Property Values Set to Fall 43% from Current Depressed Levels 227 comments
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Price Trends / WAR OF THE WORLDS: If you use a 20-year time horizon, and assume prices will return to the trend line, then our residential property bubble will bottom after values fall over 40% from current levels (see above (c) aka “(y) - (z)” aka “Loss Today to Bottom”). I make no predictions. I do watch numbers. The chart shows a catastrophe of falling real estate values loaded up on top of our current catastrophe in real estate values.
No one would question these numbers absent The War of the Worlds. The War of the Worlds is the United States Government versus aggregate borrower income. Uncle Sam is funding every new mortgage – high, low and in between (see chart below--the blue and red represent government-backed loans and the private market is the yellow and green). It takes very little imagination to see the world of real estate prices vaporizing without government support. If that support was lost, values would crash down faster than a big rock dropped into a shallow puddle.
While the federal government has deep pockets, at some point the persons who take out the mortgages will have to pay them. At that point the market should follow the pattern described above by the trend line. Reality bites. Prices for real estate are ultimately determined by our income, and if the trend represents a match of income and price, then the picture of the trend line is the picture of our future.
For a more complete picture of future residential values, please click here for “Property Values: 10 Key Charts”.
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This article has 227 comments:
so going back to develop a trend line with pre 1997 data is not a good predictor or base measure.
a better indicator would be to develop an equation that considers the various at risk mortgages that have defaulted from 1997 on , see the price depression,and look at the number of resets coming in 2010 and 11 for what can come..
not in the real estate market so i am jsut an observer.
Information on supply and demand, market value vs. replacement cost, aggregate mortgage debt, etc. would be a better place to look for answers.
Many of those who have done the work on these types of information are calling a bottom in housing right now.
One is that Case Shiller's index accurately measures a market like the current market where such a high percentage of sales are foreclosure activity. Clue: It does not.
Two is that the second chart shows an increase in government lending acitivity. Lending funded by private securitization has virtually disappeared but the total lending has significantly declined also. Granted the percentages have shifted dramatically towards government backed programs but it would be interesting to see this correlated to a total lending volume by agency chart. I think the biggest shift you would find is the increase in FHA is coming from a decrease at Fannie / Freddie and not from the private securitization arena. Credit policy changes have eliminated the market that was served primarily by private securitizations.
I've been probably the biggest bear you could find on housing, but I don't think prices will fall another 43%.
This could certainly prevent a further 40%+ slide in the residential market. And when you see the forced sellers exit the market (like now) there should be a degree of stabilisation. The same way that the market got exhausted from buying, there will be an exhausted seller who would rather sit on a house for 10 years than lose 40%.
Now with the residentual ARMs resetting and commercial real estate financing in the tank, we have some near term hard evidence of more home foreclosures and business failures that will have an impact on values.
Studies show that each foreclosure within 2 blocks of your house lowers the value of your property. This month's reset will not be the last and subsequent resets will also negatively impact values.
Some homeowners need to move and others want to move. Those that need to move will suffer if they sell and also lead their old neighborhood's value down. Those that only want to move will stay put hoping for a better price. Many people have a good portion their retirement nestegg locked up in their home's value. This will in effect lock many homeowners out of upgrading or downsizing.
That leaves the residential market to first time buyers and investors, which are two groups we see last in support of a sound market. This is a real trap.
The market still has some downside, but the percentage of drop depends on location, location, location.
There may be areas that correct half that number - the coastal areas of California, for example, which are just starting to correct from peak pricing, due to Option ARMs. But, 43% nationally doesn't pass the smell test, even before reviewing your methodology.
As for the methodology, first of all, you use a limited sample size to extrapolate future prices. The trend line is only over four years, and this is useful to project losses twelve years in the future? A trend line based on data from 1960 to 2000 would better predict something.
Second, the chosen period from 1993 to 1997 was the tail end of the recession. Home buying activity was slower than normal and therefore price growth would also be slower.
Lastly, predictions like these only serve to call into question the credibility of rational, reasonable, fact-based predictions. Had your analysis been based on rising unemployment, rising interest rates, tighter credit, expiration of government stimulus, deflationary pressures on wages and materials, etc., then the analysis would have been worth a careful read. But, as it is... try again.
On Nov 02 08:15 AM Tony Petroski wrote:
> Anyone who can read a chart will point out that property prices are
> going to fall 43.27%, not just 43%.
On Nov 02 08:13 AM Tom Armistead wrote:
> Applying technical analysis to the Case Shiller index is an exercise
> in futility.
>
> Information on supply and demand, market value vs. replacement cost,
> aggregate mortgage debt, etc. would be a better place to look for
> answers.
>
> Many of those who have done the work on these types of information
> are calling a bottom in housing right now.
On Nov 02 09:03 AM enigmaman wrote:
> anything can happen thats for sure, especially when you consider
> there are potentially another 8 million homes that could be foreclosed
> on in the next 4 years. But if you look at the current national average
> home price it is back to around 2003 levels which is before homes
> values began to increase by double digits, the norm being 3-5% year
> prior to this. The key to not going where you project is job creation,
> once the unemployment stabilizes and reverses home prices will level
> the longer that takes the lower home prices will go. Its not about
> your chart its about jobs, your chart exists in a vacuum the economy
> does not.
On Nov 02 09:47 AM Smalltownbanker wrote:
> Two invalid assumptions.
> One is that Case Shiller's index accurately measures a market like
> the current market where such a high percentage of sales are foreclosure
> activity. Clue: It does not.
> Two is that the second chart shows an increase in government lending
> acitivity. Lending funded by private securitization has virtually
> disappeared but the total lending has significantly declined also.
> Granted the percentages have shifted dramatically towards government
> backed programs but it would be interesting to see this correlated
> to a total lending volume by agency chart. I think the biggest shift
> you would find is the increase in FHA is coming from a decrease at
> Fannie / Freddie and not from the private securitization arena.
> Credit policy changes have eliminated the market that was served
> primarily by private securitizations.
On Nov 02 09:48 AM Smalltownbanker wrote:
> By the way. The 43% figure is way too high and will not happen.
> Call that a predicition if you like...
On Nov 02 09:59 AM John Galt wrote:
> I read a Goldman economist said that housing prices would nationally
> be 5% lower if the government didn't get involved. So the prices
> in Nebraska, South Dakota, Idaho might be similar to what they are
> now, but the prices in say Miami, Vegas and Phoenix might be 20%
> lower... Who knows what the real number is, but 5% is pretty noteworthy.
> That also doesn't factor in that housing prices still might go even
> lower ( I think they will).
>
> I've been probably the biggest bear you could find on housing, but
> I don't think prices will fall another 43%.
On Nov 02 10:01 AM Ted Kavadas wrote:
> Very good article. I would only point out that after a bubble, especially
> a large one, prices typically would fall under the trendline.
On Nov 02 10:34 AM JS Partners wrote:
> Consumers, investors and all other people who are not underwater
> (which remains a segmented question) do not want to realise the loss
> on their home but instead would rather choose to use it for practical
> reasons or seek yield however small.
>
> This could certainly prevent a further 40%+ slide in the residential
> market. And when you see the forced sellers exit the market (like
> now) there should be a degree of stabilisation. The same way that
> the market got exhausted from buying, there will be an exhausted
> seller who would rather sit on a house for 10 years than lose 40%.
On Nov 02 11:35 AM Nom De Plum wrote:
> The trend line for prices is not relevant unless you incorporate
> some metric for average interest rates. Price is a function of interest
> rates.
On Nov 02 11:49 AM thiazole wrote:
> This article is the bear version of "the Dow will hit 30,000 by the
> end of next year!" It is unrealistic. In most markets, housing
> is cheap to buy - the kind of cheap where someone with a median income
> could afford to own 2 houses. You think a person with a median income
> should be able to afford 4 houses?
On Nov 02 01:13 PM Spin wrote:
> Charts are good for looking at how we got here, but without guesswork
> they provide little hard evidence for the future.
>
> Now with the residentual ARMs resetting and commercial real estate
> financing in the tank, we have some near term hard evidence of more
> home foreclosures and business failures that will have an impact
> on values.
>
> Studies show that each foreclosure within 2 blocks of your house
> lowers the value of your property. This month's reset will not be
> the last and subsequent resets will also negatively impact values.
>
>
> Some homeowners need to move and others want to move. Those that
> need to move will suffer if they sell and also lead their old neighborhood's
> value down. Those that only want to move will stay put hoping for
> a better price. Many people have a good portion their retirement
> nestegg locked up in their home's value. This will in effect lock
> many homeowners out of upgrading or downsizing.
>
> That leaves the residential market to first time buyers and investors,
> which are two groups we see last in support of a sound market. This
> is a real trap.
>
> The market still has some downside, but the percentage of drop depends
> on location, location, location.
On Nov 02 02:39 PM halamok wrote:
> Your trendline implies home prices should have risen only 30-40%
> in 22 years,or about 1.5% yearly. This is pretty unrealistic,inflation
> was certainly higher and material/workforce expenses to build a house
> are also up more than your trendline assumes.
thanks for the note.
On Nov 02 03:26 PM Russ Wetherill wrote:
> 43% Nationwide? Wow! That would be something...
>
> There may be areas that correct half that number - the coastal areas
> of California, for example, which are just starting to correct from
> peak pricing, due to Option ARMs. But, 43% nationally doesn't pass
> the smell test, even before reviewing your methodology.
>
> As for the methodology, first of all, you use a limited sample size
> to extrapolate future prices. The trend line is only over four years,
> and this is useful to project losses twelve years in the future?
> A trend line based on data from 1960 to 2000 would better predict
> something.
>
> Second, the chosen period from 1993 to 1997 was the tail end of the
> recession. Home buying activity was slower than normal and therefore
> price growth would also be slower.
>
> Lastly, predictions like these only serve to call into question the
> credibility of rational, reasonable, fact-based predictions. Had
> your analysis been based on rising unemployment, rising interest
> rates, tighter credit, expiration of government stimulus, deflationary
> pressures on wages and materials, etc., then the analysis would have
> been worth a careful read. But, as it is... try again.
Dohhh!
On Nov 02 05:56 PM joof wrote:
> except that prices are actually rising now
>
>
> Dohhh!
On Nov 02 07:42 PM Bigman16 wrote:
> good analysis, just need to detail what is included in the "trend
> line", as that is what most people would argue about - once you look
> at the composition of the trend line, you will probably drill down
> locally and create your own "Case Shiller" for a submarket and use
> the historical appreciation in that market for your graph.
Starting at 1987 with the index at 62.5 and assuming 3% appreciation, compounded over 22 years, the trend line should be around 120 in 2009. Not too far off from where 20 city composite turned.
On Nov 02 11:00 PM Peter Mycroft Psaras wrote:
> Because local and state governments are losing so much money in tax
> receipts, you can not make money in Real Estate anymore, because
> municipalities are going to increase property taxes significantly
> over the next decade and force older residents to sell their homes
> and move to lower property tax cities. I remember this happened
> in 1987 to my father, who bought his house in Westchester County,
> New York in 1972 for $60,000. The property taxes then were $1000
> a year and in 1987 he was forced to sell the house because his taxes
> shot up to $15,000 and being retired he felt that they were out of
> control. In 2007 I went and visited the current owner of the house
> and the taxes then had shot up to $35,000. When my father bought
> his house he paid 1.6% property taxes on it each year and when he
> sold it he was paying 3.75%. The current owner paid $800,000 for
> the house and pays 4.375% in house related taxes. But his problem
> currently is that the house is no longer worth $800,000, but is now
> worth about $550,000, so his real tax rate is now 6.36%. The municipality
> where the house is located is strapped for cash and can not afford
> to lower taxes, so how is this guy who bought this house for $800,000
> ever going to get his money back. Who in their right mind would
> buy a house with a real property tax rate of 6.36% on it? There
> is your real problem with Real Estate and the reason why nobody is
> buying houses even with 4.99% 30 year fixed mortgage rates.
On Nov 02 11:11 PM Kinetics63 wrote:
> Look back to 1987. I never seen a trend liine that was drawn through
> a price. It should be placed under the through which would make it
> much steeper for one thing and I would like to see the price history
> go back much further. This chart tells me nothing.
>
> Starting at 1987 with the index at 62.5 and assuming 3% appreciation,
> compounded over 22 years, the trend line should be around 120 in
> 2009. Not too far off from where 20 city composite turned.
On Nov 03 12:09 AM Clayton wrote:
> You should factor in growth in the money supply to your trend line.
> We won't return to trend in nominal terms because there is simply
> so much more money out there now.
whiskeyandgunpowder.co.../
Third chart down, you'll find it in numerous places and I do not know who should get credit for it, but definitely a buttress to your thesis. I hope we are both wrong but I will be behaving as though we are both right.
Thanks for your submission
The responses in this article tells you that there are far too many bulls for the bottom to be in. Maybe in 2014 you should rerun the article.
One factor determining property value is what it will produce if rented. The rule of thumb for general discussion is rent should be 100x the value of the home. If (when) inflation kicks up, this will impact property values more than a graph. One would reason that inflation should bump up rents. However, if job destruction under the present economically challenged Congress continues, all bets are off.
(a) interest rates hadn't changed during that period (
b) inflation had been constant and
(c) the level of household formation had remained the same.
(d) the financing tools were unchanged.
SInce none of those factors is correct it would have been sounder analysis to at least have made some attempt to adjust the trend line for those factors.
In canad,the housing market is booming on the backs of saver$
Interest rates are at 1.5% floating. Why would someone rent. Personnal savings bank-.04% (Fed income tax--50% on interest)
I can't understand Americans--Prices of homes will sky rocket--Banks are holding onto their prime foreclosed homes---waiting for the AFIraq invasions to end---Money changers will make a killing :^/
On Nov 02 08:04 AM bartpr wrote:
> anyone holding a mortgage before 1997, when the trend chaged dramitically
> upward, is likely not part of the mortgage risk equation.
> so going back to develop a trend line with pre 1997 data is not a
> good predictor or base measure.
>
> a better indicator would be to develop an equation that considers
> the various at risk mortgages that have defaulted from 1997 on ,
> see the price depression,and look at the number of resets coming
> in 2010 and 11 for what can come..
>
> not in the real estate market so i am jsut an observer.
My gut tells me..........No.
BUT BARRING A COLLAPSE, DEPRESSION, OR EVEN A NEW CONFLICT IN THE MIDDLE EAST, PRICES ARE BEGINNING TO STABILIZE, AND HOMES ARE SELLING AGAIN. IF THE BANKS BECOME A LITTLE LESS CRITICAL WHEN IT GOES TO UNDERWRITING, AND MORE PEOPLE USE THEIR LOCAL BANKS THAT HAVE BEEN IN THE COMMUNITY FOR DECADES, THEN MORE LOANS WOULD BE APPROVED.
WITH THE MILLION OF IMMIGRANTS COMING INTO THE COUNTRY EACH YEAR, HOME PRICES NOT ONLY WILL STABILIZE BUT GO UP WITHIN A YEAR, MOST PROBABLY BY 2-3% DEPENDING ON DEMAND.
YOUR ARTICLE IS MISLEADING AND ALARMING TO THOSE WHO DO NOT KNOW ANY BETTER. THE RATES PEOPLE GET ON THEIR MONEY TODAY, YOUR BETTER OFF BUYING PROPERTY, COLLECT INCOME, AND HAVE A WRITE OFF EVEN AT TODAYS PRICES WITH LOW 5% MORTGAGES.
YOU CERTAINLY CAN'T COUNT ON THE STOCK MARKET FOR INVESTMENT ANY LONGER, ESPECIALLY WITH ALL THE CROOKS IN POSITION STILL.
THAT INCLUDES THE FRIENDLY RESEARCH FIRMS, THEIR ANALYSTS, THEIR BUY RECOMMENDATIONS, AND THEIR HIGH TARGET PRICES.
STICK WITH REAL ESTATE AND POCKET SOME MONEY, WHILE ENJOYING THE WRITE OFFS.
Statements and projections such as the one attached to this article are irresponsible journalism. It's a fact that 50% of the population has a below average IQ. Unfortunately, the lower half of the below average group tends to hinge on every word that the supposed "experts" have to say. Some don't care. The others know better. Remember, Ben Franklin said, “Believe none of what you hear and half of what you see.”
While we may not be completely out of the woods were declining property values are concerned, existing inventory is being absorbed. New housing starts are not growing, but this is simply a sign that developers will not take risks associated with a market that is over-supplied. When new homes don't go up, and people have to move, they're finding exiting homes which in turn is reducing the existing home inventory. When the existing home inventory diminishes a bit further (and we're getting close) new housing starts will pick up.
At worst your home value should be relatively stable for 5 years or so.
Any regression with only two variables (1) Time (2) Price is nonsense, that's the same logic that got the genius investment bankers and rating agencies to say house prices would go on going up forever.
Price is driven by demand (money available to pay for the product or service) divided by supply (number of houses), divided by a function of long term interest rates PLUS BubbleOmics:
Have a look at seekingalpha.com/artic...
I also follow numbers (it's what I do) and your trend line looks to me like it was calculated over a relatively short period of time (maybe 12 - 15 years ?) and maybe over a period of time when the market was recovering from an earlier property bubble ?
(Your trend line looks like it goes from about 70 in 1987 to maybe 90 in 2009 - ie about 1% per year !)
In most residential property markets in first world countries, the longer term trend seems to average around inflation plus 1.5% (or inflation plus population growth in the view of some), and if you apply that growth rate your trend line would be considerably steeper.
That's an essential truth, a family cannot cover its expenses over this level.
In SoCal, it's still over 5 times. 40% correction from here sounds about right.
Some are putting money into their house, banking on the fact that when the market opens up, their house will be more marketable.
If you are a first-time buyer, now would be the time to buy a house. (There are many new houses at bargain prices)
There are a lot of investors out there waiting for Nasdaq 5000 to return as well.
Remember this?
On Nov 03 09:58 AM JAMES CARLINI wrote:
> No one is going to sell their house into this market unless they
> have to. Most people I know are staying put. Some have even taken
> their homes off the market because the buyers want a firesale price
> even if the house is in good shape.
>
> Some are putting money into their house, banking on the fact that
> when the market opens up, their house will be more marketable.<br/>
>
> If you are a first-time buyer, now would be the time to buy a house.
> (There are many new houses at bargain prices)
On Nov 02 09:59 AM John Galt wrote:
> I read a Goldman economist said that housing prices would nationally
> be 5% lower if the government didn't get involved. So the prices
> in Nebraska, South Dakota, Idaho might be similar to what they are
> now, but the prices in say Miami, Vegas and Phoenix might be 20%
> lower... Who knows what the real number is, but 5% is pretty noteworthy.
> That also doesn't factor in that housing prices still might go even
> lower ( I think they will).
>
> I've been probably the biggest bear you could find on housing, but
> I don't think prices will fall another 43%.
Where will they stop? They won't.
We now have the collusion of legislative and judicial branches of government (lawyers) in collusion with industry (primarily bankers and brokers) confiscating the retirement, savings, and private property of citizens (KELO Supreme Court decision, stomping of bond and stock holders rights, dictated mortgage terms, etc., etc.).
Not to mention the indentured servitude of $1.5 trillion stimulus and free money to banks , and the $1.25 trillion "healthcare reform" and the $9 TRILLION deficiti - all obligated to yet unearned and untaxed wages of future generations.
I believe you are right. When taxes go up along with unemployment there will not be the incomes to pay the current inflated prices no matter how good the loan terms.
In the end, the economy and incomes must support the price of housing and I do not believe that is the case today.
Asset prices have been overpriced for many years due to the backstop and easy money politicies of the government. With the rise of emerging economies around the world and their falling reliance of the USA, the government will lose its flexiblility to paper over our structural economic issues.
Now the FHA has become th new piggy bank for all this corruptuion and special interests. In the end, this cannot continue without serious consequences. I am sure we can assmeble numerous scenarios but most imo are not good.
Banks sitting on thousands of units and not foreclosing even though not being paid.
FHA is making 25% of all loans and their default levels are shooting through the roof AND they are still doing zero down, crappy credit loans.
Banks not refinancing commercial property even if loan is current and being paid.
Immigrants and off shoring driving down wages while health care insurance is exponentially increasing in costs (which results in skewed income stats).
It becomes way too clear and 43% may be optimistic.
5 raw acres in rural Ramona, $39K,
8 raw acres in rural Lakeside, $199K.
We haven't seen prices like this in many years!
One factor being overlooked- the tax law changes of 1997 significantly increased the capital gains exemption for houses, creating a short term boost in after-tax earning potential that supercharged the trend.
My guess is that in areas where supply and demand are reasonably balanced, the bottom is in now. In areas where job creation/destruction and taxes force ongoing exodus, another 20% fall is quite possible. The key will be for homebuyers to figure out which areas are which- and for homeowners to take some action vis a vis their taxes...
On Nov 03 09:02 AM george archers wrote:
> In toronto Canada, House prices are in the multi bidding wars. Asking
> price $400K sold for $449k.
> In canad,the housing market is booming on the backs of saver$
> Interest rates are at 1.5% floating. Why would someone rent. Personnal
> savings bank-.04% (Fed income tax--50% on interest)
> I can't understand Americans--Prices of homes will sky rocket--Banks
> are holding onto their prime foreclosed homes---waiting for the
> AFIraq invasions to end---Money changers will make a killing :^/
On Nov 02 10:34 AM JS Partners wrote:
> Consumers, investors and all other people who are not underwater
> (which remains a segmented question) do not want to realise the loss
> on their home but instead would rather choose to use it for practical
> reasons or seek yield however small.
>
> This could certainly prevent a further 40%+ slide in the residential
> market. And when you see the forced sellers exit the market (like
> now) there should be a degree of stabilisation. The same way that
> the market got exhausted from buying, there will be an exhausted
> seller who would rather sit on a house for 10 years than lose 40%.
When the gov't stops bribing buyers with subsidies in the form of tax credits and artificially low interest rates, spurious buying power will be removed and prices will fall.
When banks finally list the millions of defaults already in court records coupled with the coming Option ARM resets, supply will rise and foreclosures will impact values, and prices will fall some more.
How far they ultimately fall is anyone's guess, and I agree that different areas will be effected at dramatically different rates, but it's clear based on fundamentals this ride ain't over yet.
On Nov 03 10:48 AM User 142462 wrote:
> What a broad brush statement. I've been in realestate for over 35
> years as a builder/developer in both Ohio, Washington and now Idaho.
> You want to know where home prices should settle out at? Take the
> replacement cost and add about 5%. The big drop we have seen in
> our area of North Idaho is in the land and lot cost. In 2003 you
> could purchase a city lot for about $25,000. That exploded to $60,000
> to $80,000. Now they are down to $35,000 as most our developed land
> also changed hands from the $10,000 per acre price up to as high
> as $80,000 per acre price. It is now back to $30,000 with many loosing
> lots of money as they mortgaged it to the hilt. PLUS: all the big
> loosers in our area were people that turned contractor over night.
> Built many homes with little knowledge and let cost run on them and
> then they got stuck hold spec homes that were built above the market
> demographic needs. Here in Idaho-I feel we have seen our bottom.
We went from a depressed market to an overstimulated market to a restrained market. Taking into account the cost of money and the latent demand, prices seem about right Location still exerts a positive pull on value. The '87 house is on a cul de sac where kids can play in the street and the houses have big lots in a good school district. It has twice the value to a young family than a town house, which sells for 170k. If I increase the value of the house with no appreciation, based on money cost and latent demand it is about 280k (50% + 20%) . Adjust for real inflation at 2% per year (50% + 20% + 40%) * 165K = 345k. The real price is between 280k and 345k which is in the range predicted by the town house price.
I also heard that Dodd may propose opening up the 8k bonus to all comers to help move inventory. The timing would be especially good for local banks who are deposit rich but cautious as they lose more money on development and new construction loans. This could open lending for them, generating badly needed revenue and establish the housing value floor if money is lent prudently. It may unfreeze the ABS market with asset values stabilizing at a low point and lending being prudent. Now we need jobs to support all this.
On Nov 02 08:04 AM bartpr wrote:
> anyone holding a mortgage before 1997, when the trend chaged dramitically
> upward, is likely not part of the mortgage risk equation.
> so going back to develop a trend line with pre 1997 data is not a
> good predictor or base measure.
>
> a better indicator would be to develop an equation that considers
> the various at risk mortgages that have defaulted from 1997 on ,
> see the price depression,and look at the number of resets coming
> in 2010 and 11 for what can come..
>
> not in the real estate market so i am jsut an observer.
We have to keep in mind that there were some certain real estate markets where prices were decimated before all of the Making Home Affordable programs came out..... And some markets are currently being propped up because of MHA programs.
The Uncle Sam lending chart is certainly very interesting though and probably worth a little more focus.
On Nov 03 10:46 AM hanumanhojo wrote:
> I wonder if a chart for price per square foot be a more accurate
> indicator of price? Just from observation, the homes built of more
> recent vintange were much larger than those built many years ago.
> So just looking at price may be a bit deceptive.
LOL
On Nov 03 10:12 AM jmann83 wrote:
> 40% decline in US real estate would essentially make China the number
> 1 economic superpower assuming their real estate doesn't dive 40%
> as well. That chart does look pretty scary and shows a lot of potential
> downside, US real estate probably won't be a good place to invest
> for another generation. Now to find a way to long china real estate
> vs short US real estate, that should make for a good pair trade...
On Nov 02 10:34 AM JS Partners wrote:
> Consumers, investors and all other people who are not underwater
> (which remains a segmented question) do not want to realise the loss
> on their home but instead would rather choose to use it for practical
> reasons or seek yield however small.
>
> This could certainly prevent a further 40%+ slide in the residential
> market. And when you see the forced sellers exit the market (like
> now) there should be a degree of stabilisation. The same way that
> the market got exhausted from buying, there will be an exhausted
> seller who would rather sit on a house for 10 years than lose 40%.
On Nov 02 08:15 AM Tony Petroski wrote:
> Anyone who can read a chart will point out that property prices are
> going to fall 43.27%, not just 43%.
What is important is the economic climate of a region. If jobs and incomes are under pressure houses will trade down to ZERO!
Just look what is happening across parts of the mid-west as jobs and incomes have evaporated.
Now I think this will spread to the east and west coasts as our standard of living falls as does real incomes.
On Nov 03 09:16 AM jimmy Turano wrote:
> WAIT JUST A MINUTE! THINGS ARE BAD AND SEEMINGLY GETTING WORSE WITH
> BANKS GIVING 20%-30% DOWN CUSTOMERS A HEADACHE IN A HALF. WHICH IN
> TURN GIVES REAL ESTATE BROKERS A HEADACHE TOO.
> BUT BARRING A COLLAPSE, DEPRESSION, OR EVEN A NEW CONFLICT IN THE
> MIDDLE EAST, PRICES ARE BEGINNING TO STABILIZE, AND HOMES ARE SELLING
> AGAIN. IF THE BANKS BECOME A LITTLE LESS CRITICAL WHEN IT GOES TO
> UNDERWRITING, AND MORE PEOPLE USE THEIR LOCAL BANKS THAT HAVE BEEN
> IN THE COMMUNITY FOR DECADES, THEN MORE LOANS WOULD BE APPROVED.
>
> WITH THE MILLION OF IMMIGRANTS COMING INTO THE COUNTRY EACH YEAR,
> HOME PRICES NOT ONLY WILL STABILIZE BUT GO UP WITHIN A YEAR, MOST
> PROBABLY BY 2-3% DEPENDING ON DEMAND.
> YOUR ARTICLE IS MISLEADING AND ALARMING TO THOSE WHO DO NOT KNOW
> ANY BETTER. THE RATES PEOPLE GET ON THEIR MONEY TODAY, YOUR BETTER
> OFF BUYING PROPERTY, COLLECT INCOME, AND HAVE A WRITE OFF EVEN AT
> TODAYS PRICES WITH LOW 5% MORTGAGES.
> YOU CERTAINLY CAN'T COUNT ON THE STOCK MARKET FOR INVESTMENT ANY
> LONGER, ESPECIALLY WITH ALL THE CROOKS IN POSITION STILL.
> THAT INCLUDES THE FRIENDLY RESEARCH FIRMS, THEIR ANALYSTS, THEIR
> BUY RECOMMENDATIONS, AND THEIR HIGH TARGET PRICES.
> STICK WITH REAL ESTATE AND POCKET SOME MONEY, WHILE ENJOYING THE
> WRITE OFFS.
On Nov 03 02:05 PM buyitcheap wrote:
> What does this mean for insurers? 43% drop in premiums due to lower
> valuations? Does value equate to replacement cost?
> In the end replacement cost this or that means nothing!
>
> What is important is the economic climate of a region. If jobs and
> incomes are under pressure houses will trade down to ZERO!
>
> Just look what is happening across parts of the mid-west as jobs
> and incomes have evaporated.
>
> Now I think this will spread to the east and west coasts as our standard
> of living falls as does real incomes.
The ghost towns of boom / bust geo-economic hyper activity are likely to remain a characteristic of human harborage tendencies. One of the things I like to believe about CA however is that if nothing else, you can’t export our weather.
Housing "values" will certainly go down in real terms - maybe even 43%.
The prices in USD on the other hand won't due to the increased money supply. If you price in gold, you can already see the decline.
In real terms, the prices may collapse, but if the government simply prints enough dollars, the USD price may remain steady. The same is also true for the stock market. In real terms, the market at large has been crashing ever since the internet bubble, when you consider the devaluation of the dollar.
On Nov 03 07:40 AM Lsente wrote:
> I pay credence to your article but think that USD is no longer a
> linear variable. I still appreciate your article and it conjured
> a memory of a chart I could not get out of my head.
>
> whiskeyandgunpowder.co.../
>
> Third chart down, you'll find it in numerous places and I do not
> know who should get credit for it, but definitely a buttress to your
> thesis. I hope we are both wrong but I will be behaving as though
> we are both right.
>
> Thanks for your submission
On Nov 02 11:11 PM Kinetics63 wrote:
> Look back to 1987. I never seen a trend liine that was drawn through
> a price. It should be placed under the through which would make it
> much steeper for one thing and I would like to see the price history
> go back much further. This chart tells me nothing.
>
> Starting at 1987 with the index at 62.5 and assuming 3% appreciation,
> compounded over 22 years, the trend line should be around 120 in
> 2009. Not too far off from where 20 city composite turned.
On Nov 03 07:40 AM Lsente wrote:
> I pay credence to your article but think that USD is no longer a
> linear variable. I still appreciate your article and it conjured
> a memory of a chart I could not get out of my head.
>
> whiskeyandgunpowder.co.../
>
> Third chart down, you'll find it in numerous places and I do not
> know who should get credit for it, but definitely a buttress to your
> thesis. I hope we are both wrong but I will be behaving as though
> we are both right.
>
> Thanks for your submission
On Nov 03 08:33 AM je wrote:
> I did a chart like this in 2006 and it has been scary to watch because
> it has been accurate beyond my expectations. I have property going
> back to 1992 prices and that is a 'fer piece from here.
>
> The responses in this article tells you that there are far too many
> bulls for the bottom to be in. Maybe in 2014 you should rerun the
> article.
On Nov 03 08:36 AM Thomas Smicklas wrote:
> Speculation.
>
> One factor determining property value is what it will produce if
> rented. The rule of thumb for general discussion is rent should be
> 100x the value of the home. If (when) inflation kicks up, this will
> impact property values more than a graph. One would reason that inflation
> should bump up rents. However, if job destruction under the present
> economically challenged Congress continues, all bets are off.
On Nov 03 09:02 AM crazyv wrote:
> This analysis would be accurate if
> (a) interest rates hadn't changed during that period (
> b) inflation had been constant and
> (c) the level of household formation had remained the same.
> (d) the financing tools were unchanged.
>
> SInce none of those factors is correct it would have been sounder
> analysis to at least have made some attempt to adjust the trend line
> for those factors.
On Nov 03 09:02 AM george archers wrote:
> In toronto Canada, House prices are in the multi bidding wars. Asking
> price $400K sold for $449k.
> In canad,the housing market is booming on the backs of saver$
> Interest rates are at 1.5% floating. Why would someone rent. Personnal
> savings bank-.04% (Fed income tax--50% on interest)
> I can't understand Americans--Prices of homes will sky rocket--Banks
> are holding onto their prime foreclosed homes---waiting for the
> AFIraq invasions to end---Money changers will make a killing :^/
On Nov 03 09:12 AM xmplary wrote:
> The reality is different from analysis. I have several clients bidding
> on bidselect.com for HUD properties and like every buyer, they want
> to start bidding way down, against my advice, only to find out that
> some one else's bid got accepted over theirs. The best time to have
> got the best deals was in the spring of this year when there was
> so much uncertainty and many not being able to get financing. Those
> deals are now gone, except where the seller is desperate... even
> then, the bank approving the short sales are not so desperate with
> all the billions tax payers have provided! Winter is generally a
> slow period, so desperate sellers will accept lower offers, but if
> they can hold on till the next season they will. Prices dropping
> 43% lower from current levels is fantasy, unless we are in for a
> similar situation as in late 08.
On Nov 03 09:15 AM smlcap wrote:
> Housing prices set to fall 43% from current depressed levels?
> My gut tells me..........No.
On Nov 03 09:16 AM jimmy Turano wrote:
> WAIT JUST A MINUTE! THINGS ARE BAD AND SEEMINGLY GETTING WORSE WITH
> BANKS GIVING 20%-30% DOWN CUSTOMERS A HEADACHE IN A HALF. WHICH IN
> TURN GIVES REAL ESTATE BROKERS A HEADACHE TOO.
> BUT BARRING A COLLAPSE, DEPRESSION, OR EVEN A NEW CONFLICT IN THE
> MIDDLE EAST, PRICES ARE BEGINNING TO STABILIZE, AND HOMES ARE SELLING
> AGAIN. IF THE BANKS BECOME A LITTLE LESS CRITICAL WHEN IT GOES
> TO UNDERWRITING, AND MORE PEOPLE USE THEIR LOCAL BANKS THAT HAVE
> BEEN IN THE COMMUNITY FOR DECADES, THEN MORE LOANS WOULD BE APPROVED.
>
> WITH THE MILLION OF IMMIGRANTS COMING INTO THE COUNTRY EACH YEAR,
> HOME PRICES NOT ONLY WILL STABILIZE BUT GO UP WITHIN A YEAR, MOST
> PROBABLY BY 2-3% DEPENDING ON DEMAND.
> YOUR ARTICLE IS MISLEADING AND ALARMING TO THOSE WHO DO NOT KNOW
> ANY BETTER. THE RATES PEOPLE GET ON THEIR MONEY TODAY, YOUR BETTER
> OFF BUYING PROPERTY, COLLECT INCOME, AND HAVE A WRITE OFF EVEN AT
> TODAYS PRICES WITH LOW 5% MORTGAGES.
> YOU CERTAINLY CAN'T COUNT ON THE STOCK MARKET FOR INVESTMENT ANY
> LONGER, ESPECIALLY WITH ALL THE CROOKS IN POSITION STILL.
> THAT INCLUDES THE FRIENDLY RESEARCH FIRMS, THEIR ANALYSTS, THEIR
> BUY RECOMMENDATIONS, AND THEIR HIGH TARGET PRICES.
> STICK WITH REAL ESTATE AND POCKET SOME MONEY, WHILE ENJOYING THE
> WRITE OFFS.
On Nov 03 09:31 AM 6 Moves Ahead wrote:
> Throw out the charts. Throw out the trends. Throw out the pessimism.
> Values could settle a bit more, but barring a significant increase
> in unemployment, I believe that property values will likely remain
> stable for the next 5 or 6 years which is just about the time the
> commercial real estate market should expect to see recovery. Certain
> areas such as southern Florida may still see additional price declines,
> but that's simply because of the amount of inventory that exists.
>
>
> Statements and projections such as the one attached to this article
> are irresponsible journalism. It's a fact that 50% of the population
> has a below average IQ. Unfortunately, the lower half of the below
> average group tends to hinge on every word that the supposed "experts"
> have to say. Some don't care. The others know better. Remember, Ben
> Franklin said, “Believe none of what you hear and half of what you
> see.”
>
> While we may not be completely out of the woods were declining property
> values are concerned, existing inventory is being absorbed. New housing
> starts are not growing, but this is simply a sign that developers
> will not take risks associated with a market that is over-supplied.
> When new homes don't go up, and people have to move, they're finding
> exiting homes which in turn is reducing the existing home inventory.
> When the existing home inventory diminishes a bit further (and we're
> getting close) new housing starts will pick up.
>
> At worst your home value should be relatively stable for 5 years
> or so.
On Nov 03 09:36 AM Jake Berzon wrote:
> Looking at 20 year history of housing prices and calling more than
> half of it an aberration is at best silly. You need to take a look
> at longer term trends, which at least include inflationary 70s and
> the post WWII 40s to lend any credibility to trend analysis. That
> being said, I agree that residential real estate prices may have
> not found their bottom yet and may take another serious hit, but
> only, if inflation doesn't catch up in time.
On Nov 03 09:36 AM Andrew Butter wrote:
> You put a regression through the wrong line.
>
> Any regression with only two variables (1) Time (2) Price is nonsense,
> that's the same logic that got the genius investment bankers and
> rating agencies to say house prices would go on going up forever.
>
>
> Price is driven by demand (money available to pay for the product
> or service) divided by supply (number of houses), divided by a function
> of long term interest rates PLUS BubbleOmics:
>
> Have a look at seekingalpha.com/artic...
Such a collapse would undoubtedly throw this country into a depression worse than that of the 20's and 30's. If our government is stupid enough to allow that to happen, then the citizens of this country will have no one to blame but themselves. - and the irresponsible nitwits who post such idiotic projections.
Your trends are worthless because new variables enter the equation everyday thereby changing the equation. Next time, give us a little more credit where our intelligence is concerned. Now you've gone out there and scared the 50 percent of the population that has a below average IQ and stares at you and your worthless charts in awe. Nice job.
On Nov 03 09:41 AM Graham and Dodd Investor wrote:
> Property is probably only 20%-25% overvalued. But we all know that
> a fall doesn't stop at "fair value," it goes through. Hence a drop
> of 43% makes sense.
On Nov 03 09:41 AM TwiceShy wrote:
> I can't help but wonder what the Case-Shiller chart would look like
> based on inflation adjusted dollars and whether or not that would
> change the analysis. I suppose that, once the FED and the Treasury
> and their counterparts around the world run out of tricks and the
> deflationary spiral resumes, it will look about the same in any case.
On Nov 03 09:46 AM MikeOz wrote:
> Can you explain how you have calculated the trend line, and over
> what period the data was sourced from ?
>
> I also follow numbers (it's what I do) and your trend line looks
> to me like it was calculated over a relatively short period of time
> (maybe 12 - 15 years ?) and maybe over a period of time when the
> market was recovering from an earlier property bubble ?
> (Your trend line looks like it goes from about 70 in 1987 to maybe
> 90 in 2009 - ie about 1% per year !)
>
> In most residential property markets in first world countries, the
> longer term trend seems to average around inflation plus 1.5% (or
> inflation plus population growth in the view of some), and if you
> apply that growth rate your trend line would be considerably steeper.
On Nov 03 09:48 AM hat_trick3 wrote:
> graphs and charts notwithstanding, the bottom line is until housing
> prices fall below 3 times household income, real estate values will
> continue to drop.
>
> That's an essential truth, a family cannot cover its expenses over
> this level.
>
> In SoCal, it's still over 5 times. 40% correction from here sounds
> about right.
On Nov 03 09:58 AM JAMES CARLINI wrote:
> No one is going to sell their house into this market unless they
> have to. Most people I know are staying put. Some have even taken
> their homes off the market because the buyers want a firesale price
> even if the house is in good shape.
>
> Some are putting money into their house, banking on the fact that
> when the market opens up, their house will be more marketable.<br/>
>
> If you are a first-time buyer, now would be the time to buy a house.
> (There are many new houses at bargain prices)
On Nov 03 10:05 AM hat_trick3 wrote:
"I'm intrigued by this widespread mentality that homeowners "won't sell their house at firesale prices" or will wait until the market comes back up."
I had to relocate from Chicago in 1981 - a dead real estate market. We found a renter for the home and held on until 1984 when we could get our price. A little tight on cash flow but that's life.
planbeconomics.com.../
...and I agree, that there is tons of downward pressure on real estate prices. There's downward pressure on all asset prices in the US, for that matter. 2009 was a good year for stocks, but there are structural issues that will have a enduring impact on the consumer's ability to spend.
On Nov 03 02:46 PM Fred Swartz wrote:
> Thanks for an interesting article that stimulated even more interesting
> discussion. Many of the suggestions for improvement were good, and
> I look forward to seeing a revision (tho that might take a while!).
> And thanks to the author for the many (polite) responses.
On Nov 03 10:05 AM hat_trick3 wrote:
> I'm intrigued by this widespread mentality that homeowners "won't
> sell their house at firesale prices" or will wait until the market
> comes back up.
>
> There are a lot of investors out there waiting for Nasdaq 5000 to
> return as well.
>
> Remember this?
On Nov 03 10:11 AM rennert wrote:
> All this talk about foreclosures and fear just to keep interest rates
> low. Playing right into Wallstreets pockets. Something to think
> about: Have you noticed that people are walking around the malls
> with several bags now. There were none or one last year. Economy
> is heating up. Milk at $8.50 a gallon. Fed needs tor aise at lest
> 1% now. 1% will not derail the economy. It would just make the IBM,
> GE and other Global companies excecutives wish they had diapered
> up before hearing this.
On Nov 03 10:12 AM jmann83 wrote:
> 40% decline in US real estate would essentially make China the number
> 1 economic superpower assuming their real estate doesn't dive 40%
> as well. That chart does look pretty scary and shows a lot of potential
> downside, US real estate probably won't be a good place to invest
> for another generation. Now to find a way to long china real estate
> vs short US real estate, that should make for a good pair trade...
On Nov 03 10:38 AM bobbobwhite wrote:
> What you said was what I was thinking as I read this article: it
> depends on where the house is. SF, LA, LV and Pee-hoenix have way
> different housing prices and activity relative to income than central
> Kansas does, and etc. It is good sense to stick to specific markets
> when making predictions, and not put the doughnuts in with the dumplings.
>
>
> On Nov 02 09:59 AM John Galt wrote:
On Nov 03 10:45 AM ebworthen wrote:
> The government owns the banks, AIG, GM, Chrysler, and is the largest
> employer; so why not take over the mortgage industry?
>
> Where will they stop? They won't.
>
> We now have the collusion of legislative and judicial branches of
> government (lawyers) in collusion with industry (primarily bankers
> and brokers) confiscating the retirement, savings, and private property
> of citizens (KELO Supreme Court decision, stomping of bond and stock
> holders rights, dictated mortgage terms, etc., etc.).
>
> Not to mention the indentured servitude of $1.5 trillion stimulus
> and free money to banks , and the $1.25 trillion "healthcare reform"
> and the $9 TRILLION deficiti - all obligated to yet unearned and
> untaxed wages of future generations.
>
> I believe you are right. When taxes go up along with unemployment
> there will not be the incomes to pay the current inflated prices
> no matter how good the loan terms.
On Nov 03 10:46 AM hanumanhojo wrote:
> I wonder if a chart for price per square foot be a more accurate
> indicator of price? Just from observation, the homes built of more
> recent vintange were much larger than those built many years ago.
> So just looking at price may be a bit deceptive.
On Nov 03 10:48 AM The Hammer wrote:
> with the government bankrupting us with all their subsidies for housing,
> this article does make some sense.
> In the end, the economy and incomes must support the price of housing
> and I do not believe that is the case today.
> Asset prices have been overpriced for many years due to the backstop
> and easy money politicies of the government. With the rise of emerging
> economies around the world and their falling reliance of the USA,
> the government will lose its flexiblility to paper over our structural
> economic issues.
> Now the FHA has become th new piggy bank for all this corruptuion
> and special interests. In the end, this cannot continue without serious
> consequences. I am sure we can assmeble numerous scenarios but most
> imo are not good.
On Nov 03 10:48 AM User 142462 wrote:
> What a broad brush statement. I've been in realestate for over 35
> years as a builder/developer in both Ohio, Washington and now Idaho.
> You want to know where home prices should settle out at? Take the
> replacement cost and add about 5%. The big drop we have seen in
> our area of North Idaho is in the land and lot cost. In 2003 you
> could purchase a city lot for about $25,000. That exploded to $60,000
> to $80,000. Now they are down to $35,000 as most our developed land
> also changed hands from the $10,000 per acre price up to as high
> as $80,000 per acre price. It is now back to $30,000 with many loosing
> lots of money as they mortgaged it to the hilt. PLUS: all the big
> loosers in our area were people that turned contractor over night.
> Built many homes with little knowledge and let cost run on them and
> then they got stuck hold spec homes that were built above the market
> demographic needs. Here in Idaho-I feel we have seen our bottom.
On Nov 03 11:02 AM jdl51 wrote:
> Fortunately I bought property in the '80s and '90s and have done
> fairly well, even if we get to the Armegeddon levels the author is
> predicting. Just looking at my area, S.Florida, another 40% plus
> drop seems highly unlikely. That would put waterfront homes in the
> 150s which haven't seen that level since the early '90s, late '80s.
> At those prices and at present interest rates, which are at historic
> lows, people would be snapping up property down here so fast it would
> make your head spin. Imagine you're a European and you could get
> a really nice condo on Miami Beach for less than 60,000 euros. There
> is a support level under this market and it is not 40% down from
> here unless the entire world economy goes completely down the tubes.
> At present the opposite is happening, with China growing near 9%,
> the U.S. showing positive growth, EU economy starting to expand,
> interest rates close to zero in some countries and global stimulus
> still with the pedal to the metal. If there is any improvement in
> employment, which at current productivity rates seems just around
> the corner, the stabilization will be firmly in place.
On Nov 03 11:03 AM TeresaE wrote:
> When you add in the following facts:
>
> Banks sitting on thousands of units and not foreclosing even though
> not being paid.
>
> FHA is making 25% of all loans and their default levels are shooting
> through the roof AND they are still doing zero down, crappy credit
> loans.
>
> Banks not refinancing commercial property even if loan is current
> and being paid.
>
> Immigrants and off shoring driving down wages while health care insurance
> is exponentially increasing in costs (which results in skewed income
> stats).
>
> It becomes way too clear and 43% may be optimistic.
On Nov 03 11:09 AM wg wrote:
> User above makes perfect sense. All this talk of houses dropping
> according to some graf is nonsense. There are four components to
> real estate price, and three of them are real. First is price of
> land (how much paid) second is cost to build house (materials plus
> labor). Third is builders/developer's profit. Fourth is nuttiness
> on part of buyer. If builder bought lot for $50,000 and built 3000
> sq ft house for $300,000, price of house ought to be about $425,000--$450,000
> or so. Nuttiness comes in where builder asks--and gets!--$900,000.
> That house is not worth that amount, and should rightly drop in value.
> Like user above points out, something went screwy with outrageous
> inflation of land value. It will all adjust itself within a few years.
> Some house might drop this 43%--if they were overpriced anyway. Others
> will drop because their "value" was being propped up by nuttiness,
> but not so much. Then houses will be back on track and remain a good
> hedge against inflation, (instead of a cash cow).
On Nov 03 11:11 AM rlreber30t wrote:
> For whatever it is worth, recent prices in San Diego, CA:
> 5 raw acres in rural Ramona, $39K,
> 8 raw acres in rural Lakeside, $199K.
> We haven't seen prices like this in many years!
On Nov 03 11:20 AM Dirk McCoy wrote:
> I've seen a few charts of this type, when the trend is extended back
> another 30-50 years, it shows a 20% further decline from current
> values.
>
> One factor being overlooked- the tax law changes of 1997 significantly
> increased the capital gains exemption for houses, creating a short
> term boost in after-tax earning potential that supercharged the trend.
>
>
> My guess is that in areas where supply and demand are reasonably
> balanced, the bottom is in now. In areas where job creation/destruction
> and taxes force ongoing exodus, another 20% fall is quite possible.
> The key will be for homebuyers to figure out which areas are which-
> and for homeowners to take some action vis a vis their taxes...
On Nov 03 11:27 AM benjamin_bear wrote:
> It's true that home owners can choose not to sell and thus reduce
> dropsin property values. However, this cuts both ways. In LA, affluent
> home owners have decided to hold on to their homes and thus property
> values are showing very modest declines in neighborhoods like Santa
> Monica and Brentwood. But if the only homes being sold are at drastically
> reduced prices doesn't that bring down the entire area's property
> values?
On Nov 03 11:41 AM dacolan wrote:
> The best measures of fair value for the residential RE market is
> price-to-income and price-to-rent ratios. Bottom line is affordability.
>
>
> When the gov't stops bribing buyers with subsidies in the form of
> tax credits and artificially low interest rates, spurious buying
> power will be removed and prices will fall.
>
> When banks finally list the millions of defaults already in court
> records coupled with the coming Option ARM resets, supply will rise
> and foreclosures will impact values, and prices will fall some more.
>
>
> How far they ultimately fall is anyone's guess, and I agree that
> different areas will be effected at dramatically different rates,
> but it's clear based on fundamentals this ride ain't over yet.<br/>
>
> On Nov 03 10:48 AM User 142462 wrote:
On Nov 03 11:42 AM Location Cubed wrote:
> THE PROBLEM WITH QUANTS is that they're committed to one good argument,
> one good graph, one school of thought and completely ignore some
> basic facts that are industry specific; case in point: No respected
> quant will ignore the all-powerful S&P Case/Schiller trend line
> on which this whole argument is built. In reality, there should be
> 2 trend lines, one for home prices when mortgage rates were over
> 9% (pre late 90's) and one when rates averaged under 5.5% . The difference
> in monthly payments with these 2 rates on the same amount borrowed
> is more than the 43% forecasted in this article. Find some new metrics
> and stop the madness.
I suggest u look at the min. wage now and 20 years earlier and u will get the answer and not everything which grows comes back.
On Nov 03 11:48 AM Ransome wrote:
> I am not so sure we haven't hit the bottom. I bought a house for
> 165k in 1987. In 1997, my neighbor in real estate said it was worth
> 140k. I am one that refuses to take a loss. Back in the '80's mortgage
> interest rates were up at 8 or 9%. It depressed the market. When
> banks started giving money away my house increased in value overnight
> by about 50% based on a monthly payment without any loan gimmicks.
> The drop in value over 10 years created a latent demand that was
> overstimulated by cheap money. Over the entire period from '87,
> replacement value increased.
>
> We went from a depressed market to an overstimulated market to a
> restrained market. Taking into account the cost of money and the
> latent demand, prices seem about right Location still exerts a
> positive pull on value. The '87 house is on a cul de sac where kids
> can play in the street and the houses have big lots in a good school
> district. It has twice the value to a young family than a town house,
> which sells for 170k. If I increase the value of the house with
> no appreciation, based on money cost and latent demand it is about
> 280k (50% + 20%) . Adjust for real inflation at 2% per year (50%
> + 20% + 40%) * 165K = 345k. The real price is between 280k and
> 345k which is in the range predicted by the town house price.
>
> I also heard that Dodd may propose opening up the 8k bonus to all
> comers to help move inventory. The timing would be especially good
> for local banks who are deposit rich but cautious as they lose more
> money on development and new construction loans. This could open
> lending for them, generating badly needed revenue and establish the
> housing value floor if money is lent prudently. It may unfreeze
> the ABS market with asset values stabilizing at a low point and lending
> being prudent. Now we need jobs to support all this.
On Nov 03 11:53 AM LADucSP wrote:
> Exactly right. Notice ow the trend line is not reflective of virtually
> any impact from the 1999-2002 recession? This suggests a clear change
> in the business of mortgages from '97 on, as reflected in the chart,
> which would require that you narrow the lens to encompass '97 - current,
> and ignore previous data, in order to arrive at any meaningfully
> accurate assumption about current prospects, relative to historic
> results.
On Nov 03 12:03 PM SoCalSailor wrote:
> Someone clue me in on why it is called "home buying" when you take
> out a ginormous loan and are in hock to the usurocracy for the duration.
> . .Someone has not been paying attention, he said, as the currency
> flip-flops to the tune of the usurocracy. . .
On Nov 03 12:08 PM Alphameister wrote:
> The provocative headline was guaranteed to get attention, and the
> author should have included some of the humility reflected in his
> comments in the original article, but I'm sure he never intended
> the "precision" suggested by a 43% figure. It's been humorous to
> read comments pointing to this summer's rally in prices (driven by
> seasonal and fiscal stimulus) as if they somehow disprove the long-term
> perspective of the article. There is a very simple message to be
> taken from the article beyond the rather silly 43% number and it's
> that, viewed in a long-term context and assuming real-estate excesses
> of the past two decades will be worked off to a considerable extent
> over the next two decades, housing is likely to be a very disappointing
> "investment" for a many years to come.
On Nov 03 12:15 PM lasvegasrealestate411 wrote:
> I'm scratching my head on how a national indice can be used to create
> a title that suggests all property values are set to fall 43% from
> the current depressed levels.
>
> We have to keep in mind that there were some certain real estate
> markets where prices were decimated before all of the Making Home
> Affordable programs came out..... And some markets are currently
> being propped up because of MHA programs.
>
> The Uncle Sam lending chart is certainly very interesting though
> and probably worth a little more focus.
On Nov 03 12:17 PM User 215857 wrote:
> Good point. On the residential real estate, it's hard to imagine
> prices falling below another 10% or so. At that point and at the
> current mortgage rates, investors can purchase homes for rental property
> and breakeven or perhaps, have a slight positive cash flow. That
> seems to be about the point to where home prices are bottoming in
> my neighborhood.
On Nov 03 12:21 PM theLonelyTrader wrote:
> So you're telling me China isn't itself in an asset bubble?
>
> LOL
On Nov 03 12:40 PM mbear wrote:
> Absolutely incorrect, (at least in my neck of the woods) California
> has a major problem with people who can make the payment but decide
> to walk rather than wait for prices to come back. Yes I know stupid
> but all ethical and moral stigma attached to this has vanished in
> the land of the wierd. It is now possible to get into a conversation
> where someone who will tell you that a person would be stupid to
> wait around.
On Nov 03 12:41 PM Paul Bogdanich wrote:
> Where it's really starting to show is rents. People simply don't
> make enough to support these prices. Now that the easy credit is
> gone and the first time home buyers incentives are waning and baby
> boomers are due to begin selling homes the prices have to come down.
> No one wants to hear that though. Actually some people get quite
> upset when you mention it.
On Nov 03 01:06 PM moneyagent wrote:
> Politcal propaganda at best. 43% is not a realistic figure. Scare
> the ignorant people into the hole once again. The private sector
> will take charge for the next decade and all the ideaoligist that
> try and predict the future by fabricating fancy charts with a taste
> for fear should be ashamed of them selves..There are billions of
> dollars of private money that has yet to been taken into consideration.
> The next market shift will devestate the greedy ill minded bankers
> and fear mongers alike.
On Nov 03 01:08 PM The Hammer wrote:
> In the end replacement cost this or that means nothing!
>
> What is important is the economic climate of a region. If jobs and
> incomes are under pressure houses will trade down to ZERO!
>
> Just look what is happening across parts of the mid-west as jobs
> and incomes have evaporated.
>
> Now I think this will spread to the east and west coasts as our standard
> of living falls as does real incomes.
On Nov 03 01:09 PM mbear wrote:
> Jimmy you didn't need to tell us you're a realtor we can all tell
> because YOUR CAPS LOCK IS STILL STUCK from the breathless property
> description you just wrote.
On Nov 03 01:56 PM NOCSM wrote:
> If the Federal Reserve significantly reduces or eliminates the purchasing
> of mortgage debt, then rates will eventually rise and put downward
> pressure on home prices. Additionally, there are many other factors
> that have been repeatedly discussed, that will cause downward pressure
> on home prices, such as large collateral requirement for home purchases,
> increased taxes on real estate, and unemployment. I don't think that
> another 30% downward correction in home values is unreasonable.
On Nov 03 02:05 PM buyitcheap wrote:
> What does this mean for insurers? 43% drop in premiums due to lower
> valuations? Does value equate to replacement cost?
On Nov 03 03:30 PM Boxed Merlot wrote:
> On Nov 03 01:08 PM The Hammer wrote:
On Nov 03 03:34 PM Curious Bystander wrote:
> We still have 1.45 TRILLION in defaults coming in Option ARM and
> Alt A loans. We will have 3 million small business owners who are
> wiped out in all this. There will be another 7-10 million workers
> affected by this in some way. The suckers who didn't do their homework
> and bought in while the government was spending other peoples money
> to artificially inflate housing prices will be underwater in in their
> homes in 3 years.
On Nov 03 03:36 PM Clayton wrote:
> Yes good point. This is similar to mine.
>
> Housing "values" will certainly go down in real terms - maybe even
> 43%.
>
> The prices in USD on the other hand won't due to the increased money
> supply. If you price in gold, you can already see the decline.<br/>
>
> In real terms, the prices may collapse, but if the government simply
> prints enough dollars, the USD price may remain steady. The same
> is also true for the stock market. In real terms, the market at
> large has been crashing ever since the internet bubble, when you
> consider the devaluation of the dollar.
>
> On Nov 03 07:40 AM Lsente wrote:
On Nov 03 03:42 PM Curious Bystander wrote:
> NOCSM, you brought up a VERY good point. What does everyone think
> the interest rates are going to be when the inflation kicks in from
> the increase in money supply??? How much did Carter print, around
> 13% or so over two years?? We had 12% inflation from that and interest
> rates of 20%. Hussein has printed the money supply up to 120% and
> growing, taken in concert with what I previously typed, and you can
> do the math yourself. There are tough times ahead for real estate.
On Nov 03 03:55 PM Reuben McDowell, Jr. wrote:
> I vividly recall an interview that took place during the last recession
> of 1990-95 in which a couple that lived in Beverly Hills was questioned
> as to their reaction to the decrease in prices in real estate in
> Beverly Hills, California. The reported asked about how worried they
> were about losing so much value, and the couple replied: " we have
> lived happily in this house we bought for $30,000 many many years
> ago, and expect to die happily in it, we could care less whether
> the price goes up, down or sideways" (the house at the time was valued
> at around $3,000,000); that same house would probably command 5-6,000,000
> in today's "depressed market". A house was always defined as an asset
> to contributed to one's happiness, stability, family raising, and,
> as an added bonus, value appreciation. The speculative and risky
> trading of real state much advocated by the Donald Trumps of the
> world (many of whom file for bankruptcy regularly) became a standard
> for "flippers" and the average ignorant quasi-investors who have
> now lost their house and their shirt. Well deserved for the potential
> return on any investment is always directly correlated to the risk.
> The risk taking did not pay off because the managers of the asset
> did not know their ass from a hole in the ground. And no, people
> will not return to living in holes in the ground, or tents, or leave
> their children out in the elements, they will rent apartments and
> those wise enough to ignore the apocalyptic 43% decline in value
> prophecies shall reap the benefit of rental income from the herds
> needing shelter. And so a new feudal order of landed-gentry shall
> rise (or shall we say regress) to the old medieval social orders
> whereby those who own land own production and wealth and even the
> "time" of people enslaved for work. As Karl Marx said: "Capitalism
> digs its own grave". Caveat Emptor!
On Nov 03 04:19 PM 6 Moves Ahead wrote:
> You're out of your friggin' minds if you think another 43% drop is
> on the horizon. If that happens, there will have to have been an
> absolute collapse of the financial system. Bank assets, in the form
> of loans, will become worthless and when banks are required to write-down
> those types of loses, the financial system will buckle and the big
> banks would crash.
>
> Such a collapse would undoubtedly throw this country into a depression
> worse than that of the 20's and 30's. If our government is stupid
> enough to allow that to happen, then the citizens of this country
> will have no one to blame but themselves. - and the irresponsible
> nitwits who post such idiotic projections.
>
> Your trends are worthless because new variables enter the equation
> everyday thereby changing the equation. Next time, give us a little
> more credit where our intelligence is concerned. Now you've gone
> out there and scared the 50 percent of the population that has a
> below average IQ and stares at you and your worthless charts in awe.
> Nice job.
On Nov 03 05:02 PM Poor Texan wrote:
>
> On Nov 03 10:05 AM hat_trick3 wrote:
> "I'm intrigued by this widespread mentality that homeowners "won't
> sell their house at firesale prices" or will wait until the market
> comes back up."
>
> I had to relocate from Chicago in 1981 - a dead real estate market.
> We found a renter for the home and held on until 1984 when we could
> get our price. A little tight on cash flow but that's life.
newobservations.net/pr.../
thanks for the note. mdw
On Nov 03 05:11 PM Troyhector wrote:
> Housing boosters have forecast turnarounds repeatedly since the market
> peaked in 2006, only to be proven wrong by plunging prices. And skeptics
> say they’re wrong again now. They argue that a deeply indebted consumer,
> a weak job market, expiring incentives and rising foreclosures spell
> a quick end to any housing rebound.
> Read more.
>
> www.housingnewslive.co...
On Nov 03 06:12 PM Plan B Economics wrote:
> Speaking of job losses...here are a few charts on unemployment:<br/>
>
> www.planbeconomics.com.../
>
> ...and I agree, that there is tons of downward pressure on real estate
> prices. There's downward pressure on all asset prices in the US,
> for that matter. 2009 was a good year for stocks, but there are structural
> issues that will have a enduring impact on the consumer's ability
> to spend.
On Nov 03 09:15 PM CNBC Kicker wrote:
> I would agree to the analysis if salaries fall down by 50% which
> is not going to happen. Another doomsayer wishing the world ends
> and trying to gain attention.
> I suggest u look at the min. wage now and 20 years earlier and u
> will get the answer and not everything which grows comes back.
On Nov 03 11:16 PM storm999 wrote:
> MIllions of people are underwater, today they think it will come
> back in a year or two. Here's the problem with that expectation.
> The demand for housing from 20 somethings is going to be low, they
> have unemployment. At the same time, the banks have tons of forelcosures
> they ultimately have to get rid of. Looking farther out the boomers
> will start to sell their houses and move into smaller places. Expect
> a flat to negative real estate market with housing for seniors being
> the strength of the market.
This article represents clueless to a high degree, and anyone that can connect a few dots realizes that we're past 'the bottom'. Not to mention, imagine trying to capture a 5.00% 30-yr loan 3 years from now. Good luck.
On Nov 02 11:00 PM Peter Mycroft Psaras wrote:
> Because local and state governments are losing so much money in tax
> receipts, you can not make money in Real Estate anymore, because
> municipalities are going to increase property taxes significantly
> over the next decade and force older residents to sell their homes
> and move to lower property tax cities. I remember this happened in
> 1987 to my father, who bought his house in Westchester County, New
> York in 1972 for $60,000. The property taxes then were $1000 a year
> and in 1987 he was forced to sell the house because his taxes shot
> up to $15,000 and being retired he felt that they were out of control.
> In 2007 I went and visited the current owner of the house and the
> taxes then had shot up to $35,000. When my father bought his house
> he paid 1.6% property taxes on it each year and when he sold it he
> was paying 3.75%. The current owner paid $800,000 for the house and
> pays 4.375% in house related taxes. But his problem currently is
> that the house is no longer worth $800,000, but is now worth about
> $550,000, so his real tax rate is now 6.36%. The municipality where
> the house is located is strapped for cash and can not afford to lower
> taxes, so how is this guy who bought this house for $800,000 ever
> going to get his money back. Who in their right mind would buy a
> house with a real property tax rate of 6.36% on it? There is your
> real problem with Real Estate and the reason why nobody is buying
> houses even with 4.99% 30 year fixed mortgage rates.
Property values only go up if there is an increase in demand. That is NOT happening. The birth rate of the US is just enough to sustain our population, nothing more. It would be negative without immigration.
The people who invest in real estate and expect values to go up need to face the facts that we're in a rising interest rate environment, which will boost costs on a mortgage tremendously.
These two factors will hold down demand for possibly decades.
full disclosure: I invested in real estate while down payments were low 5 years ago.
On Nov 02 08:46 AM OstrichHater wrote:
> that trend line in the image above should actually be inflation.
> Long term that is what housing will track. So the real questions
> becomes, does inflation rise or does housing fall until the lines
> converge? Most likely a bit of both.
"The trend line for prices is not relevant unless you incorporate some metric for average interest rates. Price is a function of interest rates."
If prices are really a function of interest rates (and I'm not sure there is lots of evidence to that theory), then since interest rates are near record lows now--if rates increase to historical average rates of the past--won't that mean prices will go down?
Of course, if China continues to push our short term rates to near zero, then maybe prices won't go down, because of higher interest rates.
Home is a place for you to come to after a long day. Home is American dream. Home is a Piggy bank, not ATM machine or speculative investment.
No Job. No Money. No Honey. No Health Insurance. No Retirement. No More Crazy and Stupid Housing spins.
It is simply one of a VERY long list of reasons why there is another (even more vicious) down-leg ahead for the U.S. real estate sector - to be added to the other reasons: millions of empty homes HIDDEN from the market, and the NEXT spike in mortgage resets about to start (and then last for TWO YEARS).
Talking heads who claim that the U.S. housing market has "bottomed", or even that it WILL "bottom" some time in 2010 simply don't have the slightest grasp of fundamentals in this market (nor the ability to even perform simple arithmetic).
Did I mention that U.S. baby-boomers need to raise about $1 to $2 TRILLION dumping real estate to make up the gap in their under-funded retirements (and real estate comprises 75% of their total assets)?
On Nov 02 08:13 AM Tom Armistead wrote:
> Applying technical analysis to the Case Shiller index is an exercise
> in futility.
>
> Information on supply and demand, market value vs. replacement cost,
> aggregate mortgage debt, etc. would be a better place to look for
> answers.
>
> Many of those who have done the work on these types of information
> are calling a bottom in housing right now.
On Nov 04 04:03 AM Nettligent wrote:
> House is a piggy bank, not ATM machine, where you come home after
> a long days at work. Great unbiased report on housing price. Kudo
> to Michael D. White. Housing market will hit bottom in 2011 or after
> job improvement or whichever comes first. Do not exepct a crazy time
> for housing market again.
On Nov 04 06:05 AM Brass wrote:
> It's the second chart which amazes me. The Govt now holds 90% of
> the mortgages and the banks are off the hook? And whatever happened
> to all those CDO's Wall $treet sold to the rest of the world?
On Nov 04 09:04 AM sickofthehype wrote:
> The Fed will not stop until asset appreciation is locked in, and
> huge inflation will take care of this. New housing is virtually
> non existent and with out million per year household creation at
> some point the inventory will be sucked up as it's already started
> to occur in the hardest hit markets.
>
> This article represents clueless to a high degree, and anyone that
> can connect a few dots realizes that we're past 'the bottom'. Not
> to mention, imagine trying to capture a 5.00% 30-yr loan 3 years
> from now. Good luck.
On Nov 04 09:14 AM receipt wrote:
> Living in the Midwest, it has been my experience that not only rising
> real estate taxes but also exploding costs of maintenance services
> are dramatically increasing the total cost of home ownership, leading
> to a collapse of demand for residential real estate. It's a very
> sad commentary on the government's alleged CPI statistics when fees
> on my condominium increase 20% in one year, home insurance skyrockets
> 11%, and I'm told there has been no increase in the cost of living
> nationwide. However, the real impact on residential real estate
> has been a realization by what's left of the middle class that they
> simply cannot afford to own a home nearly as large as the one they
> could afford in the 1980's or 1990's.
>
> On Nov 02 11:00 PM Peter Mycroft Psaras wrote:
On Nov 04 09:55 AM MarkitWacha wrote:
> long-term, people are in for a rude awakening.
>
> Property values only go up if there is an increase in demand. That
> is NOT happening. The birth rate of the US is just enough to sustain
> our population, nothing more. It would be negative without immigration.
>
>
> The people who invest in real estate and expect values to go up need
> to face the facts that we're in a rising interest rate environment,
> which will boost costs on a mortgage tremendously.
>
> These two factors will hold down demand for possibly decades.
>
> full disclosure: I invested in real estate while down payments were
> low 5 years ago.
On Nov 04 10:12 AM tuj wrote:
> Funny how you don't mention that more than 50% of the housing market
> loans were ALWAYS government-sponsored. Its been that way for years.
On Nov 04 10:54 AM LongTermTrader wrote:
> Nom De Plum has a good point:
> "The trend line for prices is not relevant unless you incorporate
> some metric for average interest rates. Price is a function of interest
> rates."
>
> If prices are really a function of interest rates (and I'm not sure
> there is lots of evidence to that theory), then since interest rates
> are near record lows now--if rates increase to historical average
> rates of the past--won't that mean prices will go down?
>
> Of course, if China continues to push our short term rates to near
> zero, then maybe prices won't go down, because of higher interest
> rates.
On Nov 04 01:24 PM Nettligent wrote:
> The wortst has yet to come. Time to face a painful reality: while
> foreclosure is up nicely, house price has to come down further more
> and stay down for a very long time, whether you like it or not.
>
> Home is a place for you to come to after a long day. Home is American
> dream. Home is a Piggy bank, not ATM machine or speculative investment.
>
> No Job. No Money. No Honey. No Health Insurance. No Retirement. No
> More Crazy and Stupid Housing spins.
On Nov 04 02:57 PM Alpha Omega wrote:
> Comparing the current period to previous periods in US housing is
> inherently futile. Housing consistently underperformed as an asset
> well into the 1980s in most areas. There were numerous and complex
> reasons for this. One of the chief reasons was a rubber stamp for
> building permits in most areas. Cheap land and lax environmental
> restrictions also played a big role. These factors no longer exist
> in most major cities, especially on the coasts. Add to this the progressive
> concentration of high-paying jobs in and around attractive big cities
> and you have the formula for a deviation in the housing market from
> prior norms. This is all fairly obvious, and undermines any attempt
> to sell a reversion to mean argument overall. In areas without a
> substantial base of high-earners chasing a limited number of desirable
> properties the reversion could well occur. However, most major urban
> areas are not overpriced when compared to similar areas internationally,
> and given the fact that choice land is mostly built out and new construction
> very expensive and highly regulated, one would not expect huge future
> declines in areas with diversified economies. Of course, if the macro
> situation deteriorates and a true depression were to ensue, any declines
> you care to imagine would be possible.
On Nov 04 03:50 PM Jeff Nielson wrote:
> This is MUCH more than a simple T/A argument. The extreme decoupling
> of house prices from INCOME has always guaranteed that house prices
> would fall ALL THE WAY BACK to a price level which can be SUSTAINED
> with current (falling) income levels.
>
> It is simply one of a VERY long list of reasons why there is another
> (even more vicious) down-leg ahead for the U.S. real estate sector
> - to be added to the other reasons: millions of empty homes HIDDEN
> from the market, and the NEXT spike in mortgage resets about to start
> (and then last for TWO YEARS).
>
> Talking heads who claim that the U.S. housing market has "bottomed",
> or even that it WILL "bottom" some time in 2010 simply don't have
> the slightest grasp of fundamentals in this market (nor the ability
> to even perform simple arithmetic).
>
> Did I mention that U.S. baby-boomers need to raise about $1 to $2
> TRILLION dumping real estate to make up the gap in their under-funded
> retirements (and real estate comprises 75% of their total assets)?
>
On Nov 03 08:36 AM Thomas Smicklas wrote:
> Speculation.
>
> One factor determining property value is what it will produce if
> rented. The rule of thumb for general discussion is rent should be
> 100x the value of the home. If (when) inflation kicks up, this will
> impact property values more than a graph. One would reason that inflation
> should bump up rents. However, if job destruction under the present
> economically challenged Congress continues, all bets are off.
On Nov 04 05:52 PM Dean M wrote:
> It's very unclear how you arrived at that trend line. It almost looks
> like you fit the line to the first 10 years and assumed it should
> apply to the next ten years. If that was the basis of how you drew
> the trend line then I see no value in this analysis. I have seen
> really long term graphs, like 50-100 years - normalized to inflation
> and/or median income, I would welcome a refresh on that type of trend
> to see where we fall in.
newobservations.net/pr.../
thanks for your note. mdw
On Nov 04 04:52 PM StockMasterFlash wrote:
> I see your point based on the chart, but I would also try to back
> that up with a few other metrics
On Nov 04 06:05 PM Michael David White wrote:
> I did draw in the trend line based upon the first ten years having
> greater validity than the second ten years. It's interesting that
> you say my hypothesis for values has no value, but you offer nothing
> of value to support your opinion on values. Here's my opinion: Based
> upon price trends in the past three years, in which we have had a
> catastrophic loss in values, the bubble trend is a bubble and the
> non-bubble trend is a non-bubble. I assumed that the long-trend is
> the non-bubble trend. I hope this explanation has been of value to
> you. I am working on a longer-trend graph. Thanks for your note.
> mdw
www.thepanicnews.com/2.../
On Nov 04 07:55 PM Dean M wrote:
> Sorry ten years is too short of a snapshot to make that extrapolation.
> I'm not disputing your thesis, just your lack of evidence. And I
> don't think it's incumbent on me to come up with an alternate analysis.
>
>
> On Nov 04 06:05 PM Michael David White wrote:
On Nov 04 05:17 PM Danny Furman wrote:
> The 100x rule is not one I've heard before. Applying that to California
> makes housing here overvalued by 40-60% today.
The property taxes are one of the MAJOR reasons for the foreclosure rates . In Florida , the property taxes on a double wide mobile home on a piece of land = $ 2000 . No wonder 36 % of Florida's population lives below the poverty Rate . add to this the 30 Cents/gallon gasoline tax + sky high electric bills , you have disaster . What are the locals doing there now ? Raising property taxes .local , state + federal government retiree pensions must be cut . These folks work 4-5 hours/day max . Need much less of them !
On Nov 04 08:37 PM BostonObserver wrote:
> Interesting. I rent a property for $3k per month that last sold
> for $625,000 in August 2006. I keep wondering when my landlord's
> IO Alt-A Option-ARM nothing-down-act-now-w... mortgage is going to
> reset and put the property into foreclosure... ugh.
On Nov 04 08:41 PM 437339 wrote:
> RE
> The property taxes are one of the MAJOR reasons for the foreclosure
> rates . In Florida , the property taxes on a double wide mobile home
> on a piece of land = $ 2000 . No wonder 36 % of Florida's population
> lives below the poverty Rate . add to this the 30 Cents/gallon gasoline
> tax + sky high electric bills , you have disaster . What are the
> locals doing there now ? Raising property taxes .local , state +
> federal government retiree pensions must be cut . These folks work
> 4-5 hours/day max . Need much less of them !
On Nov 04 08:30 PM Ewtman wrote:
> Some express shock that housing prices could fall another 40%+. I
> would be shocked if they don't. We are in a systemic reset which
> take home prices back to post WWII, roughly 1955 levels. This economy
> doesn't have a cold, it has pneumonia and won't get out of bed for
> a long, long time.
>
> www.thepanicnews.com/2.../
I live in Miami. Enough said.
On Nov 04 09:50 PM einstein p fleet wrote:
> Sellers and lenders continue to drink the Kool-Aid hoping the problem
> will go away, while it gets worse. I think the estimate on the downside
> is low.
>
> I live in Miami. Enough said.
On Nov 04 10:59 PM Jaws wrote:
> i sell real estate in florida for a living. real estate is cyclical
> and we are not at the bottom yet but... 40% seems like an overshoot.
> Take Tampa MSA for example. Current median price is $170,000. This
> would make median house price in tampa for example 0.4 x $170,000
> or $102,000. Assuming one could qualify for an FHA loan, assume 10%
> down which could happen over the course of time because of americas
> huge upswing in savings rate, the mortgage would be ~$92,000. Assume
> higher interest rates of 8% just to be safe and a 30-yr am. Monthly
> principal and interest payments excluding taxes and insurance escrow
> would be $675. I don't know about you but I gotta believe with a
> median mortgage payment of $675 any and all available homes would
> be absorbed extremely quickly and push prices back up again. I say
> 7-12% in many markets and another 20% MAX in the hard hits i.e. socal,
> vegas, phoenix, south florida. Do the math and use common sense.
> Charts are historically informative but anyone whose worked with
> regression analysis knows garbage in, garbage out and to encapsulate
> all relevant variables is impossible (See Brownian Motion).
1)35% of homeowner have mortgages higher than their house values.
2)The amount of 3,5,7 years ARMS that need to be refinanced but can't due to the negative equity in the home in the trillions.
3)The home equity damage a foreclosure does to the surrounding home values.
So now with 10% unemployment.
What happens to house values when the tax credit which represents 30% of home sales goes away in april 2010?
What happens to the artifical low 5% mortgage rate when the government stops buying mortgage back securities? Will the private sector take over?
What happens to all the foreclosures still on the banks books?
A 150-200% bubble appreciation does not correct by 40%. It corrects much more. If it reverts back to the average, let's see...
Say a property saw an increase from 2001-2009 of 200% -- the average says that that property would increase 2 1/2 - 3%, so 8 years x 3% is 24%. If this property reverts to the average that means a correction of about 160%. Considering supply and demand....there is way too much supply now, and the government is paying people to try to create demand.
This doesn't take into account mortgage rates which are being forced down by the 3,000 pound gorilla in the room, Ben Bernanke. No way they would be this low if the government wasn't manipulating markets.
Remember: the last housing bubble is what brought on all this mess. And the default rate (as judged by current payment troubles) of the last first-time home owners fiasco...looks like it will be about 20%.
Commercial real estate continues to break. Mortgage re-sets on the horizon. We are not even close to the bottom in housing prices.
Excellent comments and observations.
I would also like to add that the 200 percent increase you refer to was brought about not by the intrinsic increase in property values, but by the "inflationary" effects of abused credit dumped into the real estate markets.
Two things cause inflation - Ben's printing press and banks abusing credit. Both of them have the same result. It is easy to see how housing prices will fall another 43 percent or more now that abused (easy) credit has ended. The Fed's bet is that they can hold prices up by pumping their money into the market. But the fact remains, abused credit is abused credit and it doesn't matter the source - the Fed or your local savings and loan.
The trendline above is arbitrary, and inflation is a wild card.
Government intervention seems assured for now, so long as the US can sell bonds internationally. Of course, a collapse in US bond prices (rising interest rates) will set up a whole new concatenation of trend lines.
On Nov 03 04:00 PM Michael David White wrote:
> I am going to get to work on a longer-term analysis. Thanks for your
> note. mdw
That ratio has increased steadily over time, so to suggest there would be a mean reversion based on price alone is not borne out by this more predictive ratio.
If the income-to-value ratio long-term trend holds firm, we are at, near or below the long-term trendline (mean) depending upon which market you want to discuss. Specifically, markets like Miami, Phoenix and Las Vegas are below the line.
In English, the average house in those markets is priced at or below its investment value (you can actually buy, rent and get positive cash flow).
I think everyone should read:
A Cautionary Housing Tale from Japan
www.bullnotbull.com/ar...
In general people should not be spending more than 30% or so of their income on house expenses.
If you spend more how do you have additional funds to save for retirement. Owning a house should not be debt slavery. it is not worth it. Just ask all the homedebtors that bought into that propaganda in past 5 years. many wished they just rented now.
Do not listen to the scammers peddling real estate. These same scammers were saying just a few years ago it was a great time to buy and sell real estate. LOL!!!!
These scumb@gs have lost all credibility with me.
On Nov 05 12:44 PM MarketVViz wrote:
> Interesting to see so many that don't think real estate prices will
> go much lower. I'd say the major thing keeping prices stable at all
> is the low interest rates. As soon as interest rates go up, housing
> becomes less and less affordable, this will force prices down. I
> don't know why so many people think that a house that sold for $200,000
> in 1999 should be worth $400,000 today just because it sold for $430,000
> at the peak. Its still a $200,000 house plus inflation, give or take
> a few thousand. If you want to know what your house will likely sell
> for in a few years, look at what prices were in 1999. You can add
> to that for inflation if you want, but the truth is, nearly all bubbles
> correct BELOW trend on the downside, so prices will likely be lower
> than 1999 in real terms.
>
> I think everyone should read:
> A Cautionary Housing Tale from Japan
> www.bullnotbull.com/ar...
And 'many' is more than five or ten. I've lived in San Diego since 1961.
On Nov 03 07:42 PM Michael David White wrote:
> Isn't all of San Diego built out?
Sold my wildly overvalued CA house early 2007 and haven't looked back. Real estate taxes, repairs, insurance, lawn care, vermin in the crawl space, plumber, pool, window leaks the list does go on and on.
At least you don't have a mortgage, you have to live somewhere.
On Nov 05 01:45 PM dizzyfingers wrote:
> Hammer, I am with you. We're 65 and 66, retired, mortgage paid off,
> but with rising property taxes though values are declining, I wish
> we had never got into the housing market but had rented for the last
> 35 years. We don't own the house, it owns us, and the expenses are
> endless. Would never do it again. If we have to sell for whatever
> reason, we'll never get what we've put into the place, no matter
> how big a bubble there is. Boomers will be trying to sell soon. On
> top of the 8 million excess units, that'll further depress the market.
> I don't see a big generation coming along who'll be able to afford
> homes. Factor in the loss of manufacturing jobs over the last decades,
> topped by unemployment that I believe will linger far longer than
> is being predicted, and the future looks rather bleak.
On Nov 05 12:40 AM StockTraderX wrote:
> Claim: "Mortgages of origin before 1997 are not part of the risk
> equation". Why? I think they are under risk. Anyone holding any fixed
> rate loan is under danger.
>
> Case Shiller index is a good indicator. We have a long term inflation
> trend. Recently homes have appreciated much faster than inflation.
> If deflation hits, they will be waaay over valued. And remember,
> these case-shiller long term trend itself is over valued. I will
> explain now.
>
> The problem we are facing is not about jobs or housing crash or stock
> market crash. The real problem is the slowdown in borrowing. Let
> me explain.
>
> When we borrow, banks create money. They do not lend existing money.
> Here is how banks create money:
>
> tradingstocks.net/html...
>
> This new money makes the economy feel good. Governments have encouraged
> borrowing to postpone recession and deflation for decades. To do
> this they made mortgages more attractive. They allowed mortgage interest
> deduction, then when they ran out of prime borrowers, they allowed
> sub-prime, because they needed more people in the ponzi scheme. They
> removed 20% down requirement, because that way more money would be
> borrowed and injected into the economy. Then they ran out of borrowers
> again. And the music has stopped:
>
> tradingstocks.net/html...
>
>
> Now bank credit is deflating for the first time since many decades:
>
>
> tradingstocks.net/html...
>
>
> Most of our money supply is borrowed from the banks. When we borrowed
> we promised to pay back principal + interest. The principal portion
> was created when we borrowed. Interest portion is not even created
> yet. It was supposed to be created with even more borrowing. When
> the money supply does not expand exponentially, it will be impossible
> to earn enough money to pay back principal + interest. This is why
> some of us are going bankrupt. This is why even old mortgages will
> be in danger. This is why government is begging you to borrow and
> buy a home. They pay you to do that!
>
>
> This is why case shiller index trend line itself is over priced.
> The credit inflation dates back 70 years. Case shiller index has
> not measured any time period that had deflating bank credit. It will
> be a first. The crash will go into history books. Government will
> probably print alot of money and will offset some of the decline,
> alas, there is no free lunch. An entire nation cannot borrow for
> 70 years and then hope that all will be fine when the pay back time
> arrives. Debt will be paid off. It cannot be avoided. FED can print
> money and pay it off, but even in an inflationary collapse, nominal
> home values can go down and when measured against "things" home values
> will be much lower.
On Nov 05 08:29 AM User 409047 wrote:
> I just came back from a 4 hour housing forecast for 2010 and was
> shocked at the housing numbers. A few things that stood out:
>
> 1)35% of homeowner have mortgages higher than their house values.
>
> 2)The amount of 3,5,7 years ARMS that need to be refinanced but can't
> due to the negative equity in the home in the trillions.
> 3)The home equity damage a foreclosure does to the surrounding home
> values.
>
> So now with 10% unemployment.
> What happens to house values when the tax credit which represents
> 30% of home sales goes away in april 2010?
>
> What happens to the artifical low 5% mortgage rate when the government
> stops buying mortgage back securities? Will the private sector take
> over?
>
> What happens to all the foreclosures still on the banks books?
On Nov 05 08:42 AM Michael Clark wrote:
> Michael: I'm following you now. I think you are right.
>
> A 150-200% bubble appreciation does not correct by 40%. It corrects
> much more. If it reverts back to the average, let's see...
>
> Say a property saw an increase from 2001-2009 of 200% -- the average
> says that that property would increase 2 1/2 - 3%, so 8 years x 3%
> is 24%. If this property reverts to the average that means a correction
> of about 160%. Considering supply and demand....there is way too
> much supply now, and the government is paying people to try to create
> demand.
>
> This doesn't take into account mortgage rates which are being forced
> down by the 3,000 pound gorilla in the room, Ben Bernanke. No way
> they would be this low if the government wasn't manipulating markets.
>
>
> Remember: the last housing bubble is what brought on all this mess.
> And the default rate (as judged by current payment troubles) of the
> last first-time home owners fiasco...looks like it will be about
> 20%.
>
> Commercial real estate continues to break. Mortgage re-sets on the
> horizon. We are not even close to the bottom in housing prices.
On Nov 05 09:36 AM bottoms-up wrote:
> Michael Clark:
>
> Excellent comments and observations.
>
> I would also like to add that the 200 percent increase you refer
> to was brought about not by the intrinsic increase in property values,
> but by the "inflationary" effects of abused credit dumped into the
> real estate markets.
>
> Two things cause inflation - Ben's printing press and banks abusing
> credit. Both of them have the same result. It is easy to see how
> housing prices will fall another 43 percent or more now that abused
> (easy) credit has ended. The Fed's bet is that they can hold prices
> up by pumping their money into the market. But the fact remains,
> abused credit is abused credit and it doesn't matter the source -
> the Fed or your local savings and loan.
newobservations.net/20.../
On Nov 05 10:16 AM Laurence Hunt wrote:
> This sums it up for me.
>
> The trendline above is arbitrary, and inflation is a wild card.<br/>
>
> Government intervention seems assured for now, so long as the US
> can sell bonds internationally. Of course, a collapse in US bond
> prices (rising interest rates) will set up a whole new concatenation
> of trend lines.
>
> On Nov 03 04:00 PM Michael David White wrote:
On Nov 05 11:54 AM jsc173 wrote:
> A much more meaningful mean reversion discussion is the income-to-value
> ratio (e.g., how much of gross income we allocate for housing).
>
>
> That ratio has increased steadily over time, so to suggest there
> would be a mean reversion based on price alone is not borne out by
> this more predictive ratio.
>
> If the income-to-value ratio long-term trend holds firm, we are at,
> near or below the long-term trendline (mean) depending upon which
> market you want to discuss. Specifically, markets like Miami, Phoenix
> and Las Vegas are below the line.
>
> In English, the average house in those markets is priced at or below
> its investment value (you can actually buy, rent and get positive
> cash flow).
On Nov 05 12:44 PM MarketVViz wrote:
> Interesting to see so many that don't think real estate prices will
> go much lower. I'd say the major thing keeping prices stable at all
> is the low interest rates. As soon as interest rates go up, housing
> becomes less and less affordable, this will force prices down. I
> don't know why so many people think that a house that sold for $200,000
> in 1999 should be worth $400,000 today just because it sold for $430,000
> at the peak. Its still a $200,000 house plus inflation, give or take
> a few thousand. If you want to know what your house will likely sell
> for in a few years, look at what prices were in 1999. You can add
> to that for inflation if you want, but the truth is, nearly all bubbles
> correct BELOW trend on the downside, so prices will likely be lower
> than 1999 in real terms.
>
> I think everyone should read:
> A Cautionary Housing Tale from Japan
> www.bullnotbull.com/ar...
On Nov 05 12:58 PM The Hammer wrote:
> In many parts of the country it is still cheaper to rent by a nice
> margin. some of the areas that are taking 50%+ falls are now competitive
> with rents. Who the hell wants to rush in an buy when the governemtn
> and banks are making every attempt to withhold foreclosures by price
> manipulation. Do not be fooled by this. Owning a house is expensive
> especially the taxes and upkeep. factor all this in when deciding
> to buy. A house is not an great investment after you pay years of
> interest payments and taxes and upkeep expenses. You want to get
> a fair price.
> In general people should not be spending more than 30% or so of their
> income on house expenses.
> If you spend more how do you have additional funds to save for retirement.
> Owning a house should not be debt slavery. it is not worth it. Just
> ask all the homedebtors that bought into that propaganda in past
> 5 years. many wished they just rented now.
> Do not listen to the scammers peddling real estate. These same scammers
> were saying just a few years ago it was a great time to buy and sell
> real estate. LOL!!!!
> These scumb@gs have lost all credibility with me.
On Nov 05 01:45 PM dizzyfingers wrote:
> Hammer, I am with you. We're 65 and 66, retired, mortgage paid off,
> but with rising property taxes though values are declining, I wish
> we had never got into the housing market but had rented for the last
> 35 years. We don't own the house, it owns us, and the expenses are
> endless. Would never do it again. If we have to sell for whatever
> reason, we'll never get what we've put into the place, no matter
> how big a bubble there is. Boomers will be trying to sell soon. On
> top of the 8 million excess units, that'll further depress the market.
> I don't see a big generation coming along who'll be able to afford
> homes. Factor in the loss of manufacturing jobs over the last decades,
> topped by unemployment that I believe will linger far longer than
> is being predicted, and the future looks rather bleak.
On Nov 05 02:10 PM rpboxster wrote:
> I agree. It's like NASDAQ 5000. Just because it hit some "market
> value" number in 2007 doesn't mean it has to ever reach that point
> again soon. Funny you mention 1999, because that is almost exactly
> what houses in Detroit metro area are selling for now....Besides
> low interest rates, it was exotic mtg products that let people "afford"
> homes in the last 8 years.
On Nov 05 02:30 PM rlreber30t wrote:
> Not at all. The outlying areas of San Diego county have many open
> spaces. (Don't move here. The weather is terrible!) I'm going to
> wait another six months to a year, though. I believe prices will
> continue to fall. No numbers, just observations. I know way too
> many people with 25+ years in good paying trades looking for work.
>
> And 'many' is more than five or ten. I've lived in San Diego since
> 1961.
>
> On Nov 03 07:42 PM Michael David White wrote:
On Nov 05 07:00 PM John Hagelgans wrote:
>
> Sold my wildly overvalued CA house early 2007 and haven't looked
> back. Real estate taxes, repairs, insurance, lawn care, vermin in
> the crawl space, plumber, pool, window leaks the list does go on
> and on.
>
> At least you don't have a mortgage, you have to live somewhere.
>
>
> On Nov 05 01:45 PM dizzyfingers wrote:
On Nov 05 11:46 PM Mr. Ed, Jr. wrote:
> "Catastrophe" does not begin to describe the financial carnage that
> comes with a 43% fall from here. If housing falls another 43 %, we
> are Iceland. On crack.
On Nov 04 08:41 PM 437339 wrote:
> RE
> The property taxes are one of the MAJOR reasons for the foreclosure
> rates . In Florida , the property taxes on a double wide mobile home
> on a piece of land = $ 2000 . No wonder 36 % of Florida's population
> lives below the poverty Rate . add to this the 30 Cents/gallon gasoline
> tax + sky high electric bills , you have disaster . What are the
> locals doing there now ? Raising property taxes .local , state +
> federal government retiree pensions must be cut . These folks work
> 4-5 hours/day max . Need much less of them !
On Nov 05 11:16 PM Michael David White wrote:
> How long is the drive to the beach from the undeveloped land? I want
> to learn how to surf and live on a farm. Thanks for your note. mdw
>
On Nov 06 10:43 AM Dave Shafer wrote:
> Funny, my property taxes on a 3/2 cement block house, one block from
> Tampa Bay is $1300.