That said, there are still many local bubbles, especially in the Northeast (D.C. and up) and the West Coast. In contrast, other regional markets such as many of those in the Rust Belt and the Sun Belt are now either fairly valued or undervalued.
I have argued in the past that real estate prices don't overshoot to the downside. The next few quarters will reveal whether I was right or wrong about that.
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If you look at the past values (vs the trend line) it does seem that there are undershoots, albeit very slight.
ReplyDeleteThe slope of the current downturn would seem to suggest that an undershoot is likely. Still, look at the last 2 years where there was a sharp "bounce" reversal. I suppose its possible that could happen again.
By the very definition of a trendline, if something can go above the trend, then it MUST also go below the trend. The trendline marks the midpoint of the trend. (In the chart above, the trendline marks the pre-bubble trend only.) You seem to be saying, "Look, prices went below the trendline," but if prices didn't go below the trendline, then the trendline would be in the wrong spot.
ReplyDeleteMy argument is that you won't see prices shoot dramatically lower than the historical norm, because at some point the mortgage payments will be so far below rent payments for a comparable property that buying real estate as an investment becomes a no-brainer. Rents create a floor for real estate prices, but not a ceiling.
James said...You seem to be saying, "Look, prices went below the trendline," but if prices didn't go below the trendline, then the trendline would be in the wrong spot."
ReplyDeleteI pretty much was. I was thinking you literally meant it doesnt go below the trend line "at all" which didnt really make sense, but I didnt want to get into that potential can o worms :)
"James said...My argument is that you won't see "fire-sale prices." You won't see prices shoot dramatically lower than the historical norm,"
Ahhh - makes sense now - gotcha. I agree with you for starters simply because it didnt happen in the past (likely for the reasons you noted). Plus if it ever did, given the current governmental posture, you know they would do everything they could to keep it at the slightly below (versus catastrophically below) trendline.
Is it really deflated this morning. I'll definitely have look on this. Txs! to share it.
ReplyDeleteUS national pricing has gone finally, I will wait too to know that.
ReplyDeletemay want to check the price to income ratio as a better measurment of price... Also worth considering is the price to RENTAL income historical ratio which is a measurement of historical value for investors.
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