Housing Prosperity Just Around Corner? I Don't Think So

I can't help but note the similarities between the dotcom-crash rhetoric/predictions back in 2000 and the housing-crash rhetoric/predictions in the last 12 months.

Those of you who had the misfortune to live through the dotcom crash will recall that I and other analysts correctly predicted that there would be a slowdown and shakeout, but drastically underestimated its severity and duration. All the way down, we kept revising forecasts (read: cutting estimates) to previously inconceivable levels, and each time we cut them, we reiterated our expectation that the inevitable trough and upturn was about six months away. It wasn't until two years after the shakeout began, when half of online advertising revenue had evaporated and more than 75% of the companies in the sector had keeled over that the downturn finally ended... And by that time, most of us were so demoralized that we'd stopped predicting that there would ever be an upturn.

Housing obviously won't experience as deep a correction as the dotcoms did, but I haven't heard a single persuasive argument explaining why this downturn won't look like every previous housing downturn: i.e., will last a lot longer and drop much farther than most people think--until price/rent and price/income ratios return to or below their long-term trend. Instead, all I hear are arguments like this one, which are based not on long-term historical trends, but on short-term bubble-year pricing and price trends (arguments I am very familiar with, having made similar ones in late 2000 and early 2001):

WASHINGTON -- The National Association of Realtors again lowered its U.S. housing market forecast for this year, saying the market remains "soft." In its latest forecast for the real estate market, NAR projected that existing home sales will fall 4.6% this year to 6.18 million, compared with its previous forecast of a 2.9% decline. New home sales are expected to plummet even further. The NAR said new home sales are likely to fall 18.2% to 860,000, compared with the prior forecast of a 17.8% drop. While near-term prospects for housing remain fairly grim, NAR said sales should pick up toward the end of the year.

"Overall housing levels are historically strong, but sales remain sluggish compared to the recent boom," said Lawrence Yun, NAR senior economist, in a statement. "Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year," Yun added. Existing home sales are projected to rise 3.7% in 2008, to 6.41 million, according to NAR's forecast.

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Comments

[LeeCarlson]

We have seen the biggest slow down in the housing market in Fl,..more than any other state.
Two reasons, ..INVESTORS thought everything in Fl was underpriced and so bought everything in sight about 2-3 years ago,..and paid full price and immediately put it back on the market at a very much higher price. The next buyer to come along was another investor who again paid the full asking price and placed it again, right back on the market ! I have seen the same condos resell 3 times in a year at progressively higher prices ! This was just plain stupidity on the Investors part ! Not using good judgement at all ! Appraisers were also part of the problem, they would approve just about anything !

The second problem was all the Mortgage brokers who gave adjustable rates loans without regard to the credit worthyness of the buyers, and now the rates have adjusted to much higher interest levels,...the result was predictable. We have thousands of listings available at inflated prices owned by sellers who are just trying to get their money back ! Fat chance !! One look at a Sunday paper will show you that half the ads. are Auctions, or Forclosures !

There are now four times the number of listings on the market as compared to "Normal levels", and half the number of buyers !! Also, Insurance costs were raised dramatically to outrageous levels and taxes also had huge increases because of the higher prices paid, and so now, the average working family is priced out of the market and the brilliant investors have left the state, with their listings on the market, ...sitting empty,..while the out of town owner hopes for another sucker to pick up their overpriced property !
After selling in this market for 26 years, my opinion is that it will take at least 2-3 years for the market to readjust to reasonable levels !!
My opinion of most investors isn't very high !! They have a "Herd" mentality ! If their friend Joe Blow, made one good deal, then everybody with a few extra bucks jumpes on the same bandwagon ! No thought given to the realities of the market, just do it because their friend did it once and made out ok !
Four to five years ago, a small home or condo in FL sold for about $100-$125 per sq. ft. Today the asking prices are in the range of $500. per sq. ft. ! BUT THEY AREN'T SELLING !!! Is it any wonder !
A "Market Analysis" means nothing to these investors.
Even Donald Trump bailed out ! But he was smarter than most investors, he contracted to simply lend his name to a development and to take a percentage of the profit,...no real investment in terms of money at all ! Now that's smart Investing !! People could learn a lot from Mr. Trump !
L. Carlson, Clearwater, FL

[sunilny007]

So NOW we're listening to Blodget? Hahahaha

This guy was the posterchild of excess during the Internet bubble and I remember his totally stupid calls.

And now he's going to tell us about the future in housing

If Blodget says sell, I say BUY!!!!!!

[LeeCarlson]

Sunilny007,...
Great,...I have a bridge I would like to sell to you also !
There is a lot of property to buy,...but I strongly urge you to do some homework ,..like what will your return on investment be ?, and ,..will you be able to sell what you buy ?? It's guys with attitudes like yours that buy anything offered and then blame the Realtor if it doesn't work out the way you hoped !! Go for it !!! If you haven't alredy lost all your money !
L. Carlson

[buister]

Lee Carson's story reminds me of California's 1989. It took us 5 years to get back to the appreciation territory. This time around it looks and feels very similar, so we better hang on for a long ride. However, Blodget's comparison of the housing market with the dot.com economy is just coocoo!

[Yev]

I have to disagree completely with your assesment. If you know anything about the stock market you will know that the dot.com crash happened to the complete disconnect between prices and fundementals of the companies. The RE market is in the exactly the same state at the moment in most markets.
- Salaries do not support housing prices
- Ridiculous loans have been handed out to "owners"
- Inventories are soaring
- Buyers are not committing
- Lending guidelines are tightening
- Rates are going higher
- etc, etc, etc

here is a good video to illustrate the problem
www.youtube.com/watch?...;ref=patrick.net

Do not even kid yourself that this market is the same as before. A large problem people have is understanding the problem when its staring them in the face. Stop drinking the kool-aid and do your homework.

[LeeCarlson]

Thanks G K ,...We are both on the same page and I totally agree with you. !!
After the dot.com. bust those that had any money left started putting into Real Estate and
overpaid tremendously. As you said, they didn't even consider the "fundamentals ".
In FL alone,..there are 4 times as many homes on the market than ever before and half the historical number of sales. Home Prices are already taking big cuts and still not selling as there are still way to many on the market and buyers have so many homes to choose from, it's mind boggeling !
I have had numerous people ask me for help in getting out of contracts in which they paid around a million $$$ for an 1100 sq. ft. condo. and put 10-20 pct. Dn. but changed their mind and now want to get out of the contracts. !! Fat chance !!
Many thanks,
Lee Carlson