On 'Rock Bottom' Housing Prices

For all who claim that rampant inflation is up next, and home price deflation is over, I present the following charts (click to enlarge) for readers to ruminate on just how much higher existing home sales inventories are relative to some semblance of a trendline, in addition to a long-term chart comparing CPI with the median home price. Not only is there massive oversupply still, but the leverage induced price boom over the past 30 years still has a ways to go before it catches up with CPI, absent the impact of cheap credit (which is why Geithner will soon be personally handing out limitless Diner's Clubs, backed by the full faith of the worthless dollar).






hat tip Lev

Comments

[sunnsea:]

And those investors in Cape Coral Fla will be losing their respective shirts as the next leg dowin in this never ending saga begins.

May 13 10:01 AM

[bcainw:]

Obama should be tried as a criminal as far as I'm concerned. He bails out the banksters that caused this problem by offshoring jobs, factories while simultaneously allowing 138,000 legal immigrants into the country each month. Then he is working to allow 12 million Illegal Alien lawbreakers citizenship allowing Mexican Drug Cartels a perfect means to corrupt city, state and federal governments. All this happening while nearly 600,000 American Citizens become jobless each month! Where is the outrage? And how much of this real estate purchasing is being done by foreigners buying us out of our homes for pennies on the dollar? Boy would I love to see the data on that one!

Does anyone have any anecdotal or hard data on the purchase of homes by foreigners? Of course Americans cannot buy homes in either China or Saudi Arabia: two to the largest groups of home speculators buying into our markets. This is the crime of the Century and must be addressed immediately.

May 13 10:05 AM

[ray001:]

I don't undertstand how people like bcainw continue to bury their brain in the freezer. I think I would beg every foreigner from Saudia Arabia, India and Valenzuela to come and buy my worthless home any day because it is likely to be worthless every month henceforth for next 10 years or forever. Why were you not outraged when uncle georgie made you live on housing ATM for ten years, it was the biggest fraud in the history when he and his cronies kept robbing the US and the world. We have done nothing but kill hundreds of foreigners and steal their money in last ten years. We should be grateful to China and Saudia Arabia and the rest of the World for feeding us for last ten years. Why has all the World Bank system crashed because we stole all of China and Saudi Arabian 's foreign reserves via worthless mortgage securities. If China wasn't buying our worthless dollar you would not be able to afford your light bill let alone a house. You would be worse then a illegal mexican and living in Mexico City.
It is about time we learned something on our own. I dare you to prove that any one but a stupid foreigner is buying US real state junk. We can't sell houses because we stole trillions from foreigners and now they are giving us a finger because they will not buy our worthless junk hence we are destined to live worse then the illegals. Be glad if someone is foolish enough to buy our worthless trash called real state. This country has no economy now. We used to trick people by finance even that is dead now and we are more doomed then you care to know. If China stopped buying treasury then dollar would be worthless then a peso today. China and other countries are not even admitting how many trillions they have lost via MBS because it will make dollar worth less then a penny.
Ray: a wise enemy is 100 times better then a dumb friend.

May 13 11:11 AM

[Market Sniper:]

Been in real estate all my adult life. As a salesman, a broker and also an appraiser on Southern California. My only advice is NEVER just buy real estate. ANYBODY can do that. You STEAL real estate. If you can't steal it, you do not want it. As an investment, it must stand on its own. NEVER count on appreciation, if it happens, it is bonus time. NEVER count on the tax benefits. Politicians change tax policy like we change underwear (hopefully, daily! lol). All real estate markets are local, albeit with national trends. Want to know how to judge a bottom in your local market? Fairly simple when it comes to single family residences. When the total costs of owning that residence after a "normal" down payment are roughly equal to the fair market rent for that residence, you are reasonably close to a price bottom. Combine that with affordability index and you should be ok. That would be for a residence you live in, as a rental, you will need a nice discount from that as we NEVER buy real estate without positive cash flow. NEVER. As Dear Old Dad Used To Say...son, making money is easy. When nobody wants it, you buy it. When everyone wants it, you sell it to them.......

May 13 12:05 PM

[conceptwizard:]

This just confirms the bear market rally we are having. We cant go any higher until we get a first derivative. Consumer spending is down, unemployment is slowing but still shedding 500,000 per month, foreclosed housing sales are behind foreclosures 4-1. House prices will continue to fall. This U recesssion we are experiencing is still on the downside.

May 13 12:19 PM

[Vienna:]

Arrogance comes before the fall!

Indeed many people here in Europe would like to see the US fail.


On May 13 11:11 AM ray001 wrote:

> I don't undertstand how people like bcainw continue to bury their
> brain in the freezer. I think I would beg every foreigner from Saudia
> Arabia, India and Valenzuela to come and buy my worthless home any
> day because it is likely to be worthless every month henceforth for
> next 10 years or forever. Why were you not outraged when uncle georgie
> made you live on housing ATM for ten years, it was the biggest fraud
> in the history when he and his cronies kept robbing the US and the
> world. We have done nothing but kill hundreds of foreigners and steal
> their money in last ten years. We should be grateful to China and
> Saudia Arabia and the rest of the World for feeding us for last ten
> years. Why has all the World Bank system crashed because we stole
> all of China and Saudi Arabian 's foreign reserves via worthless
> mortgage securities. If China wasn't buying our worthless dollar
> you would not be able to afford your light bill let alone a house.
> You would be worse then a illegal mexican and living in Mexico City.
>
> It is about time we learned something on our own. I dare you to prove
> that any one but a stupid foreigner is buying US real state junk.
> We can't sell houses because we stole trillions from foreigners and
> now they are giving us a finger because they will not buy our worthless
> junk hence we are destined to live worse then the illegals. Be glad
> if someone is foolish enough to buy our worthless trash called real
> state. This country has no economy now. We used to trick people by
> finance even that is dead now and we are more doomed then you care
> to know. If China stopped buying treasury then dollar would be worthless
> then a peso today. China and other countries are not even admitting
> how many trillions they have lost via MBS because it will make dollar
> worth less then a penny.
> Ray: a wise enemy is 100 times better then a dumb friend.

May 13 12:23 PM

[AssetReset:]

When does investor activity signal a slowdown of price drops?
What would "multiple investor offers" mean that a bottom is in?

Throughout asset history there have been buyers at the top and bottom and every place in between. Is it so unreasonable to think these investors are catching a falling knife?

0% interest rates are again creating false demand as those well qualified and well capitalized customers are comparing current prices and current rates to those of 2005. In comparison, a steal...

Foreclosures, although possibly slowing down (until the ARM reset glut of 2010-2012?) are not clearing the market before more enter

I expect a further drop in prices, increase in inventory, and a decrease in demand

May 13 12:36 PM

[Herr Jordan:]

If prices fall then piggies who built their houses out of brick and saved their money for a rainy day will have more buying power.

Piggies who built their houses out of wood and spent about as much as they saved will gain about as much as they lose from deflation.

Piggies who built and bought straw houses, and spent their profits on wine, women and song will have hangovers.

Straw house piggies are making a lot of anti-inflation noises these days. Oink, oink.

May 13 01:28 PM

[Bull Run:]

The CPI index number has over the past decade been held low because of America importing China's deflation, low wages. This has been in sharp contrast to anything "made in America", which over the same time period has seen breakneck inflation levels.The stock market, housing prices, land prices, and autos, all these made in America, have seen unbridled price rises. Greenspan though decided to ignore this inflation, which enriched Wall Street, thereby kept rates low to further pump "made in America".The Fed through these yrs. was able to point to the CPI, as a excuse to overlook the real problem, which later proved fatal. Now we're seeing the oposite, Made in America, has collapsed, while CPI numbers are risng, (food and imports). My point the CPI number for some time has never really been seen (under Greenspan) as connected to housing prices, even though rents are a part of the index.

May 13 01:48 PM

[The Hammer:]

Agreed residential real estate should be purchased when rental equivalent housing is close to the cost of owning. In addition, you should be able to carry the mtg upkeep and everyday expenses without struggling so you can save additional funds for future date. A good rule is 30% of income should go to housing expense. One last thing, avoid buying or building big mcmansions in areas that do not have the sustainable median incomes to afford such a house. You will need to sell someday so do not over build extravagently in a low income are. this is why areas like Fl or Az or NV are just getting torched supply and incomes are not there.
The dream of owning a home is not a nightmare if you follow these basic rules.

May 13 02:19 PM

[The Hammer:]

Right now in a number of areas of the country especially the NYC and metro surrounding area house prices are in the midst of a plunge and will catch up to other areas that have seen bigger corrections.

May 13 02:21 PM

[HardwoodFlo...:]

Is that the new Schiller ETF in the first graph? I think you bring up a great point on your analysis. The reality is there is probably more to drop but I'm not sure all the data will come in clean enough for people to understand.

For example, the sales to date have been mostly distressed sales. So of course the number is down. They have also been 1st time home buyers (I don't think most of them are buying $1MM homes with JUMBOs).

So, when the FHA raises the ceiling on loans to $750K you will se a false pop in home prices. This doesn't mean prices are actually going up however but will drive the average selling price up. Try and follow this: JUMBOs are almost impossible to get. The FHA is talking about raising the ceiling on FHA loans to $750 this will qualify about 90% of the homes in the Case Schiller. When FHA loans are available (backed by the feds so the banks don't have to worry about them) then the prices will spike. But it will be bogus.

Why? Because it still won't reflect how much those sales prices are down from 3 years ago. Case Schiller is a totally inaccurate assessment of home prices. What they should do, and this would be impossible because of the data requirement, is not use the raw purchase numbers but, rather, the actual home price sales reflected in the actual how use that was sold and where it transacted. Problem is then you wouldn't have data that is year over year but, rather, a much longer period.

Anyway the Schiller index is almost useless. The affordability chart is a joke. The fact is the housing data is lousy as a metric to draw conclusions from.

May 13 03:06 PM

[jhartz:]

With the coming dichotomy between productive net-producers and non-productive net-consumers, the word consumer is about to undergo a radical shift in usage.

The economy is quickly getting to the point where all of us will have to question whether or not there are enough resources available for us to make up the slack for those unwilling or unable to produce enough value to support themselves.

The return to the values of the 30's depression years will mean that we will all rely on a tighter circle of close friends and family to see us through such material shortages when they occur.

I'm not entirely convinced that this is a bad thing. We've gotten too far away from the security provided by the intertwining and interdependence that family once represented.

May 13 04:28 PM

[Fighting Yoda:]

Yup, home prices have ways ways to go- catching the trend line and overshooting it. Fed and the Govt. have shot all their bullets, canons, helicopter drops - they continue to fall as they must. Housing was the biggest bubble ever, thanks to home ATM Greenspan, Fhony/Fraudie, and the greed and stupidity of Wall Street pros.

With job losses continuing endlessly, lead to foreclosures, higher invenotry, less buyers, proce drops, and the vicious vortex will continue.

With job losses continuing endlessly, lead to foreclosures, higher inventory, less buyers, price drops, and the vicious vortex will continue.

As long as Govt is involved the problem will not get solved. Foreclosures and severe price drops are the only solution.

Live in Southern California - my realtor keeps calling me with another 20 K drop in price every week, will wait till next year - another 20/30% to go at least.

Sell XHB, home builders and the rest.

May 13 04:37 PM

[Socialism c...:]

Ain't none of this gonna reach a real bottom until government gets OUT of housing and OUT of running the economy!! I.e., end the socialist bailouts, prop-ups, and housing subsidies. End Fannie, Freddie, and HUD -- so that market forces reenter mortgage banking and home pricing dynamics.

May 13 04:47 PM

[I am not a ...:]

Watching housing is the lazy mans way to gauge a market. It has been noted on Alpha before that the psychology of house marketing is the thing to watch. But why just House markets?. Auto buying trends covers a wider range of ther market. Why not plasma TV's? (if you could honest stats it would show a demographic in the lower echelons i think) .
My own personal method is to watch cement and general building supply company moves.
Afterall,a house builder needs material in order to build a dwelling and if those companies which are supplying are doing well or struggling it's a good indicator of trends.
House resales also require materials too BTW for renovations,often using as much as a new home. Then theres white goods into homes....Ad infintum

May 13 05:29 PM

[realold:]

The real joke is the concept of a "taxpayer" oriented plan. That plan would involve NO "relief" for anyone except taxpayers - no free money for banks or people who made bad decisions.


On May 13 08:41 AM dcb wrote:

> notice how this is spun, we will pay the mortgage industry to provide
> relief. always with Obama the relief goes to the companies, not the
> home owner. I don't have stats, but you would be very surprised how
> little is gained form these refinnacings, and how much money the
> banks are making. In fact they have increased fees in addtion to
> getting the bucks from washington.
> We would be better off without any programs than the subsidies companies
> are getting now. As usual, it is sold as helping the tax payer and
> in reality it goes into banks pockets. I wish that wasn't the case,
> but I haven't seen a real tax payer program yet. This is why I keep
> saying we have taxation without representation. It is just another
> one of the administrations spin efforts.
>
> If the banks do not renegotiate they foreclose. this ends up costing
> them more than renegotiation. But we are paying them to save themselves
> money. What a joke.

May 13 06:07 PM

[dybydx:]

fundamental economics tell us "rock bottom" happens when demand > supply. and i really doubt that has happened considering unemployment rate is still increasing (albeit slowed).

May 13 07:29 PM

[Blackeyebart:]

Helping banks will not help mortgagors, because banks are not charities. They only loan money to make money. This should continue, its the only thing they are good at.

The way to help home owners is by controlling interest rates. It's been done before and worked then.

Imagine a home-owner with negative equity. If interest costs are lowered to less than the rent on a comparable property, they would be mad to sell. How low can you go? 3% would solve most problems - but not all. Can't fix everything.

The alternative requires writing off capital. This requires taking the pain up front. Not a nice thought. It would make many banks insolvent. That would cost more than the lost interest. Work it out.

The only way to stop the slide in house prices is to reduce the need/incentive to sell. Lowering interest rates does that.

The reduction need only apply to existing mortgages. This would give the banks an incentive to refinance.

Yes, I know many/most mortgages have been sliced and diced. The wheelers and dealers would be inconvenienced. But solving problems is what they do, isn't it? Isn't that why we pay them all that money? You gotta have faith.

Would Obama do it? Not a chance. Far too cautious.

May 13 09:40 PM

[TexasBill:]

Reducing interest rates only puts off the problem. When rates go back to "normal" - market rates w/o any gov't interventions - future buyers will have to pay higher interest rates which means they can't pay as much for the house if their monthly payment remains similar to yours; i.e., house values will have to go down when interest rates go up.

If we are going to lance the boil, let's do it now and get it over with.

On May 13 09:40 PM Blackeyebart wrote:
>
> The only way to stop the slide in house prices is to reduce the need/incentive to sell. Lowering interest rates does that.
>

May 14 02:43 PM