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Home Prices - Am I On the Same Planet?

March 10th, 2011 at 02:54 pm

I hear almost on a daily basis how home prices are rock bottom throughout California, and the "deal of the century."


Honestly, I've read enough articles and talked to enough people to know that the majority of home buyers around here are outside investors (other cities, other countries, other states), and buyers with little-down loans (FHA?). That's what is keeping the home market from collapsing in Sacramento, specifically. People who know nothing about the local market, and more creative lending.

Oh boy!

I know a handful of people who got off the fence and bought - maybe with some decent down payments and fixed rates (but I wouldn't know for sure - the terms of their purchases). But, that's rare. I know far more broke people buying because "it's a good investment and no money down required."

The more I talk about this with people, the more disconnect I see between their lofty "get rich quick" schemes and the real estate reality.

I even went through zillow and examined historical home prices in several cities I am familiar with because there is such a huge disconnect between what people are spouting about home prices, and reality. As I expected, home prices are largely higher today than they were in 2001 or 2002. Zillow backs up my impressions. (Zillow runs pretty accurate here because home sales are so constant. Home sales prices are a good indicator, and there are tons of sales).

Sure, prices are lower than the peak, but any year before or since about 2005-2008 would be lower than the peak. That doesn't MEAN anything!


Anyway, in 2004 or 2005 I saw a graph of Southern Cali Home prices compared to median incomes. It was a historical graph with a HUGE and sudden spike around 2002-2004.

I had seen similar graphs in regards to Sacramento real estate. Back then, it seemed obvious that home prices were unsustainable.

So as I hear all this nonsense, in recent days/months, I was poking around to see if anyone had updated any of these graphs through the year 2010 or so. I'd mostly expect home prices to either have leveled off, or still be quite high. I wouldn't have expected prices to have dipped down to some historic low. Because they haven't. Not from the long historical perspective.

To the next person who tells me I am a crazy investing know-nothing about real estate:

Courtesy of econintersect.com


Look at all those graphs on this blog post. Beautiful!

"And the irrelevance of interest rates to home prices during a housing market depression is obvious when one looks at the ultra-low interest rates of the 1920s and 1930s accompanied by home prices one standard deviation below the historical average."

"There is no way that a thorough look at the data can lead one to rationalize that the housing market is poised for recovery."


If you are wondering why I am not running out and investing in real estate, this would be why...

5 Responses to “Home Prices - Am I On the Same Planet?”

  1. LuckyRobin Says:

    I think they are living on the planet Oblivious in the constellation of Ostrich with It's Head in the Sand.

  2. ThriftoRama Says:

    I hate it when people look at real estate as an investment if it's their primary home. It's a place to live people!!

  3. MonkeyMama Says:

    I am talking about investment real estate.

    The only people actually buying homes around the region I live in, are investors. Is the only reason home prices have stayed afloat. Few people are actually buying homes as homes.

    Somehow I don't think that is a good sign. Just lots of speculation.

  4. baselle Says:

    Good on you! Besides, its not a bottom unless EVERYBODY tells you real estate is the worst investment ever. As soon as you have one optimist, its not capitulation, hence we have to wait some more. Wink

  5. DKAS Says:

    I'm also in the bay area and agree that most people keep saying how right now is the bottom but reality is a bit different as you pointed out.

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