The graphic along with that article is nice. According to that, the NY market has begun to trend down; finally i have a simple chart to show Mrs. Gary.
I wish it went back further than 1988 to show the madness of the mid 80s.
once again expect the media to concentrate on the headline number, while the purchase-only index will probably be a lot more informative. Last quarter OFHEO started releasing purchase-only at the state level. Would be nice if they'd do it at the metro level, at least for larger metros.
Also, I'd love to know the source for "official government numbers going back to the 1950's" The article says Freddie Mac numbers going back to the 1950's but I've never seen a Freddie Mac number before 1975 - they didn't even exist in the 1950's, and even the Freddie numbers back to 1975 are really Fannie numbers - they collaborated on a joint price index project several years ago that Freddie still maintains. And Freddie is not "official government (nor did Freddie exist in the 1950's)." The Leonhardt interview describes OFHEO numbers as being "official govt. numbers" but those numbers only go back to 1975. I'm guessing maybe Finance Board numbers? If so, those aren't quality adjusted. And they have declined month to month, and even on a 12 month basis - only the annual averages haven't shown a decline.
When I think about 'the subprime problem is contained' coming from the same guy who 'will never allow another depresion to happen', I don`t know about you, but I feel very comfortable.
Why would anyone, with any connection to the real estate biz, have to get price deterioration confirmation from the New York Times and a couple ivory tower economists.
In my (greater Washington, D.C.) experience, prices are way down, despite all the claims to the contrary, easily 10 to 15 % year to date.
Yes, I know my view is limited. But, my god, it is reported over and over again, from all corners of the USSA, on the internet blogs.
But some still cling to the belief that we must find official data to prove the officials
wrong.
Well, a nationwide price decline will give the FED cover in the owner's rent equivalent to allow more inflation in everything else;-}
Two or three percent would allow a rise of seven or eight percent to be effectively masked in the statistics!
Look on the bright side- the housing industry will once again be in the business of providing a roof over your head, not an ATM source for more baubles.
Back to work on the marble Taj Mahal that is my bathroom.
Speaking of price decline, I just saw this porperty at 34** Pleasant Vale, Drive, Carlsbad, CA 92010. For sale for $650K, it was bought in 05 for $710K from the builder. The builder still has some unsold homes.
mort_fin, I agree about the purchase only index. That is what I've been using recently. And I also agree with your comments on the Freddie data.
dis, sorry, I must have missed your comment.
WMD1964, yes, prices are down significantly in many areas. But it is difficult to say how much in each area - because each price index has problems. The OFHEO purchase only index is probably pretty good for areas were most of the homes can be financed with a conforming loan (say prices below $450K since the conforming limit is $417K).
But that only buys a few properties in many bubble areas. Of course people can still use a conforming loan on a $1 Million house if they put down $583K (or use a second). And that house would then be included in the OFHEO price index.
I've talked with agents in certain SoCal areas - and they've told me it's common to list 10% or more below what a similar house sold for two years ago if you really want to sell - or even get traffic. And that is just the list price ... that says prices have fallen even more.
I think the Case-Shiller index is helpful, but it is only available in certain cities. And right now the OFHEO index still gets the press.
If these are in fact median prices, they reflect the collective borrowing power vs. housing availability of the different regions, not home prices movements directly.
The Case Shiller same-home methodology is a much more accurate picture of what actual prices are doing.
Even case-shiller can be incorrect as many used homes have had substantial improvement investment that isn't accounted for. All that improvement money went somewhere presumably.
Real prices have to fall. I still can't figure out if the talking heads are lying or this clueless.
The nominal promises in house prices can't be honored without cutting a big chunk from consumer spending, which would kick off a feedback loop of lower wages -> lower spending -> lower wages. Which would drop nominal house prices anyway.
You only get to spend if you make stuff. I used to get a kick out of the arguments that the flood of people in CA would prop home prices. My response (back in the early 80s) was to ask why house prices weren't sky-high in India and China. Of course, that's changed now because they MAKE stuff.
"Moody's, a unit of New York-based Moody's Corp., said in a comment letter to CESR, published today, that structured finance ratings contributed 47 per cent of last year's revenue."
"S&P, a unit of McGraw-Hill Cos. of New York, said in its response letter, "We do not perceive any resulting potential conflicts of interest'' in providing ancillary services to issuers of asset-backed bonds. The letter posted on line by CESR didn't include revenue figures. "
"Even case-shiller can be incorrect as many used homes have had substantial improvement investment that isn't accounted for. All that improvement money went somewhere presumably." Excellent point, barely[(or did I mean to say : Excellent point barely.)
so sorry could not resist the pun.]
But still, right on, sir
However, back to the point that barely made, or was barely made, oh, what the hell.
He makes my point: stats and stats and ivory tower official stats make sense, until your eyes see different.
This housing market is pure hell.
Impac lending closing Monday, this is the "official" auction of the REDC who is running those 2 big Southern California auctions today and tmw. I wonder how this will affect things.
From the NYTimes article quoted by CR: "In 2005, Ben S. Bernanke, then an adviser to President Bush and now the Fed chairman, said strong fundamentals were the main force behind the rise in prices"
This article was decent for the establishment/corporate/elite/dominant/capital-fetishizing media; nonetheless, the fact that this statement could be left unchallenged and without ridicule represents the kind of brain dead stenography reporting that allows economy-distorting asset bubbles to occur.
I'm glad the article quotes Dean Baker saying, "There are a lot of people ... who bought homes at hugely inflated prices who are going to take a hit. You also have a lot of people who borrowed against those inflated prices," but they didn't let him elaborate on the fundamentals.
It's a disservice to the Times' readers, and all the newspapers that carry this article, to perpetuate the hallucination that most house owners in major metro areas don't have any "phantom equity" that will vanish because some unstated fundamentals are at play. May we even talk about the phony fundamentals out loud?
Let me try this again. My point is simply that I cannot recall reading an article in any "mainstream media" over the past several years that has clearly explained, in as simple terms as Dean Baker or CR can, why housing market fundamentals clearly have not supported housing inflation over the past decade. Thus, the population is still largely misinformed and caught off guard.
If any progress is to be made over the coming years in deflating the housing bubble while mitigating this massive effect on the national economy, then first the U.S. public must be informed by the Fed, et al, what fundamentals drive housing prices and why we've lived in a housing price fantasy candyland over the past 10+ years - and the candy is now up our ***!
broker, the cashback at closing is tough to gauge either way since the prior sale could have overstated price and the decline would be overstated without a similar deal on last sale.
Truth is, with a BS market, it's tough to make use of the stats...
I do not believe, as many here and elsewhere do, that the Federal Reserve caused the housing mania. I believe the housing mania grew out of the stock mania; and while the Fed was irresponsible in not addressing the stock bubble, at least until after it burst, the Fed cannot alone distort housing prices from its market fundamentals - this occurs in a much more macroeconomic interconnected price-expectation way.
So I'm not calling on the Fed to stick its nose in its own doodoo, because it's a more complicated mess than that.
with debt laden American economy ( budget deficit + more significant almost $1 trillion trade deficit ) combined with debt laden Americans + declining real estate prices of 10 - 40% over next 3yrs + less MEW withdrawal + less high paying jobs what this amount to ?
A heck of a lot of pain and suffering for fat, lazy, apathetic and ignorant Americans who live beyond their means in La La land.
I for one am looking forward to this sobering reality where cash is king !
OT: I sitting here chillin' and listening to Chicago's WDRV on-line. My god, the commercial I just heard re people getting refi's and paying off their charge card, in spite of the hubby's continued poor financial habits..yadayada. I can't believe folks are still falling for this.
From a Research paper published by Fannie and Freddie economists cited in the NYT article:
...there is little possibility of a widespread national decline since there is no national housing market.
Sure, all real estate is local: you can't buy a lot somewhere else and have it shipped, now can you?
But, in the 2000's, there's a national, even global market for mortgage credit. The availability of that credit dominates both the demand and the supply of housing everywhere.
barely, I dont agree with you on this one. In a sellers market it is the buyers who make the concesion. In a buyersmarket it is the other way around. Look at the builders! The only things I didnt see advertised as incentives are hookers and cocaine.
"Even case-shiller can be incorrect as many used homes have had substantial improvement investment that isn't accounted for. All that improvement money went somewhere presumably."
It occurs to me that at the macro level there is a reasonable measure of this--the spending at home improvement chains. Since home improvement spending seems fairly well correlated with MEW recently perhaps it would be fair to say that a large chunk of appreciation over the past few years was in fact just borrowed. If a home owner borrowed X% via a HELOC or C/O refi, then spent that money on improving their home's value (presumably by an amount ~= X%) that has to be subtracted from their "appreciation". Any of you number hounds have good aggregate data for home improvement spending for, say, the last 10 years?
The next credit crunch?
As home loan market tightens, mounting credit card debt could spur new crisis
Now that the easy money in home mortgages is all but over, consumers may soon be caught in a financial squeeze with their credit cards.
That's the worry among some economists and credit counselors as home lending has shifted abruptly into low gear this summer. That leaves homeowners owing big sums to Visa or MasterCard without an important escape hatchthe ability to pay down the plastic by dashing off a check from their home equity line of credit or rolling the debt into a new, bigger mortgage.
"You're not going to be able to get that mortgage loan. You'll be stuck with the higher interest credit card debt," warns Carl Steidtmann, chief economist with Deloitte Research. "We will have to live within our means. I know it's a troubling phenomenon. But we're not going to be able to spend at levels well above our income levels."
Like I said a heck of a lot of pain and suffering for fat, lazy, apathetic and ignorant Americans who live beyond their means in La La land.
Hopefully most the asshats voted for Bush and are getting well deserved comeuppance.
Interesting wish. If one were to overlay the electoral map over the housing/debt pain map, the counties voting for Bush are not the ones noted for living beyond their means. Now that it has been brought up, it leads me to wonder if the lack of speculative excess in fly-over country has more to it than lower population density. My wife and I chickened out on building a McMansion in 2006 when the price started to close in on $350K. We could easily afford it, but it did not feel right. So we settled for a much smaller spec house that still allowed me to walk to work.
Bush country may not have house price inflation, but the red states live far beyond their means in terms of government handouts - highway funds, defense spending, ag subsidies, individual entitlements, you name it.
Deadbeat states who went for Bush: (those getting >110%+ of their tax money back)
Alabama
Alaska
Arizona
Arkansas
Idaho
Kansas
Kentucky
Louisiana
Mississippi
Missouri
Montana
North Dakota
Oklahoma
South Carolina
South Dakota
Tennessee
Utah
Virginia
West Virginia
Wyoming
Non-deadbeat states for Bush:
Colorado
Florida
Georgia
Indiana
Nebraska
Nevada
North Carolina
Ohio
Texas
Sorry, but you're wrong. The Fed most definitely got the bubble started when they lowered the FFR to 1%.
I heard a wise, CR-like gentlemen state that years ago that "sellers only care about the price, but buyers only care about the payment". Lowering rates greatly enhanced the buying power for a given payment. IOW, kindling for the coming bonfire.
It was all too easy to watch it all unfold here in Southern California.
"But, in the 2000's, there's a national, even global market for mortgage credit. The availability of that credit dominates both the demand and the supply of housing everywhere.
So very true. I see that in many countries. And.....In few countries in which credit is not so developed there is a "MEW carry trade" in which equity from R/E in country A is used as 50% down-payment required by regulation of country B.
My logical explanation - wealth effect from stock bubble finding its way into temporary limited supply of high-end real estate, which then pushes up lower end real estate leading to spiraling expectations for future housing gains amongst public, ala Japan's stock/housing bubbles 2 decades ago (this happens to be Dean Baker's explanation as well - go figure).
I'm not trying to downplay the effect of "easy money" via lower interest rates (Fed induced), lax lending standards (no Fed oversight), rabid fraudulent securitization (Fed wink and nod). I just like to chime in now and then to say, regardless of what happened in the mortgage market, the housing mania should still be thought of as a classic Mania, Panic, and Crash bubble event. So it mirrors Gold price 1979-1980, NASDAQ 1995-2000, even though neither had such widespread, lewd credit use by public. And so, ultimately, its hard for me NOT to conclude that in bubble areas, house prices will go down to real 1997 levels.
Good point, but the boom from 1997 through 2001 could be considered part of the normal housing boom-bust cycle. It wasn't until 2001 that prices really broke out above prior peaks. If the FFR hadn't been lowered to 1% housing prices would've topped out there and headed back south again just as they had before.
Before the Great Unwind I had my eye on a new 3,387 sq ft 1 story brick & stone SFH at 105 Yorkshire Drive, Heath, TX 75032 (Dallas burb)listed at $469,000. It is now listed at $479,000 due to carrying costs and remains for sale at realtor.com and ebby.com a local realtor.
Flooding hit Ohio today and it just makes me think of all those REOs. Must be giving the lenders quite a headache. Pretty soon jingle mail will consist of the lender mailing the keys back to the foreclosed owners.
"bank will mark to market on daily basis"..........
I saw that previously, it would seem that this would cause some to be a little nervous! It may also explain the regulators being in there for the last few weeks.
I think 1997 was when Clinton passed the 500K capital gains exemption on RE wasn't it? I had sold a home in the previous few years and paid taxes on my 50K profit . The 500K was trully excessive since, really, at that time, in Seattle anyway, you had to look hard to find a home that was priced over 200K. However, within months of that passing, home prices began their wild inflationary uptick, presumably so people could take advantage of the exemption.
That's what it looked like to me on the ground anyway. Within a few months of that passing, prices in many Seattle neighborhoods had doubled. It was the beginning of the nightmare of home prices outstripping incomes and homes becoming a "get rich quick scheme" instead of a place to lay your hat.
Dropping the rates later was just a way to keep the whole thing going. I guess the pols decided that since incomes were pretty flat and Americans were easily fooled with the "debt is wealth" propaganda, they couldn't leave the house price inflation thing alone so tried (and suceeded!) to keep the party going by lowering rates. Lowering the rates was also a way to spread the bubble into areas of the country (outside the coasts, etc.) where it had previously not yet taken hold...how nice...what a great plan. So now we've arrived at today. And the politicians still clamoring to keep the American Home "Ownership" Nightmare alive and well with the bailout talk.
the when-the-bubble-started analysis is dependent on where you were 1997-2002.
I was FOB in the S Bay Area in May 2000, and prices were going up like nuts due to the dotcom flooding pushing everyone to buy then or be priced out forever.
Being FOB I needed to re-establish wage history so I was forced to stay on the sidelines until I had 2 years of 1040s again. But by 2002 the dotcom crash kicked the N California market in the jewels and prices were stagnant if not going down.
My sister & BIL were renting a place for $1200+ down in Orange County, so I decided to loan them their down payment since I saw no reason to buy up here. Prices had NOT yet started moving up that much in the OC by mid-2002; they were able to get a reasonably nice condo close to work in Fullerton for just $200k.
Then the market started accelerating, and they flipped the equity out of that into a SFH in Corona in late 2003.
Meanwhile, here in the South Bay, somebody lit a rocket under prices Jan 2005. 2005 saw IMMENSE appreciation, appreciation that is only slooowly being worked off 2006-now.
Get a clue. Your "talking point" is that conservatives are cold, hard and uncaring about the millions of families being driven from their homes into the wilds to grub for edible roots. Do I have to spoon feed you?
I think 1997 was when Clinton passed the 500K capital gains exemption on RE wasn't it?
Yup. That was an important ingredient in cooking up the current bubble. My guess at the recipe would be:
-Easy money from Fed, coupled to our huge CAD and PBoC & BoJ currency manipulation.
-Lagged connection between borrower & lender due to securitization (obscured moral hazard).
-Increasingly loosened lending standards (IBs need for fees from SIV placement & weak regulation).
-1997 RE Cap Gains exemption.
Mix and voila - you have a real estate bubble.
All the RE Cap Gains incentive did was make sure the liquidity event ended up in an RE bubble... if the incentive had been targeted differently then some other asset would have ballooned.
If you look at the San Francisco chart in the NY Times interactive graphic, you can see that SF had massive gains in housing prices during the tech bubble, and that they never got unwound like they should have. Essentially, the housing bubble in the Bay Area doesn't look so bubbly at the outset ('01 and '02) because we were in the middle of unemployment rates at or above 20%. By all rights, those tiny negative numbers in median home prices in '01 and '02 should have been massive declines.
IMHO, we still have to unwind the dot-com excesses in our housing market.
No question whatsoever the Bay Area took off earlier due to dotcom.
I remember reading way too many stories of fresh out of school "web designers" (cough) paying outrageous sums for condos and jockeying for positions on the Boxster waiting list, and those were just the low-end weanies.
IMHO, we still have to unwind the dot-com excesses in our housing market.
Rents are nearly back up to 2000-2001 robbery levels. Wages are double or triple here what they were 10 years ago. As long as these related factors are present, prices will encounter a hard stop at 2003 levels.
I'm halfway tempted to buckling and getting that 1B condo for $410k+, but I want to see how the markets respond to all the suicide lending and jumbo turmoil over the next two years.
I thought the market here would continue to souffle 2003~, little did I understand the power of the Fed to blow bubbles with free money and those new Crazy Eddie lending guidelines.
dryfly said: "...Mix and voila - you have a real estate bubble."
In the Charlotte MSA (my closest proxy market), housing appreciated by 41% in the decade 1/87-1/97. In the decade 1/97-1/07 it was 45%.
If your summary of the factors that created the housing "bubble" is correct, where's my "bubble" at? Where's yours at, for that matter.
If, on the other hand, housing prices are controlled primarily by local conditions, that would go a lot further towards explaining the "bubble."
Like that the "bubble" is highly, HIGHLY concentrated in certain areas that are perenially speculative.
I remember when it used to be Texans who thought of themselves as being the center of the Universe, and as Texas went so went the nation. Now it's Californians, I guess.
If your summary of the factors that created the housing "bubble" is correct, where's my "bubble" at? Where's yours at, for that matter.
Mine is in the lake country of N Minnesota... yours is out on the Outer Banks & Myrtle Beach. Huge appreciation of values in second homes and associated CRE... driven almost entirely by excess liquidity & lax lending standards.
Its there Seb - just get up from your charts & take a look.
dryfly said: "It's there Seb - just get up from your charts & take a look."
That's one of the primary reasons so many here are going to be surprised about what happens next. They're accepting subjective anecdotes of the exceptions as proof of the "bubble" instead of objective data on the total picture.
Your examples of lake-front or beach-front property are precisely what I mean. Areas like that are always more speculative than ordinary neighborhoods.
If there was truly a nationwide housing "bubble" (or "bust") I wouldn't have to go looking for it, I couldn't avoid seeing it on every trip to the grocery store or the post office.
The 1997 RE capital gains exemption of $500k replaced an existing unlimited exemption.
Limiting the exemption to $500k (instead of unlimited) has no practical effect for most people. However, the removal of the requirement to reinvest is important. This change allowed people to sell their home without repurchasing another home. In other words it let them become net sellers. This increases supply - hardly a condition that would drive prices up.
Check the 98105 zip, Ravenna neighborhood (between 16 Ave NE and 22nd Ave. NE from about NE 70th to NE 62nd). That's the neighborhood I was involved in on a daily basis. Homes shot up from @ 150/180 to 250/280 in just a few months. By the end of the summer, everyone was seeing green and half the neighborhood was on the market at ever increasing prices. By 2004, homes that had been 180K in '96/97 were asking over one million.
The posters above who mentiones the dot.com profits explosion are correct. The funny money from dotcoms had a lot to do with setting the RE fire off. That and Clinton's 500K exemption. Remember, Seattle was Software City so intimately involved in the dotcom phenomena. A lot of people became overnight millionares, friends included. What did they care if they spent 350K on a house that was 180K a year ago? They had money to burn from cashing out Microsoft stock options. the problem was, not EVERYBODY in Seattle was a Microsoft Millionare, so Realtors started in on the "You can afford more than you think!" line with everybody else to keep property values rising.After the dotcom implosion, Seattle went into a mini recession along with other West Coast areas later and , had rates not fallen so far, the dotcom funny money appreciation would have been corrected at that time.
A friend of mine bought a house for 40K in Roosevelt near the now-Whole Foods area in '95. Granted, he got a super deal even at that time but.... you see how Seattle has appreciated, despite the Realtor drivel/lies about "lack of appreciation". That is just Realtor schtick to try to convince people that they're not overpaying for homes in Seattle.
The 500K exemption helped push prices up because every seller now knew that they could push the envelope towards 500K profit and pay no taxes on said profit. Basically, since homes were so "cheap" pre 500K exemption, the sky was now the limit.
Admittedly, now that 500K homes are the norm, that no longer applies. However, in the 90's it was huge incentive to see just how far you could push your asking price.
Neighborhood looks really nice from the overhead satellite shot! I checked out lots of houses and found pretty much what I expected.
For example, two properties -- one $850K along the park, another $570K in the interior (and among the cheapest shown). Both show steady appreciation over the 10 year chart, but the real action kicked in around 2004. No real dramatic jumps, though.
And yes, the NW definitely participated in the dotcom boom, so that would account for some of the early strength. However, there's the "Californication" factor to be considered, too.
Don't get me wrong -- I don't mean to discount your firsthand experience. It's just that the houses I Zillowed don't show a doubling inside of a few months. Perhaps a more specific example?
"We will have to live within our means. I know it's a troubling phenomenon. But we're not going to be able to spend at levels well above our income levels."
The fact that the concept of living within one's means is new and terrifying shows just how messed up the culture in this nation has become. Oh, no - I can't spend more than I make all the time! The horror!
All through this Bubble, I loved to watch Bubble-Lovers dance around the simple question of how people in the Bubble areas can afford to buy these inflated houses. Oh, they would dance! "Housing always goes up... it is different here... maybe you'll get a big raise (or win the lottery!)... houses are supposed to be very expensive..." Nobody could ever answer the question how somebody making $50K a year can buy a $250K+ house with no down payment and actually be expected to pay it off without serious problems. And now, as the Great Unwind continues, I guess we all are "surprised" by the obvious - they never had any hope of paying off the house!
The graphic along with that article is nice. According to that, the NY market has begun to trend down; finally i have a simple chart to show Mrs. Gary.
I wish it went back further than 1988 to show the madness of the mid 80s.
once again expect the media to concentrate on the headline number, while the purchase-only index will probably be a lot more informative. Last quarter OFHEO started releasing purchase-only at the state level. Would be nice if they'd do it at the metro level, at least for larger metros.
o hat tip
Also, I'd love to know the source for "official government numbers going back to the 1950's" The article says Freddie Mac numbers going back to the 1950's but I've never seen a Freddie Mac number before 1975 - they didn't even exist in the 1950's, and even the Freddie numbers back to 1975 are really Fannie numbers - they collaborated on a joint price index project several years ago that Freddie still maintains. And Freddie is not "official government (nor did Freddie exist in the 1950's)." The Leonhardt interview describes OFHEO numbers as being "official govt. numbers" but those numbers only go back to 1975. I'm guessing maybe Finance Board numbers? If so, those aren't quality adjusted. And they have declined month to month, and even on a 12 month basis - only the annual averages haven't shown a decline.
CR,
I believe the S&P Case Shiller Home Price Index is due out next week as well. I believe it is the index that the NY Times graphs are based on.
jb
When I think about 'the subprime problem is contained' coming from the same guy who 'will never allow another depresion to happen', I don`t know about you, but I feel very comfortable.
Why would anyone, with any connection to the real estate biz, have to get price deterioration confirmation from the New York Times and a couple ivory tower economists.
In my (greater Washington, D.C.) experience, prices are way down, despite all the claims to the contrary, easily 10 to 15 % year to date.
Yes, I know my view is limited. But, my god, it is reported over and over again, from all corners of the USSA, on the internet blogs.
But some still cling to the belief that we must find official data to prove the officials
wrong.
Well, a nationwide price decline will give the FED cover in the owner's rent equivalent to allow more inflation in everything else;-}
Two or three percent would allow a rise of seven or eight percent to be effectively masked in the statistics!
Look on the bright side- the housing industry will once again be in the business of providing a roof over your head, not an ATM source for more baubles.
Back to work on the marble Taj Mahal that is my bathroom.
Someday this war's gonna end...
Speaking of price decline, I just saw this porperty at 34** Pleasant Vale, Drive, Carlsbad, CA 92010. For sale for $650K, it was bought in 05 for $710K from the builder. The builder still has some unsold homes.
mort_fin, I agree about the purchase only index. That is what I've been using recently. And I also agree with your comments on the Freddie data.
dis, sorry, I must have missed your comment.
WMD1964, yes, prices are down significantly in many areas. But it is difficult to say how much in each area - because each price index has problems. The OFHEO purchase only index is probably pretty good for areas were most of the homes can be financed with a conforming loan (say prices below $450K since the conforming limit is $417K).
But that only buys a few properties in many bubble areas. Of course people can still use a conforming loan on a $1 Million house if they put down $583K (or use a second). And that house would then be included in the OFHEO price index.
I've talked with agents in certain SoCal areas - and they've told me it's common to list 10% or more below what a similar house sold for two years ago if you really want to sell - or even get traffic. And that is just the list price ... that says prices have fallen even more.
I think the Case-Shiller index is helpful, but it is only available in certain cities. And right now the OFHEO index still gets the press.
Best to all.
If these are in fact median prices, they reflect the collective borrowing power vs. housing availability of the different regions, not home prices movements directly.
The Case Shiller same-home methodology is a much more accurate picture of what actual prices are doing.
wawawa
Zillow says the house at 2367 Pleasant Vale sold for $710,000 on May 25, of this year, not 2005. May be wrong date?
OFHEO numbers are great if it's your intention to track non-bubble areas and ignore 3/4 of the aggregate home value that is being quickly decimated.
In other words... useless.
Even case-shiller can be incorrect as many used homes have had substantial improvement investment that isn't accounted for. All that improvement money went somewhere presumably.
Chris: Check the ziprealty.com. 3495 P. and the REDFIN.
I have sent these links to some of my friends/family members/co-workers knowing that they would NOT appreciate it. BUT I DO NOT CARE.
YouTube - Real financial heros part 1 of 3
YouTube - Real financial heros part 2 of 3
YouTube - Real financial heros part 3 of 3
Real prices have to fall. I still can't figure out if the talking heads are lying or this clueless.
The nominal promises in house prices can't be honored without cutting a big chunk from consumer spending, which would kick off a feedback loop of lower wages -> lower spending -> lower wages. Which would drop nominal house prices anyway.
You only get to spend if you make stuff. I used to get a kick out of the arguments that the flood of people in CA would prop home prices. My response (back in the early 80s) was to ask why house prices weren't sky-high in India and China. Of course, that's changed now because they MAKE stuff.
47% is a "big" number-
"Moody's, a unit of New York-based Moody's Corp., said in a comment letter to CESR, published today, that structured finance ratings contributed 47 per cent of last year's revenue."
Banking & Finance
S&P-
"S&P, a unit of McGraw-Hill Cos. of New York, said in its response letter, "We do not perceive any resulting potential conflicts of interest'' in providing ancillary services to issuers of asset-backed bonds. The letter posted on line by CESR didn't include revenue figures. "
"Even case-shiller can be incorrect as many used homes have had substantial improvement investment that isn't accounted for. All that improvement money went somewhere presumably." Excellent point, barely[(or did I mean to say : Excellent point barely.)
so sorry could not resist the pun.]
But still, right on, sir
However, back to the point that barely made, or was barely made, oh, what the hell.
He makes my point: stats and stats and ivory tower official stats make sense, until your eyes see different.
This housing market is pure hell.
Impac Lending is closing on Monday!!!!
Impac lending closing Monday, this is the "official" auction of the REDC who is running those 2 big Southern California auctions today and tmw. I wonder how this will affect things.
barely, I would like to add to your excelent remark the concesions and the cash back at closing.
From the NYTimes article quoted by CR: "In 2005, Ben S. Bernanke, then an adviser to President Bush and now the Fed chairman, said strong fundamentals were the main force behind the rise in prices"
This article was decent for the establishment/corporate/elite/dominant/capital-fetishizing media; nonetheless, the fact that this statement could be left unchallenged and without ridicule represents the kind of brain dead stenography reporting that allows economy-distorting asset bubbles to occur.
I'm glad the article quotes Dean Baker saying, "There are a lot of people ... who bought homes at hugely inflated prices who are going to take a hit. You also have a lot of people who borrowed against those inflated prices," but they didn't let him elaborate on the fundamentals.
It's a disservice to the Times' readers, and all the newspapers that carry this article, to perpetuate the hallucination that most house owners in major metro areas don't have any "phantom equity" that will vanish because some unstated fundamentals are at play. May we even talk about the phony fundamentals out loud?
Let me try this again. My point is simply that I cannot recall reading an article in any "mainstream media" over the past several years that has clearly explained, in as simple terms as Dean Baker or CR can, why housing market fundamentals clearly have not supported housing inflation over the past decade. Thus, the population is still largely misinformed and caught off guard.
If any progress is to be made over the coming years in deflating the housing bubble while mitigating this massive effect on the national economy, then first the U.S. public must be informed by the Fed, et al, what fundamentals drive housing prices and why we've lived in a housing price fantasy candyland over the past 10+ years - and the candy is now up our ***!
broker, the cashback at closing is tough to gauge either way since the prior sale could have overstated price and the decline would be overstated without a similar deal on last sale.
Truth is, with a BS market, it's tough to make use of the stats...
One more point and I'll shut up (yeah, too late).
I do not believe, as many here and elsewhere do, that the Federal Reserve caused the housing mania. I believe the housing mania grew out of the stock mania; and while the Fed was irresponsible in not addressing the stock bubble, at least until after it burst, the Fed cannot alone distort housing prices from its market fundamentals - this occurs in a much more macroeconomic interconnected price-expectation way.
So I'm not calling on the Fed to stick its nose in its own doodoo, because it's a more complicated mess than that.
Let's be real...
with debt laden American economy ( budget deficit + more significant almost $1 trillion trade deficit ) combined with debt laden Americans + declining real estate prices of 10 - 40% over next 3yrs + less MEW withdrawal + less high paying jobs what this amount to ?
A heck of a lot of pain and suffering for fat, lazy, apathetic and ignorant Americans who live beyond their means in La La land.
I for one am looking forward to this sobering reality where cash is king !
OT: I sitting here chillin' and listening to Chicago's WDRV on-line. My god, the commercial I just heard re people getting refi's and paying off their charge card, in spite of the hubby's continued poor financial habits..yadayada. I can't believe folks are still falling for this.
"I for one am looking forward to this sobering reality where cash is king !"
INO Equities Stocks Indexes - U.S $ INDEX (NYBOT:DX) Price Chart and Quote
Good Luck.
From a Research paper published by Fannie and Freddie economists cited in the NYT article:
...there is little possibility of a widespread national decline since there is no national housing market.
Sure, all real estate is local: you can't buy a lot somewhere else and have it shipped, now can you?
But, in the 2000's, there's a national, even global market for mortgage credit. The availability of that credit dominates both the demand and the supply of housing everywhere.
Isn't that obvious?
great article in nyt on cfc from gretchen morgenson
Inside the Countrywide Lending Spree - NY Times
sf chronicle article on foreclosures hitting all income levels
Mortgage Mess Hurts Main Street, Beyond
Like I said a heck of a lot of pain and suffering for fat, lazy, apathetic and ignorant Americans who live beyond their means in La La land.
Hopefully most the asshats voted for Bush and are getting well deserved comeuppance.
standard pacific in talks with lenders re amending credit lines
Los Angeles Times -- Business, Technology, Real Estate, Hollywood, Economics, News - latimes.com
barely, I dont agree with you on this one. In a sellers market it is the buyers who make the concesion. In a buyersmarket it is the other way around. Look at the builders! The only things I didnt see advertised as incentives are hookers and cocaine.
"Even case-shiller can be incorrect as many used homes have had substantial improvement investment that isn't accounted for. All that improvement money went somewhere presumably."
It occurs to me that at the macro level there is a reasonable measure of this--the spending at home improvement chains. Since home improvement spending seems fairly well correlated with MEW recently perhaps it would be fair to say that a large chunk of appreciation over the past few years was in fact just borrowed. If a home owner borrowed X% via a HELOC or C/O refi, then spent that money on improving their home's value (presumably by an amount ~= X%) that has to be subtracted from their "appreciation". Any of you number hounds have good aggregate data for home improvement spending for, say, the last 10 years?
Primitive yet precious:
YouTube - Silver and Gold
The next credit crunch?
As home loan market tightens, mounting credit card debt could spur new crisis
Now that the easy money in home mortgages is all but over, consumers may soon be caught in a financial squeeze with their credit cards.
That's the worry among some economists and credit counselors as home lending has shifted abruptly into low gear this summer. That leaves homeowners owing big sums to Visa or MasterCard without an important escape hatchthe ability to pay down the plastic by dashing off a check from their home equity line of credit or rolling the debt into a new, bigger mortgage.
"You're not going to be able to get that mortgage loan. You'll be stuck with the higher interest credit card debt," warns Carl Steidtmann, chief economist with Deloitte Research. "We will have to live within our means. I know it's a troubling phenomenon. But we're not going to be able to spend at levels well above our income levels."
The next credit crunch? As home loan market tightens, mounting credit card debt could spur newcrisis - Chicago Tribune
Like I said a heck of a lot of pain and suffering for fat, lazy, apathetic and ignorant Americans who live beyond their means in La La land.
Hopefully most the asshats voted for Bush and are getting well deserved comeuppance.
Interesting wish. If one were to overlay the electoral map over the housing/debt pain map, the counties voting for Bush are not the ones noted for living beyond their means. Now that it has been brought up, it leads me to wonder if the lack of speculative excess in fly-over country has more to it than lower population density. My wife and I chickened out on building a McMansion in 2006 when the price started to close in on $350K. We could easily afford it, but it did not feel right. So we settled for a much smaller spec house that still allowed me to walk to work.
Bush country may not have house price inflation, but the red states live far beyond their means in terms of government handouts - highway funds, defense spending, ag subsidies, individual entitlements, you name it.
Side Note:
I love Hoofy & Boo, they are so cute.
Deadbeat states who went for Bush: (those getting >110%+ of their tax money back)
Alabama
Alaska
Arizona
Arkansas
Idaho
Kansas
Kentucky
Louisiana
Mississippi
Missouri
Montana
North Dakota
Oklahoma
South Carolina
South Dakota
Tennessee
Utah
Virginia
West Virginia
Wyoming
Non-deadbeat states for Bush:
Colorado
Florida
Georgia
Indiana
Nebraska
Nevada
North Carolina
Ohio
Texas
InOrlando,
Sorry, but you're wrong. The Fed most definitely got the bubble started when they lowered the FFR to 1%.
I heard a wise, CR-like gentlemen state that years ago that "sellers only care about the price, but buyers only care about the payment". Lowering rates greatly enhanced the buying power for a given payment. IOW, kindling for the coming bonfire.
It was all too easy to watch it all unfold here in Southern California.
"But, in the 2000's, there's a national, even global market for mortgage credit. The availability of that credit dominates both the demand and the supply of housing everywhere.
So very true. I see that in many countries. And.....In few countries in which credit is not so developed there is a "MEW carry trade" in which equity from R/E in country A is used as 50% down-payment required by regulation of country B.
tj & the bear said "Sorry, but you're wrong. The Fed most definitely got the bubble started when they lowered the FFR to 1%."
Then why does the infamous graph http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
by Robert Schiller show real house prices going ape **** starting around 1997? Greenspan & Co. hadn't lowered to 1% until 2003. By then, Schiller's index was already at 140. OFHEO shows the same data trend.
My logical explanation - wealth effect from stock bubble finding its way into temporary limited supply of high-end real estate, which then pushes up lower end real estate leading to spiraling expectations for future housing gains amongst public, ala Japan's stock/housing bubbles 2 decades ago (this happens to be Dean Baker's explanation as well - go figure).
I'm not trying to downplay the effect of "easy money" via lower interest rates (Fed induced), lax lending standards (no Fed oversight), rabid fraudulent securitization (Fed wink and nod). I just like to chime in now and then to say, regardless of what happened in the mortgage market, the housing mania should still be thought of as a classic Mania, Panic, and Crash bubble event. So it mirrors Gold price 1979-1980, NASDAQ 1995-2000, even though neither had such widespread, lewd credit use by public. And so, ultimately, its hard for me NOT to conclude that in bubble areas, house prices will go down to real 1997 levels.
look at page 3:
http://www.federalreserve.gov/boarddocs/legalint/FederalReserveAct/2007/20070820a/20070820a.pdf
"bank will mark to market on daily basis"..........
Mish's Global Economic Trend Analysis: Now we know who and why
InOrlando,
Good point, but the boom from 1997 through 2001 could be considered part of the normal housing boom-bust cycle. It wasn't until 2001 that prices really broke out above prior peaks. If the FFR hadn't been lowered to 1% housing prices would've topped out there and headed back south again just as they had before.
IMO we'll be lucky if prices only go back to '97.
Before the Great Unwind I had my eye on a new 3,387 sq ft 1 story brick & stone SFH at 105 Yorkshire Drive, Heath, TX 75032 (Dallas burb)listed at $469,000. It is now listed at $479,000 due to carrying costs and remains for sale at realtor.com and ebby.com a local realtor.
Bumper sticker I noticed today while driving to my parents home:
THE BUSH LEGACY: LEAVE NO CHILD A DIME
Flooding hit Ohio today and it just makes me think of all those REOs. Must be giving the lenders quite a headache. Pretty soon jingle mail will consist of the lender mailing the keys back to the foreclosed owners.
yal-
"bank will mark to market on daily basis"..........
I saw that previously, it would seem that this would cause some to be a little nervous! It may also explain the regulators being in there for the last few weeks.
So explain to us, hotshot, why it's the liberals who are squealing for a "bailout"?
Hey Nil, which deadbeat state do you live in?
Nil = Zero
InOrlando and TJ-
I think 1997 was when Clinton passed the 500K capital gains exemption on RE wasn't it? I had sold a home in the previous few years and paid taxes on my 50K profit . The 500K was trully excessive since, really, at that time, in Seattle anyway, you had to look hard to find a home that was priced over 200K. However, within months of that passing, home prices began their wild inflationary uptick, presumably so people could take advantage of the exemption.
That's what it looked like to me on the ground anyway. Within a few months of that passing, prices in many Seattle neighborhoods had doubled. It was the beginning of the nightmare of home prices outstripping incomes and homes becoming a "get rich quick scheme" instead of a place to lay your hat.
Dropping the rates later was just a way to keep the whole thing going. I guess the pols decided that since incomes were pretty flat and Americans were easily fooled with the "debt is wealth" propaganda, they couldn't leave the house price inflation thing alone so tried (and suceeded!) to keep the party going by lowering rates. Lowering the rates was also a way to spread the bubble into areas of the country (outside the coasts, etc.) where it had previously not yet taken hold...how nice...what a great plan. So now we've arrived at today. And the politicians still clamoring to keep the American Home "Ownership" Nightmare alive and well with the bailout talk.
Within a few months of that passing, prices in many Seattle neighborhoods had doubled.
waitinginPNW,
I'd really like to see some data to support that statement. Got any addresses we can run the 10-year Zillow chart on?
the when-the-bubble-started analysis is dependent on where you were 1997-2002.
I was FOB in the S Bay Area in May 2000, and prices were going up like nuts due to the dotcom flooding pushing everyone to buy then or be priced out forever.
Being FOB I needed to re-establish wage history so I was forced to stay on the sidelines until I had 2 years of 1040s again. But by 2002 the dotcom crash kicked the N California market in the jewels and prices were stagnant if not going down.
My sister & BIL were renting a place for $1200+ down in Orange County, so I decided to loan them their down payment since I saw no reason to buy up here. Prices had NOT yet started moving up that much in the OC by mid-2002; they were able to get a reasonably nice condo close to work in Fullerton for just $200k.
Then the market started accelerating, and they flipped the equity out of that into a SFH in Corona in late 2003.
Meanwhile, here in the South Bay, somebody lit a rocket under prices Jan 2005. 2005 saw IMMENSE appreciation, appreciation that is only slooowly being worked off 2006-now.
Get a clue. Your "talking point" is that conservatives are cold, hard and uncaring about the millions of families being driven from their homes into the wilds to grub for edible roots. Do I have to spoon feed you?
Look at the builders! The only things I didn`t see advertised as incentives are hookers and cocaine.
Maybe that's because they aren't 'incentives'... they come as standard equipment.
I think 1997 was when Clinton passed the 500K capital gains exemption on RE wasn't it?
Yup. That was an important ingredient in cooking up the current bubble. My guess at the recipe would be:
-Easy money from Fed, coupled to our huge CAD and PBoC & BoJ currency manipulation.
-Lagged connection between borrower & lender due to securitization (obscured moral hazard).
-Increasingly loosened lending standards (IBs need for fees from SIV placement & weak regulation).
-1997 RE Cap Gains exemption.
Mix and voila - you have a real estate bubble.
All the RE Cap Gains incentive did was make sure the liquidity event ended up in an RE bubble... if the incentive had been targeted differently then some other asset would have ballooned.
Troy,
If you look at the San Francisco chart in the NY Times interactive graphic, you can see that SF had massive gains in housing prices during the tech bubble, and that they never got unwound like they should have. Essentially, the housing bubble in the Bay Area doesn't look so bubbly at the outset ('01 and '02) because we were in the middle of unemployment rates at or above 20%. By all rights, those tiny negative numbers in median home prices in '01 and '02 should have been massive declines.
IMHO, we still have to unwind the dot-com excesses in our housing market.
ShortCourage,
No question whatsoever the Bay Area took off earlier due to dotcom.
I remember reading way too many stories of fresh out of school "web designers" (cough) paying outrageous sums for condos and jockeying for positions on the Boxster waiting list, and those were just the low-end weanies.
IMHO, we still have to unwind the dot-com excesses in our housing market.
Rents are nearly back up to 2000-2001 robbery levels. Wages are double or triple here what they were 10 years ago. As long as these related factors are present, prices will encounter a hard stop at 2003 levels.
I'm halfway tempted to buckling and getting that 1B condo for $410k+, but I want to see how the markets respond to all the suicide lending and jumbo turmoil over the next two years.
I thought the market here would continue to souffle 2003~, little did I understand the power of the Fed to blow bubbles with free money and those new Crazy Eddie lending guidelines.
The NYT article notes that the price declines are "good news for buyers."
Huh? According to the article, the inflation-adjusted value of a house you buy now will continue dropping over the next two years, 10-20%.
That's good news for buyers?
unirealist: It is always a good time to buy.
tj & the bear said: "...IMO we'll be lucky if prices only go back to '97."
According to Case-Shiller data, if prices were to return to 1997 levels it would mean a 68% drop in price from current prices (not even the peak).
Median price of a home in CA is about $550,000 now. A 68% drop would mean the median price would drop to $176,000.
The natiowide median price of a house is around $220,000. A drop of 68% would make a median-priced home in the U.S. about $70,400.
Is that about right?
Sebastia
dryfly said: "...Mix and voila - you have a real estate bubble."
In the Charlotte MSA (my closest proxy market), housing appreciated by 41% in the decade 1/87-1/97. In the decade 1/97-1/07 it was 45%.
If your summary of the factors that created the housing "bubble" is correct, where's my "bubble" at? Where's yours at, for that matter.
If, on the other hand, housing prices are controlled primarily by local conditions, that would go a lot further towards explaining the "bubble."
Like that the "bubble" is highly, HIGHLY concentrated in certain areas that are perenially speculative.
I remember when it used to be Texans who thought of themselves as being the center of the Universe, and as Texas went so went the nation. Now it's Californians, I guess.
Sebastia
If your summary of the factors that created the housing "bubble" is correct, where's my "bubble" at? Where's yours at, for that matter.
Mine is in the lake country of N Minnesota... yours is out on the Outer Banks & Myrtle Beach. Huge appreciation of values in second homes and associated CRE... driven almost entirely by excess liquidity & lax lending standards.
Its there Seb - just get up from your charts & take a look.
dryfly said: "It's there Seb - just get up from your charts & take a look."
That's one of the primary reasons so many here are going to be surprised about what happens next. They're accepting subjective anecdotes of the exceptions as proof of the "bubble" instead of objective data on the total picture.
Your examples of lake-front or beach-front property are precisely what I mean. Areas like that are always more speculative than ordinary neighborhoods.
If there was truly a nationwide housing "bubble" (or "bust") I wouldn't have to go looking for it, I couldn't avoid seeing it on every trip to the grocery store or the post office.
Sebastia
The 1997 RE capital gains exemption of $500k replaced an existing unlimited exemption.
Limiting the exemption to $500k (instead of unlimited) has no practical effect for most people. However, the removal of the requirement to reinvest is important. This change allowed people to sell their home without repurchasing another home. In other words it let them become net sellers. This increases supply - hardly a condition that would drive prices up.
TJ-
Check the 98105 zip, Ravenna neighborhood (between 16 Ave NE and 22nd Ave. NE from about NE 70th to NE 62nd). That's the neighborhood I was involved in on a daily basis. Homes shot up from @ 150/180 to 250/280 in just a few months. By the end of the summer, everyone was seeing green and half the neighborhood was on the market at ever increasing prices. By 2004, homes that had been 180K in '96/97 were asking over one million.
The posters above who mentiones the dot.com profits explosion are correct. The funny money from dotcoms had a lot to do with setting the RE fire off. That and Clinton's 500K exemption. Remember, Seattle was Software City so intimately involved in the dotcom phenomena. A lot of people became overnight millionares, friends included. What did they care if they spent 350K on a house that was 180K a year ago? They had money to burn from cashing out Microsoft stock options. the problem was, not EVERYBODY in Seattle was a Microsoft Millionare, so Realtors started in on the "You can afford more than you think!" line with everybody else to keep property values rising.After the dotcom implosion, Seattle went into a mini recession along with other West Coast areas later and , had rates not fallen so far, the dotcom funny money appreciation would have been corrected at that time.
A friend of mine bought a house for 40K in Roosevelt near the now-Whole Foods area in '95. Granted, he got a super deal even at that time but.... you see how Seattle has appreciated, despite the Realtor drivel/lies about "lack of appreciation". That is just Realtor schtick to try to convince people that they're not overpaying for homes in Seattle.
Zephyr-
The 500K exemption helped push prices up because every seller now knew that they could push the envelope towards 500K profit and pay no taxes on said profit. Basically, since homes were so "cheap" pre 500K exemption, the sky was now the limit.
Admittedly, now that 500K homes are the norm, that no longer applies. However, in the 90's it was huge incentive to see just how far you could push your asking price.
waitinginPW,
Neighborhood looks really nice from the overhead satellite shot! I checked out lots of houses and found pretty much what I expected.
For example, two properties -- one $850K along the park, another $570K in the interior (and among the cheapest shown). Both show steady appreciation over the 10 year chart, but the real action kicked in around 2004. No real dramatic jumps, though.
And yes, the NW definitely participated in the dotcom boom, so that would account for some of the early strength. However, there's the "Californication" factor to be considered, too.
waitinginPW,
Don't get me wrong -- I don't mean to discount your firsthand experience. It's just that the houses I Zillowed don't show a doubling inside of a few months. Perhaps a more specific example?
Median price of a home in CA is about $550,000 now. A 68% drop would mean the median price would drop to $176,000.
Sounds about right.
Like that the "bubble" is highly, HIGHLY concentrated in certain areas that are perenially speculative.
shrug
We'll see how the rest of the country likes California not spending its MEW like crank-spun biker chicks on an all night bender at Zeitgeist.
Zeez mortgages... Ze doo NOTHING!
Warmest,
prat
Earlier in the post, some expert said:
"We will have to live within our means. I know it's a troubling phenomenon. But we're not going to be able to spend at levels well above our income levels."
The fact that the concept of living within one's means is new and terrifying shows just how messed up the culture in this nation has become. Oh, no - I can't spend more than I make all the time! The horror!
All through this Bubble, I loved to watch Bubble-Lovers dance around the simple question of how people in the Bubble areas can afford to buy these inflated houses. Oh, they would dance! "Housing always goes up... it is different here... maybe you'll get a big raise (or win the lottery!)... houses are supposed to be very expensive..." Nobody could ever answer the question how somebody making $50K a year can buy a $250K+ house with no down payment and actually be expected to pay it off without serious problems. And now, as the Great Unwind continues, I guess we all are "surprised" by the obvious - they never had any hope of paying off the house!