“The Real State of Real Estate”

This piece, the Real State of Real Estate (pdf) was sent to us by a very reliable mortgage broker in our city. However, he did not write it, so we can’t give credit to him, nor can we give credit to the person who wrote it, as we don’t know who did. If anyone can help, we’re all for giving credit where credit is due. [Update: from "sfre" in the comments, "These were quotes that Gary Watts, an economist and real estate broker, used in a recent seminar to the real estate community in SF."]

It’s full of money quotes like:

Prior to my entering real estate in 1971, a quote appeared in Business Week (late 1969) due to an increase in housing prices: “The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000.

In 1977: the National Business magazine stated: “The median price of a home today is approaching $50,000. . . housing experts predict price rises in the future won’t be that great.

99.2% of Mortgages are Not in Foreclosure

California home prices declined about 12% by 1996 when the San Francisco Examiner said: “A home is where the bad investment is.” In the following 3 years, California home prices rose 19.7% wiping out all the losses of the early ’90′s and ended the decade with a net gain of 9.35%. The median price in California has not declined since 1996.

So you get the picture. We won’t waste any more of your time, it is long read, we suggest you check it out.

-Real State of Real Estate (pdf)

8 thoughts on ““The Real State of Real Estate””

  1. These were quotes that Gary Watts, an economist and real estate broker, used in a recent seminar to the real estate community in SF.

    [Editor's Note: Thank you!]

  2. This guy makes some good points, but he’s a bull through and through. Merril Lynch and Bear Stearns had shitty third quarters. Near disastrous. This paper is already out of date.

  3. Also a little disingenuous, Goldman Sachs made money by shorting real estate.

    Honestly, I’m not worried about house values. I think the rest of the country has taken hits for nearly two years now and SF is soldiering on. We might even be in for another spike before too long.

    I’m worried about the availability of credit.

  4. The quotes are good…the numbers are poor.

    - The average annual increase (1968-2006) was 8.72%, not 7.75%. Each of his annual percentage increases is calculated wrongly and his 38-year average should be a compounded number not a simple average. Note that this makes his case better which shows he’s merely innumerate not deliberately deceptive.

    - Taking an average over that period obscures the bears’ basic case which is that the recent run-up is unsustainable. The average for 1968-1999 was 7.5% while the average for the 2000s is 14.4%. For the average price increase in the 2000s to average 7.5%, they would have to stay flat until 2012.

    - Prices increased significantly in the 1970s because inflation was so high then. The inflation-adjusted return on real estate in 1968-1999 was 2.2%. In the 2000s, it has been 11.3%. For the average real price increase in the 2000s to average 2.2%, and if we assume that inflation averages 3%, prices will have to stay flat until 2018.

  5. Right here, Calamityjan. I for one never advised anyone to take a subprime loan. You have got to look at how much people make and month in, month out expenses. In the end that is the bottom line for most folks. But the realtor is just an agent after all. Nobody knows what goes on behind closed doors.

    [Editor's note: This topic is now on the front page, Point Counter Point, More Sub Prime Mortgage Blaming. Thanks Calamityjan and Kenny.]

  6. I think it’s the right post to put this link:

    http://jec.senate.gov/Documents/Reports/10.25.07OctoberSubprimeReport.pdf (about 700K)

    Part I: The Housing Downturn and Its Impact on Subprime Mortgage Foreclosures (page 4)

    Part II: State-Level Estimates of the Economic Effects of Subprime Foreclosures (page 14)

    Part III: The Origins of the Subprime Lending Crisis (page 19)

    Part IV: Policy Responses (page 25)

    I’m not saying it’s better than another writing, but the source itself has its impact (vs a rant on a blog). And it’s full of datas that are probably reliable.

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