April 23, 2008

Yale's Shiller says housing crash may exceed the Great Depression's 30% fall. And HP'ers ask - "yeah, and that's like news to anyone?"

We told you what was going to happen.

And then it happened.

We weren't smarter than anyone. We just read Manias, Panics and Crashes.

Too bad people didn't listen. Too bad people didn't do their own research. And too bad people listened to idiot realtors on commission. Hopefully they never will again.


A SPECIAL MESSAGE TO ANYONE THINKING OF CATCHING A FALLING KNIFE TODAY - DON'T DO IT. WE'RE JUST STARTING. HOMEDEBTORSHIP IN THIS ENVIRONMENT IS THE WORST FINANCIAL MISTAKE YOU COULD EVER MAKE. AND DO NOT LISTEN TO ANYONE WHO WOULD EARN A COMMISSION IF THEY COULD CON YOU INTO TAKING OUT A MORTGAGE OR 'BUYING' A DEPRECIATING HOUSE.

Yale’s Shiller: U.S. Housing Slump May Exceed Great Depression

Yale University economist Robert Shiller, pioneer of Standard & Poor’s/Case-Shiller home-price index, said there’s a good chance housing prices will fall further than the 30% drop in the historic depression of the 1930s. Home prices nationwide already have dropped 15% since their peak in 2006, he said.

“I think there is a scenario that they could be down substantially more,” Mr. Shiller said during a speech at the New Haven Lawn Club.

Mr. Shiller, who admitted he has a reputation for being bearish, said real estate cycles typically take years to correct. Home prices rose about 85% from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history, Mr. Shiller said. “Basically we’re in uncharted territory,” he said. “It seems we have developed a speculative culture about housing that never existed on a national basis before.” Many people became convinced that housing prices would increase 10% annually, a notion Mr. Shiller called crazy.

49 comments:

Anonymous said...

Yep. Uncharted Territory says it all. It may not be time to buy for quite some time. This whole thing is some serious serious dookie we all have to wade through.

venetiancafe said...

Forget 1997 to 2006 for Scottsdale. How about 100% in 2004-2005!

hardy har har said...

I've got my tin can full of pencils and shoes with holes in them all ready.

W.B. said...

So in Florida I am looking at a waterfront property that sold for $950,000 in 2006 and it is listed for $450,000 today. The same house sold for $275k in 1987 so based on just inflation the house would be worth $525k.

I have to think this is a good price (i.e. corrected price) and worth buying today.

Agree? Disagree?

LauraVella said...

Something is wrong.

30% reduction is nothing. House prices always get cut by 50% in garden variety recessions.

What I think will happen instead is only 30% of homeowners will be able to weather the turbulence of forclosure hell.

The other 70% will be out on the street.

AZDavidPhx said...

He's spot-on with the "speculative culture" comment.

Until the masses begin to correct their beliefs about houses as investments, we will not reach the bottom.

Even as we sit here today, I'm sure that there are plenty of people who are planning to jump in and start buying investment houses again when the market "turns around" expecting to catch another house bubble in the early stages.

This stage is going to drag out the longest as all these "pent up" investors jump into the market near the bottom and watch the values of their investment stay flat for years while they piss their money away maintaining them.

We'll be at the "real" bottom once the final wave of failed investors capitulates and everyone agrees that houses are not good investments when you have to consider high maintenance costs and value appreciation that barely keeps up with inflation.

LAWRENCE PUN said...

I JUST WATCHED THREE HOURS OF HOUSING PORN ON HGTV AND COULDN'T GET OFF!

WHAT'S HAPPENING TO ME?

DOPES said...

"Unexplained Red Lights Hover Over Phoenix"

http://tinyurl.com/3le2tb

Secret documents reveal that Phoenix real estate agents are secretly microwaving the sheeple's brains to see if they can revive lagging home sales.

Ohio Loan Officer said...

I told my friends not to buy that house in Florida yet. But their relatives who live in the area kept telling them they couldn't believe the great prices being offered on houses. "Better buy before they go back up", they were told. I think they are going to wish they waited.

My brother's friend in Coral Gables, FL finally sold his luxury waterfront flip. He bought it for $425,000 in 2006, put $100,000 into rehabbing. Finally closed last month for $300,000. That was a $225,000 spanking!

All we need is for a major hurricane to hit South Florida this season and it will finish it all.

Anonymous said...

Up to 30% drop in the US

60-70% in Europe, 80-90% drop in Germany

Its gonna get real ugly across the pond

Anonymous said...

I will stick to my projection of 2013 as the bottom. And no, I am not an optimistic realturd.

Bert&Ernie said...

Prices have to CRASH, and CRASH HARD.

God, I really am ready to buy, but when you just look at the combination of forces pushing downward on housing prices, it is just unbelievable!! (Talk about the perfect storm of historic proportions.)

We are leasing a townhouse that costs half of what a mortgage would be on the place now, and with all the SHYTT going on, (energy and oil going through the roof, food riots world wide, jobs looking shaky in most industries, etc, etc, we are wondering if we even WANT that big house anymore....(Can you imagine what it will cost to heat as the years go on)?!!!

I want to thank all the blogger peeps that have given my wife and I a lot to think about--if we listened to the mainstream media, and our realtor, we would be in the same quick sand as millions of others right now. "SUUUUZANNNEE"!!! LOL

I think we are going to live as lean as we can for the foreseeable future and bank as much cash as we can...(God knows that isn't even safe anymore, but I wouldn't put a dime in the stock market in these times)

Have a great day Ya'll and THANKS AGAIN

Anonymous said...

I watched housing porn too and it just wasn't the same anymore, guess I can cancel the 12 step program now.

Wayne's WORLD said...

Lawrence Pun--

Haaaaa--I KNOW!! We are addicted to that damn channel too....

Guess we will have to keep dreamin' and let the housing porn sustain us, until these prices really do CRASH. The good news is, there will be a LOT to chose from, and hopefully it will be 25% less!!

Party on--

HELOCHattie said...

HEY!!

And for anyone who hasn't checked out "Mr. Mortgage" yet, you have got to!!--His video clips are the SHYTT, and the Banks, FED and NAR must hate him for exposing them to the public like he does!!

Not sure exactly who this guy is, but he gives a GREAT education on topics like ALT A, the Banks Heloc exposure, etc, etc, and I would highly recommend him.

I think his site is--

http://www.mrmortgage.typepad.com/

Anonymous said...

When housing prices crash, won't interst rates go thru the roof? I mean, they are going to get you somehow. I've never been more grateful for my $450 per month sh*t box apartment, but owe BofA $10,500...mostly for dental work. That's why I can't sleep at night. Will never get it paid off.
Wish they would save their money and not buy CountryWide. What on earth are they thinking anyway?

Anonymous said...

Honest to god! The lack of education on this site is becoming painfully evident. Garden variety recession do not cut prices by 50%. Go back to elementary math. If you have a 100% increase a 50% decrease wipes out all gains. For those of you who think house prices will drop to zero, keep dreaming. The cost of a home, should be and probably will be the cost of the home i.e material, labor, land, which decreases in times like this plus l some profit for a builder/developer. The price of the unit applies whether or not the end user is a buyer or renter. So, no buyers or renters builders don't build. This is becoming apparent with building permit numbers which are a leading indicator not a lagging indicator like sales. Resale home increase in price, because at the basic level, they cannot be rebuilt for the price they were originally contructed for so they used to rise in lockstop with wage growth and inflation. Buildings have lifecycles and america is growing, unlike most other countries so there will always have to be new stuff built. The reversion to a the mean always sucks and yes in most cases they overshoot to the low side. Purchasing a home makes sense if you can afford the property and it tracks it prices with tradional increases. I like to look at purchases as locked in rental rates. If inflation is going to be as bad as some on this board believe, borrowing at low interest rates is one of the best hedges against inflation. I swear you cry over hyperinflation scenarios and then espouse the virtues of renting. Get over it. Why not start looking for a bubble in Oil, corn, rice etc. Many of the realtors same arguments for no price bubble are being used by the talking heads for commodities.

Anonymous said...

Keith, where is your Hillary Wins! thread?? Your Obambi guy is not winning the nom.

Kat5 said...

Near-riot over Boca Raton housing vouchers sends 9 to hospital
The housing bubble affect all social classes. The ultra-high-end home being sold at auction. Meanwhile, at the other end of spectrum, desperate citizens are near rioting as they search for the affordable housing.

The Sun-Sentinel reports, "In a sign of the desperation facing Palm Beach County's poor, hundreds, maybe thousands, descended on the city Wednesday for a chance to get on a subsidized-housing waiting list.The wait nearly turned ugly when housing officials told hundreds still on line Wednesday morning that they only had enough applications left for those with disabilities. The crowd surged forward, almost crushing mothers with children and people in wheel chairs, said Judith Aigen, Boca Raton Housing Authority executive director. 'I think a riot was about to happen,' she said."

"It was then that police in riot gear stepped in, dispersing the angry crowd. Boca Raton Fire Rescue took nine people to area hospitals for medical conditions such as seizures, fainting or diabetic shock, said fire Chief Tom Wood. Police arrested two people and charged them with resisting arrest without violence, said police Chief Dan Alexander. No one foresaw the response to an announcement by the housing agency that it planned to give out 600 applications for its Housing Choice Voucher program. Only 200 of them will be accepted."

Hmmm...scary times ahead.

Anonymous said...

Until the masses begin to correct their beliefs about houses as investments, we will not reach the bottom.

-----------------------------

Houses can be investments when purchased at the right price. the right price being when you can cash flow off the rental income. When prices reach that level then we will see at least a bottom in the market.

Anonymous said...

I thought prices of real estate during the 1930s dropped much more than 30%. Anyone know? Robert Prechter predicts an altimate 90% drop, and I believe he compared that to an approximately equal drop during the 1930s.

Toby said...

It will probably be worse than that. In the 1930's there was significant deflation which affected everything from housing to cars, to everyday staples. The buck was worth more and could buy more (if you had any). We now have inflation which is likley higher than the "official" stats would suggest AND declining housing values.

Anonymous said...

Not going to happen. There will be some crazy Gov't bailout or something.

mairca izda debol said...

People didn't listen because they were playing with the banks' money. The banks didn't listen because they were playing with the investors' and taxpayers' money. The real dummies are the investors in the banks, debt, and taxpayers.

Jonathan said...

"The other 70% will be out on the street."

I seriously doubt it will be so high. More like 20% tops. That is still huge. We will have a huge C.H.U.D. population to be wary of.

Lady Di said...

30% would be a gift.

I am prepared for a much larger hit.

Anonymous said...

Buy rice, flour and oil there are some panic buying going on now!

AMAC said...

I saw Shiller speak in Florida and he was saying 40% further to go to a bottom and that would happen over several years, with what sounded like half the drop coming from nominal price drops and the rest from flat nominal prices which drop in real terms.

Anonymous said...

Here's a nice uplifting article:

Kitco Hyperinflationary Depression

Anonymous said...

probably weren't that many Option ARMs, Neg AM, 0 down, cash back at closing, stated income, 2/28 teasers products, nor were there as many housing flippers back in the 20s to create their mess back then.

Anonymous said...

Keep paying a lot of high taxes to subsidize welfare parasites, geniuses. Obama is coming for your wallet.

BusinessWeek -- The Other Orange County

What you won't see on fantasy TV shows: a cratered real estate industry, few jobs, foreclosed homes, and empty office space

A 1,000-square-mile swath of well-heeled suburbia just south of Los Angeles, the "O.C." was the main headquarters for dozens of mortgage companies that have now gone bust, among them Ameriquest, once the nation's largest subprime lender, and New Century, once among the top 10. As a result the region is one of the hardest hit by the collapse of the housing market. Big builders such as Lennar (LEN) are putting new construction on hold. The Orange County Register calculates that 43 local mortgage outfits laid off some 7,200 workers last year.

"The culture here is very real estate- and finance-focused," says Michael Capaldi, a principal at Newport Beach-based developer Renaissance Pacific Properties. "When real estate is good, it feels like a boom town."

But there are other signs that the county's economy is worsening. Retail sales and vehicle-registration fees are running 10% below what they were in the prior fiscal year. Frank Kim, Orange County's budget director, says he's anticipating much lower revenue next year from property taxes as homeowners ask to get their dwellings reassessed at lower market values. As a result he's keeping the county's projected budget flat at $6 billion, after years of 5% to 6% increases.

"Orange County is in recession," says Adibi. "It began with the mortgage industry, spilled over into construction, and now it's more broad-based."


http://tinyurl.com/4usahn

consultant said...

Keith,

The next interesting wave to watch is the government response to this greed based housing crisis. Will it make it worse? Is there anything government can do or should do?

We are a truly fu@cked country! The housing mess is just like Iraq. It's so fu@cked up, the only solutions are painful ones.

It's only a hope, but I hope all the guilty parties, and we HPers know who they; I hope they all go down with this mess they created. Only problem with that is, it will take most of the rest of us with them. Seems like we're headed in that direction anyway.

HPers, I do a lot of work with geoscientists. A friendly warning. Gas prices are going to get worse. A major depression here are abroad would create some demand destruction, but the trend is upward. Plan accordingly.

Man, reality does bite.

borksmama said...

Even Bork knows that a 10% price increase will never last. Just ask his momma.

Paul E. Math said...

Shiller's message has been pretty consistent throughout. So if anyone is surprised by Shiller's comments then they are probably learning who Robert Shiller is for the first time. I suppose there are some people out there like that.

w.b., that may be a good price for that property in a normal market. However, this is not a normal market: foreclosures and mortgage rates continue to climb, sales continue to fall, credit becomes harder and harder to get. In my opinion, it is unlikely that the current price is the lowest price.

self-hating white kook said...

Real prices are already down over 30% if you look for the foreclosures. There are foreclosure tour busses all over the place

self-hating white kook said...

Income doesn't matter. Credit scores will tell you if the borrower can repay the loan. BWAHAHAHAHA

Anonymous said...

To all those people wanting to buy a bargain at today's prices, ask yourself this question. Why are the banks selling the property? If they believed that a recovery was 6-12 months away, why would they want to sell at a discount today? Banks have a lot more holding power than anyone of us on this blog, and if they saw a gain they would hold on.

As far as getting rid of pesky problems, that's BS.

regards from the Realist

Anonymous said...

Hey remember this one:

"Everyone who does not buy, now, will be priced out forever. Those who do buy will enjoy a lifetime of riches, as their property will continue appreciating 10% or more per year, forever, no matter how far the price increases outrun incomes, population growth, and centuries-long historical averages.

Renters, and those born in future generations, will be unable to afford a $10 million starter home in 10 years. They will live in tent cities and Hondas.

This asset bubble is unlike all others in history, because it will never slow down, or pop. The gains are permanent."

HA HA HA HA HA HA HA!!!!

whydibuy said...

Yeah, everyone got some love except us here in the toilet state of the country, michigan. Bought my home in '94 at 120 k. At best in '04 it might have went for 160-168 and now I'd be lucky to just get what I bought it for 14 years ago. Yeah, some bubble, eh??

went2puke said...

McCain contradicts Bush:

"We are in a recession," he said.

McCain is distancing himself from Bush,recognizing that Bush is a liability. McCain should also have the courage to say what he should have said long ago to break free from ALBATROSS Bush: "The war in Iraq should not have happened and our troops must come home."

If he utters those words, I will vote McCain. Sorry Keith!

Anonymous said...

Those kitco arguements where bunk

Anonymous said...

400% inflation coming WARNS famous gold analyst, (six pack of beer to cost $24)

http://jimmydoomsday.blogspot.com/2008/04/world-famous-gold-analyst-warns-400.html

Anonymous said...

Hey Keith,

I still believe in $170,000 med price here in Riverside late this year or very early next. These numbers are historic which would mean historic drops. In every real estate downturn, the biggest drop occured in first or second year.

I just saw a REO being offered in moreno valley for $89,000 (3bed 2bath 1300 s.f.)

I am wondering if there will be a big drop in the stock market in MAY then a small rebound followed by collapse in October. Maybe I will just stick to real estate because the stock market is crazy.



ICEMAN

Anonymous said...

thought it was pennies on the dollar

Andrew Hac said...

The land is slowly sinking into a quagmire of putrid waste, foul smelly sewage, ankle deep in human excrement.
The sky is darkening more and more every minute as the time is drawing near for the judgement fate of the roasted Americano.

"Thou shall be judged and judged rightly..."

<<<<<
Nostradamus prophecy is showing up at the door of the land of the Americano:

Thou shall be slowly roasted nicely over a bed of white hot charcoal, skewered from mouth to ass like a Snapper Turtle skewered on a green Chinese bamboo stick, juice dripping down, fat oozing, sputtering, succulent flesh aromatically wafting hungryly in the air.
>>>>>

Now, a little verse from the "Man With The White Beard" to cheer things up for the horde of Snapper Turtle, Porpoise, Armadillo, Raccoon, Opossum, Porcupine, Skunk, and "BORKAFATTY" AKA :::The Pig:::

Psalm 23:4

"Yea, though I walk through the valley of the shadow of the Housing Bubble,
I will fear no foreclosure:
for Dubya Shrub & Penis Shooter art with me:
thy bail-out and thy rebate-check, they comfort me."

Anonymous said...

stevequayle.com had an article about a high school class that built an automobile in Indiana that won a contest and it got 2600 miles to the gallon......it did have a shell decal on it tho, so it may wind up dumped into the sea off an oil tanker before it ever gets into mass production........

Anonymous said...

"when you can cash flow off the rental income"

I think what azdavidphx meant was that, in general, we should be buying houses to live in, not as "cash flow". The P/E is nice as a rule of thumb, but the kind of neighborhood I want to live in, people only rent their houses when they are on vacation.

Anonymous said...

stevequayle.com is a quack site.

I couldn't find anything about some magical 2600 mpg car among the articles about skeletons of giants.

If oil companies were involved in some massive conspiracy to boost oil companies' profits, why are there hybrids and electric cars?

With all the focus on gas prices and alternative fuels, car companies would be beating each other silly to get something to market that could go 10 miles on a drop of gas.

Oil companies consider themselves more and more to be energy companies. They are investing in solar, biofuels, etc. They likewise would love to be the first to develop a solar car that goes 200 miles after just an hour in the sun.

Anyway, talk of vanished carburetors that get 400mpg have been proven time and again to be bunk. It takes energy to make energy. It takes energy to move something.

The Professor said...

Andrew Hac (THE QUACK)

At least we don't live in the BARIO like you, where the excrement is waist-deep! LMAO

p.s...Come up with something new--your old recycled prose are getting as stale as your undies.