Maybe housing prices are not as inflated as they seem

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drr1099
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Maybe housing prices are not as inflated as they seem

Post by drr1099 »

I know every market is different, but I live in a nice Philly suburb that is probably representative of other desirable parts of the country. In 2000, new construction townhouses were starting around 190 (my parents got theirs for 230 all in). In 2005, I paid 325 for the same thing in the same development. A year later, my neighbor sold his for 350. That was crazy growth! Prices were still in the 360 range around 2 years ago. Now Zillow values it a 410. It seems crazy, but even if you bought for 230 in 2001, it's about 2.85% annualized return. For me who bought in 2005 for 325 it's only 1.41%.

Another data point. I bought my house for 603 around 2011. Last year, it was valued at 623 (virtually no growth). Now it's 734 according to Zillow (or 1.72%).

So are the prices crazy or are they simply making up time for those years of slow growth.
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ShaftoesSpreadsheet
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Re: Maybe housing prices are not as inflated at it seems

Post by ShaftoesSpreadsheet »

2005 was getting towards the peak before the 2008 crash. Using that time period as your starting point does make the compound adjusted rate of return look small. Housing generally keeps up with inflation. If you start in 1990 or 2010 you will get bigger numbers. But going back far enough in theory it should be pretty close to inflation plus population growth.

Then there is the luck aspect of real estate returns. It can be very bad, places Flint MI, or currently the SF Bay area (due to tech workers being able to work remotely). Or it can be pretty good, such as most of the major coastal cities which have enjoyed high net population growth (sorry if I left anybody out there - Denver, Houston, Austin, ...)

Right now the housing market is being propelled by a number of things:

* low interest rates
* with COVID people wanting nicer / larger homes since they are home more
* high lumber prices, and a shortage of labor
* the exodus from the Bay area to suburbs of major cities in other states

Last time it was propelled by lax lending standards and a race to the bottom in terms of loan risk.
Normchad
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Re: Maybe housing prices are not as inflated as they seem

Post by Normchad »

drr1099 wrote: Thu Jun 10, 2021 3:57 pm I know every market is different, but I live in a nice Philly suburb that is probably representative of other desirable parts of the country. In 2000, new construction townhouses were starting around 190 (my parents got theirs for 230 all in). In 2005, I paid 325 for the same thing in the same development. A year later, my neighbor sold his for 350. That was crazy growth! Prices were still in the 360 range around 2 years ago. Now Zillow values it a 410. It seems crazy, but even if you bought for 230 in 2001, it's about 2.85% annualized return. For me who bought in 2005 for 325 it's only 1.41%.

Another data point. I bought my house for 603 around 2011. Last year, it was valued at 623 (virtually no growth). Now it's 734 according to Zillow (or 1.72%).

So are the prices crazy or are they simply making up time for those years of slow growth.
I bought my house for440 in 2010, and now it would sell for right about 800.

I really think supply and demand plays a big part. If you are in an area where the population grows year after year, prices push up.

I really think though that people really look at the payment more than the price. I.e. they are going to pay 3K/ month. Depending on interest rates that could be a 400K house or a 700K house or whatever. I think interest rates explain a ton of the price movements.

Once interest rates go back up, the pool of people that could buy my house will shrink. And demand for houses like mine will decline, and prices will flatten or decline.
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leeks
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Re: Maybe housing prices are not as inflated at it seems

Post by leeks »

ShaftoesSpreadsheet wrote: Thu Jun 10, 2021 4:15 pm 2005 was getting towards the peak before the 2008 crash. Using that time period as your starting point does make the compound adjusted rate of return look small. Housing generally keeps up with inflation. If you start in 1990 or 2010 you will get bigger numbers. But going back far enough in theory it should be pretty close to inflation plus population growth.

Then there is the luck aspect of real estate returns. It can be very bad, places Flint MI, or currently the SF Bay area (due to tech workers being able to work remotely). Or it can be pretty good, such as most of the major coastal cities which have enjoyed high net population growth (sorry if I left anybody out there - Denver, Houston, Austin, ...)

Right now the housing market is being propelled by a number of things:

* low interest rates
* with COVID people wanting nicer / larger homes since they are home more
* high lumber prices, and a shortage of labor
* the exodus from the Bay area to suburbs of major cities in other states

Last time it was propelled by lax lending standards and a race to the bottom in terms of loan risk.
Real estate returns are "very bad" in the Bay area? Plenty of bogleheads seem to still be mentioning crazy high prices there.

May 20: "Bay Area home prices just hit a record high. Will the buying spree last?"
https://www.sfchronicle.com/local/artic ... 186890.php
mervinj7
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Re: Maybe housing prices are not as inflated at it seems

Post by mervinj7 »

leeks wrote: Thu Jun 10, 2021 4:22 pm
ShaftoesSpreadsheet wrote: Thu Jun 10, 2021 4:15 pm Then there is the luck aspect of real estate returns. It can be very bad, places Flint MI, or currently the SF Bay area (due to tech workers being able to work remotely). Or it can be pretty good, such as most of the major coastal cities which have enjoyed high net population growth (sorry if I left anybody out there - Denver, Houston, Austin, ...)
Real estate returns are "very bad" in the Bay area? Plenty of bogleheads seem to still be mentioning crazy high prices there.

May 20: "Bay Area home prices just hit a record high. Will the buying spree last?"
https://www.sfchronicle.com/local/artic ... 186890.php
No need to respond. It's a popular pastime for a few posters to just bash on the Bay Area, no matter what the actual situation is (e.g. housing prices falling, housing prices rising).
runner3081
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Re: Maybe housing prices are not as inflated as they seem

Post by runner3081 »

Current house in AZ, purchased Jan 2013 for 252K - neighbor, with same house, just sold for 540K

Old house outside of Seattle, sold for in 2014 for 293K, comps in neighborhood selling for $650k now.
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ShaftoesSpreadsheet
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Re: Maybe housing prices are not as inflated at it seems

Post by ShaftoesSpreadsheet »

leeks wrote: Thu Jun 10, 2021 4:22 pm
ShaftoesSpreadsheet wrote: Thu Jun 10, 2021 4:15 pm 2005 was getting towards the peak before the 2008 crash. Using that time period as your starting point does make the compound adjusted rate of return look small. Housing generally keeps up with inflation. If you start in 1990 or 2010 you will get bigger numbers. But going back far enough in theory it should be pretty close to inflation plus population growth.

Then there is the luck aspect of real estate returns. It can be very bad, places Flint MI, or currently the SF Bay area (due to tech workers being able to work remotely). Or it can be pretty good, such as most of the major coastal cities which have enjoyed high net population growth (sorry if I left anybody out there - Denver, Houston, Austin, ...)

Right now the housing market is being propelled by a number of things:

* low interest rates
* with COVID people wanting nicer / larger homes since they are home more
* high lumber prices, and a shortage of labor
* the exodus from the Bay area to suburbs of major cities in other states

Last time it was propelled by lax lending standards and a race to the bottom in terms of loan risk.
Real estate returns are "very bad" in the Bay area? Plenty of bogleheads seem to still be mentioning crazy high prices there.

May 20: "Bay Area home prices just hit a record high. Will the buying spree last?"
https://www.sfchronicle.com/local/artic ... 186890.php
My only data point is a new neighbor who relocated from the bay area about a year ago. They were not able to sell their condo and said it had dropped about $200k in value in the past 6 months. So they ended up renting it out until prices recover. I recall reading that rents had dropped 25%+ percent there as well. May have already started turning back up though with many of the big tech companies starting to require more on site work (Apple, for example).
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Re: Maybe housing prices are not as inflated as they seem

Post by Vanguard Fan 1367 »

drr1099 wrote: Thu Jun 10, 2021 3:57 pm Another data point. I bought my house for 603 around 2011. Last year, it was valued at 623 (virtually no growth). Now it's 734 according to Zillow (or 1.72%).
My personal experience with Zillow is that the estimate wasn't what the houses sold for. I don't think that they say that their estimate is guaranteed to be accurate.
John Bogle: "It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it."
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ShaftoesSpreadsheet
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Re: Maybe housing prices are not as inflated at it seems

Post by ShaftoesSpreadsheet »

ShaftoesSpreadsheet wrote: Thu Jun 10, 2021 4:15 pm It can be very bad, places Flint MI, or currently the SF Bay area (due to tech workers being able to work remotely).
Comparing Flint's real estate market to the Bay Area was probably not the best. My point is anywhere can have bad luck.

I'd say access to water is going to be a big issue by the time my kids are ready to buy their own homes.
jarjarM
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Re: Maybe housing prices are not as inflated at it seems

Post by jarjarM »

ShaftoesSpreadsheet wrote: Thu Jun 10, 2021 5:08 pm My only data point is a new neighbor who relocated from the bay area about a year ago. They were not able to sell their condo and said it had dropped about $200k in value in the past 6 months. So they ended up renting it out until prices recover. I recall reading that rents had dropped 25%+ percent there as well. May have already started turning back up though with many of the big tech companies starting to require more on site work (Apple, for example).
Condo price is being hampered by the pandemic in bay area. But the SFH price trend is up 20+% in the last few months
RetiredAL
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Re: Maybe housing prices are not as inflated as they seem

Post by RetiredAL »

drr1099 wrote: Thu Jun 10, 2021 3:57 pm I know every market is different, but I live in a nice Philly suburb that is probably representative of other desirable parts of the country. In 2000, new construction townhouses were starting around 190 (my parents got theirs for 230 all in). In 2005, I paid 325 for the same thing in the same development. A year later, my neighbor sold his for 350. That was crazy growth! Prices were still in the 360 range around 2 years ago. Now Zillow values it a 410. It seems crazy, but even if you bought for 230 in 2001, it's about 2.85% annualized return. For me who bought in 2005 for 325 it's only 1.41%.

Another data point. I bought my house for 603 around 2011. Last year, it was valued at 623 (virtually no growth). Now it's 734 according to Zillow (or 1.72%).

So are the prices crazy or are they simply making up time for those years of slow growth.
drr -

From my first job out of college until I retired in 2016, 42 yrs later, my wage rose by a factor of 12.

I bought this house 1 yr out of college. Since then, this house's valuation has risen by factor of 32.

House prices are crazy here in Silicon Valley. More affluent neighborhoods have seen an even a greater factor increase across those 47 years.
Ron Ronnerson
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Re: Maybe housing prices are not as inflated at it seems

Post by Ron Ronnerson »

jarjarM wrote: Thu Jun 10, 2021 5:36 pm
ShaftoesSpreadsheet wrote: Thu Jun 10, 2021 5:08 pm My only data point is a new neighbor who relocated from the bay area about a year ago. They were not able to sell their condo and said it had dropped about $200k in value in the past 6 months. So they ended up renting it out until prices recover. I recall reading that rents had dropped 25%+ percent there as well. May have already started turning back up though with many of the big tech companies starting to require more on site work (Apple, for example).
Condo price is being hampered by the pandemic in bay area. But the SFH price trend is up 20+% in the last few months
Just thought I’d add a data point. I’m in a townhouse in the tri-valley (East Bay). Homes in our community are selling for around 35% more now than they were at the start of the year.
Normchad
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Re: Maybe housing prices are not as inflated as they seem

Post by Normchad »

RetiredAL wrote: Thu Jun 10, 2021 5:39 pm
drr1099 wrote: Thu Jun 10, 2021 3:57 pm I know every market is different, but I live in a nice Philly suburb that is probably representative of other desirable parts of the country. In 2000, new construction townhouses were starting around 190 (my parents got theirs for 230 all in). In 2005, I paid 325 for the same thing in the same development. A year later, my neighbor sold his for 350. That was crazy growth! Prices were still in the 360 range around 2 years ago. Now Zillow values it a 410. It seems crazy, but even if you bought for 230 in 2001, it's about 2.85% annualized return. For me who bought in 2005 for 325 it's only 1.41%.

Another data point. I bought my house for 603 around 2011. Last year, it was valued at 623 (virtually no growth). Now it's 734 according to Zillow (or 1.72%).

So are the prices crazy or are they simply making up time for those years of slow growth.
drr -

From my first job out of college until I retired in 2016, 42 yrs later, my wage rose by a factor of 12.

I bought this house 1 yr out of college. Since then, this house's valuation has risen by factor of 32.

House prices are crazy here in Silicon Valley. More affluent neighborhoods have seen an even a greater factor increase across those 47 years.
That’s a really interesting way to look at it.

For me, I’ve been here 29 years. Northern Virginia area. My wages are up by about a factor of 10. (New hire wages in my fields are up by a factor of about 2.1).

A couple homes I know well, have increased in value by a factor of 2.9 and 3.5 in the same time frame. (So 4-4.5% per year)

So I guess for me, housing is more affordable than it was. For the new college grad, it is significantly less affordable.
Last edited by Normchad on Thu Jun 10, 2021 6:26 pm, edited 1 time in total.
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Abe
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Re: Maybe housing prices are not as inflated as they seem

Post by Abe »

Where I live single family houses have only increased in value by about 2.5% per year over the last 40 years.
Slow and steady wins the race.
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