Originally Posted by Tpoints
Another interesting point that a lot of people don't consider is that housing prices can go well beyond the point of "replacement cost" due to supply and demand. To blindly say that replacement cost gives you a floor on housing investments is just plain crazy.
I don't know what that means, explain please?
I was just referring to the fact that used home prices in some areas of the US can become less expensive than the cost to build new homes. This might seem contradictory or impossible, however, many times shear supply and demand fundamentals will overwhelm logical barriers like replacement cost and send home prices to levels that many might think are impossible. I was not trying to contradict your point, just adding to the discussion of home prices getting cut in half which you mentioned in your post.
And during the bottom, everyone on this forum was screaming not to buy real estate because it would soon be worthless. Presumably because people would dump their homes on the market for pennies because they'd rather live in their cars.
this is the signal to watch for... Think about it. If you had 100 houses in various states of disrepair, would you try to sell the worst ones first? Or would you try to sell the best ones first?
Of course prices are rising, its the best of the foreclosures that are finally hitting the markets. The one's that don't need 40k-50k in repairs.
Here is a real life example. We have a 6 bed 2 1/2 bath house. 2 car garage, total 3,400 square feet. The mortgage holder has just completed bankruptcy and has notified roommates that its time to look for a new place to rent.
The property is located in a market where a similar home was built in 2007 with a sales price of $240k.
So what do you think those numbers look like for the house we are looking at?
The house is block home, built in the 1950's.
We are looking to pick this up on a short sale for 50-60% of the loan value, according to the broker that deals with Wells Fargo. The note is 85k. There are no encumbrances on the deed.
According to zillow, median price for 1 mile in the surrounding neighborhood is 77k, which is down nearly 20% from last year, and down nearly 40% from 2 years ago. This is also verified through county property appraiser records.
The point is, here is yet another foreclosure that has yet to officially hit the banks balance sheet. The property from the outside isn't really dragging the market, it sort of fits in. It's a corner house, and clearly at one point it was the nicest house on the block. It needs 40k-50k repairs.
So is it worth 240k? is it worth 85k? is it worth 77k? is it worth 40k?
Market isn't going up, not until the majority of these types of properties are dealt with. And it's pretty clear to me that the majority of these types of houses aren't even in foreclosure yet.
In any other housing cycle, there is the remodeling component that leads the expansion component. We aren't completely through the destruction component yet. The collapse only occurred less than 5 years ago. To believe THIS market is gonna bounce back to equilibrium before it even finishes its downward cycle is the kind of thinking that created the last bubble. I don't buy it unless I know its taking a haircut, AND gonna get a face-lift. Otherwise, that's a "fools" investment at best, and at worse, its something I get stuck with and cripples my ability to be ready to pounce when truly the time is ripe.
Pre-mature rebound, cyclical in nature, and totally fueled by baseless optimism and suspect numbers. Value has fled the market and valuations are all over the board.
The fed announced that their plan for recovery is to reinflate the housing bubble.
wonder where all the new money is going?
Whoever falls for this shit a second time around is an idiot.
"The easy confidence with which I know another man's religion is folly teaches me to suspect that my own is also." ~ Mark Twain.I saw that the State was half-witted, that it was timid as a lone woman with her silver spoons, and that it did not know its friends from its foes, and I lost all remaining respect for it, and pitied it."
--Henry David Thoreau
Nice.
what bottom?And during the bottom, everyone on this forum was screaming not to buy real estate because it would soon be worthless. Presumably because people would dump their homes on the market for pennies because they'd rather live in their cars.
Cool. Thanks. Yeah, sometimes other factors such as neighborhood safety make an otherwise perfect home undesireable or unacceptable.
Ought it ALWAYS to be the case that a used home is - unless it has hand-crafted or some other too-expensive or impossible to replicate features (like location!) - less expensive than an equal-sized new home? The new home can be built to the best-known standards. There is a lot of stuff you just can't add easily later on like XPS foam insulation underneath concrete slabs. The used home has a used, less efficient furnace and waterheater. Old windows, old roofs, old plumbing. FORMICA! [Yeah, it's in my old house too.]
I don't doubt there are exceptions for fine craftmanship, but given an old house next to a vacant lot, I would prefer the vacant lot unless buying the old house saved some big bucks.
Homes depreciate historically - AFAIK. They are knocked down for being obsoltete, out of code, abandoned. What we see are the houses that have been rennovated to maintain a 'like new' quality and the effects of currency inflation. It is like townhouses and condos. Somebody is always putting up new ones that have now-standard features that might have been luxury or not an option 10 years ago. When a new luxury condo building goes up, units in the old luxury condo building next to it go down in value.
My old home is insured for twice its purchase price because the insurer wrote the policy for reconstruction cost not the cost to buy another old home.
So I 100% agree replacement value is not a floor. I'd view it as more of a ceiling.
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