Monday, August 24, 2009

What will your home be worth in 2012?

Businessweek took a stab at answering that question. Unfortunately they only used a few metro areas and the nearest is LA. The median for Q4 in 2008 was $350k according to their data. They think in 2012 the median will be $253K. Look like they feel LA still has a loooong way left to fall. I can't argue with their findings. The coastal areas still have not fallen nearly as much as the IE. They can only defy gravity for so long.

So here is what BW had to say;

When BusinessWeek set out to determine what housing prices would be in the year 2012, we knew that there was no way to know for sure. But in working with the Brookfield, Wis.-based research firm Fiserv, we weighed historical data against current trends to get a bead on which way the markets might jump at one-year increments. By combining data, we were able to get a pretty good idea of what home prices would be in three years' time. Across the board, real-estate prices will continue to drop before rising slightly by the fourth quarter of 2011. Why is that important? Given the wretched state of the real-estate market today, both homeowners and potential buyers might be better able to make an informed decision about when, and whether, they should move. Obviously, we can't guarantee that our data will hold up — although we think it will.

Personally I think a better question is, "what will your home be worth in 2020 or 2030". Going that far out is really hard to do with volitile markets. But housing really shoudn't be a volitile market. I'de be very surprised to see much change by 2020. I still think we will see negative movment for another few years. It might be only small percentages in the IE but I don't see how it can go up with the current problems. I expect several years of flatline or very minimal increases after than. Bottom line, I think in 2020 prices will be about where they are today. That's why I think if you are going to buy you'de better be in it for the long haul.


Metro: Los Angeles-Long Beach-Glendale

What a home will be worth in 2012*: $253,328

Q4 2008 price: $350,000

Projected price change by MSA**: -27.6%

Projected price change by state: -13.2%

Los Angeles, best known as the home of Hollywood, is home to excellent universities such as the University of Southern California and large corporations such as aerospace contractor Northrop Grumman. Southern California has been particularly damaged by the downturn in the housing market, and home values are expected to remain soft.


Anonymous said...

X, I'm tired of the manipulation. I've officially decided to sit the market out a couple more years.

My wife and I were about to start looking this fall, when a home we were going to look at (has been on market now for 2 years) - the bank upped the price $50k.

Then I checked Zillow - they upped the price for my zipcode $50k across the board.

What a joke. People are losing jobs every day, people are barely getting by, but banks are raising the price tags of homes that they can't sell?

No thanks. I sit this mini-bubble out. The same homes that have been for sale for 1-2 years now, are still for sale. Nothing is moving.

Al said...

The 2020 speculation interests me because I keep thinking of Japan, which has been a long, slow breakdown since the early 1990s. It's the proof-of-concept for possibility of a generation of doldrums. Why not us? Dare to dream!

Personally, I'd bet on slightly lower prices in 2020 than today, with some modest increases coming by 2030. There seems no alternative to years of slow sales, as sellers capitulate year after year and hesitant buyers take their time getting in. I see a slow adjustment back to fundamentals, in terms of leverage, resource allocation, and beliefs in housing as anything but a consumer good.

All this is adjusted for inflation, of course. Not that we're seeing it just now: the mild deflation may continue.

If the job losses continue to worsen, however, or our vulnerable financial system is confronted by some resource shock - energy, maybe? - then the adjustment could happen quite quickly. Ouch.

Martin Burtin said...

2020... hmmm, as long we're polishing our collective crystal balls, while imbibing our beverage of choice...

I see higher prices by 2020. I think inflation will push prices higher and we shouldn't discount the traditional 3-4% growth in value that we see in all the charts we use to analyze trends and bubbles. Also, there is ample time for this bubble to pop, get patched up, and begin to inflate again. We seem to have "cycles" of up and downs in So Cal on approximately ten year frameworks, and people will be willing to ride the next wave, when it rolls in.

This wave was once-in-a-life-time, and many got wiped out trying to ride it. But, a handful made their fortunes, too. The next one won't break right for the specuvestors. It'll be hard to catch, will be mostly foam, and you'll find seaweed and sand crabs in your trunks if you go for it... by comparison.

California Girl said...,0,6965065.story

Looks like all the cautious renters missed the boat AGAIN!!!

golfer_X said...

Yup. it's all uphill from here......

But wait, that's the exact same thing they said EVERY summer from 92 to 97. They were finally right in 98!

Tyrone said...

This wave was once-in-a-life-time, and many got wiped out trying to ride it. But, a handful made their fortunes, too.

Hmmmmm... well, that depends. You see, the easy money did, in fact, create inflation in house prices. Yes, inflation. And now the system will want to correct the imbalance. Part of that imbalance is the "fortune" held by some. The delevaraging beast must be fed and that should cause a dramatic price rise in goods. So if you haven't protected that "fortune", you might end up just surviving on it.

Or, perhaps there is no penalty for printing money and giving it away.

golfer_X said...

I added the price chart from the last bust (to this post) to illustrate that prices went up every summer during that bust too. It sure as hell didn't mean anyone missed the boat as the yearly trend continued down. If they did miss the boat it was only for a few months. Do some research Cali Girl. In god we trust everyone else needs DATA!

California Girl said...

golfer_X said...

Yes, sales were up 6.9% from June to July. Prices were DOWN!

And it's the 3rd worst July since the Census Burea started tracking sales in 1963. You have to go back to 1982 to find a worse July.

I'm not sure what point you are trying to make but this news report only looks good when you don't look at any other data.

doghouse said...

seems like sales have increased,( there are NO houses in my neighborhood that are forclosed upon)
prices ARE going UP, so why wait?
seems like the good ones have been scooped up, leaving the undesireable, I don't see why some of you wait, prices will NEVER be as low as before.

golfer_X said...

I'm beginning to think we have a troll.....

Martin Burtin said...

"seems like sales have increased,( there are NO houses in my neighborhood that are forclosed upon)"
There are areas that have concentrations of forclosures. The more upside down, the more likely. Depending on the mortgage program, it also determines the likely timing of the NOD. Then there here are areas of older homes where most are not upside down and foreclosed homes are rare there. So to simply look out your window and not see any foreclosed homes is pretty simple minded.

"prices ARE going UP, so why wait?" Asking price can be anything. Sold for prices are what matter. The latter are not going up, or where they seem to be, it's usually that some higher end homes got factored into the averages.

"seems like the good ones have been scooped up, leaving the undesirable" You sound like you're talking to a 30 yr old virgin, trying to get them to go out on a date and marry the first person available, simply to avoid loneliness.

"I don't see why some of you wait, prices will NEVER be as low as before." Depends what before you are talking about. Some places have rolled back prices almost by a decade. Others only discounted a couple years or so. I tend to be a patient man, but do as you will.

Jack said...

data is great for generalizations and models.. but everyone is in a different situation... waiting can hurt and cost you if you already plan on being a home owner...

looking at the 90's let's say 2010 is equivalent to 1992.. that would mean waiting until 2014 (the bottom) would see an additional 10% drop in home prices.. let's say 15% in the inland... so a $300,000 house today will sell for $255,000 in 2014 (and we assume after 2014 there will be slight gains on the home for the next 15-20 years).

it seems like you are saving $45,000 if you wait... but lets remember if you are renting right now say $2,000 a month; in 4-years you would have paid $96,000 in rent alone... now i know the true cost of home ownership is more than just the mortgage... even if you tack on $6,000 annually for (tax, insurance, etc.), the $24,000 in four years for home ownership plus the lower home value together total $69,000; that is still significantlly lower than the $96,000 you are paying to rent...

the big clincher: mortgage is tax deductible while your rent is not... if you have the means, a solid income, and are looking for a house now.. then waiting for the bottom is probably not the best idea.

again, unless you think homes in the IE are going to continue to drop indefinitely and another 30%.. there is no reason to wait.

Sara said...

what do we have here--an army of realtors in disguise attacking the site?
missing the boat & prices are going up--these comments are laughable.

golfer_X said...

The buy now or wait equation is going to be different for each person. Some areas are probably on the bottom others like most of the better areas of LA and OC still probably have miles to go.

Each person needs to weight the risks and the rewards of buying now and see if they favor buying or not.

Personally, I already own a home so I haven't missed any boats. There's no tax advantage for me (which is often nullified by the added maintenance costs of owning anyway). Short term, renting is usually always cheaper than buying. But if you plan on staying long term then buying is better.

I would only consider buying if you are planning on staying for at least 5 years. The risks of taking a loss are very very high if you sell before that. Also since rents are going down and prices are probably not going up, there is little financial incentive to buy.

Buy if you want the stability of owning and are going to stay put. The whole "throwing money away on rent" argument is a stupid one. When you do a detailed comparison buying rarely comes out cheaper than renting. I think this is another myth perpetuated by realtors. Long term, buying wins because eventually the rents increase and overtake the fixed house payments. But that will take a decade or more in most cases.

Leti said...

I understand the point that the equation is different for most people. It's like the answer to most poker problems or most legal questions: "It depends".

But isn't the math also incomplete or deliberately disingenuous? I'm far from an expert, but the 69K (buy) v. 96K (rent) doesn't take into account a mortgage payment during that period does it? A mortgage calculator shows a payment on 280K (assume 20% down) as $1,769, which over the 4 year period amounts to $85K. Not much of this is for principal, only about 11 K over the 4 years per the same calculator. So you've built 11 k in equity, lost 45 K in home value, paid 24K in taxes, insurance etc. and paid 85k in mortgage payment, for a loss of $143,000 over the period. Isn't the 143K loss what should be compared to the 96K loss for renting?

As for the tax deduction, the mortgage interest is deductible, but that must be compared to the standard deduction you get even without owning right? That is 11,400 a year for married couples, so it is only the deductible interest above this automatic deduction that matters, which per the calculator would be about 6.5K/year reduction in taxable income. With a 40% tax bracket, this amount to a reduction in taxes of $2,600 a year due to owning. Over 4 years another $10,400 cash in favor of ownership.

So that makes the real cost about $133K v. $96 K over the same period.

Like I said, I'm no expert, am I figuring this right?

(By the way, why is it 4 years and not 5? 2014 is 5 years til the bottom under this scenario, right? And what about the opportunity cost of the 20K down over the same period, all of which you lose by buying into a declining market)

golfer_X said...

You're math is a lot closer to reality than Jacks math. Jack did forget that most of that mortgage payment is interest. The mortgage interest deduction doesn't net you nearly as much back as you've paid and depending on you income bracked and other deductions it can vary quite a bit. (btw, leti 40% is way too high a tax rate. Most of us normal folks will be in the 25% to 30% range).

There are just too many variable in this equation and we can all fudge them to make the answer come out the way we want. Each person has to look at their own situation and run their own numbers. The simplest thing to assume on the value of the home (a home in the IE) is that there will be no change in value for the next 5 years. For maintenance costs figure 2% of the cost of the home per year, more if it's an older home.

The other thing none of these calculations ever take into account is that home owners spend way more on household items and upgrades than renters do. Home owners will buy crap! From garden gnomes to fancy BBQs, furniture to closet organizers. Owners will spend if they have the money. Renters won't. Renters are not buying garden gnomes, if they buy a BBQ, it's a webber. No one ever factors in the euphoric spending of home owners (especially new home owners).

Jack said...

i'm glad these numbers were thrown out and that we do agree that 'it depends' on each individual buyer... one reason for my response was just to play devil's advocate and simply point out that waiting may not always be the best solution for families who's ultimate goal is home ownership...

i do totally agree with X that owning a home will cost a lot more money, but if you plan on buying at some point whether it is at time A or time B, there will be 'euphoric spending' involved - so i feel it nullifies itself...

this may be a bad analogy but say a young couple wants to have a baby... not having the baby can save them a lot more money but they will inevitably have to take on baby costs if they want to be parents... whether now or in 5 years... the lack of sleep in the short term, the rise in cost, the diaper changing... let's just say with all these 'disadvantages' - i'd still rather be a young parent... (if you are financially able and ready, postpoing the inevitable is just postpoing everything else...)

Jack said...

by the way, there are a bunch of rent v. buy calculators out there... ones that drill down to inusrance, maintenance, rent increases, tax brakets, interest, inflation, etc...

i'm not sure if there is one X recommends but punching in a few numbers can give you a general idea of where you stand... 6-9 years is a good range.

golfer_X said...

Here's another opinion that says 2030 before we see 2006 prices again.

Economist Celia Chen of Moody's has published a forecast suggesting that residential real estate could take 10 years to recover in most states—and 20 years in Florida and California. Nationwide, price levels won't regain the peaks of 2006 until 2020. In the worst-hit states, Florida and California, the rebound will take until 2030. Five other states won't hit their 2006 peaks until after 2023. Anybody who doubts that it could take that long should consider the real estate bust in Japan, where prices are still down by half from the peaks they reached 15 years ago.