First question that needs to be answered, how do you value real estate? The reason I ask this is so we can find a price point that can be justified. There are a number of methods here are a few that I like:
· Price to Rent Ratio
· Price to Income Ratio (coming soon)
· Price to Gold Ratio (coming soon)
· Relative Price Adjusted for Inflation (coming soon)
· Historical Price (coming soon)
I love hindsight
Through my research I come across many papers written up relating to housing markets and bubbles and their behavior. This is one situation that I had to show you guys, this is from here http://www.ny.frb.org/research/epr/04v10n3/0412mcca.pdf
“Home prices have been rising strongly since the mid-1990s, prompting concerns that a bubble exists in this asset class and that home prices are vulnerable to a collapse that could harm the U.S. economy.
A close analysis of the U.S. housing market in recent years, however, finds little basis for such concerns. The marked upturn in home prices is largely attributable to strong market fundamentals: Home prices have essentially moved in line with increases in family income and declines in nominal mortgage interest rates.”
Written by the following at the end of 2004:
Jonathan McCarthy, a senior economist
Richard W. Peach, a vice president at the Federal Reserve Bank of New York
Although there are some jackass comments the analysis is interesting.
Be wary of the percentage charts, it always pisses me off when I see we had 2% increase as the headline everyone is talking about, if you go down 80%, then you go up 2%, who gives a shit about the 2%?
Funny little calculator that will value your house from when you bought it to now based on market appreciation/depreciation rates in your area.
http://www.fhfa.gov/Default.aspx?Page=86
How do we stack up nationally? Down close to 6% year over year as a state and 16% as a Metro area. Again as said above percentages don’t tell the whole story, but still good to note. These numbers will not show a jump in price until we’ve had a year over year price increase.
http://www.fhfa.gov/webfiles/16573/2Q2010hpi.pdf
Out of 300+ major markets we were ranked 298, this was only based on percentage year over year.
Price to Rent Ratio
http://www.calculatedriskblog.com/2010/03/housing-price-to-rent-ratio.html
Looking first at the overall market here is an interesting look at rent vs prices based on the owner-equivalent rent. This chart makes the 1.0 = 2000, which still might be a little inflated but I would expect prices to get to .9 some time in 2011 and we’ll drag along the bottom for years to come. In order to go down further one of two things must happen, prices come down further or rental rates go up.
The above is an analysis on the nation and as we all know Real Estate is local, so when looking locally and you instead look at the raw numbers, as Zillow has done below, you get a good picture on value for the area.
The ratio using the method explained in the link below (Zillow) puts the Orlando at 8.4, which gives us some of the best deals in the nation with relation to value. Also near the top Fort Myers and Miami. Surprisingly the top of the list is Detroit, apparently rental rates are still doing pretty well.
http://www.zillow.com/blog/research/2010/09/21/a-better-price-rent-ratio/
If you’re ready to get uber nerdy (some calculus required), the SP Case Shiller index releases a report relating to rents here:
http://www2.standardandpoors.com/spf/pdf/index/House_Price_Rent.pdf
All in all this is showing that buying a home now if you can (I’ll explain that comment further later) is a good idea, investor or to live in. No hurry if you don’t care about the house you get, the really good deals come on the market and go very quickly (within 15 days of listing). If you would like to get updates on an area, banked owned, certain sizes, almost any criteria, just email me at todrealestate@gmail.com
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