Tuesday, June 24, 2008

Brick Oven Declares Housing Bottom

The April Price-Schiller Index is out. The following Cities registered price rises after a prolonged series of price drops:


The data lags by two months so we are likely already well into a price recovery.

Two notes:

The Price-Schiller Index is indexed in dollars, which means that actual real estate values are still going down as the Federal Reserve continues to print stunning amounts of money to keep the banks afloat. But your money is better off in dirt right now than dollars. If you can get a low-interest loan (6%), all the better.

Real estate values in Hispanic areas continue to drop. Brick Oven’s theory is that land values are directly proportional to the IQ of the population. Land values in Manhattan, gated suburban communities, and Tokyo are high. Land in Africa or downtown Detroit has essentially no value, because people with money don’t want to live there. Despite the fact that most Hispanics are decent people, land values in Hispanic areas will trend towards real estate values in the Mexican interior, which are low.

The best investment is agricultural real estate in white areas with conservative governments.


George said...

The Price-Schiller must have some missing factors in it, like several other indices you've discussed here.

In Portland, where I live, we are NOT at the bottom. There is a real crisis looming in unsold spec-built homes, both condos and single-family dwellings. More and bigger developers are going under in this area, unable to meet their construction loan schedules.

Rents are rising in an area with unsold housing, and THAT should tell you something, as well as the fact that median-price homes (pre-owned) aren't selling at list at all, and only selling 20-25% under list if they are aggressively marketed.

It's true that values haven't dropped that much here, but that is because there has been little activity to measure the market by - most owners/investors decided to stick out the slump and have held onto their properties, and homeowners (like me) are afraid to re-fi to take advantage of the lowest rates because the appraisal might drop us too far in valuation to make it worthwhile, but once that appraisal is made, there's no turning back.

The timber-payments bug is the next pest to be dealt with here, and most Oregon counties have foolishly pre-spent the money which is not now going to arrive, so there will be a $258M shortfall which will cause much gnashing of teeth, and will engender a new round of attempts to overvalue real estate so as to make up the shortfall.

We have aggressive anti-tax groups here, though, and such tinkering with market valuation probably won't fly.

Bill said...

Thanks for the comment George. I respectfully disagree though. Housing supply is constrained by two things:

(1) Over the last ten years, communities have learned that residential growth is a net negative for the population and it is much harder, and more expensive, to obtain the entitlements to build new housing tracts.
(2) Home prices have fallen below building costs in many areas, eliminating another supply input.

Demand will continue as productive people move out of high tax areas to lower-tax areas. Those empty houses in Portland will look very attractive to Californians soon. I agree that California and the urban eastern seaboard are toast, but I argue that land prices (not to be confused with values) for us less enlightened proles have already started going up.

Time will tell.