Mish's Global Economic Trend Analysis Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: Elroy Jetson who wrote (77780)	4/16/2008 1:05:15 PM
From: koan	Read Replies (2) of 116555

koan: I think we are sort of talking past each other. Let me take your response sentence by sentence and explain my thinking: Elroy: "Of course housing prices will rise when effective demand returns, that's obvious. Especially when demand is irrational as in the recent credit-bubble. koan: I was not talking about irrational demand. In my town and in much of the northwest housing prices haven't fallen all that much. People in my town buy housing for sheltor and are buying now. As we have more money and jobs than people to fill them and that looks to increase greatly with $115 oil, we will need to build soon again. Also, we have almost no easily buildable land left and land prices have not fallen much at all. Elroy: "This is quite different from saying . . . "home prices will rise when building costs increase". . . . This statement is simply false. koan: I think I qualified the above by saying when true supply and demand return. Of course home prices do not rise when building costs rise if there is an overhang i.e. more supply than demand. That goes straight to econ 101. Elroy: "Costs have a very casual relationship with the price of anything. This is precisely why real estate appraisers rely on the Cost Approach only as a last resort when all other methods have failed." koan: "I have had hundreds of appraisals done. I know appraisers use comps. In a normal market "casual relationship" is overstating it. In a normal housing market cost plus is usually reflected in an appraisers appraisal as everything is keyed on building costs and land and sit prep costs. Land and site prep in my town are about 1/3 the of the cost of a home with the other 2/3rds split between labor and materials. Elroy: "Even then people have a misconception of what "building costs" are. In a down-turn as we are experiencing, land is currently selling for as much as 80% less than it was a couple of years ago. This discount will increase and affect infill lots more significantly as the downturn progresses. In California land is typically more than 2/3 of the "home building cost" - even more than 90% in coastal areas. koan: land is only down a tad here. Elroy: "Having worked for a number of major home builders, as well as holding a Brokers License for 20 years, I can assure you that building costs in volume are a small fraction of what people imagine them to be or as they are published by Marshall & Swift for replacing one home burnt down in a fire. Does construction cost affect home prices? Yes, in the very long run. In the short run, which can be a very long time indeed, construction costs are not relevant to home prices. koan: I know exacty what building costs are. I also sell for builders; also in my town I have sold more land than any other agent for over 15 years becasue I went after the market when others didn't want to fool with it. site prep is the big variable where I live. Very very expensive. Our land is mostly bedrock and wetlands with no sewers. Very expensive to prep and put in septic systems oftne needing to build drain fields. cheers

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next