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From the Australian:
Media role in mania of markets
ID you know that the appearance of speculative asset price bubbles followed the advent of newspapers? The first newspapers appeared in the early 1600s, and no histories of speculative manias mention any before then. The notorious Dutch tulip mania was in the 1630s.
This fascinating bit of information comes from US economist Robert Shiller. Shiller is best known for his book Irrational Exuberance, which analysed the massive stock market bubble of the late 1990s and predicted its collapse. I use it to introduce a couple of related questions about the role of newspapers.
What is the influence of newspapers on investors’ behaviour and, therefore, on equity, housing and other asset prices? Can the media amplify the impact of monetary policy changes on markets and the economy?
Shiller’s view is that while the news media – newspapers, magazines and broadcast media, along with the internet – present themselves as detached observers of market events, they are actually an integral part of them.
He says significant market events generally occur only if there is similar thinking among large groups of people, and the news media are essential vehicles for the spread of ideas.
…
“The role of the news media in the stock market is not, as is commonly believed, simply as a convenient tool for investors who are reacting directly to the economically significant news itself,” Shiller concludes. “The media actively shape public attention and categories of thought, and they create the environment within which the speculative market events are played out.”
Can someone help me to roughly estimate the fair price (not value) of a house in general? Can I take its price at 2000, and add to it the (inflation + 1 or 2%) over time. In other word, if it were sold at 2000 for $1, then the price at 2007 fair price = $1 * (1.05)^7 = $1.407.
Thanks,
007
p.s. Traffic on 287 is driving me crazy everyday as more and more people move to PA.
I think that sounds good, 007. I’ve thought about the same thing. If you have a price from 1998, that might be better.
Now its the Realtors …..
Real estate downturn hits real estate agents
if it were sold at 2000 for $1, then the price at 2007 fair price = $1 * (1.05)^7 = $1.407
You should also add the cost of any improvements that were made.
Thanks water.
If I switch from a townhouse to a SFH, I think the impact of this falling market would be smaller. Any thought? All comments are welcome.
007
MSD,
When we are back to 2000’s #, licensed realtors, it will be a start. The house doesn’t sell just beacause a for sale sign is put up??? Yeah, I don’t get paid for just showing up at work either!!
hello from germany,
i´m not sure if this one is posted before.
this is the best i have ever seen.
a comiplation from the tapes with lereah, shiller, bernanke, etc
over 70 minutes of superb bubblehistoy video´s alle the famous quotes “not a bubble, a baloon” call to arms at lows etc.
spread this one around. this is a must see!!!!!!!!
http://www.paperdinero.com/BNN.aspx?id=20
007
Here’s a fair way to calculate the price for a home. Multiply your income by 3 and subtract 10 %. Any house that costs that amount or less that you want to live in is reasonably priced.
I’m grafting this post from another thread into this one. I know it’s kind of troll-y, but I figured that it is worth highlighting something.
whatever Says:
October 5th, 2006 at 3:26 pm
wow this blog has deteriorated significantly from my last visit. I wonder if it has anything to do with the increasing evidence of a soft-landing which was naturally mocked on this blog. I remember people were watching the Tens very closely and some predicting 7% by year end.
I remember when a slight decrease in Mortgage Applications or Pending Home Sales deserved the front page.
Boooooyaaaaaa!
which reminds me…what the hell happened to Bob? I guess he got killed by the bursting bubble ”
I think the important thing to note here is that at the point we were widely discussing the “selling off” of the fixed income market, it was not apparent that the Fed was going to stop tightening, and also that mortgage rates were NOT going to be an important actor, if not trigger, in the real estate market.
What we have since discovered is that the Fed has stopped, the bond market has priced in a recession, and [much to Bob Toll’s surprise & as BC Bob has spotlighted] the real estate market has imploded into itself. Mortgage rates are important, but as we are seeing [and have uncovered due to grim’s research from prior cycles], mortgage rates can continued to be stimulative to the market, and yet their effect can be overwhelmed by greater supply and demand dymanics [i.e. complex path to price discovery].
As grim noted, we are still tracking these ever important numbers, but as we continue to explore information on the margin and its incremental effects on what we are observing, we can safely push the capital markets to a second order, and not primary, factor in our discussion.
Hope this helps.
chicago
btw, that’s annual income
Lindsey, that may be affordability ratio, not market value ratio, when there are differences in homes.
007: Here’s a wrench for you on a rainy Friday: Imagine most folks forget what M3 means (out-of-sight, out-of-mind?) productivity stagnates; jobs stall. A bunch of folks don’t step in from overseas and purchase our stuff.
Now, what is your 2000 house worth in 2008. [For 50 points.}
BTW, somebody’s Grandma says if you can’t buy a house for 2x your income, get a better paying job.
CF…remember the buffet example? Another Friday afternoon not long ago. Interest rates were the cheesecake, but not the reason we ate too much.
Pat Says:
October 6th, 2006 at 2:12 pm
CF…remember the buffet example? Another Friday afternoon not long ago. Interest rates were the cheesecake, but not the reason we ate too much.
Pat: buffet, as in Warren or Ponderosa?
Yeah, I’m a horrendous speller..could’ve been either. But since I didn’t get any lunch again, I was thinking about food again.
You bubble heads make me laugh.
Everyday you talk about the bursting but it never happens.
Job growth is good aand steady and income is up!
The markets are all breaking the all time records and oil is going lower!
Give it up already, nothing is gonna happen!
From Marketwatch:
REAL ESTATE WEEKLY
Things have done a near 180-degree turn in the housing market, good news for buyers who have been raked over the coals by sellers for nearly five years running but very bad news for sellers who now cannot get their homes to move.
A survey out this week from HouseHunt, a consumer housing-information Web site, found 74% of real estate agents reporting listings sitting on the market for 60 days or more in their area, a reversal from last year at this time when 77% of those agents responding to the survey said homes were moving in 60 days or less — an “incredible turnaround,” according to Michael Bearden, CEO of HouseHunt, Inc.
“This market transition gives consumers more time to make intelligent decisions on home purchases and restores a sense of order in local marketplaces,” he said. “The rebound in U.S. consumer confidence in September is also viewed as positive for job growth, energy prices and big ticket items like automobiles and homes.”
Pricing continues to be a big issue in the housing market, as sellers try to maintain their values even as inventories rise. Only 51% of U.S. home sellers are now getting 95% to 100% of their listing prices, according to HouseHunt’s latest quarterly survey.
For those interested, the 10 year closed at 4.70%. However, if you are interested, you probably already know.
jb
3x’s salary & subtract 10%…therefore with our 150K combined salary we should be looking for house in the $405K ballpark. A Single Family home in a good school system does not exist, unless you are willing to dump another $75K in fixing it up.
My own rule of thumb is a mortgage amount of no more than 2 to 2.5x annual income and a downpayment of at least 20%. If you want to exceed the rule, do it with a larger downpayment.
I will guarantee that you won’t impress anyone by following this rule. However, you probably won’t care since you realize the long term value of minimizing your housing expenses.
jb
using your rule grim would be ideal but in this time of ridiculous prices it is virtually impossible at a 115-120k salary
Patient…you’ll have to ask Truth about that issue.
Thank you all for the suggestions. I was in a meeting and couldn’t get out till now.
I think I could manage the 2.5 annual income limit. But, I don’t want to catch a falling knife directly. I think the later I buy, the better it is. However, I think TH depreciate faster than SFH in this falling market. And I am stuck with moving in about two years (due to traffic and family issue). I just try to estimate the loss, if possible, if I need to move sooner than I expect.
Thanks again. Need to go back to the meeting.
007
I really can not think of a good reason to buy now if you are planning on moving in two years.
jb
My guess, Truth bought a higly overpriced house during 05-06.
“Truth,” please buy now in the neighborhoods I’m looking. See you on the court house steps.
patient..
Not impossible, but like I said, most probably won’t like what falls into that range. You most certainly aren’t going to be impressing the Joneses.
But that isn’t the point of the rule. The point of the rule is to live below your means. To have enough left over at the end of the month to build a sizable nest-egg. It’s about not having to worry about losing a job, making the mortgage, or paying for college. The rule makes it very difficult for someone to be house-poor, especially at the 2x mark.
jb
I want a big shiney salary. Any people who doubt the crash think about this, average nj mortage is 1900/month. most people cannot afford that high, i sure cant. With no money down a 235k mortsge @ 6 percent plus 500 for average NJ taxes, thats alreadt at around 1900/ month. The exotic mortsges are not so enticing anymore. So will price fall below 200k? You do the math :)
truth is in denial as many sellers are. They believe the market is going to bounce back and that 2 bed room condo they bought for 650,000 last year is going to be worth 1.1m next year.
Truth please give me some reasons why u think market is going to snap back in place and keep apprecating?
Oh hey the Govt will save us, like they did in new orleans and Enron and tech stocks.
Truth,
The jobs growth today was putrid. Are you thrilled about $50-60 crude??? How do you feel about our trading partners buying crude at a 40% discount as compared to us??? (the fall of the US Dollar since 2001)
Markets making new highs?? The 6 stocks in the Dow that are higher than their 2001 high?? What about the Dow Transports??? How about the Nasdaq,still 50% off the old highs.
Please, you and all your friends buy some SFH’s in my town. There are a ton of sellers looking for you.
Here is a link to the Kara bankruptcy filing:
Kara Bankruptcy Filing (PDF)
This file is ~2.2 meg and 344 pages long, don’t click the link unless you really intend to go through it. Bandwidth = $.
jb
I hate PDF files.
Adobe Acrobat should be banned like trans fat.
007 I would suggest you buy the house you want.
The appreciation will take care of you. Remember that it is always a good time to buy a house and no matter what these bubble heads say the prices never come down, they may stay even and remember you own it and instead of paying rent you are actually paying yourself to live there.
Think about it, you could have bought a house in the 80’s for 60,000 and it would be worth 300,000 now, sounds good to me!
Good luck and buy that house, it is always worth it!
Here is a link to the Kara bankruptcy filing:
Kara Bankruptcy Filing (PDF)
This file is ~2.2 meg and 344 pages long, don’t click the link unless you really intend to go through it. Bandwidth = $.
jb
JB: You are too too good. Where do manage to get all these documents !!
Someone posted the link to that up at the Shore Bubble Blog, if you haven’t read the comments there, take the time to visit.
I wanted to save the file here, these things have a way of disappearing when you try to look for them in the future.
jb
Truth – thy name is troll
Truth,
If you would take some crafting your responses, they would probably be more persuasive.
I applaud you for trying, but you really have got to try to make a good argument before anyone is going to take you seriously here.
I’d suggest you start by trying to build off this part of your statement:
matter what these bubble heads say the prices never come down
It should be relatively easy to quantify this argument. Try to focus on the local market. I can help you with trying to find supporting data and sources if you would like, just drop me an email and I’ll walk you through it.
jb
“The appreciation will take care of you. Remember that it is always a good time to buy a house and no matter what these bubble heads say the prices never come down…”
Right, no problem here:
http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
Buy high, sell low? Please do.
LOL, Chi.
Maybe start with really good reasons to justify exclusion of 1930-1940, and 1989-94.
Sorry for grammer mistakes. I type fast, I am actually working making money so I am able to afford housing. I suggest you try a little harder and you will be able to afford it also.
So,I excluded those years, I didn’t even mention them. I will address them now, Just hold on to the land and you would be fine through those time periods.
And the home would have been worth more anyway!
“I am actually working making money so I am able to afford housing.”
Hey “Truth,” is this your old house? Did you take a $300K bath in 12 months?
320 Lupine Way, Short Hills
1. Jun 2005 – Bought for $1,300,000
2. Oct 2005 – Put on market @ $1,295,000 (MLS 2204767)
3. Dec 2005 – Listing withdrawn
4. Mar 2006 – Put on market @ $1,198,500 (MLS 2261656)
5. May 2006 – Price dropped to $999,850
6. Jun 2006 – Under Contract (June 12)
7. Jun 2006 – Closed $999,999 (June 15)
Guys,
I need help finding a decent rental in Englewood, Tenafly, fort lee vicinity to stop my wife’s urge to buying a house now.
Any good website other than craigslist? Please help
-Ph.D.
Truth: Once, a long, long time ago, I had an old, bent actuarial professor named Arnold who muttered something I’ll never forget. If you look long enough, and exclude enough periods, highs and lows, your best in cash.
Yeah, bought it for 300,000!
man, you guys make me laugh!
no matter how you look at it you make money with real estate!
You snooze, you loose!
James,
I meant I plan to buy a SFH and sell my existing TH, within a time frame of 2 years. And plan to stay in the SFH for another 10 years. Sorry about the confusion.
007
Realize that your comment about “working harder” is extremely condescending towards those here who do work hard, but still struggle to afford to live in this area. We all know that a 100% homeownership rate is about as possible as a 0% unemployment rate. Homeownership is expensive, it’s a difficult fact, and there are many who will probably never be able to afford a home, crash or not.
Working harder simply will not support existing market prices. People are already working harder and longer. We’ve gone from a one income society to one where two incomes are a bare minimum. How much harder do you think people are going to work before they simply set sail for brighter shores?
jb
all due respect to those of you who think 2x income will get you a house– it ain’t gonna happen near NYC.
House prices are 10-11x median income currently. Even if we have a 50% drop we won’t get to what you think is reasonable.
Historically, the national median has been around 2.7x. In the most expensive areas (Cali and the NE), it has tradionally been about 4.0x. I think this is about the best we can expect, and I would be surprised if we got that far
PHD,
Have you gone through the rental listings at njmls.com?
jb
PHD,
Don’t rent, it is a waste of money.
You are better off owning.
Why pay someone else to live when you can be paying off your own house.
You wife is rigt!
skep,
Household or personal?
jb
Truth,
Been there done that, monetized the paper profits. I agree with you if you are talking about 1980-2005. What now?? Maybe you have just been in a coma for the past year, that’s OK. RE markets never go down??? With that statement, we know you are full of sh*t. Can you tell me what markets you trade?? Love to take the opposite side. By the way, one compliment, you are good entertainment!!
“all due respect to those of you who think 2x income will get you a house– it ain’t gonna happen near NYC.”
Hence the improtance of a sizable downpayment.
“Truth – thy name is troll”
Excellent Chi! Yet many still take the bait.
Rich
“Yet many still take the bait.”
Torturing desperate sellers and realtors has become a source of amusement, and “Truth” is one of the most amusing yet (after “REInvestor”).
And hey, it’s Friday.
James,
10x HOUSEHOLD income (at least in westchester).
now, again, you’ve got to back out the roughly 35% of households in the area that will never be homeowners, so the median household income is somewhat misleading as a measure of affordability.
so let’s say you reduce the multiple to 7-8x. if you think housing should drop by 50% to reach the mean, then this is about the multiple you would expect.
but to reach the 2x multiple some people here are suggesting seems to require about an 80% drop in median prices.
Both of these predictions seem pretty extreme if you ask me.
“no matter how you look at it you make money with real estate!”
OK, walk me through — bought at $1.3M sold at $1M. How much of a deposit is made at the bank?
I don’t think anyone here really thinks that median prices will fall to within 2x median income. Property would be worth more as salvage and farmland at that level. :)
jb
Truth Says:
Don’t rent, it is a waste of money.
You are better off owning.
Why pay someone else to live when you can be paying off your own house.
You wife is rigt!
——————————————-
You must be as briliant as most realtors. The market never crashes…Did we forget about the last bubble in the the late 80’s early 90’s?
I guess Truth does not know history. Read the newspaper, read a book for cryin out load.
I am sorry truth but the information you are getting from the National Enquirer is just not going to cut it with us bubble heads. If you are going to make statements, back it up with facts.
Do you believe your own BS? Go to CNN.com, look at the lowball section on this site.
If you are just the all knowing Truth, please enlighten all of us about that last bubble and how the prices did not come down after that bubble, and the fact it took 10 years for people to get back what they paid or turn a small profit.
Please I want to know what exactly where you get your brilliant info.
Look at this SFH:
MONTCLAIR TWP., NJ? 07042
MLS ID#: 2318712
they bought Oct. 2005 at 620K, now they are asking 1MM. People are so crazy.
Look at this link
http://newjersey.craigslist.org/rfs/215918191.html.
he claimed JUST LISTED, however, it has been on market for more than 6 months.
wb,
Did the current owner do the renovation?
jb
yes, but 380K …., I think probably they spend 25K-50K on the renovation
Truth,
I saw a house listed at 359K, apparently the asking has been vastly reduced. Similar houses are renting for 1800 pm. After a 10% downpayment, I did a rent vs buy arithmetic. Renting would cost me 18K pa, after deducting for standard deduction. Owning will cost me 27K at 6.5% mortgage after tax rebates. All expenses considered were actuals, only estimate was 3,500 pa for maintenence afterall all the house is 60 years old. Why would I pay an extra 9K to own, when the property does not seem like it is going to appreciate in a hurry during the next few years even if there is no bubble ? And that 9 extra K after putting down 36K in downpayment and closing costs.
As for fair offer from my side, this is what I would do. The market peaked in late 80s, and corrected itself until 94. I would take the 94 price for that house and compound it at 6% for 94 to now. Houses similar to what I saw went for 125 in 94, I will give it 135 start, and at that it comes to 271K now. And that would be the 2004 price.
here is the address:
# ORCHARD CT*
Hopefully there are older pictures on the MLS, I’d like to do a side-by-side. Seems a bit “flippy” though, I agree there.
jb
I have a feeling that Greenspan is going to make the “pompous prognosticators” list with this quote..
Greenspan Says `Worst’ May Be Past in U.S. Housing
Former Federal Reserve Chairman Alan Greenspan said the “worst may well be over” for the U.S. housing industry that’s suffering its worst downturn in more than a decade.
Greenspan, speaking at a conference in Calgary today, pointed to a “flattening out” of weekly mortgage applications after they went down “very dramatically.”
“While the crash only took place six months ago, I am convinced we have now passed through the worst — and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us.”
– Herbert Hoover, President of the United States, May 1, 1930
Chart of Pompous Prognosticators
As for fair offer from my side, this is what I would do. The market peaked in late 80s, and corrected itself until 94. I would take the 94 price for that house and compound it at 6% for 94 to now. Houses similar to what I saw went for 125 in 94, I will give it 135 start, and at that it comes to 271K now. And that would be the 2004 price.
Ok please tell me why everyone keeps referring to the last bubble correcting itself. Why does it have to correct itslef? The market bruned so let that be that. So if you agree that it had to adjust itself, than you agree this one has to also.
So it has to adjust out exotic mortage, adjust out highest property taxes in the country, adjust back to where a family can afford to make payments.
Just becuase the market did not do much of anything except crash and burn years ago, what makes this bubble different?
The only differnce is this one got really out of contol and will have a devistating effect on Millions of people. How do you expect the prices staying as high and not dropping 50% if people will not pay those prices.
It makes me sick when people deny a bubble and deny a price drop but say the reason prices will not drop is becuase the last bubble has to adjust itslef out. Contradiction. I bet you dun did get yourslef a top level Edumacation at UOF (univeristy of bob)
Ohh and when i tell people how to base what the prices will drop to why am I wrong, but the way truth states it will work is how the future stand?
Again show me facts of why it will.
My facts are simple, most NJins cannot affor a 1900.00 mortage
Buy for 235K 30 fixed at 6% plus 500/mo for property taxes, +PMI and homeowners ins pushes you well over 2000.00/month. Why should I not be given the chance to buy something. I would have liked to buy but have been outpriced.
If most people only 6 years ago were spending 130-200K on a house and were able to live comfortable, how are people going to afford 271k, without the nonsence mortage? They cannot. Salary increase are not anywhere near making prices that high. To be able to comfortable afford that much you best be making in the tripple digits with a normal mortage. Most people in NJ do not make 6 figures. So I will say it loud and Proud Crash and Burn Baby. Watch your investment proeprties tank and have fun at the unemplyment like :)
Let the “Truth” be told: I’m a homeowner and I still think people are greedy, f***ing pigs.
BOYAAAAAA!!!!
(What happened to Bob?)
Truth,
arbitration gap.
yes? no?
SAS
Ph.D -you might try homehunters.net to see samples, before paying the fee. They also advertise more expensive listings on
http://classifieds.northjersey.com/index.php
Couple of more months of 3% drops will push dreaming sellers to face the real ‘Truth’. I was talking to a realtor and he was all for lowballing. He told me not to worry about insulting sellers.
Bit off topic, but this is a hilarious sign of the times:
http://newyork.craigslist.org/mnh/fur/216915709.html
good evening bubble-licious posters. I took a gander at the Liberty Harbor project in downtown jersey city today. They do not have a model open yet but they have sample rooms in a showroom style setting. The sales associate took me and a friend around for a gander. We were talking all of three minutes when the sales pitch of two years kicked in:
buy now before prices get higher!
They arent offering any free upgrades they just say that it is all included. the granite and the whole nine. the sales price includes a fancy entertainment system with a fiber wired smart-home system. a two bedroom condo is 625K. Ah yes but raman noodle tastes better when you eat it off the granite counter top.
In the area there is so much housing going up, being flipped, dumped and what have you that it is absolutely delicious. It is all just sitting. Price drops here and there sure but, the prices are still out of this world. There are currently as of my last count 6 new projects at early or late stages of construction on top of everything else that is already up for sale. These projects are all enormous. The liberty Harbor project is a section of town in and of itself. The buzz around town is prices will need to drop substantially before anybody buys.
With mortgage reform, recession, Kara home filing, lumber mill layoffs etc., the prospect of being able to afford a home is certainly looking more like a possiblity and less of need to undergo IO loan surgery. I do not agree with posters that say you should buy whenever, just get in. Unless of course you could adhere to the general wisdom of 2 – 2.5 of your annual gross, or make the difference up in your downpayment. For me that would mean a 300k home. Have you seen what you can get for 300K? chuckle… I have to believe that I should be able to afford a home and that all of the numbers today are just FUBAR.
I do not mean any harm out there but i have my fingers crossed for an outright crash. 50% minimum. I am talking mortgage reform to bring us back to the days where people really needed to have cash and a job to buy. I need days where your crappy house that backs up into a parking lot is no where near 400K even if you did put in corian counter tops. And lastly how about a day where all of the moochers in the transaction treat you, the BUYER like the king or queen that you are by bringing the cash to the table? Is that too much to ask for?
Grim,
The Greenspan/Hoover is a classic!!! Harbinger of things to come???
Calculated Risk has a great graph of the “flattening out” of the mortgage applications..
jb
Here is a link to his graph of the MBA purchase index..
Greenspan: Worst may be over for Housing
Calc Risk;
Great stuff. Lower highs and lower lows. This says it all. Where is the sponsorship???
JB,
It needs authorization to view the “MBA Purchase Index. Any way to go around?
Thanks,
007
updated.
jb
Here is a link to his graph of the MBA purchase index..
MBA Purchase Index
JB this links broken. Says “Forbidden Error 403” in bold. Resubmit.
Weelllll…I suppose one could find a creative way to project out that flattening area without having a standard dev. equal to Belushi as Samurai Warrior.
But I can’t find a way with my trusty HP.
i’d expect the spring season to start earlier (due to itchiness of sellers to get started early and get those buyers in waiting) and have an uptick before wandering down. prices will be less by 5-7% from last spring sales resulting in a 10% inflation adjusted decline. i expect inventory to keep rising with more pricing pressures on the lesser quality stock
Was looking at some rentals out of curiosity and noticed a house I was interested in buying but had found too expensive.
To buy the house, the mortgage comes out at approx. $2,800 with a 30 year fixed. Taxes at the selling price are around $10,000 a year, so more than $3,600 a month to own, never mind insurance and maintenance (it is an old house, which I love).
Asked rental amount: $2,200 a month. A no brainer. I’m seriously considering it with a future option to buy.
Why the fed should not get involved in shoring up banks and investors who have made risky loans, and why a major recession may actually be a good thing:
“Economists call this ‘moral hazard’. In effect, letting people believe that someone will step in to stop them from failing encourages them to take more risks. A good example was the decision to coerce private banks into helping out hedge fund LTCM in 1998 rather than let it collapse. That decision may have convinced some banks and funds that it’s fine for them to take ever-larger, riskier bets on the basis that if they go wrong, they too will be deemed ‘too big to fail'”
How Accurate is Zillow?
Do you use Zillow? Although I am not planning on buying anytime soon (as in within the next year, maybe two), I spend quite a bit of time viewin available properties in the areas that my Fiancee and I would consider buying. Every time I find something that looks attractive on ZipRealty, I head straight to Zillow.com to see if they agree with the pricing.
In case you’re not familiar, zillow.com is a free home value estimator web site. They use metrics such as square footage, local comps, sales records, type of dwelling, etc. to determine an estimate, they call a Zestimate.
It generally seems to be in the ballpark of what you would expect. The fun part is that Zillow offers Zestimates for all properties, not just the ones on sale. Curious about your neighbors? You can view their square footage, assessed value and property taxes paid. You can also view the past sales data on their house. This may be a case of TMI, but it’s all public info anyway. Zillow just made it easy to access.
So, when I am researching homes, I find that Zillow often prices homes under the asking price. This is not too surprising. Anyone watching the market in most of the “bubble” areas knows that sellers have been stubborn about lowering prices, but watching inventories rise, and sales slow. To this point, I commend Zillow for getting it right. Sometimes, the Zestimate is above the asking price, to which you have to wonder, “then why hasn’t it sold?”
In fact, in my neighborhood, there is a house that has been for sale for quite a few months. I’m not sure how long exactly, but I went to their open house at least four months ago. The listing does not provide any useful information, because they pulled the listing and reslisted it to reset the “Days on Market” number.
The house was originally listed for $890,000. It is a 3 bed/3 bath house on 5700 square feet. I originally thought it was too high. They have since come down to $850,000, but still it site, vacant, hosting a weekly open house. What does Zillow think? They’re close, the Zestimate is $853,141. The house is newly remodeled inside, so all new counters, cabinets and fixtures. So, if it’s worth $853k, and they are asking $850k, why hasn’t it sold? Wouldn’t a buyer have at least come close to the asking price, and a deal struck?
That’s the problem with estimating values based on comps in a rising inventory, buyer’s market. The most recent sales are not necessarily valid. The top three comps used for this Zestimate had a most recent sales date of June 2006 for one, but January 2006 for the other two. In this market, the difference between January and June (almost July) is significant.
The bottom line: Zillow is a fun and useful tool, but don’t bet the house on it.
http://itsjustmoney.blogs.com/its_just_money/2006/06/how_accurate_is.html
Agree, Zillow is fun, but often times wildly inaccurate.
jb
richard said
“prices will be less by 5-7% from
last spring sales resulting in a 10% inflation adjusted decline”
i found while spring shopping in 06 that prices were inflated a good 10-20% over the 05 prices. the houses still sitting from spring 06 havnt lowered to 05 prices yet. so 5-7% below last spring 06 is still not below 05 prices.
this maybe just my area but it seems to be what is happeneing . sparta nj
Zillow’s primary role today seems to be in providing inflated estimates of value to home sellers. It has been my experience that sellers are actually asking for prices below the Zillow estimates at this point because Zillow is so horribly inflated. (Of course, what the sellers are asking for is STILL a solid 20% higher than what is reasonable but thats another story.)
I have found a good use for Zillow though in that it links to maps by Microsoft Virtual Earth that are superior to the hybrid maps you fing on Google Maps. You can get a much better persepctive on the size of homes you are interested in, how they compare to the homes in the area (you can easily see which homes have an extension and which ones don’t and then use that data to firm up the property taxes being charged and if the homes may be comps) and how close the home of interest is to say, railroad tracks, major highways, etc.
I am looking in a towns in Union County that the GSP cuts right though which is convenient for travel but makes for a noisy home if that is in your backyard. Same with the freight rail lines which blow whistles at all hours of the day and night and are rather noisy as they pass through. Sellers seem to think I should pay a premium for the privilege, I think I deserve a discount.
thanks grim
i believe truth is david lereah
buy now or be shut out forever!!!!!!
i needed a good laugh
my new name will be extremely patient buyer
cash is king
not trying to beat a dead horse, but this multiple of income as a measure of affordability is really outdated.
it made more sense when people had less discretionary income. As it stands now, basic needs such as food are the smallest portion of most people’s budget that they have ever been.
consequently, affordability is more of a cash flow issue for middle class households and above.
So, for example, a person making $150,000 can reasonably afford $600,000 house.
20% down
$480,000 30 yr fixed mortgage @ 6.5%
$3034 monthly payment
$800 per month propery taxes
minus mortgage interest / property tax deductions (very valuable in the early years of a mortgage) = $2588 per month
let’s bump it up to $3000 per month to take into account insurance and maintanence. So total housing cost of $36,000 per year.
$36,000 per year is only 24% of your gross income if you make $150,000. This is very affordable. And yet the house price is 4x your annual income
From The Record:
Building official gives up licenses, ending inquiry
Embattled building official Robert K. Rogers has voluntarily surrendered his licenses to monitor construction in New Jersey, three weeks after state officials launched an investigation into costly errors he made in Ridgefield.
In a handwritten letter submitted to the state Department of Community Affairs on Monday, Rogers said he was relinquishing his five state licenses immediately and would not seek to renew them.
State officials released the letter and announced an end to their probe on Friday, saying the stiffest penalty would have been revocation of Rogers’ licenses.
The state began its probe after The Record reported Rogers made a string of mistakes that cost Ridgefield homeowners tens of thousands of dollars and led to three lawsuits against the borough. Rogers worked in at least five other North Jersey towns during the last two years and made a combined $112,000 in 2005, according to state records.
More at the link above
Rich
Rich,
Just another fleecing of NJ. When will the madness end???
J Says:
October 6th, 2006 at 8:18 pm
Bit off topic, but this is a hilarious sign of the times:
http://newyork.craigslist.org/mnh/fur/216915709.html
2 notes:
#1 you cannot be off-topic on an open thread
#2 this link caused me to be acutely incontinent
Is Kara Homes to real estate the same as boo.com to the dot.com craze?
I’ve been looking for the boo.com, and I think we have found it…..
http://en.wikipedia.org/wiki/Boo.com
to clarify – boo.com represented the canary in the coal mine back then – it was first and seemed self-contained – NOT SO
It’s happening people…..
history repeats
the names are different, but the story is the same
CF,
How right you are. People are foolish if they think history doesn’t repeat. Same animal, greed/fear, different cage, same sh*t, different players.
By the way, any stories regarding runs on Monmouth/Ocean counties banks, that had exposure to Kara??? Too soon?? Maybe next wek.
Question re Kara: What do you think the impact will be in terms of other builders in NJ, both large and small?
When something like this happens – what about construction financing? Does it freeze up?
Or is it actually good for other builders – i.e., less competition?
Or is it actually good for other builders – i.e., less competition?
we’re going to have to wait for that one – ground zero for information is going to be little silvered at the Shore Blog
he’s been smelling this out from a mile away and he’s been in the middle of everything
he was all over the Solomon Dwek thing too…
sorry
http://shorebubble.blogspot.com/
While I agree that it is a cool site, the usefulness of Zillow depends on the area you’re looking at.
I have found that it is absolutely useless for the Maplewood/South Orange area. No information at all.
“If most people only 6 years ago were spending 130-200K on a house and were able to live comfortable, how are people going to afford 271k, without the nonsence mortage? They cannot.”
Exactly, Everette. Which is why I am NOT putting in even that ‘fair’ offer. Forget salary increases, we make less than what we made in 2000. In 2000 the house would have been a perfect buy at 175K. At 271K, the house might acheive a rent vs buy parity, but we are certainly not paying 1800 in rent right now, nor are we planning to rent anything for that much. We are stretched paying our 1350 rent, and that is our limit for housing, whether rented or bought. Bottomline, we might never be able to buy in NJ !
Sugee,
If you are stretched to pay 1350 in rent, you are better off moving out of this area. 1350 is nothing in this market, might want to reconsider your finances, your job, taxes, and where you live. Not trying to be a jerk, just a little surprized for someone to admit that such a low rent is a strech for them.
SAS
“but this multiple of income as a measure of affordability is really outdated.”
Very true, Skeptic. Agreed. For some 4*income might be doable, while for some it has to be 2*income. It depends on actual income, age of the couple, number of children, how old the children are etc. College savings, retirement savings, educational and extra-curricular expenses, dependent parents, etc. can vary from family to family. So everyone has to make a decison based on their own circumstances and goals. In the example you gave, we dont know what competition is there for all that discretionary income.
SAS,
You are absolutely right. That we should start thinking about all the things you rightly point out – job, taxes, place etc. At the moment tied down to the area until son finishes HS which will be in 2008. 1350 is a stretch after maxing out on 401-K, and paying elder son’s college bills. After 2008, we will have to move out of here, find better jobs or second jobs, if we want to pay second son’s college expenses also !
I have been a silent member of this blog since last month.
Someone suggested me this property. It’s on market since over an year now.
Currently under auction.
What you guys think about it?
http://realestate.nytimes.com/+Comshare/vulisting.asp?Lid=25-NY4EBBE4
Hate those houses with brick or stucco fronts and then cheap looking siding on the back. It looks so unfinished and unprofessional.
anon, the house is good looking. if you really want it and can afford it then, go for it. if you can wait and pass it would be interesting to see what happens after the auction and nobody bites.
Don’t confuse Real “Stucco” with EIFS.
Personally, I can’t stand the resin-coated styrofoam finishing systems. They were originally designed to make ugly industrial buildings and warehouses palatable on a very small budget. God knows how it made the transition to residential construction. I’m a building purist who likes to see quality craftsmanship and materials. Calling EIFS stucco is an insult to stucco.. :)
jb
“After 2008, we will have to move out of here, find better jobs or second jobs, if we want to pay second son’s college expenses also!”
FYI, no one paid my college expenses — student loans, grants, sholarships, and a part-time job worked fine.
I didn’t burden my parents with my debt, and my children will not burden me with their debt.
“What you guys think about it?”
According to your link, there’s an open house today.
I just heard one mortgage broker firm tout a so called new mortgage program stating that it is 10 year interest only at the end of which it can convert to a 20 year fixed loan. Just wanted to tell you folks to be aware that all kinds of deals will be on the table to try and prop up sales of real estate but the fact remains that the basic fundmentals are still out of whack and I dont see any long term help with this kind of promotions because the bottom line is still the economic fundementals do not make sense, inventories are still piling up every month, construction is being cut back, developers are going broke, realtors are going to look for other jobs etc etc etc and prices have to fall until the fundementals make sense.
“FYI, no one paid my college expenses — student loans, grants, sholarships, and a part-time job worked fine.”
Unrealtor,
That is what I meant when I said each one has different personal goals. My children have not asked me to take on this burden. We (I and my husband) have made the decision that we will try our best to give our children a burden-free Bachelors’ education. After that, whatever they want to do, IF they want to – MBA, law, medicine, MS – they are on their own. Owning a house comes after this responsibility we have taken on ourselves. If we can own a house at the rent we can afford then we will become home-owners.
When that 10y IO converts to a fully amortizing 20y, it is going to pack one hell of a whallop.
I assume the IO portion is adjustable?
jb
When that 10y IO converts to a fully amortizing 20y, it is going to pack one hell of a whallop.
I assume the IO portion is adjustable?
Yes its going to be disastrous, it is adjustable. I can only see interest rate creep up in the medium term to fix the cracks in the economy that need repair rather than temporary fixes
jb – how do you feel about brickface?
Is there an accountant in the house???
The H-Builders are trading a little above book value. As Barron’s (10/2) has pointed out, a great % of their bv is a combination of land options and joint ventures.
Len, 49%
Hov, 33%
I am not an accountant but it seeems like the JV’s have allowed H-Builders’s to buy land and other builders while keeping the land and leverage off their balance sheets.
This is the example in Barron’s; a developer seeking to purchase a $100 million piece of land with a 40 % equity stake might put up $19.6 million, or 49% of that equity stake. The partner may contribute $20.4 million or 51% of that stake. They then fund the remaining $60 million with debt thru private equity funds. Now since, the builders equity is less than 50%, the debt would not appear on the company’s books. My question, are these JV’s set up to hide non-performing debt??? Is this a method to skirt disclosure??? Does this sound enronic??
Accountants, any feedback???
To the bubble critics: I’m sorry RE is definitely in for a downward spiral. Kara homes, story is very telling. What about all the mom-&pop developers? The developers brought the market to these hieghts and the decacle of developers will bring the market to new lows. RE doesn’t drop like stocks, since it’s not as liquid and people are so emotional about homes. I say let’s talk in 2 years.
-cs
Kara Homes ranked among top US firms
Real Estate Weekly, Feb 2, 2005
Inc. magazine has ranked Kara Homes 38th in its annual “Inc. 500” list of the fastest growing privately held companies in America.
http://findarticles.com/p/articles/mi_m3601/is_25_51/ai_n9544543.
Does Inc magazine re-rank for fastest imploding privately held companies???
>
absolutely true, developers even got the Supreme Court to give them a boost with that Eminent Domain crap which steals property from innocent owners and that added fuel to the fire. The bubble was fueled from all phases!
BC Bob Says:
October 8th, 2006 at 2:07 pm
I am not an accountant but it seems like the JV’s have allowed H-Builders’s to buy land and other builders while keeping the land and leverage off their balance sheets.
This is the example in Barron’s; a developer seeking to purchase a $100 million piece of land with a 40 % equity stake might put up $19.6 million, or 49% of that equity stake. The partner may contribute $20.4 million or 51% of that stake. They then fund the remaining $60 million with debt thru private equity funds. Now since, the builders equity is less than 50%, the debt would not appear on the company’s books. My question, are these JV’s set up to hide non-performing debt??? Is this a method to skirt disclosure??? Does this sound enronic??
Accountants, any feedback???
Bos: It conforms to GAAP, and is a perfectly reasonable approach. Yes, it allows a good amount of leverage to be removed from the balance sheets if it is not a consolidated entity. However, when one is discussing both minority controlling interest and financial interest, such treatment is reasonable.
Trust me when I say that any financial analyst worth his salt is peeling away the layers of the onion and monitoring this information.
The place that I would like to cast the greatest light and overturn stones are the special purpose shell entities that publicly traded homebuilders [such as Toll Brothers] have erected. As an example, one such entity is owned in equal proportion by TOL [the corporate entity], the Pennsylvania State Workers Pension, and a group of about ten Toll insiders. Certain projects have been outsourced by the corporation to this entity. It reeks of self-dealing and the insiders enriching themselves at shareholder expense. However, I would stop short of saying Enronesque.
Bear in mind, home builders have been fabulously profitable for the last few years, and these arrangements are more Adelphia/Tyco than Enron. Enron was just a stupid oil/gas pipeline company that was twisted around.
Ultimately, I would worry about it. There are much bigger fish to fry. But the entire industry has always been a little unseemly and cliquish. If you steer clear of it, I think you will have done yourself a service.
As always, if you listen to my opinions and rely on them to make investments decisions, you are truly a fool. You should perform your own research or else retain the services of an advisor.
chicago
correction: Ultimately, I would NOT worry about it.
Open House last week in Demarest:
51 Woodland Rd. Asking $1,099,000
This week, same house:
Asking $1,259,000 but…
you get a Rolls too
CF,
Thanks!! Great analysis. Just wondered if this was relected in their share price??
Took a drive around Ridgewood today. Ended up driving through Paramus and Fair Lawn as well. I have never seen so many “for sale” and “open house” signs. I wonder how long some of them have sat on the market. From the outside, many looked fantastic but we didn’t go in any of them. Aside from the taxes, and greed, what could make so many people in the same area want to leave? What don’t I know?
lostinny,
Maybe that they are getting hit from all angles?? Property taxes, health care,estate taxes, etc…. The state is tapped, municipalities are tapped. After you get hit over the head constantly, with this BS, you someday wake up and say I have a damn headache/migraine. I can’t take it any longer. Just a thought.
BC Bob Says:
October 8th, 2006 at 6:33 pm
CF,
Thanks!! Great analysis. Just wondered if this was reflected in their share price??
Yes – absolutely. If I can figure out the bulk of it by just poking around, there are others that really do a good job of getting their fingernails dirty, and are getting paid to do so, or else have a significant amounts of skin in the game.
Also this:
http://www.theglobeandmail.com/servlet/story/RTGAM.20061004.wmerrill1004/BNStory/Business/home
From Meril Lynch:
““We find it amusing that a consensus has now formed that housing is speculative and overdue for an extended pullback, yet many commodities have appreciated much more than housing has, and have done so in a shorter period of time”
Hmm..I wonder how you would define “speculative and overdue for an extended pullback”
Pop! Pop! pop!
“Asking $1,259,000 but… you get a Rolls too”
Fabulous, finance a car for 30 years…
Having gotten the whole affordability talk started, I may as well come in at the end with a conclusion.
I answered OO7’s question about what a house should cost today with an affordability answer because what you can afford is the market you should be in.
Skeptic makes a good point about allowing higher multiples at higher income levels, but I don’t think that is realistic for most people.
We had an interesting discussion awhile back about home prices and since then the Census Bureau released the ACS. Monmouth County’s household income is now $92K, even at 4x, it doesn’t cover the median existing house in the county (in the $500K ballpark) and don’t even think about new construction. The lowest priced SFH in Monmouth was something like $470K last year; the median approaches $800K.
Also, the “greater discretionary income” arguement just doesn’t hold water (I’m leaving out those with median +50 percent again Skeptic).
While food is indeed a much smaller percentage of a family’s income today, the list of necessities has expanded dramatically. Even household’s with 1/2 of median income in Monmouth County view cell phones and cable TV as “necessities.” There’s no need to get preachy, that’s just the reality I see everyday, people making $45K, think they are middle class, just like the family at $125K does.
Automotive expense (remember NJ insurance rates) also are significant.
The system is broken and it won’t function properly without a very big correction.
One last question for JB et. al.
Is Kara the first casualty of the the bubble? Has anyone heard of any other significant builders elsewhere in the country going belly up?
I’m not talking about KHov’s current “belt-tightening” (they have a pretty big belt, I think it’s going to get a lot tighter), I’m talking about filing for bankruptcy. I’m guessing there have to be some Arizona, Vegas, and Fla. builders who have already filed, but I don’t recall seeing any.
What’s everyone think of Mendham? I was just out there and while the town isn’t huge and it’s at least an hour from NYC, you get a lot of house for your money. You get much more house for your $$$ than a Chatham, Madison, Summit or Millburn, but tradeoff of about at least 30 mins to 1hr a day in commute time roundtrip.
Hit half a dozen open houses today in Bulls Ferry (West New York, NJ) and I can only say that sellers are in denial. These are very nice condo’s and townhouses but they are asking the same as units sold a year ago or more plus ten percent. I get a silence when I say that there are dozens of units for sale within a hundred yards. Amusing stuff.
Not an answer to my question, but some interesting clues at Mish’s place.
http://globaleconomicanalysis.blogspot.com/
He’s got some info on WCI a Florida condo builder.
Saw this on foreign newspaper and got it on the web: SAN FRANCISCO (MarketWatch) — Former Federal Reserve Chairman Alan Greenspan said that last week’s rise in weekly mortgage applications could signal that the “worst may well be over” for the U.S. housing industry, according to a report of a speech Greenspan gave in Canada on Friday.
Here is the link:http://www.marketwatch.com/news/story/story.aspx?guid=%7B97892278-91EA-405B-BB45-167819F5DD8F%7D
I really doubt about his statement.
007
Dream on 007….Deam….Onnnnnnnn
sorry, that was not directed on you. Just at those looking to the retired Greanspan quote for a nugget of hope. I think that guy needs a vacation after all these years.
Is there a way to get income data for middlesex county, where i can see the break down of all income levels vs. how many?
http://www.censusscope.org/us/s34/c23/chart_income.html
http://www.fedstats.gov/qf/states/34/34023.html
SS asked: Is there a way to get income data for Middlesex….
Yes, there is. Use the Census Bureau’s Factfinder utility which is here.
Enter the county and state (or town and state).
It will come up with a table for you. In each category header, there is a Show More link. Use that link to find both housing and income characteristics at a fine level of detail. For example, for Middlesex incomes, you can look at employment by category (39,772 people involved in finance/RE, 18,295 involved in construction). You can also see stratified incomes.
By household, the bulge is in these categories:
$50,000 to $74,999; 51,671; +/-3,512
$75,000 to $99,999; 43,061; +/-2,814
$100,000 to $149,999;48,288; +/-2,772
By family, the bulges are the same:
$50,000 to $74,999; 37,586; +/-2,915
$75,000 to $99,999; 34,756; +/-2,255
$100,000 to $149,999; 42,301; +/-3,061
By non-family household:
Median nonfamily income (dollars)
38,786; +/-2,130
Mean nonfamily income (dollars)
52,782; +/-4,670
I know you know this, but it is possible that someone else doesn’t. Median is half below, half above. Mean is the average (total incomes divided by total households)
You paid for all this with your tax dollars, you might as well use it.
cs,
that’s okay. I think Alan tried to save his face by saying that. He may think people may listen to him and we won’t have a hard landing.