Analyzing House Market Trends

ElJeffe

Okay, I'm in a situation where I bought a house at the wrong time and the housing bubble exploded all over my face. I'm currently weighing my options, but the best one is going to depend heavily on what the market is likely to do in the next couple years. Basically, I need to figure out whether the market in my area (Sacramento) has hit bottom, or whether it's going to continue to decline.

Can anyone let me know a good resource to peruse to give me a feel for what the trends are? I know that nothing is guaranteed, but I'd like to at least get some good "this is what's likely" type information, and I'm not sure where to get that sort of thing.

FWIW, I'm not looking for advice about what my options are. I have people working on that. Right now, I need to know how best to pick from among all the bad options presented to me, and that requires knowing where the market is headed.

Thanatos

"Nothing is guaranteed" is a huge understatement. No one has any idea what the housing market is going to do over the next few years, and anyone telling you they do must have a much better crystal ball than anyone else.

supabeast

We’re in a similar situation here; my BF has over a million dollars of real estate, mostly mortgaged, and we have no fucking clue where things are going to go. The only credible thing I’ve seen said on the topic in the last few years was Warren Buffet stating that he doesn’t expect it to spill over into the rest of the economy. Other than that, you can ask a thousand analysts for their opinions and get a thousand different responses.

When it comes to real estate, don’t make any decisions based on what the future may hold. Make them based on your actual financial situation, and don’t include any future presumptions unless they involve you having even less money in play than you already do.

ElJeffe

Well, the thing is that we have two general classes of solutions: sell or don't sell. The former is a bad idea if the market picks up right now, the latter is a bad idea if the market continues to plummet. There is not a plan that doesn't really fucking suck in one of those instances, and there isn't really a hedging-our-bets option.

If nothing else, I would like to see charts or something showing trends over the past few years so I can try to extrapolate. The market around here didn't go from 25% appreciation per year to 25% depreciation per year over night. It tapered off and hiccuped a bit before plummeting. Everyone knew the crash was coming, they just didn't know when, precisely. I don't want guarantees, I won't estimates and odds. What sort of resource might contain this sort of information?

Shinto

I'd hate for you to make an important decision based on only this but - it seems as though the economy might go into recession this year or next year, which would mean that interest rates go down and the housing sector revives. My completely uneducated guess would be that the market bottoms out next year.

Plus it seems as though Sacramento's population has been steadily increasing and it's unemployment rate continues to be below average for the area, so that would say to me that there is underlaying demand for housing in the area and once the market corrects over the next 18 months things should stabilize.

But again, I don't have a lot of expertise.

Fristle

In my opinion the best indicator of the direction of the housing market is to assume there will be a "regression to the mean," i.e. since the housing prices have increased waaaay faster than income, the market has nowhere to go but down, and in the medium term it ought to come back in line with historical norms for things like mean-price-to-mean-income ratio and buy-to-rent cost ratio.

It could also go more or less flat for a long time instead of going down. Most analysis I've read believes the housing market cannot "pop" or "crash" suddenly because housing assets have inherently poor liquidity. They are not like stock that can be bought and sold in a panic. Selling a house is laborious and time intensive, and if someone can't afford to sell they can convert it to a rental, or just live in it.

Yea, market forecasting is speculation, but it's not ALL crystal ball worship. There are a lot of market indicators you can watch, to produce a good educated guess on the direction of the market. Check out what the mortgage lenders are doing (the sub-prime mortgage reform movement). Check out the supply trends in your area -- see if there's a supply glut relative to a few years ago or to last year. An oversupply precedes a price decline.

Here's a good site for some market stats (raw unbiased number information). Sacramento is on there. Check out the numbers on affordability. That is BAD news, man. Affordability in your area is nearly 50% outside of historical norms. It's worse in my area (DC) though.

supabeast

ElJeffe wrote: »

If nothing else, I would like to see charts or something showing trends over the past few years so I can try to extrapolate. The market around here didn't go from 25% appreciation per year to 25% depreciation per year over night. It tapered off and hiccuped a bit before plummeting. Everyone knew the crash was coming, they just didn't know when, precisely. I don't want guarantees, I won't estimates and odds. What sort of resource might contain this sort of information?

Get in touch with experienced local realtors, they should be able to either provide with the information you need or put you in touch with a good source. Contacting the National Association of Realtors would also be a good start as they track everything to do with housing sales and provide a lot of analysis.

meeker

Real estate is like every other investment. Holding on to it for the long run gets you the most return. Anyone who thinks quick flipping or buying a place for a short period of time is a great way to make money is gravely mistaken. (Talking historical and averages here, not individual cases.)


With that said, why do you have to do anything with the home? Can't you stay there and wait for the value to rise? If it is a problem with an ARM, can you refinance?

ElJeffe

Okay, I more or less answered my question based on some of my wife's research. What I really wanted to do was find out the "real" value of my house. I suspected that the real estate market historically operated much like the stock market, in that booms and busts always wind up settling down along a pretty fixed-appreciation line stretching back to more or less the early 1900s. If you draw a straight line on a linear log graph at about 10%, you'll see that the DJIA always fluctuates about that line, and always comes back to it after deviating substantially.

I looked at various historical trends for different markets in this area and in the country as a whole, and they operate pretty much the same way, give or take. Based on this, it appears that the home I bought 2 years ago for $300k is "actually" worth about $195k right now, and would be "actually" worth $300k in about 10 years. ie, if the market does bottom out around that straight-line appreciation, which is historically pretty likely based on pretty much every trend chart I looked at, it would be about 2016 before I could sell this thing for what I paid for it, and probably 7 years before I could sell it for what I can sell it for right now.

We never intended to live in this house longer than a few years, and so I'd rather get out of it now with a moderate loss than either have to get out of it in a few years with a huge loss, or live there until I'm in my 40s.

So anyway, thanks, but I guess I've answered my own question. FTR, this also meshes fairly well with what my realtor said. It's just that different realtors around here are saying different things.