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Oct 2009 South Walton Sales (Homes, Condo, Townhomes)

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We ask that everyone give respect to contributors (especially moderators), instead of taking useless pot shots at someone like Murray who is contributing useful information and helpful posts to our community.

If you need to post your disagreement with posts, please do so in a respectful manner that adds to the discussion, thereby encouraging others to do so as well, instead of creating a chilling effect on this forum.

A few posts have been deleted.

I'll add in this case that speaking with Murray about real estate is as real as it gets, with zero hype. I understand where he is coming from. I hear about "the bottom" all the time. It is what most people around here have wanted to talk about for the last few years in relation to real estate, and I appreciate the discussion.
 
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.

I used 3% and chose what appeared to be the average median price from 1997 off your graph. With an inflation rate of 2.5% (which is too low) the price would be:

1997 $200,000.00
1998 $205,000.00
1999 $210,125.00
2000 $215,378.13
2001 $220,762.58
2002 $226,281.64
2003 $231,938.68
2004 $237,737.15
2005 $243,680.58
2006 $249,772.59
2007 $256,016.91
2008 $262,417.33
2009 $268,977.76
2010 $275,702.21
2011 $282,594.76
2012 $289,659.63


Now, lets look at return.. :biggrin:

Between 1997 and 2009 (12 years) at 2.5% inflation and a closing value of 375K (average for 2009 off your graph), we have

200K purchase
70-90K inflation
80-100K appreciation if you sold mid-2009

That's 3% annual return beyond inflation.

Edit, my numbers in my spreadsheet were off - 3% annual beyond inflation (6% total), if you purchased in 97 and sold in 09.
 
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About the same as the return on my 401k over that time frame, and a much more enjoyable place to spend vacation time. Even with the losses over the past few years, the true "value" of property on 30-a (some function of benefits/cost) would seems at least equal to other investment categories for the end user who can manage the cost structure.
 
Here's the wild card. The gov't is hell bent on preventing a 1930's type deflationary spiral like the 1930's even if it means a massive inflationary spiral. the fed is sytematically destroying the $ by keeping rates at zero and printing to the moon.what this is doing is forcing safe $'s into stock and commodities such as gold and oil and causing more asset bubbles. basically since 1990 the feds ways out jams is printing $'s to flood the system with cash to cause bubbles to cover up the failures of the fed.The fed is praying $'s flee into real estate to hedge against inflation. so far it hasn't worked
 
About the same as the return on my 401k over that time frame, and a much more enjoyable place to spend vacation time. Even with the losses over the past few years, the true "value" of property on 30-a (some function of benefits/cost) would seems at least equal to other investment categories for the end user who can manage the cost structure.

As with all purchases, it depends on when you buy and sell. That return creeps down toward 2000, then falls off a cliff after that. Hopefully we are now back to the good old days of a reliable 3-6% annual appreciation, a "get out of it what you put in" investment. That's the classic scenario right, you buy a house, live in it, retire, sell, and get your money back.
 
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In the context of bdc63's econ chart I still contend that the years 1998 through 2002 represent the best reference point. A review of credit issuance trends over several decades also suggests this time frame as the last period of "normal" in the U.S. real estate market. You might argue that the 1990s was a bubble period too but that was primarily in the equity markets. When the stock market bubble popped in 2001 the excess credit creation shifted to the real estate market. This to points to the 1998 through 2002 time frame as the last "normal" period for U.S. real estate valuations.

In fairness to murray one important difference between now and the 1998 to 2002 era is the level or mortage rates. Yes the fed is subsidizing the conventional loan market, but as I recall jumbo loan rates also are lower than during that era. So you might look at the issue in terms of owner's equivalent rent or the cost of monthly payments and determine that "normal" today is somewhat better than just an inflation adjusted metric.

However, I still believe we are going below "normal" as the banks move a substantial amount of distressed property to cash buyers over the next year or two.
 
Another simple way to see the issue is to take murray's second chart with data back to 1993, place a ruler in front of your computer screen, and do your best to fit the line of the ruler to the trend in median sales prices from 1993 through 2002. When I do this I get a ruler line that lands between $300k and $350k in 2009. And yes that does include inflation adjustment since inflation is embedded in murray's data. Some might note that including 2003 and 2004 gives a better answer but I still contend that 2002 was the last year of normal in the U.S. and 30A market.

My thanks to murray for a very useful chart.
 
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Last week's column


Couldn'f figure out to make the link work.

From Walton Sun 11/14/2009

There is nothing wrong with owning real estate. A popular local Internet bulletin board often touts that now is a good time to buy. They make a compelling argument: Prices are down, inventory is high and interest rates are at generational lows. Although owning a home makes sense for some people, for others, renting can be a much better financial choice.
For retirees who are living on their investments, high fixed expenses from a mortgage can be an economic albatross. Last year proved that investment portfolios can fluctuate, and fixed expenses require more assets to be withdrawn during downswings. Retirees with sufficient and sustainable cash flow are better suited for owning real estate and funding the subsequent mortgage. For others, renting is the best deal. Recently, both the client?s CPA and I agreed for their situation, renting
was preferable.
?No brainer? is unprofessional, but entirely appropriate.
Is renting always better than owning real estate?
Always is a long time, but an esteemed colleague, Jake Engle, who practices in Seattle, pointed out that a house costs as much to own as
a hedge fund (2-3 percent a year). Figure your annual expenses on maintenance, taxes, insurance and improvements. Residential real estate?s inherent illiquidity only compounds the problem.
Let?s crank up the old spreadsheet and run some local numbers. A hypothetical buyer purchases a home for $400K. For this illustration, they will pay 20 percent down, take out a 30 year mortgage at 5.125 percent, along with coughing up $208 and $200 for insurance and taxes monthly. Given the huge inventory of vacant homes, something comparable can be rented for $1,500 per month. Throw in $42 monthly for renters insurance ? yes, renters need insurance ? we see the renter?s monthly out of pocket is $959 less than the buyer?s ($1,542 versus $2,501).

So renting is always better. Not so fast; it depends on what you do with the $959. If you are like the typical American and blow it at Johnny McTighes or Chicos, then buying a home is much better than renting. Conversely, if you are disciplined enough to save the difference in a 401K and get a nice match from your employer, then you might be better off renting. At least in the short-turn ? the most critical variable is how long you own the home before selling. Even when the investment return is 50 percent higher than appreciation on the home (6 percent versus 4 percent), owning the home becomes the better deal financially if you stay put for 13 or more years.
Predictions are pretty dangerous, especially when they are about the future. No one knows what returns will be down the line. A low return (2 percent) on both homes and equities/bonds means the break-even point for renting versus buying is more than 15 years. A higher return (4 percent) for both lowers the break-even period to fewer than 5 years. The dramatic difference is due to the down-payment a home requires.
Logically, if residential real estate outperforms equities and bonds, then buying a home is a better deal. Because you are building equity (theoretically), buying a home outshines renting even if home appreciation lags equities and bonds.
Contrary to my friends who
post online, there are no magic answers. Buying a home might be the best option but for some people, and under situations, renting is the way to go. Thoughtful and realistic evaluation should be exercised when weighing financial choices and giving investment advice.
Warren Buffet knows the best way to make money in real estate. Berkshire Hathaway owns HomeServices of America, the second-largest, full-service independent residential real estate brokerage firm and the largest brokerage-owned settlement services (mortgage, title, escrow and insurance) provider in the U.S.

 
A popular local Internet bulletin board

Buz, Buz, Buz. :doh:

While it would be nice for you to have mentioned "SoWal.com", on the other hand, a "popular local internet bulletin board" can't actually tout anything, can it? Unless you are trying to imply that the managers of this site tout something about buying, which is not true.

I assume you mean members of a "popular local internet bulletin board" are touting something. Truth is, very few members of this forum say it is a good time to buy.
 
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