What Is Your Mid-Year Prediction For the Housing Market?
What are your housing market predictions at the mid-year point of 2006? Call any market; local, regional or global. This thread will be forwarded through the holiday weekend.
Or this from the topics thread. “How about: Mortgage Rate Predictions For January 1st, 2007.”
A reply, “I’m already giving myself a little pat on the back for the prediction of a 7% 30yr rate by July. All of my LO’s thought I was crazy last winter. I think we’ll hover between 7.0%-7.5% for remainder of the year, but cracking 8% wouldn’t surprise me.”
Another said, “Why does this matter? Doesn’t everyone buy with I/O ARMs these days? In fact, other than the super-rich, can anyone in California coastal communities conceivably buy with a 30yr fixed?”
An answer, “Excellent point, but where it’s at at any given time does seem to have it’s psychological effect. I agree with you, though. One of my LO’s made a comment the other day about the 30yr, and my response was to ask her when was the last time she did a 30yr fixed purchase. She just kind of stared at me a few moment.”
It appears the call I made late last year, of a y-o-y decline in June 2006 for national US median existing home sale prices, was incorrect
(or premature ;)).
Yeah, that happened in December, if I remember correctly.
Wait, but the numbers for June 2006 aren’t out yet…I think it will be very, very close.
That’s what I thought until the May numbers came out showing a big price jump over April. We’ll see.
One interesting thing though; I’ve started to see the first references to Calendar Year national median prices never falling. That sounds to me like some RE players are starting to worry that we will indeed see y-o-y national declines by the end of this year, and are preparing a fall back position where they compare all of 2005 with all of 2006.
My prediction is that the house we are looking to rent is also for sale and has be reduced from $710k to $659k just since March ‘06 and it will only continue to fall. It’s in Loudoun County VA - Potomac Falls area. We saw several 800-700k homes with prices slashed out and reduced several thousands. I predict this will continue. Heck, maybe in two years when our lease is up, the seller will be more than happy to sell it to us for half of slashed price!!!
The sellers (flippers) in my town are still in denial. Our yr/yr vacancy runs about 18% because of vacation/2nd homes. Ave age is over 60 and 1.72 persons per household. Have over one years (12 mos)supply of housing on the market. But not to worry. If you want to live here (8500 pop) you have to pay the price. $750k median.
49% of listings are now reduced in Ashburn and Leesburg, VA (Loudoun County). (Since the June listings expired this morning, the remaining homes on the market are a higher percentage reduced, now).
Check this out:
MLS #: LO5438368
43113 BINKLEY CIR, Leesburg, VA 20176
Description
“***huge price reduction* must sell* call first * then just go! Vacant”
Price Reduced: 11/15/05 — $609,900 to $599,900
Price Reduced: 12/28/05 — $599,900 to $599,000
Price Reduced: 01/07/06 — $599,000 to $584,000
Price Reduced: 01/30/06 — $584,000 to $574,900
Price Reduced: 05/14/06 — $574,900 to $549,900
Price Reduced: 06/26/06 — $549,900 to $524,900
The owners must have somehow had it purchased by an intermediary.
Current Owner Name/Address
PRIMACY CLOSING CORP
6077 PRIMACY PKY STE 300
MEMPHIS TN 38119-5766 Current Legal Description
POTOMAC STATION SEC.2GH
200601090002798
LOT 297
Acreage: 0.35
Land Book Owner As of Jan 1, 2006
ROBERTSON, STEVEN J JR & DIANE L RS
OVERLAND PARK KS 66221-2857
Sales Information Recordation Date: 01/09/2006
Sale Price: $590,000
Most recent Instrument ID: 200601090002798
Deed Year: 2006
Total Parcel Assessment Information Land: $151,000
Improvements: $413,100
Fair Market Total: $564,100
Land Use: $0
Is anyone else’s favorite show “Flip this House”? Man its so great to see these flippers all wide eyed and high fiving how much money they are going to make, and at the end of the show the update reads “home still for sale”. You know the show was filmed 9 monthes ago, and you know its only gotten worse.
Holy crap!!! Dude on CNN this morning still touting getting a HELOC - “gives you lots of flexibility and you can tap into it when you “need” to “!!!!!!!!!!!!!!!!!!!!!!!!!!!! Change my prediction, that house I want to rent may go into foreclosure before I can buy it!!!!
Prediction the bottom won’t be seen until a home is just a home and not an investment, as in a consumer item. It wasn’t that long ago they were depreciating assets. And will be again. Prediction Property taxes to sky rocket by August 2007.
Friday, I saw a report on the 2007 effective accounting rules for our/ your local municpalities pensions. Now the current UNKNOWN underfunded pensions is guestimated to be $700 Billion to 1 Trillion. Will this be recovered on sales taxes or property taxes / or both!?
Predictions are a dangerous game.
40%-45% Real declines in So Cal
15-25% nominal declines in So Cal
Certain properties will go for less but as far as the nearly useless stats tracked by the RE industrial complex that is my prediction.
I am thinking late 2009 for the bottom in So Cal. I don’t think any appreciation will happen until later about 2012
mid may was 799,000 in zip states
6/10/06 was 836,471
6/14/06 was 840,935
6/17/06 was 846,120
6/20/06 was 850,317
6/22/06 was 855,892
6/24/06 was 860,647
6/29/06 today 866,037
from
http://www.ziprealty.com/maps/index.jsp?usage=search&cKey=74rbwvlk
Thoughts from the Frontline Weekly Newsletter
What the Fed Really Said
by John Mauldin
June 30, 2006
In this issue:
What the Fed Really Said
End of the Quarter Games
Blame it on the Japanese
Thursday saw a powerful response by the markets in stocks, bonds, commodities, and currencies to the communiqué from the Fed after its recent two-day meetings. Clearly, some were interpreting the communiqué to mean that the Fed had finally come to an end of its interest-rate-hiking ways. The immediate spin was quite “dovish” in terms of future rate hikes and concern about inflation.
That has become a pattern in the last year. The Fed releases its minutes, the immediate spin is that we are ready for a “pause,” and the market rallies. Then we start to listen to the speeches from Bernanke and various Fed governors and are shocked - shocked, I tell you - that nothing has really changed and they intend to keep on raising rates in a measured manner.
zzzzzzzzzzzzzzzzzzzz.
This is part of the hedge fund sheep sheering strategy: Convince sheepish investers that the Fed is pausing (or that the Greenspan put has morphed into the Bernanke put), then sheer those who bought the dip when the market drops back down.
The stock market has gone nowhere since 1999; as Mark Hulbert pointed out in today’s WSJ, the DJIA closed at 11,187.36 on July 7, 1999, which is 37.14 points higher than Friday’s close. You would have been better off just parking you money into bank CDs over the past seven years, despite conundrumishly-low interest rates, thanks to the massive liquidity injections from the central banks of the world. Now that liquidity is draining out of the world’s financial bathtub, who thinks the next seven years will be far better for stock prices?
Maybe this time is different, but if it is not, then stock prices will not really recover until after 2015, 16 years after the onset of the secular bear market which began in 1999. (That date may also correlate well with the end of the housing market slowdown which just started last year.) Just like the three secular bear markets of the 20th century (1901-1921, 1929-1945, 1966-1982), it will most likely take at least 16 years for this one to bottom out.
To those brave or foolish enough to go long in the stock market, try not to tip your hedge fund advisor too much for all the haircuts you will get.
I love the fact that you brought this up. I was tossing out old papers from my file cabinet this week, and I found all of my 401K statements for the last 8 years or so. I had an interesting situation where I had about 100K in one from a previous employer that I did not roll over, so it sat there as a lump sum. That money has largely gone sideways since 2000 or so. It was all in stocks spread out across a number of different funds with different strategies.
One of the sad facts of the demise of the US pension system is the effect of the 401(k) revolution on stock market returns.
Invester education accompanied the massive push from defined benefit plans to 401(k) plans which took place beginning in the late 1980s. Employees were trained to believe that stocks are the best investment (kinda like the way everyone learned that houses are the best investment post-9/11/01!). The macroeconomic consequence of the resulting money flood into stocks was rather severe, as the price level was pushed up to a level where the marginal efficiency of capital was driven to near zero — hence the conundrum. This was great for highly paid corporate officers and Wall Street money managers, but comes at the expense of a very poor collective outlook for baby boomer retirees.
“The stock market has gone nowhere since 1999; as Mark Hulbert pointed out in today’s WSJ, the DJIA closed at 11,187.36 on July 7, 1999″
I noted this kind of thing to co-workers in 2004, again last year and then recently, too. Each time, they all seemed stunned, especially when I pulled out similar language: “a secular bear market.”
Didn’t Buffett, or Maudlin, or some fund manager say a year or two ago that stocks will underperform long term averages for around a decade?
Next up: housing.
sf jack:
Where on what page?
I recently put together a simliar schedule from 1998. DJI , S&P500, NDQ 100, EURO composite. Nikki 225,& FTSE, these indices represent 75% of ALL global market capitalizations in equity assets…best annual return 2.75%..before the June declines..
When displayed in USDollars, as quoted.
However, following a “teaching” discussion with my 16 year old son, it dawned on me, his frame of reference was limited to the idea the USDollar is a “fixed unit” of measurement.
Unfortunately these returns are worse than you would expect versus ANY measurement, except the Yen..The Yen of couse has been locked in a defaltionary spiral for 17+ yrs.
If you run a DJI versus the Euro, CAD - Canadian or Aussie, Dollars or Britiah pound ….the DJI looks like the the NDQ 100 in USDollars. So I asked him if he was in Autrailia, Spain or Germany and its been six years he had been waiting for the BULL to return what would you do now wait some more or get out?
After my son saw these graphs “HE GOT IT”!
Good for you for teaching your son these skills! We need more parents to do that, since it seems schools are incapable of providing even the most basic elements of financial education.
Inventory will continue to rise and the buyer seller stand-off will continue while both sides dig in fro the rest of 2006. Areas which have already experienced extreme appreciation will continue to slowly deteriorate, while outlying areas will continue slow appreciation as the outer reaches of the shock waves propagate outward.
I would not expect meaningful downward price action until the coming wave of foreclosures and much anticipated workforce reductions associated with building and real estate begin to have an impact. This will be the BIG news for 2007 thru 2011 and when the storm abates I predict the middle class will be a whole lot smaller, the poor poorer and the rich richer. Property prices may well decline below the 40 year trend line as lenders swell their inventory of foreclosed properties and are forced to begin dumping en masse.
I agree. I think the buyer/seller standoff will continue through most of the year while interest rates, inventories and foreclosures will continue to rise. The houses for sale just as fishing exercises will come off the market, some oblivious buyers will get their suicide loans and a house, but these will be replaced (and even overcome) by the beginning of the Great ARM Reset. They are a ticking bomb, the elephant in the room no one (but us) wants to acknowlege. That’s when things will really start to change, IMO. I’m using my landlord as a bellweather. He’s ARM’d to his teeth on both the place I’m renting and the place he lives in, with an unstable job and a newly arrived 2nd child, which includes the wife not working.
I also predict that by the end of the year, the Seattle area will finally start showing signs of the bubble seen in the rest of the country.
Hi Lake Hills renter. Don’t know if you are in- city or not.
But all of the in-city zips that I check- about 9 of them - are showing 20 % - 50% price reduced. This is a lot higher than the winter and spring when most were only 20-30 %.
I wonder when was the last time in Seattle that any area had 50% price reductions?
Probably the 1970s. After Boeing lost the SST to the Europeans there were huge layoffs and a mass exodus from the city.
Pretty much as planned. Prices have reached the plateau overall with high end “equity locust bait” still selling pretty much at list price while the lower end is starting to stall and fall (price reduced signs starting to appear more frequently).
Inventory has increased about 15% since May 1st.
Zillow still showing the “top” now as the Zillow curve tends to lag by about 6 months.
The mania of 2005 has been replaced with the deacceleration of 2006.
The fall will come after summer.
I think you have a sensible take on it. I’ve bought a few foreclosures myself, and I know from studying the public notices that it usually takes several months, and commonly a year or more, for a home to be foreclosed and put back on the MLS as a REO.
The ARMS being reset in late 2006 and early 2007 will first cause bill juggling and stalling by borrowers. By fall of 2007 the reposessed property will be building in the hands of landers.
Banks too, can have unrealistic expectations and it takes a few more months before they start writing off the bad debt. I think the close of 2007 and winter of 2008 is when the “real deals” will be showing up.
There are 40 REO’s, bank owned, in Las Vegas MLS as of July 1..
The July, Augsut months are 2 of the slow periods. The panic will occur just like the dot.com…One day everyone will wake up scared, and the slaughter will begin. Who buys a house in the dead of summer
http://www.realestateabc.com/homeguide/reo.htm
GH,
Agree with your prediction.
I posted the article above and this one, with the thought that since we’re being asked what our mid-year projections are, why don’t we look at the projections of some others as well. Especially David Liareah.
Realty Times
Fed Rates Higher: What Happens At 30-year 7 Percent Interest Level?
Jul 01, 2006, 12:00 am PDT
(This should really be titled “Lereah, great Jedi Master of the BS Spin”)
The Federal Reserve has raised short-term interest rates to banks another quarter point — as it has for 17 straight meetings since June 2004. The lag effect on long term interest rates, such as mortgages, is they also rise.
At least that’s how it’s supposed to work. It should cost more to borrow long-term money than short-term money costs banks. Lenders can only make money when they loan at higher rates than they pay.
While the rate hike was widely expected, this last rise brings real estate close to a key psychological and monetary test. According to Freddie Mac, the 30-year fixed-rate mortgage is now averaging 6.78 percent, which is the highest it’s been since May 24, 2002, when it averaged 6.82 percent.
“Financial markets continue to expect more rate hikes by the Fed over the next six months, which has added upward pressure on mortgage rates,” said Frank Nothaft, Freddie Mac vice president and chief economist. “With higher interest rate, the housing market has begun a gradual and orderly reversion towards historical norms.”
The Fed’s position is that “some inflation risks remain” even though there is other evidence, such as the rapidly cooling housing market and other signs of slowing economic growth, that inflation risks could be contained.
Housing which is judged by rising or falling inventories and prices, has been showing signs of slowing both in sales and prices.
The National Association of Realtors reported sliding sales 6.6 percent lower in May 2006 than in May 2005 and home prices are 6 percent higher than last year’s, but that illustrates a slowing rate of appreciation from an annualized rate of over 12 percent for 2005.
Rising inventories nationwide average 6.5 months of inventory on hand, which is the tipping point for a buyer’s market. Buyer’s markets are characterized by rising inventories, longer days on market, price reductions, and seller concessions.
In May, David Lereah, chief economist for the NAR sounded his warning that the Fed should not raise rates much further or risk throwing the economy into recession. While rising interest rates could harm some markets, job growth in other markets is keeping housing balanced for the time being.
“Seven percent is not a key point,” says Lereah. “The announcement today made it clear that the Fed is very concerned about the housing sector and the economy. The Fed took the Fed funds rate to 5.25 percent. I believe they will take it to 5.5 percent and stop. If they stop — we will be okay. If they continue towards 6 percent — mortgage rates will approach 7.5 percent, which is the tipping point for our interest sensitive markets.”
Arrrrrgghhhhhhh!
John Law, are you getting all this?
Lereah, June 6, 2006: Now is the time to pause (with Fed rate at 5.00%), because some interest rate sensitive markets are vunerable.
Lereah, July 1, 2006: Hahahahaha! Just kidding. Even 5.5% would be hunky-dory. But NO HIGHER than that!
I hope BB quotes this if the Fed. decides to go to 5.5% at the next meeting, simultaneously stating they intend to pause at that level (barring dramatic economic changes) until the impacts have worked through. This would mean at least a 6 month pause (and wouldn’t be a bad strategy IMHO).
If the Fed. did this, I think long rates might go up a bit as the yield curve renormalised, but more importantly I think the housing market in many places would crater as the Great ARM Reset mentioned above progressively kicked in.
I predict numerous Florida cities median prices will be negative yoy for Q2, several already are as of May. I think all of the following will show negative for Q2:
Cities YOY% as of May
Sarasota/Bradenton 2%
West Palm Beach 0%
Punta Gorda -2%
Panama City -1%
Melbourne 0%
Ft Lauderdale 3%
Naples 1%
Ft Myers 5%
Ft Walton Beach -9%
Ft Pierce 0%
Alread heard the first excuse for negative medians from a Realtor:
“Oh, this just means more first-time buyers were jumping in ahead of the rate increases. Median indications aren’t that reliable…”
Hah! Of course they loved to tout median prices on the way up!
8% mortgage rates by 1/1/07,skyrocketing inventory,double digit mortgage rates by july,07 as lenders overreact to defaults,which were caused by the lack of underwriting.bye bye middle class.
This is the pregnant pause. Everyone is holding their breathm some so long they risk drowning. Six months ago I was derided for predicting rising rents yet that appears the case. NYC rent control approved a 7.5% increase. This bodes poorly for the general economy. The Fed uses OER (owners equivalent rent) for 27% of their CPI so rising rents will push inflation now as it used to hold inflation these last few years. The obvious mid year prediction; the Fed will change the calculation, following home prices down and thus continuing to underreport inflation. Just because the underreport doesn’t mean they don’t know what the real inflation is running. Thus I retain my prediction of last year that this mid year the Fed will pause once here at 5.25% and resume. This is part because they need time to judge the effects of so many past increases and to avoid looking like they are meddling in the mid-term elections. They are meddling but this is the Fed where appearances count more. Just like the appearance of fighting inflation while the truth is to erode the future value of govt entitlements and prop the banks. And that last is where we get back on mid year housing issues. The Fed must be scared that the percentage of real estate derived income has never beeen higher for financial entities. Compound this with whole new classes of MBSec backed derivative instruments that have never been tested in a declining asset environment. And the GSEs are imploding. Sure, slowly but I suspect that thee metatrend of all the above is for a new reak estate purchase structure. With banks unwilling and unable to lend expect “equity” arrangements. People buying will take a first on 50% from the bank, 25% down from real sources and the last 25% is some form of note or 2nd to the seller. No more cashing out, no more equity nomads, no more flipping. We’ll see the first halting stumbling steps this fall after a summer where no one budges and to the surprise of both sides nothing happens (except in the markets). Sellers won’t budge on price and buyers won’t pay those prices. The flip side of the first half of the year where home types kept the median up as the same money got more house, second half sees a shift to those who need to buy buying just enough house to get by until things correct. Expect the real estate apologists to describe this falling median as just a change in market composition. Expect us to laughat them aand aask where they were in the first half when that was all keeping prices up. Expect the Dems to try a populist housing “solution.” Expect the Reps to respond with a “market solution.” Expect the north Central Valley in California to be frwakin’ hot, trust me, this is not a prediction on the edge. Expect a groundswell of corporate relocations away from Bubbletown. Expect people to adopt the single word Bubbletown to stand-in for Bay Area, LA, San Diego, Phoenix, Miami, Orlando, etc. Expect me to stop now.
Imagine a fat man walking on a tightrope above a pool full of hungry sharks. The FED is terrified by the markets and knows that if they don’t execute to a darn near impossible precision, this house of cards will fall.
It amazes me so many smart people have their entire financial futures tied up in housing. A complete violation of “Don’t put all your eggs in one basket”.
Robert, I laugh when people assume bond holders are that stupid. They are not.
Inflation expectations have been quite close to core CPI. People think that because the price of milk has gone up, that inflation has been high meanwhile, the costs of big ticket items are cheaper relative to incomes than they were in the 80’s or 90’s.
People blame the Fed for the housing bubble and yes, to an extent the Fed is to blame for keeping rates so low for so long, but carry-trade dynamics and excess Japanese liquidity are also equally to blame. It’s very similar to what happens when US money infiltrates small economies and distorts their market dynamics. When the hot money goes, there is carnage.
US rates will go up as the carry trade unwinds. The dollar will adjust against currencies with better fundamentals until ours inprove. The economy will face a brutal recession.
Buy gold and buy yen. When gold cracks, rotate back into stocks and real estate and play the game all over again.
I notice you are no longer recommending to buy stocks
Here, here! Well put!
Glad to see you back (If you never left I hadn’t seen you for a while). I’ve always considered bond investors the grown ups of the financial markets.
well written thesis…I think you’re right!
Thesis? I wrote this while waiting my turn for the waffle machine at the Comfort Inn in Red Bluff. Ben asked for guesses what to expect so i gussed. Thanks.
A limited about of rental increases does make some sense. Most apartment complexes are owned by REITs and absentee passive owners. As interest rates rise on “risk free” government debt, they will demand a commensurate increase in rental return.
IE, is 8% return on a REIT attractive, when 6% in treasuries is possible? For some people, no. They will tell their property managers to raise rents.
Now this is where both Robert and Mozo Maz lose me. I see a housing market that was overrun by speculative buying. Both by flippers and second home “investors”. That market we all agree is going to unwind in a disaster for the buyers turned sellers going forward as the appreciation dwindles and the holding costs mount.
1). (for robert) This would imply an increase in supply of housing available for rent going forward. Both flippers and second home (vacation home) sales don’t displace families back into the market. For instance it was reported earlier on this blog that there are over 16,000 empty (never lived in) flipper homes for sale in PHX alone. This implies to me that rents will decrease in that area as owners struggle to cover carrying costs by renting houses that won’t sell.
2). (for moz) If a landlord (or flipper for that matter) can set his asking rent (sales price) by looking at what he needs to break even or profit then I suspect this bubble will never burst since it implies that no one ever need to lower the rent or selling price below their expenses or purchase price.
I say the market will set the price for both rent and sales. If the REIT’s had the ability to raise rents before now they would have done so. Every market seems to be saturated with houses that are unaffordable to current owners with the cost of money going up (arm resets). With a dearth of buyers it seems some sellers have decided to turn to the rental market. Given flat wage growth and a housing supply increase I don’t see the rental prices going up as an overall generalization (meaning there is probably pockets around the U.S. where this may not apply). Can someone set me straight if this isn’t how this is going to work?
I’m not referring to flippers, so much as traditional multifamily housing, which makes up most of the rental market.
It’s kind of an axiom among multifamily investors that you don’t even think about appreciaition. Just cash flow. Your intent is to squeeze maximum return from the multi, depreciate, and sell to a devleoper in 30 years that will raze and start over.
The market is ultimately determined by what renters will bear. But the initial price rises are caused by managers attempting to collect higher rents, which they will try to do when competing “risk free” investments are returning decent yields.
Mr. Cote,
wonderful post. And I agree with your predictions about restructuring mortgagor/mortgagee relationship. Acceleration clauses will be disregarded and mortgagees will permit “assignments” and “subject to” transfers to a new mortgagor. It’s the only possible way to mitigate the imminent financial tsunami and cushion the crash. But a lot of the junk mortgages have no value and wouldn’t be worth assigning. Those home will definitely be headed for foreslosure and the question is how the deluge of homes offered at foreclosure auctions will affect the negotations between banks and their potential assignees.
“The Fed uses OER (owners equivalent rent) for 27% of their CPI so rising rents will push inflation now as it used to hold inflation these last few years. The obvious mid year prediction; the Fed will change the calculation, following home prices down and thus continuing to underreport inflation.”
I swear to God, if they do this, my brain will explode. I’ll tell ya something else — if they DO do this, expect the markets to cry “bullshit” and push gold parabolic.
“Thus I retain my prediction of last year that this mid year the Fed will pause once here at 5.25% and resume. This is part because they need time to judge the effects of so many past increases and to avoid looking like they are meddling in the mid-term elections.”
If core CPI is even just a fraction over 2.0%, and the Fed pauses, expect quite a few to declare that they are, indeed, meddling.
i’m still pondering what this means:
$ 300,000,000,000 to reset in 2006
$1,000,000,000,000 to reset in 2007
$1,000,000,000,000 to reset in 2008
let’s view this from another angle.
$ 300,000,000,000 to reset in 2006
$1,300,000,000,000 to reset in 2007
$2,300,000,000,000 to reset in 2008
you get my point. it will be like king kong shaking natives off a rope bridge
Nice analogy!!! LMAO
Cereal - Good point - the accumulating volume that isn’t yet addressed in the media, re second re-set of the 2006 morgtage, third re-set, etc.
I’ve recently read an article suggesting the average increase in monthly payments on initial resets during the next 2 years will be 45%.
45% WTF
Back when I had a mortgage, that would have spoiled my whole day.
EOY: Prime Rate 6%
1st National housing price YOY decrease : 9/06
State with biggest hit: Florida
2Q Economic growth: 3.6%
3Q Economic growth: 3.1%
4Q Economic growth: 2.5%
EOY: Prime Rate 6%
Don’t you mean Fed rate? Quite a difference.
Correct, I missed my Wheaties this morning.
Fed Funds Rate: 6% EOY
High-level prediction: Stubborn Orange County sellers will not start making real price concessions until late 2006. 2007 will be a steady slide downward.
I second your prediction, and add that OC will have a harder landing than average, as the mania has lasted longer there, leading bubble prices to more euphoric levels than places which began correcting sooner. Thus OC prices have farther to fall in order to realign with fundamentals than in places where housing market participants are less delusional.
The mania started there earlier too. I recall thinking someone was smoking a rope there in the late 80’s. Sure there has been a downturn since then, but the trend since say, 86, has been upwards when averaged out.
The latest rhetoric to make buyers feel comfortable with buying is say that the speculators are gone. There may not be a lot of new speculators, but there’s a huge number of speculators holding the bag on properties, while their adjustible rates tick up and they hemorrage cash every month. The speculators will be gone when these people are flushed out by taking losses on sales or foreclosed on. This should take a couple years.
My prediction is that the FED is forced to continue rate hike to 6% by early next year. The dollar dropped on thursday ( inflationary). Commodities spiked on thursday ( inflationary). Rents are ticking up ( inflationary). Unemployment is historically low ( inflationary). World economies are growing at a rapid pace, put a lot of pressure on commodities( inflationary). Japan and Europe have indicated that they will be raising rates, putting pressure on the dollar and forceing the FED to raise rates to defend the dollar. As long as the world economies are in growth mode there will be inflationary pressures. It will take a recession or substantial world economic slowdown to take the pressure off of interest rates. Since the FED want’s to maintain growth, inflationary pressures should persist for years, unless the economy falls into recession ( neither scenario is good for housing prices). If the FED is succesfull in keeping growth going we should see mortgage rate at 7.5 - 8.0%, by this time next year.
You left out the interest rate increases, both short and long term…. which are also inflationary. At least for a while.
Business people will borrow at high rates for now, if they still think they are going to grow next year. They’ll just pass the costs on to consumers. (Inflationary)
“The latest rhetoric to make buyers feel comfortable with buying is say that the speculators are gone.”
This sounds great, until one reflects on the fact that it was the speculators who drove prices up to the bubble peak level of last summer. Their current absence goes a long way to answering the seller’s question du juor, “Where have all the buyers gone?”
The answer is quite simple: At least year’s prices, a historically large share of the buyers were speculators, gambling that the recent rate of appreciation would continue for the indefinite future. Now that prices are flattening or falling and inventories are soaring, it is clear that the prospect for future price appreciation is history, and speculative demand has evaporated. Those who most recently joined the game of musical chairs realize that the music has stopped, and there is no chair for them to sit in…
“Where have all the buyers gone?”
This makes me think of the Pete Seeger song “Where have all the flowers gone?” ….aks the sellers “when will they ever learn, when will they ever learn?”
Nice song, apt reference…
I’ve got a list of songs scribbled down at work which I think you could write bubblelicious lyrics for. That one’s number 3 on the list :).
(1 = The Times They are a Changing,
2 = House of the Rising Sun,
total of about 15 so far.)
Personally, I think that a recession is baked in the cake.
1) Inverted yield curve.
2) MEWs are practically done.
3) RE prices are reversing.
4) Declining leading indicators.
There is no more fuel left to burn. IMHO we are headed for a deflationary debt collapse that will crash the economy. People will not borrow to buy more RE when prices are following. A deflationary psychology reinforces behaviour, just as an inflationary one does.
In my area, Queens, NY, housing is 50% to 60% above it’s historical valuations. I don’t know how long it will take to correct. But houses that were $250,000 5 years ago cannot maintain prices at $700,000. It’s never different this time.
We’re just playing here, right? BB will fold like a cheap tent in the face of political pressure and will lower rates sometime in ‘07. It won’t matter. Massive bank failures and personal BK will be the norm going forward. California and Florida will pass up Colorado for the highest foreclosure rates by 2009. Steep drops in housing prices will persist much longer than most bears thought possible even in the face of inflationary pressures on everything else. In the next three years Florida will be hit by a major hurricane, California by a 6.0 or larger earthquake, and gas prices will hit $5.00/gal. The government will respond by printing more money and still house prices will go down. Gen X will forcibly ship all the boomers to Phoenix and New Jersey will declare itself bankrupt.
Gen X will forcibly ship all the boomers to Phoenix.
Gen Xers showing spine, initiative, resolve and long term thinking? Not. Gen Xers will whine that boomers -should- all be shipped to Phoenix and complain when the boomers don’t listen to them. They never listen, wah!, and they always liked my sister best, wah!, and when I wanted that 3/2 w/vu in Pacific Palisades for my 18th birthday? Did I get that? Wah! It isn’t fair, fair to me that is and I’m gonna poPhoenix! Wah!
I’m hearing a baby boomer here… the most narcissistic and self-indulgent generation imaginable.
Didn’t you know? Every generation never had it so good as the one that came before it. It constantly amazes me the venom that Gen X/Y heap on boomers. Just look at your choice of words, they aren’t particularly decsriptive or insightful but they certainly are chosen to hurt. For all the real and major failings of the baby boomer generation none come close to the faults attributed to them by Gen X/Y. Luckily the Millenial generation seems a whole lot more grounded in the common values of the Depression, Greatest and Boomer generations. For some reason, probably from poor boomer parent skills, some Gen Xers are sadly devoid of the moral niceties of common courtesy. They see nothing wrong with lashing out at casual aquaintances with phrases like forcible relocation, narcissistic and self-indulgent. Phrases that would rarely be used without great provocation or evidence by previous generations.
“Gen Xers showing spine, initiative, resolve and long term thinking? Not. Gen Xers will whine that boomers… blah blah blah”
Yeah I forgot to mention “entitled” too. Dude, stay out of the kitchen if you can’t take the heat.
BTW… nothing personal. Your prediction a few posts above was insightful and well thought out.
SF Mechanist checking out: Flame war off.
To me Gen-X living is not about “having it so good” but seeing how inflation and shaky job markets affected one’s parents and aunts/uncles. I was born in 1968 and was old enough to take plenty of lessons watching my parents and relatives struggle though the awful 1970s - early 1980s. It built a strong “saver mentality”
People born after about 1975 would be more likely to have the mentality Robert describes. They may have ignored the 1991 recession as teenagers…. graduated college around 1997… may have gotten cushy tech jobs… moved on to RE sales during the bubble.
Robert has a good point and it affects the quality of exchanges in Ben’s blog. A few days ago, Robert and I disagreed strongly about a particular matter. Our debate was lively and polite, and that latter charqcteristic is the hallmark of this super-successful blog. The difference between “It is…” and “You are…” is enormous in relation to open and spirited exchange of information.
Chill, Bobby, it was said in jest. Boomers have no sense of humor.
Easy fella.
Gen X won all our wars and in record time. Hell, we even posted a shut out in Serbia/Kosovo. I guess we will have to bailout Gen Y’s sorry ass in Iraq. Financially, we scammed all the Boomers in the dot com boom which is fair since we will be on the hook for their retirement since they haven’t saved peanuts. Ha! Who’s the greatest?
Holy moly I didn’t mean to start all that, I was trying to be funny. I won’t touch that subject again with a ten foot pole.
The only problem is we were on the wrong side in the Kosovo ‘war.’ But Clinton needed a diversion from Monica, so we sold the Serbs down the river to the Muslims. When it happened, I wondered why Russia was so mad; then I found out the truth.
ben, i haven’t seen my posts for a couple of days. buggy?
Accoridng to the MD Ass. of Realtors, you’d better buy a house now or be priced out forever, economic fundamentals be damned.
http://tinyurl.com/l2w6c
They predict continuedand indefinite price apprecation while talking about rising interest rates in combination with 1.9% wage growth. My take, OTOH, is this reeks of attempted CPR on our staggering market by trying to scare the sh*t our of people that they’ll be priced out forever. I can’t even find the actual study, BTW. And whoever that economist is, I think she needs to make up her mind (bubble or fundamentals?) and understand that rising rates reduce housing prices, unless people can magically find that extra money somewhere…
Arwen,
The owners only paid 359k in April, 2003. There is lots of room to reduce! Wonder what the advantage is in a paper sale to intermediary?
Note, too, that’s it’s selling for 40K below its county tax assessment. That’s going on in all the outer counties here in the DC suburbs. (The counties are really going to have to adjust their assessments come next January. The likeliest scenario is that they’ll just raise the rates to make it up to their budget).
I wonder if selling it to this “Primacy Closing Corp” somehow qualified them for a new loan on their house in Kansas. I really don’t know how these deals work. I know that the government will buy someone’s house if they’re getting transferred, and then resell it, even at a loss.
Primary Closing Corp. is probably holding the property as part of a 1031 exchange.
Mid year Prediction, 6-month forecast:
1. *Major* decline in the buyer pool by October, across the nation.
2. Continued growth of inventory at a steady pace over the rest of the year.
3. 1/4 point rate hikes at the next three fed meetings.
4. “For Sale” prices will tend to remain at the peak, despite onset of seller panic in fall, or the peak minus 10-15%. People will hold onto their suicide loans hoping for a turnaround until all resources are exhausted and the bank forecloses and sells at auction.
Alternative for #4: Banks foreclose but won’t sell at market value–renting instead. All sales prices still remain at the peak or the peak minus 10-15%, despite continued dwindling sellers and expansion of inventory. At which point, cultural attitutes on renting vs. owning shift over the first half of 2007, homeownership is seen as an investment rather than a rite of passage, and mortgages are seen as the death traps they are.
I mean continued dwindling **buyers**.
I don’t think banks have ever made a business of renting foreclosed homes. It’s not their line of business. Though a really imaginative privately owned bank might perceive this as the least unprofitable policy, there aren’t many such. The managers of publicly owned banks will want to write the losses off as quickly as possible, treating them as a one-time event, so that their bonuses and stock options take hits in as few years as possible, and in subsequent years they can show dramatic earnings improvement (and recover part of those bonus/option losses). It’s possible, though, that the market will collapse so completely they won’t be able to afford to do what they want, so it’s not inconceivable they’ll be forced into renting — only very unlikely.
Banks usually tell tenants to leave when they acquire rental foreclosures. They want it empty.
They don’t want the liabilities that come with occupants being there, and potentially filing lawsuits for code violations or for injuries. Heck, most large lenders like Citibank and Wachovia don’t even manage empty property directly. They farm it out to asset management companies. Provides more arm’s length separation from liability…
The banks also want property empty, because it sells faster that way. Like you said, it’s all about clearing the books.
Banks also look real bad when the have to evict rentors who don’t pay their rent. Makes the evening news every time. No renatl from banks, and they are not going to list property below market in MLS and atagonize all their real estate leads. You can make low-ball offcers to the bank, and structure the financing to your advantage
Banks also look real bad when the have to evict rentors who don’t pay their rent. Makes the evening news every time. No renatl from banks, and they are not going to list property below market in MLS and atagonize all their real estate leads. You can make low-ball offcers to the bank, and structure the financing to your advantage
Sigalarm’s Mid-Year Predictions
Stock market says flat to slightly downward as traders can’t really figure out what the conflicting signals mean. I am calling for a “Black Friday” this October. What happens after that is beyond me. I did, in fact, pull every dime I have invested out of Stocks last week. I figure the worst that happens is I lose about 6 months of stock market gains. I think I can live with that.
The fed as at least 50 basis points left in it. I said that last week and I stick to it. They went with the 25+25 option. Predict the September meeting is going to be a tough meeting of the Fed as some of the factors they cannot control (like China) will be starting to cause problems while they still have multiple inflation and currency warning enunciators going off at once and “Bitch’en Betty” (http://tinyurl.com/jxuox) yelling at them in their headsets.
Housing markets will post nationwide year over year decreases in Q3 2006. No one will care in the general population. At least one major high profile mortgage blow up remaining this year. The amount and severity of FB sob stories reported will slowly creep up. Inventory will continue to rise. Where it stops, nobody knows. I think it is possible for San Diego to break 30K homes for sale by the end of the year. Prices to remain sticky within a 20% range in most cases. If conditions are right we may see our first small market RE melt-down by the end of the year. Not a major metropolitan area, but a small tier 2 / tier 3 city where it gets so bad that folks are starting to capitulate.
China’s economy will start to implode by the end of the year, though only money wonks will see it or take notice at first. China will try hard for the rest of this year to avert the crisis that their central planners can now see coming. Of course the big investors in China can see it coming, and the flow of direct foreign investment will start to draw down as the money people decide to wait it out and see what the communist govenment decides to do. As part of their plunge prevention maneuver, you can count on them using their massive foreign exchange stockpile to try and buy more time. Of course this will just make the crater bigger when they hit. There is a chance that as things begin to come apart over there the Chinese government will try to blame all of their problems on immoral and unscrupulous foreign investors and crooks. If this happens look for them to blame the United States and Japan first and foremost. This will be strictly to try and keep the population in China focusing their outrage at the problems outward.
As a result of their problems, China will try to jack up the amount of exports to try and keep the party going for a while longer. At the same time the rich in China will begin to move their money to safer places such as the United States and Europe. This may keep our stock market up in spite of negative pressures from almost every corner.
“There is a chance that as things begin to come apart [they will try to blame their problems on foreigners].”
No. Not “a chance”, rather, “a certainty”.
‘I am calling for a “Black Friday” this October. What happens after that is beyond me.’
After that: The “Bernanke put” is born, and “buy-the-dips” investing comes back into fashion.
You’re missing one thing in your China analysis, perhaps because while it’s a big thing in the US, it’s not as big there as it is in a lot of the rest of the world (I speak as an Australian).
China (and specifically Beijing) will do whatever it takes to keep the party going until after they host the Olympic Games in 2008.
My prediction: 9% mortgage rate by June 2007.
Ouch! The housing market will be so-o-o toasted if this prediction comes to pass…
Wow — better keep my CDs at 90-days and dust off my looky-loo hat. Wish it were so, to get this over with as fast as possible.
“9% mortgage rate by June 2007.”
IF you have an 800 FICO.
I’m guessing 40% real appreciation over the next 8 years. Flat prices, with inflation eroding away real values.
please pass the bong and chips, thanks!
(Sorry if this is a re-post, first try is not up 30 minutes after)
Sigalarm’s Mid-Year Predictions
Stock market says flat to slightly downward as traders can’t really figure out what the conflicting signals mean. I am calling for a “Black Friday” this October. What happens after that is beyond me. I did, in fact, pull every dime I have invested out of Stocks last week. I figure the worst that happens is I lose about 6 months of stock market gains. I think I can live with that.
The fed as at least 50 basis points left in it. I said that last week and I stick to it. They went with the 25+25 option. Predict the September meeting is going to be a tough meeting of the Fed as some of the factors they cannot control (like China) will be starting to cause problems while they still have multiple inflation and currency warning enunciators going off at once and “Bitch’en Betty” http://tinyurl.com/jxuox yelling at them in their headsets.
Housing markets will post nationwide year over year decreases in Q3 2006. No one will care in the general population. At least one major high profile mortgage blow up remaining this year. The amount and severity of FB sob stories reported will slowly creep up. Inventory will continue to rise. Where it stops, nobody knows. I think it is possible for San Diego to break 30K homes for sale by the end of the year. Prices to remain sticky within a 20% range in most cases. If conditions are right we may see our first small market RE melt-down by the end of the year. Not a major metropolitan area, but a small tier 2 / tier 3 city where it gets so bad that folks are starting to capitulate.
China’s economy will start to implode by the end of the year, though only money wonks will see it or take notice at first. China will try hard for the rest of this year to avert the crisis that their central planners can now see coming. Of course the big investors in China can see it coming, and the flow of direct foreign investment will start to draw down as the money people decide to wait it out and see what the communist govenment decides to do. As part of their plunge prevention maneuver, you can count on them using their massive foreign exchange stockpile to try and buy more time. Of course this will just make the crater bigger when they hit. There is a chance that as things begin to come apart over there the Chinese government will try to blame all of their problems on immoral and unscrupulous foreign investors and crooks. If this happens look for them to blame the United States and Japan first and foremost. This will be strictly to try and keep the population in China focusing their outrage at the problems outward.
As a result of their problems, China will try to jack up the amount of exports to try and keep the party going for a while longer. At the same time the rich in China will begin to move their money to safer places such as the United States and Europe. This may keep our stock market up in spite of negative pressures from almost every corner.
I have been torn between the “black” day decline and the steady slide experienced in ‘02. I don’t believe the market will move sideways until October, primarily because I am of the belief second quarter earnings will disappoint as will the majority of economic data between now and then.
I have believed a catastrophic selloff would occur, but the more I watch, the more I believe major selloffs have historical coincidence. The last half of October seems, from a historical point-of-view, a good bet for a large-scale retreat from equities. Second quarter earnings will probably not be bad enough to trigger such an event, but third quarter earnings coupled with the preceding data most likely will.
“primarily because I am of the belief second quarter earnings will disappoint”
I think earnings will be mostly in line — it’s forward guidance that I believe will disappoint. But hey, same result!
While I wish HedgeFundAnalyst were correct about 9% mortgages next June, I would bet on 8% instead. I predict that prices of housing will look like a Bell curve relative to time: each succeeding quarter will in turn have prices that match a quarter on the other (left) side of the curve, so that we will continuously approach prices that were in effect somewhere between 1997 and 2000, adjusted by the long-term average appreciation of 2-3%. I think 1998 prices would be about right, if there were just a small bit of overshoot.
The advantage of looking forward to prices this way (a leap of faith, that the idea is correct) is that it applies to every market that does not have its prices affected by a huge external event (such as New Orleans). The markets that went up 50% since since ‘98 or so will go down by 50% and then recover just enough to cover the 2-3% normal gain. Podunk, in South Nowhere, might have gone up by only 20% and it will go down by the same 20%.
San Diego: less desirable areas will start to see real (>10%) reductions. Downtown condos will drop even more.
Sellers are hanging on to their unrealistic prices in more desireable areas (but rarely selling).
Numbers of listings might start to drop or level off for 2-3 months as some sellers pull out, realizing they missed the boat…..
And of course the Realtors will have to compare to 2004, because YoY will show declines.
And of course the Realtors will have to compare to 2004, because YoY will show declines.
—————-
I have sales info from Sandicor, and when comparing June 2004 to May 2006 (almost two years), there are many zips with increases, but the following zips show PRICE declines from 2004 to 2006 (granted, some of these areas have fewer sales, and might be skewed, but…):
91906
91916
91934
91941
91978
92020
92021
92025
92028
92040
92057
92082
92091
92111
92117
92118
92121
92122
92123
92124
92126
92127
92128
Of the 89 zips which have sales for both months, 23 are negative. That means 26% of those zips are negative when comparing 2004 to 2006. Still have a LONG way to go, but it’s a start.
“Sigalarm’s Mid-Year Predictions
Stock market says flat to slightly downward as traders can’t really figure out what the conflicting signals mean. I am calling for a “Black Friday” this October. What happens after that is beyond me. I did, in fact, pull every dime I have invested out of Stocks last week. I figure the worst that happens is I lose about 6 months of stock market gains. I think I can live with that.”
Just a question from stupid novice me: Why don’t you use trailing stops rather than cash out now? Perhaps your answer is that your stocks have all seemed to top and are in a transitional stage? I noticed that with RTN and DEO, so I dumped my shares. I’m fixing on dumping PCAR, but put an 8% parameter on that one. I’d lock in a $1500 gain on 200 shares if it goes bad, but it is on a good upward trend. If that tanks, I will be more than 50% in cash in my stock brokerages.
I am being influenced by Simmons’ “Twilight in the Desert.” Any year now, 1/5 of the world’s oil will be significantly off peak. I’m talking Saudi Arabia. Americans are too Pollyanish to consider peak oil. The scary situation is that Saudi Arabia has been pumping millions of gallons of water into its largest oil fields for over 30 years to maintain a high output, and that is very harmful to their fields. They are shooting themselves in the foot. I’m not even half through that book to understand how they can keep this up for 30 years. But one thing for sure is our countrymen are fiddling while serious economic danger lurks. I’ve been very frugal for a few years (although occasionally indulge on extreme luxury travel), buying up gold, platinum, savings bonds, muni bonds, value stocks, and now T-Bills. I’m going to survive this thing. Looks like the best investment this decade will ironically be precious metals and short term government bonds. For the next six months: More of the same. 30 year mortgage rates will be 7.75% before this December. More foreclosures, and more price drops. In a zip code I like, 90277, POS houses have dropped 5%. Well they will be down another 5% by December. I think there will be more stubbornness among the sellers. The south Bay of California has good transportation systems and good jobs (defense, in particular) so these people do not have to really move. Man, if I had $2,000,000 of my own, I would have 90277 as my only address and work as a salaried engineer at Raytheon up Sepulveda Blvd in El Segundo. I’d rent for 5 years and have most of my $2 megs in government bonds.
You state a good strategy for stocks, but to be honest I sort of want to not have to think about it for a while. At present I am working hard to start a new company, and I hardly have time for a decent nights sleep let alone too much time to plan and manage my investments. I went all Money Market & T-Bills. At this point I am focusing on protecting that lump sum against possible near term (6 month) chaos. I am probably wrong, but hey - it’s an experiment!
I think RTN and all the big DoD companies are going to be lower for the next little while. The funding boost for the War on Terror has seem to run its course for the time being. This is certainly true for my former employer BAE Systems.
Good luck to all of us.
Sig: Consider taking a few dollar hedges with your cash. If the chaos you are protecting against happens, it will probably involve a significant loss of value in the currency.
Good luck with your new venture!
I think inventory will rise but at a slower rate as some houses come off the market while others are hesitant and hope for some bounce. The price standoff will continue probably through the end of the year as sellers keep hoping for the rebound that was promised in the spring by RE. We’ll see developers discounting and also sellers who must move their property, but the discounts will not be steep for sellers. Price appreciation wil be flat or in the low single digits as even the high end property sales start to slow down. This is where we may se some capitulation as those who have held out get nervous about rates and cannot do the math. The rest will continue to rent and wait it all out.
Hell hath no fury like a homeowner who suddenly finds themselves on the wrong side of the american dream.
Home prices will be dropping, inventories will be way up. Foreclosures will be increasing. Whether these numbers will have hit that point of critical mass where they become a force large enough to cause a severe economic malaise. Hard to tell. It won’t be very far off though.
Los Angeles sellers will be “deer in the headlights” by the end of this year; Phoenix will begin “Custer’s Last Stand” in the same time period. Blood letting that media can’t ignore in 2007.
One more thought. Mortgage rates will be higher. They will be blamed for being the cause of the housing markets decline. This is not true now and never will be. They are just one data point that is helping to shift the perceptions about housing. The real cause is a combination of a psychological shift in the perception of housing as an investment combined with a number of economic factors that are mostly global in nature. (ps. the “fed” will be blamed too and they will be the least at fault of all the factors).
IMO, it’s **lack of affordability**, even with exotic mortgages that is causing this thing to peak. People cannot afford the payments they’ve taken on unless they can continually cash-out/HELOC to cover their credit cards and make their mortgage pmts. It requires ever-increasing prices. Once that stops, the game ends. Foreclosures will be what shocks all the market watchers, IMHO. So many people are stretched to the limits, financially — literally, a couple of paychecks from bankruptcy. Six to nine months without MEWs, and the SHTF.
Regarding downtown San Diego only…. I predicted that in January that the calendar year change in average or mediam asking price would decrese 15-20%. After almost 6 months since, the figures are -9% and about -7% rspectively.
I believe this trend will continue. Perhaps accelerate.
June for all of San Diego County will likely see its first y-o-y decline in median and avg sold price, probably around -3%.
I won’t predict the long term outlook (12months+), there are too many parameters, just to name a few:
The Dollar could rise 10% as forigners seek a safe (!) heaven, but it could also drop another 30%, in which case some of the coastal markets might see new foreign buyers, which at least would keep high end properties stable in price.
Mortgage rates will go up, probably even when the Fed panics and cuts rates in the spring, but I wouldn’t rule out some kind of federal bail-out of distressed home “owners”. This administration hasn’t done anything good for the middle class, but now might be the time (2008 election coming up). Where is the money going to come from? Same place as everything else: the printing press.
And then there’s the risk of a true recession, but it could take 2 -3 years still. There’s still no shortage of buyers of US debt.
also..btw…who give a $hit if we are right about the housing bubble or not….if you can just walk away and the only penalty is a mark on your credit report.
I think Iran has the potential to be a major wild card, something that may put housing (and everything else) into a deep freeze.
Notice how quiet this issue has been lately? One of their head-type honchos said recently that they’ll need until August (!) to fully review the package of incentives. Blah, blah, blah. They’re stalling. They already know they’ll continue to enrich their uranium, and they think we won’t do a damn thing because of oil. They’re wrong. But, we’re wrong, too. Condi thinks Iran would never jeopardize their economy by hanging up oil exports, but that’s an absurd assumption. These folks gladly blow themselves up to fight the jihad cause. What are the chances they’ll back down when faced with starvation? Nil. Even if this wasn’t such a hot prospect with the populace, the Grand Poobah won’t care. He’ll still eat.
There’s a REAL good chance for an oil scare, and this economy would come to a screeching halt. And wouldn’t the Iranians just love to see that?
I don’t think the Iranians are that stupid! If oil flow stops, they lose 75% of their income. With 70% of their population under the age of 35, the government would never survive.
There is no need to predict if you just follow the fundamentals. When it costs about the same to rent as it does to buy then it will be time to get back into the market. IMO prices have to drop another 40% to get back to equalibrium. It could take 18 months or it could take 10 years, but the fundamentals never lie.
My prediction for San Diego:
Negative 5% to positive 5%, YOY, for the remainder of the year (IMHO, it’ll bounce and give NAR/CAR the ability to call a “bottom” over and over again - HA!). Inventory rises to about 25,000 by September/October before sellers pull listings off the market until spring 2007. In Jan/Feb 2007, SD has YOY price declines of 10%, on average, but inventory will be lower than expected until the short sales and REOs show up in about June 2007. This trend will accelerate through 2009/2010. RE might bottom in 2011/2012 and remain there for a couple of years, unless there is a depression. In that case, all bets are off, and RE might not bounce back for many, many years to come.
—————
Nationwide, by Dec 2006, appreciation is 2%. By Dec 2007, we see national housing prices down by 10% to 15%, and we are in a very bad recession/depression.
MSM economists and “experts” will be **simply shocked** by this.
I don’t see alot changing dramatically until the mass media starts to harp on the falling market. You need that lemming effect to really get things going. They love a good story and at some point the gains of siding with the NAR just won’t be enough for the joyous harping of a good story affecting millions. Mid 2006 is definately slower. I live in Nashua NH and you can now see a few homes(run down ranches usually) here and there under 200 grand. Last year I didn’t see one for sale for that range at all. There are a few articles about frustrated sellers but is still a small story.
Redux:
This housing bubble will result in a national, if not international, depression. It’s everywhere and has permeate markets which would never have had any housing appreciation on their own. There’s no connection between housing and its respective regional job market in any manner. I think Bakersfield CA is one of the best cases for this point.
My advice to fellow renters, with enough of a savings to put in a 20% down payment after a 40+% correction, is to not bother. You’ll need that money to survive periods of joblessness in the decade to follow. Cash is king during a deflationary cycle.