Houses need downpayments:
A Look At Long Term Stock Valuations - Market Movers - Portfolio.com

A Look at Long-Term Stock Valuations

Rob Bennett emails to tell me about a handy little tool he's constructed, which looks at stock valuations and calculates what kind of real return you can expect to get from investing in US equities over the next decade or six. The tool is based on one of Robert Shiller's favorite indicators, P/E10, or price to previous ten years' average earnings. Here's how P/E10 evolved between 1881 and 2006:

i grew up in japan so i saw it first hand, the 100 yr mortgages.. i told the story of a decade+ japanese re decline to a perky local mortgage broker the other day... i think she's going to look for another line or work after that...

Hey slow down,
Thanks for that link. There is a whole lot of data simplified in the PE10 data. Cycles, reversion to mean, accounting oversight. A very quick look, heads up snapshot...

Common people, you are way too pessimistic..
Just look at the major financial news outlets. We have hit the bottom, it is official. From now on, the only way everything moves is up____NOT.

Vake- the speech is not sync with the video.
At least on my computer. Very annoying.

We are seeing it here in Phoenix. Just toured Vistancia yesterday to preview some auction houses. Starting prices at 50% for the auction. It will be curious to see if T.W. Lewis has reserves or is willing to let rip. I guess his balance sheet will dictate. A lot of knifecatchers are out there right now, but financing is becoming difficult.

Of course, high end financing is becoming obscene, as LawyerLiz pointed out yesterday.

Much more air under the curve.

Someday this war's gonna end...

The consequences of cheap loans were stunning. Soros notes that U.S. homeowners financed a $9-trillion spending spree as their house prices rose by 50 per cent from 2000 to mid-2005. By early 2006, money extracted from home equity by mortgage extensions made up 10 per cent of U.S. disposable personal income. Cheap money drove up the prices of houses and told owners that the debt they incurred in borrowing against their houses would be covered by price appreciation. When the music stopped, house prices fell. Banks seizing houses that backed loans in default found they had assets worth less than their loans. They had to write off their losses, and the balloon of cheap money driving a huge structure of debt and financial instruments burst.

Soros is a partisan. "Only a Democratic president can be expected to turn things around and lead the nation in a new direction," he writes. Monetarism, the policy of managing the economy by controlling the money supply, is what Soros calls "a false doctrine," a point with which Stanford agrees. Soros urges the Fed to regulate lending ratios in order to control mortgage securities that have so far been unregulated, and to create an exchange for many currently unregulated financial instruments. The Soros prescription is to corral the bad loans, liquidate inflated credit instruments such as packages of other packages of yet still other packages of dubious loans, and then set limits on the creation of these toxic and, it turns out, explosive assets.

I live in NYC, where there is LOTS of denial that prices can go down. People are still asking $1million+ for a 1 bedroom and the sellers aren't budging even though their apartments sit unsold. There's a mentality of "Well, this is New York, so SOMEBODY will pay the price."

A couple of comments regarding the SF Chronicle article:

• Christopher Thornberg has been quoted more and more around the Bay Area lately. He was on the local public radio station a week or two ago for an hour long segment. A year or two ago you might see his "pessimistic" views mentioned, but they would be "balanced" by 3 or 4 of the optimists (NAR, etc.)
• If you look at the comments section that follows the SF Chron article, you'll see very few bulls. Most posters sound like they're very familiar with the arguments and views we've been reading here at CR for years. Again, a year or two ago, the bulls and bears were more evenly matched in that venue. Now, the bulls seem to have just disappeared.
• The local paper for Marin County (Marin IJ) is still doing its best to maintain the "it's different here stance" -- or at least the IJ finds realtors that spout that line of thinking. One of these days it's going to dawn on these realtors that fewer transactions are not good for them. For example, in May 2008 there were 167 SFR's sold in Marin County. In May 2004 there were 312 sold. But our median price hasn't fallen as much as Sonoma County's, so . . . .

Another comment regarding my admittedly small neck of the Bay Area (a sub-area of Marin County).

In the area I'm watching, houses go for between $700,000 and $2,400,000 (well that much at the peak in 2005). At the lower end, you're seeing some foreclosures and short sales (but not many) that lower their prices quickly and sell. Other motivated sellers at the lower end drop their prices and sell. Others stick with "their price" and just linger on the market -- some for over a year and counting.

At the higher end, you don't see nearly as much foreclosures or must-sell pressure, but those that want to sell drop their prices. Those that don't, they just sit.

The most interesting phenomenon I've seen is a couple of houses at the high end start at $2 million and sit, then progressively drop to about 1.7 million and sell.

But that was 6 to 9 months ago. Since then a couple of comparable houses have come on the market, and they weren't greedy -- they listed at 1.7 million. But time has passed, suckers. That's not the selling price anymore. So they sit. I can imagine the sellers saying to each other, "But our house is just a good as those other ones!" True enough. But buyers want price cuts. Stick with your price, sellers. Go ahead. Buyers will wait, and time is on their side.

In descending order, the top five in the report are: sales representative/business development; software design and development; nursing; accounting and finance executive posts; and accounting staff positions.

"During this critical period of economic slowdown, these are the professionals who have been least affected by six consecutive months of job losses in the United States," Rob McGovern, CEO of Jobfox, said in a written statement. "Difficult times, unfortunately, are already here for many low-skilled workers. However, Jobfox continues to see aggressive hiring activity for many critical positions."

Good sales representatives remain in high demand as companies battle for revenue and market share in a sluggish marketplace, according to the report.

As baby boomers age, the employment outlook remains strong for nurses. Tougher accounting and auditing regulations are mostly responsible for continued growth of accounting and finance functions.

"Competition is strong for the best job openings," McGovern said. "The key to landing the top positions is combining cutting-edge experience with important soft skills such as people development and project management."

The technology sector has the most recession-busting professions in the Top 20, including testing and quality assurance, database administration and technology executive.

Despite the real estate slump, assessed property values in San Diego County rose 4.6 percent this year or $18 billion to a new high of $409.3 billion, according to the county assessor's office. That's more than double the $195.4 billion in 2000 and more than triple the $123.7 billion total in 1990

@Bob,

These new luxury condo towers in SF started taking non refundable deposits in 2005 with expected completion dates of late 2007 and 2008 (even later for some of the towers). SF residents snatched up the chance to get in at "pre construction" prices expecting SF prices to continue to soar forever and ever.

The fun thing is to go onto craigslist for the bay area and see how many of the studio and one bedroom contracts are being offered up for others to take over. Clearly a lot of these buyers of the studios and one bedrooms never planned on occupying the units but were hoping to rent or flip them but with prices declining and financing becoming harder they are getting stuck.

Large number of Bay Area stranded high end homeowners purchased during the 99-2000 dot.com period. I know several folks that put their home up for sell 2004-05 and still could not get bidders to bite. The recent mania has been in the lower bay area home price range while the dot.com era spawned large amounts of cash that was used to buy into the best neighborhoods.

I noticed, while pulling the meat out of this mornings paper, that half of it still RE ads for giant "luxury" houses, complete with giant glamor shots of the associated agents- the paper: Press Enterprise (SW RivCo). We have a lot of ugly RE, and RE agents here...

I am really going to enjoy falling prices in high-end neighborhoods. More than a generation of brokers in much of the country--especially at the high end--has never seen true price declines en masse, so who can blame them for not even being able to process the possibility. It's like the six-minute abs scene in Something About Mary.

My wife met with an agent last week in the SF east bay (Alamo), who tried to convince her that houses were holding their value in a specific neighborhood we are looking. Which is technically true, unless you consider that of the dozen or so houses that had come up for sale over the last six months, nothing had actually SOLD.

My sense is that the market is simply not clearing in many higher end areas. Sellers are in denial, and if they do drop their prices, it is often too late - ie, after buyers have already mentally discounted further. True, there are still a few sales at wtf prices, giving the realtors hope - but the macro trend is clearly down.

Greg, to your point:

My wife and I are staying in a very imperfect rental in Silver Spring until prices in Dupont and Capitol Hill deflate from the current 15-25% reduction off the peak to a third off. We can wait as long as it takes, and if it doesn't happen, we can look at Rockville, Van Ness, or the best Silver Spring areas and adjust our plans. We have grown to like our spartan existence, and are daily grateful for not having to suffer through the anxieties and losses of some folks we know. Every month, we get stronger while the market gets weaker. We refuse to catch the knife, and we know we have the better hand in the game.

So we agree with you, and with the fundamentals of consumer economics in the long run.

DCBeacon - thanks, I think your phrase "the fundamentals of consumer economics" hits it quite well. I've had the discussion with a friend in near-Maryland (who in this case is there for the long term and doesn't care because it's for his kids and a big step up from where he was before), too. He eventually allowed that at some point the price differential between e.g. near Maryland and e.g. further out (as those fall) would of course eventually induce some (and if largee enough, even him) to move/choose when moving anyway at the margin, which is pretty much the main point. I mean, people moved to those terrible monster developments in Leesburg because they were getting "more for their money", even after commuting time and costs, and it works in both directions.

There can still be lots of consumers that won't move, but you only need the few who sell/the few who buy in a different area to convert the unrealised price differential into the realised price differential.

"Tony" neighbourhoods have one notable advantage, which is that they are marginally less likely to sell in forced circumstances than others. That's a factor that primarily delays the fall, but does reduce the likelihood of liquidation sales a bit.

On the other hand - which rarely gets discussed in the media - high-end ownership properties generally suck as rental properties. My theory is that this makes a "yield bid" (based on pure rental return) far less likely to place a floor under prices. Which of these effects dominate is entirely unclear to me.

The thing that concerns me about the DC area (mostly VA) is that the close in areas inventory is falling just as fast as the far out inventory. The biggest glut of inventory was summer of 06 - now its about 20% off that pace.

I continue to hope that alot of the inventory is hidden and that it will come on the market soon. Problem is that each month goes by and that inventory doesnt show up, I am beginning to think it may not be out there.

This data and the associated article are bullshit. Prices have not gone down in the SF bay are. Maybe in Solano Counties and in Gilroy, El Sobrante, etc... But those places, I hate to break it to you, are not in the SF Bay Area. Wake up and smell the coffee people! You are being fed the same amount of misinformation to the downside as there was on the upside. The problem for the media (and CR apparently) is that the truth lies somewhere in between and is much more sanguine.
Don't believe me? Try and buy a house in Palo Alto for less than a $1MM. (East Palo Alto doesn't count -- go visit the city some time if you don't believe me.)