A ‘Tipping Point’ For Housing: Moody’s
Moody’s has this report. “Housing prices, slumping after a five-year boom, are projected to decline in more than 100 of the nation’s metropolitan areas, with the Northeast, Florida and California among the areas hardest hit. The forecast, ‘Housing at the Tipping Point,’ by Moody’s Economy.com, presents one of the starkest views yet of the housing slowdown that has been gathering force in recent months.”
“The firm projects that the median sales price for an existing home will decline in 2007 by 3.6 percent, which would be the first decline for an entire year in home prices since the Great Depression of the 1930s. The forecast is included in a 195-page report.”
“‘Prices are going to go down and stay down for awhile. It will take at least a couple of years to work off the excesses of the last decade,’ said Mark Zandi, chief economist and the principal author of the report. ‘Housing’s downturn has turned even more dramatic with the rapid flight of the flipper from the market,’ the report said. ‘These investors have gone from sending home sales and prices shooting higher to driving sales and prices lower.’”
The News Press. “The Fort Myers area is second on a national list of metropolitan areas where housing prices are expected to plunge. In Fort Myers, the decline in prices will be caused by factors including ‘a collapse in housing affordability because of a surge in housing values,’ said Zandi.”
“Also, he said, ‘Speculation became rampant particularly in 2005 and 2006. Those flippers are getting wrung out of the market as expectations are swinging from wild euphoria to dark pessimism. Those hopes are being dashed and they’re exiting the market rapidly.’”
“‘There are signs of too much building. The market is strong, demographics are excellent, but builders are getting ahead of the market, Zandi said.’”
From Marketplace. “Homeowners at risk include those who used adjustable-rate mortgages to get into the housing market in the last few years. Zandi says those rates are now going up, but workers’ incomes aren’t keeping pace. ‘As you go back to the start of the decade, the household in Miami earning the median income could afford 125 percent of the media-priced home. Today, that same household earning the median income can afford to buy only half the median-priced home,’ he said.”
“The DC area is predicted to be among the regions taking the hardest hit. The Washington area, including Arlington and Alexandria, is Number 14 on the list, with housing prices predicted to drop by 12%.”
The Arizona Daily Star. “Tucson’s median housing price is projected to drop by more than 13 percent by the second quarter of 2008, according to a forecast. University of Arizona Economist Marshall Vest said a 13.4 percent decrease over the next 18 months or so is plausible. Vest in a speech last week said he wouldn’t be surprised if Tucson prices dropped up to 20 percent in the next year or two.”
“‘It’s possible. I am a little surprised they rank Tucson ahead of Phoenix because every other indicator says the metro Phoenix area was more ‘overbought,’ if I can use that term, than Tucson,’ Vest said.”
The Tucson Citizen. “Publisher and consultant John Strobeck said Tucsonans shouldn’t worry. ‘Yes, we are going to see a decrease in existing homes (prices) because we saw a run-up in 2004 and 2005,’ he said. ‘We have to look at this not as a crisis. It’s merely an adjustment. It’s perfectly normal.’”
The LA Times. “In Southern California, the report predicted declines of 11.4% in Riverside and San Bernardino counties, 10% in Orange County, 8.5% in San Diego County and 4.8% in Los Angeles County.”
The Press Enterprise. “Moody’s conclusions met immediate criticism from several Southern California economists who said they believe local home values will be supported by the strength of the local economy and the infusion of higher-income home buyers from Los Angeles, Orange and San Diego counties.”
“‘My own feeling is they are wrong,’ Inland economist John Husing said. ‘If we were only selling houses to each other, they might be right. But we are a market for the people in the coastal counties with substantially higher incomes than the people who live here.’”
“Alan Nevin, chief economist for the California Building Industry Association, said an 11.4 percent loss in home value would be ‘a fairly dramatic downturn.’ He questions whether Moody’s has enough data to make such a local projection. ‘I can’t understand what methodology you would use that would result in that statistic,’ he said.”
“But Moody’s economists are not alone in predicting a downturn in home prices. Esmael Adibi, an economist at Chapman University, said he expects home prices to start falling by the end of the year and to continue in 2007, declining by 4 percent on average in the Inland Empire.”
“Steve Cochrane, senior managing director at Moody’s, said homeowners who will get hurt are those who bought their homes very recently at the top of the market and are forced to sell because of life changes such as sickness or job change. Those who financed home purchases with adjustable rate mortgages, that they can no longer afford as rates increase, also could be hurt, he said.”
“Jennifer Langrill said she fears that the prediction of falling prices could mean that she and her husband will have to lower the $479,000 sale price of their house in Indio. They have been trying to sell it for three weeks. She said they bought the house in December and intended to stay, but a job opportunity in Anaheim has them heading back to Riverside.”
“Talk of sliding prices doesn’t concern Pete and Janet Mills. The couple, who were moving into a new home at Suncal’s Terra Lago lake development in Indio on Tuesday, said they would be renting out their former home in Indio and holding onto it as an investment. ‘People always need to buy,’ Janet Mills said.”
The Union Tribune. “A new report predicts that housing prices will fall in San Diego. The report projects prices for new and resale single-family homes to drop 8.5 percent in San Diego from the market peak at the end of 2005 to the first half of 2008.”
“Prices have already declined locally in the first and second quarters of this year, said Brian Carey, an economist with who worked on the report. Sellers, particularly new-home developers, have been cutting prices as homes have lingered on the market and buyer demand has slowed. ‘They do have a lot of excess supply right now,’ Carey said of San Diego.”
“Condos were excluded from Economy.com’s forecast because it lacked good data, Carey said. Condos may be more vulnerable than single-family homes to steep price declines because of the unprecedented construction of new units downtown and elsewhere, as well as a glut of condo conversions either for sale today or planned in the near future. ‘We realize the condo market could be hit harder,’ Carey said.”
“Real estate consultant Nathan Moeder said it’s not surprising that home prices would be falling now that buyers are being cautious. But he doubted that any forecast could accurately predict how much prices might drop. ‘We’ve already seen adjustments by developers, not only with incentives but also price decreases because they have to sell their units,’ said Moeder. ‘But is it going to drop zero or 10 percent? Who knows?’”
The Union Tribune. “A new report predicts that housing prices will fall in San Diego. The report projects prices for new and resale single-family homes to drop 8.5 percent in San Diego from the market peak at the end of 2005 to the first half of 2008.”
Any idgit walking around SD knows prices have ALREADY fallen that far from their peak “value”
“Condos were excluded from Economy.com’s forecast because it lacked good data, Carey said. ”
Great. Don’t they know that condos make up a sizeable chunk of SD real estate?
Why don’t they just give data on only appreciating homes… that would look even better to Joe Mama. The 8.5% is laughable at best. only maybe 10% of the SD population can afford a median priced home that is 8.5% off peak. If that.
at least they’re coming around
Lets see
“Real Estate always goes up”
“We’ve reached a permently high plateau”
“Prices will dip slightly but rebound 2007″
and finally “Prices will be down 2007″
So when they say “Prices will be low for a long time yet” that’s our cue to buy. Economist can make great leading indicators, if you understand just how bad they are at being a leading indicator
Nail-on-the-head insight. I think we have to understand that economists for the most part are conservatives and tend to under-estimate the ups and downs. The thing is, they are working within 1 std dev for the most part, so the outlier possibilities are eliminated from their estimates. Unfortunately, the average Joe Consumer tends to over-react, that makes 1+ std dev all too common.
Economists also rely too much on assumptions, like the weatherman whose fancy computer model tells him the weather will be sunny today, while he could have seen that it was raining by just getting off his lazy arse and peeking out the window.
This is odd. In our local paper, the QCTimes in the Nation World section Oct 03 Mark Zandi is quoted as saying, “Until incomes catch up, the housing market is going to remain flat.” This implys, at least to me, that house prices will remain flat where they are now. Yet today, Oct 04 on this blog Mark Zandi is quoted as saying, “‘Prices are going to go down and stay down for awhile. It will take at least a couple of years to work off the excesses of the last decade,’ said Mark Zandi, chief economist and the principal author of the report. Now I get it, the flat part comes after the falling prices part that is left out of the mainstream media. No wonder people are not panicking.
prediction ?
already happened ,dude
who’s paying these guys
peak was 5/5 unless you’re blind& deaf
“‘Prices are going to go down and stay down for awhile. It will take at least a couple of years to work off the excesses of the last decade
The guy’s got it azz backwards.
It will take a DECADE to work off the excesses of the last TWO years
The Union Tribune. “A new report predicts that housing prices will fall in San Diego. The report projects prices for new and resale single-family homes to drop 8.5 percent in San Diego from the market peak at the end of 2005 to the first half of 2008.”
Absolute nonsense! I spoke with my Realtor (Ventura County) last week. He told me he has some many listings, that he advises his potential clients he will not even list the house unless they are serious and realistic about the price.
He said point blank, “if they really need to sale, I advise them to cut the price 10% below any comps in the area” This is a guy who has been around awhile and knows what’s ahead.
So much for 8.5% decline J
some many listings
Thats “so many listings”. Sorry.
10% is baked in already. So how are we supposed to interpret a “prediction” that prices will fall by 8.5% at most? Especially when that would be the smallest drop in prices in any San Diego downturn on record, after the largest boom which led to the lowest-ever levels of affordability and the most speculative and subprime buying. I think these “forecasts” are just blown out of these guys azzes with no check against the underlying fundamentals which contradict them.
“‘There are signs of too much building. The market is strong, demographics are excellent, but builders are getting ahead of the market, Zandi said.’”
Name me a product or service in this country that isn’t “ahead of the market;” i.e., one good idea and then 50 copycats all trying to suck every possible dollar out of it. Makes me sick. Intellectual capital and property mean nothing. Consumerism is everything.
That’s funny, most people in industry think IP is grotequely overprotected and foolishly implimented. You’d be surprised at the number of things patented in this country and the lack of competition.
No I wouldn’t. My husband is a patent attorney and I worked on a couple of big infringement cases myself years ago. The courts are pretty hostile to patent holders.
The courts *should* be hostile to patent holders considering all of the completely bogus patents out there (especially software patents, where prior art and obviousness seem to be no barrier to patent approval) and the fact that the primary use of patents these days is either by patent trolls or as defense against patent trolls. The Technology Liberation Front blog does a weekly post on absurd software patents, and the Electronic Frontier Foundation has a large site listing absurd patents that are currently being used for litigation.
This isn’t the forum for it but I’d be happy to debate that with you somewhere else, leaving software out of the argument, as that is just too polarized apart from the principles of intellectual property protection.
Um, maybe the patent applications deserve a bit more scrutiny?
Dean Baker, is a good point of reference on the IP debate. He also is one of the few economists who identified the housing bubble early. See his book the conservative nanny state (how the wealthy use the government to stay rich and get richer), available free online. http://www.conservativenannystate.org/
While I agree with you that this is the incorrect forum txchick, I agree with Jim, Suzanne and Mac A. that the system is totally foobared.
I must admit my position is extreme, but I believe there should be no patents period. I am not a huge believer in copyright either, and it certainly should terminate after 5 years.
Oliver
On this, we agree! If we believe in truly free-market capitalism, business would not receive any more protection than the working people.
Why is it that we should be able to outsource jobs/insource cheap foreign labor (so J6 gets no protection), but companies have everything from tax breaks, protection against liability via incorporation, staunchly-guarded copyright and patent rights, etc?
What’s good for the goose…
Like submarine patents.
Blackberry’s being one example.
Businessweek had a story, nearly all products have a 10% premium for licensing fees for submarine patents.
What are submarine patents? Patents deliberately not enforced and then surfacing years later?
I want to know too despite this being off-topic.
Submarine patent is an informal term for a patent first published and granted long after the original application was filed. Like a submarine, it stays under water, i.e., unpublished, for long, then emerges, i.e., granted and published, and surprises the whole market. This practice is generally only possible under the United States patent law, and to a very limited extent since the U.S. signed WTO’s TRIPs agreements, making the term of the patent 20 years from the original filing or priority date. Submarine patents are considered by many as a procedural lache (a delay in enforcing one’s rights, which may cause the rights to be lost).
Txchick defined submarine patents narrowly.
I was thinking of specifically the Blackberry case.
A company that doesn’t make anything and has not intentions of making anything, patented the concept of the Blackberry e-mail device. Then they wait until…
A company like Blackberry actually conceives of a killer applications and makes it into a business.
Then the submarine surfaces and extracts licensing fees that add about 10% to the cost of most products to pay the latent patents.
Very interesting thanks for the info.
I am confused at how submarine patents can be used to extort licencing fees. It is nearly impossible to do, considering that the odds of disqualifying the patent are very high in such cases.
Blackberry just settled for hundreds of millions of dollars to a company that does nothing but patent concepts. I believe it went the the US Supreme Court.
Not at all. If there’s a 5% chance that a patent litigation will destroy your business, how much will you pay? See, odds don’t need to be in the patent holder’s favor at all, do they? Add this to the 100% chance of having to spend millions on litigation, and licensing deals suddenly look pretty wonderful, don’t they?
I’m 100% againsts patents for software and make a living selling software. TxChick is for protecting patents from large corporations with their armies of lawyers. This makes you start to wonder: we are all sick of the RE industry, but how many of us have profited from other seedy industries.
Lot of hanging curves in this post.
“Publisher and consultant John Strobeck said Tucsonans shouldn’t worry. ‘Yes, we are going to see a decrease in existing homes (prices) because we saw a run-up in 2004 and 2005,’ he said. ‘We have to look at this not as a crisis. It’s merely an adjustment. It’s perfectly normal.’”
And when exactly did you buy YOUR house, John? I’ll bet it wasn’t in 2005 with a suicide loan. You’ve got a lot of freaking cajones telling the FBs of Tucson not to worry. They have plenty to worry about.
txchick57 is RIGHT — I predict that there will be MANY FBs in Tucson in a world of pain when toxic mortgages turn on them. For everyday folks, Tucson is a low wage town — if you are an hourly wage earner you are fortunate to make more than $15/hour. There are not enough people earning the kind of money to support the price increases we’ve seen here with any kind of conventional mortgate. There are many houses here on the market that sit and sit. When lending standards tighten, it will drive the prices down even more, ’cause the monthly payment buyers will be able to afford less house, or not qualify for a loan at all. Happy to be a renter right now.
“When lending standards tighten, it will drive the prices down even more…”
Yes, and with the new federal mortgage lending standards issued and effective IMMEDIATELY as of 9/29/06 (with new state regulations in the works), should be sooner rather than later…
Tucson guy. I’m want to move to Tucson. How long do you think renting would be a good idea? When do you expect home prices to fall? …..and…. If I rent, are there a lot of empty homes? If so, are there problems with empty neighborhoods and meth houses, etc.?
el paso guy — My wife and I are currently planning to rent for at least one more year, most probably two years while we accumulate cash and polish credit. In the central parts of town, there are not a lot of empty homes. Most of the new building has been on the far outskirts East, South, West and Northwest of Tucson proper. I don’t know how many vacent houses there are there, but I know a realtor who had many CA clients buying multiple investment properties in these far-flung new developments. On Craigslist you can see MANY of these houses for rent for FAR less than what it would cost to buy them. If you want a brand new house for around $1,200 / month (like 3/2 w/ garage, about 2000 square feet or so, that is where to look. There are also more and more desperate seeming sellers on Craigslist — offering cash back to buyer at close, paying costs, allowances for painting and landscaping, etc. The houses w/ the really motivated sellers also seem to be mostly in the outlaying areas, for the time being.
In central areas of Tucson, there is more demand for rentals (university students), so there is not quite the oversupply problem. That said, there are many houses for rent with prices for a 3/2 (older, probably no garage, but w/ carport, AC) from $900 to $1200 per month, depending on area. There are some meth/crack neighbourhoods, so if something seems to be too good to be true, it proabably is. We are currently renting 3/2 w/ new AC, nice appliances, 1800 sq ft in a great neighborhood for $1150/month.
Tucson guy, thank you. I really appreciate the info.
Thank you tucsonguy and tx for bringing up the toxic mortgages. I’ve noticed these articles quote mostly the ARM buyers. See, then when their mortgage payment goes up, they can blame Evil Ben Bernanke’s interest rates. They avoid the crash talk by saying that the demand will spring back as just as soon as HeliBen re-spikes the punch bowl.
But few media folks are mentioning the I/O’s and neg-ams, whose payments go up regardless of what HeliBen says. And NOBODY wants to even whisper that the demand pool is gone because the demand pool already bought with a toxic. It’s the toxics that will be driving down prices with their jingle mail. And I bet there are more of them than anyone wants to admit.
oxide, you are SO right. I/O’s and neg-am buyers are SCREWED now that the appreciation phase of the bubble is GONE. Add the new lending standards and the empty demand pool and there will be MUCH jingle mail (love that term).
Funny you should mention houses just sitting on the market, tucsonguy. Was out at a meeting this morning. Passed by a couple of houses (in the oh-so-desirable Sam Hughes neighborhood) that have been on the market for over a year.
Everywhere I drive (all over Tucson proper, don’t really get to northwest, far east, or south), I notice the houses for sale. I literally cannot remember the last time any of them had a sold sign, but I’m seeing the delist/relist at lower price phenom going on. We need a Tucson bubble blog or a place for us Tucson bubble heads to gather/exchange views. When there are real estate stories in the Daily Star/Tucson Citizen, the comments are a hoot. Definately some deniers still trying to keep their heads in the sand.
Speaking of comments following Tucson real estate stories, we have a lot of potential HBB-ers weighing in at:
http://regulus2.azstarnet.com/comments/index.php?id=149514
A little bit of anecdotal evidence from Tucson. While there last week I checked the real estate listing and saw a house in my old SE side neighborhood. 1250 SF listed for $195000. Same house plan sold for less than $12000 when new in 1958 and sold for about $27000 in 1977 when we moved. Neighborhood is looking pretty run down now a days and there is no way one would pay 7 or 8 time the price of 30 years ago for a house there now. Maybe 3 times price (about $80000) would put you even with inflation. I can easily see a 50% price decline.
Pretty darn close…its is about 87K in inflation-adjusted dollars.
I bought a nice [new] place with a a *killer* view on the westside in 2001 for $100/sqft. Thought I was nuts for paying it at the time, but we spent about 200k on it.
Last year my wife and I drove around some of the new developments idly considering trading up to something bigger. What I found was that there was literally nothing to buy! All of the new developments were holding lotteries so that lucky buyers could come pay inflated places. I decided there was no way I was going to get any kind of good deal in a crazy market like that, so I stayed in my place and watched the price grow. Meanwhile we improved the hell out of the place - put in gorgeous floors, nice landscaping and whatnot - probably 40k in improvements.
This year we moved for other reasons to Oklahoma city. I managed to sell my place in July for about 385k (like 192/sqft) and after it was all said and done walked with just north of 200k cash. We were lucky - our place was about the nicest place on the westside for that kind of money and it sold in 30 days. Now in OKC I’m getting ready to move into a nice place for…about 100/sqft. As soon as it sold I felt like we had really dodged a bullet.
At the same time some friends of ours left for the midwest from Continental Ranch. Their place was unfortunately best described as “nondescript” in a sea of identical houses. Seemed like Continental Ranch suddenly sprouted tons of for-sale signs over the summer and their place has seen no action. The friends unfortunately went and bought a giant place in the midwest and now the Alligator is eating at them.
I really liked living in Tucson (I was a regular at the Silverbell Dog Park) but I agree that housing was way beyond the local economony. Even when I moved there 10 years ago it was being propped up by retirees. There’s also the small matter of *water* that noone really seems to want to talk about (Water was cheaper in Tucson than it is in Oklahoma) so I think Tucson may feel some pain within the next 25 years. In the short term yeah, I wouldn’t be suprised to prices contract back to at least 150k/sqft, which be a $100k haircut from the peak for the place I sold, but still almost 100k above what I paid for it.
“All of the new developments were holding lotteries so that lucky buyers could come pay inflated places.”
If you have to line up to buy something, you’re getting screwed!
Agree. Everything in this Ponzi scheme is dependent on appreciation. Without it, it’s game over.
I don’t know. The end game seems inevitable, but the time to travel from here to there depends on the ability of current owners to handle carrying costs. Will owners sell more liquid assets to hold on to real estate? That’s an interesting question, IMO.
What liquid assets???
“What liquid assets???
Well, let’s see…how about their Liquid Crystal Digital TV they bought when they thought this thing would never end…they could sell that at 10% of what they paid and maybe pay a couple months of utilities. Ok, wait, if they bought a McMansion, ONE month of utilities…
DOC
Selling liquid assets to hold onto RE? I don’t think so. Remember how these folks were mortgaging their houses in 1999 in order to buy tech stocks? More recently, they margined their remaining stocks to buy more RE. So, not much liquid left in the bottle.
‘Yes, we are going to see a decrease in existing homes (prices) because we saw a run-up in 2004 and 2005,’ he said. ‘We have to look at this not as a crisis. It’s merely an adjustment. It’s perfectly normal.’”
Would not apply in Silicon Valley… prices went overboard since 2000-01. Toke a dip and then went up 3x. It was unaffordable even in 2000 due to layoffs and decline in stock options. Salaries and bonus no where near 2000 levels and stock options game is dead since expensing is reqiured.
To get back to fundementals we will see a 50% haircut.
posted “To get back to fundementals we will see a 50% haircut.
None of these haircuts will look too pretty. Look for missing ears, eyebrows, gouged heads, freaky mohawks and baldies galore!
“To get back to fundementals we will see a 50% haircut.”
The median family income in San Jose, CA is just under $50k, and the median family home (a worn out ranch’er with no energy efficiency) is north of $650k. Add to that a run down public infrastructure, poor public schools, smog and traffic, etc., and don’t forget CA’s high taxes. Eventually the music will stop, and a long “Japanese style” RE decline will begin. It won’t take much more to tip things southward; I’d say 50% is conservative.
The LA Times. “In Southern California, the report predicted declines of 11.4% in Riverside and San Bernardino counties, 10% in Orange County, 8.5% in San Diego County and 4.8% in Los Angeles County.”
Oh good, that means that what, 2.5% of the Los Angeles population could afford a home. I don’t believe this report’s forcasts what so ever.
However, it is a good thing to have out there as it will be one more bit of news that will stow down the last GF’s. Oh, they’ll still buy, but maybe a few will be saved.
Neil
Prices have risen about 20% per year since 2001, and this is all they are predicting for a decline? What a joke!
What is a GF?
GF = Greater Fool
A GF is a Greater Fool. For a long time I thought it meant girlfriend… but then again, sometimes a greater fool can also be a girlfriend…
Funny - I always inferred “Greedy F*#ker” : )
Better yet, a girlfriend can be a GF
posted “Oh good, that means that what, 2.5% of the Los Angeles population could afford a home. I don’t believe this report’s forcasts what so ever.”
Neither do I. More happy talk, that 2.5% is about the amount of people that will be able to repay thier toxic loans.
said they would be renting out their former home in Indio and holding onto it as an investment. ‘People always need to buy,’ Janet Mills said
What funny stuff has Janet been smokin’. I need to buy her house in Indio like I need more holes put into m, y head; There is always renting a place for a short time? Are there that many people lined up to buy in Indio? A way oug of the place, no jobs, etc;\\
Let me fix that for you, Janet:
“People always think they need to buy.”
“People are always telling me I need to buy.”
“People always think other people need to buy.”
“People don’t always need to buy, but I’d sure like them to.”
Wow! If you had just taken the consensus here, dating from when you started, collectively, we could have written the same report Moody’s did…except they charge big bucks for it.
It’s interesting that, according to Yahoo’s summary, they stopped short of saying it will cause our economy to come to a grinding halt.
They stopped short because that’s what the data say. We don’t know, we honestly don’t know. The bear guesses which have proven spot on so far seem to think there is a potential 10% impact on the entire economy but potential is not prediction. We are in uncharted territory.
I was also surprised that they did’nt call for a recession; I saw Zandi on Nightly Business Report and he sent mixed signals on the larger economic fallout; to be determined, I guess. My hunch is a recession b/c as the report indicates 50% of household wealth will be affected. O!BTW, if you’ve been following Zandi, he’s been bearish on housing.
“‘My own feeling is they are wrong,’ Inland economist John Husing said. ‘If we were only selling houses to each other, they might be right. But we are a market for the people in the coastal counties with substantially higher incomes than the people who live here.’”
Okay everybody sing; Feelings, nothing more than feelings…”
People ONLY move to the IE BECAUSE they cannot afford to live in Coastal California. In effect the IE does only sell to each other.
Alan Nevin, chief economist for the California Building Industry Association, said an 11.4 percent loss in home value would be ‘a fairly dramatic downturn.’ He questions whether Moody’s has enough data to make such a local projection.—>> ‘I can’t understand what methodology
Economics is just another name for BS…
Alan Nevin, chief economist for the California Building Industry Association, said an 11.4 percent loss in home value would be ‘a fairly dramatic downturn.’ He questions whether Moody’s has enough data to make such a local projection.—>> ‘I can’t understand what methodology
“Moody”
What a great name for a company that reports on markets and the economy. Wish I’d done it first.
After reading their article, it would appear they draw their conclusions based on their “mood” and little else. They mention areas which have “already reached their low point.” HAH! What a load of crap. Inventories are still building so how in the world do they come to that conclusion? It sounds to me like they are trying to calm any fears of severe declines. Last night on the Seattle local news, they referenced the report gleefully claiming our area was going to “buck the trend.”
They rely on their Mood Rings.
Moody’s is a rating service, given the estimates of their own economists, what does this mean for LTVs? And what does that mean for MBS?
It could mean everything as you suggest. Pension fund and strictly directed funds with mandates to hold bonds with high ratings could be forced to sell if Moody’s rings the bell on MBS.
Moody’s probably has the best view of the MBS market, since they probably rate at least 1/3 of that debt.
Pensions rarely have to sell due to a downgrade, rather they can’t buy more of something that gets downgraded to below their credit levels.
I’m wondering if and when Moody’s (and Fitch) will be sued for their high investment ratings of MBS when they all go south.
MBS deals are tranched (or sliced) into different levels of risk. So even if there are widespread defaults, there are tranches that have the first loss piece, and tranches that will hold up well.
So even if they “all go south”, there will be higher rated tranches that won’t be hurt too badly. The first loss tranches are going to have a hard time sitting down for a long, long time.
I expect this as well, tj.
Reading over the comments and disclaimers, I’ve had a revelation - it’s different everywhere!
And people always want to raise kids and retire here as well!! There’s a complete shortage of land!! We’re both landlocked and waterlocked. Land is so tight, even the sky is pressing down on us while the earth pushes us from below. European, Asians and Californians will keep our market healthy!! Jobs are plenty and wages increase occasionally so there can be no fall in prices here like elsewhere.
‘People always need to buy,’
Those who do not study history are condemned to relive it.
The big factor in the stock market decline of 1929 was the leverage that ignorant, greedy, people employed (and that was available).
The big factor in this real estate decline is the same; ignorant, greedy people having unusually easy access to leverage.
The frightening thing about the bubble run up in this case is the breadth of individuals directly engaged in buying, basically, on spec and the breadth of individuals who have indirectly leveraged themselves by withdrawing equity for, whatever.
Prices can’t fundamentally increase without wages increasing or declines in interest rates. And the prices paid for properties, at their peak, were based on interest rates that, even if they reappear, far fewer people will qualify for due to declines in values as well as tightening lending rules.
No “buyer” is going to rush back into a market where a decline can be actually “seen”. Consequently, unless supply dries up, prices have to decline and, in so doing, provide ever more confirmation to the marginal buyer that WAITING is the right thing to do.
That’s why brokers want people to take their properties off the market. But, say you take this advice, still wanting to sell, what are you going to do the moment it looks like prices are “firming”? Is it hard to imagine many, on the margin, will simply jump back in to get out?
I’m amazed they quote “economists” who can’t think this reality through but, then again, everything valuable I really learned about economics has been AFTER I graduated with my degree.
You make an excellent point about margin buying and the great depression! That’s a great way to measure and compare this scenario.
Many recent buyers and some long time home owners took very risky positions based on their belief the housing market would continue its upward march. As a result, they placed little or zero and even negative downpayments on their investments. They were so bloody sure the bet would pay-off, a no brainer. Unfortunately, however, a slight negative downturn in price is going to wipe them out completely!
I know someone trying to sell a house that is 10% below last year’s prices in Northern Virginia. Who knows what the real purpose of this report, but all these ‘forecasts’ are a bunch of bull.
10% already that is
The decline in prices will vary great around the DC area, I would guess. The newer, far-flung exurbs in places like Loudoun County are going to be a bloodbath. I predict 50% declines out there. Closer in, though, in some more desireable areas a -12% prediction might not be too far off, though all bets are off if the coming recession is especially bad.
In my old neighborhood out in Loudoun, prices for the horrible community I lived in are already off 20%…… In my good neighborhood where I now rent in Fairfax Co. prices are off 10% (average) and that’s just the asking price. Who knows what the settlement price is.
We went to a open house in ashburn a couple of weeks ago just for kicks, it was listed at $550k - according to the tax records, they purchased it in Sept 2005 for $612k
http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=58822
A very powerful argument made for a hard recession, and it’s #1 trigger, a crashing housing market.
I hate to say this but I saw this coming…I’ve made several references to a consumer side credit crunch over the past month or so which if not addressed could lead to a deflationary spiral…
Most consumers no longer rely on the amount of money in their savings account, cash; instead, most consumers now rely more heavily on their lines of credit; take that away and the economy screeches to a halt.
“Most consumers no longer rely on the amount of money in their savings account, cash; instead, most consumers now rely more heavily on their lines of credit; take that away and the economy screeches to a halt.”
And just one late payment (on anything)…bang, the Universal Default Clause in exercised; game over!
100 metropolitan areas?! Before they said only 34 markets or something like that were affected (not that all of us didn’t know better). The truth is, by the time it’s done EVERY market will experience a significant drop.
Not true. Download and Read the report. It is very illustrative with lots of charts and graphs.
I am a bubble bear also, but it is important to know the facts and not just assume all boats in the harbor move on the same tide. All the boats are not in the same harbor.
It is also interesting that almost all the factors and sources of data have been topics presented on this blog already, albeit in a piecemeal fashion. gordo nyc.
So you’re saying that low interest rates were only available in bubble areas. Last I checked my house doubled in value in 10 years, and it’s just a whitebread Archie Bunker style neighborhood of 50+ year old 1400sqft Cape Cod style homes outside of Philly. Nothing to write home about type of place.
Agreed that there are national and global factors that affect everyone, everywhere. But local factors differ dramatically. I am taking exception to you saying that house prices will drop EVERYWHERE. They will not drop everywhere; some markets continue to be undervalued. While, their prices may not rise; it is highly unlikely they will drop significantly.
For a reality check; we’ll keep an eye on Harrisburg PA over the next few months to determine whether their home prices sink. gordo nyc.
Where might i download this report? Moodys wants $3995 for it.
Nice quick reference to the Great Depression too. In all the other reports they said “first nationwide drop since 1933″ but no mention of The Depression. I guess they need to connect the dots baby-step style.
“People always need to buy,’ Janet Mills said.”
Let’s take a quick look at houses, condos, and apartments for rent on Craigslist. Hmmm…. lots. I don’t need to buy. Anyone else here need to buy?
Not me. Not now.
Now contact me mid to late 2008, I *might* have a different answer.
But I’m not going to knee jerk buy, I’ll still be reading these blogs. Until then, there isn’t any new news that would have me buy (unless I can pick up a REO for 33 cents on the dollar or some other “crazy good” deal, of course).
Neil
I do feel a need to buy–as soon as a conservative 20-down-fixed-rate mortgage payment is in line with equivalent rent.
Jon
“I do feel a need to buy–as soon as a conservative 20-down-fixed-rate mortgage payment is in line with equivalent rent. ”
Amen. This is what I’ve been telling folks since this bubble got going, and they all looked at me like I was crazy–thinking someone could buy in line or slightly above equivalent rents…like this equation never existed. I finally just gave up.
DOC
Bought our last house when PITI payments were less than rent. It’ll happen again, IMHO.
I don’t *need* to buy. I would like to, of course. But need? Nope.
I’m waiting on that 4% drop in Los Angeles, then I’m in!!!
Just think, 4% off that $400,000 dream home in Compton!!
Talk of sliding prices doesn’t concern Pete and Janet Mills. The couple, who were moving into a new home at Suncal’s Terra Lago lake development in Indio on Tuesday, said they would be renting out their former home in Indio and holding onto it as an investment. ‘People always need to buy,’ Janet Mills said.”
Yes, that is right. Keep on drinking the Kool-Aid. What is it with these lemmings who can’t stop believing RE is ever a great investment?
Let’s see:
2 mortgage payments
2 tax payments
2 insurance payments
2 houses to maintain
Geesh, I remember back in La Quinta in 1989 when a modest villa on the golf course was $300K, only to drop back to $140K by 1997. And lowly Indio, let’s just say prices were not even half that. You could buy a fairly decent home in Indio for $75K as recently as the mid 1990s.
These people are screwed. Oh, wait a minute, they’ll just tap out their equity, hide the $$/assets, mail the keys back to the bank(s), declare bankruptcy, and buy another house in another year.
What a country!
I can see HELOCs being called in at some point. I think they have an accellerated payment clause in there, and you don’t even have to make a late payment or anything.
I’ve never had to take out a HELOC; is that right?
Pete and Janet Mills may also have to pay
2 Mello-Roos
And, the renter may trash what’s behind Door #1.
Moody’s is WAY TOO OPTIMISTIC.
The cult of optimism has overun this country and things won’t get better until people recognize the steaming piles of crap that they have been wolfing down for what they are.
“It’s just a flesh wound!”
Moody’s made only a prediction for 2007. Many broad price declines in real estate have taken about four years in the past.
‘I can’t understand what methodology you would use that would result in that statistic,’ he said.’
Perhaps Alan Nevin, chief economist for the California Building Industry Association, should not be an economist. Can anyone here help Mr. Nevin out?
Actually I can’t either if you use statistics. If you use the normal regression of HPI, the decline would be a lot worse…
Housing out of the Box
…
My future “out of the box” view is that Fanny will NEVER liquidate its properties under foreclosure. It cannot avoid the writedowns in their MBS bonds, to the tune of 20% to 40% easily. My future view is for the creation of a new Fanny Mae Real Estate Investment Trust (REIT). The market crisis will demand it. A flood of one million foreclosed properties for sale under distress would wreck havoc on housing values. So forget that! You think one million is too high a number? Get back to me in 2008. Instead, a foreclosed property must acknowledge its potential income source from rental. Poof! We have the new “Fanny Mae rental homes” which can be obtained as relief to the shortage of rental homes. Unlike 1990, the RTC will not be a repeated exercise. To repeat the RTC, which makes good business sense, unfortunately would create a disaster in an already overloaded supply situation where unsold inventory grows each month. The new Fanny Mae REIT invites new ownership.
…
http://www.kitco.com/ind/Willie/sep292006.html
Metropolitan Areas That Will Suffer House Price Declines
Peak-to-Trough Peak Trough
% House Price Decline Year/Quarter Year/Quarter
Cape Coral, FL -18.6 05:4 07:2
Reno, NV -17.2 05:4 08:4
Merced, CA -16.1 05:4 09:2
Stockton, CA -15.7 05:4 08:4
Sarasota, FL -14.0 05:4 07:3
Naples, FL -13.8 05:4 07:3
Tucson, AZ -13.4 06:1 08:2
Las Vegas, NV -12.9 05:4 09:2
Chico, CA -12.6 05:4 08:2
Fresno, CA -12.5 06:1 09:2
Atlantic City, NJ -12.2 05:4 08:2
Vallejo, CA -12.1 05:4 09:2
Washington, VA -12.0 05:4 08:2
Redding, CA -11.8 06:1 08:2
Detroit, MI -11.7 05:3 06:4
Riverside, CA -11.4 06:1 08:4
Bloomington, IL -11.1 05:3 06:4
Bakersfield, CA -11.1 06:1 09:2
Greeley, CO -10.7 06:1 08:2
Salinas, CA -10.3 05:4 08:2
Santa Ana, CA -10.0 06:1 08:4
Sacramento, CA -9.9 05:4 08:2
Carson City, NV -9.8 06:1 09:2
Phoenix, AZ -9.3 06:1 08:2
Punta Gorda, FL -8.9 06:1 07:2
San Diego, CA -8.5 05:4 08:2
Warren, MI -8.4 05:3 06:4
Allentown, PA -8.2 05:4 08:2
Nassau, NY -8.1 06:1 08:2
Fort Walton Beach, FL -7.9 05:2 06:3
Santa Rosa, CA -7.9 05:4 08:2
Ocean City, NJ -7.6 07:1 10:2
Visalia, CA -7.3 05:4 08:4
Rockford, IL -7.3 06:1 09:1
Santa Barbara, CA -7.2 05:4 08:2
Worcester, MA -7.0 05:4 07:2
New Orleans, LA -6.7 05:4 07:3
Saginaw, MI -6.5 06:1 09:2
Oakland, CA -6.4 05:4 08:2
Fort Collins, CO -6.1 05:3 07:2
Portland, ME -5.9 06:1 07:1
Fort Lauderdale, FL -5.9 05:4 07:3
West Palm Beach, FL -5.7 05:4 06:3
Miami, FL -5.5 06:1 08:2
Edison, NJ -5.2 06:1 08:2
Los Angeles, CA -4.8 06:2 08:4
Denver, CO -4.6 06:2 08:2
Napa, CA -3.8 06:1 06:3
Providence, RI -3.6 05:3 07:2
New York, NY -3.5 06:2 08:4
Champaign, IL -3.5 05:4 09:1
Essex County, MA -3.1 05:3 06:3
Bethesda, MD -3.0 05:4 08:2
Boulder, CO -2.8 05:4 06:3
Yuba City, CA -2.6 05:4 06:3
Salt Lake City, UT -2.3 06:1 06:3
Boston, MA -2.2 06:2 06:3
Pueblo, CO -2.1 06:1 06:3
Prescott, AZ -2.0 06:1 08:2
Madera, CA -1.8 07:1 09:2
Colorado Springs, CO -1.6 06:2 06:3
Grand Junction, CO -1.3 06:2 06:3
Portland, OR -0.8 07:3 09:2
Lewiston, ID -0.8 07:1 08:2
St. George, UT -0.5 07:3 08:2
Honolulu, HI -0.3 07:2 08:4
Milwaukee, WI -0.3 07:2 08:3
Hagerstown, MD -0.2 07:3 08:2
Medford, OR -0.2 07:3 08:2
San Jose, CA -0.2 07:1 07:2
Sweet Jeeee, thank you!
I am starting to agree with most earlier posts; they are cautiously optimistic with these predictions; some of these smaller cities in FL have already dropped by the percentage they predict. Moreover, Palm Beach is already down 6% YOY.
Yeah, this is basically garbage.
hmmm… Sonoma County isn’t on there. See? What have I been telling y’all? It’s different here. We are the new Sausalito. Tinkerbell nests in the trees of the Plaza in the center of town in Sonoma Valley and she sprinkles her pixie dust over us all. We are that special place and real estate will only go up for us.
Down only .2%??? Guess that means rents will double then, to get in line with prices. Ouch.
How do those percent price declines stack up against the percent overvalued numbers that are occasionally estimated by PMI? Not very well, I see…
Looking at the Moody forecast’s graphs, it’s hilarious that anyone would take these seriously. Seattle & San Diego hardly have declines between now and 2016.
This whole spiel has been a major lesson for me. My level of distrust re: ivory tower types is rising by the day. What are they thinking? What world do they live in? If they’re this piss-poor at forecasting housing, what does that say about ivory-tower research in other areas where I’m not as well-versed?
My world won’t be the same. End of rant. Thanks for listening.
Economics is not a science. Be careful not to use this to step into the far-right’s “postmodernist” interpretation of science (i.e. intelligent design, global warming). Science _policy_ is another issue (i.e. scientific papers on global warming do not necessarily make Kyoto a good idea). In that arena, science does enter the realm of economics.
Huh? “Global warming” is a far-right issue? Maybe I’m misunderstanding your point, but intelligent design and global warming are on opposite ends of the spectrum.
Sorry; perhaps I wasn’t clear enough.
The far right has been attempting to discredit individual scientists and pose non-peer reviewed papers as “rebutals” to global warming. Many of their arguments are ad-hominem attacks or conspiracy theories, and do not address any scientific content. The strategies involved are essentially the same as what they are doing to get ID into schools — paint science as a matter of opinions and deemphasize the epistemological foundation of empircal reasoning.
Didn’t science become “a matter of opinions” when consensus, and not vigorous peer review, became the accepted method for vetting theories? (Says Michael Crichton: “There is no such thing as consensus science. If it’s consensus, it isn’t science. If it’s science, it isn’t consensus. Period.”) And where’s the empirical reasoning behind the “human-induced global warming” hysteria?
My rebuttal to HIGW is this: When meteorologists can’t predict the weather accurately five days out, how the hell can anyone predict what’s going to happen a hundred years from now?
But what do I know?
They both sell lots of books and fill up TV air time.
Thanks for sharing your POV. I agree: my new dilemma is to decipher whether scientists are applying “true science” or “playing economists. ”
Consequentially, I fear that a subjective opinion may be pushed through as scientific truth; and as we know, the media does a poor job of drilling down to get to the core of the matter.
What exactly is science then, so long as you are setting the record straight for the rest of the world? Nah — forget it. Sorry I asked…
i have an ivory tower MBA friend, and the joke in our household is ask
“dick” and do not do whatever he reccomends.
oh and he is still drinking the neo-con kool aid.
I’ve noticed this in just about ever sphere of influence that ‘experts’ haunt. Their totally full of sh!t and work to maintain the status quo, which is picking the unwary people’s pockets.
Actually, had I been the author of this Moody’s article, I would have named it “The Zero Moment Point” (for those of you who remember The Perfect Storm).
taking into account $per sq ft,and quality,santa rosa is already down close to 20%,mondays paper offered a home at “22% below recent appraisal” and they will throw in a plasma tv,too.asking prices for buildable land are down 30% or more since this spring,and there are approved subdivisions for sale for less than the undivided lot would have sold for 6 months ago.yoohoo mrs mills!some people do have to sell,no one HAS to buy. i hope someone else is responsible for birth control in that family the gene pool is shallow enough.
A pal here in LA got divorced, and he and his ex-wife decided to sell their house and share the proceeds (it’s an amicable split). He’s no dummy, and they made A LOT of money over the past six years they owned the house, so they priced it to sell at $100,000 under very conservative comps. They got only one offer — at $75K below their asking price, but they sensibly took the deal because they’re still cashing out huge bucks. They went into escrow, went past the contingency periods, and it looked like everything was hunky-dory. Suddenly, the buyers said, “Never mind. We ain’t buying. The market is too overpriced.” It looks like they’ll forfeit their deposit, but they don’t seem to care. I mean, it’s a great house in a very desirable neighborhood on one of the best streets, and the buyers got it for $175,000 under market price, and they still pulled out.
I know this is anecdotal, but I think the LA market is going to get very scary very quickly for sellers as the market psychology shifts from overexurberance to an abundance of caution.
Man, that’s a serious chunk o’ cash they are leaving behind. They owe you the deposit and the realtors the full comission. LA is insane anyway.
Really? They’ll owe commission? I’ve never heard of that.
My understanding was that it’s the *seller* who has to pay the broker his commission, when a willing and able buyer is produced, and then the seller backs out of the deal. The broker earns his commission when he produces an acceptable buyer. I don’t believe it works the other way around.
The only time agents earn the full commission is if they produce a full price full term offer pursuant the listing contract , or the seller accepts a less than full price full term offer and the sellers than backs out . Otherwise the listing contracts spells out what happens if the buyer backs out .
Yes once the buyers get fearful, a 100K to 200K off a $ 1 Mil + house still won’t get them to commit. Market psychology is very important and overides just numbers.
During a bubble nothing is really overpriced because prices don’t make sense anymore. Only after the decline begins do the masses begin to realize that the new lower prices are way overpriced. Just like in the stock market.
I agree. I track a few desirable LA neighorhoods and it seems the 4.8% declines predicted have been surpassed already. Many houses sit and sit and sit.
vioviv-
where in la is the house?
West Hollywood. A 3/2 1800 sq ft vintage on a big lot. Walk to everything. A year ago, they would have had a serious bidding war.
west or east of LaCienega?
Please answer … my landlord has contacted me about buying my rental. I, of course, will only do it well under “market” value. Which zip code? I am 90048 - AMAZING neighborhood.
what is the mls # ?
waiting in LA - the best part of WeHo is parking area 5R - west of LaCienega and East of Doheny. I would say that over time, those neighborhoods will hold up better than Fairfax/LaBrea. There is a seediness near LaBrea - prostitution abatement zone - you go figure. Much better to go with 90069.
one exception - the hills. I am talking the flats with my above comments. If you can get into Laurel Canyon, then do so
I like my neighborhood better than 90069. It’s very quiet, lots of great cafes, shops, Beverly Center.
I hate to say this, but after the rental income (from my roomates that I already get), and with the income tax savings, the difference between that and the mortgage (30 yr.) isn’t so bad (at my price, if I get it).
I know prices could correct 30%, but if I can get it 15% under today’s comps, I’d be willing to ride it out (for this house). It would be a long term play, anyway.
Plus, my brother is a skilled carpenter, and Dad an electrician - both have seen it and want to help me fix it up.
my neighborhood IS west of Cienega, East of Doheny. I’m in “the zone”.
The Inland Empire pricing is schizophrenic at the moment. I’m seeing houses with the exact same specs with 100k variations in asking price (it makes you wonder, is there something wrong with the lower-priced house?). Some sellers see the light and are undercutting the competition, but this is the minority at the moment. Other listings have been on the market 6-9 months before I see very small 1-3% decreases in asking price. Moody says -11% for 2007, I think there has been at least 7-8% drops already in actual sale price since the “high” earlier this year but the YOY numbers won’t show that for a few months. It will be interesting to see how this plays out here.
(it makes you wonder, is there something wrong with the lower-priced house?)
Nope. The nature of low-liquidity markets is to have wide variations in pricing.
Same here in S. Oregon. Better prices emerging by the day, but still obscene. In my size range (3 br /2 ba ~1500 sf) I’m seeing houses vary by over $200k! Many folks are definitely in denial, others are definitely getting more realistic.
DC will take the lightest hit- same as 90’s
the sheople keep sending the $ into big gov
“Talk of sliding prices doesn’t concern Pete and Janet Mills. The couple, who were moving into a new home at Suncal’s Terra Lago lake development in Indio on Tuesday, said they would be renting out their former home in Indio and holding onto it as an investment. ‘People always need to buy,’ Janet Mills said.”
I think this is an underappreciated trend–couples moving up, and hanging onto their old house as an investment. I have a couple of friends in Seattle who just did the same thing, though I tried to talk them out of it.
This will be a source of additional supply when things gets ugly.
Jon
terra lago - sounds good, right? nah - just tract house central in a god forsaken nasty place
txchick57,
wondering what opinion you might have on PTSC, they are currently in a Texas court (rocket docket) attempting to remedy infringements of their semiconductor patents. I bought some shares last December at 8 cents, it’s over 90 cents now, and they have been signing a lot of household name manufacturers like Sony as licensees.
I’d say you made a hell of an investment!
The problem that no one wants to seriously discuss except on this forum and on a few others is the debt issue. Sure many still overconsume on crap or homes they can’t afford to impress people who they don’t know or care about. However, the bill will come due. Several on this board and in other places mention the term tipping point. I have lived it. I know what it is like to spend more than half a month’s salary on debt service. I know what it is like to charge everything knowing the debt keeps getting higher. Thankfully that is behind me now and I’ll be damned if I’m going back. Even if I can’t save a dime, I will fight to keep pace from now until I die. However, most folks in this country don’t think that way. Remember many of these kids, who now have debt past their eyeballs, grew up with parents whose motto was: “He who dies with the most toys wins.” Bottom line is we have passed the tipping point and there are only so many ways banks can play games with investments, etc. At some point these bills have to be paid or defaulted. My bet is that sometime in the future it will be defaulted. Consider this: all debt, private and public, plus future entitlement programs, i.e. social security, are estimated to be at $70 trillion, give or take among friends. At $10 trillion/year GDP + $2.5 trillion/year in fed. taxes, it would take 6 years to pay all of this off if it was interest free. Therefore, when we reach, if I may borrow some terms, peak debt, it is at that point we will reach game over and pain begins for all of us.
The real question is does this country have the fortitude and desire to become productive again and shelf the consumerism, get-rich quick mantra of the last 35 years, really accelrated in the last 25 years, or do we just want spend ourselves into oblivion? I am thinking the latter. Few want to save, too many want to get rich quick, only to blow it all on worthless junk, and the country doesn’t produce anything except debt.
I agree, debt is out of wack. What do you think the “peak debt” may be? Or have we already passed that mark?
If one considers all the debt: federal, state, local, corporate, mom and pop stores, and personal, in addition to all entitlements, I would say we have reached the point. Again we can debate the sum of all that, but it is somewhere in the neighborhood of $50-70 trillion, yes trillion. There is no way this will ever be paid for. Even the top 400 people in Forbes, if combined, hava net worth of 1.25 trillion. Nice try, but even if their property was seized by the feds it wouldn’t put a dent in this problem. The only way out I see is to raise taxes, have the federal reserve, which I hate, tell the federal government no more money for you, have the federal gov’t cut tons of the programs it supports, and then maybe it will trickle down. Then again maybe not. While that is my solution, I think the reality is that spending into oblivion will continue as it has for the last few decades.
It is realistic analyses like this one that make me realize I should spend more time watching sit coms.
The nasty secret about “entitlements” is that technically, they’re not debt. The government can simply say “OK, so much for Social Security,” and there’d be no legal (as opposed to political) recourse.
If you mean “past the point we can pay back”, then sure, we’re there.
If you mean “past the point when it all comes crashing down around our ears”, well, stay tuned. We’ve got a few more years to go, looks like. But maybe only six months. We’ll see.
Remember, it’s all paper - so it’s easy to pay it all off. We don’t need to work for years to pay it - we can just print it instead! check out iTulip.com for more
Unfortunately, one of the core values of our culture
as we currently know it is instant gratification.
It goes way beyond the current situation with R/E.
We see it in the way we eating and spending.
If history is any guide, wasn’t this the situation
during the last days of Rome?
octal - funny that you mention that!!! i have been thinking the same thing for the last couple of years….i agree w/you!
Of all the things I’m thankful for, it’s having parents who grew up during the Depression, and who were VERY frugal. Our vacations were road trips in our 2nd hand station wagon. Our house was the smallest one on the block. We didn’t have a color TV until 1978!
All my bicycles were bought 2nd hand, etc.
And you know what? I had No Idea that we were being Frugal! I didn’t feel I was missing anything. It never occured to me to wonder why my vacations were to Washington DC or Quebec (by car from NY) and my friends were flying with their parents to Europe.
I didn’t even notice our “deficiency.”
Now as an adult, I am similarly frugal. No debt. Never borrowed money for a car. I had a mortgage once. A 15-year mortgage that was paid off in 12 (several years ago).
I see all the “howmuchamonths” around me, and to me it seems like extreme stupidity.
If everyone is frugal how will we expand the economy by not borrowing money and paying points and commission to the most productive people in our society real estate agtents and brokers. These guys are what makes America great. Just imagine a whole economy based on real property purchases and borrowing funds. Guys trying to invent new technoolgy so we can compete with Europe and Asia are chumps.
Not only do the kids have parents who thought “He who dies with the most toys wins,” but they were also the first generation who grew up with credit as part of daily life. I’m 35, and the last generation to learn about the Depression first-hand (grandparents). When I was very young, credit was something you used only for emergencies or for something BIG like furniture or appliances, and even then you were considered a poor low-life if you used a *scoff* credit card. Now, kids are given Citibank T-shirts when they apply for credit cards, which they use for pizza.
It’s all about the Fourth Turning man! Google it, Fourth Turning.
Now, kids are given Citibank T-shirts when they apply for credit cards, which they use for pizza.
So true. I was at a college town this weekend and witnessed a student buying a $3.50 pitcher with a credit card. Could NOT believe it.
actually I gave my child a credit card. (lots of points for stuff) so she uses it for her college expenses, the card then tracks those college expenses and I pay it off with her college trust and they are qualified living, school expenses. AND then the points add up to her discretionary fund, airline tickets, shopping gift cards etc. Much less paperwork for me, gives her a budget and limit to work within, and I don’t have to micromanage it.
Are you sure the beer-buying kid wasn’t using his debit card?
I use my credit card for EVERYTHING and pay it off daily. Even $2 coffee.
Mommy and Daddy probably paid for the pitcher.
Interesting thing, the national collective debt to income ratio is just about the same ratio as the typical homeowner’s debt to income ratio in CA. Interesting. Don’t know what that really means to us collectively, but an interesting observation.
OCDan, you’re getting warmer. Unfortunately, when ‘peak debt’ is reached in a growth reliant, compound interest banking system, it is game over. Call it whatever you want, but a maximum threshold of the ability of our system to support more debt has probably been reached, or will most certainly be reached soon. Look at the growth of M3, think money=debt, and run those figures through a compound interest formula.
Oh, if you want to poop in your chinese-made dockers, read today’s speech by Ben Bernanke, then do the calculations.
Here’s a more ‘mainstream’ viewpoint that says the same thing more subtly:
John Succo, Minyanville
http://www.minyanville.com/articles/index.php?a=11345
“The U.S. economy has passed from an “income” economy, one where real production produces income that can be saved and invested (stable) to an asset based economy, one where production lags consumption and is bolstered by borrowing (unstable). The government realizes this and does everything it can to keep asset prices rising to further borrowing to further consumption. This can go on for lengths of time but deductive thinking tells us there is a limit. Infinite debt is not a possibility since eventually servicing that debt crowds out other consumption. The U.S. economy of late is now being driven almost exclusively by consumption; capital investment by companies is lagging severely and government spending is being crimped by deficits and total debt. I can only tell you based on risk premiums (everyone is starved for income and taking great risks to make anything) indicated by option premiums (very low) and credit spreads (very tight) that the risks are very high.”
Risks are very high. Hmmmmm.
Speaking of Norva and Loudoun County, this house (LO6139183) was listed at $479k 6 months ago. I was looking at it and attracted to it since it had a pool. Now it is $400k, and does not seem to be moving. So far around a 20% drop and gaining. After reading these reports, I can’t help but get the image of red meat being thrown to a pack of wolves - the piling in is that fast and furious. Keep it coming!
Bernanke says housing showing “a substantial correction”
Homebuilding will take a percentage point off 2nd half economic growth
fEd remains concerned about inflation
Perfect reasons to bid up the market to new highs!
Seriously though, it makes me wonder what bets are unwinding…
As they say, ‘a lot of bark but no bite.’ This report is dissappointly optimistic about the impending housing fallout. It’s a crying shame.
From reading Ben’s daily reports, I can’t imagine prices falling as little as the report concludes. What’s more, I can’t imagine falling prices in one FL metro area not affecting prices in another. I remember when prices took off in S. FL it took about 6-9 months for us to see a change here in NE FL. Furthermore, 2-3 years from peak to trough in some cities, that’s rather steep; my guess would be 3-4 years then another 3-4 yeas to break-even.
I am not a cynic but I don’t know if this report was meant to put a floor on the housing market’s fall or precipitate its fall.
Bernanke said fundamentals would place a floor under any housing correction. He didn’t say where that floor was.
Fundamentals (incomes, jobs, and interest rates) only justify prices in California that are at least 33% lower than they are at present, and even 33% is stretching the point.
“Shoshanna Wiercinski, 31, who with her husband David recently bought a four-bedroom, two-bath house in Lehigh Acres from America’s First Home for $262,500, said she knows the housing market fluctuates but “I’m looking more in the long term.”
The house is ideal for them and their 9-month-old baby, said Shoshanna Wiercinski, who works as a bookkeeper at home while her husband works as an electrician.
They’re happy with the quality of the house and America’s First was “fantastic,” she said. “We plan on being here at least 10, 15 years.”
Of course! You just bought a house for $262,000 which in ten years will sell for $156,000. Payments of $1570, insurance $500, taxes $300 for a house in a neighborhood flooded with stuck flippers and empty houses for rent for $900-1300 (with no takers).
Brilliant.
They’re happy with the quality of the house and America’s First was “fantastic,” she said. “We plan on being here at least 10, 15 years.”
They have a 9-month old and plan to stay 15 years. Why 15 years?
What parent would pull a 16-year old away from the house and school he grew up with just so they can “move up?”
I can’t imagine why anyone would buy a home that they can’t picture themselves staying in “forever” if they had to or wanted to. And moving with kids and making them change schools is simply nasty.
NoVa is taking a beating no doubt. But, why do you suppose its so high on Moody’s list? Although by far overpriced, the area truely has one of the highest median incomes and job growth rates in the country.
Second, what about this - are new construction areas somewhat buffered from big declines? Since everyone has paid (overpaid) the builder about the same price, doesn’t that buffer the downside somewhat? Sure a few will sell for a loss, and some get foreclosed, but I expect the majority would stay off the market. However, take places like Arlington & Fairfax, where the majority of housing existed Pre-Boom, and most owners owe less than 1/2 of the “value.” Aren’t these homes far more vulnerable to a decline, as sellers can afford a big hit and still make more than they deserve?
Your conclusion is that assets bought at lower prices relative to current values are more vulnerable to price declines. This argument rests on a lot of naive and faulty assumptions, IMO.
One assumption is that sellers, and not buyers or a combination of buyers and sellers, determines price. Another is that people don’t either consciously or subconsciously “mark-to-market” the value of their assets and liabilities and keep an internal balance sheet based on that. Further, and most importantly, you assume that people make selling decisions primarily based on perceptions of profits and losses rather than on fundamental factors.
If anything, people who bought long ago have shown themselves to be more stable, and simply extrapolating this behavior would lead one to conclude that they are less, not more, likely to sell. Probably one of the best predictors of how quickly a house will be placed up for sale is how quickly (1) that seller, and (2) that house sold/were sold previously.
And what’s this “deserve” nonsense? Guess Karl Marx is alive and well.
Alright, good points. I don’t dispute that fundimental factors generally govern the decision to sell (relocation, financial issues, etc.) However, I think it’s a safe assumption that in neighborhoods where people have zero equity, selling at a low price may not be an option. People would likely not relocate, or rent out their house even at a loss. Conversely, in neighborhoods where the average owner has hundreds of thousands in equity, they have the freedom to negotiate a sale, even at a low price. My point is that as Market price is set by Sales, there would be a lot more data points in these older neighborhoods, and more significant declines.
Personally, I see empirical evidence to support this. I see houses in older neighborhoods listed 15% below last year’s listings. Plus, I see numerous price reductions as well. In new construction neighborhoods (particularly recent ones where owners bought at the peak) you just don’t see big reductions. People can’t take the loss, so they stay put. Other than forced/bankruptcy sales, I don’t expect a lot of transactions there.
So, I think that while new construction buyers might be stuck for a while, they should fare better than older neighborhoods buyers, where your neighbor may have paid half of what you did for his house. If he must, he can dump it for 25% off, taking your “value” down with him.
Nonsense. The bank is always willing to sell it for a loss, just to get it off their books.
The job market in DC metro is being fueled by exhorbitant real estate sales and exhorbitant defense spending. Both can’t go on forever.
yeah, that commute from INDIO to ANAHEIM every day is a killer!
>>>“Jennifer Langrill said she fears that the prediction of falling prices could mean that she and her husband will have to lower the $479,000 sale price of their house in Indio. They have been trying to sell it for three weeks. She said they bought the house in December and intended to stay, but a job opportunity in Anaheim has them heading back to Riverside.”
The First decline in homes values year over year since the Great Depression. That is the biggest headline regarding housing since this bubble started unraveling. No one seems to notice how powerful this projection is. First national housing price decline in seventy five years seems to hardly get noticed.
Hmmm… seems that the big drops predicted by Moody’s have already happened in most of those markets. Of course we haven’t seen those kinds of drop in the official median prices which are (cough) still “going up” in some areas where 3 of the 5 sales that still close are millionaire mansions, but in comparing actual sales $/square foot for similarly aged properties in all the zip codes I track. I think if you add “[ ] will see declines of x% by the end of 2006″ these projected drops would be more accurate. The freefall will accelerate in 2007 and 8.
‘Judy Lowe, an executive vice president with Realty Executives of Southern Arizona, said Tucson is growing too much for such a decline to occur.’ [Arizona Daily Star]
Why should Tucson’s growth protect it from price slides?
Only if the growth creates some scarcity, and in Tucson I see no scarcity (for the next 5 years or more) of any of the following:
- Sellers of existing homes (from among the huge pool of speculators)
- Land for new homes
- Builders (who will keep on building and selling houses, as long as the price is above their costs)
The same applies to Phoenix. Speculative investors were persuaded to believe that growing cities must mean rising prices but, while builders can keep on building, population growth is no reason for prices necessarily to rise.
You see, Judy, the fact that Phoenix and Tucson are growing is not something builders have not noticed.