Housing: Not a Pretty Picture

It would be hard to argue that these are pretty pictures:

(Image source)

(Image source)

(Image source)

The same holds true when it comes to describing the state of the residential property market, as Beat the Press' Dean Baker makes clear in "No, Home Prices Can and Will Keep Falling":

The NYT told readers this morning that: "Home building and home prices, which had fallen for almost three years, appear to have almost no place to go but up." This one is very seriously wrong.

It is probably true that home building has no where to go but up. Construction had fallen to just one third of its bubble peak rate. It may not zoom upward, but the rate of building is unlikely to fall further in the next six months or year.

Prices are an altogether different matter. The basic story here is that real house prices are still 10-15 percent above their long-run trend level. Since the country still have a record housing vacancy rate, it is hard to see how this gets corrected with prices rising. Furthermore, virtually every economist in the country expects unemployment to rise and stay high over the next year. Also, mortgage interest rates will trend upward.

If this is a recipe for rising house prices, then I'm missing something.

Comments

[dansocalguy]

You know you hear this same kind of story near the top during a bull market or the apex of a bubble. Come on! Nothing goes down forever or up forever ... when the signs are telling you things are turning its time to take a step back and come up with a new strategy .... this "housing will go down forever" mantra is so old and useless to me now. Where is your catalyst for another leg down? The subprime crisis is in the books, the government is giving you money to buy houses, inflation is around the corner and a fixed-rate loan is just that, an inflation hedge ....

.... Listen ... the next bubble (whether the implosion of an industry or the greedy exhurberance towards another) will have something to do with demographics .....

2009 Aug 09 10:34 AM

[Gregman2]

Until the cost per square foot (for a sale) nears the cost per square foot (to build)--so long as there's a delta--there's no bottom yet. This is also the case with existing homes.

2009 Aug 09 02:31 PM

[Mad Hedge Fund Trader]

Like death warmed over. Deutsche Bank has put out a report on residential real estate that will raise the hair on the back of your neck, if you still own your own home. Prices have not hit bottom and have another 14% to fall by 2011, putting in a 42% fall from top to bottom. By then, almost half of all mortgage holders in the US will be underwater. The list of the top underwater cities in the US is not good news for the Land of Fruits and Nuts, where lending was the most aggressive, imaginative, and oops, illegal:

Merced, CA 85%
El Centro, CA 85%
Modesto, CA 84%
Las Vegas, CA 81%
Stockton, CA 81%

The murder weapons in these nearly home equity free cities break out as the following:

Option ARMS 89%
Subprime 69%
Alt-A 66%
Jumbo 46%
Conforming 41%

These forecasts tell us that a second stimulus package is a sure thing, that unemployment will soar over 10%, and that a “W” shaped recession is a lock. Gee, do you thing the stock market might go down on this?

2009 Aug 09 05:59 PM

[OptimizedPrime]

@dansocalguy --

You should feel so great about being smarter than every single major market participant in the entire civilized world. You must be almost infinitely rich.

Those of us on earth are NOT pricing inflation expectations into interest rates. What idiots we must be.

In other words, even IF the most DEflationary environment in the history of civilization somehow produced INflation, the ding-dongs hoping that inflation will get them out of their underwater nightmares will just trade one for another. You see, house prices are virtually indexed on interest rates and even the slightest hint of inflation will send interest rates to double digits, immediately cutting the nominal price of house in half. Meanwhile, inflation itself will reek havoc on the economy as a whole and send millions more looking for a job.

Low interest rates combined with inflation is not a "hedge", it's a GIVE AWAY. There is no government on earth that can give away free money for any significant amount of time and ours certainly is not and will not.

Stop praying for inflation to get you out of this mess. It won't happen, and even if it did, it's not going to help you.

***

Good point about demographics though.

Let's see how demographics look for housing futures:

1. The Baby Boomers are retiring and moving from Big houses Near Work to Small houses Far from work. That bodes very badly for housing.

2. Population growth without immigration is approaching zero here in the US. That bodes very badly for housing.

3. Anti-immigrant sentiment here in the USA is UP, and the want/need to come to the US is DOWN (better economies "there" and a worse economy "here"). Expect fewer and fewer immigrants to come here and prop up our economy for us. That bodes very badly for housing.

4. Millions of people have apparently learned how to cram into fewer homes, apartments, moved in with family, etc. as something like 10% of the housing inventory in the US is sitting empty. That bodes very badly for housing.


OP

2009 Aug 09 08:09 PM

[OptimizedPrime]

Correction: "immediately cutting the nominal house price in half" should read, "immediately cutting the ADJUSTED house price in half".

2009 Aug 09 08:12 PM

[Troyhector]

I think housing market has still to fall because America is loosing on Jobs and interest rates have gone higher.

" There are four items in place that are tricking people into calling a bottom, when in fact three of these items are temporary. The result is an artificial restriction of supply and artificial pumping of demand.
1) It’s the seasonally strongest buying season
2) There’s a foreclosure moratorium about to end
3) Federal tax credits offered for 1st time homebuyers
4) Historically low mortgage rates "

Read More: www.housingnewslive.co...
www.housingnewslive.co...

2009 Aug 10 03:03 PM

[Bigman16]

that is one ugly dog!

2009 Aug 10 08:24 PM