How Much Have our Real Estate Assets Gone Down?

The ways of Wall Street are a mystery to many of those on the outside. For insiders, this is not necessarily a bad thing. They can use their superior knowledge and understanding to take advantage of those who haven't been properly schooled in what things mean and how they work.

Regardless, even those who might not be able to grasp certain concepts and perspectives that have not been spelled out in clear and convincing detail can look at an eye-catching chart pattern and get the gist of what it means. In "The Almost Daily 2¢ - A Picture Says Over 300 Billion Words," the Paper Economy blog offers up a great example.

click to enlarge

Comments

[stockmarket...:]

If accurate, that is a shocking chart.

If wealth destruction like that doesn't put us in a serious recession, nothing will.

A frightening thought just entered my mind....Nouriel Roubini might be downplaying the risks.

2008 Sep 14 07:20 AM

[lepso:]

We have a house in FL, it was placed on the market for $250,000 in2004 and did not sell. From there on, prices listed went down to $172,000 for a similar house next door. It sold at that price. The reduction is 30%. Yep, the graph is right, at lest for this place (North of Tampa, Land O Lakes area)

2008 Sep 14 08:45 AM

[logicalthought:]

Can someone please help me interpret that chart? I'm guessing that this is in constant dollars with the "0" line menaing one is just keeping pace with inflation, yes? So if I'm right, then a normal housing peak provides a 150% gain, after which inflation and/or the ensuing nominal decline means a reversion to the "0" line, yes? So does this now mean that it's time for "mean-reversion" in a positive sense?

2008 Sep 14 09:04 AM

[Rhett:]

The sky is falling, jtjt.

2008 Sep 14 09:08 AM

[carey_jim:]

It's interesting to me, who owns SRS the ultra short real estate fund, that SRS is near a one year low of around 80.

For all the bad real estate news it seems a little odd that I can't make any money from it a fund that shorts the real estate sector.

Maybe the real estate market isn't as bad as the pundits say it is. (However, while I hold SRS, I hope it is worse than they say it is and I hope it gets worse more quickly and consistently than it has during this "terrible" year for real estate.)

2008 Sep 14 09:53 AM

[notsosmart:]

i bought my house for $76,000. its selling price at the high was app.$565,000.now app $490,000.does all this matter.not one bit. its paid off(20yrs on a 30 yr mtg.)& i never took a heloc. its not an asset or an investment. its the roof over my head & i secured it away from the greedy moneychangers as fast as i could.a house is a liability.not an asset.they fool every body so they can collect interest.some sheeples end up paying interest to 3 different financial entities

2008 Sep 14 10:36 AM

[davidma11:]

How much has real estate assets gone down? The question fails to ask over what period, over a 10 year period real estate assets are still up. In a shorter period of time say over the last 3-5 years they are down sharply. A bigger concern is all the leverage that was applied over the last decade: Govt, Corporation and Individuals leveraged up like never before. We are in a period of deleveraging most of it forced which is deflating prices. The question that is yet to be answered is how does government raise taxes without adding to the downward economy and housing prices?

2008 Sep 14 11:28 AM

[LouieK:]

Methinks this is a made-up graph. Besides the observations already made, the Fed would not label such a graph with the word "Household's" but "Household." The same for "Non-profit Organization's." I think it was meant to be used as shock value, as pointed out already, but with a possible cover of saying this is really meant as a joke.

2008 Sep 14 12:11 PM

[LouieK:]

OK, I looked this up. I didn't see this graph but I did see a table. Real estate values were going up at a lesser pace in the first 3 quarters of 2007 and fell about 121 billion in the 4th Q and then fell again in the first Q of 2008 another 300 billion or so. That is in a value of over 22 trillion for real estate. It is unusual to see such a fall in the context of the table which goes back to end of 2001, but clearly values of real estate have gone upwards so much since 2000, that the fall in value is overwhelmingly not as great as the rise in the values since 2000 where the real estate values stood at 13.6 trillion. See Federal Reserve B.100 Balance Sheet of Households and Nonprofit Organizations (1)
Billions of dollars; amounts outstanding end of period, not seasonally adjusted.

2008 Sep 14 12:35 PM

[xpatUSA:]

That's quite a graph. Seems to show:

The departure of the dollar from the gold standard in the 70's
The creative real estate financing from the late 90's
And, of course, the collapse of same - starting c. 2005

T.C.

2008 Sep 14 12:52 PM

[Dr Jones:]

For those who are wondering how long the current real estate downturn will continue... here is a simple explanation. As the foreclosure rate continues to climb, (mostly due to sub-prime loans) additional inventory will be added to a swelling backlog of properties. This is likely to continue for the next 12-18 months. Remember that the greatest number of 'sub-prime' mortgages were written during June, July and August of 2006. Five (5) states; AZ, CA, FL, MI and NV, made up the highest percentages of these types of mortgages. Please keep this in mind if you are considering purchasing real estate in these states. The primary features of these hybrid mortgages included little or no-down payments and an adjustable interest rate, scheduled to increase monthly payments within 2 or 3 years.

This interest re-setting process is now in full swing; evidenced by an acceleration in foreclosures nationally (who knew). This condition tends to dump more real estate on the market, pushing property values continually lower.

The good news is that this cycle will eventually reverse. Before it does, two (2) important things must occur: 1st - foreclosures must slow to a trickle. When that happens, property values will start to level off, encouraging buyers to get back in the game. 2nd - and just as important, the Federal Reserve must make mortgage dollars (liquidity) available to banks and lending institutions, at reasonable rates, providing a critical element to finance these new purchases. Until those two (2) milestones have been reached, it's a good idea to keep your cash in the bank.

The bad news is simple... but the timing is somewhat more difficult to pinpoint. No one really knows how long this downturn will last or when credit standards will start to loosen up. Allot depends on how long this recession lasts and how much of a beating that banks and lending institutions take. One thing is for sure... the market always bounces back... and it will again.

2008 Sep 14 04:18 PM

[notsosmart:]

just because people are ready to buy does not mean they are going to qualify for a mortgage at this time.

2008 Sep 14 04:50 PM

[long_on_oil:]

You can bet that in the near future mortgages will be scrutinized more closely than in the past. Thus making them harder to obtain. But as the Fed adds liquidity the whole process will start all over again sometime in the next 10 years. Isn't it amazing how history repeats itself...lol
And another point, simple supply and demand economics controls the housing market. More houses than people=lower prices, more people than houses=higher prices, thus the housing crisis becomes localized.

2008 Sep 14 11:14 PM

[San Diego L...:]

Interesting graph. For similar graph for San Diego California over the last two years, I would suggest one look at the 9-10-08 post "The San Diego California Real Estate Great Depression" it can be found at:
www.brokerforyou.com/b.../

2008 Sep 15 02:08 AM