Wall Street Journal: Home Prices: Low, But Still No Bargain

[steven johnson]

There are some profesional real estate valuators who feel that based on current wage levels, housing is still historically overvalued. Prices ratios have only reverted back to 2003 levels. The opinion is that there is still a downside risk.

The closely watched Case-Shiller index, which tracks prices across twenty major cities, shows that through January the crash was getting worse, not better.

And yet, even after these declines, homes overall still may not be that cheap relative to wages. More on that later.

The headline numbers are grim enough. January's Case-Shiller index showed a 19% slump from a year earlier. The usual suspects fared very badly: Phoenix was down a remarkable 35%. Las Vegas fell 32% and Miami 29%.

Those "professionals" in the market continue to be wrong-footed. Early last year I wrote that even though prices in Florida and California had collapsed, those markets were still overvalued. Naturally I was on the receiving end of lots of angry emails from real estate brokers who told me I was an idiot (or worse). Events since then have borne out my analysis.

http://online.wsj.com/article/SB123853857749575441.html

[paulsby]

1. there is always downside risk

and of course markets vary. real estate is many local markets within a national milieu.

i just closed on a house that was WAY off its highs.

and i've said before, can prices go lower?

absolutely.

but recall that people LOVED real estate when it was expensive and hate it now that it is cheap(er)

generally speaking, and i say this as somebody who started buying gold at <$300 an ounce.

buy when people hate it, sell when they love it.

i don't care if you are talking oil, corn, real estate, stocks, etc.

and you are correct about the "professionals".

i recall these morons in seattle 2 years ago saying seattle COULDN'T have a crash.

lol

[county worker]

2. This is all relative. If you are a buyer or an owner you see this different.

To a buyer homes are over valued. To an owner this is bull shit. The more the value goes down the more your equity goes down. To many people that equity was like an investment.

So people are losing their investment isn't that just grand?

[paulsby]

3. i am sorry

but when you buy ANY asset, especially overleveraged and/or after a long bull market w/o any meaningful pullback, you are making a risky investment.

people who bought when real estate was long in the tooth should have kept that in mind

i am not saying sympathy isn't appropriate.

i am saying the real estate market pullback was necessary, and a good thing.

we could not sustain the overbought condition,nor is it healthy for people to buy houses at ridculous multiples of income that they had been doing based merely on the (false) assumption that it was a "no risk" investment cause real estate only goes up

ALL markets go up and down.

all

all bubbles pop

period

[county worker]

4. Values are going back to the levels of 4 and 5 years ago.

I think that is on the upside of the bubble. And everyone is losing equity no matter when you bought the house.

[paulsby]

5. everyone loses equity in ANY market

when prices go down.

but for people who didn't use their houses as ATM's and didn't overleverage, it's an entirely different deal and not a lot of sweat.

and houses, unlike stocks when your equity goes down, still offer a benefit. you can live in it.

i sold one of our houses near the peak, 2 years ago, exactly because i feared a pullback. and i waited a couple of years and just closed on another 1 month ago, and made sure to put a little less than 25% down.

i will be selling our primary res. this month.

it's the samein ANY bubble or bull market. just like people who jumped IN to stocks when dow was at 13k. iow, they LOVE it when it's overbought and long in the tooth, but hate it NOW when it is 7.5k (and 6.5 k a little while ago).

the basic investment strategy for buying houses hasn't changed in 50 yrs. never buy with less than 20% down, have a cash cushion, and don't buy a house with a value more than 5 times your gross income.

[county worker]

6. If we all waited until we had 20% down most of would never buy a house.

With declining incomes rules don't mean much.

I always like it when money managers tell us to save for retirement and save for college and put 20% down on a fixer upper.

Next they cheer busting unions and sending jobs over seas. We have a nation of people who make around $50K per year and most of these things don't even come into play.

We have to start getting real and make this country livable for everyone not just those who can put 20% down.

[paulsby]

7. rules matter

part of the reason the prices went up so much was that people ignored those rules.

it's your frigging money.

i scrimped, saved, and lived in a cheap apartment with no furniture for 4 yrs, and worked as much o/t as i could get in order to get that 20% down when i bought my first house.

i paid 190k and put 50 down (1999).

the realtor (idiot) practically screamed at me for not buying MORE house. my income was like 60k, i had 20+% down and he was like "you should be buying a house for at least 300k"

but guess what? real estate agents don't live with the consequences of fiscal imprudence. the buyer does.

and rules are rules.

[county worker]

8. We all have different life choices and different life situations.

Being an existentialist I can't see where rules should trump the needs of people who can't play by the rules because they never had a chance.

The basic necessities of food, shelter and clothing should be accessible to all. I'll even put in health care in there.

[paulsby]

9. that's great

but we work w/in the system we HAVE, not the one we want to have.

people ALWAYS want to live beyond their means.

the rules evolved because... wait for it... they work.

people who followed those rules did not get pummeled like baby seals by the real estate market.

[county worker]

10. People who played by the rules have the means to play by the rules.

Yes people got way too far into debt. They bought houses and cars and other toys on credit and can't make the payments.

I saw people driving around in Ford F-350's with every extra you could get on it. They bought Mc Mansions in neighborhoods that were up to 100 miles from their work place. I aways asked myself how the hell do they pay for everything?

These folks bought into an idea of what success is. That idea was he who has the most toys must be as superior being. It was being sold to them daily on the tube and every magazine you could find.

Are they responsible for the mess they are in, you're damned right they are.

But there are people who never did all the above because they never could. They made choices for their lives too. Some were not very good ones.

But they still should have the basic necessities available to them. I don't want to see a country of homeless starving families because they didn't play be the rules.

[paulsby]

11. of course i don't either

but my primary point was that the pullback in real estate prices was healthy, and was needed.

[county worker]

12. OK, no argument