Does anybody else remember a few years ago when Sir John Templeton said real estate prices would drop by 90%, in an interview with a Florida newspaper?
Taking nominal terms only. No one except a few tinfoil bloggers (raises hand) were so bold as to suggest that stickiness was even off the table. Every datum has shown deterioration. At some point we all have to admit thaty WE ARE OFF THE MODEL. THERE IS NO MODEL THAT CAN FORWARDIZE THE LAST THREE MONTHS OF VOLUME AND PRICE TO PREDICT SO MUCH AS NEXT MONTH.
This is hold your breath, prevent your eyeballs from freezing and hope the altimeter defrosts in time to tell you how far away the ground is.
Shiller has been close to right on from the beginning (except he said prices would be sticky on the downside and I don't think they have been). He is a good one to listen to.
But what IS the explanation for the OFHEO price increase? Don't they use sale pairs, also, like Case-Shiller? Besides being a portion of the total market, how else could they be distorting the data?
Elvis, what we've seen is the definition of sticky prices! In a perfect market, with falling demand (tighter lending standards, fewer speculators), and more supply (see record inventory levels), prices would have fallen quickly to clear the market.
Instead we saw sticky prices - and the number of transaction fell off a cliff. That was my prediction in 2005! Transaction would go first, with a build-up in inventory, and finally prices would fall.
Remember sticky doesn't mean stuck. Look how long it has taken to fall this far.
CR,
If 30% is sticky, then I stand corrected. Most places where oversupply and speculation were most prevalent are down 30% YOY. Shiller was saying 5% a year, I think.
Eric, OFHEO has much broader geographical coverage than Case-Shiller - and there are some rural areas were prices haven't fallen much. Also they only include GSE loans, so they missed much of the exotic loans (both subprime and jumbo).
I'm also wondering if they missed some of the run-up.
Elvis, sticky has little to do with how far prices fall - more to do with how rapidly they fall to that eventual bottom.
As an example, prices for corn aren't sticky. If the supply / demand equation changes and prices should fall 30%, the price of corn falls 30% overnight.
For housing, with the same change in supply/demand, it takes several years to fall 30%. That is what economists mean by sticky. They don't mean stuck.
Sticky prices are inefficient, but they clearly happen in housing, and also for wages.
my first hat tip! Justifies my wasting away the day on line, forgetting about that job thing.
On stickiness- I think things are less sticky than may have been expected, mostly because of the huge numbers of REOs, which obviously have different pricing incentives. But its only in places where REOs predominate. In neighborhoods where REOs are still rare, its basically the expected standoff between buyers and sellers.
CR,
If you have to sell a house and it takes a 30% drop in price to do that, I wouldn't call it sticky. People who have to sell (motivated by a new job for example) are selling at unsticky prices or walking away (because the unsticky price doesn't cover their mortgage). I realize that houses are not commodities and their prices don't fix overnight, but they are falling fast. Maybe you consider walking away removed from stickiness, but, in my opinion, it is evidence that there is a lack stickiness (I know there are other factors, too).
It is just like the recession. Just because the numbers don't say we are in a recession, doesn't mean it isn't here. I know we are, because it looks, smells, and feels like one. Prices may be sticky by the numbers in a strict definition of sticky, but ask someone who has to sell. Prices are definitely not sticky.
"Many analysts said they do not expect a rebound for a number of months"
Unfortunately, they suggest that while "many" analysts have "a number" in mind, they don't share with us what this number is. Is it 1? Is it 3? Is it 400?
NAR supposedly attributed the Northeast's rise in median prices to rural NY and PA. Similar to the OFHEO geographic coverage argument.
I don't think that's true either. Some of these places may not fall far, because they didn't rise in the bubble, and incomes and rents do support their current levels. But rising? Come on.
Elvis, sticky has a specific meaning in economics. You can disagree with the choice of words - but this is what economists mean. If the market was perfect, prices would have fallen 30% in 2006!
Take the Red Line to Clark and Division, walk down State Street and get back on the Red Line at Chicago and State. It's a 5 to 10 minute walk but it will open your eyes.
This is madness even if it is all in the "high end" which we know won't be affected by the credit crunch. I mean most people paying $850,000 to $1,000,000 for a 3 bed room apartment will be paying cash, won't they?
Oh, yes, bring clean underwear; this walk will open your sphincter as well as your eyes.
The latest numbers in upstate new york showed a big drop in volume but increase in price. However, as you can see, we never got crazy bubbly. Median income is around $45K in Albany county.
The number of homes sold in the Capital Region dropped 23 percent in the first quarter vs. last year, but median sales prices rose, according to data released this morning by the Greater Capital Association of Realtors Inc.
The Colonie-based trade group, which gathers sales data in 11 counties, said the median sales price rose 3 percent in the quarter, to $190,000, vs. the 2007 January-March period. The numbers are preliminary.
Closed sales fell most dramatically in Albany County, by 28 percent. Yet the median sale price rose 5 percent to $199,600.
In Schenectady County, closed sales fell 18 percent. The median sale price during the quarter rose 6 percent to $169,950.
In Rensselaer County, the number of sales dropped 10 percent, and the median sale price rose 4 percent to $170,000.
In Saratoga County home to the regions most expensive housing the number of first-quarter sales dropped 25 percent, while the median sale price rose 2 percent to $254,300.
"kett82 writes:
Still sprouting up condos here in Chicago...on my South Loop walk today I counted 4 cranes in one go..."
Also here in the same South Loop neighborhood, construction on one condo high rise is finished but not complete. For example, concrete exterior walls apparently won't be painted but should have been. I have heard that the developer is "out of money".
Occupancy in that building appears to be less than 10%, two months after the first owners moved in.
I actually think Shiller believes the number will be higher, but, also knows if he goes around telling everyone how big the number will be, no one will listen to him. I'm sure most of us stopped telling friends and coworkers it was a bad idea to buy a house when they kept acting like we were nuts. I think that's why they created the phrase "I told you so"...personally, I'm trying not to use it, unless the person actually listed to me, the others, they will get their noses rubbed in it enough!
Prices stayed stable and even went up for 18 months while inventories grew and volume declined. That is the definition of sticky.
You have no argument, you are simply admitting to being hardheaded and wrong.
I think what surprised people was how quickly prices began to decline as the became "unstuck". This was most likely due to the large numbers of REOs hitting the market, as others have pointed out.
SweetHomeKilla,
OK. I just looked it up, and this is not the definition of sticky, "Prices stayed stable and even went up for 18 months while inventories grew and volume declined. That is the definition of sticky." So, maybe, you should consider calling the dictionary people and fixing their mistake. Moreover, you might also ask them to correct the definition of idiot. It should be "SweetHomeKilla."
except he said prices would be sticky on the downside and I don't think they have been
There are two types of asking prices (maybe more, but two I'm sure of)...
1) The individual home owner that wants to sell for some reason (needs more room, upwardly mobile, payments too high, etc).
2) The Bank/RTC/MBS that needs to unload REO's.
1 is much more sticky than #2. I would propose that, should #1 see the light and become less sticky, the #2 inventory is going to hurt (price wise) even more than it is now. The stickiness of #1 is helping #2 from enduring greater losses.
id·i·ot Audio Help /ˈɪdiət/ noun 1. an utterly foolish or senseless person.
2. Psychology. a person of the lowest order in a former classification of mental retardation, having a mental age of less than three years old and an intelligence quotient under 25.
3. SweetHomeKilla
30% downside...which is why a bailout is so insane...basically lets the banks stick all of this garbage into the FHA and leave taxpayers holding the bag.
"You have no argument, you are simply admitting to being hardheaded and wrong."
I agree. It's hard to look at the facts of the decline, and the definition of "sticky" and say it hasn't been sticky.
However, I personally believe that the price declines will be less sticky than before. My reasoning is the increased level of information availability. If there is a cheap REO on the market and it's a "deal" according to current pricing, it's on the MLS on Friday and under contract on Saturday. This sets the price/comps, which are very quickly disseminated, and the decline continues, quickly.
At the same time, there are blogs such as this and a myriad of other blogs disseminating a wider cross section of information. If we just had the MSM and NAR, we'd never know what was happening. This way, we get to know the facts quicker, and act on those facts quicker.
Similarly, the new metrics and data for localities and pricing allows the lenders to cut back lending faster than they did before (I'm guessing here!) to minimize risk. OK, they've sucked at it so far, but their actions have been swift of late and pushed demand down further, more quickly.
CR, I'd be very interested to know your thoughts on this, if this is something you've considered.
Elvis:
for whatever reason, your definition for "idiot" made me giggle.
be that as it may, housing prices (as an asset class) in general are sticky on the way down. You are the only person on Earth who thinks otherwise.
true, there are times when an individual property price may rapidly change, but due to the relative illiquidity of the housing market the price changes of the market in general tend to move slowly when compared to other asset classes (like stocks as example).
many areas peaked in 2005-2006 and STILL have only fallen 5-10-15-20% from peak, 2-3 years later. contrast that with United Airlines stock that fell 37% TODAY.
I think you are mistaking the term "sticky" with "stuck". they are different.
also, when we say "house prices tend to be sticky" it does not mean that they CAN'T fall quickly, it means that they TEND NOT TO fall quickly (again, relatively speaking)
I make a challenge: is there anybody else reading this blog who feels that house price are not sticky?
It's not if, it's when. All the bubble locales will deflate. Many areas will overshoot and never recover. I was born in Trenton, NJ. Spent time in Pittsburgh & parts of Ohio too. I've lived through this before. GRRRRR!
Oxygen gets you high. In a catastrophic emergency, you're taking giant panicked breaths. Suddenly you become euphoric, docile. You accept your fate. It's all right here. Emergency water landing - 600 miles an hour. Blank faces, calm as Hindu cows
However, I personally believe that the price declines will be less sticky than before. My reasoning is the increased level of information availability.
I can hear legions of homeowners now saying "those REOs are pieces of crap with everything ripped out. MY house is perfect, granite...stainless...landscaped!"
Also look at my area, Boston. What has become unstuck is very, very area specific. Go look at a map of any desirable area and the prices have not come down much. Undesirable areas and the ex-burbs like a rock and still falling. Condos in the city have done very well too, unlike the last bust when they were the first to go and drop by over 50% in some cases.
So I can see the difference in the indicies depending on geographic coverage. If you're looking at Boston proper, it's not off much. Try Lawrence, Lowell, or anything west of the 495 belt and the results will be very different. Oh and you'll know these areas on a map because they also have the concentration of foreclosures too, which I find pretty disturbing.
I'm absolutely STUNNED. i shouldn't be, but when heard it firsthand, it stunned me. I looked around to see if i was getting punk'd by aston keutcher.
I just spoke with my neighbor and he mentioned he's a Realtor. I asked about current conditions in our market (10 miles west of Denver, CO). You can not believe the denial and fantasy land some brokers are living in. He's convinced prices have bottomed and by summertime will get back on track "nice steady appreciation".
so, i picked up my jaw off his driveway and asked what he thought or heard about record price y/y price declines, how far above trend price appreciation we were for 5-10 years, banks tightening up lending, personal BKs heading up, delinquencies on the rise, foreclosures on the rise, etc.
sit down for this.
he thought it was a lot of scaremongering by the media. he thinks most people can get great rates today, he thinks a lot of buyers are lowballing and messing up the market, and he thinks a lot of the stalled buyers are gonna wish they bought now because prices after summer are going up again.
he really meant it. he didn't care one bit about any data i cited, or case-shiller (he didn't even know what that was), or delinquency trends, and the best part of it, he mentioned the real estate economist (yun) and his data show we are close to the bottom and are going up again.
i felt bad for the guy so i didn't rain on his parade, so I just said "wow, that would be good to get this behind us by fall".
BTW: he is a super nice guy and a great neighbor. I wish him the best.
CR says the avg for bust is 5 to 7 years, but the last bust here lasted 48 quarters from peak to the next appreciable gain (inflation adjusted, so real terms). That's 12 YEARS! And that didn't have the run-up this did.
So if we use that, and the peak here was August 05, that means that we'll see the next gain in real terms in 2017 at the earliest. I don't know what to say because in CA your way hosed if this analogy holds true.
Sonoma county Ca is down 28% and change from the peak in nominal dollars already and as a long way to go.More than 20% YoY and accelerating although homes in desireable areas that are immaculate and priced correctly move fast...
Yeah, average bust figures for the average boom. But this has been an above average boom which requires an above average bust to return it back to normal.
"he thought it was a lot of scaremongering by the media. he thinks most people can get great rates today, he thinks a lot of buyers are lowballing and messing up the market, and he thinks a lot of the stalled buyers are gonna wish they bought now because prices after summer are going up again."
Why is this bad? Can we get another 30% drop in housing please? Me and my family would like to move into a home with a real value of ~ $270k... (Southern California).
I have no regrets now about being a 1-car household, and moving 10 miles away from my job. Although I do think California will benefit as a whole because of our agriculture production in the short term.
Anyway, I think there are plenty of older people around who remember the days of a nice house for $270k or even $200k! What's funny is that a rational policy is to sell houses for a lower price, since you'll decrease the total housing cost in the neighborhood and stimulate the economy since more money is available to spend on things other than housing...
Fall housing prices fall! Fall housing prices fall! Don't ask me if I'm buying until 2010! Fall housing prices fall! I'll have enough money saved up by then! I won't be a knife-catcher!
Prices are 'sticky' in the sense that both sellers and buyers are making the decline slower than they otherwise might fall. Sellers are resistant to sell at a discount to comps, and buyers tend to be willing to purchase at only slight discounts to comps thinking they are getting a bargain.
In any case, the clearing process happens very slowly when you only have a few transactions per month in a given area to establish a comp trend. So unless you've got a huge inventory that you have to unload quickly, there is less downward price pressure. That is happening in some areas faster than others, depending on the influx of reos.
"Sticky is a term used in the social sciences and particularly economics to describe a situation in which a variable is resistant to change."
"Home prices are sticky" and "home values always go up." These apparently are two truisms that aren't true. 30% YOY changes aren't sticky. $500,000 last year and $350,000 this year isn't sticky. That is momentum. When prices were escalating in a bubble the momentum was huge. Like a large ship, it took awhile to turn, now it is headed the other way. Large ships aren't sticky and neither is housing today.
I'd say prices have been pretty sticky here in Santa Cruz; although south county prices already dropped maybe 30, 40%, the City of SC still seemed to be resisting any drop; but SALES are off by 50%. Looking at the listings this month, many that disappeared in Dec. are coming back in with maybe 10% price cuts. And I have been seeing a lot of open houses in empty high end homes - went to see a $1.5M REO last weekend, for example.
The price slope down Highway 1 is mighty steep, gravity will win eventually.
The housing market should have started falling in 2002 -- two years after the stock market fell, had it followed what happened in 1929. Financial fraud top to bottom pushed it up instead. 30% in real terms is way too low. Baby boomers are retiring. Laisse faire is back. Fairly recent Fed research papers show not everyone should rent, and that it is okay to let people go bankrupt and will not harm the economy. Expect the forecast for total declines and the duration of the declines to grow with time.
That conversation with you're realtor-neighbor is exactly why regular Americans should put no faith in their realtors when it comes to making smart, informed purchases.
There are many realtors who are not serial,criminal liars out there. They are just, simply put, criminally stupid.
My apologies to the handful of realtors who are both smart AND ethical. There are some, I had one once. But finding one is like the proverbial search for a needle in a haystack. Buyer Beware!
My apologies to the handful of realtors who are both smart AND ethical.
Hey, no need to apologize. This business is filled with the sleaziest, most self deluded people I've ever known.
I think that in truth most are deluded and a bit simple rather than actively scammers. Many of the short sale listings I'm seeing lately belong to Realtors from my area. They truly believed the nonsense they were peddling. I know a few decent agents but not many.
BTW, I'm only a broker to save the 3% on my own properties when I buy or sell. I never want to be a buyer broker. The way most of these people sell out their clients never ceases to surprise me.
I should know the answer to this and I'm embarrassed I don't. But a friend who works in real estate told me that the price drops only reflect sales made normally and don't reflect the really bad action like short sales at 50% on the dollar, or lease-to-own mortgages at dramatic reductions, and so the real price situation is actually worse than the headline number.
Is anyone familiar with these home equity protection products - they seem relatively cheap, cover any significant losses, and have been around for a while. I never hear anything else about them, but surely there is some value here (although, there has to be some serious counterparty risk in this day and age).
Is Shiller talking about a drop in the US median or average? Due to the tremendous skew in valuations toward the most expensive areas, the drop in average price (same in % terms as the drop in total valuation), will be way larger than for the median.
If he's talking about a 30% decline in the US average, yes I think that's in the bag. Nominal.
Sticky doesn't mean stuck - great quote from CR. Here in the Bay Area though I still quite suprised at how prices remain near the peak in most of San Francisco and parts of Marin and Silicon Valley. Yes, transaction volume is way down and supply hasn't increased that much - but buyers are stepping up and paying peak prices. Not many of them - just a few hundred or so per month. But in some neighborhoods, you have to look real hard to find any evidence of a housing decline.
Inflation will turn to deflation. There is nothing left to inflate. Even gasoline is a petty cost against the price of a home. Take 15% off the price of the typical home and you have the entire price of a fairly nice automobile. That is also more money than most people have. Subprime was mining the last bastion of credit to solve a bubble created in the 1990's. We are done. When the rest of the world realizes that gasoline took the last dime left for the typical middle class American to spend outside of eating, there will be a shift in demand that the world hasn't seen since 1930.
One more thing. What Shiller says is true. I was in real estate in DFW in the 1980's. The market busted in 1984, but it didn't seem like it totally busted. DFW added a hell of a lot of people in the 1980's for a busted market, but it was well into the 1990's before the market recovered. This current market hasn't busted yet, contrary to what the new media says. I say this because the statistic say it hasn't busted. Existing home sales are almost 5 million. They never exceeded 4 million prior to 1997. I think Calculated Risk has these statistics somewhere, one of the reasons I came here tonight. We have home sales at a boom level and prices are falling. That is the trap, that home sales have to continue at boom levels to keep prices from totally imploding. The number of vacant homes in the US according to Federal Statistics are in the stratosphere. The bullish hype that credit will rain on us forever and no one ever has to pay the bad debts, (check Goldman Sach's level 3 assets increase of $30+ billion the past quarter to keep from recognizing the truth, that they lost the bonuses they paid), is just that. The market for foreign buyers of our paper has dried up because the system no longer has any legitimacy. When FNMA and FHLMC ramp up their originations, we are going to have a crisis, where the FHLBB and the Fed have to bail out these operations because they can no longer finance what they were put into business to finance. The Fed is working on a real money bomb to bail out excess that needs to run the course.
"Sticky" and "stuck" are simple adjectives, so maybe some specific data would be better to reflect upon.
The DC Capitol Hill market, close-in to the Capitol itself, is a very desireable area (similar to Dupont Circle). I've looked at all sales for 3BR renovated townhouses from 2005-present. PPSF in 2005 ranged from 425 to 450. It peaked in Q2 2006 at 560, and then stayed at that level until late summer of 2007.
Since then, the list and selling prices have fallen to 380 per square foot. I asked a realtor about the trend, and he ignored the square footage when showing me a 3000+ square foot townhouse selling for over a million, saying that prices were actually UP over last year.
Nuff said about realtors.
Say, ipodius, the last time I read a posting from you was when you were bashing Google as an industry insider. This was right before their earnings results and stock price surge. You were either putting misdirection into the ether or had your head up your butt. Which one was it?
Three years of flat nominal prices will NOT be close to a 10% decline in real terms, at least not from the viewpoint of "fixing" the housing problem unless people are also getting 10% raises each year for those 3 years. 3 years of flat prices vs. 3 years of flat to declining salaries means that housing is actually growing MORE expensive, not less, in practical terms.
Inflation CANNOT fix this mess; not without massive, across the board, permanent wage inflation to cover up the losses, and that is not going to happen. We're devaluing our currency, thus driving up the prices of needed imports, while laying people off. The net effect is a huge drop in real salaries and available cash even as inflation skyrockets. This will not stabilize housing prices, and will probably drive them even lower than what is normal if the "new normal" is: unstable, part-time jobs, huge food and energy bills, etc.
This is hold your breath, prevent your eyeballs from freezing and hope the altimeter defrosts in time to tell you how far away the ground is. --and that worked so well for JFK Jr.
The housing boom over corrected too high so the bust will over correct much too low.
Declines will average between 40% to 50% without factoring in price inflation because we will not experience and monetary inflation in that time frame.
Meanwhile, over here in Europe, some people are actually starting to get worried. It is still being reported by the media as "The US subprime problem", and most regard it as little more than a mild rash on the gargantuan pink arse that is American finance. Lately, however, there have been articles on falling house prices closer to home. Actually most of Europe, except for Germany, come to think of it. The consensus remains although that ´tis but a flesh wound. Myself I am as gleefully gloomy, on a night like this, as one possibly can get with the help of a nice bottle of red wine and a friend on the other end of msn to fling an occasional pre post apocalyptic rave at.
What I said about Google still holds: if you believe that their earnings and click rates when up that much, I have a SIV to sell you. I know what click rates are for many, many sites firsthand and the numbers they are putting out don't match anything that I have seen or that anyone else I know has seen. And I can tell you that people have cut WAY back on G bids and ad purchase too.
They are too richly valued, full stop. Go right ahead and buy if you'd like or you're only interested in pumping and dumping. Buy some financials while you're at it.
Three years of flat nominal prices would be close to a 10% decline in real terms.
And, if CPI averages 5%, almost a 15% decline in 3 years.
Does anybody else remember a few years ago when Sir John Templeton said real estate prices would drop by 90%, in an interview with a Florida newspaper?
I have a brother who lived in Houston during the oil bust of the 1980s. Townhouse prices fell by 2/3s over a period of several years.
I think a 30% decline is a low estimate for bubble areas.
Housing as a source of wealth is SO over.
This decline of course, will lead to a short, shallow recession.
Right? Right? Anybody?
Bueller?
This almost made me vomit. Listen to the NAR garbage this guy spews.
Video - CNBC.com
Taking nominal terms only. No one except a few tinfoil bloggers (raises hand) were so bold as to suggest that stickiness was even off the table. Every datum has shown deterioration. At some point we all have to admit thaty WE ARE OFF THE MODEL. THERE IS NO MODEL THAT CAN FORWARDIZE THE LAST THREE MONTHS OF VOLUME AND PRICE TO PREDICT SO MUCH AS NEXT MONTH.
This is hold your breath, prevent your eyeballs from freezing and hope the altimeter defrosts in time to tell you how far away the ground is.
Shiller has been close to right on from the beginning (except he said prices would be sticky on the downside and I don't think they have been). He is a good one to listen to.
But what IS the explanation for the OFHEO price increase? Don't they use sale pairs, also, like Case-Shiller? Besides being a portion of the total market, how else could they be distorting the data?
Housing needs to fall to the point where people aren't living their lives solely to support their housing structure.
If that's 30%, 40%, 50%... painful, but in the long run, our children will have more to live for than trying to pay a monster mortgage.
except he said prices would be sticky on the downside and I don't think they have been
I think we'd be surprised how sticky they've been, considering where prices could be. Still seeing a lot of people in denial of the looming reality.
If that's 30%, 40%, 50%... painful, but in the long run, our children will have more to live for than trying to pay a monster mortgage.
Outsider
Yes, paying off our national debt (ie Iraq, Afganistan, IB bailout, etc..), social security and medicare. Lucky them.
Elvis, what we've seen is the definition of sticky prices! In a perfect market, with falling demand (tighter lending standards, fewer speculators), and more supply (see record inventory levels), prices would have fallen quickly to clear the market.
Instead we saw sticky prices - and the number of transaction fell off a cliff. That was my prediction in 2005! Transaction would go first, with a build-up in inventory, and finally prices would fall.
Remember sticky doesn't mean stuck. Look how long it has taken to fall this far.
Best to all.
Outsider,
Right on! Remember 28%/36% ratios. 20% down, and good credit.
Let's not commit this mistake again.
Still sprouting up condos here in Chicago...on my South Loop walk today I counted 4 cranes in one go...
Dear AllenM...yes, someday this war will end.
Best regards,
CR,
If 30% is sticky, then I stand corrected. Most places where oversupply and speculation were most prevalent are down 30% YOY. Shiller was saying 5% a year, I think.
Eric, OFHEO has much broader geographical coverage than Case-Shiller - and there are some rural areas were prices haven't fallen much. Also they only include GSE loans, so they missed much of the exotic loans (both subprime and jumbo).
I'm also wondering if they missed some of the run-up.
Best Wishes.
Elvis, sticky has little to do with how far prices fall - more to do with how rapidly they fall to that eventual bottom.
As an example, prices for corn aren't sticky. If the supply / demand equation changes and prices should fall 30%, the price of corn falls 30% overnight.
For housing, with the same change in supply/demand, it takes several years to fall 30%. That is what economists mean by sticky. They don't mean stuck.
Sticky prices are inefficient, but they clearly happen in housing, and also for wages.
Best Wishes.
CR, note also we haven't seen Feb C-S data yet. The January data were less soft than prior months, so maybe there is a wiggle in the trend.
There have been plenty of wiggles before.
I suspect 2008 will see the steepest price decline, followed by a few years of smaller percentage declines in the bubble areas.
That's like saying the first couple hundred feet of the Matterhorn are the steepest. The rest of that slope is no picnic either!
my first hat tip! Justifies my wasting away the day on line, forgetting about that job thing.
On stickiness- I think things are less sticky than may have been expected, mostly because of the huge numbers of REOs, which obviously have different pricing incentives. But its only in places where REOs predominate. In neighborhoods where REOs are still rare, its basically the expected standoff between buyers and sellers.
CR,
If you have to sell a house and it takes a 30% drop in price to do that, I wouldn't call it sticky. People who have to sell (motivated by a new job for example) are selling at unsticky prices or walking away (because the unsticky price doesn't cover their mortgage). I realize that houses are not commodities and their prices don't fix overnight, but they are falling fast. Maybe you consider walking away removed from stickiness, but, in my opinion, it is evidence that there is a lack stickiness (I know there are other factors, too).
It is just like the recession. Just because the numbers don't say we are in a recession, doesn't mean it isn't here. I know we are, because it looks, smells, and feels like one. Prices may be sticky by the numbers in a strict definition of sticky, but ask someone who has to sell. Prices are definitely not sticky.
The Associated Press' release had this to add:
"Many analysts said they do not expect a rebound for a number of months"
Unfortunately, they suggest that while "many" analysts have "a number" in mind, they don't share with us what this number is. Is it 1? Is it 3? Is it 400?
NAR supposedly attributed the Northeast's rise in median prices to rural NY and PA. Similar to the OFHEO geographic coverage argument.
I don't think that's true either. Some of these places may not fall far, because they didn't rise in the bubble, and incomes and rents do support their current levels. But rising? Come on.
Elvis, sticky has a specific meaning in economics. You can disagree with the choice of words - but this is what economists mean. If the market was perfect, prices would have fallen 30% in 2006!
Best Wishes.
kett82 @ 5:25 pm
Take the Red Line to Clark and Division, walk down State Street and get back on the Red Line at Chicago and State. It's a 5 to 10 minute walk but it will open your eyes.
This is madness even if it is all in the "high end" which we know won't be affected by the credit crunch. I mean most people paying $850,000 to $1,000,000 for a 3 bed room apartment will be paying cash, won't they?
Oh, yes, bring clean underwear; this walk will open your sphincter as well as your eyes.
OK, CR. I will agree to disagree with you. Thanks for your thoughts.
The latest numbers in upstate new york showed a big drop in volume but increase in price. However, as you can see, we never got crazy bubbly. Median income is around $45K in Albany county.
The number of homes sold in the Capital Region dropped 23 percent in the first quarter vs. last year, but median sales prices rose, according to data released this morning by the Greater Capital Association of Realtors Inc.
The Colonie-based trade group, which gathers sales data in 11 counties, said the median sales price rose 3 percent in the quarter, to $190,000, vs. the 2007 January-March period. The numbers are preliminary.
Closed sales fell most dramatically in Albany County, by 28 percent. Yet the median sale price rose 5 percent to $199,600.
In Schenectady County, closed sales fell 18 percent. The median sale price during the quarter rose 6 percent to $169,950.
In Rensselaer County, the number of sales dropped 10 percent, and the median sale price rose 4 percent to $170,000.
In Saratoga County home to the regions most expensive housing the number of first-quarter sales dropped 25 percent, while the median sale price rose 2 percent to $254,300.
Dear Ethan
Yeah! that south Loop area alone is crazy isn't it??
There has to be by my informal count 4 or 5 new buildings with another 4 or 5 still going up!
Chicago may not have been a huge bubble but trends that hit the coasts tend to occur here a couple of months/years later.
Regards,
Same question here. It's hard to put these numbers in context. How big is 30%?
We asked the same question about Silicon Valley tax reductions in,
"How Big Is 41,231?"
http://www.viewfromsiliconvalley....com/ id405.html
Thanks!
"kett82 writes:
Still sprouting up condos here in Chicago...on my South Loop walk today I counted 4 cranes in one go..."
Also here in the same South Loop neighborhood, construction on one condo high rise is finished but not complete. For example, concrete exterior walls apparently won't be painted but should have been. I have heard that the developer is "out of money".
Occupancy in that building appears to be less than 10%, two months after the first owners moved in.
I actually think Shiller believes the number will be higher, but, also knows if he goes around telling everyone how big the number will be, no one will listen to him. I'm sure most of us stopped telling friends and coworkers it was a bad idea to buy a house when they kept acting like we were nuts. I think that's why they created the phrase "I told you so"...personally, I'm trying not to use it, unless the person actually listed to me, the others, they will get their noses rubbed in it enough!
CR - "Sticky prices are inefficient, but they clearly happen in housing, and also for wages."
Err.. You predicting a sticky fall in wages CR? Or, a lagged increase in wages due to inflation? Or am I reading too much into that statement?
Elvis-
How dense are you?
Prices stayed stable and even went up for 18 months while inventories grew and volume declined. That is the definition of sticky.
You have no argument, you are simply admitting to being hardheaded and wrong.
I think what surprised people was how quickly prices began to decline as the became "unstuck". This was most likely due to the large numbers of REOs hitting the market, as others have pointed out.
This damn stock market is sticky. It should be down 30% too.
Can't wait for it to become unstuck.
SweetHomeKilla,
OK. I just looked it up, and this is not the definition of sticky, "Prices stayed stable and even went up for 18 months while inventories grew and volume declined. That is the definition of sticky." So, maybe, you should consider calling the dictionary people and fixing their mistake. Moreover, you might also ask them to correct the definition of idiot. It should be "SweetHomeKilla."
except he said prices would be sticky on the downside and I don't think they have been
There are two types of asking prices (maybe more, but two I'm sure of)...
1) The individual home owner that wants to sell for some reason (needs more room, upwardly mobile, payments too high, etc).
2) The Bank/RTC/MBS that needs to unload REO's.
1 is much more sticky than #2. I would propose that, should #1 see the light and become less sticky, the #2 inventory is going to hurt (price wise) even more than it is now. The stickiness of #1 is helping #2 from enduring greater losses.
Don't worry. I did it for you.
id·i·ot Audio Help /ˈɪdiət/ noun 1. an utterly foolish or senseless person.
2. Psychology. a person of the lowest order in a former classification of mental retardation, having a mental age of less than three years old and an intelligence quotient under 25.
3. SweetHomeKilla
30% downside...which is why a bailout is so insane...basically lets the banks stick all of this garbage into the FHA and leave taxpayers holding the bag.
"You have no argument, you are simply admitting to being hardheaded and wrong."
I agree. It's hard to look at the facts of the decline, and the definition of "sticky" and say it hasn't been sticky.
However, I personally believe that the price declines will be less sticky than before. My reasoning is the increased level of information availability. If there is a cheap REO on the market and it's a "deal" according to current pricing, it's on the MLS on Friday and under contract on Saturday. This sets the price/comps, which are very quickly disseminated, and the decline continues, quickly.
At the same time, there are blogs such as this and a myriad of other blogs disseminating a wider cross section of information. If we just had the MSM and NAR, we'd never know what was happening. This way, we get to know the facts quicker, and act on those facts quicker.
Similarly, the new metrics and data for localities and pricing allows the lenders to cut back lending faster than they did before (I'm guessing here!) to minimize risk. OK, they've sucked at it so far, but their actions have been swift of late and pushed demand down further, more quickly.
CR, I'd be very interested to know your thoughts on this, if this is something you've considered.
--
"Three years of flat nominal prices would be close to a 10% decline in real terms."
Californial will lead the way...
CA Home Prices Back to Four Years Ago!
Summary Based on DataQuick reports of all recorded sales, SFH & Condos, New & Resales\t
Median For Counties & Select Cities for March 2008:\t
Current Price\t$418,500
Peak Price\t$600,000
MoM\t-4.3%
YoY\t-20.5%
From Peak\t-29.0%
Since Dec'05\t-22.0%
Since Dec'04\t-15.5%
Since Dec'03\t+3.7%
Since Mar'04\t0.0% (Back to where they were 4 years ago!)
Jas
Elvis:
for whatever reason, your definition for "idiot" made me giggle.
be that as it may, housing prices (as an asset class) in general are sticky on the way down. You are the only person on Earth who thinks otherwise.
true, there are times when an individual property price may rapidly change, but due to the relative illiquidity of the housing market the price changes of the market in general tend to move slowly when compared to other asset classes (like stocks as example).
many areas peaked in 2005-2006 and STILL have only fallen 5-10-15-20% from peak, 2-3 years later. contrast that with United Airlines stock that fell 37% TODAY.
I think you are mistaking the term "sticky" with "stuck". they are different.
also, when we say "house prices tend to be sticky" it does not mean that they CAN'T fall quickly, it means that they TEND NOT TO fall quickly (again, relatively speaking)
I make a challenge: is there anybody else reading this blog who feels that house price are not sticky?
Damn Bitter Renters!!!!!!!!
Jas,
It's not if, it's when. All the bubble locales will deflate. Many areas will overshoot and never recover. I was born in Trenton, NJ. Spent time in Pittsburgh & parts of Ohio too. I've lived through this before. GRRRRR!
Oxygen gets you high. In a catastrophic emergency, you're taking giant panicked breaths. Suddenly you become euphoric, docile. You accept your fate. It's all right here. Emergency water landing - 600 miles an hour. Blank faces, calm as Hindu cows
no worries, more oxygen$ on the way.
However, I personally believe that the price declines will be less sticky than before. My reasoning is the increased level of information availability.
I can hear legions of homeowners now saying "those REOs are pieces of crap with everything ripped out. MY house is perfect, granite...stainless...landscaped!"
Also look at my area, Boston. What has become unstuck is very, very area specific. Go look at a map of any desirable area and the prices have not come down much. Undesirable areas and the ex-burbs like a rock and still falling. Condos in the city have done very well too, unlike the last bust when they were the first to go and drop by over 50% in some cases.
So I can see the difference in the indicies depending on geographic coverage. If you're looking at Boston proper, it's not off much. Try Lawrence, Lowell, or anything west of the 495 belt and the results will be very different. Oh and you'll know these areas on a map because they also have the concentration of foreclosures too, which I find pretty disturbing.
Posthumously Bankrupt
I'm absolutely STUNNED. i shouldn't be, but when heard it firsthand, it stunned me. I looked around to see if i was getting punk'd by aston keutcher.
I just spoke with my neighbor and he mentioned he's a Realtor. I asked about current conditions in our market (10 miles west of Denver, CO). You can not believe the denial and fantasy land some brokers are living in. He's convinced prices have bottomed and by summertime will get back on track "nice steady appreciation".
so, i picked up my jaw off his driveway and asked what he thought or heard about record price y/y price declines, how far above trend price appreciation we were for 5-10 years, banks tightening up lending, personal BKs heading up, delinquencies on the rise, foreclosures on the rise, etc.
sit down for this.
he thought it was a lot of scaremongering by the media. he thinks most people can get great rates today, he thinks a lot of buyers are lowballing and messing up the market, and he thinks a lot of the stalled buyers are gonna wish they bought now because prices after summer are going up again.
he really meant it. he didn't care one bit about any data i cited, or case-shiller (he didn't even know what that was), or delinquency trends, and the best part of it, he mentioned the real estate economist (yun) and his data show we are close to the bottom and are going up again.
i felt bad for the guy so i didn't rain on his parade, so I just said "wow, that would be good to get this behind us by fall".
BTW: he is a super nice guy and a great neighbor. I wish him the best.
CR says the avg for bust is 5 to 7 years, but the last bust here lasted 48 quarters from peak to the next appreciable gain (inflation adjusted, so real terms). That's 12 YEARS! And that didn't have the run-up this did.
So if we use that, and the peak here was August 05, that means that we'll see the next gain in real terms in 2017 at the earliest. I don't know what to say because in CA your way hosed if this analogy holds true.
Sonoma county Ca is down 28% and change from the peak in nominal dollars already and as a long way to go.More than 20% YoY and accelerating although homes in desireable areas that are immaculate and priced correctly move fast...
Yeah, average bust figures for the average boom. But this has been an above average boom which requires an above average bust to return it back to normal.
"he thought it was a lot of scaremongering by the media. he thinks most people can get great rates today, he thinks a lot of buyers are lowballing and messing up the market, and he thinks a lot of the stalled buyers are gonna wish they bought now because prices after summer are going up again."
I'll bet he liked that Ben Stein movie, too.
Why is this bad? Can we get another 30% drop in housing please? Me and my family would like to move into a home with a real value of ~ $270k... (Southern California).
I have no regrets now about being a 1-car household, and moving 10 miles away from my job. Although I do think California will benefit as a whole because of our agriculture production in the short term.
Anyway, I think there are plenty of older people around who remember the days of a nice house for $270k or even $200k! What's funny is that a rational policy is to sell houses for a lower price, since you'll decrease the total housing cost in the neighborhood and stimulate the economy since more money is available to spend on things other than housing...
Fall housing prices fall! Fall housing prices fall! Don't ask me if I'm buying until 2010! Fall housing prices fall! I'll have enough money saved up by then! I won't be a knife-catcher!
Prices are 'sticky' in the sense that both sellers and buyers are making the decline slower than they otherwise might fall. Sellers are resistant to sell at a discount to comps, and buyers tend to be willing to purchase at only slight discounts to comps thinking they are getting a bargain.
In any case, the clearing process happens very slowly when you only have a few transactions per month in a given area to establish a comp trend. So unless you've got a huge inventory that you have to unload quickly, there is less downward price pressure. That is happening in some areas faster than others, depending on the influx of reos.
"Sticky is a term used in the social sciences and particularly economics to describe a situation in which a variable is resistant to change."
"Home prices are sticky" and "home values always go up." These apparently are two truisms that aren't true. 30% YOY changes aren't sticky. $500,000 last year and $350,000 this year isn't sticky. That is momentum. When prices were escalating in a bubble the momentum was huge. Like a large ship, it took awhile to turn, now it is headed the other way. Large ships aren't sticky and neither is housing today.
Three years of flat nominal prices would be close to a 30% decline in food and energy terms.
I'd say prices have been pretty sticky here in Santa Cruz; although south county prices already dropped maybe 30, 40%, the City of SC still seemed to be resisting any drop; but SALES are off by 50%. Looking at the listings this month, many that disappeared in Dec. are coming back in with maybe 10% price cuts. And I have been seeing a lot of open houses in empty high end homes - went to see a $1.5M REO last weekend, for example.
The price slope down Highway 1 is mighty steep, gravity will win eventually.
The housing market should have started falling in 2002 -- two years after the stock market fell, had it followed what happened in 1929. Financial fraud top to bottom pushed it up instead. 30% in real terms is way too low. Baby boomers are retiring. Laisse faire is back. Fairly recent Fed research papers show not everyone should rent, and that it is okay to let people go bankrupt and will not harm the economy. Expect the forecast for total declines and the duration of the declines to grow with time.
Elvis, you are a bit thick.
Bob,
I choose to be thick, because I think the definition is way too narrowly confined. Kind of like "recession."
Craig-
That conversation with you're realtor-neighbor is exactly why regular Americans should put no faith in their realtors when it comes to making smart, informed purchases.
There are many realtors who are not serial,criminal liars out there. They are just, simply put, criminally stupid.
My apologies to the handful of realtors who are both smart AND ethical. There are some, I had one once. But finding one is like the proverbial search for a needle in a haystack. Buyer Beware!
waitinginPNW writes:
My apologies to the handful of realtors who are both smart AND ethical.
Hey, no need to apologize. This business is filled with the sleaziest, most self deluded people I've ever known.
I think that in truth most are deluded and a bit simple rather than actively scammers. Many of the short sale listings I'm seeing lately belong to Realtors from my area. They truly believed the nonsense they were peddling. I know a few decent agents but not many.
BTW, I'm only a broker to save the 3% on my own properties when I buy or sell. I never want to be a buyer broker. The way most of these people sell out their clients never ceases to surprise me.
I should know the answer to this and I'm embarrassed I don't. But a friend who works in real estate told me that the price drops only reflect sales made normally and don't reflect the really bad action like short sales at 50% on the dollar, or lease-to-own mortgages at dramatic reductions, and so the real price situation is actually worse than the headline number.
Is this true or is he misguided?
Thanks!
Is anyone familiar with these home equity protection products - they seem relatively cheap, cover any significant losses, and have been around for a while. I never hear anything else about them, but surely there is some value here (although, there has to be some serious counterparty risk in this day and age).
Price-Protect Your Home - Forbes.com
or
Protect Your Home Equity with Lighthouse
Is Shiller talking about a drop in the US median or average? Due to the tremendous skew in valuations toward the most expensive areas, the drop in average price (same in % terms as the drop in total valuation), will be way larger than for the median.
If he's talking about a 30% decline in the US average, yes I think that's in the bag. Nominal.
Sticky doesn't mean stuck - great quote from CR. Here in the Bay Area though I still quite suprised at how prices remain near the peak in most of San Francisco and parts of Marin and Silicon Valley. Yes, transaction volume is way down and supply hasn't increased that much - but buyers are stepping up and paying peak prices. Not many of them - just a few hundred or so per month. But in some neighborhoods, you have to look real hard to find any evidence of a housing decline.
Inflation will turn to deflation. There is nothing left to inflate. Even gasoline is a petty cost against the price of a home. Take 15% off the price of the typical home and you have the entire price of a fairly nice automobile. That is also more money than most people have. Subprime was mining the last bastion of credit to solve a bubble created in the 1990's. We are done. When the rest of the world realizes that gasoline took the last dime left for the typical middle class American to spend outside of eating, there will be a shift in demand that the world hasn't seen since 1930.
One more thing. What Shiller says is true. I was in real estate in DFW in the 1980's. The market busted in 1984, but it didn't seem like it totally busted. DFW added a hell of a lot of people in the 1980's for a busted market, but it was well into the 1990's before the market recovered. This current market hasn't busted yet, contrary to what the new media says. I say this because the statistic say it hasn't busted. Existing home sales are almost 5 million. They never exceeded 4 million prior to 1997. I think Calculated Risk has these statistics somewhere, one of the reasons I came here tonight. We have home sales at a boom level and prices are falling. That is the trap, that home sales have to continue at boom levels to keep prices from totally imploding. The number of vacant homes in the US according to Federal Statistics are in the stratosphere. The bullish hype that credit will rain on us forever and no one ever has to pay the bad debts, (check Goldman Sach's level 3 assets increase of $30+ billion the past quarter to keep from recognizing the truth, that they lost the bonuses they paid), is just that. The market for foreign buyers of our paper has dried up because the system no longer has any legitimacy. When FNMA and FHLMC ramp up their originations, we are going to have a crisis, where the FHLBB and the Fed have to bail out these operations because they can no longer finance what they were put into business to finance. The Fed is working on a real money bomb to bail out excess that needs to run the course.
Is this true or is he misguided?
Thanks!
HBJ | 04.22.08 - 11:58 pm | #
I believe "distressed sales" aren't reflected in most price reports.
For valid reasons; some may not have amenities like copper plumbing or wires, walls, or electrical switch plate covers!
Why worry? The stock market is in pretty good shape. Never despair. LOL.
"Sticky" and "stuck" are simple adjectives, so maybe some specific data would be better to reflect upon.
The DC Capitol Hill market, close-in to the Capitol itself, is a very desireable area (similar to Dupont Circle). I've looked at all sales for 3BR renovated townhouses from 2005-present. PPSF in 2005 ranged from 425 to 450. It peaked in Q2 2006 at 560, and then stayed at that level until late summer of 2007.
Since then, the list and selling prices have fallen to 380 per square foot. I asked a realtor about the trend, and he ignored the square footage when showing me a 3000+ square foot townhouse selling for over a million, saying that prices were actually UP over last year.
Nuff said about realtors.
Say, ipodius, the last time I read a posting from you was when you were bashing Google as an industry insider. This was right before their earnings results and stock price surge. You were either putting misdirection into the ether or had your head up your butt. Which one was it?
The folks behind the stats....
Survey shows owning a home still within reach for most Americans - Atlanta Business Chronicle:
Sigh
Three years of flat nominal prices will NOT be close to a 10% decline in real terms, at least not from the viewpoint of "fixing" the housing problem unless people are also getting 10% raises each year for those 3 years. 3 years of flat prices vs. 3 years of flat to declining salaries means that housing is actually growing MORE expensive, not less, in practical terms.
Inflation CANNOT fix this mess; not without massive, across the board, permanent wage inflation to cover up the losses, and that is not going to happen. We're devaluing our currency, thus driving up the prices of needed imports, while laying people off. The net effect is a huge drop in real salaries and available cash even as inflation skyrockets. This will not stabilize housing prices, and will probably drive them even lower than what is normal if the "new normal" is: unstable, part-time jobs, huge food and energy bills, etc.
This is hold your breath, prevent your eyeballs from freezing and hope the altimeter defrosts in time to tell you how far away the ground is. --and that worked so well for JFK Jr.
30% declines are very optimistic.
The housing boom over corrected too high so the bust will over correct much too low.
Declines will average between 40% to 50% without factoring in price inflation because we will not experience and monetary inflation in that time frame.
Meanwhile, over here in Europe, some people are actually starting to get worried. It is still being reported by the media as "The US subprime problem", and most regard it as little more than a mild rash on the gargantuan pink arse that is American finance. Lately, however, there have been articles on falling house prices closer to home. Actually most of Europe, except for Germany, come to think of it. The consensus remains although that ´tis but a flesh wound. Myself I am as gleefully gloomy, on a night like this, as one possibly can get with the help of a nice bottle of red wine and a friend on the other end of msn to fling an occasional pre post apocalyptic rave at.
you were bashing Google as an industry insider
What I said about Google still holds: if you believe that their earnings and click rates when up that much, I have a SIV to sell you. I know what click rates are for many, many sites firsthand and the numbers they are putting out don't match anything that I have seen or that anyone else I know has seen. And I can tell you that people have cut WAY back on G bids and ad purchase too.
They are too richly valued, full stop. Go right ahead and buy if you'd like or you're only interested in pumping and dumping. Buy some financials while you're at it.