March 02, 2008

What's the worst case scenario for housing? Some say it's an epic and historic crash of 25% to 40% from the peak. So what do you say?


Have at it. What's the "oh dear god hide the children and head to the bunker" worst case scenario for housing?

The Worst-Case Scenario for Housing - Forecasters say a 40 percent drop in home prices from their peak is possible, though quite unlikely

"Our weaker scenario...is a 25 percent decline in prices," says Celia Chen, Moody's director of housing economics. "That would be in the case of a housing and credit crash and still a moderate recession." There are new worst-case whispers as well. "You want the darkest? Forty percent," she says. "There's your apocalypse."

Lawrence Yun expects the economy and the housing market to recover in the second half as Federal Reserve interest rate cuts and the government stimulus kick in. "In terms of home sales activity," he says, "we may be scratching the bottom."

113 comments:

GK said...

Uh Keith, if the fed keeps cutting interest rates, drops the dollar to 1/2 or 1/4 or 1/10th is current value, house prices could go up 2, 4 or 10 times and be worth the same amount. Absolutely clueless uh-mericans in their 3rd world nation would not know the difference.

Go Zimbabwe option!!!

Anonymous said...

We're in it.

Anonymous said...

40% off is in the bag!

Anonymous said...

In the DC suburbs, going back to 1999 prices would be a 60% haircut. I don't think it's likely that prices drop that much... but it's definitely possible.

Anonymous said...

I say 40% will get done.

Things always shoot past the mean on the up side and the down side.

Just as houses kept going up when there was no fundamentals, they will keep going down even when it makes perfect sense to buy. Its called, heard mentality. People move in heards. They will cause the 40% drop.

Danny

Anonymous said...

40% as the worse case??

At 40% we will just be halfway there.

Anonymous said...

40% off will be the end of the United States as we knew it

Yoski said...

Here in Miami we need about a 65% cut to return us to historical norms. The first 25% are in the bag, another 40% to go. Figure in inflation of 5% and a 10% decline per year, we'll get there by 2011.
The city/county of Miami has about a $25K/$38K median houshold income and a median home price of $425K at the peak. Currently we're down to $319K. An affordable 8.4 times median income. Something got to give especially once you figure in the outrageous taxes and insurance on homes here in FL.
Not sure what the hell Yun is scratching, but it ain't the housing bottom.

tater said...

I agree. "We're in it", and it's just getting started.

I have not a clue about the final shaving, but I would guesstimate between 45 and 50 percent and even worse in the harder hit, bubble-areas for YEARS to come.

Anonymous said...

I totally disagree with Anom 11:31 AM.

40% off from here will take prices back to normal.

Will alot of people loose their homes, and loose alot of "equity"? Of course.

Will people be able to buy homes again, without seeing them as a way to quickly get rich? Yes.

The issue here is that houses are over priced everywhere you go. Other countries too.

Europe too. Asia too. North America too. Latin America too.

We're are just the lucky ones we are first. Canada and the UK seem to be battling for second.

Only god knows where this will end, but at the end, we will all be better off.

Danny

Anonymous said...

Worst case?

How about this? I finally save up enough. The prices level out and I can afford to buy a house is a nice safe area with a half way ok public shool.

THEN some do-gooders pol spread the cancer of hypes, theives, gangbangers and hookers into my hood via housing vouchers.

You want to see some price drops? HA! Watch what happens if they try a stunt like that. Everyone will walk away.

Still Waiting said...

100% up requries 50% off to return to the mean, less the normal single-digit appreciation over five years. Prices here in the DC area shot up 150% or more in that time period. 40% off? Must mean we're all getting fat raises!

That said, 40% could be about right if you are averaging areas that did not see such a gross run-up. Not like I'm an authority on this - in the end people are likely to make emotional decisions.

Anonymous said...

40% is too conservative of an estimate. Try 60-75% off in the bubble markets and up to 50% in the off bubble markets. It is just getting started.

There is no demand for real estate and you will need in most cases a 20% downpayment. It is going to be a long way down.

Anonymous said...

Check out the front page of the real estate section in the Washington Post today.

Long & Foster has "testimonials" from home sellers about receiving multiple offers within hours, that the market is now "hot", receiving multiple offers with escalation clauses, etc.

This ad is pathetic and laughable.

My realtor (not a realtwhore) who has been in the real estate business all his life, very well respected in the community, etc, says that this is absolutely the worst market he has ever seen.And he says it is not going to get better anytime soon.

Back in OC in 2012 said...

If 40% is the national average, maybe that will be the bottom. The high rent districts could lose 60% - 80% while other non-bubble locations (that did not have 25% increases in value year over year)may not tank that much, if at all. Of course this assumes the median income and housing price are not out of line.

Actually, who gives a damn? Let all the shit come tumbling down. Recession is now in full bloom.

Back in OC in 2012 . . . maybe said...

One further note, if we become part of a North American Union, and have the Amero as currency, I am fucking out of here.

Anonymous said...

I've already seen 40% reduction from the peak in my neighborhood here in the suburbs of Tampa.

I can go 55% off peak and still break even selling my house, and prices would have to drop 65-70% below peak before I have to worry that I can't pay the bank off (bought in 2000 using traditional mortgage).

Plenty of room exists in prices for a decline of more than 40% IMHO.

DOPES said...

I SEE A MOB COMING DOWN THE STREET...

THEY'RE CHASING A SMALL ORANGE MAN...

HIS CLOTHING IS TATTERED...

HIS SKIN IS TORN...

HIS ARMS HAVE BEEN RESET INTO A HORRIBLE ANGLE...

HE'S BEGGING FOR MERCY...

IN A FINAL ATTEMPT TO SAVE HIMSELF, HE OFFERS TO FORGIVE THE TOXIC MORTGAGE OF EVERYONE IN THE CROWD...

THE MOB IGNORES WHAT THEY BELIEVE TO BE JUST ANOTHE FALSE PROMISE...

WHEN THE CROWD DISPERSES...

THE ORANGE MAN IS NO MORE...

DOPES!!!

Anonymous said...

50% would be warranted in select parts of CA, NV, AZ, and FL. As a nation, I would say 30%.

Anonymous said...

We all know 50% is a given, 60-70 is to be expected, there's always that pendelum overshoot a little.

goobama said...

it's hard to tell since the job losses are going to start piling up and folks are going to start retiring so just how americans will get wads of cash to pay for a roof over their head is beyond me....

bend over red rover said...

I have already seen 40% in some areas.How about 60%?
Sacramento flippers in trouble alreay has people buried at close to 50%.I don't even pay attention to the govts national median price because it is a joke.

Anonymous said...

in terms of worthless we'll-print-as-much-as-we-want fiat dollars, housing won't be down that much in nominal terms. the government will just print more dollars, and housing prices will stay about "the same," and the housing cheerleaders will cry victory.

but in real terms, housing is probably already down 40% when contrasted with gold.

Anonymous said...

In real or nominal terms?

In real, 57%.

In nominal, 18%.

Anonymous said...

Well here in Phila the median home price is 200-250k (depending on who you ask) to get in line with our median household income of 37k, we'd have to fall aways.

If things are going to go back to fundamentals then prices here should fall by about 50%.

In 2001 townhouses on Rittenhouse were selling for 250k, while that might be a little low owing to the distance to Penn and Comcast -- I think the most a place should sell for there is 500k, not 2 million.

But then, I would also like a pony and I don't see anyone giving me of those.

Also, Keith, I'd be happy to log in if my comment posted immediately but as the site currently runs there is no advantage (I can see) to logging in verses not logging in.

All the best.

Mark in San Diego said...

Already down 20% here in SD, and the Case-Shiller was down 3.4% in the month of December, and the rate was increasing - we have more foreclosures than last year this time, and more Notice of Defaults. . .so we have another one year of foreclosures in the pipeline - my forecast - 40%. It doesn't take too many months of 3% to get another 20%. . .3% x 7 months = 21%.

LauraVella said...

Get ready.

When a forcaster predicts 40% off house prices...just double that amount.

Anonymous said...

Lawrence Yun has herpes of the mouth, anyone listening to him will get it too.


snicker.

Anonymous said...

When we find out how much profit home builders made per house during the boom years, prices will fall 60% or more.

Ed said...

We're already down about 15% from 2005 peak. I say another 15-20% from here.

JesusCrispy said...

Worst case scenario depends on where you live. If you live in CA, NV, AZ, FL, Northern Virginia and small pockets in other states a 40% drop is going to be a reality. This is based on median income versus median house price and rent versus mortgage cost. Other states that did not get stupid still increased but only by a bit. For instance in UT median house price in Salt Lake City went 10% above median income. This is not drastic and we currently are seeing price reductions. Some neighborhoods got ridiculous but I'm already seeing a major correction in asking price based on fundamentals in these areas. Where this slowdown will hurt nonbubble states is the REIC which has slowed down new construction over the whole country.

thesojourner said...

40% easily. In case of something sudden and unexpected, i,e. terrorized cities, much more.

Anonymous said...

But Greg Swann says professional athletes live in Phoenix so prices CAN'T FALL!!

Osama for President said...

"Have at it. What's the "oh dear god hide the children and head to the bunker" worst case scenario for housing?"

John McShitstain as President.
New higher taxes, a Bankrupt nation, 20% unemploymentand a never ending Halliburton War somewhere irregardless.

Herbert Hoover would be proud.

Osama BinLaden for President. OOps, I mean Barack Hussein Obama for President - I think?

Starting Over? said...

Anonymous said...
40% off will be the end of the United States as we knew it

March 02, 2008 11:31 AM

Good. America as it it now, is dead anyway.

Maybe starting over will be Best?

Anonymous said...

In my ZIP code, 91354, median household income is $100K gross. I think median price for single family homes is down to $460K. Already down from $640K 2006 peak. We're probably close to full correction.

Anonymous said...

Along the central coast of Calif. we have already seen 33% and greater drops. Properties in late 05 sold for 565,000 now asking 345,000 Prices have dropped very quickly so the bottom will be reached sooner than many think at least in our area.

SeattleMoose said...

If you go back to 1997 (last sane year...see Shiller graph) and then add 3% inflation per year you arrive at what the house should be worth today (plus any $$ amount for upgrades).

Using this formula I have estimated the average Seattle haircut to be 33% with some as low as 25% as some as high as 60%....depending on the amount of mania and greed factored into the pricing.

Veronica Lodge said...

RE: "The Worst-Case Scenario for Housing - Forecasters say a 40 percent drop in home prices from their peak is possible, though quite unlikely."

The normal rate of appreciation for housing has traditionally been approximately the rate of inflation plus 1%. The breakaway point from this mean occurred around 1999 and continued until the housing bubble reached its peak around the end of 2005. Lax lending standards, phony appraisals and artificially-low interest rates led to today's crashing housing prices.

Under normal circumstances (20% down, fully amortized loans, financed amount not exceeding 3 times income, etc.) the normal rate of appreciation would have continued to be approximately the rate of inflation plus 1%. The key word here is NORMAL.

Today's economy is nowhere near normal: We have a multi-trillion dollar war that is looting the US treasury, US manufacturing has been largely dismantled and moved overseas, inflation is running rampant and the US dollar is being hammered in international markets. Making matters worse, US citizens are carrying more debt than at any other time in history and jobs are quickly disappearing.

"Our weaker scenario...is a 25 percent decline in prices,"

This disgustingly-hopeful and optimistic "weaker scenario" cannot possibly happen, at least as far as median prices are concerned.

If we were in a NORMAL economic situation, we could realistically hope for the above mentioned worst case scenario of a 40% drop in prices in bubble areas, which would return these home prices to their traditional mean values.

However, we are definitely not in a normal economic situation, which, in some areas, would make the 40% scenario seem like a soft landing. Home prices have already dropped 40% in some areas and there is little reason to expect that this same rate of depreciation will be evenly distributed throughout the country.

Some housing areas -- such as far flung Xurb ghost towns, areas littered with empty condo towers and "redeveloped" urban slums -- will become worthless. Other more desirable areas will see 40% drops and only the most desirable "location, location, location" areas will be able to limit their losses to 25%.

Overall, a 40% drop in median prices will indeed come to pass as a national tragedy.

V.L.

Anonymous said...

The husband and I have been hearing on our local AM radio here in good old "prices never go down in Utah" that now is a great time to remodel and get "a lot more perceived equity" into the value of your house.

What is perceived equity?

area51 said...

40%? What?
We have already seen 50% off in some areas and 75% off some land prices.

Armageddon would be 75% off.

gadfly said...

Remember the Nasdaq crash? Remember Nortel, JDS Uniphase and Ciena? Everybody was wrong on the downside of those stocks. The same thing is now happening and I believe 60-80% from peak is just about right to work off the overvaluation. Crazy on the upside and equally crazy on the downside. Yep, 20-40 cents on the dollar at the bottom.

Anonymous said...

What are you people smoking again?? If you look at the inner califonria coastal cities the prices are off %35%-50% off 2004-2005 highs all over the place. Look at universal city east of La Jolla on redfin.. Anything under $500k is of min 30%.

Anonymous said...

40% WTF!!!!!!

Wait until the Guido loans kick in. People WHO buy at 40% off will lose their shirts. Is there nobody on this roll old enough to remember the last war/cheap money for everyone times.

What happened to interest rates afterwards?

We WILL have 15% percent rates within two years, (if not two months) then tell us how far housing can fall. That is what some of the IB's are paying on their money from these sovereign wealth funds.

My parents had a rental house they bought in 1979, and they still had the old mortgage when we sold it in 2000 after my mom died.

16.75% (See that ONE out there. Notice that is 1000 basis points higher than a 30 yr fix now)

Get out your mortgage calculator and tell me where house prices go if we see those kind of rates. And then figure in Peak Oil, Peak Water, Peak Food and you know what I say.

We are going back to 1960's prices, back to when we went in violation of Bretton Woods and used all of our gold and oil on the Vietnam war.

Our asset-less sham petro-dollar economy has been propped up by the THREAT of our nukes for 40 years now, and the rest of the world is finally tired of being scared, and fleeced at the same time.

So, for all of you disappointed, eager beavers who have come to this site to look for advice on when to get back into the housing game, here's something to suck on.

NEVER IN YOUR LIFETIME!!!!!!!!!!!!!!!!!

There will be no bottom for the housing market. Just ask the Japanese about their bubble market.

The shitty houses that were built in the last ten years will literally melt out from under you, and you won't be able to afford the heat bill anyways.

If you don't buy with cash, on something that has good bones, like pre-WW1'ers that you can fix up and make it self-sustaining, (and in-city, close to the soup kitchens) don't bother, you will just be giving your hard-earned down payment to an insolvent bank,.....

For a constantly depreciating asset.

King of the Bitter Renters

Anonymous said...

The best case scenario is for homes to be 50% less then current, or even lower than that.

The worst case scenario is actually a zero percent drop from current prices and having the government's bailouts designed to keep the price artificially high actually work. If this happens responsible people will truly be priced out forever, and housing will belong to people who are for all intents and purposes on welfare or slaves to debt.

Anonymous said...

In todays Orlando paper headline. One bedroom 29th flr condo 2005 price $375k, opening ask $175k, no reserve auction sold for $229k. Auctioneers were "surprised" by the low prices. It's here.

bickerer said...

Thought I'd add this line from a current Slate article for anyone who missed it.


[Bernake's comments] call to mind Japanese Emperor Hirohito's comment on Aug. 14, 1945, that "the war situation has developed not necessarily to Japan's advantage."

Anonymous said...

In my ZIP code, 91354, median household income is $100K gross. I think median price for single family homes is down to $460K. Already down from $640K 2006 peak. We're probably close to full correction.

Borrowing limits historically are 3x income AT THE HIGH END.

Assuming a 20% down payment requirement, a HIGH median for your area will be $375K -- $300K borrowed, $75K down payment.

It's more likely that the *median* will be 2.5x income, since people will only borrow at the absolute "borrowing max" to get an incredibly nice home -- not an average one.

In that situation, your median price will probably be around $312K or so.

In other words, your area still has a long way down to go -- even assuming that the market doesn't overcorrect. It's likely it will plunge even further in a recession driven by poor consumer spending.

Anonymous said...

So, for all of you disappointed, eager beavers who have come to this site to look for advice on when to get back into the housing game, here's something to suck on.

NEVER IN YOUR LIFETIME!!!!!!!!!!!!!!!!!

Amen :-)

Anonymous said...

I think once Barack Obama wins, the Democrats will pass the Home Equity Protection Act of 2009. It will be similar to the one currently in place for the Dutch. The government will guarantee to buy anyone's home at breakeven and wipe out any liens if they cannot sell it for a profit.

the other trader said...

Worst case scenario?
Let's see...

There was some fund that got a margin call, it tried to sell some Muni's it owned, there were few buyers, and the sale failed.

If this credit crisis continues to seize up the markets, (like Fridays event), you will see a 60 to 80 percent drop in home prices.
The highest discounts coming from the most UN desirable areas.

BUT, if the rates continue to rise, this will put addition strain on the BUYERS, and they will not pay as much for a home, because the cost of the loan is taking more of the monthly payment.

So, there are still FAR TOO MANY unseen factors that are contributing to this debacle, and worst case scenarios might just be the better bet.

Anonymous said...

I say we're another 20% from the bottom. If the GSE's collapse, then all bets are off.

keith said...

Here's mine:

Banks fail

Fannie & Freddie fail

Alt-A/Option Arm/Prime blow up

Monolines fail

DC gridlock

Rush out of the dollar

Layoffs

Stock market collapse

Terrorist attack

I think if the above happens, you head to the bunker and stay there for a good long time, with popcorn

40% seems pretty reasonable today. Lower than that is going to need some serious catalysts

Lady Di said...

It depends on the area. Some areas in the US experienced very little appreciation over the past several years. I have a friend that lives in a dumpy town in Colorado. Her house was purchased for $300,000 in 2001, and it is still worth $300,000 today. I doubt she will experience a 40% reduction in her home value.

However, here in OC, California, we will see drastic reductions in home values. I personally have braced for a 50% reduction in my home value. 40% would be a gift.

Anonymous said...

The housing market won't plummet for anytime soon. Eventually the government will get involved and pass a moratorium on falling real estate prices.

Anonymous said...

The federal government will buy up the excess mortgages and do a refinance and then that will allow people to stay in their homes. People will get a new mortgage with a lower mortgage, they will have less to pay every month and then the economy will recover.

Anonymous said...

Not one percent less than 50%.

Burn Baby Burn

Demetra said...

If you go back to 1997 (last sane year...see Shiller graph) and then add 3% inflation per year you arrive at what the house should be worth today (plus any $$ amount for upgrades).

The median price in Philadelphia was about 50,000 in 1997.

I would be satisfied with 100k.

Frank@Scottsdale-Sucks.com said...

My neighborhood in Newport Beach, CA is down 38% from the peak. According to the OC Register, Newport is the least affected of all Orange County (foreclosures here are under 1%), so 40% as "worst case" is hogwash.

More like over 60% in major bubble areas like AZ, CA, NV, FL, etc.

Anonymous said...

Some people are confused here.

If you purchased a home for say, 100k, and it goes up to 200k, your house has just appreciated 100%.

But, if that same house back down to 100k, the house has just depreciated only 50%, but you are back down to the original price.

Percentages can be tricky. They are not the same on the way and in the way down.

Danny

Anonymous said...

Keith,

I agree with you on almost everything, except the dollar part.

For some reason I think that we are not the worst of the bunch.

People keep talking about how bad the US debt is, but the EU is not far behind. UK is even worst.

I think when people see shit hit the fan, they will go into the dollar via treasuries and the dollar will gain ground.

If the war in Iraq ends, even better, the dollar will take off.

When shit hits the fan, the dollar will gain, not loose.

It seems people are paying too much attention to Trichet. But what they dont see is that they are also in deep shit. Their banks are also loaded to the teeth with garbage.

Let's just wait and see.

Danny

Anonymous said...

.


I've lived in San Diego's north county since 1972 and I have only seen drops of about 5%Max and I have actually seen price increases...WTF!




.

Anonymous said...

Gee!

You buy a house at 500k in early 2000,

It's now worth 900k

Value going down

No buyers

Few lookers

You may have to go to 750 or 800k

Boo F'ing Hoo!

Cry me a river, you made money you Greedy Bast!

.

Anonymous said...


It's now worth 900k

Value going down

No buyers

Few lookers

You may have to go to 750 or 800k


It's only worth 900K if someone is willing to pay 900K. In GAAP accounting, you mark assets at FMV or cost. I would say it's still worth 500K.

average joe said...

80-90% drop would be more on the money, from the current prices

Anonymous said...

If the war in Iraq ends, even better, the dollar will take off.


As much as I disagree with the war, people need to realize it is not at the root of our credit problems or even close to it. The war has cost $500B over 5 years. That's $100B a year. Nothing to sneeze at, but it's a drop in the bucket and wouldn't make a difference when you are looking at $6T in equity being wiped out in the next 3 years.

Anonymous said...

I think the whole median measure of home prices is severely flawed. People should be pricing homes by square feet. The average new home built in the 1970's was 1500-2000sf. Today most are at 3000sf. To price and older house, you have to factor in the maintenance, taxes and insurance over decades. People will realize that real estate hardly goes up at all. If you're lucky, you can buy low and sell when it spikes in a bubble. Other than that, all you will get back is your equity and a place to live.

Anonymous said...

I have a friend that lives in a dumpy town in Colorado. Her house was purchased for $300,000 in 2001, and it is still worth $300,000 today.

It sounds like she overpaid

Anonymous said...

What's the worst case scenario for housing? Some say it's an epic and historic crash of 25% to 40% from the peak. So what do you say?
----------------------------------
I think 25% is too conservative. But then I don't see that private consortium of banks (the FED) deliberatly blowing up the dollar.

Lovingthatbush

Anonymous said...

The federal government will buy up the excess mortgages and do a refinance and then that will allow people to stay in their homes. People will get a new mortgage with a lower mortgage, they will have less to pay every month and then the economy will recover.

It sounds so easy. Why didn't they just buy up all the excess stock during the dotcom crash and prevent the recession? Not enough money? Gee

Anonymous said...

40% will not break most Americans - only people that absolutely must sell their homes. At 40% off - that would be my parents home selling for around what it would have sold for in 2000. These things come in cycles and it will be a long time going down - but it's hardly an apocolypse. Worst case for us all is if we end up with another depression. We no longer live in a country where companies like Sears in the 30s wrote off millions of dollars in loans so as not to be seen as the company that would take away peoples homes.

keith said...

Here's a scenario:

Make $80,000 a year, take home $50,000 after taxes, manage to save $5000 a year

Put $5000 down on a $500,000 condo in Phoenix

Two years later it's worth $350,000

You've lost $150,000, plus realtor fees, carrying costs and closing costs.

At your current savings rate, it'd take 30 years to make back that $150,000

So what do you do? OF COURSE YOU JUST TURN IN THE KEYS AND WALK AWAY

Millions and millions will be doing just this over the next few months and years. Putting little or nothing down means the bank owns that loss, not the homedebtor

Anonymous said...

My point exactly,

You've made money!

Even during depreciating times,

Now your crying over how much!

Jerico said...

1. either median sales price in SoCal will go down to about 170K (where it should be considering the income and rents) - no not everyone makes 150K

or...

2. people will change social attitude toward housing: houses will lose appeal and something cheaper (like designer T-shirts) will take it's place. This is because economy will tank and only hard convertable currency (dollar presumably won't be it) will be able to buy a house (or a new car). Whole families (all generations) will live in the same house, forget about new and shiny dwellings, and America will become land of immigrants GOING OUT (say to Europe, Brazil or New Zealand).

Current situation is laughable. People who make 50K a year got somehow 500K of money from the bank. Those banks are now either going bankrupt or begging for bailout. Those people now FANTASIZE about some other people getting the same kind of loan and buying their houses.

Apparently it's NOT going to happen. If 'normal' (i.e. 'market') economy runs it's course, prices are going to swing like a pendulum in the other direction - mid to high 100's . Yes I know it's sounds UNTHINKABLE, but get real people, Reality is something that happens whether you believe in it or not.

The ONLY other alternative is for massive amounts of dollars to come into existence which means dollar will lose it's reserve currency status. It already happened at some point in history to French and British, and considering the technologies available today, could happen to good ol' USA much faster today. If this happens, housing will become hereditary item, and it's place will be taken by cheaper luxury items such as iPods or TVs.

I think most people ASSUME that a new house is something you have a GOD GIVEN RIGHT to acquire.

It may turn out not to be the case.

swiss bacon club w/side of fries said...

Just because your home "IS WORTH" $300,000 does not mean that you will find a serious buyer at that price, this week, next week, next month, next year or 5-years from now.

Get it?

There are no more stupid buyers with EZ money left on the market.

It's over. Cooked. Torn to pieces.

Just hang tight. The effects of the criminal Bush-co clusterfvck gang are just getting started!

********

Anonymous said...

50% drop averaged across the country by 2010. F Lawrence Yun. He's a con man, crook.

On another note, I've never heard so many sleezy NAR commercials before on TV and the Radio. They must have an advertising fund set aside for times like these.

Melker63 said...

Quote: "40% off from here will take prices back to normal."

Not according to this famous inflation-adjusted graph: http://tinyurl.com/ywmj37

Anonymous said...

They keep talking about a so-called "RECOVERY." A recovery of what, the shit that was going on last few years ? I think not, my friends.

A dip below 1997 prices and then a slight uptick. The simple FACT is that all the good middle class, blue collar jobs have been shipped overseas and people simply cannot afford the prices.

Anonymous said...

"In the DC suburbs, going back to 1999 prices would be a 60% haircut."

Dude, check out nova bubble fallout blog - there are already 50-60% price reductions.

Anonymous said...


The federal government will buy up the excess mortgages and do a refinance and then that will allow people to stay in their homes. People will get a new mortgage with a lower mortgage, they will have less to pay every month and then the economy will recover.


LOL! Wow! They should have just done this during the 1930s and they could have avoided the Great Depression altogether. It's really nice if it is that simple.

LOL!

mhrist said...

The worst case scenario will most likely involve the gov taking over the houses that the failed banks will leave behind. With a depressionary living environment those houses might be given away in some type of lottery or sold at auction for any price offered. People would start banding, and since the family is all but gone it will be more on living-needs basis. With such groups forming in inner-cities organized crime will pick up dramatically, especially with the greatly diminished police powers. In reality the same ex-cops that are going to go away with municipal revenues going down, will be the ones getting organized crime back into prime time. And of course Judges and DAs will be poorer as everyone else so they can easily be bribed or intimidated.
Big chain businesses will also fail since they exist because of abundance, rather than efficiency and when economic resources become scarce they would not be able to restructure fast enough nor do they have what to restructure to. They have huge dependence on deliveries, discarding produce and products, and location. For instance they always buy more than they can reasonably sell and discard the excess making it up by the huge number of sells they make.
This current business model is evident in basically every industry from restaurants to wall mart.
All in all, what is coming for house prices is a different ownership model that will not have the same fundamentals. Interest rate won't matter if there are no banks to lend you. Price, and your current earnings would not matter either.
Price will become monthly cost to live in the house. The more people you can get in with you going to matter as well since you share the monthly cost with them. Since it is a group living thing it will be hard to have a single constant owner which would also alter the way mortgages work. Location is also something that would be a big thing since people will group together, but those groups will start grouping together on a higher level. As far as income not being important, this will be because of the volatility of a single-income earner. If you are legit worker in a depression chances are you won't make enough and you might get fired at any second. If you are criminal then there are all types of uncertainties and one certainty - you will not end well. So when getting a house, you will again need a group because if you have 10 people in a house and unemployment is at 30% then you still have 7 people working at all times. If someone loses their income, another one probably gained income. Same goes for food and necessities. It is the only way.
Now this grouping and helping each other will fundamentally change the culture from individualistic to small self-sufficient groups.
As I noted before those groups will unfortunatly be competing for the same scarcer and scarcer resources. This will result in clashes. Living closely in a group is also a sure way of igniting clan mentality which will further add to the fire.
But it is not all bad, we are going to get great friends that will lend as a hand and a shoulder, we will get strong families too. People will become considerate because you cannot do anything else when living with 10 other people. We, and our children will become a lot more inventive in our lives as well. All in all, I think it is a very good deal. But you got to really be afraid of organized crime in such situations because it is not pretty at all, and I know from first hand experience from a place where things were better than we are going to be.

P.S. Besides those 3 people left from the 10 will be plenty to always have cooked food, clean residence, and all types of nifty little things that people come up with when poor, yes, I just said the p word, better get used that you are.

olives said...

The last Depression I believe prices dropped approx. 75 percent nationally - I can't see why it would be any different (if not worse) than that this time around.

85 percent drop of land value in japan over last 15 years

40 percent sounds naively optimistic

Anonymous said...

My best bet?

Prices will only fall about 20-30%

However the dollars these shacks are denominated in will lose about 66-75% of their value.

So really about 80-90%.

Anonymous said...

A 40% loss after a 200% gain...i'll take that deal anytime anywhere

California is burning said...

Many areas in Cali are already down 25%-30%, so 40% looks like a forgone conclusion. I say we end with a 50%-60% percent drop. We still have not had the layoffs from the recession everyone is predicting. That said, who know how far things go. Definitely can’t trust the economists, most of who said everything was fine 8-12 months ago.

Anonymous said...

As the munibonds collapse so does govmnt spending. This means everyone who is working for, contracted by, or retired from the govmnt will be getting less and less and less if the munibonds can't be rolled over.

IMHO, reo properties are going to flood the market THIS YEAR at dirt cheap prices. A house loses a tremendous amount of value sitting empty. They either get them off the books asap or they are going to go to zero very quickly. That they haven't done so already is only because a reo sale that low will revalue EVERY house around it.

We are going into LOCK DOWN folks. Anyone who buys a house to live in needs to realize that neighborhoods are going to be UNSTABLE until things settle out. The ONLY way you knew your neighborhood was stable in the past was because the people living their had similiar income levels. Now you have no idea who has money/doesn't have money, who is going to have a job in six months/who is unemployed in six months, who has continuing retirement benefits/reduced or eliminated retirement benefits, etc.

I wouldn't be surprised to see emergency legislation pushed through that makes it very 'uncomfortable' to walk away from your 'obligations'. It will fail in it's intentions.

Then again, I would also bet that the govmnt loses the ability to function as more and more govmnt employees are terminated. In fact our whole society is so complex that it might not take a lot to disrupt it for a long time.

Anonymous said...

My house has lost 40 percent of its "value" already. I am 30 miles outside of Washington DC. The tax assesment dropped 27 percent over the last two years.

Tax year 06 497,000.
Tax year 07 464,000.
Tax year 08 363,000.

Homes usually sold for about 80-90 grand more than the tax assesment in my area, so should I stomp my feet at the tax office to get it reduced to 270,000.00 ??? Ha, I bet they would love that one.

Apraisal 1/06 589,000.
Most recent sale of identical home:
Jan 08 350,000.00

Guess my point is that if 40 percent is already a reality, than 60 percent is just around the corner.

Anonymous said...

Here in South Florida(west palm beach) we are in big trouble between taxes, insuance and the highest cost of living in compared to the low wages. People are still buying here believe it or not thinking they are getting a deal on a old ass homes in original condition for $200k with the thought they are going to remodel! I think the summer heat makes people stupid here!!! Can someone look into that!! People who need to sell are in a panic mode and everyone else is in denial mode. Almost everyone here is upside down or going upside down soon. It's just a matter of time! Foreclosures aren't even selling at this time. So far Dade, Broward and ST Lucie are considered HIGH RISK counties which requires 15% down minumum so everyone who still chooses to buy is going the FHA route 3% down. Land prices in this area have fallen by 50% percent already! I have already seen houses going for 120k and condos here going for 80k from the 250k and the 175k they were 2 years ago! Crazy times indeed!! I think this area is going back to 1999 prices which mean another 50% from the 20% we already lost since. 65 to 70% can happen here!!

rich in fl

Anonymous said...

Hey Keith,

We have already dropped 30-35% here in Riverside and its getting ugly. I am noticing disturbing transactions that are taking place regarding short sales. They can try and hold up pricing for so long but it is still inevitable. This tactic still couldnt keep prices from falling 35%. Surrounding areas of Riverside are already showing price declines of 39% which include Perris, Lake Elsinore, Moreno Valley, Sun City, Hemet, San Jacinto, I could go on and on.

Lending standards are extremely tight with minimal qualified buyers. This area just might see 70-80% drop when it is all said and done!!


ICEMAN

Anonymous said...

http://youtube.com/watch?v=2v80By52jOI

hope. change. hope. change. hope. change....

insane parody. best ever

the above YOUTUBE does a great job of explaining OBAMA

Anonymous said...

what happened to dopes?

Anonymous said...

I don't believe the worst case scenario will happen. The deflation in housing prices combined with the plummeting dollar means we will find a bottom with foreign investment.

Better start learning to speak Mandarin Chinese.

Anonymous said...

Nationwide we see a 22% decline.
Bubble markets see much much worse.

SoCal sees some markets drop 60%+.

Anonymous said...

Keith "foreclosure news alert"

Sunday, March 02, 2008

Palm Beach County foreclosure filings for February grew by more than 150 percent from February 2007, according to the county's clerk and comptroller's office.

Lenders filed 1,999 mortgage default cases last month, up from the 794 cases filed in February 2007.

Anonymous said...

Borrowing limits historically are 3x income AT THE HIGH END.

Assuming a 20% down payment requirement, a HIGH median for your area will be $375K -- $300K borrowed, $75K down payment.

It's more likely that the *median* will be 2.5x income, since people will only borrow at the absolute "borrowing max" to get an incredibly nice home -- not an average one.

In that situation, your median price will probably be around $312K or so.

In other words, your area still has a long way down to go -- even assuming that the market doesn't overcorrect. It's likely it will plunge even further in a recession driven by poor consumer spending.


The 3x is a good rule of thumb when looking at the country as a whole. One size certainly doesn't fit all though. 91354 is a really nice area. So 4-5x income doesn't seem that wild. Look at Geenwich, CT. Median household income is $140K. Median home price is $1.2 million. That's like 8-9x! But that town is ranked as one of the best to live in.

Anonymous said...

Their "worst case scenario?"

How about this one:

Case-Schiller Home Price index returns back to historical normal level.

CS-HPI is inflation adjusted so who knows what it will be in nominal numbers, but we know where it's going in real numbers.

http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

Andrew Hac said...

This nation and most of its citizens, residents, dwellers, occupants have no ethic, no moral, no responsibility, no duty, no honor, and last but not least, no brain. What it has in plenty is greed, self-centerness, ignorance, pompousness.

The housing bubble is a shiny mirror in which the Americano can look at itself and ponder upon what may the future brings upon this land of the Snapper Turtle.

A nation that mostly comprises of pigs feeding, tearing, roosting, chomping at the trough.
A nation with most of its dwellers obese, fat, diabetic, and plain ugly like a chimpanzee. An excellent display of this specimen is "BORKAFATTY" AKA The Pig and his fat-ass wify, rotten-teeth, maggot-smelly redneck kids...
A nation where a Walmart cashier can buy a house for $500K.
A nation in which its citizen's brain IQ is lower than a snapper turtle.
A nation which rules by turkeys, skunks, and rats.

The Americano nation is as toasted as a roasted armadillo skewered from mouth to ass sizzling, popping, oozing with melted golden fat over a bed of white hot charcoal.

Anonymous said...

around 50% to get to historical norms. then, maybe more because of panic.

central planning trying to hyperinflate out of this, but that could cause major anger and outrage as people won't be able to afford gas and food in addition to their overpriced homes. the hyperinflation solution is silly since many of these people couldn't afford their homes even with 0% interest.

Melker63 said...

Check out below "all-in-one Case-Schiller home price index" graph:

http://tinyurl.com/2grvbg

Anonymous said...

If the "experts" are saying 25%, get ready for a 50% drop. Or better yet, get ready for 1994 prices.

Cow_tipping said...

You mean for the average US as a whole type or in the "bad markets" cos bad markets I already see having hit 50% in sac etc ... and guess what, its still over $$.
Cool.
Cow_tipping.

OriginalFrank said...

> Living closely in a group is also a sure way of igniting clan mentality which will further add to the fire.
But it is not all bad, we are going to get great friends that will lend as a hand and a shoulder, we will get strong families too. People will become considerate because you cannot do anything else when living with 10 other people.

***

Kinda like the Waltons. I can hardly wait.

Good night, John Boy!

Anonymous said...

Andrew Hac needs some new material

Anonymous said...

this andrew hac guy is a dipshit

k.w. - southern ca. said...

Right on - too bad so many of
the "experts" don't verbalize
this fact.

Once we start dealing with facts
in this country - like housing is
a really bad idea now - we'll be
better off in the long-run.

Danny Said ...
"The issue here is that houses are over priced everywhere you go. Other countries too.

Europe too. Asia too. North America too. Latin America too."

Anonymous said...

mekler63,

that first chart you linked (http://tinyurl.com/ywmj37) would need about a 45% drop to get back to the historic norm, which is close enough to 40% for government work...

k.w. - southern ca. said...

It's only worth what someone is
willing to pay ... regardless of
what you bought it for.

Anonymous said...

It's now worth 900k

Value going down

No buyers

Few lookers

You may have to go to 750 or 800k


It's only worth 900K if someone is willing to pay 900K. In GAAP accounting, you mark assets at FMV or cost. I would say it's still worth 500K.

Anonymous said...

Prices drop 50% nationwide within two years. Federal and Local governments start buying back large residential areas impoverished by declining values and repurpose them for public housing projects. The real wars begin as property tax payers fight city hall over zoning regulations that can ruin one's neighborhood overnight. Prices continue a steady decline until 2012 to 2015 and stay there for ten to fifteen more years. The rich, who are paying twice the tax rates of the Swiss, decide it would be better to live elsewhere, and the higher tax rates creep ever lower into the traditional middle class brackets. Baby boomers read about cancer cures that cost $100,000 per year per patient and think that they have a right to affordable access to the medication. Young people lobby for euthanasia to be legalized. One in two cars on the highway is driven by someone with gray hair and Toyota 4-doors plowing through school yards without slowing down is a common occurrence and no longer makes the front page news. Dirty bombs go off in LA, but people don't cough any more than they usually do and so no one supports republican initiatives to bomb Iran. George Lucas starts making Star Wars Episode VII using all CG characters and it goes straight to broadcast.

And then it starts to get ugly.

Anonymous said...

I had the privilege of hearing Robert Shiller (of Case-Shiller fame) speak at a conference last week and he informally predicted what seemed like another 40% change in real house prices...this was composed of 10%-20% more of nominal price drops and the rest due to flat prices over 10 years or so...

Tracedog said...

Off topic here, but does anyone remember or know the title of that painting, or the name of the Artist? It is a famous painting, and burned in my memory from when I was young.

Anonymous said...

"...does anyone remember or know the title of that painting, or the name of the Artist"

Tornado Over Kansas by John Steuart Curry

Banana Repulicrat said...

RE is local!

Check out this haircut on Dr. HB:

http://tiny.cc/G5IJg

Anonymous said...

Portland Metro Area in Oregon is overvalued by abotu 45% compared to the 2002 level. For a while touted as one of the "strongest" (whatever that may mean) markets, the inventory of unsold homes has spiked in January by 50%. The economy here is showing signs of recession too, so I'd say 40-45% is very realistic.