agree about the bottom, except that I think long-term it’ll be more like 2-5% under inflation, which was sort of the point I was trying to express to Greg. All except ag land, that is.
Everything’s a mish-mosh anyway and genuine value will be all over the map, with regard to all products and services. That figures to be a huge advantage to the RE folks that pay attention here. IMO, to the degree dollar denomination tells us anything at all, the only relevant factor will be which way that yield curve slope changes. It should’ve increased a bit this morning, at least during the head-rush, but it didn’t. That ain’t good, and neither was the subsequent PMI services number. Pay attention to that slope and the near-future will be obvious.
Plus, we should get a real nice buzz once our pockets (and accounts!) start filling with scrip, so that might be fun.
September 3, 2010 — 10:15 am