CR, it would be fun to look at a graph of the average timing and severity of the last couple housing busts overlayed on their graph. Do you have that data floating around?
All, at least IndyMac is showing you their assumptions ... just compare that to CitiGroup. Citi admits that their losses depend on housing prices, but they haven't shown their forecast.
This forecast is in the ballpark of other analysts' predicitions I've come across lately. I'm not saying I agree with it- but it echoes what's out there.
Am I mis-interpreting this - The 2nd graph tells me that YoY housing prices are going to continue to decrease until Q109 right? I can believe this, the magnitude might be off, but basically no one should buy until Q209, or they're going to lose money for a while.
As for OFHEO, price increases in Q12008? I think not.
Very interesting, thanks for posting. Seem to recall some earlier posts of yours on prior downturns that show that prices take 2-3+ years to bottom after the bottom in the market per se and don't come back for at least five. If memory serves doesn't that put us out in '09/'10 for price bottoms ?
And if we adjust for the bubblicious nature of this cycle, i.e. something we've never seen before, wouldn't the adjustments be deeper and take longer to work out ?
Opinions ? New charts ? Comments ?
Based on September 07 sales and normalizing to "$/sq. ft.", prices in Oakland, CA were already down 12% from the previous September.
Depending on ZIP code, price changes varied from +2% to -41% Y-Y for September so besides IndyMAC being too optimistic, these numbers show the spottiness of the impact.
Last week my neighbor's home (in one of the +2% ZIPs) closed for $1.33M, with three bidders; the highest price by far for any home in the neighborhood. (It didn't hurt that the buyers could put 35% down.)
A couple of miles away prices are plunging. These were homes that first-time buyers were able to get into the last few years, and the ones that are in trouble now for all the well-known reasons.
There is some great news in that Indymac chart. Almost all of Wyoming, western Kansas, western Nebraska, and central Nevada are going to be unscathed. How long until Sebastian picks up on this and makes plans to move to Kearney, NB?
And don't forget the Big Bend area in Texas, it's looking good too.
If you consider "high risk" as "bubble", this is an incredible admission of just how widespread the bubble was. The graphic is terrifying in its beauty. We have:
Californa from Eureka to San Ysidro
Arizona (Phoenix and Tucson)
Denver
Las Vegas
Michigan
Minnesota (Minneapolis)
East Coast from southern Maine to North Carolina
and
Coastal Florida
So where the majority of the US population lives, expect price declines. Now that's an admission.
Notice that the OFHEO chart looks more reasonable because it starts in 2004 Q1. If it went back to 2001 we could SEE how much prices have gone up in the bubble. If it went back to, say 1995 or before we would see how atypical the runup was.
Also only a 10% decline in prices in the high risk areas is probably way too optimistic.
Making an accurate prediction of where house prices are headed requires:
a) Making an accurate prediction of where house values are going.
b) Making an accurate prediction of where inflation is headed in a climate of declining home values and a Federal Reserve that talks openly about "money rains".
dblwyo, The typical housing bust lasts about 5 to 7 years. At first prices flatten or decline slowly - as we've seen.
Then declines become a little more rapid. That is what I expect for the next 18 to 24 months. And finally prices slowly decline for a couple more years. That is the typical pattern.
I expect the worst price declines to be in '08, followed by '09. With smaller declines for the next couple of years in the bubble areas.
Boom2Bust.com, I think many people are working off these economy.com price forecasts. At least we know what IndyMac is using.
Ok, say I'm considering buying a home. I look at this graph. I would have no incentive to buy now. Why not wait until 2009?
Now how many people are independently finding info like that graph- or all the other stuff out there- and delaying purchase. (I am sure that first time buyers- which are the only ones that can really boost demand- are younger and more educated than the general population)
My point is that predictions of home prices falling can easily be self reinforcing and the prediction itself can accelerate the trend, even beyond what fundamental economic analysis would suggest.
People bought even when it was a irrational choice on the way up. On the way down, I expect we will see people refusing to buy even when it is a rational choice.
I won't trust any market prediction that fails to account for buyer psychology, and since that can't really be measured, I don't trust any prediction out there.
I can't find the terms "inflation", "inflation-adjusted", "CPI", "nominal", or the like in the IndyMac release, so comparisons to Schiller should take the real vs. nominal distinction into account.
hopeinsd, I agree. It is impossible to forecast exactly how quickly prices will fall - although we can forecast a fairly hard bottom (assuming no Jas'ian Depression!)
The hard bottom happens when the property makes sense to investors based on rents and expenses. This has to be calculated on an area by area basis. I've done the work for some areas where I might be interest in investing - and prices still have a long way to fall.
I expect we will see a period when people hate real estate again - most people you talk with will say it's a bad investment like in the mid-90s in California. That is usually a good time to buy! We are still a long way from that point - there are still too many knife catchers out there hoping to make a killing.
Although your point is valid that potential buyers may be waiting for a forecasted bottom and thereby be self-reinforcing, I believe increasing foreclosures will result in deterioratig conditions which result in currently stable mortgageholders defaulting themselves. In other words, in addition to the psychological downturn, the economy of that downturn will cause a death spiral of foreclosers on anyone who is econonically unstable.
27% of loans in CA and the graph shows CA with a high likelihood of "Housing price risk"
GSE model has smaller margins so IMB is shedding people. But at least their report is much clearer than say CFC who just seemed to wave their hands in the air and say everything is gonna be alright.
What a joke. House prices will decline until they are reasonable based on incomes. They have a very, very long way to go in many places unless real incomes start to skyrocket. In parts of CA 50% off peak is probably the low end, best case scenario.
When was the last time most people got a raise that even kept up with what inflation really is. They haven't.
In the immortal words of Johnny Cash it's, "down, down, down through a burning ring of fire."
This is a big set of recursive simultaneous equations, one set for buyer/consumer confidence, another set for the real economy. Clearly, there is feedback from one set to the other.
This is going to be way, way ugly.
And, it will only end when household debt-to-income levels are at reasonable levels (actually, below reasonable levels, as folks will become like our Depression-era forebearers, and will avoid debt like the plague).
Save/hoard now and buy gold, 'cause you will need it later.
CR point about price/rent ratio is the key. depends on what end of the scale you want to use but just in my neighborhood rents are running close to $1400 month which includes HOA dues of $150 but asking prices for houses is in the $450 to 500K range and these are ranch style built around 1972 1300 sq ft. They need to go down significantly something under 200K before buying makes sense.
It is nice to see them make their stuff public. I would love to see Bear Stearns internals too (by way of gutting is fine with me). It is basically a 71 page report saying "we goofed, but we were just following everyone else, and we are still better off than anyone else around us". Since they have sold off almost all of their loans, limited their sub-prime, and kept their cash (instead of buybacks and LBOs) they will probably survive, but the pain will be more than their pretty report says.
My point is that predictions of home prices falling can easily be self reinforcing and the prediction itself can accelerate the trend, even beyond what fundamental economic analysis would suggest.
People bought even when it was a irrational choice on the way up. On the way down, I expect we will see people refusing to buy even when it is a rational choice.
Seems like it could be a good application of game theory. Who will buy first? If you buy too early you lose money. If you buy too late... well, at this point there aren't a lot of consequences that can be seen in waiting too long.
Thing is, the only people who still want to buy at this point are those who aren't 'savvy' meaning they don't track these things like most of us here do. Interestingly enough, those are also the people who are less likely to be able to qualify for a loan at this point; the cautious tend to have higher FICOs. There are still plenty of greater fools out there, but every day less of them are able to qualify for a loan.
Buying won't be a rational choice for at least a couple of years and probably not until about 2011.
Thing is, the only people who still want to buy at this point are those who aren't 'savvy' meaning they don't track these things like most of us here do.
Not entirely true. A friend of mine just bought a place out in the 'burbs. Closer to work, more space, etc. What makes it different for him is the fat down payment he was able to make from selling the old place. The near-term value of the house isn't that important since he will probably be there for the next 20-30 years.
A while back CR shared the Monthly Mortgage Rate Resets chart, from Credit Suisse. It looks like a two humped (as opposed to twice humped) camel. Things get better in 2009 and then we see the second wave of resets during 2010 and 2012. If the first one doesn't get ya, the second one will. Sorry, but I don't know how to attache it.
Also think inflation in the Chinese manufacturing sector, which is running rampent, will feed our inflation soon.
America is not at war. The military is at war. America is at the mall.
The buy vs. rent didn't mean a damn on the way up because people only cared about appreciation. Conversely, buy vs. rent also won't mean a damn on the way down because people will be too afraid of continued depreciation.
Most people's decisions are emotional, not rational. If you can keep your head about you (and your powder dry) opportunities will abound.
dblwyo said: "...Seem to recall some earlier posts of yours on prior downturns that show that prices take 2-3+ years to bottom after the bottom in the market per se and don't come back for at least five. If memory serves doesn't that put us out in '09/'10 for price bottoms?..."
If you accept CR's premise (I do not) and the downstroke of this cycle looks like the last one (approx. 1989 into the mid-90's) we're probably looking at 2011.
From the Case-Shiller data on the San Diego MSA, the previous peak was in July, 1990. The low was in December, 1995, so that's 5 years, 5 months.
November, 2005 was the recent peak for San Diego, so that puts us at April, 2011 for the projected low.
If one assumes the same pattern. The last one required a recession (1990-'91), so IMO I don't see how we get the same pattern.
at 7% on a jumbo, every $100k
borrowed costs ~$700/mo. Since the
"frothier" areas pretty much are ALL
jumbo's, a $500k mortgage now costs
around $3500/mo PITI, or $42k/yr.
You need one income pre-tax of over
$60K just to make the mortgage pay-
ment on that $500k loan, and a 2nd
person working to pay the living
expenses.
The avge 'merican does not make over
$60k/yr, and if they did, how many
are goofy enough to get a high-cost
mortgage in an environment of slow
bleed values?
This chart is wishful thinking at
best, and purposeful disinformation
more likely...
ron said: "CR point about price/rent ratio is the key. depends on what end of the scale you want to use but just in my neighborhood rents are running close to $1400 month which includes HOA dues of $150 but asking prices for houses is in the $450 to 500K range and these are ranch style built around 1972 1300 sq ft. They need to go down significantly something under 200K before buying makes sense."
Just for comparison, my local conditions. Rents in my neighborhood are around $1,800/month...except that it's almost impossible to find any that are ever available.
Houses are two-story wood-frame, built about 1993, 2100-2600 square feet. Price range is $275k-$325k.
I love how all of Maryland is painted red, and yet the locals still prattle away how "it is different here!" and "Well, I don't think prices will come down here because we're near DC." They all think DC just spews free money to all the common-folk nearby, and prices don't matter since "everyone will move here." Of course, prices are already down 10% or more, but why should facts get in the way?
Prices will continue to fall until people can afford to buy housing based upon traditional debt to income ratios since I don't think the toxic loans are returning any time soon. Considering the utter lack of meaningful raises for the middle class and the continued gutting of almost all real jobs in this nation, real incomes may actually FALL in nominal terms (nevermind raging inflation) in the coming years, dragging housing down with it. Factor in the collapsing dollar and the future looks very bleak. Multiply the numbers on that chart by 5 or so and you have a better idea what we're facing.
The comment on the graph is misleading, rate of drop maxes out at 7% per year, but the total price decline - the bottom - adds up to 12%, Q4 2007 drop of about 6% plus Q4 2008 drop of another 6% year over year.
The graph indicates that recovery to current prices would be roughly 2nd Qtr 2010. I suppose that is possible if there is no recession and raging inflation due to dropping interest rates to the floor...
3 of the largest cities in the U.S. are Dallas, San Antonio and Houston. From the chart, they do not seem to be facing such a kick in the face as many others metro areas. I pressume the Oil and Gas industry has buoyed them a bit.
Does anyone have any thoughts on their future?
CR - thanks. That's what I recalled and your reviewing it is helpful. Would you consider putting up your version of the charts (or re-hashing the old ones) so I can cite them and scare people who need scar...I mean awakening ?
Sebastian - think 3/4 of your argument clarifies this line of discussion. Thanks there. But you'll have to expand on your IF arguments - didn't happen to see any. Perhaps two parts:
1. Why wouldn't this downturn follow all prior patterns ?
2. Why wouldn't it be worse since when you look at RI as GDP% or any other metric late 90s to date was huge rise. Granted an increase in underlying demand but still great supply >> demand imbalances.
Make that three:
3. Why not a recession ? Other CR charts (which Sam Stovall just this a.m. and finally echoed on CNBC) point out that we've never had a downturn in RI w/o one ?
The only 'high risk' county in Illinois, according to IndyMac, is Vermilion. Hard to see how prices could get any cheaper in the city of Danville than they already are.
CR: "I expect we will see a period when people hate real estate again - most people you talk with will say it's a bad investment like in the mid-90s in California. "
So true. When I was in my 20s in 1993-94, working with a group of similar aged people, we would actively talk each other out of buying property in CA. The common wisdom being that you do not want to be "stuck" with something you cannot sell quickly in the event you need to move for a job transfer or cutback, etc.
Entry level first-time buyers get cold feet just like anyone.
dblwyo asked: "1. Why wouldn't this downturn follow all prior patterns?
2. Why wouldn't it be worse since when you look at RI as GDP% or any other metric late 90s to date was huge rise....3. Why not a recession? Other CR charts (which Sam Stovall just this a.m. and finally echoed on CNBC) point out that we've never had a downturn in RI w/o one?"
One of the primary conditions is missing---the massive job-loss that occurs surrounding recessions. When people have to sell their homes because they no longer have any income that puts considerably more pressure on home prices than if their payments just go up (or their equity goes down). The difference between a "hard landing" and a "soft landing," I guess you could say.
None of the numbers related to residential investment, vacancy rates, supply/demand, etc., are "wealth-adjusted," which is to say there's no consideration given to the fact that Americans are wealthier now than ever before. On a previous thread I gave the example that things like cars and televisions were once considered one-to-a-household items, but that changed as we became more prosperous. What if the quality of housing demanded (and the number of houses owned by individuals) are higher simply because we can better afford them? Then there's population: None of the housing data is ever adjusted for population growth, either. Charts say what the presenter wants them to say---whether it's the truth or not is another issue.
Refer to ans. #1. CR doesn't address other indicators other than housing that don't support the "coming recession" idea. (In fairness, I don't know of any housing bears that do.) Recession is not now and never was a "housing-only" affair, in isolation from other factors.
Way too optimistic? It's worse than that. Their forecasts are already less severe than the current reality. What a fricking joke!
Triple or quadruple their percentage decline numbers and it might be just about right...
I believe the latest Case Shiller had San Diego down almost 10% from the peak.
CR, it would be fun to look at a graph of the average timing and severity of the last couple housing busts overlayed on their graph. Do you have that data floating around?
House To Vote Today on Sweeping Mortgage Changes
Sorry. Page not found.
Sorry, that was me.
You mean "Shittygroup".
As promised: http://www.youtube.com/watch?v=jD4x7SBceFg
All, at least IndyMac is showing you their assumptions ... just compare that to CitiGroup. Citi admits that their losses depend on housing prices, but they haven't shown their forecast.
Best to all.
Nemo, thanks!
Best Wishes.
This forecast is in the ballpark of other analysts' predicitions I've come across lately. I'm not saying I agree with it- but it echoes what's out there.
Am I mis-interpreting this - The 2nd graph tells me that YoY housing prices are going to continue to decrease until Q109 right? I can believe this, the magnitude might be off, but basically no one should buy until Q209, or they're going to lose money for a while.
As for OFHEO, price increases in Q12008? I think not.
Very interesting, thanks for posting. Seem to recall some earlier posts of yours on prior downturns that show that prices take 2-3+ years to bottom after the bottom in the market per se and don't come back for at least five. If memory serves doesn't that put us out in '09/'10 for price bottoms ?
And if we adjust for the bubblicious nature of this cycle, i.e. something we've never seen before, wouldn't the adjustments be deeper and take longer to work out ?
Opinions ? New charts ? Comments ?
Please.
from MarketWatch
Fitch assigns negative outlook to Countrywide Financial
Based on September 07 sales and normalizing to "$/sq. ft.", prices in Oakland, CA were already down 12% from the previous September.
Depending on ZIP code, price changes varied from +2% to -41% Y-Y for September so besides IndyMAC being too optimistic, these numbers show the spottiness of the impact.
Last week my neighbor's home (in one of the +2% ZIPs) closed for $1.33M, with three bidders; the highest price by far for any home in the neighborhood. (It didn't hurt that the buyers could put 35% down.)
A couple of miles away prices are plunging. These were homes that first-time buyers were able to get into the last few years, and the ones that are in trouble now for all the well-known reasons.
There is some great news in that Indymac chart. Almost all of Wyoming, western Kansas, western Nebraska, and central Nevada are going to be unscathed. How long until Sebastian picks up on this and makes plans to move to Kearney, NB?
And don't forget the Big Bend area in Texas, it's looking good too.
Take that, all you naysayers!
If you consider "high risk" as "bubble", this is an incredible admission of just how widespread the bubble was. The graphic is terrifying in its beauty. We have:
Californa from Eureka to San Ysidro
Arizona (Phoenix and Tucson)
Denver
Las Vegas
Michigan
Minnesota (Minneapolis)
East Coast from southern Maine to North Carolina
and
Coastal Florida
So where the majority of the US population lives, expect price declines. Now that's an admission.
Notice that the OFHEO chart looks more reasonable because it starts in 2004 Q1. If it went back to 2001 we could SEE how much prices have gone up in the bubble. If it went back to, say 1995 or before we would see how atypical the runup was.
Also only a 10% decline in prices in the high risk areas is probably way too optimistic.
Making an accurate prediction of where house prices are headed requires:
a) Making an accurate prediction of where house values are going.
b) Making an accurate prediction of where inflation is headed in a climate of declining home values and a Federal Reserve that talks openly about "money rains".
Good luck.
CFC presented the same (or very similar) forecast of their 3Q conference call slides (page 18).
dblwyo, The typical housing bust lasts about 5 to 7 years. At first prices flatten or decline slowly - as we've seen.
Then declines become a little more rapid. That is what I expect for the next 18 to 24 months. And finally prices slowly decline for a couple more years. That is the typical pattern.
I expect the worst price declines to be in '08, followed by '09. With smaller declines for the next couple of years in the bubble areas.
Boom2Bust.com, I think many people are working off these economy.com price forecasts. At least we know what IndyMac is using.
Best Wishes.
Moin,
speaking of credit tigthening
August 2007 Product Cuts
�� Eliminated all subprime loans except those saleable to GSEs
�� Eliminated all closed-end seconds and piggybacks
�� Eliminated traditional option ARM loans
�� Substantially cut other non-conforming production
�� Closed our conduit channel
�� Focused correspondent and warehouse lending business on community financial institutions and retail mortgage bankers with captive lines
�� No new homebuilder construction loans focus group on workouts
(No wonder if you watch the chart on page 34.....)
They have said on the call in q4 2005 that they had clear signs that the builders will have problems down the road...
They have choosen to ignore their models....
Result
Homebuilder NPAs Expected to Rise to Almost 30% of Homebuilder Assets
Ok, say I'm considering buying a home. I look at this graph. I would have no incentive to buy now. Why not wait until 2009?
Now how many people are independently finding info like that graph- or all the other stuff out there- and delaying purchase. (I am sure that first time buyers- which are the only ones that can really boost demand- are younger and more educated than the general population)
My point is that predictions of home prices falling can easily be self reinforcing and the prediction itself can accelerate the trend, even beyond what fundamental economic analysis would suggest.
People bought even when it was a irrational choice on the way up. On the way down, I expect we will see people refusing to buy even when it is a rational choice.
I won't trust any market prediction that fails to account for buyer psychology, and since that can't really be measured, I don't trust any prediction out there.
I can't find the terms "inflation", "inflation-adjusted", "CPI", "nominal", or the like in the IndyMac release, so comparisons to Schiller should take the real vs. nominal distinction into account.
Considering we've already decline 10%, the above statement was probably way too generous.
OT
Something going on with COF?
hopeinsd, I agree. It is impossible to forecast exactly how quickly prices will fall - although we can forecast a fairly hard bottom (assuming no Jas'ian Depression!)
The hard bottom happens when the property makes sense to investors based on rents and expenses. This has to be calculated on an area by area basis. I've done the work for some areas where I might be interest in investing - and prices still have a long way to fall.
I expect we will see a period when people hate real estate again - most people you talk with will say it's a bad investment like in the mid-90s in California. That is usually a good time to buy! We are still a long way from that point - there are still too many knife catchers out there hoping to make a killing.
Best Wishes.
If you live in a bubble area you can count on losing 7-10 years worth of equity.
CR Have looked at the dollar, it is the key to where the housing market will bottom.
When the dollar goes below 65 I know for certain that millions of people will be unable to air condition their homes.
Inland Empire,Central Valley, Phoenix, Tucson, Las Vegas, Dallas, Houston, and more
hopeinsd-
Although your point is valid that potential buyers may be waiting for a forecasted bottom and thereby be self-reinforcing, I believe increasing foreclosures will result in deterioratig conditions which result in currently stable mortgageholders defaulting themselves. In other words, in addition to the psychological downturn, the economy of that downturn will cause a death spiral of foreclosers on anyone who is econonically unstable.
Fitch cuts rating outlook of Wells Fargo, WaMu, Capital One
Fitch cuts rating outlook of Wells Fargo, WaMu, Capital One - MarketWatch
27% of loans in CA and the graph shows CA with a high likelihood of "Housing price risk"
GSE model has smaller margins so IMB is shedding people. But at least their report is much clearer than say CFC who just seemed to wave their hands in the air and say everything is gonna be alright.
What a joke. House prices will decline until they are reasonable based on incomes. They have a very, very long way to go in many places unless real incomes start to skyrocket. In parts of CA 50% off peak is probably the low end, best case scenario.
When was the last time most people got a raise that even kept up with what inflation really is. They haven't.
In the immortal words of Johnny Cash it's, "down, down, down through a burning ring of fire."
RFH, I second your comment.
This is a big set of recursive simultaneous equations, one set for buyer/consumer confidence, another set for the real economy. Clearly, there is feedback from one set to the other.
This is going to be way, way ugly.
And, it will only end when household debt-to-income levels are at reasonable levels (actually, below reasonable levels, as folks will become like our Depression-era forebearers, and will avoid debt like the plague).
Save/hoard now and buy gold, 'cause you will need it later.
CR point about price/rent ratio is the key. depends on what end of the scale you want to use but just in my neighborhood rents are running close to $1400 month which includes HOA dues of $150 but asking prices for houses is in the $450 to 500K range and these are ranch style built around 1972 1300 sq ft. They need to go down significantly something under 200K before buying makes sense.
jim a,
This depiction of historic pricing was popular awhile ago. Rather a bore if you've seen it already - otherwise, fun to share with the unaware:
Housing Prices Graphed On a Roller Coaster | GameLife | Wired.com
It is nice to see them make their stuff public. I would love to see Bear Stearns internals too (by way of gutting is fine with me). It is basically a 71 page report saying "we goofed, but we were just following everyone else, and we are still better off than anyone else around us". Since they have sold off almost all of their loans, limited their sub-prime, and kept their cash (instead of buybacks and LBOs) they will probably survive, but the pain will be more than their pretty report says.
Burnside, that rollercoaster is such a great illustration. Tower of Terror anyone? Wheeee!
My point is that predictions of home prices falling can easily be self reinforcing and the prediction itself can accelerate the trend, even beyond what fundamental economic analysis would suggest.
People bought even when it was a irrational choice on the way up. On the way down, I expect we will see people refusing to buy even when it is a rational choice.
Seems like it could be a good application of game theory. Who will buy first? If you buy too early you lose money. If you buy too late... well, at this point there aren't a lot of consequences that can be seen in waiting too long.
Thing is, the only people who still want to buy at this point are those who aren't 'savvy' meaning they don't track these things like most of us here do. Interestingly enough, those are also the people who are less likely to be able to qualify for a loan at this point; the cautious tend to have higher FICOs. There are still plenty of greater fools out there, but every day less of them are able to qualify for a loan.
Buying won't be a rational choice for at least a couple of years and probably not until about 2011.
Thing is, the only people who still want to buy at this point are those who aren't 'savvy' meaning they don't track these things like most of us here do.
Not entirely true. A friend of mine just bought a place out in the 'burbs. Closer to work, more space, etc. What makes it different for him is the fat down payment he was able to make from selling the old place. The near-term value of the house isn't that important since he will probably be there for the next 20-30 years.
He's in the minority though.
A while back CR shared the Monthly Mortgage Rate Resets chart, from Credit Suisse. It looks like a two humped (as opposed to twice humped) camel. Things get better in 2009 and then we see the second wave of resets during 2010 and 2012. If the first one doesn't get ya, the second one will. Sorry, but I don't know how to attache it.
Also think inflation in the Chinese manufacturing sector, which is running rampent, will feed our inflation soon.
America is not at war. The military is at war. America is at the mall.
Lee, in Santa Rosa, CA
Yes, psychology is still the key factor.
The buy vs. rent didn't mean a damn on the way up because people only cared about appreciation. Conversely, buy vs. rent also won't mean a damn on the way down because people will be too afraid of continued depreciation.
Most people's decisions are emotional, not rational. If you can keep your head about you (and your powder dry) opportunities will abound.
IMB are bell-ends. I live in a high risk area....yeah for me!
dblwyo said: "...Seem to recall some earlier posts of yours on prior downturns that show that prices take 2-3+ years to bottom after the bottom in the market per se and don't come back for at least five. If memory serves doesn't that put us out in '09/'10 for price bottoms?..."
If you accept CR's premise (I do not) and the downstroke of this cycle looks like the last one (approx. 1989 into the mid-90's) we're probably looking at 2011.
From the Case-Shiller data on the San Diego MSA, the previous peak was in July, 1990. The low was in December, 1995, so that's 5 years, 5 months.
November, 2005 was the recent peak for San Diego, so that puts us at April, 2011 for the projected low.
If one assumes the same pattern. The last one required a recession (1990-'91), so IMO I don't see how we get the same pattern.
Sebastia
think about it.
at 7% on a jumbo, every $100k
borrowed costs ~$700/mo. Since the
"frothier" areas pretty much are ALL
jumbo's, a $500k mortgage now costs
around $3500/mo PITI, or $42k/yr.
You need one income pre-tax of over
$60K just to make the mortgage pay-
ment on that $500k loan, and a 2nd
person working to pay the living
expenses.
The avge 'merican does not make over
$60k/yr, and if they did, how many
are goofy enough to get a high-cost
mortgage in an environment of slow
bleed values?
This chart is wishful thinking at
best, and purposeful disinformation
more likely...
ron said: "CR point about price/rent ratio is the key. depends on what end of the scale you want to use but just in my neighborhood rents are running close to $1400 month which includes HOA dues of $150 but asking prices for houses is in the $450 to 500K range and these are ranch style built around 1972 1300 sq ft. They need to go down significantly something under 200K before buying makes sense."
Just for comparison, my local conditions. Rents in my neighborhood are around $1,800/month...except that it's almost impossible to find any that are ever available.
Houses are two-story wood-frame, built about 1993, 2100-2600 square feet. Price range is $275k-$325k.
Sebastia
"If you buy too late... well, at this point there aren't a lot of consequences that can be seen in waiting too long."
Wrong, at that point you will be "throwing your money away on rent" ... the first time this expression will have been true in over a decade
I love how all of Maryland is painted red, and yet the locals still prattle away how "it is different here!" and "Well, I don't think prices will come down here because we're near DC." They all think DC just spews free money to all the common-folk nearby, and prices don't matter since "everyone will move here." Of course, prices are already down 10% or more, but why should facts get in the way?
Prices will continue to fall until people can afford to buy housing based upon traditional debt to income ratios since I don't think the toxic loans are returning any time soon. Considering the utter lack of meaningful raises for the middle class and the continued gutting of almost all real jobs in this nation, real incomes may actually FALL in nominal terms (nevermind raging inflation) in the coming years, dragging housing down with it. Factor in the collapsing dollar and the future looks very bleak. Multiply the numbers on that chart by 5 or so and you have a better idea what we're facing.
The comment on the graph is misleading, rate of drop maxes out at 7% per year, but the total price decline - the bottom - adds up to 12%, Q4 2007 drop of about 6% plus Q4 2008 drop of another 6% year over year.
The graph indicates that recovery to current prices would be roughly 2nd Qtr 2010. I suppose that is possible if there is no recession and raging inflation due to dropping interest rates to the floor...
3 of the largest cities in the U.S. are Dallas, San Antonio and Houston. From the chart, they do not seem to be facing such a kick in the face as many others metro areas. I pressume the Oil and Gas industry has buoyed them a bit.
Does anyone have any thoughts on their future?
CR - thanks. That's what I recalled and your reviewing it is helpful. Would you consider putting up your version of the charts (or re-hashing the old ones) so I can cite them and scare people who need scar...I mean awakening ?
Sebastian - think 3/4 of your argument clarifies this line of discussion. Thanks there. But you'll have to expand on your IF arguments - didn't happen to see any. Perhaps two parts:
1. Why wouldn't this downturn follow all prior patterns ?
2. Why wouldn't it be worse since when you look at RI as GDP% or any other metric late 90s to date was huge rise. Granted an increase in underlying demand but still great supply >> demand imbalances.
Make that three:
3. Why not a recession ? Other CR charts (which Sam Stovall just this a.m. and finally echoed on CNBC) point out that we've never had a downturn in RI w/o one ?
The only 'high risk' county in Illinois, according to IndyMac, is Vermilion. Hard to see how prices could get any cheaper in the city of Danville than they already are.
CR: "I expect we will see a period when people hate real estate again - most people you talk with will say it's a bad investment like in the mid-90s in California. "
So true. When I was in my 20s in 1993-94, working with a group of similar aged people, we would actively talk each other out of buying property in CA. The common wisdom being that you do not want to be "stuck" with something you cannot sell quickly in the event you need to move for a job transfer or cutback, etc.
Entry level first-time buyers get cold feet just like anyone.
dblwyo asked: "1. Why wouldn't this downturn follow all prior patterns?
2. Why wouldn't it be worse since when you look at RI as GDP% or any other metric late 90s to date was huge rise....3. Why not a recession? Other CR charts (which Sam Stovall just this a.m. and finally echoed on CNBC) point out that we've never had a downturn in RI w/o one?"
Sebastia
ex housing, retail, auto and finance(ie 80% of GDP) things are never better!!