http://www.courant.com/business/realestate/hc-homesales0829.artaug29,0,7234560.story
Click on the "Related Links" Decline in the House Graphic.
I think this graphic is useful in showing the relatively modest decline in CT housing prices in the last year relative to the 7 years of amazing growth (58.6%) that preceded it.
One might project (i.e. guess) that a plateau in this chart could develop around $260,000 during 2009 before we return to the modest 3.5% growth rate in 2010 similar to that we enjoyed in the year 2000 and then the whole 10 year cycle begins again.
But we must hasten to point out that if someone bought a median priced home in 2000 for $170,000 and they used a 10% deposit ($17,000). Their house would have grown to be valued to about $288,000 by 2007. (Little Side note: We bought ours for $180,000 in 1998 and got an appraisal of $360,000 in 2007). So the increase in equity during those seven years on the median priced house is a whopping $118,000. So their initial $17,000 investment grew to $118,000 in seven years which is 694% or almost 100% each of the seven years.
Here is how the annual increase looks in a spreadsheet:
Median Price
$170,000 The year 2000 Price
$12,750 (yearly increase)
$182,750 The year 2001 Price
$13,706 (yearly increase)
$196,456 The year 2002 Price
$14,734 etc.
$211,190
$15,839
$227,030
$17,027
$244,057
$18,304
$262,361
$19,677
$282,038 The year 2007 Price
Notice that the compounding effect of this 90% leveraged position allowed the homeowner to get an average of about 100% return ($17,000) on their initial investment each and every year for the seven years of expansion.
The key to having a great investment is being invested in the house during the period of expansion which may not be as easy to determine in advance. So the advice would be to buy and hold real estate to take advantage of these surges when they take place realizing that during a typical 10 year time horizon you will do just fine.
Friday, August 29, 2008
Sunday, August 10, 2008
OIL-RICH FUND EYEING FORECLOSED US HOMES
This interesting article is very believable. This would be one more sign that the market is getting ready for a transition. When we read ... "Hanson is now willing to pay 50 cents to 60 cents on the dollar for a collection of California REOs worth at least $500 million " we may be reaching the bottom of the market.
http://www.nypost.com/seven/08102008/business/lost_sovereignity_123879.htm
http://www.nypost.com/seven/08102008/business/lost_sovereignity_123879.htm
Sunday, July 27, 2008
Interest Statistic Worthy of Reflection -- Meditation
"Until the current downturn, median home prices had declined more than two months in a row only once, in 1990. But the decline now has lasted 22 straight months."
From this fact, I conclude:
1) Median home prices don't decline very often
2) Our current decline which began in late spring 2006 has been an unprecendently long one
3) Over the past 18 years real estate has been a great investment
4) This might be the best time to purchase real estate in 18 years.
From this fact, I conclude:
1) Median home prices don't decline very often
2) Our current decline which began in late spring 2006 has been an unprecendently long one
3) Over the past 18 years real estate has been a great investment
4) This might be the best time to purchase real estate in 18 years.
Friday, July 11, 2008
Real Estate Prices Rise for Four Straight Months - Is Anyone Noticing?
RISMEDIA, July 14, 2008-Amidst the gloom on Wall Street about housing someone forgot to check the stats. The National Association of Realtors® has now reported four straight months of rising housing prices, but it seems no one is listening.
According to NAR statistics, the median home price has fallen from a high of $230,200 in July 2006 to a low in February 2008 at $195,600, a drop of 15%. Since February, however, it has risen steadily every month. By May the index (which will be revised on July 24) had risen to $208,600, up $13,000 and a full 6.6%. Another indicator, the mean home price (otherwise known as the average home price), has also shown strength and has risen from a low of $242,000 also in February of this year to $253,100, a rise of $11,100 or 4.5%. It, too, has risen every month since February of this year.
“I just don’t know where Wall Street’s brains are today,” said David Michonski, CEO of Coldwell Banker Hunt Kennedy in New York City. “Everyone on the Street is wringing their hands over housing when in fact the average American has been out this spring buying homes and pushing the median price higher. This has got to go down as one of Wall Street and Main Street’s biggest disconnects in history.”
In addition, on an annualized basis the volume of home sales has also risen somewhat from a low of 4,890,000 homes in January to 4,990,000 in May.
“Rising prices on expanding volume should not a crisis make on Wall Street,” says Michonski.
So why the crisis?
“They say that there are bulls and bears on Wall Street but there are also pigs. Pigs try not just to profit from a crisis but create one to profit from. Today there are just so many people who have positioned themselves to profit from a crisis that they refuse to admit the reality of what is happening on Main Street. It might hurt their positions.”
Is this the bottom?
“No one can know for sure, but the hard data is clear. The median price has risen four straight months. The average American is out there taking advantage of bargains in their local real estate market. They are not listening to Wall Street but following their own belief that the best time to buy is when no one else is, and they are out there buying. If this keeps up, February may prove to have been the low in prices.”
“It is possible that it will not be Hank Paulson or Ben Bernanke who will pull this country out of a housing recession, but the good common sense of the average American whose affordability to buy a home is at a five year high and is acting on it.”
According to NAR statistics, the median home price has fallen from a high of $230,200 in July 2006 to a low in February 2008 at $195,600, a drop of 15%. Since February, however, it has risen steadily every month. By May the index (which will be revised on July 24) had risen to $208,600, up $13,000 and a full 6.6%. Another indicator, the mean home price (otherwise known as the average home price), has also shown strength and has risen from a low of $242,000 also in February of this year to $253,100, a rise of $11,100 or 4.5%. It, too, has risen every month since February of this year.
“I just don’t know where Wall Street’s brains are today,” said David Michonski, CEO of Coldwell Banker Hunt Kennedy in New York City. “Everyone on the Street is wringing their hands over housing when in fact the average American has been out this spring buying homes and pushing the median price higher. This has got to go down as one of Wall Street and Main Street’s biggest disconnects in history.”
In addition, on an annualized basis the volume of home sales has also risen somewhat from a low of 4,890,000 homes in January to 4,990,000 in May.
“Rising prices on expanding volume should not a crisis make on Wall Street,” says Michonski.
So why the crisis?
“They say that there are bulls and bears on Wall Street but there are also pigs. Pigs try not just to profit from a crisis but create one to profit from. Today there are just so many people who have positioned themselves to profit from a crisis that they refuse to admit the reality of what is happening on Main Street. It might hurt their positions.”
Is this the bottom?
“No one can know for sure, but the hard data is clear. The median price has risen four straight months. The average American is out there taking advantage of bargains in their local real estate market. They are not listening to Wall Street but following their own belief that the best time to buy is when no one else is, and they are out there buying. If this keeps up, February may prove to have been the low in prices.”
“It is possible that it will not be Hank Paulson or Ben Bernanke who will pull this country out of a housing recession, but the good common sense of the average American whose affordability to buy a home is at a five year high and is acting on it.”
Wednesday, June 4, 2008
"The froth has been completely blown away"
Quote of the Day
"We've covered a lot of territory in terms of restoring balance in the housing market. The froth has been completely blown away." - National City's chief economist, Richard DeKaser. DeKaser says the drastic declines in home price values have brought equilibrium back to many previously unaffordable U.S. housing markets. (CNN Money, June 2nd)
"We've covered a lot of territory in terms of restoring balance in the housing market. The froth has been completely blown away." - National City's chief economist, Richard DeKaser. DeKaser says the drastic declines in home price values have brought equilibrium back to many previously unaffordable U.S. housing markets. (CNN Money, June 2nd)
Tuesday, June 3, 2008
Today's financial sacrifices can result in big dividends in the future
Mike Summey -- Very successful Real Estate Investor gives some wise advice....
When I was a young man just getting started in life, I struggled. The product of a broken home and with little education, I struck out at the tender age of 15 to make it on my own. I remember those times when I woke up knowing I would have to earn money that day or I wouldn't be able to eat that night. Too proud to accept handouts and unwilling to turn to the government for help, I embarked on a journey that led to a most important discovery: I learned what is required to live the lifestyle of success.
I couldn't help but notice people around me who by middle age were living what appeared to be charmed lives. I never missed an opportunity to pick their brains and try to learn how they did it. The first thing I learned was that it is nearly impossible to earn your way to wealth. Sure, high-income earners often had big houses and fancy cars, but very few of them could sustain their standards of living if they were suddenly unable to work.
I also learned that truly wealthy people were the ones who were able to live on the income from their investments. They also seemed to be more relaxed because they weren't facing the daily pressures that having to earn an income to support a lavish lifestyles can bring. I wanted to be like them.
Once the income from your investments is adequate to cover the cost of your remaining days on earth, you have reached what I call "functional retirement," and there is no age limit associated with it. It's the point in life where you are able to choose what you do. If you wake up and want to play golf or go fishing, you can.
Many people lack patience and try to reach functional retirement too quickly. They play the lottery, invest in high-risk speculative ventures or turn to illegal activities in an attempt to get there with little sacrifice. They can't see themselves ever becoming wealthy, so they resign themselves to working the rest of their lives or scrimping by on a Social Security check in their elder years.
Another telling sign of impatience is people who mortgage their futures by committing tomorrow's income to buy more today. These are the ones who struggle to make payments on cars and boats and run up big credit card bills. Too many people in America suffer from an "I-want-it-now" syndrome. They fail to see how this mentality guarantees an "I-will-have-less" lifestyle later.
Life is like a bank account: You have to make deposits before you can make withdrawals. If you deposit part of your earnings each time you get paid and live on what's left, gradually your bank account grows. If you keep at it long enough, eventually the earnings from your investments can replace your paycheck.
"But," you say, "how can I invest when I can barely pay my bills now?" Answer: It's simple. You reduce your standard of living for a period of time just as you would if your income was suddenly cut by 10, 15 or 20 percent and you couldn't find another job to replace the loss. Is that easy? No. Is it possible? Absolutely.
Here's a tip: Pay yourself first. Each time you get paid, take a portion of your earnings and put it aside in some type of savings account. Then force yourself to live on what's left. It may mean you live in a smaller house or drive a smaller car, but doing so will result in a much higher standard of living in the future.
Developing the habit of saving is the secret to financial success. As long as you are saving and investing regularly, you are on the road to financial independence.
Many young people tell me that money isn't everything - they want to be happy too. But are those two things mutually exclusive, or have we just been brainwashed into thinking that way? If you want the real answer, ask elderly people who are struggling to keep a roof over their heads and food on the table. I'll bet they'll tell you they wish they had saved and invested when they were younger.
When I was a young man just getting started in life, I struggled. The product of a broken home and with little education, I struck out at the tender age of 15 to make it on my own. I remember those times when I woke up knowing I would have to earn money that day or I wouldn't be able to eat that night. Too proud to accept handouts and unwilling to turn to the government for help, I embarked on a journey that led to a most important discovery: I learned what is required to live the lifestyle of success.
I couldn't help but notice people around me who by middle age were living what appeared to be charmed lives. I never missed an opportunity to pick their brains and try to learn how they did it. The first thing I learned was that it is nearly impossible to earn your way to wealth. Sure, high-income earners often had big houses and fancy cars, but very few of them could sustain their standards of living if they were suddenly unable to work.
I also learned that truly wealthy people were the ones who were able to live on the income from their investments. They also seemed to be more relaxed because they weren't facing the daily pressures that having to earn an income to support a lavish lifestyles can bring. I wanted to be like them.
Once the income from your investments is adequate to cover the cost of your remaining days on earth, you have reached what I call "functional retirement," and there is no age limit associated with it. It's the point in life where you are able to choose what you do. If you wake up and want to play golf or go fishing, you can.
Many people lack patience and try to reach functional retirement too quickly. They play the lottery, invest in high-risk speculative ventures or turn to illegal activities in an attempt to get there with little sacrifice. They can't see themselves ever becoming wealthy, so they resign themselves to working the rest of their lives or scrimping by on a Social Security check in their elder years.
Another telling sign of impatience is people who mortgage their futures by committing tomorrow's income to buy more today. These are the ones who struggle to make payments on cars and boats and run up big credit card bills. Too many people in America suffer from an "I-want-it-now" syndrome. They fail to see how this mentality guarantees an "I-will-have-less" lifestyle later.
Life is like a bank account: You have to make deposits before you can make withdrawals. If you deposit part of your earnings each time you get paid and live on what's left, gradually your bank account grows. If you keep at it long enough, eventually the earnings from your investments can replace your paycheck.
"But," you say, "how can I invest when I can barely pay my bills now?" Answer: It's simple. You reduce your standard of living for a period of time just as you would if your income was suddenly cut by 10, 15 or 20 percent and you couldn't find another job to replace the loss. Is that easy? No. Is it possible? Absolutely.
Here's a tip: Pay yourself first. Each time you get paid, take a portion of your earnings and put it aside in some type of savings account. Then force yourself to live on what's left. It may mean you live in a smaller house or drive a smaller car, but doing so will result in a much higher standard of living in the future.
Developing the habit of saving is the secret to financial success. As long as you are saving and investing regularly, you are on the road to financial independence.
Many young people tell me that money isn't everything - they want to be happy too. But are those two things mutually exclusive, or have we just been brainwashed into thinking that way? If you want the real answer, ask elderly people who are struggling to keep a roof over their heads and food on the table. I'll bet they'll tell you they wish they had saved and invested when they were younger.
Housing market may turn more quickly than you expect
The following story provides a warning for would be home buyers. The market will turn but it may happen before you expect it or are ready for it.
IRWIN KELLNER
Home economics
Commentary: Housing market may turn more quickly than you expect
By Dr. Irwin Kellner, MarketWatch
Last update: 12:05 a.m. EDT June 3, 2008
PORT WASJHINGTON, N.Y. (MarketWatch) -- Here's an all-points bulletin to prospective homebuyers: The protracted decline in home prices has made many houses more affordable than they've been in years.
You know what this means? Housing could shift from a buyer's market to a seller's market before you know it.
Now don't get me wrong. I am not saying that all is copacetic when it comes to housing. Far from it.
I would agree with those who say that it will take many months before balance is restored between supply and demand. There are simply too many homes for sale at asking prices that are still too high for housing to do a 180.
Nor am I expecting another housing bubble to form, not in this decade anyway.
All I would like to point out is that, in broad macro terms, the average house is no longer as overpriced as it once was. That being the case, it is no longer prudent to assume that home prices have to fall a lot more before they stabilize.
For now, however, this is what most buyers believe. Knowing full well that there are a lot of unsold homes out there, most would-be buyers are waiting for a sign that prices have stopped falling and thus stabilized before making a bid.
They are waiting because history has conditioned them to do so.
Until recently, home prices used to go in only one direction, up, the only question being how fast. As a result, a house became just about the only item -- large or small -- that people would buy expecting its price to appreciate.
This kind of thinking does not apply to any other product the typical household purchases. Indeed, people routinely buy the latest cell phone, personal digital assistant, high-definition TV, or other electronic gadget fully expecting that those who buy after they do will probably pay less.
But housing is different - at least it used to be. Maybe now that people see that home prices can behave no differently than most other prices (They can go down as well as up), they will adapt a different attitude.
Getting back to affordability, loyal readers know that I believe that this measure is the best way to value a house.
I don't care about the cost of land, labor, building materials or the house next door. What matters to me is the ratio of home prices to household incomes (see my column of Feb. 4).
As of the April stats, the typical existing home cost 3.4 times estimated household incomes, while median new-home prices equaled almost 3.8 times family incomes.
These are down from the peak of 4.2 reached in the bubble year 2005, although they remain above the 2.8 figure that prevailed in the 1980s, when housing sold at a brisk pace.
But home prices don't have to get down to 2.8 times incomes to kick-start the market. A bit over three times might do it.
Remember, incomes are still rising, so home prices don't have to fall as much as you think before buyers decide that they can once more afford the home of their dreams. Sooner or later, the fact that housing is more affordable will sink in. That's when the market will turn.
And, no, my home is not for sale.
Irwin Kellner is chief economist for MarketWatch and for Capital One Bank.
IRWIN KELLNER
Home economics
Commentary: Housing market may turn more quickly than you expect
By Dr. Irwin Kellner, MarketWatch
Last update: 12:05 a.m. EDT June 3, 2008
PORT WASJHINGTON, N.Y. (MarketWatch) -- Here's an all-points bulletin to prospective homebuyers: The protracted decline in home prices has made many houses more affordable than they've been in years.
You know what this means? Housing could shift from a buyer's market to a seller's market before you know it.
Now don't get me wrong. I am not saying that all is copacetic when it comes to housing. Far from it.
I would agree with those who say that it will take many months before balance is restored between supply and demand. There are simply too many homes for sale at asking prices that are still too high for housing to do a 180.
Nor am I expecting another housing bubble to form, not in this decade anyway.
All I would like to point out is that, in broad macro terms, the average house is no longer as overpriced as it once was. That being the case, it is no longer prudent to assume that home prices have to fall a lot more before they stabilize.
For now, however, this is what most buyers believe. Knowing full well that there are a lot of unsold homes out there, most would-be buyers are waiting for a sign that prices have stopped falling and thus stabilized before making a bid.
They are waiting because history has conditioned them to do so.
Until recently, home prices used to go in only one direction, up, the only question being how fast. As a result, a house became just about the only item -- large or small -- that people would buy expecting its price to appreciate.
This kind of thinking does not apply to any other product the typical household purchases. Indeed, people routinely buy the latest cell phone, personal digital assistant, high-definition TV, or other electronic gadget fully expecting that those who buy after they do will probably pay less.
But housing is different - at least it used to be. Maybe now that people see that home prices can behave no differently than most other prices (They can go down as well as up), they will adapt a different attitude.
Getting back to affordability, loyal readers know that I believe that this measure is the best way to value a house.
I don't care about the cost of land, labor, building materials or the house next door. What matters to me is the ratio of home prices to household incomes (see my column of Feb. 4).
As of the April stats, the typical existing home cost 3.4 times estimated household incomes, while median new-home prices equaled almost 3.8 times family incomes.
These are down from the peak of 4.2 reached in the bubble year 2005, although they remain above the 2.8 figure that prevailed in the 1980s, when housing sold at a brisk pace.
But home prices don't have to get down to 2.8 times incomes to kick-start the market. A bit over three times might do it.
Remember, incomes are still rising, so home prices don't have to fall as much as you think before buyers decide that they can once more afford the home of their dreams. Sooner or later, the fact that housing is more affordable will sink in. That's when the market will turn.
And, no, my home is not for sale.
Irwin Kellner is chief economist for MarketWatch and for Capital One Bank.
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