S&P: Record Home Price Declines
Submitted by
CalculatedRisk on Tue, 11/27/2007 - 6:58am (69 comments)
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The only question now for the December FED: 25, 50, or 75 bps?
B-b-but, "There is no national housing market."
I must not understand the Case Schiller report very well. I realise it follows the same houses through time but everything I hear out of California,Florida and other bubble areas prices are down more like 30%. Is C/S a lagging indicator or is there something else I am missing?
Woah! And is this only the begining?
The housing prices are down across the board in all 20 of the cities measured?
How do you "spin" that?
But the stock market is up today...
Christmas is coming and with housing prices more affordable the rich can pick up second homes...
There is positive news. We need to all recognise that these home values will decline.
It ain't a real recession until Seattle and Portland show YOY losses. Seattle actually benefits from a falling dollar--Boeing and Microsoft sell mucho product overseas.
. . . everything I hear out of California,Florida and other bubble areas prices are down more like 30%.
I'd say bubble area listing prices might be 10% to 20% lower than a year ago, but that doesn't mean people are buying them at those prices.
OT:
Harley tells 5400 workers...thanks its been real.
Business Week Online > File Not Found
Thanks borkfatty,
I have 20000 PUTS on Harley you made my day.
What? Joe and Jane 6 pack not buying the latest piece of 1920's technology from Harley Davidson anymore? This is worse than it looks.
We sold our home in the San Fernando Valley area of L.A. in January. Our agent there told me last month if he were to put it on the market now, it would be for 15-20% less. IOW, what was a $600,000 home might go for $480,000 - 510,000 now.
Also, when we sold, they were few foreclosures in the area, now there are a multitude of them.
Even folks who put 20% down 2004-2007 may be underwater by mid to late 2008. Banks might want start considering doing what the Chinese banks do, which is ask for 30% down. Of course, as in the WSJ today, those banks don't verify income or assets on almost any borrower ... so they are like "below subprime" lenders.
Just talked to a realtor, they're not coming down here. He said that everyone was just like me, wanting a home for less $, and there are a lot of homes for sale now but as soon as people realized that the prices are not coming down they will go QUICK!
So the consumer is going into the tank just before Christmas...sharp housing price decreases nationally...we get those existing home sales numbers this morning or is that delayed (or my mistaken schedule)?
And what about the other 311 metros around the country that are not tracked by the Case-Shiller Index?
Should we just extrapolate what is going on in most of the twenty largest markets and say they are all in the crapper as well?
i live in Middle America and while sales have slowed we are not seeing price declines.
WASHINGTON (Dow Jones) -- Fannie Mae and Freddie Mac will have to operate under the same federally mandated loan limit in 2008 as the mortgage giants did this year, the companies' regulator said Tuesday.
The maximum value of a single-family mortgage eligible to be purchased by either company will stay at $417,000 for the third straight year, according to the Office of Federal Housing Enterprise Oversight, known as Ofheo.
MoT,Harley's Evoluton Engine is 1970's technology,and the suspensions are '90's tech.as for the rest of the bike 1920's is about right.What sales are occurring in Sonoma county are at early '04 prices.
Ron
That is music to my ears -- no artificial price support from Fannie, Feddie. Now if only Ben would realize how important fighting inflation is vs. avoiding a recession.
Harley tells 5400 workers...thanks its been real.
Bork - its a one week lay off, the workers won't bitch at all - they'll go hunting.
This one is a nothing burger value meal super sized.
sportsfan | 11.27.07 - 10:18 am | #
A plus one on the lsitings...I am following raw land prices in the Southwest Florida area. I am looking for a 5-10 acre lot. 18-24 months ago they were 20-40k per acre. I looked at one last weekend selling for 8k and another at 9k per acre. In my current area raw lots are only selling at a 80-90% discount from the high point(40/50k ea to 4.5/7k).
Couple of other points...I have been following listed short sales for multi family units in Cape Coral,Fl for the last few months. All but one or two have ended up returning to the banks. They were listed for approx 50% of original selling prices.
When i transferred to Port Charlotte 3 years ago there were virtually NO listings under 100k. I just checked...We broke 400 under 100k just today. How about a 40k house on the market for 4+ months with no lookers??
I would guess we are 6 months or so ahead of the rest of the country...
Chris
MoT,Harley's Evoluton Engine is 1970's technology,and the suspensions are '90's tech.as for the rest of the bike 1920's is about right.What sales are occurring in Sonoma county are at early '04 prices.
Tom Stone | 11.27.07 - 10:50 am | #
They are improving materials constantly - so drive train components are less expensive but generally better with every new model.
The cache though for Harley buyers is making damned sure the thing looks & sounds like 1920's technology. Harley spends a shit load of money & energy making sure that stays the same.
Where Harley is in deep shit - surprise, surprise - is in their financing arrangements. It seems quite a few of their better customers have not so good credit... and financed their Harley sorta like they financed their homes (zero down pay later I promise loans).
Who could have ever seen this coming?
One-twenty:
C-S follows repeat sales over a period of time. Markets with a lot of new or new-ish construction will not reflect reality as well.
But... but... but... I thought only financial markets moved this quickly! I was told real estate moves down very slowly over a period of years, if at all!
I was told this is a great time to buy and sell a home!
(looks like for a lot of folks, it is a great time to torch a home to ashes)
When does the existing homes report come out I thought it was 10am ET?
Thanks Dryfly,harley's sound wonderful,but give me a properly set up BMW or a Ducati to ride,or god forbid,a riceburner.
S&P: Chicago down 2.5%
Dealing with several local Chicago brokers 10% price reductions were very common as early as this spring. Many properties are in the 20% price reductions by now. Very little moving if anything at all.
One office in particular downsizing this year from 3 locations down to 1. ~60 agents and averaging about 2 closings / month in the past few months. The few clients I work with are hurting big time. Several being few months behind in paying for my IT services. One just had their check bounce.
What? No chart?!?
OT,
market up over 1% and 230+ visitors...hmmm might have something to do with new 52 wk low/new 52 week high running ~14:1?
and did the existing home sales get pushed back to tomorrow or what?
if only Ben would realize how important fighting inflation is vs. avoiding a recession.
If history is any guide, only wild rampant inflation will force the FED to chose fighting it over fighting a recession. See the 1979-1981 experience. Volker acted only when US 30 year bonds got to 14%.
Thanks Dryfly,harley's sound wonderful,but give me a properly set up BMW or a Ducati to ride,or god forbid,a riceburner.
Tom Stone | 11.27.07 - 11:15 am | #
I don't even like motorcycles that much but know how they are made... In Harley, Polaris and Kawasaki plants from time to time & sell stuff to their suppliers if not directly to the plants.
The only bike I ever thought a half second about were the BMW Enduro's... I met a guy & his son who drove theirs from Anchorage to Key West via the Alaskan Highway - the AH was tore up for almost its entire length, 1000 miles of mud & rock... then they went off road almost every night to camp, at least until they got back to 'civilization'.
Once in the states they did about half the trip on back roads - jumping off interstates in the Midwest & South.
I think that would be alright but I'm too old for as aggressive a ride as this would be... but I can still dream.
I just saw a member of the Outlaws m/c on US 19 the other day riding a brand new harley. All cash (crank) deal or did that dude get bought? Repo hell.
Chris, if your area is 6 months ahead of the rest of the country, we're in for some deep, deep trouble next year.
In my area on the left coast, raw land prices have dropped considerably and sales are almost non-existent.
My original post was for single family detached listings. Despite lower prices they aren't getting any traffic, much less any offers.
Good News! No bread lines yet.
More Good News! Inflation expectations intact. Instead of, "Brother can you spare a dime", we're getting, "Brother, can you spare $7.5B?"
As noted earlier in this blog and reinforced by these figures, most folks who purchased recently, event with a sizable down payment are way underwater. What I keep wondering is: at what point will even staunch believers in paying their debts and living up to their responsibilities cave in? When they owe twice what their house is worth? Not only does it erode any perception of wealth to be that upside down, it doesn't make sense financially. As has also been pointed out on this blog, I fear any remaining stigma attached to foreclosure will disappear and walking away from a house and renting a house will be seen as the smart thing to do. I can't invision the future of this country now. I don't understand the glee expressed over this either.
Hey folks, can any of you see any flaws in my logic here, and also, does anyone have a chart of long term (say 20 years) of cap rates on commercial real estate (say office or high quality mall retail)
The underlying problem is that Real Estate prices simply got to high, and are now starting to come down, starting with houses. At the end of the third quarter the Case Schiller Index, probably the best constructed housing index, was 4.7% below where it was a year earlier, and was down 1.7% from the end of the second quarter. Prices were down year over year in every one of the 20 major housing markets tracked. This could be the start of a cascade, since housing prices are extremely sensitive to perceptions of future appreciation potential for the house. If housing prices are expected to be flat long term, then the value of the house should be the annual rent one could get for the house divided by the cost of capital (adjusted for depreciation, insurance and maintenance costs plus a risk premium). Given an after tax mortgage cost of about 6%, the total cost should be about 9%. Thus, if you could rent an identical house next door for $2000 per month, in a steady state, the house would be worth $24,000/.09 = $266,666. However if you (and the overall market) expect that house to appreciate by 5% per year over the long run, then the value of the house is $24,000/(.09-.05) = $600,000. In other words, a 5% difference in long term annual appreciation expectations raises the fair value of the house by 125%. The markets expectations of future price appreciation tend to be very backward looking. This is at the core of the housing bubble, just because prices for housing had been rising nicely for a long time people ratcheted up their expectations for future price appreciation. Over the past decade, rents have by and large risen in line with overall inflation, while housing prices soared. Yes part of the initial rise was driven by low interest rates, but interest rates were fairly uniform across the country. Rates of housing appreciation were very different in San Francisco than they were in Ohio. Now those expectations are likely to come down. If house prices are likely to decline by say 3% per year over the long term then the fair value a house renting for $2000/month would fall all the way to $200,000. Thats a big problem if you bought the house for $600,000 and have a mortgage of $550,000 on it. Its also a big problem for the holder of that mortgage. Now this was a simplified example, which assumes that the rate of appreciation is constant forever, and house prices are no more likely to decline at 3% per year forever than they are to rise at 5% per year forever. However, for say the next decade, from the current highly inflated levels, a decline of 3% seems more likely than a rise of 5%. This then could become self fulfilling. Personally I would make any buy vs. rent decision based on an assumption of no long term appreciation or d
I don't understand the glee either, I'm mad as hell.
No longer prime,
I don't think we feel glee its more like a bad wreck on the side of the road you have to slow down and look thinking glad its not me.
On the other hand I am a realist and invest accordingly. I come here for sound investment advice thank you all and to get a feel for how things are going from other realists.
Dirk van Dijk, it all makes sense if you have been reading up on it. But won't there be catastrophic effects if everyone who realizes he or she is upside down defaults? I am just trying to grasp the enormity of the situation. I want to have an idea of what to expect. Perhaps everyone on this blog was "wise" enough to avoid this situation and just regard this as a fantastic opportunity to gloat but I know a lot of people (myself included) who do not fit into this category.
You have friends working for Citi?! Here is the perfect christmas gift:
Mecca Compass China Manufacturers
Dirk
Nothing you begin saying makes any sense once all recognise that inflation is so high that buying a big house with a fixed rate loan you can hardly afford is the sensible choice.
This is the solution here. Maybe the only solution. Its the 70's again.
No longer prime -- I think the reaction you are seeing on this blog and elsewhere is the product of years and years of the bears warning about the housing bubble, warning about moral hazard soaring totally out of control, warning about derivative black boxes and extreme leverage and all the other financial horror shows we're seeing now, and for their trouble being dismissed as cranks by the "smart" money -- that is, when they weren't being attacked as unpatriotic terrorist lovers by the Realtors cartel.
Remember: The bears are usually wrong, most of the time. So, under it's inevitable that under the circumstances they would be gloating just a little bit . . . well, OK, a LOT.
Prices will have to decrease to rental rates. Long term holders will be okay in the long run as long as they don't have to sell due to employment, health, family, or other changes. The oweners will not receive an addiquate return on their capital with flat (3% return average) or no return for many years. Hopefully, the home will return to a home and not an real estate investment. This will require that individual's reduce consumption and increase their savings. However, all bets are off if the FED decides to accept higher inflation rather than deflation or flat growth.
@ lookin to buy in KC
Realtors lie for a living. Prices will be going down nationally.
"You have friends working for Citi?! Here is the perfect christmas gift"
Allāhu Akbar!
Great explanation Dirk, thanks!
Dirk,
My being a beancounter aside:
The way to analyze a property is to make an income statement (the best being an IRS Schedule E) and place your Revenue and Expenses on it. The one line you need to correct is the Depreciation as tax depreciation is fantasy. If the building will last 50 years, divide the building cost by 50 per year on your income statement. Then project out your rents and expenses for several years and discount the income.
Simply doing a cash flow analysis will not tell you much. For example, a cash flow analysis would favor an option ARM over a 15 year fixed with a slightly higher rate than the teaser.
Next, look at the percentage return and compare to other investment options. To be conservative, I would view appreciation beyond trend as gravy.
One reason (of many) so many people have become millionaires in real estate is because it is a forced investment. People will go years without funding a 401k but never stop paying the mortgage on a commercial property.
You, lucky americans, will soon touch the bottom and recover from this mess. Finantial and housing markets will be repaired cause you have the ability to identify the problems and act accordingly.
We, stupid spaniards (from Spain), will struggle with the inflated housing markets for decades because we are not able to react so quickly. We deny the reality. There's not such subprime issue in Spain, we say. Our lenders almost always ask for relatives that guarantee up to 80% of LTV, making default much more difficult, Many of us are poised to spend more than 40% of our personal income in debt servicing for many years.
I can only speak for myself, but I bought in the East Bay Area in fall 2003 (with 20% down, 10/1 ARM fixed until fall 2013). I wouldn't have knowing what I know now, but there it is. My wife & I talked about getting out in 2006, but with a baby in the house we decided it wasn't worth the upheaval. The big kicker is, rents for SFH's in decent neighborhoods around here aren't much less than my mortgage payment, if at all -- and rents have been rising in the "inner" Bay Area. So even if I'm underwater on the house I'd probably stay, because we like our house & we have to live somewhere..... besides, 4-5 years in, my payments do start to make a dent in the principal balance....
Anonymous @ 11:57 am - Okay, I can understand the need to gloat, it's almost impossible not to say, told ya so. Especially if you are not going to be hurt by the fallout, or even stand to benefit. Oh yes, we should have seen it coming. But most working people don't have time or the resources to seek the kind of information needed to forsee something like this. So, Bears, what is the best course, should everything just be allowed to collapse as quickly as possible, so that next, um, what happens next?
Our lenders almost always ask for relatives that guarantee up to 80% of LTV, making default much more difficult
Ouch...
One reason (of many) so many people have become millionaires in real estate is because it is a forced investment. People will go years without funding a 401k but never stop paying the mortgage on a commercial property.
lama | 11.27.07 - 12:16 pm | #
Exactly. Most folks never give up on their commercial OR residential holdings until its a complete lost cause.
That's the reason IO & neg am is so toxic and destructive for the country - you get to the last straw a whole lot faster via IONA & as we are seeing we all pay.
I could not care less if Californians & New Yorkers sell for & pay five times as much for real estate as I do in fly-over... that is if they are really paying for it, principal & all. We all now know that wasn't always the case and a lot of the systemic risk we all face has resulted from their recklessness.
I don't understand how anyone can say there is no positive news. Even a recession benefits the majority of people who don't plan to retire within 10 years. Feels like the entire media are geared toward the boomer with 3 houses and a massive 401k. My 30-something friends who are all struggling to put just 10% of their income away, and who have been sitting out this massive bubble, stand to benefit greatly by improved PE ratios. Where is our media?
The Stealth Public Bailout of Reckless Countrywide: Privatizing Profits and Socializing Losses
Nouriel Roubini | Nov 27, 2007
The letter by Senator Schumer questioning the $51.1 billion that Countrywide borrowed from the Federal Home Loan Bank system (specifically the Federal Home Loan Bank of Atlanta) has finally revealed the little dirty secret - that was known only to a few insiders and was noticed on this blog a month ago that Countrywide, the largest US mortgage lender, has received a massive stealth public bailout that has put at severe risk taxpayers money. Here is Countrywide - the premier poster child financial institution of the reckless and predatory lending practices of the last few years getting in severe financial trouble because of its rotten lending practice in subprime, near-prime and prime mortgages and whose CEO Mozilo is under SEC investigation for potentially illegal activities now receiving a massive $51.1 billion of public bailout money with little official supervision of such lending. Mozilo is under investigation for his accelerated sales of Countrywide stock under a 10b5-1 plan. Mozilo has made more than $100 million on stock sales this year, while Countrywide shares collapsed more than 50%.
As the Schumer letter correctly points out the collateral against this $51 billion loan is mostly toxic waste subprime garbage whose market value is now much lower than the face value of such mortgages; so $51 billion dollar of taxpayers money has been put at risk with garbage as collateral for it.
At least Northern Rock that also received a massive official bailout in the UK did so under the public scrutiny and serious criticism of such bailout by media, public, politicians and investors. Instead Countrywide a huge mortgage lender that is most likely insolvent rather than illiquid received a stealth bailout that only now is emerging to the public eye.
In the case of Northern Rock another institution that is most likely insolvent rather than illiquid the botched bailout led to public embarrassment for the Bank of England, the FSA and the UK Treasury. As authoritative analysts - such as Martin Wolf of the FT - have correctly argued, in cases where massive amounts of public money are at stake to bailout a nearly insolvent institution the fair punishment to the shareholders of such bank it to wipe out their equity and a public takeover yes a nationalization of the bank; that nationalization should be a temporary action to clean up the mess, get the incompetent and reckless shareholders and managers out, restructure the bank and then sell back to the private sector. Capitalism without punishment for reckless lending breeds moral hazard and pestilence.
As Wolf rightly put it:
If Northern Rock had been taken under public control at the same time, the Bank lending would have been unnecessary. Shareholders would have been wiped out, as was appropriate for an institution need
RGE - Nouriel Roubini's Global EconoMonitor
Silly me actually read the article and learned that 5 of the 20 areas covered showed year/year gains. (Dallas, Atlanta, Portland, Charlotte, Seattle)
I don't understand how anyone can say there is no positive news. Even a recession benefits the majority of people who don't plan to retire within 10 years.
It can even benefit those who plan to retire soon - they may have less cash and weaker savings but then the retirement home they hope to buy costs less too.
The people a recession kills are those dependent on 'continuing output' to get by - primarily workers. Recessions are NOT declines in wealth, they are declines in output & increases in unemployment. Neg GDP growth.
These events usually cause declines in wealth but that's a knock on result.
Anyone with a secure and independent source of wealth will benefit from a recession - their income doesn't decline but most stuff gets cheaper. There aren't too many of those folks but a few.
And while the majority of folks don't lose their job in a recession, enough do so that many others worry about it. Combine real wages lost & increase angst and you see a lot of people affected.
It isn't a good thing but there is a lot of economic puritanism saying it is a 'good thing'... that pain is good for you. There is pain that gives you gain and pain that just hurts a lot. Wise people know the difference. If you think all pain is good - throw yourself down some stairs or slam your hand in a car door. I don't see much benefit in that.
And going through pain to make you wiser just means you weren't very smart to begin with. Its better to avoid pain as much as possible... but some times that's not possible. I think we are approaching that junction. Pointing that out is not necessarily 'gloating'.
Silly me actually read the article and learned that 5 of the 20 areas covered showed year/year gains. (Dallas, Atlanta, Portland, Charlotte, Seattle)
Right it was that all showed month/month drops in all 20, not yr/yr.
For the first time in this housing cycle, prices in all 20 cities dropped from the previous month, with the biggest declines in the former bubble cities of Miami, Phoenix, San Diego, Las Vegas, Los Angeles and Tampa. - market watch.
And the best of them, Seattle and Charlotte, showed less than 5% YOY gain (4.7% each).
Not exactly the "secure retirement" investment vehicle promised in perpetuity by the NAR and an HGTV show near you.
AND, by the way, Charlotte and Seattle are now getting the kind of cooling that Las Vegas and San Diego began to see two and a half years ago. So if anyone still thinks there are roses left to sniff in real estate, I suggest that one won't find them steaming so close to the ground (and those aren't bees, they're flies...)
re Harley layoffs. The plants affected are in Central Pennsylvania and Wisconsin, big hunting states. They are presently one week closures and dryfly's right - a right fair amount are hunting.
I love venison, especially topped with bacon.
wrong. i bought in Feb 2007 and prices are flat to a couple of % points down. you don't have to lie to make a point.
The Chicago Fed Index for October was published yesterday. The value is now -.73. According to the report"
"When the CFNAI-MA3 value moves below
0.70 following a period of economic
expansion, there is an increasing likelihood that a recession has begun."
Conjure and I stand by Q1-08.
http://www.chicagofed.org/economic_research_and_data/files/cfnai_november2007.pdf
tj & the bear - re: graph
You can find the Case-Schiller graphs here
Welcome to MacroMarkets
Subprime crisis hits ALGERIA!
BBC NEWS | Business | US sub-prime crisis hits Algeria
Insufficiently "contained". LOL
most folks
edumucate oneself
Three points.
Points 1& 2: The press release covers only Q/Q and Y/Y price changes. It does not cover (1) change from peak or (2) prices have rolled back to ___ [date's] prices.
To pick a couple of examples:
LA's prices have dropped 7% from peak (9/06) and are now slightly below 9/05 prices.
San Diego prices have dropped 11% from peak (11/05) and are now rolled back below July '04 prices.
Point 3: This is the September price report. The mortgage market went to H3ll in August. Many September closings had funding commitments lined up pre-meltdown. The October report will be even more grim.
Prices in Portland (PDX) just started dropping in the last 2-3 months. They were flat for the preceeding 12 months or so. I sold my last house 2 years ago when I moved back and have been renting ever since. Portland is still in the denial stage. Fortunately they got a late start so the don't have as far to fall as other places. My target is down 20% from the peak this summer. Timing is a little harder to see, at least another 12 months. Possibly as much as 36.
EEngineer said: "...My target is down 20% from the peak this summer."
That's not in keeping with the Portland market's history, according to Case-Shiller. It's got the highest CAGR growth rate of all the MSAs in the 10-city composite (the one with the longest history), and is very resistant to downturns, even in full recessions. Expecting it to behave like one of the bubble markets is...something you might want to think over.
Sebastia
dryfly,
Yes, I read that too. I just think that year/year data is, oh..perhaps 12 times, more important in describing a trend then month/month data.