It’s not going to make you any money unless you catch it on the upswing right before a huge bubble, and you’d better know when to get out. Housing has returned a 6% annual return from 1950 till 2000… And that’s the average selling price, so note that homes got bigger, kitchens had to be remodeled, additional bedrooms and bathrooms were added, etc. That doesn’t even include general upkeep, or a new roof every 15 years, a new heating/AC unit every 15 years, new siding, repaving the driveway, replacing your deck, buying flowers, etc. If you took your average 600′ Levittown house in 1950 and just fast forwarded to today without any maintenance/upkeep/renovations it would probably be worth $0 today, let alone increasing 6% / year. It’d be worth exactly what the land underneath it was worth, minus the cost to rip out the house that was on it.
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Freddie Mac warned in financial filings Wednesday about four big risks it sees for home prices over the coming year. The company says to expect a further decline in home prices nationally before any sustained turnaround begins. The chance of further home-price slippage, according to Freddie, stems from the following: * our expectation for a significant increase in distressed sales, which include pre-foreclosure sales, foreclosure transfers and sales by financial institutions of their [bank-owned] properties, due in part to [the Obama administration's foreclosure alternatives program]. This reflects, in part, the substantial backlog of delinquent loans lenders developed over recent periods, due to various foreclosure suspensions and the implementation of HAMP. We expect many of these loans will transition to REO and be sold in 2010. This may cause prices to decline further as the market absorbs the additional supply of homes for sale. Only the beginning from this administration! Home owners take note & tell your friends and relatives who are home owners! Beginning 1 year after enactment of the Cap and Trade Act, you won’t be able to sell your home unless you retrofit it to comply with the energy and water efficiency standards of this Act. H.R. 2454, the “Cap & Trade” bill passed by the House of Representatives, if also passed by the Senate, will be the largest tax increase any of us has ever experienced. The Congressional Budget Office (supposedly non-partisan) estimates that in just a few years the average cost to every family of four will be $6,800 per year. quote http://blogs.wsj.com/economics/2010/04/24/number-of-the-week-103-months-to-clear-housing-inventory/ Basically, what I believe they are saying is that to keep home prices from dropping a large amount, banks are holding a lot of foreclosures back and trickling only a few at a time into the market. They are no foreclosing on some where a homeowner stays in the home because they at least get some maintenance done and there is less chance of the home being stripped if sitting empty. First, the total number of NEW houses sold according to the US Census Bureau was 38,000 homes which was up 7,000 houses from March 2009. Many people just looked at the headline number being flashed all around of 411,000 houses and assumed that was for March without comprehending that ONLY 38,000 NEW HOMES WERE IN FACT SOLD IN MARCH 2010. That is an extremely small number and is only around 10% of the 300,000 HOUSES THAT WERE FORECLOSED ON DURING THE MONTH OF MARCH 2010. Moreover the March 2009 rate of new home sales was one of the lowest ever recorded. Second, the 411,000 ESTIMATED ANNUALIZED NUMBER WAS “SEASONALLY ADJUSTED” but highly skewed on the positive side as early spring (March) sales are always among the highest of every year and this year’s numbers were influenced to the upside by the large tax credits (subsidies) being given out by the federal government and some states to induce people to buy houses they wouldn’t otherwise be buying and those programs are due to end soon. The manager, who lives in my neighborhood (don’t know her personally though), asked me how much my house was worth. I told her $2,500,000. She said “That can’t be. I live in that neighborhood and I know the houses are going for around $250,000.†I said “the value based on “Mark-to-WETFIS†at which point she inquired “What is Mark-to-WETFIS?†I said “Mark-to-Model†is a sophisticated financial model that is used to estimate value. I start with MY ESTIMATE of monthly rent ($3,000 per month) and increase that each month over a 30 year period based on MY ESTIMATE of CPI (inflation going through the roof). I then deduct expenses which I ESTIMATE at a very low rate over the next 30 years (the house is in great shape…shouldn’t need any repairs over the next 30 years….and taxes should go down with property values falling). This yields an estimate of net cash flows which I then discount based on MY ESTIMATE of an appropriate discount rate (personally, I think 2.5% is a reasonable discount rate) . The result is an estimate of value based on Mark-to-Model†|
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