The stock mkts gains have been the engine behind the small uptick in all the econ #'s from housig to manufacturing. Many people including myself are expecting a double dip back down that will hit the stk mkt and housing next year. Murray my pt was the stk mkt leads everything and if it didn't turn up housing wouldn't have either. that said if you find a good deal and its something you love i'd 100% buy it. but one most be willing to hold 10 plus years
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Oct 2009 South Walton Sales (Homes, Condo, Townhomes)
- Thread starter Em
- Start date
Attached is my column from last week's Sun.
In some cases buying is a good idea, for others, far from it.
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In some cases buying is a good idea, for others, far from it.
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Tom Curlin
Beach Comber
In my view the chart from bdc63 confirms that a return to "normal" will take valuations back to the years 1998 through 2002 rather than 2004. Every bubble that I have studied starts with excess credit creation that fuels valuations which attracts faster money. This cycle repeats until the credit runs out and the market collapses back to or below "normal". Having watched real estate trends in the area from afar for 17 years, I recall that the valuations started getting out of hand by 2003, coincident with the Fed's efforts to reflate the economy by providing the housing market with unsustainably low short term rates.
If you take the year 2000 to 2002 range of 200k to 300k from murray's second chart, use the midpoint of $250k, and adjust this value using an inflation rate of 2.5%, you get a current midpoint of $300k. In my view that number represents a more educated guess at "normal" for the area. Unfortunately when a bubble collapses the market often corrects to below "normal" levels before settling out.
As ray points out there are several federal progams propping up valuations this year in an effort to avoid a deflationary death spiral for the economy. In essence we are replaciing excess credit creation in the private sector with excess credit creation in the public sector in an effort to slow down the correction process, thereby avoiding a collapse of the U.S. banking system. This is unfortunate for potential buyers for obvious reasons but perhaps necessary to avoid an even larger governement intervention - as in New Deal economics - at a later date.
The good news for buyers, in my opinion, is that the commercial real estate market is now collapsing in predictable fashion. Those banks that were forced to aggressively write down their residential loan portfolio before mark to market was suspended will be looking for cash to buffer their reserves as they begin writing down commercial loans. That cash is sitting in their residential portfolio, which I believe is one of the reasons that residential foreclosure metrics will continue rising over the next 12 months. The banks are coming for their cash.
If you take the year 2000 to 2002 range of 200k to 300k from murray's second chart, use the midpoint of $250k, and adjust this value using an inflation rate of 2.5%, you get a current midpoint of $300k. In my view that number represents a more educated guess at "normal" for the area. Unfortunately when a bubble collapses the market often corrects to below "normal" levels before settling out.
As ray points out there are several federal progams propping up valuations this year in an effort to avoid a deflationary death spiral for the economy. In essence we are replaciing excess credit creation in the private sector with excess credit creation in the public sector in an effort to slow down the correction process, thereby avoiding a collapse of the U.S. banking system. This is unfortunate for potential buyers for obvious reasons but perhaps necessary to avoid an even larger governement intervention - as in New Deal economics - at a later date.
The good news for buyers, in my opinion, is that the commercial real estate market is now collapsing in predictable fashion. Those banks that were forced to aggressively write down their residential loan portfolio before mark to market was suspended will be looking for cash to buffer their reserves as they begin writing down commercial loans. That cash is sitting in their residential portfolio, which I believe is one of the reasons that residential foreclosure metrics will continue rising over the next 12 months. The banks are coming for their cash.
Em
Beach Fanatic
I'll first comment that all real estate is local. This chart is for all of the USA. Let me remind you that South Walton is far more unique than the rest of the USA.LOL. Shelly is a train spotter! -- one more clue to your idenity ...
Maybe Murray hasn't seen this chart yet ...
According to this economist who created this index above, we will see prices across the USA, on average, dip below levels of 1997. Let me show you what that would mean if South Walton is representative of the rest of the USA.
Look at the chart above (based on sales reported to Emerald Coast Association of Realtors) and you will see that the median sales price of detached homes in South Walton is currently $410,500. Median sales price in Jan 1997 for detached homes in South Walton was a whopping $152,000. (Median Sales Price is the number in the middle, where half of the sales are above that price and half of the sales are below that price.) If prices were to retreat to a level of 1997 or earlier, that would mean a 63% further decrease in SOLD prices. Many of today's sales are selling with multiple offers, and there are many buyers looking and willing to buy. If prices decrease further, more buyers will be competing against each other, which should push sold prices, up, not down. I disagree with your comparison of the economist's chart with sales in South Walton. About half of today's sales in South Walton are cash, so with financing not being a concern for many buyers today, it sure won't be a problem if that $410,500 house is available in a few years for $152,000.
Shelly, the story is that sales are happening while people have no clue. I think the title is very appropriate. As I mention in the article, I hear many people saying that they are waiting until the market bottoms out before they buy. What they really mean is that they want to see other people buying before they will jump back in, because in their minds, when people are buying, and sold prices look level, while volume is increasing, we are near the bottom. For these people looking to time the market, they are the ones who the train is passing. It isn't to say that other trains aren't continuing to stop at the station.
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Tom Curlin
Beach Comber
Please note that the econ chart is inflation adjusted. So you have to take your local chart and adjust for inflation relative to any historical range you choose. I too would be shocked to see us return to 1997 levels on an absolute basis, but I think a return to 1998 through 2002 levels adjusted for inflation is well within reason. Per my prior comments I guestimate that gets you to a current range centering roughly around $300k. Of course, the market might overshoot to the downside but in my view that would be the central tendency. Alternatively perhaps we will bounce around $400k for several years until inflation catches up to your chart.
Personally I am more interested in understanding supply side behavior versus the demand side right now. I suspect a chart of REO sales as a percent of total sales would show a still increasing trend, and I don't think you can point to volume as confirmation of a bottom until the percent of that volume from REOs peaks. As I mentioned previously, I think the banks are coming for their cash more aggressively over the next twelve months versus the prior twelve months.
Personally I am more interested in understanding supply side behavior versus the demand side right now. I suspect a chart of REO sales as a percent of total sales would show a still increasing trend, and I don't think you can point to volume as confirmation of a bottom until the percent of that volume from REOs peaks. As I mentioned previously, I think the banks are coming for their cash more aggressively over the next twelve months versus the prior twelve months.
SHELLY
SoWal Insider
...and they'll end up bloody and battered on the tracks just as those who were told a couple years ago they'd miss the train too.
Exhibit A: NAR full-page ad from Nov 2006:
IMO You'd do well to stick to the facts about "normal" home buying going forward and can the investulator hype.
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Em
Beach Fanatic
Shelly,
I'm not the one pointing to the future. My article is based solely on past sales. If there is any predicting of the future on this thread, it seems that would be coming from you and a few others.
You talk as though I work with investulators, but the vast majority of the buyers with whom I work are end-users, and are able to afford the properties, and don't intend to sell in the near future as a quick flip, so there is no blood being shed. They like the property, and they can afford it, and they will use it.
Since you are such a predictor of the future, at what level do you predict the median price of South Walton homes sold in 2015? I'd love to see your forecast of the future, perhaps on a new thread, since this one is really for actual sales of the past.
Do you have any comments about the recent past sales, other than people will be bloody?
I'm not the one pointing to the future. My article is based solely on past sales. If there is any predicting of the future on this thread, it seems that would be coming from you and a few others.
You talk as though I work with investulators, but the vast majority of the buyers with whom I work are end-users, and are able to afford the properties, and don't intend to sell in the near future as a quick flip, so there is no blood being shed. They like the property, and they can afford it, and they will use it.
Since you are such a predictor of the future, at what level do you predict the median price of South Walton homes sold in 2015? I'd love to see your forecast of the future, perhaps on a new thread, since this one is really for actual sales of the past.
Do you have any comments about the recent past sales, other than people will be bloody?
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30ashopper
SoWal Insider
This is 100% spot on, inflation adjusted, we hit 1997-1998 top end median values in the first quarter of 2009.
$200,000.00
$206,000.00
$212,180.00
$218,545.40
$225,101.76
$231,854.81
$238,810.46
$245,974.77
$253,354.02
$260,954.64
$268,783.28
$276,846.77
$285,152.18
My guess is, once the government incentives dry up, we will revisit them again. I sense people think this graph is suddenly going ot head north like it did in 2003, trust me, it's not. I'm guessing we'll be locked into this range for quite some time to come.
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Em
Beach Fanatic
Regarding inflation in the economist's chart someone posted, I still think it is way off. If we took that median sold price from Jan 1997 of $152,000 and adjusted it for inflation, that price in today's money would be $204,728.37 according to my calculator. That is about half of today's actual value, which is still a hefty return.
SHELLY
SoWal Insider
...for stocks it's a good return, for an investment minus carrying costs--not so much.
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