Comments on: Housing prices fall below replacement costs, with further to go http://crosslandteam.com/blog/2008/12/04/housing-prices-fall-below-replacement-costs-with-further-to-go/ Austin Real Estate Blog Sat, 11 Feb 2012 14:52:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Barry http://crosslandteam.com/blog/2008/12/04/housing-prices-fall-below-replacement-costs-with-further-to-go/#comment-54236 Barry Sun, 07 Dec 2008 21:57:28 +0000 http://crosslandteam.com/?p=631#comment-54236 LA was nearly 12 times yearly income before the bubble busts. In the range of 300-150K there lies the healthy real estate price point around here. However, the big difference I see between Austin and the rest of Texas is that the high end seems to be very speculative in nature here. In neighborhoods that are close to median prices, incomes are probably reasonable for house values, but the high end in Austin has people living in homes that shouldn't be. Sure there are a lot of people in this town that have made a lot of money in the tech industry and others that have moved in already stacked with cash, but amongst those properties live people who are paying the mortgage from a salary. They are neither professionals, (doctors dentists, lawyers), executives, nor independently wealthy. They leveraged themselves into those homes with toxic loans that are no longer available and they will not be in them in 12 months. LA was nearly 12 times yearly income before the bubble busts. In the range of 300-150K there lies the healthy real estate price point around here. However, the big difference I see between Austin and the rest of Texas is that the high end seems to be very speculative in nature here. In neighborhoods that are close to median prices, incomes are probably reasonable for house values, but the high end in Austin has people living in homes that shouldn’t be. Sure there are a lot of people in this town that have made a lot of money in the tech industry and others that have moved in already stacked with cash, but amongst those properties live people who are paying the mortgage from a salary. They are neither professionals, (doctors dentists, lawyers), executives, nor independently wealthy. They leveraged themselves into those homes with toxic loans that are no longer available and they will not be in them in 12 months.

]]> By: Steve Crossland http://crosslandteam.com/blog/2008/12/04/housing-prices-fall-below-replacement-costs-with-further-to-go/#comment-54194 Steve Crossland Sun, 07 Dec 2008 16:33:22 +0000 http://crosslandteam.com/?p=631#comment-54194 Barry, your point about income to home value ratio is an important one. Austin remains very well positioned as far as the ratio of median income earners ($70K) who can afford a median income home ($190K). California, Nevada, Arizona, Florida etc. departed from the ratios by using a combination loans to unqualified borrowers and old fashioned buyer ferver. I wonder how the lessons of today will be remembered? Already, part of the solution being offered is to re-create the problem by helping buyers who, at present, cannot afford a home, to buy one. Steve Barry, your point about income to home value ratio is an important one. Austin remains very well positioned as far as the ratio of median income earners ($70K) who can afford a median income home ($190K).

California, Nevada, Arizona, Florida etc. departed from the ratios by using a combination loans to unqualified borrowers and old fashioned buyer ferver.

I wonder how the lessons of today will be remembered? Already, part of the solution being offered is to re-create the problem by helping buyers who, at present, cannot afford a home, to buy one.

Steve

]]> By: Barry http://crosslandteam.com/blog/2008/12/04/housing-prices-fall-below-replacement-costs-with-further-to-go/#comment-54182 Barry Sun, 07 Dec 2008 15:56:27 +0000 http://crosslandteam.com/?p=631#comment-54182 Houses are worth a maximum 2.8 times the yearly income of the average person/people living in them. If you live in a $300,000 house and the average income of your neighbors is around 110,000 then the houses in your area are properly priced. Home values can increase only at the rate of the income of an area. If home prices in your neighborhood are going up because doctors and lawyers are moving in its real appreciation, other wise its inflation or speculation. Houses are worth a maximum 2.8 times the yearly income of the average person/people living in them. If you live in a $300,000 house and the average income of your neighbors is around 110,000 then the houses in your area are properly priced. Home values can increase only at the rate of the income of an area. If home prices in your neighborhood are going up because doctors and lawyers are moving in its real appreciation, other wise its inflation or speculation.

]]> By: Ray http://crosslandteam.com/blog/2008/12/04/housing-prices-fall-below-replacement-costs-with-further-to-go/#comment-54178 Ray Sun, 07 Dec 2008 15:18:40 +0000 http://crosslandteam.com/?p=631#comment-54178 Somewhat amusing to hear the siege mentality drumbeat of some less than honest local flippers and real estate agents who are attempting to use bubble area stats to scare locals into expecting less in order to secure a quick profit. The reality is Austin is a very desirable place to live and prices, as they have done for many years neither boom or crash but just chug along appreciating steadily year after year. Somewhat amusing to hear the siege mentality drumbeat of some less than honest local flippers and real estate agents who are attempting to use bubble area stats to scare locals into expecting less in order to secure a quick profit. The reality is Austin is a very desirable place to live and prices, as they have done for many years neither boom or crash but just chug along appreciating steadily year after year.

]]> By: David Mathias http://crosslandteam.com/blog/2008/12/04/housing-prices-fall-below-replacement-costs-with-further-to-go/#comment-54002 David Mathias Sat, 06 Dec 2008 17:13:34 +0000 http://crosslandteam.com/?p=631#comment-54002 I agree. There's no sense of what property is worth right now. We know a good portion of the inventory has been withdrawn from the market, the folks who *have* to sell are discounting, and the alternative to buying, i.e., rents, continue to go down. The feds are going to mess with things further by subsidizing low mortgage rates for some, but without a sense of what the properties are worth, who would buy - even at 4.5%? I agree. There’s no sense of what property is worth right now. We know a good portion of the inventory has been withdrawn from the market, the folks who *have* to sell are discounting, and the alternative to buying, i.e., rents, continue to go down. The feds are going to mess with things further by subsidizing low mortgage rates for some, but without a sense of what the properties are worth, who would buy – even at 4.5%?

]]> By: arz http://crosslandteam.com/blog/2008/12/04/housing-prices-fall-below-replacement-costs-with-further-to-go/#comment-53907 arz Sat, 06 Dec 2008 00:29:11 +0000 http://crosslandteam.com/?p=631#comment-53907 Well, the fact is the replacement cost will eventually fall as well because less demand and over supply for labor and material will push the cost down as fast as our gas prices. So I'd say eventually the house replacement cost will drop to the same level of the worth of the house it's replacing. I don't think Leon Fu's argument for not buying is valid. He's right that the market may sink further and if you are an investor, you might become a "dead hero". However, essentially what this downturn is doing is to take the entire real estate business off the quick cash cow investment model. It was never meant to be that way. Well, the fact is the replacement cost will eventually fall as well because less demand and over supply for labor and material will push the cost down as fast as our gas prices. So I’d say eventually the house replacement cost will drop to the same level of the worth of the house it’s replacing.

I don’t think Leon Fu’s argument for not buying is valid. He’s right that the market may sink further and if you are an investor, you might become a “dead hero”. However, essentially what this downturn is doing is to take the entire real estate business off the quick cash cow investment model. It was never meant to be that way.

]]> By: Leon Fu http://crosslandteam.com/blog/2008/12/04/housing-prices-fall-below-replacement-costs-with-further-to-go/#comment-53756 Leon Fu Thu, 04 Dec 2008 23:39:00 +0000 http://crosslandteam.com/?p=631#comment-53756 Hey Steve, I have to disagree with you. First, why risk catch a falling knife? Nobody is good enough to catch the bottom. Why not wait until after the bottom and buy on the way up? Second, although Austin's unemployment is very strong compared with the rest of the country and with the rest of Texas, it has been deteriorating. Just check the stats from the Texas workforce commission's website. Unemployment is running about 1% higher than last year and it's getting worse, not better. Third, rents are falling as well. I've visited some of the new apartments for rent and they are really struggling to get these new buildings rented out. It's very ugly out there. On the positive side, the government is trying to reflate the economy, but this takes time to work it's way through the economy. They are printing new money to replace the credit that has been destroyed, but this just started. Trillions of dollars in assets are in the process of being destroyed at the moment across all asset classes. They are not going to be able to print the money fast enough and get it into the economy before more damage will be done. There is too much momentum to the downside at the moment at it is probably smart for buyers to stay on the sidelines. The market is filled with dead heros... Hey Steve,

I have to disagree with you. First, why risk catch a falling knife? Nobody is good enough to catch the bottom. Why not wait until after the bottom and buy on the way up?

Second, although Austin’s unemployment is very strong compared with the rest of the country and with the rest of Texas, it has been deteriorating. Just check the stats from the Texas workforce commission’s website. Unemployment is running about 1% higher than last year and it’s getting worse, not better.

Third, rents are falling as well. I’ve visited some of the new apartments for rent and they are really struggling to get these new buildings rented out. It’s very ugly out there.

On the positive side, the government is trying to reflate the economy, but this takes time to work it’s way through the economy. They are printing new money to replace the credit that has been destroyed, but this just started. Trillions of dollars in assets are in the process of being destroyed at the moment across all asset classes. They are not going to be able to print the money fast enough and get it into the economy before more damage will be done.

There is too much momentum to the downside at the moment at it is probably smart for buyers to stay on the sidelines. The market is filled with dead heros…

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