Last December, I wrote about how out of whack home prices had gotten versus incomes - the traditional range was 2.6-3.0x income for median home price. We tagged just under 4.0x at the height of the bubble in 2006. [Dec 6: What Should Median Home Prices be Today?]
Real estate is "local" so I find national statistics to be somewhat meaningless (average wage in New York City is a bit different than Kansas City, Missouri) but we've now dropped from $230K as the median price in July 2006 to just touching $200K as of this past quarter. This is a 13% national drop which is good news for affordability purposes, but we're still quite a ways way from my target of mid $160Ks, which would put us back to around 3.2x income. But we're getting there fast despite the government interference.... free markets do work. They can just cause enormous pain as they do their bidding.
- Home prices fell in a record four out of five U.S. cities in the third quarter as low-cost foreclosures flooded the market and the U.S. housing market's decline spread throughout the country.
- Among 152 metropolitan areas included in the trade group's survey, 120 posted declines in median home sales prices compared with a year ago, the National Association of Realtors said Tuesday. Nationally, sales fell by almost 8 percent in the third quarter compared with the same period a year ago.
- Sales of foreclosures and other distressed properties made up around 40 percent of transactions in the quarter, bringing down the median price by 9 percent from a year ago to $200,500
- Sales fell in all but four states in the Realtors' group's report. The exceptions were Nevada, California, Arizona and Virginia, where buyers have been able to snap up foreclosed homes at a bargain. (amazing - lower prices bring in buyers - supply & demand still works - my Economics education was not all wasted)
Again we do have some wild cards that could make the figure drop below mid $160s such as potential for higher interest rates on mortgages (a 7% mortgage means you can afford less than at 5.5%) and the lack of employment. But if we shoot for $166K, that's another 13% downside from here. That doesn't sound so bad, but remember that's national, including some areas that never experienced any real bubble. Others?
- -39.4%: Riverside/San Bernadino, CA
- -36.8%: Sacramento, CA
- -36.0%: San Diego, CA
- -35.1%: Los Angeles, CA
- -31.0%: Cape-Coral/Ft. Myers, FL
- -28.4%: Las Vegas, NV
- -27.6%: Anaheim, CA
- -27.6%: Phoenix, AZ
And let's not absolve our Congress who in the spring rushed out programs to help home owners - err not so much - basically paid off the corporations involved but sold it as homeowner help. [Apr 4: Congress is Rushing to Help Homeowners (NOT!)] Just keep this in mind as you watch them walk up people to testify and react in outrage - they should look in the mirror
[Oct 9: WSJ - Nearly 1 in 6 Homes Underwater]
[Sep 26: 15% of Americans Spend 50%+ of Income for House Payments]
[Aug 12: Bloomberg: One Third of New Home Buyers in Past 5 Years Now Underwater]
[Aug 4: WSJ - After the Bubble, Ghost Towns Across America]
[Jul 10: Foreclosure Activity Map]
[Apr 26: Bankrate.com - Average Joe Still Can't Afford a Home]
[Mar 25: WSJ - Wave of Foreclosures Drives Prices Lower, Lures Buyers]
This article has 6 comments:
Every once in a while, people's thinking and living standards change. And quite noticeably, in the 21st century. You don't find empty box with 4 windows and two bedrooms anymore. People want large houses with 3 car garages and a basement and a room for everybody. Now, you don't have to be an expert economist like yourself to realize, that cost some money. So we are no longer comparing the same things. In a parts of the country you will find properties below the cost of replacement.
The problem, as you missed in your article, is no the price, it's the money supply. Try to get a loan...
Anyway, dropping price is not a solution, only adding to the problem. 10% of the households are underwater now, and imagine the much higher number of people if the price declines another 10%. People do need to move for work, that is the standard in the global economy. And if all the current sellers loose all their equity - they'll have no money to buy next house, no matter what the price. So while lower prices may seem like a nice idea, you might just get more than you bargained for.
Happy house hunting!
www.homepricetrend.com
I would guess that we are heading to 2.4 x median income. Given that median income will probably fall to 46k, this means we are heading for something like 115k median house price. That seems much more realistic to me.
Anything else is just more channeling of Lereah and Yun.
that goes for houses, cars, clothes....
Also, why use a multiple of 3.5x household. When massive bubbles burst they don't calmly settle back down to higher than the historic average. They OVERSHOOT. Remember that word because you'll hear it more and more in the future. The rate that RE is dropping is still increasing. If we only drop another 25% from hear we will be lucky. Look for a median house price of around 120,000 to 140,000 sometime in 2011 or 2012.