Author Topic: predicting future home prices (successes and failures)  (Read 1069 times)

clarkfan1979

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predicting future home prices (successes and failures)
« on: November 18, 2021, 09:18:36 AM »
Story below from bigger pockets. Skip ahead to 57:45

https://www.youtube.com/watch?v=VwrzYo-09yg

Two years ago, two-story homes in Sarasota, FL are less desirable because the community is older and older people don't like 2-story homes because they are less mobile due to their older age.

Investor predicts that Sarasota will get younger with families based on recent trends and two-story homes will become more desirable. You typically get more sq. footage with the 2-story homes. Fast forward two years ago and the prediction was correct.

Do you have any housing price predictions that were a success or failure that you would like to share? I have a few, but I'm going to hold off at the moment and share later. Those that firmly believe that home prices are 100% unpredictable and random are welcome to join the discussion as well.



YttriumNitrate

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Re: predicting future home prices (successes and failures)
« Reply #1 on: November 18, 2021, 09:30:06 AM »
Back in the 2004/2005 period I remember predicting that housing prices were going to take a significant dive. While I was right about there being a drop, I was wrong about the timing of the drop and the specific locations significantly impacted when the drop occurred.

When I moved to a new house back in 2016, I kept my old house as a rental. I was expecting decent cash flow but minimal appreciation on a house in the Midwest. The cash flow prediction was right, the appreciation prediction was not.

fell-like-rain

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Re: predicting future home prices (successes and failures)
« Reply #2 on: November 18, 2021, 10:29:10 AM »
I don't think home prices are unpredictable. However, I think the issue with predictions is that you can have a long track record of success that's just due to random trends, and separating that out from actual data-driven foresight is pretty difficult.

For the decade '95-'05, you could simply predict "home prices will go up" in many areas in the US and be correct. There were lots of people making big money on speculation and flipping homes. Many of them probably thought they were pretty smart for consistently predicting the future, and kept on reinvesting in the expectation of yet more returns. That was a good strategy... until it really, really wasn't.

Similarly, '11-'21 or so has seen consistent, strong appreciation in a lot of housing markets, and people have made lots of money predicting that prices would keep going up. Will that keep happening? If we keep having highly-priced assets, low interest rates, and relatively low housing starts, sure. If some of those factors change, maybe not.

I was reading recently about different distributions (normal, power-law, Erlang) and how we make Bayesian predictions based on our assumptions around how events are distributed. For example, if you think housing boom durations are normally distributed with a mode of 8 years, you would guess that a boom that had lasted 1 year would probably end around year 8-9, and a 10-year boom would likely end within a year or so. If you think they have an Erlang distribution, you would consistently predict they would last a couple more years, no matter how long they've gone on currently. And if there's a power law distribution, you would predict that they would last some multiple of the current duration, say 1.3x- i.e. the longer a boom has gone on, the longer it is likely to go on!

I lean towards a normal distribution in this case- every boom runs its course. The boosters and Youtubers who talk about flipping and house hacking seem to prefer a distribution where the boom will always continue.

HBFIRE

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Re: predicting future home prices (successes and failures)
« Reply #3 on: November 18, 2021, 04:55:20 PM »
I thought when covid hit we'd see housing prices take a big hit.  I was spectacularly wrong.   Thankfully, I realized I was wrong and we decided to purchase a home last year in June at the start of the hot market.  Turns out it was one of the best financial decisions I've ever made and we were lucky to close as there were massive bidding wars going on.  My wife has a real estate license so that helped a lot with both closing on the property and avoiding paying out as much fees.  We purchased our home for 900 K (near the beach in OC, only 1600 sq ft) and similar homes are now selling for ~ 1.3 M.  Once our son graduates in a few years we're planning to rent it out and move out of state.
« Last Edit: November 18, 2021, 05:03:14 PM by HBFIRE »

Just Joe

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Re: predicting future home prices (successes and failures)
« Reply #4 on: November 22, 2021, 09:17:12 AM »
We did something similar. Bought a house I worried was overpriced a year+ before COVID. Renovated the old house after we moved out and put it on the market during the early months of the local real estate boom by accident.

Now the house we live in is supposedly valued at 50% more than we paid for it, and the house we sold went for 30%+ more than I thought it was worth. And we've saved quite a bit of money just playing it safe and staying at home - where we want to be anyhow - through COVID.

Amazed at all the relocation going on around the country. New one for me last night - and you all probably know this already - people are moving for political reasons! Want to be surrounded by like minded folks and lower taxes I guess. This state has always been home and we've made a good life here. The dominate state politics are very different from us though.

Never saw it as a place anyone else would want to move to since it is in the middle-ish of the country and often overlooked. The only time we make the news is when someone here does something stupid or illegal.

Ichabod

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Re: predicting future home prices (successes and failures)
« Reply #5 on: November 22, 2021, 10:02:21 AM »
I was reading recently about different distributions (normal, power-law, Erlang) and how we make Bayesian predictions based on our assumptions around how events are distributed. For example, if you think housing boom durations are normally distributed with a mode of 8 years, you would guess that a boom that had lasted 1 year would probably end around year 8-9, and a 10-year boom would likely end within a year or so. If you think they have an Erlang distribution, you would consistently predict they would last a couple more years, no matter how long they've gone on currently. And if there's a power law distribution, you would predict that they would last some multiple of the current duration, say 1.3x- i.e. the longer a boom has gone on, the longer it is likely to go on!

I lean towards a normal distribution in this case- every boom runs its course. The boosters and Youtubers who talk about flipping and house hacking seem to prefer a distribution where the boom will always continue.

Thanks for this. It's fascinating. Do you remember the source?

fell-like-rain

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Re: predicting future home prices (successes and failures)
« Reply #6 on: November 22, 2021, 10:07:31 AM »
I was reading recently about different distributions (normal, power-law, Erlang) and how we make Bayesian predictions based on our assumptions around how events are distributed. For example, if you think housing boom durations are normally distributed with a mode of 8 years, you would guess that a boom that had lasted 1 year would probably end around year 8-9, and a 10-year boom would likely end within a year or so. If you think they have an Erlang distribution, you would consistently predict they would last a couple more years, no matter how long they've gone on currently. And if there's a power law distribution, you would predict that they would last some multiple of the current duration, say 1.3x- i.e. the longer a boom has gone on, the longer it is likely to go on!

I lean towards a normal distribution in this case- every boom runs its course. The boosters and Youtubers who talk about flipping and house hacking seem to prefer a distribution where the boom will always continue.

Thanks for this. It's fascinating. Do you remember the source?

It's a book called Algorithms to Live By, and it's probably 60% talking about how computers handle difficult decisions or complex situations, and 40% translating that into terms of human behavior.

ChpBstrd

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Re: predicting future home prices (successes and failures)
« Reply #7 on: November 22, 2021, 11:04:22 AM »
I predict we will soon be relieved of all the party chatter about how much paper money people have made based on the latest Zillow estimate. I've been through one of these real estate manias before. Slightly higher mortgage rates in 2022 will be sufficient to blow the foam off the top, but I'm not worried about a major correction except in the most speculative coastal/urban markets.

There is an alternative prediction, in which logistics bottlenecks are resolved in the spring, Asian semiconductor factories ramp up production once all the employees are vaccinated, and consumer spending drops toward a baseline as the last of the COVID stimulus checks make their way to Asian producers and big tech companies. Concerns about inflation from Fall 2021 suddenly seem quaint as inventory piles up and the Fed continues withdrawing their bond/mortgage purchases. A summer slump occurs, dropping inflation to levels where people start to worry about deflation - perhaps 1% annualized. In that scenario, long-term interest rates and mortgage rates resume their decline toward zero, as they have been doing for decades, and housing prices continue to boom... for a time. I call this scenario pre-Japanification. 

I the odds of the first scenario are 35%, and the second 30%. Most of the remaining odds involve the bursting of the housing, bond, stock, crypto, or all of the above bubbles, which would swing us back into a stimulative stance by the Fed and a severe recession.

 

Wow, a phone plan for fifteen bucks!