January 24, 2008

FLASH: Merrill Lynch predicts historic 15% crash in US home prices in 2008, falling 10% more in 2009, and falling more in 2010

Love seeing Yun trying to spin his way out of this one. Too bad he can't be sued or arrested.

Merrill says the total decline the next few years will be 20% to 30%. Hell, even those numbers are optimistic, especially for towns like Phoenix, Vegas, Miami, Detroit, Naples, Tampa, Boston, DC, Sacramento, OC, Tucson and oh so many more.


Housing prices to free fall in 2008

According to a Merrill Lynch report, home prices will drop 15 percent this year, and declines will continue in 2009.


NEW YORK (CNNMoney.com) -- The worst housing financial crisis in decades is only going to get worse, a Merrill Lynch report said Wednesday.

The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010.

By contrast, the National Association of Realtors (NAR) expects housing prices to remain flat in 2008. NAR did cut its home price estimate for the current quarter, however, to a 5.3 percent year-over-year decline, which represents the steepest drop in that price measure on record. But NAR sees an uptick in home prices in the last two quarters of 2008.

"Merrill Lynch's figures are way too pessimistic, and they are unprecedented," Lawrence Yun, the National Association of Realtors chief economist told CNNMoney.com. "There is so much variation in local housing markets, and we see stable price conditions for 2008."

53 comments:

Anonymous said...

Yun logic:

The forecast is unprecedented therefore it is wrong

Anonymous said...

dude I am working on a long term IT project at merrill right now...in 10 years of consulting I have not seen a more fucked up place than this....real estate could easily crash as much as they say...however, i would not trust ANYTHING these people say. i wouldn't trust them to tell me the sky is blue that is how little respect i have for this place

on the other hand they spend money like it's going out of style so i can't complain too much lol

Shakster said...

Look at the Dollar falling hard,and then look at Precious Metals (gold up 23 in 5hrs),and one should be able to explain the Rigged DOW swing yesterday.
The Dollar is tattling on the WallStreet rigmeisters.
Spinnit!

Shakster said...

Lawrence YUN-Wudda Headjob.
More Amazing is......People blieve him all they way to the bootom.

LauraVella said...

In Todays SF Gate-comic strip of the times.

http://www.sfgate.com/comics/fiore/

Anonymous said...

Thank god I'm in Kansas City. Yes the market sucks, but we haven't had astronomical appreciation like the "hot spots" in the market.

Hopefully we can weather the storm as it heads our way.

Twin Cities Guy said...

The numbers keep getting bigger and we all know that it's still an underestimation.

Prices in the Mpls-St. Paul area are down right around 25%.

Anonymous said...

VICE PRESIDENT CHENEY RESIGNS IN MAY'08 CITING HEALTH REASONS AND RETIRES TO DUBAI. CONDALEEZA RICE NOMINATED BY BUSH AND APPROVED BY SENATE FOR VP.

**********************************************************************
CANNOT GO THERE!


REPUBLICAN CONVENTION IN CHAOS: A FLOOR VOTE RESULTS IN PRSIDENT RICE RECEIVING NOMINATION.

NOVEMBER VERY FOGGY.

US IN MAJOR ECONOMIC CATASTROPHE BY OCT'O8 AS FEDERAL ACCOUNTING STANDARDS BOARD REQUIRE BANKS TO MARK LEVEL 3 INVESTMENTS TO MARKET.
(The phantom money in derivatives and hedge funds!)

NEXT US PRESIDENT APPOINTS NEW FEDERAL RESERVE CHAIRMAN WHOSE FIRST ACT AS FED CHAIR IS TO RAISE INTEREST RATES ABOVE 10%.


(Above predictions heard on COAST TO COAST AM WITH ART BELL)

Anonymous said...

Keith, you keep saying house prices will crash and they still have not crashed. At first prices were going to crash in 2006, then 2007 and now it's 2008. You and this blog sound like a broken record.

keith said...

"Keith, you keep saying house prices will crash and they still have not crashed"

Can someone else take this troll out for me. I'm a bit busy going through the price crash by market percents over on housingwatch

http://housing-watch.com/home.aspx?d=30

Thanks

Anonymous said...

SWWWEEEETTTT!!!!

straw buyer said...

Now, now, anonypuss, don't get your Realtor® tits in an uproar. HPers will buy from you when prices get lower, much lower. Now remember the FB chant: "Buy high, sell low".

area 51 said...

Of course I would believe the NAR over Merrill since they have downwardly revised their estimates, oh I don't know, like 8 TIMES!

Just draw a line from the Case-Shiller Home Price Index current level, back down to the historic trend (approx bond index yield) and you'll see we are about 30+% overpriced and it will be 2010 at the earliest (current rate of decline) for prices to return to the previous 100yr trend.

I wouldn't be surprised to see an overshoot at that point too. That's when the *real* bargains will be had.

Anonymous said...

CONDALEEZA RICE NOMINATED BY BUSH AND APPROVED BY SENATE FOR VP.

**********************************************************************
CANNOT GO THERE!


REPUBLICAN CONVENTION IN CHAOS: A FLOOR VOTE RESULTS IN PRSIDENT RICE RECEIVING NOMINATION.
=================

ya not going to happen. the Repugs know all too well what they did and what is going to happen. they are getting FAR away from ground zero. It's like fighting over the stearing wheel AFTER the car already crashed thru the guard rail and is plummeting to certain doom.

Look at the Repug field. A Mormon? A "Huck-a-who"? A cross dresser? Old Man Thompson just quit. and Ron Paul. Don't get me wrong I love Ron Paul. I would vote for him. But even he can't do sh!t about what is going to happen.

Besides have you seen Bush Co. lately? They don't seem too worried. It's like they have their rocket ships fueled, fired and ready for launch.

Hillary or Obama will be a one term loser. The next Jimmy Carter.

Anonymous said...

With inflation, the real drop will be closer to 45%, which wipes out nearly all of those 100% gains. Everyone who borrow or pulled equity out will be a slave to their creditors.

I have a co-worker who buys foreclosures and rents them out. He's always cash flow positive, but even he is getting skittish about buying now.

az mls said...

I don't know if I would trust Merrill. If they were so smart on the direction of housing prices, they would have been smart enough not to leave $22B (so far) of toxic mortgages on their balance sheet. My personal guess would be a larger loss in 2008 followed by flat prices for 2-3 years.

keith said...

Good point on inflation - notice the NAR doesn't include that in their price drop numbers either

If they did, they'd have admitted median price nationwide dropped about 10% Dec 07 vs. Dec 06 today

And THAT would have been ugly

Anonymous said...

did that naked martian "humanoid" that they "premiered" the film of walking to the rabbit sized martian lander last week try to eat the cameras? how many millions of acres he might pay for a suit?....although the space industry paid out twenty three bucks for every dokllar spent, why am i thinking of my personal health and longevity instead as a scientific how to,fountain of youth

Anonymous said...

Home prices ON AVERAGE are 3 standard deviations above the mean-any of you rocket scientists know what that means? it means that ON AVERAGE considering the historic realtion of incomes to home prices that we are CURRENTLY ON AVERAGE 66% too high - meaning if this stat is correct the call by Merrill is WAY too optimistic - consider this - with 20% down and a national ave income of $60k - how much house does that buy? and where are prices currently? the difference is how much home prices need to decline or incomes need to rise- now which is more likely?

Anonymous said...

I agree with this assessment, and
did when I first read it when it
initially came out...


Templeton’s Prediction: Housing Prices to Fall 90%

Written by Tracey

January 18, 2008 06:30 AM

Sir John Templeton is a billionaire. He started the Templeton Mutual Funds many years ago. But his real claim to fame was buying up shares of stocks that were less than a $1 during the Great Depression. He saw opportunity where others saw financial ruin and it made him rich.

It also took a lot of guts (and instinct.)

He’s 96 years old and now lives in the Bahamas full-time. Occasionally you see him interviewed in magazines but the last time I remember seeing an interview was a few years ago so it could be that he’s simply not talking to the press anymore given his age.

But in 2003, at the height of the dot-com bust, he gave an interview where he talked about the American housing market. Many laughed at him then.

Who is laughing now?

It sounds eerily accurate:

Moving on to housing prices, Sir John comments: “Every previous major bear market has been accompanied by a bear market in home prices. . . . This time, home prices have gone up 20%, and this represents a very dangerous situation. When home prices do start down, they will fall remarkably far. In Japan, home prices are down to less than half what they were at the stock market peak.” Sir John adds, “A home price decline of as little as 20% would put a lot of people in bankruptcy.”

Sir John also had a few words about debt — a four-letter word that folks seem not to care about: “Emphasize in your magazine how big the debt is. . . . The total debt of America is now $31 trillion. That is three times the GNP of the U.S. That is unprecedented in a major nation. No nation has ever had such a big debt as America has, and it’s bigger than it was at the peak of the stock market boom. Think of the dangers involved. Almost everyone has a home mortgage, and some are 89% of the value of the home (and yes, some are more). If home prices start down, there will be bankruptcies, and in bankruptcy, houses are sold at lower prices, pushing home prices down further.” On that note, he has a word of advice: “After home prices go down to one-tenth of the highest price homeowners paid, then buy.”

You might still think he’s crazy. Prices to fall 90%? Ha!

But that’s what they told him before the great stock bust in 1929-32. Shares of the greatest American companies all for sale for under $1? Never.

Sorry to be so bearish during this time when the stock markets are also struggling. But bear markets create opportunities. Be ready.

Just ask John Templeton.

He is my grandfather's generation.
(I am 64...knows bull when he sees
it..) Grandma pkk

Frank@Scottsdale-Sucks.com said...

Better watch out Merrill Lynch, now all the trolls will start calling you a bunch of "loser renters."

alley oop said...

All you deflationists need to open your eyes, your predictions are as dumb as the NAR. Housing is in a bind now because jumbo mortgages off-loadable to GSEs are capped at 417K. Now that Congress is getting rid of that impediment, watch the sales soar for this category of RE.

Look at the damned USD, it has resumed its downward spiral as gold and silver continue upward. The federal government is on a path that will result in inflation, not deflation. M3, along with similar measures around the world, is increasing at double digit rates - the dictionary definition of inflation.

Yes, house prices in some markets are correcting, but it will be temporary and inflation will soon erase those declines. As long as the banks and feds can continue to issue more credit, they can keep this party rolling along.

What they are doing is immoral and stupid, but men don't live forever. The guys at the top have apparently decided they will leave the bitter medicine for someone else, long after they are gone from the scene.

Frank@Scottsdale-Sucks.com said...

"Keith, you keep saying house prices will crash and they still have not crashed"

That's funny, in my neighborhood these houses sold for over $1.2M two years ago and now a bunch are listed at $800k and no one is even looking at them. That's 35% down and they're still not selling.

What's the point of coming on here and just making sh*t up like you trolls do?

Anonymous said...

Frank@Scottsdale-Sucks.com said...

Better watch out Merrill Lynch, now all the trolls will start calling you a bunch of "loser renters."

January 24, 2008 5:19 PM

---

Actually you're not too far off. These reports are written by lackey analysts right out of college. These analysts make $75-100K a year and live in NYC. That is the equivalent of $30K a year anywhere else in the country, save San Franciso where it's worth $45K. They rent shitty apartments with no hope in hell of ever buying anything.

So yeah technically they are loser renters after all.

smitty said...

"Keith, you keep saying house prices will crash and they still have not crashed."

mark your house to market and sell it already! denial will only make you angrier! move on; get a life!

keith said...

List of "Best and Worst Place to Buy a House" in Entrepreneur magazine

http://tinyurl.com/25838p

Vegas makes the best list, because they say there's past strong job growth. So yes, this article is now discredited.

Frank@Scottsdale-Sucks.com said...

Mission Viejo? (OC), and Las Vegas? Geez, those are two major crash markets that have a long way down still.

I guess Yun must've placed that article.

We're always tempted by the fact that you can live in a mansion in Mission Viejo for the cost of a tiny shoebox house in Newport Beach, but then we remember it's an exurb and we'd be driving 30 minutes just to go out to dinner.

brokersleaveyoubroke said...

Story in the New York Post today by Crudele. There was an emergency meeting of the PPT over the weekend, just in case you're wondering why the stock market is up for no reason.

Anonymous said...

There's a breaking news story about a French bank losing $7 billion as a result of a rogue trader. The new "loan assassin" story. Lee Harvey Oswald, damn you!

There is no bottom to this crash. Without a bankruptcy reorganization of the entire Floating Exchange Rate system,there is no telling what kinds of economic and political horrors will occur.

Frank@Scottsdale-Sucks.com said...

I just did some quick MLS searching and looked at a bunch of houses here in the Newport Coast part of Newport Beach where I live.

Average asking price today is around $525/sq ft.

In 2005 when I first started looking here, houses were moving at 1,000-1,100/sq ft.

Who wants to tell me there's no crash now?

brokersleaveyoubroke said...

All you deflationists need to open your eyes, your predictions are as dumb as the NAR. Housing is in a bind now because jumbo mortgages off-loadable to GSEs are capped at 417K. Now that Congress is getting rid of that impediment, watch the sales soar for this category of RE.

Houses priced under 417K and off-loadable to the GSE's are not selling so why would bigger houses start selling if they could be off-loaded? Also, the GSE's don't do no-doc loans or 100% financing so you need 140K down and prove you can afford that 700K home. The median income is certainly not soaring so where is all this new money to get big home sales soaring going to come from?
The housing boom started to fizzle in 2004. The only thing that kept it going was no-doc, no down and ARM's with low teaser rates. Most loans made in 2005 and 2006 contained some part of that toxic mix. Those days are over. If you say house sales will soar you need to explain the mechanics of how that will happen in some detail.

Anonymous said...

"Actually you're not too far off. These reports are written by lackey analysts right out of college. These analysts make $75-100K a year and live in NYC."

Dude, those low salaries are the mandatory 3 yr face time before attending Wharton, Harvard, Stanford, or London b-schools. Afterwards, they'll be upgraded to $200-$250K [plus bonus, if they can come up with a new derivative scam for the masses... junk bond/option indexed for alternative fuel sources, anyone?]

DaveO said...

Yun, listen to this (from the same Merrill Lynch forecast):

But for those who think that the worst is over, Merrill Lynch said that housing prices still remain comparatively high. The brokerage believes that home prices are still far above historical norms when compared to other measures such as rent or GDP. "By our calculations, it will take about a 20 to 30 percent decline in home prices to correct this imbalance," said the report.

Merrill Lynch believes that housing starts will most likely slide another 30 percent by the end of 2008 - a historic low.


What don't you get Larry? House prices as a whole remain unaffordable to the masses, and must come down if the market is to come back again. It's that simple.

Anonymous said...

ALLEY OOP - sorry but you dont have a CLUE about what is happening
in the real world - with the exception of manhatten and MAYBE certain pockets in cali - home prices have dropped 20-30% on average nationally with no bottom in sight - housing my know nothing friend is in a bind because its GROSSLY overpriced in relation to incomes that can support a real live honest to God conforming mortgages with 20% down - which is where we are at RIGHT NOW - UNLESS you have a FICA of 800, $2 million in liquid verifyable assets AND a kick asss job AND 4-6 months of payments AT THEIR HIGHEST RESET LIMITS in the bank.

get educated before you come here and make a fool of yourself.

this isnt bearish OR deflationist - ITS REALITY!

Anonymous said...

All you deflationists need to open your eyes, your predictions are as dumb as the NAR. Housing is in a bind now because jumbo mortgages off-loadable to GSEs are capped at 417K. Now that Congress is getting rid of that impediment, watch the sales soar for this category of RE.

Incorrect. The true culprit behind the massive increase in housing appreciation was the derivatives market and the ability to package loans and resell them to some poor shmuck downstream. Now that this market no longer exists and now that the euphoria has died down around housing, we will have depreciation in housing prices. The FRE/FNM loan limit increase is meaningless as another poster indicated because they do not do "no doc" loans. And you will need a sizable downpayment to qualify.

Remember that in the end, your home is only worth what someone is willing AND capable of paying.

Frank@Scottsdale-Sucks.com said...

"Actually you're not too far off. These reports are written by lackey analysts right out of college. These analysts make $75-100K a year and live in NYC."

We all knew that was coming. FBs can't go two minutes without unleashing their anger on renters. They're like crack addicts with that stuff.

Anonymous said...

frankie fucknuts,

I am a renter and wrote that. damn you are dense

Anonymous said...

"Dude, those low salaries are the mandatory 3 yr face time before attending Wharton, Harvard, Stanford, or London b-schools. Afterwards, they'll be upgraded to $200-$250K [plus bonus, if they can come up with a new derivative scam for the masses... junk bond/option indexed for alternative fuel sources, anyone?]"

dude you gotta stop watching Sex and the City. SOME of the analysts get the $250K jobs plus bonus. Most don't. And it's 2 years not 3.

I know a Wharton MBA grad who maybe makes $175K. I know an LSE MBA who works for the Dept. of Energy in DC. If he makes $150K I'd be very surprised.

Take a loo at median income for top 20 MBAs and it's not all $250K IB high life living like you think. For every guy making $250K or $500K which is more typical in IB there are 10 guys barely making $150K as some bullshit VP pushing paper around.

And if you live in NY even $150K is barely middle class.

Anonymous said...

I work at Merrill. That report did not come from a lackey analyst, but rather the chief economist of the firm David Rosenberg.

This is the same guy who in January of last year was indicating that we had a 50% chance of a recession and that the Fed would have to ease during 2007.

He was derided heavily for those calls but I guess he was just a lackey analyst...

Anonymous said...

anon 6:57 is so typical of the uneducated dope on this board.

1. It is FICO not FICA of 800. FICO is your credit score. FICA is payroll taxes. You'd think such a financial genius you knows it all would know that much.

2. It is ManhaTTAN not ManhaTTEN

Learn the basics before calling others uneducated. OK Cletus?

Anonymous said...

Incorrect. The true culprit behind the massive increase in housing appreciation was the derivatives market and the ability to package loans and resell them to some poor shmuck downstream.

BULLSEYE...finally someone hit the target. Best post of all times.

Anonymous said...

This is the same guy who in January of last year was indicating that we had a 50% chance of a recession and that the Fed would have to ease during 2007.


Yet Merrill spent 2007 loading up on toxic CDO's. The left hand didn't know what the right hand was doing.

Anonymous said...

hey mr./mrs. spelling nazi - a few mis-spelled words typed in haste DOES NOT negate the validity of the points made in that post! if you feel youre up to trying to refute what i done rote ther then by all means knock yourself out- be interesting to see if you actually have a cogent opinion on what is REALLY happening in our economy! my guess is you dont have a clue.

signed,
cletus:-))

Anonymous said...

ANON 9:04 - that poster is partially correct - MBS have been around since 1970 - ABS have been around since 1987 - the combination of the vehicle (MBS, ABS, etc.) the engine (greeenspans fuck up of leaving the discount at 1% way way way too long flooding the banks with dirt cheap $) and the driver - (GREED by all parties involved from the banks to the consumer) drove the housing bubble - plain and simple.

cletus

Anonymous said...

Yes, house prices in some markets are correcting, but it will be temporary and inflation will soon erase those declines.

You forgot about incomes, you idiot. Without the liars loans, incomes have to be able to keep up with prices. When Congress passes the new law banning refi fees, the option ARMs will go away. The RE market is dead without easy credit.

Anonymous said...

ANON 9:04 - that poster is partially correct - MBS have been around since 1970 - ABS have been around since 1987 - the combination of the vehicle (MBS, ABS, etc.) the engine (greeenspans fuck up of leaving the discount at 1% way way way too long flooding the banks with dirt cheap $) and the driver - (GREED by all parties involved from the banks to the consumer) drove the housing bubble - plain and simple.

True. But interest-only loans were in existence since the early 1900s.

Regardless of the age of a particular mechanism, it derivatives market did not get out of hand UNTIL recently. Despite the fact that MBS has existed since the 70s, its impact was marginal.

In the end though, these are all sidebars. The true state of housing can easily be gauged and no one, realtor or otherwise, can get around simple math. The math being that current incomes in various areas cannot support the current cost of housing. That disparity can only be "fixed" in two ways.
1) Wages go up to meet the value of housing
2) Housing prices go down to meet the current wage of the area.

Which is those two scenarios is more likely? Well, being that wages have been pretty stagnant now for 7 years and rents are at parity with wages (making them substantially cheaper than equivalent housing), a betting man would likely say option 2 is the more likely outcome.

ICEMAN said...

Look Alley OOPS!!!

Why dont you go ahead and put your house on the market or better yet go and buy a property. Test your theory and report back in 6 months.

This is the mother of all housing recessions. Listen to the Homebuilders own statements. We are in a downward spiral and will be a long drawn out process. Just because people dont see drastic changes in a short period of time, that does not mean the market is not falling. Do your own homework,
dont listen to anybody here. Research the past housing downturns and you will see that it takes time to develop. With incomes unable to match up with home prices, there will be severe pain. The sentiment in the market has turned and will undoubtedly be backed up by falling numbers.

Real Estate is not the stock market. It cannot just turn around at a moments notice. The Titanic has set sail and is moving very slowly.


ICEMAN

Anonymous said...

EXACTLY what i wrote at 4:34--we're on the same page - home prices are going to have to get back in line with incomes before the bleeding stops!


cletus

Anonymous said...

The real estate market will not die. It will correct. Bush isn't gonna let the sh$t hit the fan for this during his remaining term (what should be rising interest rates), houses sold even when interest was at 13%, with the use of realtors, it just won't be 10,000 of them per square mile, loans were made to people who could pay them, prices were marked to market. Realtors will charge 1.5 to sell and 1.5 to other agent if they want to eat because there will always be a glut of people that either don't have a clue and think selling a home is a step short of rocket science or who would rather pay someone to deal with what would be an inconvenience for them. I just wish they would stop prolonging the inevitable, raise the rates, let the proverbial sh$t hit the fan and cycle itself out. It's 3-4 years of pain or double that if the fed/govt keep playing hot potato. I'm ready for some massive foreclosures, I didn't pay to live in the ghetto.

Anonymous said...

The problem with an inflationary rescue to the housing crash is that houses are usually bought 90% on credit. If you begin to inflate your way out of problems, it gets tough to convince others to lend to you at a rate that doesn't just factor in the inflation. Current sales comps are propped up by current credit conditions such that a hyper-inflationary scenario actually worsens the correction.

Andrew Hac said...

The Americano is as toasted as a snapper turtle skewered on a stick from head to ass all sizzling, juices dripping, fat popping over a bed of white hot charcoal grill.

Americano = Grilled Snapper Turtle

Heeeee... Haaaaa... Arrrrr...

The mentality of the average Americano is just amazing, if not stupefying.

* A Circuit City Sale Associate is able to buy a house.
* A Shoe Sale Man is driving an brand new, albeitly leasing Audi.
* An uneducated, illiterate, ignorant, buck-teeth Ford factory auto-assembly worker makes $40/hour.
* The Iraqi has Weapon Of Mass Destruction.

Talk about the whole congregation of brain-dead zombies, blind-as-a-bat crappers. Maybe that is the reason why there is such word as "Trailer White Trash"...

Anonymous said...

Just ask John Templeton.

He is my grandfather's generation.
(I am 64...knows bull when he sees
it..) Grandma pkk

Where is John Galt?

Luv your posts Grandma pkk. Always informative.

Anonymous said...

Blogger Andrew Hac said...

The Americano is as toasted as a snapper turtle skewered on a stick from head to ass all sizzling, juices dripping, fat popping over a bed of white hot charcoal grill.

Do they really eat snapper turtles where you come from? What do you do with the shell?


Talk about the whole congregation of brain-dead zombies, blind-as-a-bat crappers.

So what is a blind as a bat crapper? Is this where you go after you eat the turtles?