Looking for a bottom to the housing downturn?

[El Pinko]

It's got a ways to go in most states, but here is a way to roughly tell if house prices in your area are at a reasonable level and probably will not fall anymore (barring massive employment loss).


Find out the median household income for your area. Multiply it by 3 (or 4 if your are in an exceptionally sought-after area like coastal California).

That should give you a rough idea of what a median single-family detached home SHOULD cost in your area

So if the median income in the Los Angeles basin is $60K, multiply that by 4, and the median price should be around $240k.

If you live in Phoenix where the median income is closer to $50k, multiply by 3 - $150K


These multiples represent the long-term price trend for housing, so it would be wise to wait until the prices in your area have fallen to this range.



You can also look at the price/rent ratio for your area. In many areas, it's still cheaper to buy a house than rent an apartment, but in bubble areas, you can often rent the exact same type of home for half as much as your mortgage payment would be.

This chart shows 12/2007 Price/Rent ratios for several major cities.

http://money.cnn.com/magazines/fortune/price_rent_ratios/

Look for the ratio to fall back to the 15-year average before considering a purchase.


Of course, you need to be aware of local economic trends, taxation, etc. in considering such a purchase.

[Demeter]

1. The Best Projections Are 3 years for the Housing Market To Recover It's Function

at a minimum. That's assuming that employment turns around, the dollar is not battered into hyperinflation, and the credit markets start to operate again.

Which of course means that the nation is screwed at least 3 ways for the foreseeable future.

[El Pinko]

5. Prices in most of California peaked at 8 to 10X median income.

Now they are at 6 to 7X median in many areas (although Silicon Valley, SF, etc. have yet to show real declines), so they are still high, but improving.

Exurbs like Tracy, CA & the inland empire seem to be leading the way with the quickest declines in price. (They also have the highest foreclosure rates).


There are two ways to look at it. It's tough for people who bought at the middle of the speculative mania, but this is a good thing for families who wanted to buy but couldn't afford to due to the high prices.


Personally I'm glad that prices are falling. There's no way to justify $800k for a 1000sqft 2 BR 1960s tract house. Entry-level housing had become all but nonexistent in bubble areas, thanks to the speculators.

[Demeter]

15. The Further From the Job, The Quicker the Fall

Simple economics of the gas prices.

[Fiendish Thingy]

17. Buying a house in Coastal CA has required 2 incomes since the 80's

So, I would say it would be more realistic to double the median income, then multiply by 3- that would still be a significant drop from the insane peak of prices last year.

[El Pinko]

20. I was figuring HOUSEHOLD income, which assumes 2 incomes being the norm today...

Which is why I figured 4X for CA as opposed to 3 for morre typical areas.

Of course there will always be big differences because of the specifica locality - Westside LA, Santa Monica, etc. will never be cheap, but the median income there is significantly higher than the inland empire.

Something that's not talked about much is the fact that many areas in LA that saw huge appreciation ( San Fernando & San Gabriel Valleys, Long Beach) are basically crime and gang-infested ghettoes, and yet house prices are in the half-million range.

Now that houses are no longer looking viable as an investment, will people still be willing to pay for and live in such expensive houses in such rough areas, or will they eventually show the kinds of precipitous drops that are already happening in Riverside/San Bernadino area exurbs?

[MannyGoldstein]

2. In 1970, A House Cost ONE Median Year's Salary

Imagine if it goes back to that level.

[seriousstan]

3. Looking? Waiting and saving. I need 2 more 2-units.

[MaryCeleste]

4. My daughter is starting to look for her first house

Its been interesting as we watch the prices tumble. I will be providing her down payment. I am not sure that anyone starting out could buy a house in most areas without help.

She just renegoiated her run downward, since those are dropping too. We are going to try and wait for the bottom. However, missing it a little on either side will still mean significantly lower cost than if she bought now.

[El Pinko]

6. Because of the credit crunch, you can expect this bottom to be much longer and flatter than ususal..

...so there is little need to worry about "missing the bottom". If you see prices flat or rising slightly for a year or so, that's the bottom. We won't see appreciation like the 2000-2006 period again for decades, if ever.

[MaryCeleste]

10. That really doesn't bother me that much

I look at it as rent, not savings or an investment. It will be good to make money on it, but I won't cry if its not 3X what I paid for it.

I am almost hoping that with things tanked some thought will be given to restructuring all the deductions associated with houses to become more realistic and encourage savings, not McMansions

[tularetom]

7. In our area the median family income has never exceeded $40,000

but two years ago starter homes were selling for $249,000.

You can get one now for $179,000 which means they still have a ways to drop.

[skids]

8. Bubbles Rocks!

You a Canuck, or just in-the-know enough to download TPB episodes?

[El Pinko]

9. In-the-know downloading American...

I just finished the last season and the "Big Dirty" movie, and am jonesing for more episodes.

Hands-down, the funniest show ever. (And also a big-hearted show at it's core, which I also love).

[Dr.Phool]

11. Laugh out fucking loud.

Cleveland doesn't need to correct?

It took me 4 years to sell a house in a "desirable" section of Cleveland, for $20k less than I paid for it 15 years earlier!

Cul-de-sac. New furnace, hot water, carpet, window, roof, double lot.

Anybody who buys a house in Cleveland is a total fucking idiot. High taxes and probably the worst school system in the country.

[spooky3]

12. I had a very similar experience in another Ohio city several years back

you have my sympathy!

The worst part was all the unsolicited bad advice people give you after asking you to talk about it!

[El Pinko]

13. I stand corrected!

Obviously you need to know all the factors of your local market!


I've hear that Pittsburgh is dirt-cheap right now...

[Dr.Phool]

14. I had since moved to Florida.

And made 2 mortgage payments for those years. I finally sold the house to a guy who wanted to "flip" it 2 years ago. I was to the point, that I was ready to call Chase and tell them to come and get their house.

He can't sell it either. It's still on the market.

[El Pinko]

16. Isn't long-term economic decline the main problem in Detroit & Cleveland?

...as opposed to bubble overvaluation?

[Dr.Phool]

18. Yep!

Used to be several steel mills, now they're down to one, with about 10% of the work force they used to have. Ford and GM have and are still making major cutbacks in the area. Breweries are gone. And most other major manufacturing.

In 1960, the city of Cleveland had just under a million residents. It's below 400,000 now.

The schools always were lousy (I attended until 1964, when we moved to the suburbs, I was way behind), they're even worse now.

[MaryCeleste]

19. Its urban decay lived large, and its very ugly

[MaryCeleste]

21. But then you would be living in the Piits

Sorry, its one of several Carnegie-Mellon comments.