I wonder if the relationship between price and month supply could be so facile? In aggregate, are people's purchasing decisions so predictable? Sure would be convenient.
Can you imagine if the 10 year Treasury actually adjusted for inflation? Interest rates on home loans would spike and the federal reserve clowns would be exposed as completely useless. Months of supply would scream higher and prices would collapse. Not a scenario that is completely out of the question.
By the time current inventory hits 6 months level, baby boomers will bring out their stock for sale. 'Who could have known' the cost of retirement and inflation?
'Who could have known' the cost of retirement and inflation?
REBear | 05.25.08 - 1:01 pm | #
They should have known - a lot of us knew.
RE - I'm a boomer and the thing most of my litter mates haven't got their head around yet is that either (1) they can't retire at t he current consumption rate OR (2) they are going to have to readjust their expectations & lifestyles WAY DOWN... Retirement isn't going to be like a Dennis Hopper commercial.
I was out in rural Wisconsin yesterday at a guy's place where he semi-retired to... still works some in the city during the week and has a couple very nice rental cabins in the country (he built them - VERY NICE but austere).
Guy can live like a church mouse if he chooses to without ever eating into his savings. He said he's still adding to savings - not eating into them. He's done it right & having a ball.
Boomers do that kind of thing - then we have no problems. If they all think they'll have a place 'on the course near the 18th hole'... then they have a whole other thing coming.
We aren't even into this 'process' far enough for most folks to even guess what's coming for them. Its gonna be a wake up - that's for sure.
Lowering interest rates now is simply delaying significant loan rate resets. Unless we go ZIRP for years, we will still have an influx of those in 2009/2010.
Plus the Option Arm resets later this year and next. Plus higher borrowing rates and lending standards. Plus the backlog of foreclosures that will be REOs soon. Plus the growing stealth inventory of houses owned by people thinking this downturn was temporary.
Add, on top of all that, what REBear said, that the retiring/downsizing baby boomers (who for years presumed their home equity was their retirement nest egg) may stage a 'race for the exit' if prices continue to deteriorate compared to necessities.
"I wonder if the relationship between price and month supply could be so facile? In aggregate, are people's purchasing decisions so predictable? Sure would be convenient."
I do think that there is some relationship. When inventory is low and you are looking at houses, there is a sense of urgency as homes seem to rapidly sell. And that confirms the sense that the homes must be worth the price. As inventory rises, and you see the same homes for sale month after month, there is less urgency to buy now, a greater sense that another house will come on the market and a suspicion that prices may be too high.
The emotional, intuitive sense in both cases feeds on itself and reinforces the dynamic to either "buy now or be priced out forever" or "catch a falling knife."
Dryfly - I think you are right. My mom just retired, and she tends to work a day or so a week as a contractor. She quietly saved in IRAs over her career and inherited a bit from her mom. They own their home and cars free and clear. They travel a few times a year to the beach or to visit friends - once every several years they hit Hawaii or Europe. A nice, comfortable retirement lifestyle, but no cruises or golf course McMansions or new Lexus's.
I guess I've always lived in a post-depression world, conditioned by my parents. I've always saved. I don't travel much for pleasure. I've always bought small cars, a small house, and paid cash as much as possible.
With all that, the future doesn't seem all that secure: I have no pension, a serious illness could wipe out much of my savings even with insurance. My wife and I have told each other: if the price gets too ridiculous, pull the plug.
I've often wondered how the folks around me could afford trips, big cars, second homes, etc. Some have found smart ways of doing these things (vacation housing swaps, etc.). But mostly, they can't afford it.
I expect to work as long as I can, and live austerely. Even then, nothing's sure for anyone, especially in the next few years. But national health would help a lot.
As much as I'm bearish on housing, I think housing will probably have bottomed out by the end of 2009. There will be huge political pressure on the next president to stop housing price decreases, at any cost.
If Obama wins, expect a bailout of monumental proportions; he's already basically committed to doing anything necessary to inflate prices again, and he's not at all afraid to tax businesses and the rich out of existence, and/or print unlimited currency, to do so. If McCain wins, expect a smaller bailout, aimed mostly at lenders and investment companies; but the political pressure will be there until prices start rising again.
Real prices may not rise until fundamentals get back into line, but I'd be surprised if nominal prices aren't going up by the end of 2009. It won't be politically feasible for the next president to not enact some sort of bailout (imho).
sdtfs, there is clearly more to the picture than months of supply - that is why I pointed out the earlier period. I wish I had more data (back to the '70s).
Optimistic Joe, I think New Home prices will still trend down. These high levels of existing home inventories will pressure new homes for some time.
Can you imagine if the 10 year Treasury actually adjusted for inflation? Interest rates on home loans would spike and the federal reserve clowns would be exposed as completely useless. Months of supply would scream higher and prices would collapse. Not a scenario that is completely out of the question.
Gas is 4.19 by my house, can I open a tip jar?
Something similar to that could happen if enough people just decide to stop investing in the United States and we start to see a large investment flow out of the country.
The Federal Reserve can try to keep 10 year rates artificially low, and they may succeed, but the consequences will be a further decline in the currency.
CR - This is a very useful data presentation. Thanks for your work in putting it together.
I agree with your conclusion that housing prices are likely to decline until we get to a 6 to 8 month supply. Obviously a lot of other factors influence price trends, but months supply of inventory is normally at the top of the list.
Aside from the huge question of mortgage financing, a couple of factors that your analysis leaves out are:
1. How many homes are not officially on the market but the owners are eager to sell as soon as conditions improve?
2. How many buyers are on the sidelines waiting for prices to stop falling so they won't lose their down payment in the first year of ownership?
These are tough ones to find data on, but I'm on the lookout.
What I find most interesting about the first chart (months of supply vs. price) is how much more pronounced the season variation in months of supply was until about '99 or so. Anyone know why?
My wife is retiring this year when school is out. I attended a reception for retirees on Friday and was interested that so many were really not looking forward to the experience. There comes a time when the job is too hard and it is time to go, but there is fear about the future and not the optimism of a few years back. The loss of home equity is a big factor and fear of medical costs. This is more of a thread bare boomer crowd.
Ralph Cramdown, I thought that was interesting too and I don't have a good explanation. Maybe there is some inventory that isn't removed during the holidays (like investor units or 2nd homes) and other inventory that is removed. And there was less of the latter in the early '00s.
It appears the seasonal pattern has returned the last couple of years - but the line is going straight up, so it is harder to see.
If 12 months of inventory puts downward pressure on prices, then sellers can keep prices stable, or even make them go up, by refusing to sell. If enough sellers go "on strike," keeping their houses unlisted until they think 2005 prices are back, inventories will plunge to 1 to 3 months or so. (What am I missing here? The availability of credit!)
My feeling is that inventories are an indicator, but I'm not sure how good an indicator.
The months supply for active listings in the San Fernando valley is around 10.4 it has been dropping due to the uptick in SFH sales. The condo market is looking very weak up here. And there is a lot more newly built condo supply waiting in the wings.
Unfortunately I don't have inventory data going back very far otherwise I could make a more localized version of the CR chart.
CR - "there is clearly more to the picture than months of supply"
It would be interesting to look at this at a more geographically granular level. As I recall, past housing markets tended not to peak/trough in a nationally correlated way. If the months of supply is concentrated in slumping regions, for example, while a shortage exists in a more heavily weighted boom region, you might see upward price pressure even with high inventories.
Another view, stratified by structure type (multi vs single family, primary residence, etc.) might also help explain.
In other words, a glut of condos in Miami may not clear, even if SF homes in Dallas zoom higher in price.
CR,
Your first graph is really compelling, hat tip! It sure does looks like the waiting seller is waiting for a lower price! And heres more support for the foregoing:
"Homes' Mispricing: Straight Lines!" at Homes’ Mispricing: Straight Lines! / Futures
El Cliffo wrote, ... sellers can keep prices stable, or even make them go up, by refusing to sell. If enough sellers go "on strike," ... inventories will plunge to 1 to 3 months or so.
But consider what the reasons are for homes being on sale:
new home built on spec and sitting vacant,
death, divorce, job loss rendering the owner unable to pay the mortgage,
job transfer or new job requiring move to another area,
desire to move up to a better home,
retirement with desire to downsize and move to a less expensive area or previously-purchased second home.
In the first three cases, the owner has no choice but to sell or -- in some cases -- to rent. This will also frequently be so in the last case -- how many retirees who planned to downsize can afford not to?
Only in the move-up case and rich-retiree case does the owner have the liberty of taking the home off the market. But note that in the move-up case, taking one unit of housing supply off the market also takes one unit of housing demand off the market, and so has little effect on "months of supply".
Note also that renting does not really remove a home from the market -- it only transfers it to the rental market and increases supply there, giving potential buyers an alternative to purchase, slowing the purchase rate so that "months of supply" is, again, less affected.
(At bubble peak, there were only seven homes listed for rent on the MLS in my town, and none that I'd want to livel in. Now there are 90+, dozens quite good enough for me.)
There are several things that ruin one's ability to provide for a comfortable old age: the vice of spenditis (having to have what your friends all have and a bit more too); a disasterous family with a couple of deadbeat children that mooches on you and destroys your savings; reckless investments that go sour. If you stay single, live beneath your income, save the surplus, and invest wisely, you are okay. But how many can do that? People seem to think they have to get married and have families. They don't.
But how many can do that? People seem to think they have to get married and have families. They don't.
Chris | 05.25.08 - 4:25 pm | #
They don't do it because they have to - most everyone does it because they want to.
A few regret but very few.
More are likely to change the look but keep the pattern (decide spouse no.1 wasn't the best idea but think spouse no.2 will be the bomb, etc.).
Single vs. 'attached' really doesn't factor in. You can make anecdotal cases both ways - single folks who squander & married folks who save. I certainly know some of all kinds. Same thing with happiness or unhappiness - I'm not sure singleness or marriedness is a major factor.
Its what you want to do that matters... so do it, whatever it is.
"If Obama wins, expect a bailout of monumental proportions; he's already basically committed to doing anything necessary to inflate prices again, and he's not at all afraid to tax businesses and the rich out of existence, and/or print unlimited currency, to do so."
The loss of home equity is a big factor and fear of medical costs. This is more of a thread bare boomer crowd.
Hanging by a thread | Homepage | 05.25.08 - 2:50 pm | #
That describes a good 4 out of 5 boomers I'd guess. There is only one strategy that will work for them - they will need to get small, real small, and as soon as possible.
I was in rural Wisconsin yesterday and there were small country homes all over - some for sale. I'm told many sell in the $40K-$60K range with enough land to have a pretty decent garden. Close enough to small cities to get health care & groceries.
Not sure what they rent for but told it was close to nothing - whatever that means. Probably means you can't cover the cost of buying them even if you buy them for only $40K... that's cheap rent!
I'd guess some of these kinds of places will become 'fall backs' when people get tossed out of their suburban palaces. My guess is the urban option will be too expensive for those really hitting the wall - too expensive to live halfway well anyway... I suppose there is always the option of 'the street'.
Sounds great to me. I have PMs. Also makes sense. Clinton lost congress in 94 because he didn't kickstart the economy right out the gate in 93.
Whoever wins will need to keep stimulating the economy because 2010 midterms are only 22 months away, and they will likely lose congress if the economy is still craptacular....
dryfly: Well the advantage in not being married is that you don't have two people making the decision and the resulting risk of disagreement when only one person is involved. It is like a business. Far better without a partner to interfere with your decisions.
Chris- I was on that track of yours for 4 plus decades and I was pretty happy. I said, "Barring catastrophic illness, accident, or marriage I'm pretty much set for life." Then I found someone who wanted to marry me. I knew what my life would be like without any change, not bad. But I figured it wouldn't kill me to try something else. It's not bad either. Now I've got to look at an uncertain future again, but I've never been afraid of the future. I don't how America has become such a timid nation. Everyone likes to believe we're the nation of tough guys, but we behave as if we're afraid of everything.
Home prices will bottom when it makes sense to buy the home strictly as a rental. (ie when people can say, I don't care if the home loses value because I can still make a good ROI renting if I buy it now.) You can work backwards to figure the purchase price.
It is like a business. Far better without a partner to interfere with your decisions.
My business partner and I would probably have been all right separately, but together we've been able to acquire property in California and Hawaii, something neither of us alone would be able to do. But our partnership started based on a level of trust that I wouldn't recommend to anyone else. Our first properties were only in mine and my sister's names, he could have been hosed. It's his drive to make the money that keeps us growing, I would have stopped a long time ago on my on.
dryfly: Well the advantage in not being married is that you don't have two people making the decision and the resulting risk of disagreement when only one person is involved. It is like a business. Far better without a partner to interfere with your decisions.
Chris | 05.25.08 - 5:21 pm | #
Best yet then to live on an island all by yourself... NO ONE to disagree with you.
My wife & I have backed each other up almost perfectly over the 25 plus years we've been married. Believe me we disagree - its part of the 'collective decision process' we practice - not pretty but it does work.
My folks did it for over 60 years before they both passed away. My in-laws for almost 60 plus years now too & still at it.
I suppose if you're the type of person that finds it hard to compromise then going solo at everything makes sense. For most of us it doesn't. The vast majority of people do make some kind of relationship & back each other up.
Whatever works for you - do it.
However I don't see any relationship on how a personal relationship or lack thereof makes one thriftier or spend-thriftier.
Home prices will bottom when it makes sense to buy the home strictly as a rental.
Sort of. As Tanta pointed out, SFH are difficult to make money with, so rental rates aren't really a precise proxy, but yes, if you saw a house that you could buy for the same 'cost' you would rent for, why not? Your reward/risk ratio is fairly good. But because people are a lot choosier about where they would live as renters as opposed to as home owners, I think there is a disparity. That said, a lot of the old timers are expecting to overshoot a little on the downside. We'll see.
"If Obama wins, expect a bailout of monumental proportions; he's already basically committed to doing anything necessary to inflate prices again, and he's not at all afraid to tax businesses and the rich out of existence, and/or print unlimited currency, to do so."
McCain is a big bailout proponent also. The only real difference I see between Repblicans and Democrats is that the Replicans want spend like drunken sailors without actually raising the taxes to pay for it. This all but guarantees inflation and a dollar collapse at some point.
As somebody who considers himself fiscally conservative I find the Republicans an absolute abomination.
IMO you have to look to a 3rd world country to find a more fiscally "liberal" party than the Republicans.
(I'm fond of that age old idea of only buying stuff you expect to be able to pay for eventually.)
Since it is hard to measure aggregate (national) house prices, there's a wide dispersion amongst price index estimates. If the recovery from "the" bottom is slow, it is highly possible that some measures of home prices will bottom years before other measures. Thus, bottom calling will be highly subjective.
Anyway, I wouldn't base my housing call on housing-realted metrics (months of supply, etc.). Houses are generally purchased on a levered basis, and so the market will only be able to recover once lenders are willing to lend against housing. My gut feeling is that it will take some time before that happens, and lower house prices (to allow lower leverage ratios).
Minor tech quibble. I think you interpolated those data in 2000. (Extrapolation is a red flag word - interpolation is much more benign. Best not to worry your friends.)
(I'm fond of that age old idea of only buying stuff you expect to be able to pay for eventually.)
But aren't economists fond of saying that dying in debt is the way to make sure you maximize your life's earnings? Kind of makes you want to keep economists away from your wallet, heh?
Yeah, when the GOP went from being the fiscally conservative party to the socially conservative party it was the beginning of a slippery slope.
If not believing in high taxes and destroying the "wealthy" makes me a bad guy in your mind, whatever. The problem in our country is spending and while everyone would like to blame the politicians (and they deserve plenty of blame), why don't they start by looking in the mirror? $1 trillion in credit card debt at 20% is nearly as bad as $10 trillion at 5%. And we've elected these bozo's and it's not just "Bush". What has the Democratic Congress done to fix things in two years - pass a bloated farm bill? If you want change, I'm sorry but I don't think voting for a LAWYER with two years of experience and the worst "no show" record of ANY Senator is the way to go.
I've said it before, I'm a conservative libertarian and I think America sunk itself in it's desire for change when it blew off Ron Paul. I think Ron Paul's mistake was running as a GOP instead of an independent.
Let me add that I'll likely vote for which ever candidate has the good sense to bring David Walker on as their VP running mate. Unfortuntately I think BOTH candidates are too STUPID to do so. They'll go for whomever will garner votes. Who cares about doing the job well, just get the job so you can feed the ego, collect the paycheck, write the book, and make speeches for $1mm a pop when it's all over. And after all, who the hell is David Walker???
"Whoever wins will need to keep stimulating the economy because 2010 midterms are only 22 months away, and they will likely lose congress if the economy is still craptacular...."
Don't be fooled by this sort of concern trolling. The variables affecting 2010 are going to be interesting, but I wouldn't be so pessimistic. The Republicans are very weak (and deservedly so). The roots of the financial turmoil are firmly planted in the Bush years. Obama has the ability to use the bully pulpit, and might actually hire competent economics and domestic policy people, and be able to give a credible assessment of the state of the nation via the bully pulpit.
Sure he might crash. But a McCain presidency is as certain a disaster in the making as a Bush one looked in 2000. (And that is a reason for pessimism given that election's outcome.)
dryfly:
What part of WI? I'm in Central (portage co) WI, and monitor the local MLS. From what I'm seeing, house prices have not changed that much, and inventory is about 10% of last year's peak?
The only thing that has fallen in inventory, are parcels of land (>20 acres)
The cover story in this week's Economist is the rise in global inflation - especially in emerging economies where food and energy are highly weighted in inflation indices.
They make a statement that I found interesting - by this Summer, 2/3's of the world's population will be experiencing double digit inflation.
True US inflation is probably about 7% which is a 24 country average I saw recently. How long before we get to double digits?
House prices could level off or even rise in nominal terms with enough inflation to disguise serious real price declines. Perhaps that is the plan. Inflation is the only mathematical solution I know to the current situation although the dollar would be trashed (but then so would foreign debt in dollars - so sorry Chinese savers).
Not to sound like a broken record, but a high CPI minus equivalent wage increases is a huge negative for housing. The more money you spend on food & energy the less you have for a home.
The only inflation that matters to home prices is wage inflation, and we just don't have any of that.
Not directly on topic, but I wanted to mention what's certainly been mentioned before: the similarity in geographical distributions of The Housing Mania, gas prices, and the voting for Red v. Blue.
I enjoy sites like this and avoid DailyKrap or ReactionaryEconBlogs; here you have people who would vote for The 3rd Way if given a chance - and that would make about 1000 different 3rd Ways.
But I wanted to give those dozen still reading some red meat for the big BBQ tomorrow. From a central Floridian, there's no chance this side of Florida freezing over that BO will win this state. I don't know Ohio intimately; however, I'd guess the odds are similar. And it's probably true with most Purple states. It's because he's a goddamn uppity black man and most unprivileged white males see this as an attack on their quality of life. Call it racist, call it living in Dixie. But they vote, esp. against uppity black men.
I'm so thankful this charade lasts only 5 more months.
Now they're tryin' to take my guns away
And that would be just fine
If you take em away from the criminals first
I'll gladly give ya mine
And I don't mind payin' taxes
But it makes my temper itch
When my hard earned money goes
To make some politician rich
What most people call a redneck
Ain't nothin' but a workin' man
And he makes his livin'
By the sweat of his brow
And the calluses on his hands
Now you intellectuals may not like it
But there ain't nothin' that you can do
Cause there's a whole lot more of us common-folks
Then there ever will be of you
- The Charlie Daniels Band - What This World Needs Is A Few More Rednecks
"sdtfs writes:
the market will only be able to recover once lenders are willing to lend against housing.
Since there are loans still being made (albeit diminished), I know you have a more concise idea in mind,..care to expound?"
Sloppy phrasing on my part. Should have said "willing and happy" to lend against housing.
Obviously, some lending is occurring, as you point out. But as much as possible is being funneled through Fannie & Freddie (and other programs) so that the mortgages get guarantees (from "too big to fail" entities). There are limits to pipeline that Fannie and Freddie can handle.
Otherwise, nobody is happy to have the mortgages on their balalnce sheets, and so mortgage lending growth is likely to remain weak.
What part of WI? I'm in Central (portage co) WI, and monitor the local MLS. From what I'm seeing, house prices have not changed that much, and inventory is about 10% of last year's peak?
SE of the Twin Cities - I live on the Minnesota side but was visiting friends across the river overlooking 'Lake Pepin'. Very nice.
There are properties for sale over there but I don't watch the market real closely. But I do know if the properties are within easy commute of a larger city (Minneapolis - Madison - Milwaukee)... or if on water or have a spectacular view... the values hold up pretty well and do sell. I'd guess there are a lot of those kinds of places near Portage (either easy commute to Madison or on or overlooking the Wisconsin River).
However I'd bet like out here there are lots of older very inexpensive rural properties that go for almost nothing. If retirees really get desperate - there is always that option. I don't see those places ever getting expensive - not ever.
The drop in home values is neither temporary nor nearly as great yet as it will likely become. It will follow deteriorating demographic support just as public school closings did in the late 80'a when there was a lull between boomers and gen X. Boomer parents moving to co-ops and assisted living & dying. Boomers stuck in their digs indefinitely. Many will need to sell to salvage a little equity before it's gone since they have no retirement nest egg. Price is a measure of urgency. The urgency to sell will increase with the urgency of retirement and the urgency to escape prime ARM resets. The upcoming avalanche of prime ARM resets will be three to four times in number as the subprime ARMs that existed in 2006. The rate resets won't be so extreme, but there will be no way for many to refi due to CLTV problems. Many wwill sell if not upside down. Will we need a Fannie Mae Secure program like FHA Secure for subprimes? Meanwhile as prices keep deteriorating, the walk aways, foreclosures bankruptcies and bank failures will skyrocket. There are probably only one half the number of qualified borrowers now as there were in 2006 due to the near total disappearance of sub prime loans, Alt A loans, second mortgages, and any type of reduced doc underwriting with reasonalbe rates for any but the most well qualified who don't need it anyway. I don't see anything at all to stop this trend anytime soon. Nice try with FHA Secure; that might slow the trend for a few months, but that won't do the job once the prime ARM resets hit hard (coming very soon). A chaotic and deep depression is inevitable.
El Cliffo wrote, ... sellers can keep prices stable, or even make them go up, by refusing to sell. If enough sellers go "on strike,"
As jm correctly noted, there are always a number of owners who have to sell.
But note also that nobody has to buy. Ever.
That's the crucial asymmetry. All it takes is for people to decide to stop buying for prices to completely collapse. It's the buyers who have the strike power, not the sellers.
Wherever they are now is an existing housing unit. Generally, when someone buys a home they move from one unit to another, causing no net increase in units needed.
It is not the act of buying or renting that ultimately drives fundamental demand. It is the increase in households/population that drives the need for more housing units.
Right now we have an excess supply of housing units. If the builders stopped all construction for about one year the excess would be gone. At the current pace of building it will likely take a few years to clear the excess.
I'm a middle aged white guy who takes issue with "red necks" like Anonymouse above. Folks who think and feel like this keep themselves uneducated and uninformed on purpose.
Why? I (and many educational scholars like John Ogbu) think it's because they are afraid of failure. So they don't try, choose to fail, and make failure a cultural art form to give it some lame legitimacy. That's un-American if you ask me.
Red necks and inner-city gang members have far more in common than they'd like to admit. Why educate yourself and compete with your mind if you might be shamed and defeated? You can act tough with a big truck or a gang behind you or a gun or a drug business...but you're still just a little frightened boy inside.
Obama or whomever comes into that job really has to be strong in not legislating from hate and fear this next go-around.
Someone above had it right when they said americans are supposed to be the toughest and most resilient people and are acting like wimps. I say let's start acting like Americans.
Anyone else have the feeling that this is a bad indicator to look at? If the amount of inventory were to come down and house sales were to pick up you could see this indicator change very quickly.
With that said, I believe the only appropriate way to look at this indicator would have to factor in the actual inventory number and actual sales number.
For example: 8 months of supply with 2.5 million homes in inventory and 3.75 million in sales.
It's unfortunate that year-supply is the only series running that far back. Because that's near the low point for the selling season, it's the least significant part of the year for numbers. Even more, because it's at the begining of the dead zone, it would seem to be susceptible to big swings if sales from November are running slow.
If you want some holiday entertainment, go to the Zillow.com site and look at houses for sale in old Palm Springs. Say on Via Lola. There seems to be no end of places for sale and lots that I checked are asking four, five times estimated value. One estimated at around 2 million asking 9. Another estimated at 1.4 million asking 6.5. I guess Lala landers with weekend places in PS are looking to unload, but I doubt sales are very fast, if there are any at all. I inquired about one place and get an answer from the realtor in minutes. I smelled desperation.
The mistake Kudlow made is in comparing flow of one item with stock in another. Start by supposing (just to make it simpler) that he had been correct about housing starts not increasing over the last 30+ years while the number of households has increased greatly. So what? Total households represents the summation of all past increases/decreases to one parameter, while housing starts is the yearly gross increment added to another parameter. It's apples and oranges time again.
By way of analogy, you can indeed save money up over a lifetime even if your real earnings never increase. By Kudlow's logic that's impossible, since your annual savings would be the same over all those years while the cumulative savings have increased. That's the kind of argument he made about the housing supply in relation to the number of households.
"As much as I'm bearish on housing, I think housing will probably have bottomed out by the end of 2009. There will be huge political pressure on the next president to stop housing price decreases, at any cost."
If this is true, some of us will be renters forever since a bailout in housing prices does NOTHING to fix the fact that housing is grossly unaffordable. Here in Maryland, 5 times median household income is typical, and you'll find housing up to 10 times income without problems. Incomes are NOT going up, so keeping prices at these levels will simply force much of the next generation permanently out of the housing market. Maybe that's what they want, but it is a bitter pill to swallow if one is a "sucker" who believes in only buying what one can afford.
Everybody watching the Indy 500?
I wonder if the relationship between price and month supply could be so facile? In aggregate, are people's purchasing decisions so predictable? Sure would be convenient.
Can you imagine if the 10 year Treasury actually adjusted for inflation? Interest rates on home loans would spike and the federal reserve clowns would be exposed as completely useless. Months of supply would scream higher and prices would collapse. Not a scenario that is completely out of the question.
Gas is 4.19 by my house, can I open a tip jar?
By the time current inventory hits 6 months level, baby boomers will bring out their stock for sale. 'Who could have known' the cost of retirement and inflation?
'Who could have known' the cost of retirement and inflation?
REBear | 05.25.08 - 1:01 pm | #
They should have known - a lot of us knew.
RE - I'm a boomer and the thing most of my litter mates haven't got their head around yet is that either (1) they can't retire at t he current consumption rate OR (2) they are going to have to readjust their expectations & lifestyles WAY DOWN... Retirement isn't going to be like a Dennis Hopper commercial.
I was out in rural Wisconsin yesterday at a guy's place where he semi-retired to... still works some in the city during the week and has a couple very nice rental cabins in the country (he built them - VERY NICE but austere).
Guy can live like a church mouse if he chooses to without ever eating into his savings. He said he's still adding to savings - not eating into them. He's done it right & having a ball.
Boomers do that kind of thing - then we have no problems. If they all think they'll have a place 'on the course near the 18th hole'... then they have a whole other thing coming.
We aren't even into this 'process' far enough for most folks to even guess what's coming for them. Its gonna be a wake up - that's for sure.
CR: how do you see the trend in prices in new homes as the inventory of those seems to decline already?
O-Joe
Lowering interest rates now is simply delaying significant loan rate resets. Unless we go ZIRP for years, we will still have an influx of those in 2009/2010.
Plus the Option Arm resets later this year and next. Plus higher borrowing rates and lending standards. Plus the backlog of foreclosures that will be REOs soon. Plus the growing stealth inventory of houses owned by people thinking this downturn was temporary.
Add, on top of all that, what REBear said, that the retiring/downsizing baby boomers (who for years presumed their home equity was their retirement nest egg) may stage a 'race for the exit' if prices continue to deteriorate compared to necessities.
Hell, I may be renting for a decade.
"I wonder if the relationship between price and month supply could be so facile? In aggregate, are people's purchasing decisions so predictable? Sure would be convenient."
I do think that there is some relationship. When inventory is low and you are looking at houses, there is a sense of urgency as homes seem to rapidly sell. And that confirms the sense that the homes must be worth the price. As inventory rises, and you see the same homes for sale month after month, there is less urgency to buy now, a greater sense that another house will come on the market and a suspicion that prices may be too high.
The emotional, intuitive sense in both cases feeds on itself and reinforces the dynamic to either "buy now or be priced out forever" or "catch a falling knife."
Dryfly - I think you are right. My mom just retired, and she tends to work a day or so a week as a contractor. She quietly saved in IRAs over her career and inherited a bit from her mom. They own their home and cars free and clear. They travel a few times a year to the beach or to visit friends - once every several years they hit Hawaii or Europe. A nice, comfortable retirement lifestyle, but no cruises or golf course McMansions or new Lexus's.
Home prices only will double every 10 years. It's never coming down. You guys are idiots. Trust me.
Great data, thanks CR
Oh, it looks like we have a troll. No facts given, just an emotional statment. Clean-up on aisle 9.
I guess I've always lived in a post-depression world, conditioned by my parents. I've always saved. I don't travel much for pleasure. I've always bought small cars, a small house, and paid cash as much as possible.
With all that, the future doesn't seem all that secure: I have no pension, a serious illness could wipe out much of my savings even with insurance. My wife and I have told each other: if the price gets too ridiculous, pull the plug.
I've often wondered how the folks around me could afford trips, big cars, second homes, etc. Some have found smart ways of doing these things (vacation housing swaps, etc.). But mostly, they can't afford it.
I expect to work as long as I can, and live austerely. Even then, nothing's sure for anyone, especially in the next few years. But national health would help a lot.
Dude, you live a boring life. That's pathetic! I eat big and I drive big. You are just a silly saver...take that to your grave.
My generation...the "baby losers".
We're inheriting a burden of over $500,000 per household in unfunded government liabilities.
And you think the dollar is under pressure now. Wait till Social Security starts eating into general government revenues in 2017.
kis said:
Hell, I may be renting for a decade.
As much as I'm bearish on housing, I think housing will probably have bottomed out by the end of 2009. There will be huge political pressure on the next president to stop housing price decreases, at any cost.
If Obama wins, expect a bailout of monumental proportions; he's already basically committed to doing anything necessary to inflate prices again, and he's not at all afraid to tax businesses and the rich out of existence, and/or print unlimited currency, to do so. If McCain wins, expect a smaller bailout, aimed mostly at lenders and investment companies; but the political pressure will be there until prices start rising again.
Real prices may not rise until fundamentals get back into line, but I'd be surprised if nominal prices aren't going up by the end of 2009. It won't be politically feasible for the next president to not enact some sort of bailout (imho).
Nick you are such a .... we don't need bailout, we are doing great!
sdtfs, there is clearly more to the picture than months of supply - that is why I pointed out the earlier period. I wish I had more data (back to the '70s).
Optimistic Joe, I think New Home prices will still trend down. These high levels of existing home inventories will pressure new homes for some time.
Best to all.
Don't feed the troll.
I have a question. Does anyone know if the current version of the senate housing bill still has the provision for home builder tax breaks?
Can you imagine if the 10 year Treasury actually adjusted for inflation? Interest rates on home loans would spike and the federal reserve clowns would be exposed as completely useless. Months of supply would scream higher and prices would collapse. Not a scenario that is completely out of the question.
Gas is 4.19 by my house, can I open a tip jar?
Something similar to that could happen if enough people just decide to stop investing in the United States and we start to see a large investment flow out of the country.
The Federal Reserve can try to keep 10 year rates artificially low, and they may succeed, but the consequences will be a further decline in the currency.
Maybe that's happening now...
GO TO THIS WEBSITE!!!!!
FastWeb
VERY HELPFUL SCHOLARSHIP PROGRAM!!!
CR - This is a very useful data presentation. Thanks for your work in putting it together.
I agree with your conclusion that housing prices are likely to decline until we get to a 6 to 8 month supply. Obviously a lot of other factors influence price trends, but months supply of inventory is normally at the top of the list.
Aside from the huge question of mortgage financing, a couple of factors that your analysis leaves out are:
1. How many homes are not officially on the market but the owners are eager to sell as soon as conditions improve?
2. How many buyers are on the sidelines waiting for prices to stop falling so they won't lose their down payment in the first year of ownership?
These are tough ones to find data on, but I'm on the lookout.
What I find most interesting about the first chart (months of supply vs. price) is how much more pronounced the season variation in months of supply was until about '99 or so. Anyone know why?
I lick frozen poles.
Please ignore me.
My wife is retiring this year when school is out. I attended a reception for retirees on Friday and was interested that so many were really not looking forward to the experience. There comes a time when the job is too hard and it is time to go, but there is fear about the future and not the optimism of a few years back. The loss of home equity is a big factor and fear of medical costs. This is more of a thread bare boomer crowd.
Yeah, I think the homes on the sidelines thing is really significant and pretty impossible to quantify.
Ralph Cramdown, I thought that was interesting too and I don't have a good explanation. Maybe there is some inventory that isn't removed during the holidays (like investor units or 2nd homes) and other inventory that is removed. And there was less of the latter in the early '00s.
It appears the seasonal pattern has returned the last couple of years - but the line is going straight up, so it is harder to see.
Best Wishes.
If 12 months of inventory puts downward pressure on prices, then sellers can keep prices stable, or even make them go up, by refusing to sell. If enough sellers go "on strike," keeping their houses unlisted until they think 2005 prices are back, inventories will plunge to 1 to 3 months or so. (What am I missing here? The availability of credit!)
My feeling is that inventories are an indicator, but I'm not sure how good an indicator.
So maybe prices will flatten out when Months of Supply declines to 8 months or so.
CR
how high do you think inventory can climb?
The months supply for active listings in the San Fernando valley is around 10.4 it has been dropping due to the uptick in SFH sales. The condo market is looking very weak up here. And there is a lot more newly built condo supply waiting in the wings.
Unfortunately I don't have inventory data going back very far otherwise I could make a more localized version of the CR chart.
Effective Demand
Thanks for the info. Do you know how high the months of supply got?
Happened to save this link... the housing bill even has a national fingerprint registry:
http://www.openmarket.org/2008/05/23/fingerprint-registry-in-housing-bill/
Tim,
We hit 16 months a couple of times once last October and January of this year.
But the record was 20 months in the early 90's when aerospace left the area.
CR - "there is clearly more to the picture than months of supply"
It would be interesting to look at this at a more geographically granular level. As I recall, past housing markets tended not to peak/trough in a nationally correlated way. If the months of supply is concentrated in slumping regions, for example, while a shortage exists in a more heavily weighted boom region, you might see upward price pressure even with high inventories.
Another view, stratified by structure type (multi vs single family, primary residence, etc.) might also help explain.
In other words, a glut of condos in Miami may not clear, even if SF homes in Dallas zoom higher in price.
CR,
Your first graph is really compelling, hat tip! It sure does looks like the waiting seller is waiting for a lower price! And heres more support for the foregoing:
"Homes' Mispricing: Straight Lines!" at
Homes’ Mispricing: Straight Lines! / Futures
CR, great work, but take a day off! You deserve it.
El Cliffo wrote, ... sellers can keep prices stable, or even make them go up, by refusing to sell. If enough sellers go "on strike," ... inventories will plunge to 1 to 3 months or so.
But consider what the reasons are for homes being on sale:
In the first three cases, the owner has no choice but to sell or -- in some cases -- to rent. This will also frequently be so in the last case -- how many retirees who planned to downsize can afford not to?
Only in the move-up case and rich-retiree case does the owner have the liberty of taking the home off the market. But note that in the move-up case, taking one unit of housing supply off the market also takes one unit of housing demand off the market, and so has little effect on "months of supply".
Note also that renting does not really remove a home from the market -- it only transfers it to the rental market and increases supply there, giving potential buyers an alternative to purchase, slowing the purchase rate so that "months of supply" is, again, less affected.
(At bubble peak, there were only seven homes listed for rent on the MLS in my town, and none that I'd want to livel in. Now there are 90+, dozens quite good enough for me.)
There are several things that ruin one's ability to provide for a comfortable old age: the vice of spenditis (having to have what your friends all have and a bit more too); a disasterous family with a couple of deadbeat children that mooches on you and destroys your savings; reckless investments that go sour. If you stay single, live beneath your income, save the surplus, and invest wisely, you are okay. But how many can do that? People seem to think they have to get married and have families. They don't.
liked the months supply graph ... curious about the years leading to 1982 ... could we learn anything from them?
Nick, if Hussein Obama tries a bailout like you envision, you will see 50 on the dollar index and $6/ gas and 15% inflation. Good luck
But how many can do that? People seem to think they have to get married and have families. They don't.
Chris | 05.25.08 - 4:25 pm | #
They don't do it because they have to - most everyone does it because they want to.
A few regret but very few.
More are likely to change the look but keep the pattern (decide spouse no.1 wasn't the best idea but think spouse no.2 will be the bomb, etc.).
Single vs. 'attached' really doesn't factor in. You can make anecdotal cases both ways - single folks who squander & married folks who save. I certainly know some of all kinds. Same thing with happiness or unhappiness - I'm not sure singleness or marriedness is a major factor.
Its what you want to do that matters... so do it, whatever it is.
"If Obama wins, expect a bailout of monumental proportions; he's already basically committed to doing anything necessary to inflate prices again, and he's not at all afraid to tax businesses and the rich out of existence, and/or print unlimited currency, to do so."
...sounds like a great way to destroy a country.
..sounds like a great way to destroy a country.
gamma | 05.25.08 - 4:59 pm | #
Sounds like partisan GOP BS to me. But if it helps you sleep better at night - believe it.
The loss of home equity is a big factor and fear of medical costs. This is more of a thread bare boomer crowd.
Hanging by a thread | Homepage | 05.25.08 - 2:50 pm | #
That describes a good 4 out of 5 boomers I'd guess. There is only one strategy that will work for them - they will need to get small, real small, and as soon as possible.
I was in rural Wisconsin yesterday and there were small country homes all over - some for sale. I'm told many sell in the $40K-$60K range with enough land to have a pretty decent garden. Close enough to small cities to get health care & groceries.
Not sure what they rent for but told it was close to nothing - whatever that means. Probably means you can't cover the cost of buying them even if you buy them for only $40K... that's cheap rent!
I'd guess some of these kinds of places will become 'fall backs' when people get tossed out of their suburban palaces. My guess is the urban option will be too expensive for those really hitting the wall - too expensive to live halfway well anyway... I suppose there is always the option of 'the street'.
gamma,
Sounds great to me. I have PMs. Also makes sense. Clinton lost congress in 94 because he didn't kickstart the economy right out the gate in 93.
Whoever wins will need to keep stimulating the economy because 2010 midterms are only 22 months away, and they will likely lose congress if the economy is still craptacular....
...sounds like a great way to destroy a country.
Yep, just one of many. How do you like the way we're doing it now?
dryfly: Well the advantage in not being married is that you don't have two people making the decision and the resulting risk of disagreement when only one person is involved. It is like a business. Far better without a partner to interfere with your decisions.
Chris- I was on that track of yours for 4 plus decades and I was pretty happy. I said, "Barring catastrophic illness, accident, or marriage I'm pretty much set for life." Then I found someone who wanted to marry me. I knew what my life would be like without any change, not bad. But I figured it wouldn't kill me to try something else. It's not bad either. Now I've got to look at an uncertain future again, but I've never been afraid of the future. I don't how America has become such a timid nation. Everyone likes to believe we're the nation of tough guys, but we behave as if we're afraid of everything.
People respond to incentives. Tax that which you want less of, and subsidize that which you want more of.
And, if you want a severe shortage of something make it free for everyone.
Home prices will bottom when it makes sense to buy the home strictly as a rental. (ie when people can say, I don't care if the home loses value because I can still make a good ROI renting if I buy it now.) You can work backwards to figure the purchase price.
It is like a business. Far better without a partner to interfere with your decisions.
My business partner and I would probably have been all right separately, but together we've been able to acquire property in California and Hawaii, something neither of us alone would be able to do. But our partnership started based on a level of trust that I wouldn't recommend to anyone else. Our first properties were only in mine and my sister's names, he could have been hosed. It's his drive to make the money that keeps us growing, I would have stopped a long time ago on my on.
dryfly: Well the advantage in not being married is that you don't have two people making the decision and the resulting risk of disagreement when only one person is involved. It is like a business. Far better without a partner to interfere with your decisions.
Chris | 05.25.08 - 5:21 pm | #
Best yet then to live on an island all by yourself... NO ONE to disagree with you.
My wife & I have backed each other up almost perfectly over the 25 plus years we've been married. Believe me we disagree - its part of the 'collective decision process' we practice - not pretty but it does work.
My folks did it for over 60 years before they both passed away. My in-laws for almost 60 plus years now too & still at it.
I suppose if you're the type of person that finds it hard to compromise then going solo at everything makes sense. For most of us it doesn't. The vast majority of people do make some kind of relationship & back each other up.
Whatever works for you - do it.
However I don't see any relationship on how a personal relationship or lack thereof makes one thriftier or spend-thriftier.
Home prices will bottom when it makes sense to buy the home strictly as a rental.
Sort of. As Tanta pointed out, SFH are difficult to make money with, so rental rates aren't really a precise proxy, but yes, if you saw a house that you could buy for the same 'cost' you would rent for, why not? Your reward/risk ratio is fairly good. But because people are a lot choosier about where they would live as renters as opposed to as home owners, I think there is a disparity. That said, a lot of the old timers are expecting to overshoot a little on the downside. We'll see.
"If Obama wins, expect a bailout of monumental proportions; he's already basically committed to doing anything necessary to inflate prices again, and he's not at all afraid to tax businesses and the rich out of existence, and/or print unlimited currency, to do so."
McCain is a big bailout proponent also. The only real difference I see between Repblicans and Democrats is that the Replicans want spend like drunken sailors without actually raising the taxes to pay for it. This all but guarantees inflation and a dollar collapse at some point.
As somebody who considers himself fiscally conservative I find the Republicans an absolute abomination.
IMO you have to look to a 3rd world country to find a more fiscally "liberal" party than the Republicans.
(I'm fond of that age old idea of only buying stuff you expect to be able to pay for eventually.)
dryfly,
Couple of years back, a friend at work retired, sold his North New Jersey home and moved to upstate New York.
Since it is hard to measure aggregate (national) house prices, there's a wide dispersion amongst price index estimates. If the recovery from "the" bottom is slow, it is highly possible that some measures of home prices will bottom years before other measures. Thus, bottom calling will be highly subjective.
Anyway, I wouldn't base my housing call on housing-realted metrics (months of supply, etc.). Houses are generally purchased on a levered basis, and so the market will only be able to recover once lenders are willing to lend against housing. My gut feeling is that it will take some time before that happens, and lower house prices (to allow lower leverage ratios).
Minor tech quibble. I think you interpolated those data in 2000. (Extrapolation is a red flag word - interpolation is much more benign. Best not to worry your friends.)
Once again. Thanks doing all these data posts.
(I'm fond of that age old idea of only buying stuff you expect to be able to pay for eventually.)
But aren't economists fond of saying that dying in debt is the way to make sure you maximize your life's earnings? Kind of makes you want to keep economists away from your wallet, heh?
Yeah, when the GOP went from being the fiscally conservative party to the socially conservative party it was the beginning of a slippery slope.
the market will only be able to recover once lenders are willing to lend against housing.
Since there are loans still being made (albeit diminished), I know you have a more concise idea in mind,..care to expound?
dryfly -
If not believing in high taxes and destroying the "wealthy" makes me a bad guy in your mind, whatever. The problem in our country is spending and while everyone would like to blame the politicians (and they deserve plenty of blame), why don't they start by looking in the mirror? $1 trillion in credit card debt at 20% is nearly as bad as $10 trillion at 5%. And we've elected these bozo's and it's not just "Bush". What has the Democratic Congress done to fix things in two years - pass a bloated farm bill? If you want change, I'm sorry but I don't think voting for a LAWYER with two years of experience and the worst "no show" record of ANY Senator is the way to go.
I've said it before, I'm a conservative libertarian and I think America sunk itself in it's desire for change when it blew off Ron Paul. I think Ron Paul's mistake was running as a GOP instead of an independent.
Let me add that I'll likely vote for which ever candidate has the good sense to bring David Walker on as their VP running mate. Unfortuntately I think BOTH candidates are too STUPID to do so. They'll go for whomever will garner votes. Who cares about doing the job well, just get the job so you can feed the ego, collect the paycheck, write the book, and make speeches for $1mm a pop when it's all over. And after all, who the hell is David Walker???
"Whoever wins will need to keep stimulating the economy because 2010 midterms are only 22 months away, and they will likely lose congress if the economy is still craptacular...."
Don't be fooled by this sort of concern trolling. The variables affecting 2010 are going to be interesting, but I wouldn't be so pessimistic. The Republicans are very weak (and deservedly so). The roots of the financial turmoil are firmly planted in the Bush years. Obama has the ability to use the bully pulpit, and might actually hire competent economics and domestic policy people, and be able to give a credible assessment of the state of the nation via the bully pulpit.
Sure he might crash. But a McCain presidency is as certain a disaster in the making as a Bush one looked in 2000. (And that is a reason for pessimism given that election's outcome.)
CR,
IMO 1987-1989 was more localized and one wherein housing weakness followed economic weakness.
A chart showing prices, supply, GDP growth & the employment rate could be intriguing.
dryfly:
What part of WI? I'm in Central (portage co) WI, and monitor the local MLS. From what I'm seeing, house prices have not changed that much, and inventory is about 10% of last year's peak?
The only thing that has fallen in inventory, are parcels of land (>20 acres)
Thanks!
The cover story in this week's Economist is the rise in global inflation - especially in emerging economies where food and energy are highly weighted in inflation indices.
They make a statement that I found interesting - by this Summer, 2/3's of the world's population will be experiencing double digit inflation.
True US inflation is probably about 7% which is a 24 country average I saw recently. How long before we get to double digits?
House prices could level off or even rise in nominal terms with enough inflation to disguise serious real price declines. Perhaps that is the plan. Inflation is the only mathematical solution I know to the current situation although the dollar would be trashed (but then so would foreign debt in dollars - so sorry Chinese savers).
Jim
NC Jim,
Not to sound like a broken record, but a high CPI minus equivalent wage increases is a huge negative for housing. The more money you spend on food & energy the less you have for a home.
The only inflation that matters to home prices is wage inflation, and we just don't have any of that.
The roots of the financial turmoil are firmly planted in the Bush years.
LMAO! This country was on the road to ruin well before Bush came into office; he just greatly accelerated the day of reckoning.
Not directly on topic, but I wanted to mention what's certainly been mentioned before: the similarity in geographical distributions of The Housing Mania, gas prices, and the voting for Red v. Blue.
I enjoy sites like this and avoid DailyKrap or ReactionaryEconBlogs; here you have people who would vote for The 3rd Way if given a chance - and that would make about 1000 different 3rd Ways.
But I wanted to give those dozen still reading some red meat for the big BBQ tomorrow. From a central Floridian, there's no chance this side of Florida freezing over that BO will win this state. I don't know Ohio intimately; however, I'd guess the odds are similar. And it's probably true with most Purple states. It's because he's a goddamn uppity black man and most unprivileged white males see this as an attack on their quality of life. Call it racist, call it living in Dixie. But they vote, esp. against uppity black men.
I'm so thankful this charade lasts only 5 more months.
Now they're tryin' to take my guns away
And that would be just fine
If you take em away from the criminals first
I'll gladly give ya mine
And I don't mind payin' taxes
But it makes my temper itch
When my hard earned money goes
To make some politician rich
What most people call a redneck
Ain't nothin' but a workin' man
And he makes his livin'
By the sweat of his brow
And the calluses on his hands
Now you intellectuals may not like it
But there ain't nothin' that you can do
Cause there's a whole lot more of us common-folks
Then there ever will be of you
- The Charlie Daniels Band - What This World Needs Is A Few More Rednecks
"sdtfs writes:
the market will only be able to recover once lenders are willing to lend against housing.
Since there are loans still being made (albeit diminished), I know you have a more concise idea in mind,..care to expound?"
Sloppy phrasing on my part. Should have said "willing and happy" to lend against housing.
Obviously, some lending is occurring, as you point out. But as much as possible is being funneled through Fannie & Freddie (and other programs) so that the mortgages get guarantees (from "too big to fail" entities). There are limits to pipeline that Fannie and Freddie can handle.
Otherwise, nobody is happy to have the mortgages on their balalnce sheets, and so mortgage lending growth is likely to remain weak.
What part of WI? I'm in Central (portage co) WI, and monitor the local MLS. From what I'm seeing, house prices have not changed that much, and inventory is about 10% of last year's peak?
SE of the Twin Cities - I live on the Minnesota side but was visiting friends across the river overlooking 'Lake Pepin'. Very nice.
There are properties for sale over there but I don't watch the market real closely. But I do know if the properties are within easy commute of a larger city (Minneapolis - Madison - Milwaukee)... or if on water or have a spectacular view... the values hold up pretty well and do sell. I'd guess there are a lot of those kinds of places near Portage (either easy commute to Madison or on or overlooking the Wisconsin River).
However I'd bet like out here there are lots of older very inexpensive rural properties that go for almost nothing. If retirees really get desperate - there is always that option. I don't see those places ever getting expensive - not ever.
The drop in home values is neither temporary nor nearly as great yet as it will likely become. It will follow deteriorating demographic support just as public school closings did in the late 80'a when there was a lull between boomers and gen X. Boomer parents moving to co-ops and assisted living & dying. Boomers stuck in their digs indefinitely. Many will need to sell to salvage a little equity before it's gone since they have no retirement nest egg. Price is a measure of urgency. The urgency to sell will increase with the urgency of retirement and the urgency to escape prime ARM resets. The upcoming avalanche of prime ARM resets will be three to four times in number as the subprime ARMs that existed in 2006. The rate resets won't be so extreme, but there will be no way for many to refi due to CLTV problems. Many wwill sell if not upside down. Will we need a Fannie Mae Secure program like FHA Secure for subprimes? Meanwhile as prices keep deteriorating, the walk aways, foreclosures bankruptcies and bank failures will skyrocket. There are probably only one half the number of qualified borrowers now as there were in 2006 due to the near total disappearance of sub prime loans, Alt A loans, second mortgages, and any type of reduced doc underwriting with reasonalbe rates for any but the most well qualified who don't need it anyway. I don't see anything at all to stop this trend anytime soon. Nice try with FHA Secure; that might slow the trend for a few months, but that won't do the job once the prime ARM resets hit hard (coming very soon). A chaotic and deep depression is inevitable.
El Cliffo wrote, ... sellers can keep prices stable, or even make them go up, by refusing to sell. If enough sellers go "on strike,"
As jm correctly noted, there are always a number of owners who have to sell.
But note also that nobody has to buy. Ever.
That's the crucial asymmetry. All it takes is for people to decide to stop buying for prices to completely collapse. It's the buyers who have the strike power, not the sellers.
Great! a buyers' strike! But where will people live while they are on strike?
It's true that while people must live somewhere, they do not need to buy. They could rent (from someone else who buys).
Buy your own house or rent one from someone else. Either way you occupy (demand) a housing unit.
But where will people live while they are on strike?
Wherever they are now, of course!
Wherever they are now is an existing housing unit. Generally, when someone buys a home they move from one unit to another, causing no net increase in units needed.
It is not the act of buying or renting that ultimately drives fundamental demand. It is the increase in households/population that drives the need for more housing units.
Right now we have an excess supply of housing units. If the builders stopped all construction for about one year the excess would be gone. At the current pace of building it will likely take a few years to clear the excess.
El Cliffo:
Are you suggesting a homesellers cartel?? Wouldn't that be illegal-"In restraint of trade"??? Just thinkin.
OTOH the banks could already be doing this by not listing REO properties. Collusion would probably be most effective at a local or regional level.
OK, I'll flip the meat on that BBQ grill...
I'm a middle aged white guy who takes issue with "red necks" like Anonymouse above. Folks who think and feel like this keep themselves uneducated and uninformed on purpose.
Why? I (and many educational scholars like John Ogbu) think it's because they are afraid of failure. So they don't try, choose to fail, and make failure a cultural art form to give it some lame legitimacy. That's un-American if you ask me.
Red necks and inner-city gang members have far more in common than they'd like to admit. Why educate yourself and compete with your mind if you might be shamed and defeated? You can act tough with a big truck or a gang behind you or a gun or a drug business...but you're still just a little frightened boy inside.
Obama or whomever comes into that job really has to be strong in not legislating from hate and fear this next go-around.
Someone above had it right when they said americans are supposed to be the toughest and most resilient people and are acting like wimps. I say let's start acting like Americans.
It's all about affordability and being able to get a loan.
I am sure if lending was still lax we would still have plenty of homedebtors buying.
Now with the cost of living soaring , I will adjust this in my home price bid. It must now be factored in.
Means even lower home prices.
What else will go done?
Energy food taxes?
No home prices will tumble.
I am truly worried about the country. The dollar could acclerate its decent.
Housing Months of Supply
Anyone else have the feeling that this is a bad indicator to look at? If the amount of inventory were to come down and house sales were to pick up you could see this indicator change very quickly.
With that said, I believe the only appropriate way to look at this indicator would have to factor in the actual inventory number and actual sales number.
For example: 8 months of supply with 2.5 million homes in inventory and 3.75 million in sales.
It's unfortunate that year-supply is the only series running that far back. Because that's near the low point for the selling season, it's the least significant part of the year for numbers. Even more, because it's at the begining of the dead zone, it would seem to be susceptible to big swings if sales from November are running slow.
If you want some holiday entertainment, go to the Zillow.com site and look at houses for sale in old Palm Springs. Say on Via Lola. There seems to be no end of places for sale and lots that I checked are asking four, five times estimated value. One estimated at around 2 million asking 9. Another estimated at 1.4 million asking 6.5. I guess Lala landers with weekend places in PS are looking to unload, but I doubt sales are very fast, if there are any at all. I inquired about one place and get an answer from the realtor in minutes. I smelled desperation.
The mistake Kudlow made is in comparing flow of one item with stock in another. Start by supposing (just to make it simpler) that he had been correct about housing starts not increasing over the last 30+ years while the number of households has increased greatly. So what? Total households represents the summation of all past increases/decreases to one parameter, while housing starts is the yearly gross increment added to another parameter. It's apples and oranges time again.
By way of analogy, you can indeed save money up over a lifetime even if your real earnings never increase. By Kudlow's logic that's impossible, since your annual savings would be the same over all those years while the cumulative savings have increased. That's the kind of argument he made about the housing supply in relation to the number of households.
Oops.. posted on wrong thread. This was supposed to refer to the Kudlow thread.
"As much as I'm bearish on housing, I think housing will probably have bottomed out by the end of 2009. There will be huge political pressure on the next president to stop housing price decreases, at any cost."
If this is true, some of us will be renters forever since a bailout in housing prices does NOTHING to fix the fact that housing is grossly unaffordable. Here in Maryland, 5 times median household income is typical, and you'll find housing up to 10 times income without problems. Incomes are NOT going up, so keeping prices at these levels will simply force much of the next generation permanently out of the housing market. Maybe that's what they want, but it is a bitter pill to swallow if one is a "sucker" who believes in only buying what one can afford.