November 15, 2007

Here's the United States Housing Crash in all its ugliness - Fortune magazine does the P/E on the housing bubble

Nice to see the MSM reporting on the price to rent ratio for housing - just a few years too late to save people from the worst financial mistake of their lives, and just a few years later than the bubble blogs, but at least the truth is now finding a way out.

Here's how bad home prices will crash city by city, based on historic rent yields.

What a shocker - Florida, California, Arizona, Balt/DC - all the usual suspects, all the cities that got infested by REIC, fraudsters, flippers and greed.

Look out below. And rent.

Column headers are city, current price to rent ratio, 15 year average, and expected 5-year price decline (in today's dollars not the devalued ones coming up)

Miami 27.2 16.0 -41.1
Los Angeles 26.7 16.0 -40.3
Baltimore 20.7 12.6 -39.1
Washington DC 26.0 15.9 -38.9
Seattle 38.0 23.3 -38.7
East Bay CA 50.9 31.6 -38.1
Orlando 23.8 14.9 -37.2
Long Island 24.5 15.7 -36.1
Ft Lauderdale 24.5 15.7 -35.9
San Jose 42.5 27.2 -35.9
Palm Beach Fla 27.1 17.6 -35.1
Phoenix 21.5 14.0 -34.6
New York 17.8 11.7 -34.6
Portland, Ore. 31.7 20.8 -34.3
San Diego 34.0 22.4 -34.2
Norfolk 26.8 17.9 -33.3
Philadelphia 18.6 12.5 -33.2
Orange County 36.2 24.3 -33.1
Salt Lake City 24.1 16.3 -32.7
Las Vegas 27.9 18.9 -32.3
Richmond 24.9 16.8 -32.3
Sacramento 28.7 19.4 -32.2
Tampa 21.4 14.5 -32.2
InlandEmpire CA 27.5 18.8 -31.6
Charlotte 26.2 18.2 -30.5
North/Cen NJ 20.6 14.4 -30.2
Jacksonville 20.1 14.3 -28.8
San Francisco 38.2 27.4 -28.3
Raleigh 26.8 19.4 -27.7
Honolulu 35.2 25.5 -27.4
NATIONAL AVG 22.8 16.9 -25.9
Milwaukee 24.2 18.1 -25.0
Atlanta 19.5 14.8 -24.0
Nashville 26.8 20.5 -23.8
San Antonio 17.7 13.5 -23.6
Boston 23.2 18.0 -22.4
Denver 24.4 19.1 -21.7
Hartford 18.7 14.9 -20.0
Minneapolis 19.3 15.5 -19.8
Chicago 22.7 18.3 -19.7
Oklahoma City 15.5 12.7 -17.9
Stamford, CT 26.4 22.0 -16.6
Memphis 21.5 18.1 -15.9
St. Louis 16.6 14.0 -15.7
Austin 19.1 16.3 -14.5
Houston 16.5 14.3 -13.4
Kansas City 16.8 14.8 -11.5
Pittsburgh 11.9 10.6 -10.9
Columbus 18.9 16.9 -10.4
Dallas/FortW 17.8 16.1 -9.4
New Orleans 16.1 14.8 -8.1
Cincinnati 16.3 15.1 -6.9
Indianapolis 15.6 14.9 -5.0
Detroit 10.3 10.9 5.8
Cleveland 13.2 14.3 8.5


Anonymous said...

It's different this time!

Anonymous said...

Does anyone know where central New Jersey (shore)would come in? I have always been told that because it is close to NY, a shore town and desireable, it will hold it's value. Thanks.

Anonymous said...

Wishful thinking, the decline will not be as bad as that table states. Yes there will be some losses, but nothing like those numbers.

Anonymous said...

That's a thing of beauty said...

You forget how many people insist on "owning" out of vanity and ego despite how financially stupid it is.

Despite the numbers here, places like AZ, NV, CA and FL will still have people "buying" at these ass-backward P/E's because their fragile egos could never tell another person they rent. Oh the horror ... what would people think???


Anonymous said...

But wait, this is DC, we had all that Federal government spending? How is this possible?

Anonymous said...

expected 5-year price decline

The expected 5-year price decline percentages are optimistic and understated. Whipsawing occurs in both directions. Up and down. Expect corrections to dive below historic P/R ratios.

Anonymous said...


Everyone move to Indianapolis!!!

Doubting in the Midwest said...

With Cleveland and Detroit having record foreclosures, it's seems unlikely that they'd have price appreciation.

Anonymous said...

Welcome evidence of normalcy - Now is even a better time not to buy a house.


Anonymous said...

I don't understand those numbers. When is American Idol on?

Anonymous said...

The "price to rent" ratios were out of scale for a very long time. Everyone kney about it. Whenever I brought it up, I was told that it was the new economy and I needed to update my understanding. Who cares about a P/R ratios when you are making $$$ buying and selling homes?

Well I guess we are back to the old economy. I have lost complete trust on the news media. These were the ones suggesting P/R does not matter and now they are publishing reports to the contrary. Call me a "conspirary theorist" but I fell that the news organizations have been reduced to a mouth piece of the wealthy corporations and banks.

gw bush is an as*wipe said...

I've been looking at the ultimate deal on a 5-wooded acre 4B/2B home in South West Michigan, only 5-years old. My dream house too!

Only $97,900! (although the previous owner removed the furnance, kitchen cabinets and appliances)

All I need now is a fcking job :(

Peter T said...

I welcome that the mainstream media (MSM) write more honestly about the housing market now that they have fewer ads to loose (the REIC has less money to spend). I find your blog entertaining, Keith, but do you think your blog could loose its function after the next elections are over and most MSM agree that there was a bubble that turned into bust?

westwest888 said...

"Arizona ranks above national average in STD cases"

I want to see them blame subprime on that one!

Paul E. Math said...

I guarantee that if you did an income version of this table it would look exactly the same. The price/incomes ratio is equally out of whack.

I will also say that the predicted % declines are likely to be underestimates. Reason being that these prices are cyclical and the decreases will overshoot the historic averages on the downside.

We can talk about a lot of details of the housing bubble on this blog but these are the only indicators you really need.

Agent #777 said...

Nice Post.

Yes, that Orlando number is right on.

So glad I sold.

Anonymous said...

Greg SWann and the NAR do NOT want these numbers getting out!

Anonymous said...

These must be the numbers "cut those rates" Bernanke is looking at

Anonymous said...

Fortune magazine was the first place that I read about price to rent ratios for home values...several years ago. Their take was that prices were too high, but that they would have to crash hard and fast to make it worth while for the executive set to make selling and renting for a time worthwhile. Little did they know prices would double from there. They did warn about the second home market as well.

kilgore said...

I own my condo in Houston (no mortgage) and if there's one thing I'm totally sure of it's that the price of condos in Houston has ALREADY fallen by AT LEAST 15% (as compared with the 13.4% estimate) and, thanks to the absurd amount of building that's still going on, it's gonna fall a lot further.

Houston never had the massive increase in prices, but it did have the artificially low interest rates that created the condo mania. Construction is still booming and yet condos are staying on the market much much longer. Oil has done nothing to prop it up.

2 Predictions: 1.) Interest rates rise by at least 200bp in the next 18 months and 2.) The forclosure rate for condos in Houston will exceed the national average by a wide margin.

I'm fucked!

Mark in San Diego said...

Greetings from Cabo San Luis . . .enjoying a neighbors timeshare. . .overheard at the pool, "I bought a Pulte Home a couple of years ago for 250K, and one just sold in my neighborhood for 190K, but I donÂșt care, I plan to live there till I die.". . . brave words from an Air Conditioner installer from Arizona. . .Cabo is the working class capital of Mexico. . more fat Americans here than Disneyworld. . .also here at Playa Grande, the office staff told me a lot of people are behind on their annual dues, and more and more are in default. . .guess the fishing trip to Cabo and the timeshare dues go first before the Hummer. . .Ugly is all I can say for the economy. . .Mexico will feel this also in a BIG way.

Anonymous said...

Anonymous said...
Wishful thinking, the decline will not be as bad as that table states. Yes there will be some losses, but nothing like those numbers.

November 15, 2007 5:48 PM
Keep telling yourself that and let me know when its true, until then I will rent and watch DOM rise, price fall so that I build equity every day I rent!! said...

"Arizona ranks above national average in STD cases"

I want to see them blame subprime on that one!

Nah, Bush will get the blame. Everything is Bush's fault. Everything.

Anonymous said...

B-b-b-buutt- not D.C.!
We have all the jobs here!

We have the Federal Gov. here!

This is the Capital of the Free World!!

AOL is here!

All those fabulous Dept of Homeland Security jobs are here! (I love it when those dorks brag that they work for the DHS & "can't give you their work phone number" whooo - BFD!!!

Bend over & kiss it all good bye since you all bought in DC (and surrounding areas!) in 2005.

Payback will be hell - glad I sold & have a tidy sum sitting this one out!

Anonymous said...

The deepest cuts will be through auctions and the REIC will not count those. The "official" numbers will see a decline of about 10% while the real declines will be 35%

Anonymous said...

SBUX traffic down and their stock hits a 52 week low. People strapped?

Anonymous said...

Zillow says 150% price hike over four years in my area (outside DC). Would that not require roughly a 75% drop to revert to the mean? 30-some per cent? Did I sneeze?

Anonymous said...

There was an article in the Toronto Star this week about morons lining up at a chance to buy condo units. They won't be built until 2010 or 2011!

Don't they listen to the U.S. news at all? They're even dumber than the ones in Miami, because they've had more than enough warning.

One born every day.... said...

There is always one:

Wishful thinking, the decline will not be as bad as that table states. Yes there will be some losses, but nothing like those numbers.

Ever read a newspaper or track prices? Check housing price tracker or the rates of reduction in Craigs list. Yeesh, what a moron. Can I sell you a Miami Condo--its a great deal! It will come up as all the rich euro trach will drive it up and all those boomers, yada, yada,..Just give me money twit....

Anonymous said...

glad to see palm beach getting the attention it deserves. everyone always talks about miami and tampa meanwhile palm beach is just as bad or worse than the two i mentioned above. I just came back from houston (literally from driving) and kilgore is right about the prices in the houston area. they didn't appreciate like other areas, but they are still building like there is still a boom! I couldn't understand why myself so i am happy kilgore placed a comment!

rich in fl

Anonymous said...

check this out about south florida!

south florida inflation outpaces the rest of the US business headline!

I need to move! How's the weather keith? i have my passport!!!

Princess Mononoke said...

Yep, that sounds about right. Although, I actually believe the decline will be greater because of the DELAY in the correction. The housing supply/inventory is growing exponentially. Ergo, imagine 2008 inventory stats and then 2009 stats, etc.

I foresee this mess spilling into the PRIME arena. People will end up simply walking away from their homes. I'm speaking of Homedebtors who bought in 2005 to 2007. This also includes Homedebtors who's current LTVs (loan-to-values) are 80%<.

I know it's not a pretty picture. Nevertheless, it is our current reality!

I left Michigan said...

Doubting in the Midwest..

I was surprised t see the numbers from Detroit and Cleveland too. I don't think that's going to happen because of the problems in auto industry.

Princess Mononoke said...

I have to add that you don’t have to be a brain or intellectual to objectively see how this is going to play out, nationally and then globally. The current state of affairs will have a COMPOUNDING effect.

You can either A) continuing wearing your rose-colored glasses or B) be prepared!

Just imagine how the people in Asia felt when the Tsunami hit their shores without warning!

Anonymous said...

Wishful thinking, the decline will not be as bad as that table states. Yes there will be some losses, but nothing like those numbers.

Apparently, you haven't totally grasped the concept of regression to the mean.

Anonymous said...

check this out about south florida!

south florida inflation outpaces the rest of the US business headline!

I need to move! How's the weather keith? i have my passport!!!

No surprise, even though there's a fool on Ben's Blog that keeps defending how much cheaper SoFlo is from other states. And the fool bought a house in Palm Beach at bubble's peak...denial is a bitch. No wonder Detroit is in the toilet...with fools like that.

kevin said...

You forgot to mention:

1) This is for "the value of an upscale home (one that sells for double the local median price)"

2) The percentage column is "how much the price/rent ratios must fall to return to normal levels", not "expected decline"

Happy Homedebtor said...

DC area: 38.9% my a$$. We've had our correction already; now you'll just see stagnation and inflation (stagflation ftw) causing rents to increase to fix the ratio, with prices eeking up slowly in a couple years. Bubble-peaks will be reached again (in raw-dollars not inflation adjusted) by 2015, and seem cheap by 2020. The only exceptions are areas which have NO fundamentals - IE Phoenix, Vegas, etc...there just isn't the jobs-base needed to justify those prices.

I read this article on awhile back Keith - I guess you're adding a delay to the time you read something 'til the time you put it in your blog and try to pass it off as if it's your thoughts?

Brand new 46" 1080p LCD over the fireplace w/ 7.1 surround now. House is done save trimwork, landscaping, and paint, wewt!

Anonymous said...

Happy Homedebtor has his head up his butt so far that he is delusional.


Anonymous said...

Brand new 46" 1080p LCD over the fireplace w/ 7.1 surround now. House is done save trimwork, landscaping, and paint, wewt!

Wow, you have made it, hamster. You just need a H2 now.

Anonymous said...

Stalled Condo Projects
Tarnish Trump's Name
Buyers Lambaste Developer,
Whose Coffers Seem Secure

Even the Trump name isn't bigger than the calamitous condo market.

Donald Trump's reputation as a real-estate developer could take a hit as some condominium projects emblazoned with his famous name run into trouble.

In recent years, Mr. Trump has lent his name, and in some cases his own money, to at least 20 projects in the U.S. and another half dozen abroad, including buildings in Dubai of the United Arab Emirates and Seoul, South Korea. While in some cities such projects are doing fine, others face slow sales, project delays and cancellations -- and irate buyers.


dc guy said...

DC area: 38.9% my a$$. We've had our correction already;

Ah ha ha ha ha...he's calling the bottom! Then go buy another house, smart one!

BTW - The article said DC will drop about 25+ % and the rest will be rent adjustments.

But ... DC is different. Yea, people are more clueless in DC. They are smug about their biggest employer - the feds. Buddy, NYC and LA have long term value; YOUR employer is going broke!

Lisa in VA said...

The DC numbers are "average" for the region. The further you go from DC, the bigger the decline.

Other than Condos in Arlington, Fairfax and Alexandria (which have tanked), SF housing has remained fairly stable (although the POS houses are no longer selling for top dollar -- and there are always exceptions here and there).

Louden, Prince William, and Stafford are seeing HUGE price declines. Our houses are sitting, foreclosures are all over the new developments, and builders can't get rid of inventory homes for more than $400k (except for a nearly 4,000 sq ft. home on 3 acres with all of the bells & whistles).

Most of our builders are still in denial. Lot prices DOUBLED from 2003-2005 (75,000 1/2 acre becomes 150k 1/2 acre). We have way too many $400+ homes in the are compared to the median $73,000 income.

Every month, I get phone calls on incentives for the very same inventory homes they tried to sell me last month. This has been going on for nearly 5 months.

And, I'm still waiting for an offer that will make me move.

It's like a death of a thousand cuts. I'll buy the house when the price justifies it.

Until then... living in the freakin' basement (and believe me, I'm tired of it.)