Bad News for Housing

20% of homes with mortgages have negative equity. Home prices have fallen every month since Jan. 2007.So, what does it mean?

Housing will NOT rebound until late next year at the earliest. If you are thinking about buying home builders like Centex (CTX), KB Homes (KB) or Toll Brothers (TOL), I would think twice as the fundamentals of their industry do not look to improve anytime soon.

With 20% of the market effectively sidelined, it does not bode well for those hoping to sell them new homes.

Disclosure: None

Comments

[Bill James:]

The only way we can resolve the housing crisis is to increase disposable income so people can service their mortgages.

There is a great set of statistics from the Center for Housing Policy that shows for every 10% increase in public transportation, working families cut their transportation expenses by $1,000 a year. Cities with less than 5% public transportation costs are $10,300. Cities averaging 12% public transportation, costs are $9,300, etc....

A practical way to increase transportation as a service is Personal Rapid Transit (PRT or PodCars). These networks increase urban transport efficiency to approach long-haul rail (423 ton-miles per gallon). They are efficient enough to be privately financed. Currently San Jose and Santa Cruz have requests on the market to build networks in those cities.

seekingalpha.com/artic...

2008 Nov 02 08:04 AM

[OctoberFaith:]

: )

2008 Nov 02 08:19 AM

[notsosmart:]

:(

2008 Nov 02 09:12 AM

[User 251931:]

Until housing costs come down for both new construction and exisiting inventory, it will basically be tough to buy or sell. Another action that would help would be to have Fannie and Freddie make all thier existing loans assumable to qualified borrowers thereby reducing the bailout by billions that taxpayers will pay. One last thing no one is considering is the everlasting credit issues every borrower in this country will face as a result of job loss, divorce, bankrutpcy, and foreclosure. The buyers pool in this country will shrink as credit bureaus continue to tighen the screws with tweaking of credit score formulas. Assumable moprtgages versus the government buying properties and loans is the way to ease all of this.

2008 Nov 02 09:24 AM

[rm:]

[Another action that would help would be to have Fannie and Freddie make all thier existing loans assumable to qualified borrowers thereby reducing the bailout by billions that taxpayers will pay. ]

So... do you want to be the first person to assume a loan on an underwater property?

2008 Nov 02 10:54 AM

[romang:]

The bubble burst until prices fall to a normal level, they will keep on falling.

2008 Nov 02 11:18 AM

[Tom Lindmark:]

I've said elsewhere that I don't doubt that there are a lot of homeowners that are underwater. Unfortunately, no one has explained how they come up with numbers like 20%. What's the methodology and how far underwater are they?

There are projected to be 1.5 million household formations in the country next year. These new households represent a new source of demand for housing. Don't forget that in a growing country like the U.S. it doesn't take long to replace lost demand.

2008 Nov 02 11:41 AM

[Stevie West...:]

America still goes about its business as it were in the post war boom period. This is norman and human, because they were good and stable times. That's in the past. The likelyhood of our housing and stock markets behaving predictably as they have in the past is unlikely. The world has changed and we still think we are the center of the universe. As one example, General Motors has known for 20 years that the energy paradigm was changing and did little to nothing. This is linked to housing because a nationally healthy housing market requires a healthy middle class...that is the real issue. If average home prices cannot be paid for by average incomes, then prices must fall. The real estate boom was fuelled by trciky mortgages that made the unaffordable...afforda... The part noboady wants to face or discuss is that everyone cannot have the American Dream. America has a chance at competing in the world economy if it can get grasp that the real 'players' of the future will be those who have mastered the art of living well with less.

2008 Nov 02 01:28 PM

[Kunst:]

If housing prices doubled because the money supply doubled -- and incomes would rise to match -- well, look at that, problem solved! No more underwater mortgages, mortgage payments half the percent of income, and yes, a housing boom.

Coming soon to an economy near you.

2008 Nov 02 04:10 PM

[User 290325:]

DITO. Overall home pricess are still way to high espeacilay on NE . They need to fall about 30-40 % more.


On Nov 02 11:18 AM romang wrote:

> The bubble burst until prices fall to a normal level, they will keep
> on falling.

2008 Nov 02 06:41 PM

[vreporter:]

Households don't just form because they NEED to. They have to be able to AFFORD to! All this demographic demand is nonsense. It will be sad to see married couples living with their parents!

2008 Nov 02 09:05 PM

[thecadean:]

Simple fact. realestate is OVERPRICED.
See Case Shiller, or Eliziabeth Warren of Harvard, the end of the US middle class. In 2005 US home prices, and mostly in the top 7 markets, were grossly overvalued (77% overpriced). Me must let the free forces of capitalizim work. Artificial supports are no better than fake loans.
Low real estate prices are good for the country. We simply spend too much $$$ on non productive items like rent and interest. This is the only way US businesses will be able to compete and our children will be able to buy a home of their own without a wealthy parent. I own several homes and share the pain, a pain we all must endure.

2008 Nov 02 09:34 PM

[axelrod608:]

The home price runup was based solely on Alan "Bubbles" Greenspin's credit/liquidity bubble. Wages haven't increased ( adjusted for inflation) since around 1990, so when home prices get back down to 1990 levels, people will again be able to afford them. Thus, anyone expecting to see a bottom in housing in the near future is entertaining a fantasy.

2008 Nov 02 09:40 PM

[rsinvestor:]

Todd,
I respect your opinion, but you haven't presented a whole ton of data to back it up. Just because 20% of home mortgages may be underwater, that doesn't say much about the market's expectations for a recovery. The truth is that many of those homes are hurting because the mortgages were too big to begin with. If you only put 5% or less down on a house, and buy it at the peak or near, you can expect to be underwater at some point.

From a technical standpoint, I think the home builders are at the bottom, and should be bought. During the last housing downturn, the residential construction stocks peaked 20 months before the S&P 500 (1998 vs. 2000). This time, the difference is 27 months, between mid-2005 and October 2007.

In 2000, the home builders bottomed and stabilized just as the general market was peaking. In 2007, the same group bottomed near the market peak, and has pretty much traded sideways since then, vs. a market down over 40%.

I don't know if we are allowed to post links here, but I did analysis on this group twice already this year:

www.rsinvestor.com/Hom...
www.rsinvestor.com/Hom...

Good luck,
RSInvestor

2008 Nov 02 10:52 PM

[Econ 101:]

October faith, youre just scary. I thought that would be followed by a quote attirbution to "1984" or Hitler or someone. Since it appears it is your original work, good luck when you take your seat in congress.

As for the housiong problem. The only fix is to let prices fall and let the borrowers and leanders work it out. Yes, it will hurt many people. Yes, it will hurt the banks and lenders, But someone (everyone?) has already been hurt and we need to get thru this quickly.

It is like Viet Nam, "If your sister was being raped, would you be for gradual withdrawl?"

2008 Nov 03 01:28 AM

[Econ 101:]

Johnu78,

I am not a religious scholar, but that video seems racist to me...

2008 Nov 03 01:42 AM

[ArtfulDodger:]

Good comments.

2008 Nov 04 02:58 AM