I dunno, it's been between 15% (high end of the market) to 40% (low end of the market) here in my part of Northern California. But I guess it's still up for grabs, as houses generally aren't selling even at those prices, so we haven't touched bottom yet.
Even if rents manage to keep up with inflation, we are looking at 25% correction in West Los Angeles.
My questions,
1) will rents keep up with inflation
when empty condo's turn into rentals. The last recession in early 80's, many people left So.Cal for
northern California, Oregon, Seattle.
Will it happen again?
2) How long can the banks keep foreclosures empty as REO's?
Depressions are caused by Bankers' Mischief (they are a financial, or debt, phenomenon in the modern capital driven economies). We never had bankers more mischievous than the ones we have had over the past 25 years.
The coming depression, to begin during 2008-10, will make all the rest look mild in comparison. How can I be so sure? Every subsequent Longwave depression has been worse than the previous one for the past 200 years in the US.
Once we account for the coming depression, the prices and rents are going to be 1/3-1/4 of the projections by Kevin. From the peak the prices will drop between 80-90% in CA and other super-bubble areas!
If the NAR is involved - then it is worthless!
crispy&cole
Full page ad in today's SF Chronicle .... brought to you by the NAR..
Bold headline -
Buying a home is a great way to build long-term wealth.
Among the reasons given:
On average, the value of a home doubles every 10 years.
The average homeowner today has 36 times the wealth of the average renter.
-The San Francisco housing forecast is better than reported. You might wonder if buying a home is a smart financial decision these days, given some of the misinformation presented in the national media.
What's going on here? Either the borrowers postponing their interest payments are doing so as a matter of choice or they can't afford to pay them.
Common sense suggests it's the latter and that there's serious doubt WaMu will collect the $1.5 billion of postponed interest that its option-ARM customers have added to their original principal balances.
Yet the $1.1 billion to $1.3 billion of fourth-quarter provisions WaMu predicted for the company as a whole wouldn't even cover the $1.5 billion of tacked-on principal. The trend among WaMu's option ARMs shows no sign of slowing, either.
Through a spokeswoman, Libby Hutchinson, Washington Mutual officials declined to comment. She said executives aren't fielding questions until their next meeting with investors Wednesday.
Then there's the bigger picture. While the loan-loss allowance rose 22 percent to $1.89 billion during the 12 months ended Sept. 30, nonperforming assets rose 128 percent to $5.45 billion. So even if WaMu adds $1.3 billion in provisions next quarter, its loan-loss allowance still won't be close to catching up.
What's going on here? Either the borrowers postponing their interest payments are doing so as a matter of choice or they can't afford to pay them.
Or like my partner's wife, she was used to paying one sum, but they reconfigured the page layout and threw in a few more numbers and confused her. He only caught it a couple months later when he looked at the increasing balance. In her defense, she's used to just sitting down and writing a batch of checks and that page was definitely designed to confuse.
gng: any spreadsheet (or tool) from an "anonymous internet stranger" is trustworthy if the math behind it is appropriate and if the assumptions are clearly spelled out (and may be changed by the user who would rather use their own.)
interesting and fun tool -- i certainly agree that price/rent will mean revert, and that's a good way to estimate your local market hysteria.
but -- in the vein of tanta's brilliant behavioral post earlier this weekend -- i have the feeling the spreadsheet gives an unfair feeling of mathemtical certainty about future events which are anything, anything but.
what about overshoot in correction --in price, in rent, in price/rent all?
what if your market experienced malinvestment/overbuilding vis-a-vis demographic trending? click to try cleveland or detroit, for example -- home prices in detroit are going to rise 7% in real terms between here and 2012? unfortunately, i think overbuilding is as widespread a feature of this event as malinvestment was in the 2000 tech boom, and may depress equilibrium price/rent for several years in the aftermath.
and then of course the economic variables, beginning with rates of inflation and including potential recessions/depressions.
just my uninformed two cents -- but i'd apply the maxim that in my experience on this earth holds true more often than not: when something like this -- i mean an unprecedented and widespread institutional failure -- happens, it tends to be worse than 95% of the participants believe it can be, and that invariably includes many of the pessimists.
again, this is a fun tool, but i'd rather watch bank capital ratios and credit creation. they're the ones that have to buy houses in the end. and even after they get right on their balance sheets, liquidity is going to flow first not to deflating assets but to inflating ones.
Ironman, excellent contribution, thanks. I ran the calculator with the appropriate values for my home (Raleigh, NC) based on housing CAGR for my nearest Case-Shiller proxy MSA, Charlotte. The "listed price of similar homes today" is about 4.5% higher than the "suggested list price of home in current real estate market." Since it's not uncommon for buyers to make an offer a few percentage points below the seller's ask anyway, it looks as though housing prices are approximately in-line with what they ought to be here.
(BTW, I'm still getting excellent use/results from building onto the work you did with the "Recession Probability Calculator.")
In talking about RE, many people ignore the impact of technology. The Internet has been big for 10 years now, which is still very young compared to similar technologies (automobile, electricity, telephone) and the full impact on RE has been postponed for a number of reasons, just as the full impact of the automobile took half a century. But in the long run, the impact on RE is going to be huge. Just as the automobile hollowed out big cities, the Internet is going to hollow out suburbia and the coastal megapolises, in favor of mid-size cities in the center of the country.
People live in Los Angeles for the jobs, not the beaches and mountains and year-round warm weather, regardless of what they say. Most people in Los Angeles, like most people everywhere, spend most of their time indoors and when you're indoors, it doesn't really matter where you live. Anyway, if a benign climate is so important, why are London, Paris, New York and Moscow so expensive, and Albuquerque, New Mexico so cheap?
Once everything plays out as I am predicting, prices of houses in coastal California are going to be similar to the prices of houses in places like Omaha, Nebraska. How much of a nominal decline we'll see in places like Los Angeles depends on how long the adjustment takes and how much inflation we have. For example, a drop of 50% in the next year followed by 15 years of stable prices in Los Angeles (current median of 585K) versus no drop followed by 15 years of 5% increases in Nebraska (current median of 138K) should just about even things out between those two cities.
Cool! You know, another nice thing about being the home of the recession odds tool is that we can use our site traffic as a leading indicator for how concerned people actually are if there's a recession looming.
We had traffic to that particular tool spike back in October 2006 through January 2007, which has really fallen off since then, even though the probability peaked in early April 2007.
The vast majority of that traffic came from brokerage houses, investment banks, banks, etc. - in other words, the people who would be the most immediately concerned if there were going to be a recession.
Right now, there's hardly any concern coming from that direction.
These days, more people who visit Political Calculations are interested in historical S&P 500 performance, international GDP comparisons or how long their marriage might last, which tells me that at this point in time, the likelihood of recession is a distant concern.
crispy said:
"Economy.com is Mark Zandi, another REIC shill...Dont mean to be hars, but this guys have been wrong for years.
crispy&cole | Homepage | 11.04.07 - 12:30 pm | #"
hey crispy. i've been seeing you around for years first at ben's blog then we both graduated to here.
anyway, your quote above struck me because as an active participant and profiteer from the REIC, i always thought Zandi was a paid pessimist.
Just wanted to share with you guys a striking evidence that things are turning sour.
I live in an upscale neighborhood of Westchester county (NY). Sold my house in 2005 and I am currently renting a pricey condos in a pricey brand new development. The builder had a couple of townhouses left for sale. I meet this morning a new neighbor. He is renting... from an "investor" who bought one of the remaining townhouses which had been on the market for 2 years. Asking price had been $1.2 million. The investor bought for $702,000 and closed in July. I
These days, more people who visit Political Calculations are interested in historical S&P 500 performance, international GDP comparisons or how long their marriage might last, which tells me that at this point in time, the likelihood of recession is a distant concern.
Ironman
Funny, those 3 questions say to me: household fiscal instability and decreasing confidence in the US economy.
That's a very dismal view on your part! The S&P visits have typically coincided with the new market highs of recent months or the beginning of a new month (we update the data behind our tool monthly, typically in the third week when inflation data is released, but we get a lot of early interest.)
International GDP comparisons usually peak about mid-semester for college classes (about now as a matter of fact). The vast majority of people who come to our GDP data do so from .edu IP addresses.
The marriage tool has had an interesting history. It really first took off when a link was posted on theknot.com (a site devoted to future brides planning their weddings), again when it went international (it's drawn visits from regions that have translated the tool into Farsi, Russian and most recently, French), and then again after Ian Ayres featured it on his site supporting his book "Supercrunchers."
The book was recently reviewed by a French economics site, which accounts for most of the recent foreign traffic.
It has been, by far, the most viral thing we've done, although the credit for the development behind it goes to Garth Sundem who developed the math for it (his most recent book is "Geek Logik").
I recommend both books, particularly as gifts if you're looking for ideas for anyone who has a real mathematical bent. And in the case of "Geek Logik" a good sense of humor.
I dunno, it's been between 15% (high end of the market) to 40% (low end of the market) here in my part of Northern California. But I guess it's still up for grabs, as houses generally aren't selling even at those prices, so we haven't touched bottom yet.
Speaking of calculators, here's a CDO pricing calculator:
CDO Price Calculator
Best regards,
Per Calculator:
Even if rents manage to keep up with inflation, we are looking at 25% correction in West Los Angeles.
My questions,
1) will rents keep up with inflation
when empty condo's turn into rentals. The last recession in early 80's, many people left So.Cal for
northern California, Oregon, Seattle.
Will it happen again?
2) How long can the banks keep foreclosures empty as REO's?
3) What is the effect of recession on the rents?
--
All this assumes no depression.
Depressions are caused by Bankers' Mischief (they are a financial, or debt, phenomenon in the modern capital driven economies). We never had bankers more mischievous than the ones we have had over the past 25 years.
The coming depression, to begin during 2008-10, will make all the rest look mild in comparison. How can I be so sure? Every subsequent Longwave depression has been worse than the previous one for the past 200 years in the US.
Once we account for the coming depression, the prices and rents are going to be 1/3-1/4 of the projections by Kevin. From the peak the prices will drop between 80-90% in CA and other super-bubble areas!
Jas
Jas,
Real or nominal values? I'm guessing you're also expecting a large drop in incomes and rents?
"It combined extensive analysis of 54 metro housing markets with the combined work of Moodys Economy.com, Fortune Analysts, PPR, & NAR"
If the NAR is involved - then it is worthless!
Economy.com is Mark Zandi, another REIC shill...Dont mean to be hars, but this guys have been wrong for years.
If the NAR is involved - then it is worthless!
crispy&cole
Full page ad in today's SF Chronicle .... brought to you by the NAR..
Bold headline -
Buying a home is a great way to build long-term wealth.
Among the reasons given:
-The San Francisco housing forecast is better than reported. You might wonder if buying a home is a smart financial decision these days, given some of the misinformation presented in the national media.
We'll have to let this reporter slide on the concept of severities, but he is intuitively & directionally correct on WAMU's negative amortization problem Business & Technology | Mortgage mess hitting WaMu hard | Seattle Times Newspaper
What's going on here? Either the borrowers postponing their interest payments are doing so as a matter of choice or they can't afford to pay them.
Common sense suggests it's the latter and that there's serious doubt WaMu will collect the $1.5 billion of postponed interest that its option-ARM customers have added to their original principal balances.
Yet the $1.1 billion to $1.3 billion of fourth-quarter provisions WaMu predicted for the company as a whole wouldn't even cover the $1.5 billion of tacked-on principal. The trend among WaMu's option ARMs shows no sign of slowing, either.
Through a spokeswoman, Libby Hutchinson, Washington Mutual officials declined to comment. She said executives aren't fielding questions until their next meeting with investors Wednesday.
Then there's the bigger picture. While the loan-loss allowance rose 22 percent to $1.89 billion during the 12 months ended Sept. 30, nonperforming assets rose 128 percent to $5.45 billion. So even if WaMu adds $1.3 billion in provisions next quarter, its loan-loss allowance still won't be close to catching up.
Via Implode-O-Meter, third credit union failure in 2007, cause is real estate, natch:
Conservator takes over Cal State 9 credit union
Dr Deflation, I beg to differ with you and "Kevin" from the Balt Bubble Blog.
Home sales volume has been returning to pre August levels - don't bother with September closings - thats history.
The builders have stopped building here in No CA and major investors are stepping in to bottom feed. . .
Predicting double didget depreciation for several years would need major unemployment AND continued lack of purchase money.
Clyde,
Was there ever a period of 3-5 years
within the last 50 years where residential Rents declined in nominal term?
Yay! Spreadsheet from trustworthy Anonymous Internet Stranger shows no nominal DFW declines. I'm saved!
What's going on here? Either the borrowers postponing their interest payments are doing so as a matter of choice or they can't afford to pay them.
Or like my partner's wife, she was used to paying one sum, but they reconfigured the page layout and threw in a few more numbers and confused her. He only caught it a couple months later when he looked at the increasing balance. In her defense, she's used to just sitting down and writing a batch of checks and that page was definitely designed to confuse.
I'll answer for Jas -- NOMINAL.
The spreadsheet is WAY too optimistic. I put a family member's numbers in, and the 2012 price is above their most recent comps.
Kind of related - here's a little different methodology (and tool) for finding the post-bubble asking price for a home.
gng: any spreadsheet (or tool) from an "anonymous internet stranger" is trustworthy if the math behind it is appropriate and if the assumptions are clearly spelled out (and may be changed by the user who would rather use their own.)
interesting and fun tool -- i certainly agree that price/rent will mean revert, and that's a good way to estimate your local market hysteria.
but -- in the vein of tanta's brilliant behavioral post earlier this weekend -- i have the feeling the spreadsheet gives an unfair feeling of mathemtical certainty about future events which are anything, anything but.
what about overshoot in correction --in price, in rent, in price/rent all?
what if your market experienced malinvestment/overbuilding vis-a-vis demographic trending? click to try cleveland or detroit, for example -- home prices in detroit are going to rise 7% in real terms between here and 2012? unfortunately, i think overbuilding is as widespread a feature of this event as malinvestment was in the 2000 tech boom, and may depress equilibrium price/rent for several years in the aftermath.
and then of course the economic variables, beginning with rates of inflation and including potential recessions/depressions.
just my uninformed two cents -- but i'd apply the maxim that in my experience on this earth holds true more often than not: when something like this -- i mean an unprecedented and widespread institutional failure -- happens, it tends to be worse than 95% of the participants believe it can be, and that invariably includes many of the pessimists.
again, this is a fun tool, but i'd rather watch bank capital ratios and credit creation. they're the ones that have to buy houses in the end. and even after they get right on their balance sheets, liquidity is going to flow first not to deflating assets but to inflating ones.
Ironman, excellent contribution, thanks. I ran the calculator with the appropriate values for my home (Raleigh, NC) based on housing CAGR for my nearest Case-Shiller proxy MSA, Charlotte. The "listed price of similar homes today" is about 4.5% higher than the "suggested list price of home in current real estate market." Since it's not uncommon for buyers to make an offer a few percentage points below the seller's ask anyway, it looks as though housing prices are approximately in-line with what they ought to be here.
(BTW, I'm still getting excellent use/results from building onto the work you did with the "Recession Probability Calculator.")
Sebastia
In talking about RE, many people ignore the impact of technology. The Internet has been big for 10 years now, which is still very young compared to similar technologies (automobile, electricity, telephone) and the full impact on RE has been postponed for a number of reasons, just as the full impact of the automobile took half a century. But in the long run, the impact on RE is going to be huge. Just as the automobile hollowed out big cities, the Internet is going to hollow out suburbia and the coastal megapolises, in favor of mid-size cities in the center of the country.
People live in Los Angeles for the jobs, not the beaches and mountains and year-round warm weather, regardless of what they say. Most people in Los Angeles, like most people everywhere, spend most of their time indoors and when you're indoors, it doesn't really matter where you live. Anyway, if a benign climate is so important, why are London, Paris, New York and Moscow so expensive, and Albuquerque, New Mexico so cheap?
Once everything plays out as I am predicting, prices of houses in coastal California are going to be similar to the prices of houses in places like Omaha, Nebraska. How much of a nominal decline we'll see in places like Los Angeles depends on how long the adjustment takes and how much inflation we have. For example, a drop of 50% in the next year followed by 15 years of stable prices in Los Angeles (current median of 585K) versus no drop followed by 15 years of 5% increases in Nebraska (current median of 138K) should just about even things out between those two cities.
Sebastian,
Cool! You know, another nice thing about being the home of the recession odds tool is that we can use our site traffic as a leading indicator for how concerned people actually are if there's a recession looming.
We had traffic to that particular tool spike back in October 2006 through January 2007, which has really fallen off since then, even though the probability peaked in early April 2007.
The vast majority of that traffic came from brokerage houses, investment banks, banks, etc. - in other words, the people who would be the most immediately concerned if there were going to be a recession.
Right now, there's hardly any concern coming from that direction.
These days, more people who visit Political Calculations
are interested in historical S&P 500 performance, international GDP comparisons or how long their marriage might last, which tells me that at this point in time, the likelihood of recession is a distant concern.
crispy said:
"Economy.com is Mark Zandi, another REIC shill...Dont mean to be hars, but this guys have been wrong for years.
crispy&cole | Homepage | 11.04.07 - 12:30 pm | #"
hey crispy. i've been seeing you around for years first at ben's blog then we both graduated to here.
anyway, your quote above struck me because as an active participant and profiteer from the REIC, i always thought Zandi was a paid pessimist.
funny.
Just wanted to share with you guys a striking evidence that things are turning sour.
I live in an upscale neighborhood of Westchester county (NY). Sold my house in 2005 and I am currently renting a pricey condos in a pricey brand new development. The builder had a couple of townhouses left for sale. I meet this morning a new neighbor. He is renting... from an "investor" who bought one of the remaining townhouses which had been on the market for 2 years. Asking price had been $1.2 million. The investor bought for $702,000 and closed in July. I
These days, more people who visit Political Calculations are interested in historical S&P 500 performance, international GDP comparisons or how long their marriage might last, which tells me that at this point in time, the likelihood of recession is a distant concern.
Ironman
Funny, those 3 questions say to me: household fiscal instability and decreasing confidence in the US economy.
I guess it's all how one reads the tea leaves.
Alec,
That's a very dismal view on your part! The S&P visits have typically coincided with the new market highs of recent months or the beginning of a new month (we update the data behind our tool monthly, typically in the third week when inflation data is released, but we get a lot of early interest.)
International GDP comparisons usually peak about mid-semester for college classes (about now as a matter of fact). The vast majority of people who come to our GDP data do so from .edu IP addresses.
The marriage tool has had an interesting history. It really first took off when a link was posted on theknot.com (a site devoted to future brides planning their weddings), again when it went international (it's drawn visits from regions that have translated the tool into Farsi, Russian and most recently, French), and then again after Ian Ayres featured it on his site supporting his book "Supercrunchers."
The book was recently reviewed by a French economics site, which accounts for most of the recent foreign traffic.
It has been, by far, the most viral thing we've done, although the credit for the development behind it goes to Garth Sundem who developed the math for it (his most recent book is "Geek Logik").
I recommend both books, particularly as gifts if you're looking for ideas for anyone who has a real mathematical bent. And in the case of "Geek Logik" a good sense of humor.