Now that we're in full meltdown mode after the biggest bubble in history - how many years will housing prices continue to fall?
A) One (one and done -let's party!)
B) Two (the meltdown was deeper and faster than you'd expect)
C) Three (whew, that was bad. everyone OK?)
D) Four (oh dear god this really sucks - will the pain ever end?)
E) Five plus (hell on earth a la Japan)
F) None (housing is just great! fundamentals don't matter!)
December 11, 2006
HousingPanic Stupid Question of the Day
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55 comments:
I choose (E) Five years
I think we're looking at 5+ years of this. But it won't be this nice straight line, of course. There will be many head-fakes along the way, giving the desperate REIC periodic opportunities to announce an ever more hollow sounding "housing is back!".
I think most of the depreciation will be gone by December 2008 though and then a bunch of these bumps along the bottom of the trough, trending down only slightly. But I do think it will be bad - I don't think we're done at just 15 or 20%.
http://jpking.com/
default.asp?page=condos
Choose this auctioneer's services to "free up capital..."
Looks like Ma & Pa middle America in the audience for the auction...
Being the master guru of real estate casey serin I predict none. This a just a blip in a 30 year bull market for real estate.Oh, I'm in phoenix today for a seminar on foreclosures.If you are up for lunch email me via my blog.God bless all of you,
Casey serin
According to this graph, 5 years to reach bottom, 43% down.
http://www.ernharth.com/2006/12/06/no-housing-bubble-really/
4-5 years of decreasing home prices followed by 0 growth over the next 4-5 years.
LOOK OUT BELOW
I think 10-20yrs. In the town that I live in (pop 15k) most everybody is in construction, building the houses in this town. they built here, they bought here. 2 yrs ago they were building 100-150 houses at a time, today only two houses are being erected. the people that bought the houses in my town are running out of work, if not already unemployed. I think after a year or two of unemployment they will all move on looking for work elsewere abandoning all the shitboxes they built, crashing the prices even further. Our town only doubled in population because our employment was in homebuilding and cabinetmaking, and now thats all dried up. This town is toast.
The UK is about to implode too:
http://business.guardian.co.uk/story/0,,1969624,00.html
The party so so f***ing over.
Ha Ha Ha
Buy silver and gold while it'still cheap.
How about some FACTS:
1) Mortgage rates are falling.
2) Outside of the bubble capitals, home prices are appreciating, not falling.
3) Many homebuilder stocks are oversold big time. CTX is now selling at 7 times earnings with a 19% ROE - it screams BUY! (I wonder if Keith is short this one?)
4) The Fed is pumping the money supply at near historic rates. Look for yourselves:
http://tinyurl.com/kh74j
Instead of a market-wide crash, I see a few areas (Vegas, Phoenix, LA) where prices will collapse by 25%-50%, but the majority of markets will have house prices appreciating in 2007 as inflation kicks in.
Four but we won't know that until five.
Care to address affordability Mr. Anon ?
Or do you believe we are at an "equilibrium" brought about by a "new paradigm" in acceptance of massive, long term debt?
Dude, it's all about affordability.
The magnitude of this mess has not even started to show. I think we are looking at a good 10 years of a housing mess. Down, down, down.
"giving the desperate REIC periodic opportunities to announce an ever more hollow sounding "housing is back!".
Donald Coxe has a great saying to the effect that you buy into an industry "when those who know it best, love it least because they have been disappointed the most".
I would buy in when even realtors dont really believe anymore.
The 5+ year equity collapse will be spectacular. The lenders are under the mistaken impression that most mortgagees want to keep their houses and make up some kind of alternate payment schedule, even after they default. Bwahaha!! Hey MBS holders, can you spell "straw buyer"? HAHAHA!!
"Dude, it's all about affordability."
Yes it is. Unemployment where I live is at a record low, and it's near record lows around the country. That's one of the reasons we're seeing so many illegals coming in. Wages have to rise in this kind of environment.
The big story in '07 will not be a HP, it will be inflation. Ten years from now we will all laugh about how cheap houses were in '06, and the minimum wage will be $25/hr. Oh yes, the downside will be $8/gal gasoline and that shiny Lexus coupe will cost you $150K.
My advice? Buy gold, and a reasonably-priced house with a fixed mortgage.
This is All True.
My House burned down in June of this year; Hurricane Charlie left me homeless for four months and my family and I lived in the Marriott during the next two Hurricanes, Jean and Frances. Lost everything in 2001 due to Florida storms and was in emergency housing for two years, until, oh yea, Hurricane Charlie. Five year legal battle with the Home Owners Insurance Company regarding the 2001 total lose (3 Br 2 BA home paid for), and was finally compensated three months ago, in 2001 home prices.
THIS BUBBLE AIN'T NOTHIN
AND
NO ONE EVER OWNS HIS OR HER HOME.
IT IS JUST THE DEVIL YOU CHOOSE.
HOME OWNERS INSURANCE, TAXES AND RENTING MONEY
OR
A FB FLIPPER CRAZY LANDLORD, IMO
But I ain't nobody.
SWF
I'm with Robert Cote on this one: 4 years but we won't know it until five. I'm not counting 2006 though, so it will be 2010 before we really bottom out. Anybody that buys in 2009 will probably be ok by 2015, after several years of flatness and then appreciation kicks back in. People that buy in 2008 won't see appreciation until 2020, and people that buy now or in 2007 may never have enough time to sell at a profit (20-30 years.)
I think 2007-2008 will be the worst of the depreciation, but then the deflationary depression hangover will begin and people won't really be all that interested (or able) to buy a house as the banking system will collapse and liquidity and lending will dry up for all but the most impeccable borrower. In other words: the housing cycle will unfold as I have described but it won't matter anymore to a lot of people as they'll just have a hard time finding work and getting something to eat.
Inflation? I'm doing my part. As of January 1st, all of my prices are going up 20%. Better start asking for those raises right now suckers!
I believe 2-3 years. I dont think we will see a japan style 15 year torture session. The japanese actually believe in paying their debts and they believe that their debts are a family disgrace. We dont. The japanese also save like crazy and sell goods outside their country for a good profit. So they have inflow of money. We dont. we will crash 45-75% from the peak in various markets (remember if you appreciated 300%, a 75% drop will leave you at the old price pre-appreciation ) in a very short period of time and then begin a slow recovery where we sorta keep pace with inflation. That will run for 15-20 years and we will again have a bubble when the next generation that doesn't remember comes of credit worthiness.
Cool.
Cow_tipping.
"I think 2007-2008 will be the worst of the depreciation, but then the deflationary depression hangover will begin and people won't really be all that interested (or able) to buy a house as the banking system will collapse and liquidity and lending will dry up for all but the most impeccable borrower."
What are you talking about? Where is there even one bit of evidence for deflation? Do you even know the definition of deflation? Money supplies and liquidity around the world are growing at 10%-20% rates. Open your eyes man, there is no deflation!
Falling RE prices in a few markets are not the sign of a looming depression.
The party's over....but the realtors won't leave! Too many crumbs left!
General deflation is not in the cards. However, house prices in many areas have gotten way ahead of real inflation. Hence prices will come down slowly until general inflation catches up. The gubbermint still has a few tricks up its sleeve. Huge bailouts on the way. Oh, and everyone always asks the next question, what can I do to prosper/protect my assets in this environment. Alas.
Asset price inflation vs. price inflation vs. wage inflation.
We are and will continue to see an asset price deflation. We will see modest price inflation. The Fed will do its best to control wage inflation.
There is nothing new here, nothing. Wealth DOES NOT equal debt. Asset bubbles do not last forever. Fundementals rule the day, every day.
There was a very good article in the Baltimore paper a few years ago about flipping; only the word wasn’t in vogue at the time. The
'old school' flipper (buys low, improves the property, sells higher than all expenses combined) walks an extremely fine line between profit and loss. Even in none-bubble times it was a gamble
that often wasn’t worth the effort.
I wonder how many of these have been removed from the workplace by the sheer uselessness of it all. These renovators did provide a useful service, and a good final product.
Now Joe Blow buys a crapbox, holds for a short period, does nothing to improve it, and sells for double/triple. That can make the 'old school' flippers feel pretty stupid, even though they are not!
I imagine many gave up. What a shame!
"What are you talking about? Where is there even one bit of evidence for deflation? Do you even know the definition of deflation? Money supplies and liquidity around the world are growing at 10%-20% rates. Open your eyes man, there is no deflation!"
You are one of those sheep that believe that the FED can simply "print" more money and then viola! - more inflation. This only works to a certain point and it's actually misunderstood that during the GD, the FED DID actually have a very proactive approach and they were pumping liquidity like mad, but the banking system was so broken that it didn't matter. Heli-Ben is not being truthful when he says stuff like a more proactive FED could have staved of the GD. Heck, they were the primary reason it happened in the first place by blowing bubbles into the stock market and RE (sound familiar?!?)
Same is true in Japan, and the over-abundance of liquidity coming from the BOJ hasn't really stopped the deflation there. Why? Because the banks got so hammered by a RE and general asset bust that they were/are unwilling to lend and consumers are unwilling to borrow as it makes no sense to do so. Now it's true that the BOJ 0% overnight rate has led to a gigantic carry-trade where foreign speculators borrow money in Yen dirt cheap and re-invest that money in higher-yielding currencies (USD, for example) but that is another discussion.
Bottom line: no amount of liquidity pumping can stave off the deflationary effects of a derivatives/MBS implosion ($370TR of this crap floating around!!!)and the cascading cross-defaults this will lead to. And don't tell me there is no evidence of deflation - take a look at some of the housing markets around the country for a real-time view of what deflation looks like!
Also your sanguine view that falling prices in a "few" markets is not a sign of a looming depression is wildly optimistic and myopic. Every depression that ever happened started with an asset bust (specifically a RE bust.) Yes, even the GD started with the Florida land debacle of the late 20's. Heli-Ben is just arrogant and ignorant if he thinks he can stop this. But the FED sure is terrified of the possibility (look at the deflation scare of 2002 as an example!)
What we've just seen has been the biggest housing bubble ever, so why wouldn't it also hold that this will be the biggest housing bust ever? GD2 here we come!!!
Four years, but it seems like we are at the end of year one, so maybe three more years.
How could I have missed the biggest business story of the year? Thanks for the truth, housing panic.
"How far will home prices continue to fall?"
From what- the recent bubble or the continued decline of the U.S. economy?
Full meltdown mode?
Keith, why do you say we are in full meltdown mode? Is it because greedy home owners are having some moderate trouble selling their homes for double what they paid a few short years ago? We are a long long way from full meltdown. We are at the point where people are just beginning to question the assumption that real estate only goes up. Full meltdown has not started, and in all truth, there are no guarantees that it will.
With this in mind, I would like to recast the question. How long before residential real estate is again considered a good investment. Residential real estate (aside from the home you live in) has always been a mediocre investment at best. It is high-maintenance and the fees involves with buying and selling make it difficult to turn a profit except in the long term. In recent years sky-high real estate growth has hidden this reality from the masses.
Reality has returned and residential real estate is back to being a high-maintenance long-term investment.
I think it will be at least 15 years before residential real estate again becomes the investment-de-jure.
But if you are asking how long it will be before housing becomes affordable relative to salaries and rents then you would have to look at each community individually. Florida and parts of the south-west have a long way to fall, a very long way. California is just as over-inflated but the fundamentals will rapidly catch up with the prices after a modest price retreat. The rust-belt is in trouble because the fundamentals will never catch up with the prices. The North East will resemble California but will take less of an initial hit and take longer for the fundamentals to catch up.
Here is my time table:
2000-2005--Housing Bubble
2005-2007--Modest reduction of prices
2007-2012--slow growth allowing for fundamentals to catch up to prices
2012- --All memory of the bubble and bust will have faded from the collective consciousness.
The Thinker,
What you are describing is the elusive "soft landing" and is rarer than a Yeti sighting. In fact, I don't know that a soft-landing has ever happened with regards to a large asset bubble.
Anyone who thinks we can't have deflation again (and I'm an agnostic on the subject) should read Mish's interview with economist Paul Kasriel...
http://globaleconomicanalysis.blogspot.com/
well,
the bearishness of builders is so that NEW HOUSING STARTS/SALES RATION IS AT THE LOWEST POINT SINCE RECORDS TAKEN (about 40 years)
also new purchase mortgage apps a seven moth high.. and inventory in MOST areas already shrinking (sellers not as desperate as you all think in general, nmot talking some flipper with no money , im talking avg homeowner)
I think the numbers are what count,, not roooting for housing to gain or fall.. the above leads one without bias that in most areas the worst has already come and gone
and the smart money knows this who have been buying for the last three months opushing homebuilder index up about 30 % in the face of MANY MORE bearish retail sellers... ie fewer large instituitions are buying from retail bears like you ,, cause they look at numbers, not wishes...
good luck
I say E, since there is talk about the Fed lowering the interest rates (or at least keeping steady). Probaly an effort to jump start the market (albeit a futile one)...
Now if this were YOU or ME the IRS would be knocking on your door, while your preparing the rope to hang yourself with.
OIL SCUM!
http://tinyurl.com/ykefeo
Hey bork, you're not suggesting that there is malfeasance in the federal gubbermint, are you?
Three years of decline, then stagnant house prices for a few years, for a total of 5 years until real prices start to increase.
To the Anon who posted...
"well,
the bearishness of builders is so that NEW HOUSING STARTS/SALES RATION IS AT THE LOWEST POINT SINCE RECORDS TAKEN (about 40 years)
also new purchase mortgage apps a seven moth high.. and inventory in MOST areas already shrinking (sellers not as desperate as you all think in general, nmot talking some flipper with no money , im talking avg homeowner)"
You really have not been paying attention, have you?
Good Heavens, man. The numbers are staggering! Foreclosures, 100%+ LtoV , etc., etc. ad infinitum. All this house of cards needs to go deep recession is a shock - ANY shock.
Jobs? Wages? Debt? Savings?
There is no magic left in the macro to save this (mostly) micro hole this country finds itself in today.
"The worst has come and gone"
I disagree. We haven't even seen the beginning of this asset deflation hell.
You write like your whistling past the cemetary.
Any anon with an optimistic opinion about the next year or two should read this;
http://preview.tinyurl.com/yxvudd
I just finished writing a nice long piece on "Consumer Fatigue" for a journal.
The bubble has been bursting in the areas with the highest % of exotic mortgages for this whole year, and this bubble pricing is sliding across into the secondary areas like The Carolinas, Tennessee, etc. (anywhere with a growing economy, nice weather, and reasonable prices) as people who can flee the rust belt areas and Florida. 2006-07 should be the peak prices in these secondary areas.
Really hard to give a "how many years" answer when real estate is so different in various regions of the U.S...
Median price of a home in 2000 was $160K. Median price today is $220K. But in 2000 interest rates on a 30 year fixed were in the 8.5% range, today it is 6.25% range.
So the monthly payment on a mortgage (assume no down payment to keep the numbers simple) went from $1230 to $1354, a 10% increase in 6 years. That works out to a 1.5% annualized increase.
I'll bet your favorite Starbucks drink has increased by more than 10% since 2000. I'll bet tickets to your hometown NFL team has increased by more than 10% since 2000. Hell I'll bet just about anything you buy today is more than 10% higher than it was in 2000. And most likely your income is more than 10% higher than it was in 2000.
So exactly why is everyone in panic mode? Am I missing something here?
Chauncy, you have it right on that issue. For many the payments (and that is what most consumers think about not affordability or value) have not risen that much since rates are lower. As you said, interest rates. I owned a house in 1992 that had a 10% rate and a loan of $114,000 and my payments were $1300 PITI. In 2002 I had a loan of $225,000 at 6% and a payment of $1600 PITI and my income had tripled from 1992 and in inflation adjusted dollars my 1992 payment was over $1750 in 2002 and the house I owned in 1992 was built in 1988 and needed updating, new roof and the 2002 house was new and nicer.
Each house we bought and sold we took the proceeds and moved up. Every house we sold we recovered all our mortgage payments for the time period we lived in the houses and any improvements plus we had the tax advantages so I don't look at the proceeds as profit but as living rent free. We always bought what we percieved as undervalued properties and always refused to pay market rates.
Twice in 30 years we bought homes that took 30% of our income, in 1982 and in 1992, every other house took less than 24% and as low as 11%. Having bought a house with a 14% interest rate (when we signed the contract but by the time we closed six months later the rates fell to 11.5%) I know two things, prices come down when rates go up (our home was $20,000 less than previous homes when rates were 9.5%) and so do payments.
For the one person who asked about historic rates? My parent's had a 5.4% rate in 1963. Our first home, 1982 was 11.5%, 1989 8.5% 1992 10% (but assumed that loan from a foreclosure and then streamlined the VA loan to 8%) 1995 7%, 2000 8%, 2002 6%, 2006 5.5%.
hemorrhoidforhousing said...
Chauncy....your logic is alittle skewed.
Our rent is almost twice what your estimated house payment is and our rent is half of what it takes to own in the neighborhood we live in.
--------------
Nothing skewed about it. I used national MEDIAN prices. So by the very definion of that, 1/2 will be more, you happen to be in that half.
less.
never
The time to buy housing stocks was 2001. Current home building stocks were discounted for continued falling earnings. A TV report quoted NAR as predicting the new housing market might bottom out in a year and the existing home market might bottom in the first quarter.
I did not know the existing home market had divorced the new home market. Why a used home price should bottom out long before a new home price is beyond me. Not long ago NAR was steadfast against any prediction that the housing market might go into recession, now they seem to think they are the experts about when it will be over.
I see price drops for at least 2-3 years, followed by at least that long a period of stagnation where growth is below the inflation rate. Just my guess, I'm not really basing it on anything...but being aware of the amount of deadwood mortgages out there, I can't see them cycling through in any less time than that.
It's just a matter of what else is going to get dragged down in addition to housing prices.
since everyone is throwing numbers out of their ass with absolutely nothing to back up the figures, here is my prediction:
17 years of declines followed by 93 years of increases followed by 62 years of more declines
From England....[-] Text [+]
LONDON (Reuters) - House prices rose at their fastest annual rate in more than 1-1/2 years in October with prices in London leading the way, government data showed on Monday.
The Department for Communities and Local Government said house prices rose 8.6 percent year-on-year in October, up from 8.0 percent in September and the fastest annual rate since March 2005.
House price inflation in London accelerated to 10.6 percent from 9.0 percent in September -- its highest in more than two years.
"This confirms that the housing market, in London at least, continues to benefit from the boom in financial services -- a trend that is likely to continue in the near term as we enter bonus season," said Michael Every, senior strategist at RBC Capital Markets.
First-time buyers contributed to the upward momentum in October with house price inflation for those getting on the property ladder rising to 8.5 percent from 7.7 percent in September.
The government figures chime with recent surveys from mortgage lenders which show housing market activity has not been dampened by higher borrowing costs.
HBOS Halifax survey showed house prices rose last month at their fastest annual rate since March 2005 and Bank of England figures show mortgage approvals -- a lead indicator for the market -- remain near historic highs.
With two post of late, this one and a few weeks ago a post out of the Economist that showed home prices up in Australia with Perth up 48% could mean that there is still a lot of liquidity out there and that the markets still are inflating.
Remember both Australia and England have home values that have risen two to three times those levels of the USA if you recall other charts posted from the Economist.
Both countries showed a slight decrease in values only to surge forward again. I think maybe we'll see the same thing come next summer.
Tuesday, December 12, 2006 12:15:07 AM
Tuesday, December 12, 2006 12:15:48 AM
I posted the fact that NEW HOUSING STARTS TO SALES RATIO is LOWEST its been since records kept!!! Forty plus years,,
and of course was attacked a little for it..
well its a true number (look at motley fool website for source) and may indicate that things could turn around as inventory may dry up sooner then expected (especially with new purchase mortgage applications at 7 month HIGH--
not saying ALL houses,, like some flipper house in phoenix,, but the national aggregate
Its just as FOOLISH to be an emotional bear (like her for some) as it was to be an emotional bull (like some phoenix yahoo flippers or realtors)
You all got to see this tendency in yourselves... mkts can go down and up if supply and demand changes, and the country is MUCH bigger then CA. or AZ-- those are extreme exmples of overvaluation in many cases you cherrypick...
just trying to be less emotional and rah rah one way then you guys...
and the number of houses in the preforeclosure stage currently NATIONWIDE (again cant just focus on phoenix or atlanta or ca) is about .42 percent..heere youd think it was 42% not .42% ,, so if this goess up 500% thats about 2% of total market ,, and foreclosed houses avg about 14% discount to comps,, doesnt make the world end
yes SUBPRIME mortgage foreclose rates will be higher ,, they were SUBPRIME so thats obvious,, but you have to look at natl avg.. and most subprime are for lower income (look ait up) so a smaller % of total natl market value...
It'll be quick (1-2 years) then housing will start to appreciate again. The housing secular bull market is only 6-10 years young. There will be no generational sift away from housing as an investment just yet (wait another 10 years for that). It'll be a bad crash like 87 was for stocks, but then housing will re-emerge as a preferred investment by the middle and upper middle class. Where else is excess liquidity going to go? Stocks, bond? Nah, those DID go through a generational shift 6 years ago. Not enough time has passed for folks to forget about that and become confident in those asset classes again. Once again, wait 10 years for that to take place.
tabasco jenkins said...
It'll be quick (1-2 years) then housing will start to appreciate again.
____________________
I hope you are right, with a slow depreciation in price rather than a quick fall/hard landing.
We have front row seats at HP.
I think that depends on our usage of new free technologies like http://www.mylista.com if people use the internet to find properties it will spead up their property sale
Economist Mag Dec 9th issue, Bubble and squeak, says home prices rising again overseas, and that doesn't take currency values into account so in dollar terms the rise plus the devalued dollar makes our houses even less expensive.
New list for 2006 to 3Q, Demark up 23.3%, Ireland up 14.2%, Canada up 12.8%, South Africa up 12.7%, France up 12.5%, Belgium up 11.8%, Spain up 10.8%, New Zealand up 9.6%, Australia up 9.6%, Britain up 9.6%, the list goes on and does recognize that in those same markets some areas were flat, while others continue to rise.
It notes that in Australia prices rose rapidly in 2003, fell in late 2004/2005 and are no increasing with perth up 46% this year in the third quarter.
Looking at the price rise between 1997-2006, South africa up 327%, Ireland up 252%, Britain up 192%, Spain up 173%, Australia up 132%, France up 127%, Sweden up 123%, Belgium up 118%, Denmark up 115%, the USA up 100%.
Look at those numbers. Consider the rise in those countries and of course in Euros or pound sterling imagine the cost in dollars!
Think the US market doesn't have room to continue this madness? Barring WWIII I imagine as in Australia and New Zealand, both slowed, saw declines in their most expensive markets while the less expensive areas (like Perth) caught up, and then everyone starts rising again. The California syndrome here in the USA, our market always follows California, they export their ridiculous prices until they restore historic differences in price between them and the rest of us and then the march starts all over again.
Tuesday, December 12, 2006 6:37:05 AM
Doesn't matter what I think, the indicators are still out on this market. As they say with any "bull run" know one knows when it will run out of steam until it happens. With stocks up, interest rates falling, world liquidity and equity/currency imbalances, the yen and Petro dollar trade, it appears the WORLD WIDE BUBBLE has plenty of room left for now. If the US Market stagnated for five years would that make us better off than a 50% correction in the other nations I listed that have higher home appreciation rates?
the owner of houses as homes would prefer lower assessments, hence, lower taxes, in most areas, government at local levels want higher taxes, and more controls of other peoples properties.prices could fall for the length of time of the average secular bear market, or seventeen years, but the taxes will not fall untill the tax equals equal the same ammounts
so that the tax compounds, until the lower evaluations equal the same tax compoundings
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