patrick.net

I think there is going to be a big panic ( try to) sell period here soon. I don't really know data. I just think I really know humans.

And on that note, I think that we’ve still got some nominal and inflation-adjusted downward price correction ahead for the next few years. I think it will come in the form of steady, seasonal arcs down post summer, where YOY values continue to slide. Not necessarily all markets, though, as some seem to be bottoming (flattening) out now...

Which is what I think is happening now, except that there was an unexpectedly strong slide last fall that continued through this spring due to momentum from the tax credit expiration.

And the pent-up need to sell in many markets should provide some degree of resistance to nominal price increases over this period relative to pent-up buyer demand.

A single month of positive prices from the Case Shiller is NOT going to cause of a wave of houses to hit the market.

If it were November in a 'regular' year I might agree. It is July in a year that has seen remarkably low sales volume and inventory (at least in some areas).

I also think nationwide houses will drop more. I think certain good zip codes in the Bay area will go up.

Where are the super high wages to prop up home prices? The tanking of home prices continue, not even 0% mortgage rate can prevent it.

Whew! Value like beauty is in the eye of the beholder.
The value of the dollar is merely what needs and wants it buys.
If that dollar is borrowed it merely is what my "buying" it (borrowing) to buy what I need and want "buys" given sensible expectations.
I need shelter and if shelter were all there were to living, I could buy shelter without borrowing any money and without spending much either. This is what those of you who advocate renting recommend. Great!
However, some of you here and in many of your responses to "buying a first time house in horrid economic times" seem to confuse needs and wants.
I want to add to my modest needs pleasures that I can afford with my past good fortune, even if I have to borrow money to afford them, so long as I can prudently pay off the mortgage or the common costs of the shelter and taxes.
I am "rich" if I have modest wants and sufficient income regardless of the economy.
I am "rich" if I have a shelter from the weather, sufficient food and water to live on, and sufficient social interaction to keep from feeling lost and alone.

The worth of present or future dollars seems to be like the present or future weather. True, each could be horrid and we may be underwater both financially and literally as the economy tanks and the oceans rise. However, can we live moderately and prudently based on such dire future expectations?

Some of you take pleasure in being prepared for the worst case scenario. Great!
I prefer to take prudent chances and accept chance as throwing both good and ill fortune.

I do not know the future, but I do see that it is not that much different from the past. I am in contract to buy a condo, I expect I will see a lot of prices go down in the hood and maybe even in this 13 unit building, but it is a place that meets my and my family's needs and it is what I and my family wants. Could it be a huge mistake that many of you can then say I told you so. Yes.

I am going to take that risk, knowing full well that deflation is not something we are familiar with.

Stability too is in the eye of the beholder.

A bird in hand, a shelter in hand, is worth more than a thousand future good deals or birds so long as one can keep the bird one has alive?

0% 30 year mortgages to fix the property price decline?? NOPE
High paying jobs to fix the property price decline?? NOPE
NINJA ALT-A Interest Only Pick a payment loans to fix property decline?? NOPE

There will NOT be a property price increase without financing that allows for the transaction. Since most financing 04,05,06,07 was fraudulent and is not coming back, neither are home prices.

I'm usually in total agreement with this housing bubble and have been resisting temptation to buy a house here in LA. However, one thing that gets frequently ignored is what about those pockets of highly desirable areas (like Santa Monica or Palo Alto) where incomes might be going up (due to in-demand jobs like tech) where salaries might have gone up. Prices in those areas are still way higher then they were in 2001. But, is it still worth it to pull the trigger and buy a place if you can clearly afford it, know you'll have a enough savings left over, and you get a 30yr fixed knowing you'll be there for 10+ yrs?

Are the millions of house owners 90 days delinquent on their mortgages among those "pent up sellers" ? :)

by fall 2011 or sooner, we will be in 2nd phase of credit crisis. Spawned from Europe, and contagion of banks, look at the banks now, they are screaming trouble, that will of course mean lower house prices, i know this is out and off topic... but housing prices will be 25%-40% lower nationally surely by 2015 if not sooner mark it and lets read in june of 14 and 15

Cvoc13 says

they are screaming trouble

Crocodile tears. They are not making money for sure, but not loosing, thanks to congress.

Cvoc13 says

but housing prices will be 25%-40% lower nationally surely by 2015

I agree.

This is just like a scene from Black Hawk Down.

Marines: "Serg, the skinnys are shooting at us, what should we do?"
Sergeant: "Well,... SHOOT THEM BACK!!"

It is so obvious and such common sense... If Buying make sense to you, then BUY IT.

sashi says

I’m usually in total agreement with this housing bubble and have been resisting temptation to buy a house here in LA. However, one thing that gets frequently ignored is what about those pockets of highly desirable areas (like Santa Monica or Palo Alto) where incomes might be going up (due to in-demand jobs like tech) where salaries might have gone up. Prices in those areas are still way higher then they were in 2001. But, is it still worth it to pull the trigger and buy a place if you can clearly afford it, know you’ll have a enough savings left over, and you get a 30yr fixed knowing you’ll be there for 10+ yrs?

Case-Shiller oh let me think for a minute. Nope. Not by them. Really you have to react locally. You can't realistically take a nationwide study and apply it to your local situation.

True it is a squeeze now. Thing is ask a realtor how things are going in your area. You don't want to put and pull your house from the market.

If they do flood the market. Well then. Probably not much is going to happen at this point. So all they can really do is hang on or be happy where they are.

The rates I guess are good. That should make it easy on some payments. However the job market sucks and that about says it all.

forthcoming increase in interest rate is going to continue downward pressure on the market. historically, pricing and interest rate generally fall in line as an inverse of one another.

if you are a first time buyer, it's all about your entry point. on one hand, interest rates are low - so it's real tempting to jump in now (as i did). however, as the interest rate goes up as it undoubtedly will in the near future, housing prices will go down.

i got an amazing deal by any standards, but that's because the owner died and the kids are morons. funny thing is, i'd still probably be better off in the long run waiting for the rates to spike and then jumping in as the prices fall in line. remember: you can never change what you paid for a house, but you can always change your mortgage rate.

i agree with patrick - anyone who's SMART will sell now and get what they can get, ESPECIALLY those looking to move to a different area that might have been hit harder by the crash than the area they currently live - such as retiring baby boomers who comprise a whole lot of sales out there right now.

illegalgardener says

pricing and interest rate generally fall in line as an inverse of one another.

Except they don't.

I just heard about the "fire sale" Fannie and Freddie has going on now thru July 30.

Wooo hoooo !! All those pulled forward sales will ensure a great autumn full of falling leaves and house prices !

Seniors who own homes (at least here in my town in the midwest) are going into assisted living or independent living and leaving their houses vacant but taken care of. There are three houses within a block of me, the oldest vacant from 2008, the rest 2009. Pending are two more with owners in their mid-80s. Toss in a foreclosure every other block that's in the shadow inventory and no "For Sale" signs within two blocks, what do you have? A recipe disaster. First person to the lifeboat wins!

"forthcoming increase in interest rate is going to continue downward pressure on the market."

Can we PLEASE stop talking about rising interest rates? People hae been literally spewing this stuff since 2007 and the great increase in rates has yet to occur.

HousingWatcher says

Can we PLEASE stop talking about rising interest rates?

We can, but can we talk about how governmental entities are doing everything they can to keep interest rates down and how anyone who studies these things knows that they must come up at some point? Interest rates are artificially low right now, and the current bets that people have made suggest they won't come up until at least summer 2012 because the Fed wants it that way.

I believe the suggestion by tatupu is that a growing economy results in rising interest rates to stem inflation, but the 1970s is a good counterexample. The way pricing and interest rates oppose each other is that they tend to work that way when people are focusing on their monthly payment. However, if the economy is growing, credit may be more freely available and people may feel more confidence in their earning ability, so it can go up together or down together too.

So many on this site behave as if the housing market is merrily lolling up and down as always. If you have the temptation to assess the housing market and whether to get a mortgage based on something 'local' or based on your salary now and 'projected' ten years into the future, you'd better bone up on the term "PIGS" or "PIIGS". If you don't comprehend Greece, then you have no business buying a house. If you don't know how many more dollars exist now than did 3 years ago you have no business buying a house. If you think we're even scratching the surface of how bad the entire world economy is going to be 5 years from now then you are in no position to make a life-changing decision like buying a home. Look at the price of that home. If 5 years from now the theoretical value of it is 30% lower except that there isn't anyone able to buy it at that price and virtually every industry has had a major pull-back, and your grocery bill is 50% higher than it is right now and gasoline is $6-7 a gallon, aren't you going to be proud of your decision to jump on that bargain?

corntrollio says

I believe the suggestion by tatupu is that a growing economy results in rising interest rates to stem inflation, but the 1970s is a good counterexample. The way pricing and interest rates oppose each other is that they tend to work that way when people are focusing on their monthly payment. However, if the economy is growing, credit may be more freely available and people may feel more confidence in their earning ability, so it can go up together or down together too

I don't disagree with that statement, but I wasn't really trying to explain why it happens. Just to set the record straight about what has "historically" happened. If you look at a chart of interest rates and nominal home prices over time, there is very little correlation.

tatupu70 says

If you look at a chart of interest rates and nominal home prices over time, there is very little correlation.

Yes, I don't disagree -- it's hard to see the correlation. I was mostly explaining your comment.

Right now, I do believe the excessively low interest rates are having strange effects on our economy. The reality is that if we had "market" rates of interest for housing, the rate would have been higher, because usually the 30-year fixed rate is based on 10-year Treasurys plus a margin for risk. The margin for risk would have been quite high during parts of the last few years.

It is inevitable that interest rates rise. Banks will not be the only business that has zero cost of their raw material, capital, forever.
When interest rates rise, this should depress house prices a bit more.
It's like gravity, you might not like it, but it's the law.

tatupu70 says

corntrollio says

I believe the suggestion by tatupu is that a growing economy results in rising interest rates to stem inflation, but the 1970s is a good counterexample. The way pricing and interest rates oppose each other is that they tend to work that way when people are focusing on their monthly payment. However, if the economy is growing, credit may be more freely available and people may feel more confidence in their earning ability, so it can go up together or down together too

I don’t disagree with that statement, but I wasn’t really trying to explain why it happens. Just to set the record straight about what has “historically” happened. If you look at a chart of interest rates and nominal home prices over time, there is very little correlation.

since 1990, the divergence is blatant. prior to that, it's not as black and white as i made it seem, so i understand why you corrected me - but i believe there is, and will continue to be a significant correlation in the coming years.

this next year in a snapshot: high unemployment, ridiculous supply between the loads of foreclosures actually hitting the market and tons of baby boomers flocking away to retirement communities, tighter lending standards, zero government incentives, and rock bottom buyer confidence. add higher interest rates to what is already going on, and it looks like the perfect storm to me - and it's going to continue battering this country for a long time.

and although i can't prove it until my house goes to closing.... i am certain that the housing prices are inflated by anywhere from 1-3% just because of the way NAR reports the sale prices, which INCLUDE 'sellers concession'. if you negotiate a price of 300k with conditions that include the seller paying closing costs of 10k.... then the owner only got a net of 290k for the house at the closing table. however, the sold price will still be listed at 300k regardless - and i feel that is a deceiving practice, especially as realtors represent what 'comparable' sales are in any particular area. the only two questions i have are, when did NAR start doing this, and what % of homes sold incorporate closing costs into the deal?

regardless, anyone who's hanging on to a house solely because they think things are going to get better soon is going all-in with a weak hand. you'd think they'd be admitting defeat, cutting their losses and moving on, or in many cases just walking away - but instead it seems a good amount of what's on the market right now in my area is priced two years behind itself, and will sit and rot accordingly as they chase this thing on the way down.

clambo says

It is inevitable that interest rates rise. Banks will not be the only business that has zero cost of their raw material, capital, forever.
When interest rates rise, this should depress house prices a bit more.
It’s like gravity, you might not like it, but it’s the law.

Inevitable might be a LONG time though. Look at Japan....

I don't understand why posters here are so sure that rates will rise in a bad economy. That would be highly unusual.

tatupu70 says

I don’t understand why posters here are so sure that rates will rise in a bad economy. That would be highly unusual.

when debt to GDP was ~0.3, the Fed could monkey with interest rates.

Today, not so much . . .

http://research.stlouisfed.org/fred2/graph/?g=Yj

We've got a $10T debt soon, assuming the limit is raised. A 100bp rise in gov't borrowing cost would put us another $100B/yr in the hole, $1000 per household.

Pain train is coming.

Troy says

Pain train is coming.

Yep, sit tight.

illegalgardener says

and although i can’t prove it until my house goes to closing…. i am certain that the housing prices are inflated by anywhere from 1-3% just because of the way NAR reports the sale prices, which INCLUDE ’sellers concession’. if you negotiate a price of 300k with conditions that include the seller paying closing costs of 10k…. then the owner only got a net of 290k for the house at the closing table. however, the sold price will still be listed at 300k regardless - and i feel that is a deceiving practice, especially as realtors represent what ‘comparable’ sales are in any particular area. the only two questions i have are, when did NAR start doing this, and what % of homes sold incorporate closing costs into the deal?

A lot of things like that screw buyers. For example, you ignore the fact that you're paying 5-6% in brokerage fees because you rolled that into the loan. So now you're paying 4-9% interest over 30 years on that fee. Then, on top of that, you're paying taxes on that amount because the city or county values your house based on that extra fee.

However, what is reported on MLS by realtors doesn't always match what gets reported on county records. It depends on how the deal is structured. For example, some people who pay cash will request that brokerage fees, closing costs, and offsets that would ordinarily be rolled into the loan be removed from the total when reporting. When you're signing up for a mortgage, that's not always the case.