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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Wyätt Gwyön who wrote (26988)	2/8/2005 6:03:32 PM
From: GraceZ	Read Replies (2) \| Respond to of 306849

Every house I've ever bought was below replacement cost, two were approximately half the replacement cost and stayed that way for years and might only now be above it. The cost of building has almost exactly followed inflation, it is the price of the land which has been subject to appreciation ahead of inflation and incomes. Or in the case of my undervalued housing investments, depreciation of the land values and market avoidance. if prices were not higher than costs, nobody would build new homes True, this is why there are times when new homes lag while existing homes do better, or times when rents run ahead of house prices. In some markets land is 1/3 the price and in others it is 2/3s. Right now building new is far below prices in a lot of markets except in those areas where local governments have made the cost to build new housing prohibitive. perhaps you have been asleep this past decade. right now it is very common for people with ZERO savings and ZERO family fortune to buy a house with a 100% LTV mortgage, or even 125% in bubble hotspots like california. Fallacy of composition. You can't take individuals or groups of individuals and make a statement about the macro condition. Regardless of what you and your friends might be doing, home equity in aggregate is higher than it's ever been, it's at a historical high. The billions that have been pulled out in HE loans have been offset by improvements and additions to the tune of 60% more than the amount that has been pulled out over the last three years. That collective savings is passed on from house to house or remains in the 40% of housing which is 100% owned. For all your friends who have bought houses with 100% financing, if you look at the stats, only a small percentage of loans are originated at lower than 20% equity every year and only a small percentage of houses turn over in any given year. i guess this is a new development in financial science. it must have happened since the last time the market crashed for properties on the beach, in Manhattan, or in California. was it an Act of Congress, perhaps? You have to smooth out the data to make a macro observation, any trend will have periods of reversal. Housing like any other measure moves up and down in the ST but the long trend is rather clear. The long run rate in these areas over the last 60 years is ahead of real incomes. Maybe you'd like to show me a long trend where housing prices on either coast have tracked real incomes, they've persistently run far ahead of inflation and incomes otherwise guys like you wouldn't be calling it a bubble, you'd be saying that they've simply tracked real incomes, no more no less. This trend has been persistent since the end of WWII. Since the advent of modern financing options. What has tracked real incomes is the amount you spend to live in a house, what I was referring to as housing cost (not the cost of building a new house). How can it not? But the cost of living or owning or renting doesn't have that much of an short term correlation with house prices. If it did, I wouldn't have been able to buy houses that returned in rents twice the mortgage payment. Investors give lip service to cap rates but there is an enormous variation of what is considered acceptable depending on your market. Sale prices are set at the margin by those who are willing and able to buy, so all you need is a marginal supply of buyers who can afford the higher price and a willingness to buy. Restrict marginal supply below marginal demand, as has been done in most high demand areas on either coast and you have a prescription for housing moving ahead of inflation for far longer than anyone here wants to admit. I would venture to guess that a very large number of people on either coast live in and can afford to live in a house which they cannot afford to buy at the current appraisal value with their current incomes. So the "cost of housing" (what they spend monthly on housing) is in line with their incomes without the price of the house being anywhere near it. we should tell their Diet to pass a law so that real estate can only go up like in California. CA RE is nowhere near as bubbly as Japan was in its peak. Plus all prices in Japan have fallen over the past 13 years which means there is also a monetary effect. I expect that CA will see some down and in the near future. I still expect land on either coast to continue to remain above both the long run inflation rate as well as the long term growth in incomes. It could get cut in half from here and still be above that long run rate.