Problem is that the fall will feed off itself since people can't refi when the house is worth more than the loan, and because the reluctance of buyers to enter until they know prices have stopped falling or make buying a better deal than renting.
Greenspan admitted last night on John Stewart- of all places- that all the PHDs in the world can't forecast the impact of mass psychology.
--
Stockton and many Central Valley areas in CA are already down 25%. It is disgusting to see these people who never saw the declines to now predict declines by 2008Q2 that are 3/4th of the way there already.
Deception, fraud, and manipulation would continue until the depression becomes undeniable.
I agree that Moody's is highly optimistic, but they are now at least moving in the right direction with their predictions. At least now, they concede that declines are inevitable.
Even though the consensus here will be that Moodys underestimates, I am sure this kind of stuff from Moodys is causing the mortgage companies fits. Even Moody's can't give a good rating to a package of 90+% ltv mortgages if this is its forecast. So the forecast itself shows that the jumbo/alt-a loan market will never return to what it was in 2006 and what countrywide probably needs it to be.
Is this a prediction or a concession? The markets are already heading in that direction. What are these dolts going to predict next, $80 oil, increasing foreclosures, fed rate cut?
New houses 2001-2007 have been larger and more opulent than similar percentile houses of past times. The decline in housing starts has a significant dropoff built in to it.
Another 10% is possible for the average, but the median will not see it. Median houses will not sell in volume until the next ramp.
Blah-blah forclosures. If every single 90%+ option arm blows up that would be less than 1% of households. Not every ordinary ARM out there was a bad move, and not every purchase was made within the last five years.
The question doesn't make sense. By definition, current account deficit is equal to capital account surplus. In other words, investment inflows are funding the "extra" consumption that's implied by our current account deficit. There's no such thing as "does not/can not cover".
(senseless aside: I guess also if we started pirating, and we looted ships on the high seas and never paid for them, this seems to me like it would contribute to the current account deficit without a corresponding increase in our capital account.)
For us, the way this unwinds is, in my extremely humble opinion, likely to be a depreciation of the dollar, investment inflows will slow; we'll import less; we'll see higher inflation. Every time the fed lowers rates, the dollar will become less attractive and we will lose even more of the massive foreign inflows that used to help keep the housing market afloat.
I think the next phase of excitement in housing is when the first public builder goes BK. Right now the stories are mostly all the same just with different words.
Dear mr moody,there was until recently something called a "Link" between incomes and home prices.I believe it will return from its sabbatical shortly.please,in light of this expected return of the "missing link" explain to me why you predict home prices to remain this high in areas such as sacramento,stockton and modesto.Unless of course this "Missing Link" is extinct,in which case please email me a copy of the Obituary.TIA,Tom
CR
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dilbert dogbert, that is an advertisment via Haloscan. All advertising on this message board is from Haloscan - not me - and there is nothing I can do about it, except leave Haloscan.
whatever their methodology is, its horsepucky. They have Wash. DC-Md-Va down more than Miami and San Diego (and a few other choice ones). Granted things are way overdone here (DC), but the incomes are higher and more solid. A reversion to the mean of price/income or price/rent will be ugly in many parts of this metro, but not as bad as in the low income places.
He may be right that house prices are down 7.7% nationwide by the end of 08, but he is probably wrong that they stop there, more likely an additional 7.7% decline in 09.
CR, I found an old article I had printed out that was presented by Thomas Helbling at a BIS event in 2005. It analyzed past housing booms/busts across multiple countries. It says that the average bust lasted approximately 4 years and prices dropped an average of 27%.
Merced County\t-26.3%
Yolo County\t-23.7%
Sacramento County\t-19.5%
Stanislaus County\t-18.8%
San Joaquin County\t-18.6%
Nevada County\t-17.0%
Madera County\t-16.9%
Placer County\t-16.8%
San Benito County\t-16.0%
Tulare County\t-15.1%
Santa Barbara County\t-13.7%
El Dorado County\t-12.7%
Solano County\t-12.6%
Sonoma County\t-12.1%
Fresno County\t-12.0%
Kern County\t-11.8%
Napa County\t-11.1%
San Luis Obispo County\t-10.8%
San Diego County\t-9.5%
Riverside County\t-9.2%
Ventura County\t-8.7%
Santa Cruz County\t-7.7%
Marin County\t-6.3%
Monterey County\t-5.6%
San Bernardino County\t-5.3%
Contra Costa County\t-5.0%
San Francisco County\t-3.0%
Orange County\t-1.7%
San Mateo County\t-1.4%
Santa Clara County\t-0.7%
Alameda County \t0.0%
Los Angeles County\t0.0%
The Office of Federal Housing Enterprise Oversight, which oversees Fannie Mae and its government-sponsored sibling Freddie Mac, last month turned down Fannie Mae's request for a 10 percent lift of the cap on its mortgage investment holdings, now set at $727 billion. The agency said Wednesday Fannie Mae can increase its mortgage portfolio by 2 percent a year, or up to 0.5 percent per quarter, starting Oct. 1.
Here in Tucson where 2000 sq. ft. townhouses within golf courses that are around me were over $500,000 at peak, Zillow now values the same ones roughly at $350,000 so they have dropped more than 11.7%. I think Moody's is way behind the ball on this.
We are already down 10% over 3 quarters. As long as the metric is "from the peak" then we have another 20% in price and far far more in inflation adjusted terms to go.
Okay, so Stockton expects to go down 25% from Q1-06 to Q4-08 (basically 3 yrs.' time). From Q1-03 to Q4-05, also 3 yrs. time, just how much did Stockton go up?
Contra Costa County -5.0%
"From the peak in third quarter 2005"
My neighbor dropped -7% (and change) from the peak and that drop occurred in about 7-8 months.
There are only two ways to get -5.0% by the time this adjustment is over. One way is if the dollar drops through the floorboards and the quoted -5.0% is nominal, not real, home prices.
So our neighborhood will go up 2%,
but oil will be what?....$100+ a barrel?
The other way is if Cheech & Chong did
the analysis.
Just before February sell-off the 500 stocks of SPX were on average 80% between the highest and lowest price prior to 20 weeks. Market does not die with this kind of internal. Just before the July sell-off this number was 68%, a strong bearish divergence. This indicator have never been wrong but it needs confirmation to better its timing and as soon as that signal emerged inevitably a correction unfolded. Early June junk bonds begun their sell-off and it became clear on July. Two strong bearish divergence and everybody knows what happened.
Today the 500 stocks of SPX were on average 57% between the highest and lowest price prior to 20 weeks and SPX is near all time high. Again a bearish divergence. Besides tech stocks begun to underperform for the first time since last April. Two alarming signals. Junk bonds are improving but prices are far from May levels.
If internals dont improve and techs continue to underperform as soon as junk bonds begin to falter current rally will fade and a new wave of sell-off will begin.
Most housing price cycle declines are about three years... The 1990s was about 6 years. That was a special case - an aberation. Even the great depression was only four years of decline (followed by many years of very slow recovery).
I expect this decline to be at least the normal 3 years, and probably as long as 4 years. That would make the bottom for prices 2009.
Housing demand (including new homes), as measured by unit sales volume should hit bottom about one year before the bottom for prices.
What does Japan have to do with our situation? The facts of their downturn are very different. We faced the same downturn as Japan at the same time in the 1990s. They chose policies like our 1930s policies and got a result like our 1930s results. We chose a different policy for the 1990s and got a much better result. As Forest Gump said: Stupid is as stupid does.
Plus the demography for Japan is much less favorable than that of the US.
I agree that Moody's is highly optimistic, but they are now at least moving in the right direction with their predictions. At least now, they concede that declines are inevitable.
Predicting the past is not "moving in the right direction". Those declines are not "inevitable", they have already happened.
I am sure this kind of stuff from Moodys is causing the mortgage companies fits
Nonsense, the mortgage companies know full well from the facts on the ground (delinquencies, foreclosures, auctions) what is really going on and the only fits they are likely to get from Moodys' "prediction" are fits of laughter.
My guess is prices will decline further than Moody's is expecting, and the duration of the bust will be longer.
It might be useful to look at measures of affordability over time, e.g. what percentage of households could qualify to buy a median or average priced home today vs at various times in the past. I would guess that right now affordability must be at or near historic lows in many locales, because all during the boom in housing prices incomes have not come close to keeping pace.
Plus the demography for Japan is much less favorable than that of the US.
You are right in the sense that, among developed ('first world') nations, the US has by far the fastest growing population; in fact, its growth rate is comparable to many undeveloped ('third world') nations. But I hardly think the demographic trend is "favorable" -- almost all of the growth in the US is due to immigration or to the progeny of recent immigrants, especially Hispanics, who are disproportionately poor and do disproportionately poorly in school. The implications of this for productivity growth and wealth creation are obvious (some would say ominous).
Cuurent Account Deficit simply reflects the concept of the great level of confidence foreigners have in America's long-term investment prospects.
The current account deficit is due to many factors, but I don't think it "reflects...the great level of confidence foreigners have in America's long-term investment prospects". Foreigners accumulate dollars via trade with the US, and also as a result of the status of the dollar as 'the world's reserve currency' (e.g. many commodities are priced in dollars, most visibly oil). These dollars have sought dollar denominated investments, mostly treasuries (or lately other US assets, e.g. the Chinese buying part of Blackstone).
To attract sufficient foreign capital flows to cover the U.S. current account deficit, interest rates in the U.S. may need to rise significantly.
Probably true, as foreign dollar holders have already shown signs that they are no longer willing to suffer low or even negative real returns due to a combination of low US interest rates and a declining dollar. So they will demand alternatives, and innovation in the financial markets will provide these alternatives. At the same time they have to be careful not to 'bite the hand that feeds them', e.g. 40% of Chinese exports go to the US ("conundrum").
Markets require two things: buyers and sellers. A cool half-million house in CA means that you're being paid a pretty penny to move to Indianapolis. It's gotta be worth it for somebody.
Housing will continue to fall until people can afford to actually buy houses again. If the median income earners can't afford anything worth buying, housing is still too high.
Maryland is a prime example: median household income in Maryland is about $60K a year. Median housing price in Maryland is well over $300K. That doesn't work and is the result of toxic loans. In this state, nothing worth buying (by that, I mean a place with jobs or where one won't be gunned down) sells for less than 4 times the median income, approx. (depends on the area). Again, that cannot be sustained long-term.
Yes the MD in the DC, MD, VA, arlington, alexandria saying our peak was this quarter and an 11.5% decline. Well in southern Charles we have already seen a 10% or 5K on 500K homes and in some areas even more. since Novemeber of last year. Though existing HO's are reluctant to drop too much and most of the housing here is above the 417 cap we have median I of 47 and median house of 425. Go figure. We in SSoMD were also late to the game with the really toxic stuff most of which was lent in late 05 and 06 so I think we will hit hard even outside of 09. But thats just the SoMD portion of that MSA.
My prepayment penalty of 20k (particularly stiff) expires in June '08.
Combined FICO is above 750, the mortgage is our only debt, and our income is depression proof.
Should we eat the penalty and refi to a higher fixed interest rate now or will the 30yr fixed interest rates not increase that drastically in the next 8 months?
somean - set up a spreadsheet and run the numbers for various interest rate scenarios. Off the top of my head, $20K strikes me as a rather big penalty, but if long-term fixed rates jumped by 1-2% you could save money if you definately planned to stay put and never refinance. But I have no idea if interest rates will do that. For all we know, in 8 months we could be in the middle of a big recession and long-term rates will have fallen.
Lance,
5k of 500k is 1%, do you mean a 50k drop in price?
mbartv and pondering the mess,
Yes the MD in the DC, MD, VA, arlington, alexandria saying our peak was this quarter and an 11.5% decline. Well in southern Charles we have already seen a 10% or 5K on 500K homes and in some areas even more. since Novemeber of last year.
[...]
Lance
Anonymous | 09.20.07 - 11:14 am | #
Some of those cities on the list may ALREADY be down by those percentages at this very moment.
I think the numbers are wildly optimistic. Irrational, nostalgic, delusional exuberence.
Then again, I could be wrong.
When the dust settles we will be back to 1997/1998 values, unless median income goes up substantially which won't in a recession.
Big Fight at the local high school today. The economic pressures are beginning to squeeze.
Would be interesting to see how they do the math.
Problem is that the fall will feed off itself since people can't refi when the house is worth more than the loan, and because the reluctance of buyers to enter until they know prices have stopped falling or make buying a better deal than renting.
Greenspan admitted last night on John Stewart- of all places- that all the PHDs in the world can't forecast the impact of mass psychology.
Is the full moon out? My name is trying to change and I'm growing increasingly wary of silver.
D'oh!
OFF TOPIC:
What would happen if the U.S. does not/can not cover its current account deficit?
Please explain in simple language. Thanks.
--
Stockton and many Central Valley areas in CA are already down 25%. It is disgusting to see these people who never saw the declines to now predict declines by 2008Q2 that are 3/4th of the way there already.
Deception, fraud, and manipulation would continue until the depression becomes undeniable.
Jas
One comment, if there forcast is accurate, they are also forcasting one of the fastest crashes in terms of drop rate too.
Thanks CR and Tanta for all of this, once again.
I agree that Moody's is highly optimistic, but they are now at least moving in the right direction with their predictions. At least now, they concede that declines are inevitable.
Even though the consensus here will be that Moodys underestimates, I am sure this kind of stuff from Moodys is causing the mortgage companies fits. Even Moody's can't give a good rating to a package of 90+% ltv mortgages if this is its forecast. So the forecast itself shows that the jumbo/alt-a loan market will never return to what it was in 2006 and what countrywide probably needs it to be.
Fortunately, Greenspan was able to get his prediction of high single digit declines in just under the wire.
Let's all take a moment of silence in hopes it will help him sell a few more books.
Is this a prediction or a concession? The markets are already heading in that direction. What are these dolts going to predict next, $80 oil, increasing foreclosures, fed rate cut?
Who was fighting?
Teachers, students, parents or economists?
maybe they made a type, i think they meant 7.7% PER YEAR.
look for next year when they start talkign about how prices are down only "x%" less form last year. But were they to compare to peak it'd be x+20
hey i meant to say "typo"
...funny i typo'd typo
New houses 2001-2007 have been larger and more opulent than similar percentile houses of past times. The decline in housing starts has a significant dropoff built in to it.
Another 10% is possible for the average, but the median will not see it. Median houses will not sell in volume until the next ramp.
Blah-blah forclosures. If every single 90%+ option arm blows up that would be less than 1% of households. Not every ordinary ARM out there was a bad move, and not every purchase was made within the last five years.
What a bunch of maroons.
My prediction - Moody's will be wrong in their forecasts before, during and even after the housing bust is complete.
Strange that Chicago is not on that list of top 100.
Not cure if they have seen the condo buildings going up around here...
Maybe next year?
Cure? ok...sure...
I think the rule in forecasting is to project the most benign outcome imaginable.
OFF TOPIC:
What would happen if the U.S. does not/can not cover its current account deficit?
Please explain in simple language. Thanks.
wawawa | 09.19.07 - 5:30 pm | #
The question doesn't make sense. By definition, current account deficit is equal to capital account surplus. In other words, investment inflows are funding the "extra" consumption that's implied by our current account deficit. There's no such thing as "does not/can not cover".
(senseless aside: I guess also if we started pirating, and we looted ships on the high seas and never paid for them, this seems to me like it would contribute to the current account deficit without a corresponding increase in our capital account.)
For us, the way this unwinds is, in my extremely humble opinion, likely to be a depreciation of the dollar, investment inflows will slow; we'll import less; we'll see higher inflation. Every time the fed lowers rates, the dollar will become less attractive and we will lose even more of the massive foreign inflows that used to help keep the housing market afloat.
If the bottom is about when they say it is I am curious as to their prediction of inflation over the next year and a half.
I think the next phase of excitement in housing is when the first public builder goes BK. Right now the stories are mostly all the same just with different words.
Dear mr moody,there was until recently something called a "Link" between incomes and home prices.I believe it will return from its sabbatical shortly.please,in light of this expected return of the "missing link" explain to me why you predict home prices to remain this high in areas such as sacramento,stockton and modesto.Unless of course this "Missing Link" is extinct,in which case please email me a copy of the Obituary.TIA,Tom
Name,
Can you explain what you are trying to say, one more time for slow folks like me?
i don't think mad-eye has any sort of history being overly optimistic, does he?
CR
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wawawa, the U.S. can always cover it's current account deficit because the debt is in dollars.
Gary, agreed. Moody's is moving slowly in the right direction.
I'm wondering if they use this predictions to rate the various mortgage pools, etc.?
Best to all.
ab :
"In other words, investment inflows are funding the "extra" consumption that's implied by our current account deficit."
What will happen if investment inflows does not arrive? Is that going to automatically stop extra consumption?
Which one is cause and which one is the effect?
dilbert dogbert, that is an advertisment via Haloscan. All advertising on this message board is from Haloscan - not me - and there is nothing I can do about it, except leave Haloscan.
Best Wishes.
whatever their methodology is, its horsepucky. They have Wash. DC-Md-Va down more than Miami and San Diego (and a few other choice ones). Granted things are way overdone here (DC), but the incomes are higher and more solid. A reversion to the mean of price/income or price/rent will be ugly in many parts of this metro, but not as bad as in the low income places.
Typical rating agency balderdash.
He may be right that house prices are down 7.7% nationwide by the end of 08, but he is probably wrong that they stop there, more likely an additional 7.7% decline in 09.
Dirk van Dijk, that is what I was thinking ... I think the main error is that he has the price bottom too soon.
Best Wishes.
Probably hard to locate the bottom when you are waving goodbye to the dollar with both hands.
dilbert & CR,
The keyword-context popups are served by a site called
Add that URL to your IE "Restricted Sites" list and the ads will not appear.
Don't understand why Chicago did not make the list. Nicer areas are clearly frothy and less nice areas are getting whacked by foreclosures.
OT: Hong Kong's Consumer Price Index Likely Reached Five-Month High
Hong Kong's Consumer Price Index Likely Reached Five-Month High - Bloomberg.com
Isn't the Hong Kong dollar pegged to the US dollar? Why do they have such high inflation yet we don't?
CR, I found an old article I had printed out that was presented by Thomas Helbling at a BIS event in 2005. It analyzed past housing booms/busts across multiple countries. It says that the average bust lasted approximately 4 years and prices dropped an average of 27%.
http://www.bis.org/publ/bppdf/bispap21d.pdf
Real estate indicators and financial stability
I wish the Economist's original 2005 article on the housing bubble was still available. Ah well..
Premium content | Economist.com
lumpeninvestor,
Cool tip! That did indeed eliminate the auto-generated text-link ads!
lumpeninvestor, thanks. I guess we could post that every one in awhile for the other readers.
Andrew, yeah, 4 years and 27% as an average. Of course this boom was a little worse than average! So the bust will probably be worse too.
Best Wishes
--
CA Declines From The Peak\t
Merced County\t-26.3%
Yolo County\t-23.7%
Sacramento County\t-19.5%
Stanislaus County\t-18.8%
San Joaquin County\t-18.6%
Nevada County\t-17.0%
Madera County\t-16.9%
Placer County\t-16.8%
San Benito County\t-16.0%
Tulare County\t-15.1%
Santa Barbara County\t-13.7%
El Dorado County\t-12.7%
Solano County\t-12.6%
Sonoma County\t-12.1%
Fresno County\t-12.0%
Kern County\t-11.8%
Napa County\t-11.1%
San Luis Obispo County\t-10.8%
San Diego County\t-9.5%
Riverside County\t-9.2%
Ventura County\t-8.7%
Santa Cruz County\t-7.7%
Marin County\t-6.3%
Monterey County\t-5.6%
San Bernardino County\t-5.3%
Contra Costa County\t-5.0%
San Francisco County\t-3.0%
Orange County\t-1.7%
San Mateo County\t-1.4%
Santa Clara County\t-0.7%
Alameda County \t0.0%
Los Angeles County\t0.0%
Cities:\t
FRESNO\t-11.8%
SACRAMENTO\t-15.4%
STOCKTON\t-23.4%
Regulators ease limits on Fannie
The Office of Federal Housing Enterprise Oversight, which oversees Fannie Mae and its government-sponsored sibling Freddie Mac, last month turned down Fannie Mae's request for a 10 percent lift of the cap on its mortgage investment holdings, now set at $727 billion. The agency said Wednesday Fannie Mae can increase its mortgage portfolio by 2 percent a year, or up to 0.5 percent per quarter, starting Oct. 1.
CNNMoney.com: 404 Page Not Found
Andrew and CR,
I assume that was a 27% drop in inflation-adjusted prices, not nominal prices?
Here in Tucson where 2000 sq. ft. townhouses within golf courses that are around me were over $500,000 at peak, Zillow now values the same ones roughly at $350,000 so they have dropped more than 11.7%. I think Moody's is way behind the ball on this.
Geez, San Jose will only drop 4.4% accourding to Moody's....
If they're correct, I'll never be able to buy back my previous home, a $1.4M plain old 1950's track home.
In fact, I think it's already declined a few percent as of this minute. I wonder if their estimates assume no recession.
8 reporting in; Oxnard-Thousand Oaks, CA.
We are already down 10% over 3 quarters. As long as the metric is "from the peak" then we have another 20% in price and far far more in inflation adjusted terms to go.
This was no typical housing boom. We had easy money and a lot of investors in the mix.
Okay, so Stockton expects to go down 25% from Q1-06 to Q4-08 (basically 3 yrs.' time). From Q1-03 to Q4-05, also 3 yrs. time, just how much did Stockton go up?
Am I missing something here?
wawawa
larry kudlow will tell you that it aint the current account deficit, its the capital account surplus!!
by this he means that because we're such an attractive place to invest, we have all this cheap money with which to spend.
the accounts will always zero out. its the currency, inflation and interest rates that change.
i.e. if the current account demands it, the interest rates will go up to satisfy the balance of the accounts...
or something like that
we could see most of the decline from inflation adjustments...
that'd be the easy way out
unless of course you're a wage earner on an arm
but if you've got salary pricing power and a fixed rate, yeehaw! salvatio
My neighbor dropped -7% (and change) from the peak and that drop occurred in about 7-8 months.
There are only two ways to get -5.0% by the time this adjustment is over. One way is if the dollar drops through the floorboards and the quoted -5.0% is nominal, not real, home prices.
So our neighborhood will go up 2%,
but oil will be what?....$100+ a barrel?
The other way is if Cheech & Chong did
the analysis.
KnotRP: The other way is if Cheech & Chong did the analysis.
Cheech & Chong: "We're not into time, man..."
How the hell did the Zman pulled this bunny out of his hat?!?
I demand to check his coat and hat!
Do "wild hunches" qualify as forecasts these days? Tsk-tsk, an appalling state of the profession.
There aren't any established methodologies, nor any historically comparable precedences to this event.
I will be highly skeptical of any bottom-calling/forecasts that don't come with 30-page footnotes, minimum.
Loading the AdBlocker plug in into FireFox makes short shrift of adds... screws Google's pooch, though...
Just before February sell-off the 500 stocks of SPX were on average 80% between the highest and lowest price prior to 20 weeks. Market does not die with this kind of internal. Just before the July sell-off this number was 68%, a strong bearish divergence. This indicator have never been wrong but it needs confirmation to better its timing and as soon as that signal emerged inevitably a correction unfolded. Early June junk bonds begun their sell-off and it became clear on July. Two strong bearish divergence and everybody knows what happened.
Today the 500 stocks of SPX were on average 57% between the highest and lowest price prior to 20 weeks and SPX is near all time high. Again a bearish divergence. Besides tech stocks begun to underperform for the first time since last April. Two alarming signals. Junk bonds are improving but prices are far from May levels.
If internals dont improve and techs continue to underperform as soon as junk bonds begin to falter current rally will fade and a new wave of sell-off will begin.
Most housing price cycle declines are about three years... The 1990s was about 6 years. That was a special case - an aberation. Even the great depression was only four years of decline (followed by many years of very slow recovery).
I expect this decline to be at least the normal 3 years, and probably as long as 4 years. That would make the bottom for prices 2009.
Housing demand (including new homes), as measured by unit sales volume should hit bottom about one year before the bottom for prices.
Three years from top to bottom?
Hasn't Japanese real estate tumbled for some fifteen years?
Why would our unraveling be one-fifth the duration? Don't they have stronger export flows and savings rate to soften the down cycle than we have?
.
Three years is the historical norm...
I think this downturn is worse than average.
What does Japan have to do with our situation? The facts of their downturn are very different. We faced the same downturn as Japan at the same time in the 1990s. They chose policies like our 1930s policies and got a result like our 1930s results. We chose a different policy for the 1990s and got a much better result. As Forest Gump said: Stupid is as stupid does.
Plus the demography for Japan is much less favorable than that of the US.
Japan is not the US.
I agree that Moody's is highly optimistic, but they are now at least moving in the right direction with their predictions. At least now, they concede that declines are inevitable.
Predicting the past is not "moving in the right direction". Those declines are not "inevitable", they have already happened.
I am sure this kind of stuff from Moodys is causing the mortgage companies fits
Nonsense, the mortgage companies know full well from the facts on the ground (delinquencies, foreclosures, auctions) what is really going on and the only fits they are likely to get from Moodys' "prediction" are fits of laughter.
My guess is prices will decline further than Moody's is expecting, and the duration of the bust will be longer.
It might be useful to look at measures of affordability over time, e.g. what percentage of households could qualify to buy a median or average priced home today vs at various times in the past. I would guess that right now affordability must be at or near historic lows in many locales, because all during the boom in housing prices incomes have not come close to keeping pace.
Cuurent Account Deficit simply reflects the concept of the great level of confidence foreigners have in America's long-term investment prospects.
Plus the demography for Japan is much less favorable than that of the US.
You are right in the sense that, among developed ('first world') nations, the US has by far the fastest growing population; in fact, its growth rate is comparable to many undeveloped ('third world') nations. But I hardly think the demographic trend is "favorable" -- almost all of the growth in the US is due to immigration or to the progeny of recent immigrants, especially Hispanics, who are disproportionately poor and do disproportionately poorly in school. The implications of this for productivity growth and wealth creation are obvious (some would say ominous).
Cuurent Account Deficit simply reflects the concept of the great level of confidence foreigners have in America's long-term investment prospects.
The current account deficit is due to many factors, but I don't think it "reflects...the great level of confidence foreigners have in America's long-term investment prospects". Foreigners accumulate dollars via trade with the US, and also as a result of the status of the dollar as 'the world's reserve currency' (e.g. many commodities are priced in dollars, most visibly oil). These dollars have sought dollar denominated investments, mostly treasuries (or lately other US assets, e.g. the Chinese buying part of Blackstone).
To attract sufficient foreign capital flows to cover the U.S. current account deficit, interest rates in the U.S. may need to rise significantly.
Probably true, as foreign dollar holders have already shown signs that they are no longer willing to suffer low or even negative real returns due to a combination of low US interest rates and a declining dollar. So they will demand alternatives, and innovation in the financial markets will provide these alternatives. At the same time they have to be careful not to 'bite the hand that feeds them', e.g. 40% of Chinese exports go to the US ("conundrum").
Home price increases
Markets require two things: buyers and sellers. A cool half-million house in CA means that you're being paid a pretty penny to move to Indianapolis. It's gotta be worth it for somebody.
Housing will continue to fall until people can afford to actually buy houses again. If the median income earners can't afford anything worth buying, housing is still too high.
Maryland is a prime example: median household income in Maryland is about $60K a year. Median housing price in Maryland is well over $300K. That doesn't work and is the result of toxic loans. In this state, nothing worth buying (by that, I mean a place with jobs or where one won't be gunned down) sells for less than 4 times the median income, approx. (depends on the area). Again, that cannot be sustained long-term.
Moody's is projecting an average price decline of 7.7 percent.
Yes, but can Moody's tell us if the loans on those houses will be AAA or B- ? and if so, can we believe them?
mbartv and pondering the mess,
Yes the MD in the DC, MD, VA, arlington, alexandria saying our peak was this quarter and an 11.5% decline. Well in southern Charles we have already seen a 10% or 5K on 500K homes and in some areas even more. since Novemeber of last year. Though existing HO's are reluctant to drop too much and most of the housing here is above the 417 cap we have median I of 47 and median house of 425. Go figure. We in SSoMD were also late to the game with the really toxic stuff most of which was lent in late 05 and 06 so I think we will hit hard even outside of 09. But thats just the SoMD portion of that MSA.
Lance
Question:
We have 7yr arm that expires in 4 years.
My prepayment penalty of 20k (particularly stiff) expires in June '08.
Combined FICO is above 750, the mortgage is our only debt, and our income is depression proof.
Should we eat the penalty and refi to a higher fixed interest rate now or will the 30yr fixed interest rates not increase that drastically in the next 8 months?
SortCourage, yep that 27% was an inflation adjusted drop according to the BIS paper.
somean - set up a spreadsheet and run the numbers for various interest rate scenarios. Off the top of my head, $20K strikes me as a rather big penalty, but if long-term fixed rates jumped by 1-2% you could save money if you definately planned to stay put and never refinance. But I have no idea if interest rates will do that. For all we know, in 8 months we could be in the middle of a big recession and long-term rates will have fallen.
Lance,
5k of 500k is 1%, do you mean a 50k drop in price?
mbartv and pondering the mess,
Yes the MD in the DC, MD, VA, arlington, alexandria saying our peak was this quarter and an 11.5% decline. Well in southern Charles we have already seen a 10% or 5K on 500K homes and in some areas even more. since Novemeber of last year.
[...]
Lance
Anonymous | 09.20.07 - 11:14 am | #
somean,
Are you a mortician?
(our income is depression proof)
xCFC - it's either that, or an IRS agent.