U.S. Housing Market Forecast: 2008-2010 14 comments
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US house prices continued to plunge for April 08 data, reaching an extreme low reading of down 16.3% on a year earlier as measured by the S&P/ Case-Shiller Composite-10 and down more than 19% from the mid 2006 peak. The rate of decline is the worst since the Great Depression and signals further distress in the real estate linked credit markets and therefore a continuing drag on the US economy in the face of the continuing deleveraging of the mortgage backed derivatives markets.
The housing market trend suggests that the annualised rate of house price falls could bottom at minus-18% for the July S&P/Case-Shiller house price data, therefore suggesting a continuation of the weakening trend in US house prices for the next 3 months (May, June, July data), after which the pace at which US house prices are declining 'should' improve as the current momentum is unsustainable beyond July 2008 due to sharp declines from a year earlier factoring into the annualised house price figures.
click to enlarge images
By the end of 2008, the annual rate of house price falls should slow to about 13%. Whilst it is not possible to forecast a bottom in the US housing market at this stage of the bear market, it is possible to come to the conclusion that most of the decline in nominal house prices is now behind us on the basis of analysis of the continuing decline in real-term house prices which suggests that a stabilising US housing market during late 2009 and 2010 will mask the continuing real terms inflation adjusted fall in the housing market valuations for several more years that will in effect have the impact of eroding all of the gains since the 1989 peak and reducing the gain from the 1994 low from 131% to just 40% by the end of 2010 as the below graph illustrates.
When to Buy? - The time to start contemplating buying real estate again will be after the US housing market has made a nominal bottom in house prices and at the time US house prices start to increase in real-terms as the BUY / SELL signals above illustrate. As per this analysis, there is no sign of a BUY trigger occurring within the next 2 1/2 years.
Presidential Election - It is unlikely that there will be a significant turnaround in the annualised pace of house price declines by the November 08 election (September data) and therefore the falling housing market will continue to be a major negative factor for the Republican candidate despite the hundreds of billions being thrown at the housing market in an attempt at trying to put a floor under the housing market by reducing the number of foreclosures amongst adjustable rate mortgage holders resetting to higher interest rates.
US House Prices Forecast Summary - Nominal US House Prices are forecast to fall by 30% from the mid 2006 peak by the end of 2010, or a further 11% on the decline of 19% to date. US house prices will continue falling in real-terms even if a low in nominal house prices is made by mid 2010.
For views on the UK housing market see the most recent article UK Housing Bear Market Threatening Economic Deflation
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This article has 14 comments:
The drop not a scary reality to me; I own no home because I saw this coming. The moral hazzard of the modern system, however, is pretty scary.
Inflation will kill any gains in bonds. Stockmarket is not safe either. Consumption of gold has declined significantly in India (the biggest market), and in a recesion you can expect further declines. At some point people will start buing realstate because that might seem the safest place once inflation start so spiral out of control, markets continue to decline and comodity buble burst.
Buying and renting houses will become profitable very soon and it will be safer than stock and dividens.
First, it appears that this article is addressed to the real estate investor. An investor looks for buy opportunities not when prices have hit bottom but when it appears there is a reasonable chance for appreciation. Until that time, investors will put their money to work in other investment vehicles that will provide the returns they are seeking.
Second, the individual home buyer doesn't necessarily need to wait for the absolute bottom because their motivation can be very different such as life changes (household formation, retirement, job relocation, etc.)
Third, the data presented appears to be the US overall. Remember that real estate is location sensitive and the "bottom" will occur in different places at different times.
Finally, if the bottom is in 2011 and I have every reason to believe the data presented, it means huge additional losses in equity. Can you say massive bankruptcies for homeowners and the businesses and governments that rely on the revenues?
Could you explain your statement further, plz? I remember reading that debt becomes worth less during inflationary periods, but if the value of the house is decreasing against paper money, doesn't that cancel it out?
Even if it costs more to make a new house, how will it shorten the time for the housing market to bottom? Are you merely predicting that the home builders will make fewer new houses and so additions to supply will slow down more? I'd think the inability for Joe Average to get a mortgage nowadays compared to the Go-Go-Subprime/Exotic-... days is going to impact the market more than the home builders?
Today's reality is that you must build homes which real people can actually afford to buy and keep. In my NE Georgia Market this is homes ranging from 1200 - 3000 square feet, priced from $100,000 to $300,000 yet for the last 5 years the typical home being built was 2,500-6,000 square feet and the price was $275,000- $750,000 and these homes make up the majority of our current unsold inventory. More affordable homes (under $200,000) are selling at a brisk pace to local purchasers, first time buyers and investors, not commuters.
The reality is different in every market. We were attracting lots of Atlanta commuters but a $15-20 per day cost to commute has changed that dynamic. Our County is not unique. We were one of the top 10 fastest growing counties in the nation but I don't see that pace of growth returning, ever without significant changes in transportation. Our future growth will be jobs and transit driven and urban centers will have significant advantages in that realm due to rail transit and shorter driving commutes.
Look to the "human" factors that make their numbers most always skewed improperly.
Take the home situation now.
Homes are much more than cash or gold or silver. They are a way of life. They are an "attainment" and satisfaction of worth. They are the "nesting" instinct of women. and the security of men.
It's not a home crisis, its a banking lending crises. And that crises has had a more pronounced impact on homes than most other "things"
The banks and lending institutions will be the sufferers. Homes have a very definite and intrinsic value. Their value is what it costs to build and the relative scarcity of the dirt underneath them.
The scarcity of the dirt continues upward. Regardless of the prices of home units. Now materials are affected upwards. The value is the value. The value of money is much more relative than the value of a commodity. a house being a really special kind of commodity.
Home values have already fallen below where they "should" be.
That doesnt mean they wont fall down further tho. In crises people react more rabidly than what is normal.
So I predict that homes have already bottomed. And will rise fairly slow to start and then have a rather nice "spurt" and then level off.
Should we wait for the prices to bottom out? Nope. I do not want to wait for the upward trend and get into a bidding war with other buyers. Pluse there is a wide selection of bargain houses to choose from. So I am buying now that its as easy as pie.
Let me tell you about my experience. I am a single guy with practically no cash. I do have good credit. Today is January 30th, 2009. I live in West Palm Beach, FL. Lots of houses to choose from. So I researched for a few weeks to make the best selection. I found a real estate agent that is not going to charge points. Plus the mortage company added on the closing costs to the loan amount. I hope to get a 5.25% rate 30yr fixed. They are eager to sell. So for less than $3k out of pocket I am buying more than 2100 sq/ft livable space, 5bd, 3ba, new roof, big lot, plenty of parking space in the front, next to a major mall, next to lakes, next to a county-managed recreational park, 15min drive to the beach. The signed sales contract was $91k. The down side is that the house was not kept properly. So what? I have to spend another $15k on remodeling/repairs, most of which I can do myself over the next 12 months. My guess is that I will end up with a house that will be valued more than $200k by 2011. To say that home values are underpriced is stating the obvious.
So if you own a house, don't sell it in 2009. But if you have the ability to buy a house this year.... do it. Whether for a sale in the future, or to rent it out, or for your kids, all of 2009 is the time to buy.
americod_perez@hotmail...