Tuesday, April 3, 2012

Flat line

I thought I would throw up a few charts to show the price trends in the IE. Basically the prices have been flat since late 08. There are of course minor fluctuations due to the season. Sale prices fall in the winter and rise in the summer. There was a small bump in mid 2010 when the homebuyer tax credit caused the prices (and sales numbers) climb a bit. But overall the prices seem to be bouncing along "the bottom". Price to income ratios are back in line where they should be. Price to rental ratios are far, far in favor of buying. It's WAY cheaper to buy versus renting similar properties. The only "gotcha" is that you need to be sure you are going to stay put. You cannot rely on appreciation to cover selling costs if there is a need to sell. So if you need to sell within say 5 years of buying you may not come out ahead versus renting.

Looking at inflation adjusted prices, the IE is about the same level it was in the late 80's. However, the crazy low interest rates make payments actually less, even when not adjusted for inflation. For example I own a rental that sold new in 1988 for $110k. Payments on that home back in 1988 were $1200/mo (PITI). Today that home is worth approx $150k. Buying that home today would result in a payment (PITI) of approx $900/mo. Adjusted for inflation today's payment is MUCH lower than the 1988 payment for the same home.

Obviously there are still loads of distressed properties. This will hold prices low for until those are worked through the system. But can prices go lower? It's hard to imagine that will happen. With the rental values and the home prices at these levels, investors can make more money buying and renting properties than they can in the markets or the banks. This alone should keep the prices from falling. I now have two rentals and would pick up a few more if I had the cash. I'm under no illusion of making money on appreciation of these properties but the rental income is a welcome addition to the monthly bottom line.

Here's a few of those charts

This one is the median sales price for Riverside. As you can see it's been relatively flat for a few years now.

The price per square ft char is also pretty flat since late 08

And finally the long term chart with the inflation adjusted prices.


Mandangalo said...

I agree X..I might just croak in my new home before i sell im ganna stay put till things get better at least 10 years as far as i can see..

Julie said...

X congrats on your new home we bought in Canyon Crest about 16 months ago. I have been watching the comps and am glad to see the overall trend mirrors our neighborhood. Up some down some but within about a %10 range. Do you have thoughts on what a pv solar system will or will not add to the value of a home?

golfer_X said...

I'm not sure what value a solar system would add. I have a friend in the industry and he says around 10%. I am fairly skeptical of that amount. I've also heard it adds 10 to 20 times the annual savings. I've looked at homes with solar systems and they do not list for any higher than homes without. They are always listed within the range of other comps with or without solar. I think the right buyer might pay a little extra but they can always add one themselves so they are not going to pay that much more. I would suspect an appraiser will add some value to the home. But whether a buyer will actually pay more for it is the question.

Jason&Amber said...

I'm renting in the dreaded "Eastvale" epicenter of the I.E. housing implosion. The number of houses for rent is growing and there is some downward price pressure on the rentals to stay competitive. Our realtor said they are all foreign cash buyers becoming landlords, buying foreclosures and renting them out. Some of the houses are barely habitable yet up for rent.

Even with only a 3.5% down and the FHA premiums, buying is still cheaper on a lot of these homes, including the one I'm in.

The new home machine has started again on the west side near the Chino Preserve development.

I hope to see a second round of price depreciation, but I think we're about at the bottom. $100 per square foot seems to be about price/rent equilibrium for Eastvale at least.

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