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1   solver   2011 May 15, 2:41pm  

Holy Smokes. It looks like we've got a long way to go still. I only hope we do not drop equal to the times of the Great Depression.

2   ohomen171   2011 May 15, 9:23pm  

We have a long way to go before prices bottom out and we start to see a recovery. I refer to a recent article that Patrick showed on his daily report. It was from Deutsche Bank. It predicted a further 40% drop in New York state housing prices. They did not comment on California but it will be worse. I saw my condo in San Jose drop from $415,000 to $269,000 to $90,000 and that is not the bottom.

3   istt   2011 May 16, 12:20am  

What doesn't make sense is incomes are not falling precipitously. Therefore, most houses are already getting quite affordable. I just can't see house prices falling much further.

4   sagedragon17   2011 May 16, 1:12am  

Income isn't falling? I want to move where you are. Wages are at best stagnant. But when you factor in the high unemployment levels )(approaching 20% - ShadowStats.com) the aggregate amount of income available for mortgage servicing is a shrinking phenomenon. Add to that the higher deposit requirements, higher credit scores and bank reluctance to lend and it's housing prices headed for the cliff as far as the eye can see.

5   JAWS   2011 May 16, 1:34am  

We're not there yet. Still more to go to return to the mean.
However, as a realtor in Las Vegas and Long Beach, both buyers and sellers are stir crazy. Buyers want to buy now and don't mind if they lose 10% down the road; they're in it for the long-haul. Sellers are ready to move down.
Sellers are telling low-balling-cash-carrying-bubu's to hit the road. They're accepting offers from a buyer who they want to live in their house. The bubu's of the world can throw their cash at the house but the seller just says nope.
This is just cracking me up.
Buyers looking for a home to grow in don't want a bank owned house. They're looking for a good seller.
Some prices are stabalizing. It's getting weird out there. Buyers looking for Sellers. What a concept!
Pretty soon, banks will be pushed out - nobody will even want their dried up stinky old house. Let alone the junk they hide on their "asset" column.

Finally, buyers and sellers are starting to work together - use a mortgage company (mortgage - ha!) that will close fast. BofA, Citi, Wells, Chase are all being avoided any way possible. No REO, no short sale, no getting screwed. There are buyers, sellers, lenders out there. Nobody really needs to deal with one of those crappy banks, or another incentive program, bribe, lie, bank employee, attorney.

Business between a buyer and a seller is real. A mortgage from a mortgage company is real. There's a healthy amount of inventory out there with real sellers. Nobody even needs to look at short sales or foreclosures.

6   FMR Tenant in Foreclosed House   2011 May 16, 1:43am  

ohomen171 says

I refer to a recent article that Patrick showed on his daily report. It was from Deutsche Bank. It predicted a further 40% drop in New York state housing prices.

That article was from several years ago.

7   Ignatius Pugg   2011 May 16, 2:12am  

Prices in NYC and other desirable areas still seem much higher in terms of salaries than they were in the early 2000s. Guess I'll stick with the annual rent to price ratio that our man Patrick suggests. I would really like to buy a house here but not to be house poor as a result.

8   DennisN   2011 May 16, 3:01am  

Who exactly is responsible for that red-dotted projection? It looks nice, but is it just a guess?

9   waitingforgadough   2011 May 16, 3:19am  

I still believe that there is a long way to go toward stability and I think more and more people will decide that the home "ownership" has lost its luster. Like any market, it is all about making a lot of people believe something subjective, is true. I think the market is going to turn in a bad way as a lot of people figure out it's a revenue machine greased with BS designed by the gov't, built by the banks and sold by the realtors.

Has anyone, here, designed and paid for a house and property lately or during the run-up? Does anyone have total costs on a tear-down/re-build? Or does anyone have any stats on what the actual material and labor costs are for a "standard" house and lot?

10   vrpirata   2011 May 16, 6:24am  

Same mistake again and again. Those graphs are useless when they are not compensated for interest rates! House prices are meaning less when most people buy with a morgage. Compensating the historical house prices for inflation AND interest rates provide a much better picture of where we are at. I did this, I compensated for inflation and interest rates, and my graph shows that we are already below the trendline by 5%.

11   HousingWatcher   2011 May 16, 6:31am  

"I refer to a recent article that Patrick showed on his daily report. It was from Deutsche Bank. It predicted a further 40% drop in New York state housing prices."

That article was not recent. It was from 2 years ago.

http://blogs.wsj.com/developments/2009/06/16/deutsche-bank-predicts-40-drop-in-new-york-home-prices/

12   klarek   2011 May 16, 6:36am  

istt says

I just can’t see house prices falling much further.

I've heard the same thing for many years, with just as baseless of a reason.

13   HousingWatcher   2011 May 16, 6:46am  

Even though I keep reading in the media how home prices are plummeting, anytime I check both asking and sold prices, the high prices I see amaze me. Houses are selling for way more than what I would pay. My neighbor just listed his tiny house and he got an offer form the first propsective buyer to walk through the door. An decent house on the markt right now commands a premium. Only if you are willing to settle for garbage will you get a bargain. I know a house that has been on the market for over a year. It has mold and mildew in every room. The house might as well be blown up or declared a superfund.

14   Dan8267   2011 May 16, 7:19am  

solver says

Holy Smokes. It looks like we’ve got a long way to go still. I only hope we do not drop equal to the times of the Great Depression.

Why not? It would be a good time to buy if it did.

15   Dan8267   2011 May 16, 7:42am  

istt says

What doesn’t make sense is incomes are not falling precipitously. Therefore, most houses are already getting quite affordable. I just can’t see house prices falling much further.

I smell a shill. Who could look at the above graph, showing we've only back down to about 30% of unfounded and unjustified price increase during the peak of the bubble, and say "I can't see house prices falling much further." Perhaps someone who says "As soon as banks loosen lending standards again buyers will be groping for the McMansions." and "The affordability factor is what keeps me thinking now might be a good time to buy."

Prices still need to fall 30% from the 2006 levels or 25% from the current levels (2011-05-16) just to reach fair-market levels. And since no market has ever corrected without over-correcting, it would be ridiculous for the largest equity bubble in the history of the world to "softly" land back to fair-market prices. The correction will be below the median levels of the Case-Shiller graph, which is 110. It may even overshoot the 1940 bottom for the following reasons.

1. Unemployment has been extremely high for about five years. The government stats do not reflect the long-term out-of-work whose benefits have run out, and who have just stopped looking because their prospects are so bleak.

2. The baby boomers have started to retired. They are in the phase of their lives where they are downsizing to support retirement and reduce expenses. Since they have little savings, they must tap into equity. This trend will continue for the next 30 years until Gen X reaches retirement.

3. Interest rates have no where to go but up. Eventually the fed will have to raise interest rates or risk a dollar flight that will devastate the economy even worse than the housing bubble and financial sector collapse. When interest rates rise, housing prices will decline such that month-to-month payments remain the same. This means the initial raise in rates, since they are so low, will have the largest impact.

4. Eventually the sellers who are holding onto overpriced houses in the vain hope that the bubble level prices will come back will no longer be able to remain solvent. They will be forced to sell either directly or through foreclosure. If they are foolish enough to keep paying the mortgage on an overpriced house, it will be they who carry the burden of bailing out the banks. Either way, the net demand for housing will not be affected.

John Maynard Keynes is often quoted, "Markets can remain irrational a lot longer than you and I can remain solvent." However, this saying does not apply to renters. A renter can stay solvent indefinitely. A house flipper cannot. Perhaps the saying should be correct as, "the time between market bubbles is a lot longer than you and I can remain solvent."

16   vrpirata   2011 May 16, 7:46am  

Dan8267 says

solver says


Holy Smokes. It looks like we’ve got a long way to go still. I only hope we do not drop equal to the times of the Great Depression.

Why not? It would be a good time to buy if it did.

Why not you ask, well, because that would mean most of us would be unemployed and therefore without the capacity take advantage of the good time to buy. Remember, recesion is when somebody else is unemployed, Depression is when you are unemployed.

17   Dan8267   2011 May 16, 7:48am  

istt says

What doesn’t make sense is incomes are not falling precipitously. Therefore, most houses are already getting quite affordable. I just can’t see house prices falling much further.

Actually, there have been quite a few studies that have shown that not only is real income falling, but the nominal income is falling as well, particularly for better paying labor. Factor in unemployment, underemployment, and decreases in benefits and there has been a trend over the past decade of decreasing compensation for the middle class worker.

Two articles that discuss this issue:
http://www.nytimes.com/2009/05/04/opinion/04krugman.html
http://economistsview.typepad.com/economistsview/2008/09/wages-are-falli.html

The important consequence as stated the NYT article: "Japan — where private-sector wages fell an average of more than 1 percent a year from 1997 to 2003 — is an object lesson in how wage deflation can contribute to economic stagnation."

18   Dan8267   2011 May 16, 7:53am  

vrpirata says

Dan8267 says

solver says

Holy Smokes. It looks like we’ve got a long way to go still. I only hope we do not drop equal to the times of the Great Depression.

Why not? It would be a good time to buy if it did.

Why not you ask, well, because that would mean most of us would be unemployed and therefore without the capacity take advantage of the good time to buy. Remember, recesion is when somebody else is unemployed, Depression is when you are unemployed.

Um, I think your misreading the Case-Shiller chart. The chart refers to the inflation-adjusted cost of housing from a period of 1890 to the present. So a low level, say that during the time of the depression, indicates affordable housing and NOT unemployment.

Just because housing is cheap, does not mean that unemployment would be high. In fact, the less people have to spend on housing, the more they can spend on other goods and services like furniture, restaurants, automobiles, vacations, etc. I.e., the less money spent on basic necessities, the more that can be spent on everything else. If anything, history has shown that the economy benefits when the masses have disposable income. The alternative is living like Europeans did in the dark ages, devoting all their resources on basic survival.

19   HousingWatcher   2011 May 16, 8:04am  

Can we stop this talk about interest rates going higher? They are not going anywhere. In fact, over the past week or so, they have actually gone DOWN.

20   tomoeDave   2011 May 16, 8:19am  

APOCALYPSEFUCK says

The bottom will look like this: the survivors will envy the dead, until they have to eat them.

LOL! I bust out laughing...I love your comments, they're so METAL!!!

21   vrpirata   2011 May 16, 8:26am  

Dan8267 says

So a low level, say that during the time of the depression, indicates affordable housing and NOT unemployment.
Just because housing is cheap, does not mean that unemployment would be high.

Ideally yes, it would be great if housing was so cheap that we all had more disposable income. But in reality, in a normal economy, people tries to buy the best they can (and max out), that is part of our free market.

Depression from the 1930s resulted in high unemployment. If we were to have prices drop 30% from today’s values, that would result in a major freeze in lending (worst than today), major construction freeze (worst than today, resulting in more layoffs), etc… in other words, a downward economical spiral that would drag the economy down into a depression resulting in massive layoffs and unemployment, just like in the 30’s. Remember, our economy is all tied together, one action causes a reaction in another area of the economy.

Please see my post in this thread today Mon, 16 May 2011 at 1:24 pm, I hate to see so many graphs from so many sources that take into account only inflation, but forget that for most Americans, it comes down to the monthly payment. A proper Case-Shiller graph should be compensated for inflation AND interest rates (as I did in my version of the C-S graph).

Notice the big dip in the mid 90’s during a period when here in California we had high unemployment’s and riots on the streets after the end of the cold war (because the high concentration of defense industry in this area and the reduction in defense spending). That was a really difficult time here in SoCal. We were between 10-20% below the historical trend in housing prices. Today, we are already 5% below the historical trend. I don’t see things getting as bad as they were in the mid-early 90’s, so I say SoCal has another 5% to drop max. Another reason is because in most SoCal areas (or at least the areas I care) monthly payments are already lower than the monthly rent.

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