Re: while I partially agree... - Saab General Bulletin Board - Saabnet.com
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Re: while I partially agree...
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Posted by Reality (more from Reality) on Fri, 26 Nov 2010 10:16:04 Share Post by Email
In Reply to: Re: while I partially agree..., James, Fri, 26 Nov 2010 08:32:49
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When market moves in one direction, the trend tends to extend itself longer than any rational homoeconomocus can expect :-) both to the bubble peak and to the crash bottom afterwards. IMHO, economic peripheries like Texas, Canada, Vegas, Japan, China, and etc. tend to have even more exaggerated moves both up and down due to the heavy dependence on one particular sector of the economy. What's "easily affordable" to a typical family in the area in boom times in that particular sector can easily become unaffordable when the sector boom passes. Youths (including young families) will then move out of the area in search of job opportunities at that time just like they would move in and bid up price during boom time. That's how the market place allocates human labor to different sectors of the economy.

BTW, the $1.5mil-tax assessed value house that I was talking about was by no means a high end house in that town; the average home sale price was around $1.5-1.8mil during 2005-2007 in that town and the neighboring "most desirable" towns. These are towns of 4k-40k people in a metropolitan area of 1-2mil people; all of them are hugging the inner-most beltway (with exits and entrance ramps instead of street red lights). They are in the most convenient locations for commute to professional jobs, near the intersection of inner-most belt limited highway and limited access spokes. The particular house is within a couple miles of commuter rail station that can bring one into Boston in about 15minutes; nearest subway station is only about 5 miles away! The inner city condos have done much worse, down more than half from their peak prices. The type of property that have held up the most so far seem to be the single family houses in the "most desirable towns" but have plots of 1/8-1/4 acre. Even their asking prices have come down from about $600k to around $400k, with much reduced sales volume; the actual sales are mostly registering between $300k to $400k. This segment is heavily supported by Fannie and Freddie subsidies. Prices probably will have to come down even more when that support is reduced/removed, and/or interest rate increase, before finally clearing the market overhang posed by many a baby boomers waiting to sell the house and retire to less expensive places (National average price for new home sales has dropped from $340k to $190k in the last four years).

Sure, compared to the abandoned or 70%-drop, 90%-drop neighborhoods due to subprime lending or collapsed investor mania, those down 30% to 40% (so far) do not look so bad. However, for anyone with significant portion of networth in the house, it's nothing short of catastrophy. Investment property with rental income generation are not the only type of property where people parked money; whenever a house (or any other asset), even a single-family house, represents a significant portion of a person/family's networth, it becomes money parking venue / "investment," and consequently subject to capital preservation requirement when market heads down.

posted by 96.233.42...

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