Seriously, folks, who is still out there today shopping for a house? OJ Simpson jurors? Hermits? America's Top Model viewers? Masochists?
This bubble's toast.
Housing prices, slumping after a five-year boom, are projected to decline in more than 100 metropolitan areas, with the Northeast, Florida and California among the areas hardest hit.
The forecast by Moody's Economy.com, a private research firm, presents one of the starkest views yet of the U.S. housing slowdown that has been gathering force in recent months.
The forecasting firm projects that the median sale price for an existing home will decline in 2007 by 3.6%, which would be the first decline for an entire year in U.S. home prices since the Great Depression of the 1930s.
The forecast is included in a 195-page report, "Housing at the Tipping Point," which The Associated Press obtained before its general release Wednesday.
The report projected that 133 of 379 U.S. metropolitan areas would suffer price declines. Those areas with declining prices account for nearly half the value of America's stock of single-family homes.
Some analysts are worried that the slowdown could become so severe that it could drag the country into a recession, much as the bursting of the stock market bubble in 2000 led to the 2001 economic slump.
The 133 areas with slumping prices are concentrated in California and Florida and the Northeast corridor from southern Maine to just south of Washington, D.C., as well as boom areas of Nevada and Arizona and some depressed sections of the Midwest, such as Detroit.
"Prices are going to go down and stay down for a while. It will take at least a couple of years to work off the excesses of the last decade," said Mark Zandi, chief economist at Moody's Economy.com and principal author of the report.
"Housing's downturn has turned even more dramatic with the rapid flight of the flipper from the market," the report said. "These investors have gone from sending home sales and prices shooting higher to driving sales and prices lower."
October 05, 2006
Forecast: Housing slowdown will result in widespread price declines
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"Dale Doelling, chief market technician, said he expects to 'see some kind of washout in the precious metals and a subsequent capitulation in the financial markets and stocks specifically. When that does occur, it will be time to buy the metals and sell the stock index futures in a big way.'
http://moneyandmetals.blogspot.com/2006/10/gold-sell-off-continues.html
Washington Mutual's New Strategy Raises Credit Risk
NEW YORK (AP) -- Washington Mutual Inc.'s efforts to spice up its home-loan business raise the question of whether the company is trading interest-rate risk for too much credit risk.
In recent months, the nation's largest thrift has moved further away from making government-insured and fixed-rate home loans while focusing more on what it calls "higher-margin" products -- such as option adjustable-rate mortgages, home-equity loans and subprime mortgages.
http://biz.yahoo.com/ap/061005/on_the_ticker_wamu.html?.v=1
People are still buying. You need a place to live and if you like the area and have a job and if it doesnt stretch you too thin, Buy. Rates are sooo low still compared to historical rates.
On the local news in Wash DC. they mentioned this. They had a 3 sentence blurb on it which they read as fast as they could. Something like "housing to go down 12% over the next 12 months in DC markets". No mention of what happens the year after.
Hey! I may be a single woman of a certain age sitting at home with my cats watching that dread show "America's next top model" BUT I am not shopping for a new house.
This is 1987 all over again, except it's hard assets (real estate, commodities) that are crashing and paper assets (stocks, bonds) that are seeing a flight to safety/sucker rally.
I think Dale Doelling is right on the money with his analysis.
The Dow may rally for a short while, but a rally based on a flight to safety is pretty hard to sustain. 3 years from now it'll be back down below 10K and might be testing multi-year lows below 8K. Whereas, 3 years from now, Real Estate might be resuming it's bull market and taking off again. Commodities might start to do that sooner as they are more liquid and have already had 20-30% lopped off their highs right now.
For another example of what is going on right now, take a look at 1973-74. Looks eerily similiar.
Who's looking for a house? People who have to.
People change jobs.
People get divorced.
People die.
People have too many kids.
Stocks don't affect people like houses do. Besides, now is a good time to buy since rates and prices are headed down and selection is at an all time high.
There was an article in the Rocky Mountain News yesterday about 1 bedroom condos being foreclosed on resulting in significantly lower prices. I know a lot of people who would be interested in 30 thousand dollar condos.
Utah Mortgage Blog
anon 12:33:53,
well said!
This has been a sucker play from start to finish.
And it's been a confluence of unfortunate circumstance:
1. Drop the interest rates to fend off recession.
2. Drop lending standards to zero.
3. Pay those who lend immediately and shift liability to some 3rd party.
3. Per the above, liabilities are shifted to pension funds, etc.
If traditional mortgage practices were still in place this would have been a boom - but, that would have resulted in a typical retrenchment which would be manageable. Which is to say, harmful but something we've all seen before.
I don't see low interest rates by the fed as the culprit (though they are the cause). It's got far more to do with unlimited access to credit.
Traditional lending practices force the concept of 'moral hazard' upon the borrower. Current lending practices have exacerbated that by not only shifting 'moral hazard' onwards, but by rewarding those doing the shifting with prize commissions.
It's a cocktail of excess which doesn't need an economist to tell you there's going to be a hangover.
Hic...
As a postscript:
People look to Ben Bernanke (the Fed) & Mervyn King (BoE) and ask why they're not ringing the bells? Or other such nonsense.
Question: Do you really think central bankers should be ringing the bells of threats to the financial system? Stability is the word!
Though:
Greenspan did slip in Shillings Irrational...
King did posit that UK prices could tank up to 25%...
Bernanke did acknowledge that prices were...
Perhaps they're just coy...
As a postscript:
People look to Ben Bernanke (the Fed) & Mervyn King (BoE) and ask why they're not ringing the bells? Or other such nonsense.
Question: Do you really think central bankers should be ringing the bells of threats to the financial system? Stability is the word!
Though:
Greenspan did slip in Shillings Irrational...
King did posit that UK prices could tank up to 25%...
Bernanke did acknowledge that prices were...
Perhaps they're just coy...
Kara Homes anticipates filing for bankruptcy
Posted by the Asbury Park Press on 10/5/06
STAFF REPORT
New Jersey
East Brunswick builder Kara Homes Inc., one of the biggest home builders in Monmouth and Ocean counties, anticipates filing for Chapter 11 bankruptcy, a company official said in a letter given to laid-off employees earlier this week.
Roberta W. Schultz, vice president of human resources and organizational development at Kara Homes, said in the note that the employees' jobs were terminated as of the end of the day Tuesday.
Editor's note: Are you a Kara Homes customer or employee who will be affected by Kara Homes' bankruptcy filing? For information or to talk to a reporter, e-mail Press staff writer David P. Willis at dwillis@app.com or call him at (732) 643-4039.
4.6% decline for Denver and 2.8% decline for boulder expected, which were not hot markets like California and Florida! But it lokks like it could be more and last for 2 years!
Here is a link to Denver post article:
http://www.denverpost.com/business/ci_4443335
According to an article on sfgate.com (like below), the survey doesn't forecast a decline for San Francisco. The east bay, as well as some suburbs, are projected to decline, substantially in some cases.
I'm a little surprised by this, but it weighs in on a question I've asked a few times on this forum: excess capacity and low prices, or tight supply and high prices, which is more prone to a crash?
SF is unbelievably expensive compared to other cities, so it has a long way to fall. But the moody's report mentioned the high incomes and lack of supply or new construction as reasons to expect prices to hold (growing at 3% - low enough that renting isn't such a bad idea anymore, but hardly cause to sell your house).
The thing is, the Moody's report obviously wasn't prepared by idiots. There are all kinds of good reasons to disagree with the sunny forecast for SF (let's face it, in this market, anemic 3% growth is a "sunny" forecast). But you can't accuse these guys of being total dolts like that "Just say no to the housing bubble" realtor (she truly is out to lunch - she actually described the tokyo housing collapse as "a few flat years"! Wow!)
Personally, I'm more pessimistic for SF - largely because of the ARMS. Even if demand stabilizes at 60-70%, and interest rates stay below 7%, you still have ARMS resetting in what is essentially a zero-growth environment, and these arms count for most of the real estate activity in the past few years (prices got so high that nobody could buy without them, which ironically caused prices to go even higher -><-).
Maybe moody's incorportated this analysis already... but I'd expect a drop in prices in sf, followed by many years of 3% growth.
duh... I said "like below". I meant "link below" and forgot to paste the link. Here it is:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2006/10/05/BUGPLLICBL1.DTL&type=business
A reminder of what is going on outside the USA and how we COMPARE. Note since this article prices have begun to rise again in AUSTRALIA, the country considered most overvalued (though London is probably the most overvalued city in the world?) And even Britains market is rebounding. Also, neither suffered severe economic slowdowns while prices appeared to slow. I think we are in for the same....a few more years before the crash.
House prices 'world highest'
December 1, 2005
Page 1 of 2
AUSTRALIA has by far the most overvalued houses in the Western world, with prices 52 per cent higher than justified by rental values, the OECD says.
In a new analysis of the housing boom sweeping developed nations, the OECD also says the price of housing relative to incomes is 50 per cent higher in Australia than in other countries as a group.
The Paris-based think tank warned that historically, most booms in housing prices have ended in busts which, at worst, wiped out all the rise in prices during the boom.
While no country was named as vulnerable to a housing-led economic bust, on each of its three measures, Australia was one of four countries where house prices were most out of line with fundamentals.
Of 15 OECD countries compared in the study, Australia had the highest prices relative to rental levels, the third-highest prices relative to incomes, and the fourth-highest levels of household debt relative to incomes.
"If house prices were to adjust downward, possibly in response to an increase in interest rates or for other reasons, the historical record suggests the drops (in real terms) might be large, and that the process could be protracted," the OECD warned.
A correction of these inflated prices could generate an economic downturn, affecting growth, employment, government budgets and bank lending, the OECD said. "If financial intermediaries (banks) misjudge risks, the potential for credit and asset booms to derail and turn into busts is increased."
Its warning comes as a grim report on welfare services says the struggle to find affordable housing is now affecting middle-class Australians as well as those on low incomes.
The Australian Institute of Health and Welfare said 1.7 million people were in "housing stress" in 2004, spending more than 30 per cent of their income on accommodation.
Making it worse, demand for affordable housing had risen at the same time as the public housing stock in Australia had dropped from 372,000 in 1995-96 to 345,000 in June 2004.
The report said average household debt had skyrocketed as a proportion of household disposable income. From 49 per cent of income in 1990-91, the debt ratio trebled to 143 per cent in 2004.
"The major component of this rise in household debt has been the even greater increase in borrowing for housing," the report said. "Such borrowing has grown more than four-fold in real terms since 1990."
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if prices were to adjust downward, possibly in response to an increase in interest rates or for other reasons, the historical record suggests the drops (in real terms) might be large, and that the process could be protracted," the OECD warned.
A correction of these inflated prices could generate an economic downturn, affecting growth, employment, government budgets and bank lending, the OECD said. "If financial intermediaries (banks) misjudge risks, the potential for credit and asset booms to derail and turn into busts is increased."
Its warning comes as a grim report on welfare services says the struggle to find affordable housing is now affecting middle-class Australians as well as those on low incomes.
The Australian Institute of Health and Welfare said 1.7 million people were in "housing stress" in 2004, spending more than 30 per cent of their income on accommodation.
Making it worse, demand for affordable housing had risen at the same time as the public housing stock in Australia had dropped from 372,000 in 1995-96 to 345,000 in June 2004.
The report said average household debt had skyrocketed as a proportion of household disposable income. From 49 per cent of income in 1990-91, the debt ratio trebled to 143 per cent in 2004.
"The major component of this rise in household debt has been the even greater increase in borrowing for housing," the report said. "Such borrowing has grown more than four-fold in real terms since 1990."abor and the Democrats blamed the Federal Government for the growing levels of housing stress and debt. Labor housing spokesman Kim Carr said the institute's report, Australia's Welfare 2005, confirmed that housing affordability had fallen to an all-time low.
"In 2003 the Productivity Commission recommended that a national public inquiry be established to examine the housing needs of low-income residents. But the Howard Government rejected that recommendation", Senator Carr said.
Former Democrats leader Andrew Bartlett said the Government's tax breaks for investors "have played a big part in Australia gaining this unwanted status of having such excessively expensive and unaffordable housing".
"The price of housing, and the ability of every citizen to gain access to an affordable home should be a fundamental priority for all governments," he said.
The OECD report warned that the current boom had lasted twice as long as past housing booms, increasing the risk of a bust. "The cumulative increases (in prices) have far exceeded those of previous upturns", it said.
LINKS
www.oecd.org; www.aihw.gov.au.
OVER- VALUATION OF HOUSES (% in 2004)
Our over-valued home Housing debt (% of income in 2003)
Australia 52 120
UK 33 105
Netherlands 20 2018
Ireland 15 92
Spain 13 67
Denmark 13 188
Canada 13 77
New Zealand 8 129
USA 2 78
Japan -21 58
Germany -26 83
SOURCE: OECD ECONOMIC OUTLOOK.
This is amazing.... and I am truely confused. There were 6-8 houses sold in my FL development of 200 houses within 2-3 weeks. I was stunned! I don't know how much the sellers lowered their price, but whatever it was there still are a bunch of fools out there that bought!
I see folks are still seeking advise from Kieth on stock investing. Checkout this blog. It's where his advise belongs
Penny Stock Investment Board
those $30K condos the SLC pumper is talking about come with a nice $100K assessment!!! Keep whistling!
"...bunch of fools out there that bought!"
those are the people with - "might as well buy now before the price goes up further" mentality. indeed they are stupid.
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