How low will real estate go?

msnbc.com ^ | 9-11-06 | Lacey Rose

[Hydroshock]

Get used to it ¡ª the seller's market is closing up shop. The days of fat, fast home value increases are gone. Pack away those flipping fantasies.

"The boom is definitely over, there's no debate about that," said Mark Zandi, chief economist of West Chester, Pa.-based research firm Moody's Economy.com. "Now the question is more how hard is it going to land, if it lands at all."

The answer? Depends who you ask ¡ª and what location you're talking about. How to feel about it? Depends which side of the market you're on ¡ª and what location you're talking about.

Story continues below ¡ý -------------------------------------------------------------------------------- advertisement

--------------------------------------------------------------------------------

Few, if any, economists are enthusiastic about current market conditions, thanks to a host of bleak figures recently released by home builders, federal agencies and the National Association of Realtors.

[mikeandike]

Buy low, sell high.

[Roses0508]

Lower would be okay for me. We are in our home for the long term and would like to make some real estate purchases as long term investments. I've been waiting for prices to drop. The game is to figure out where the bottom is and get in before it goes back up.

[stylin19a]

Buried in the article

Not surprisingly, Lawrence Yun, a senior economist for NAR, is more optimistic. He claims that the market has returned to more earthly figures after a period of unsustainable growth. "Any decline will be very short-lived," he said. "By the spring of 2007, the market will begin to see increased sales and strengthening in home prices."

sky-is-falling - ping

we're doomed -ping

i-told-you-so-after-10-years-of warning - ping

[Obadiah]

Let's see. Economy booming? Check. Gas prices moderating? Check? Inflation controlled? Check. Housing market? Hmmm...yeah, let's bash that and see if we can't talk it down and make people feel bad. Let's talk about how values will only increase 3 to 4 percent rather than 8 to 12 percent. Horrible! HORRIBLE I tell you!

[caver]

Another gloom and doom story for the housing market.

Not happening in central Indiana.

[PeterPrinciple]

The game is to figure out where the bottom is and get in before it goes back up.

No the game is to buy when it is on the way back up. That is how you know it is past the bottom.

[JustDoItAlways]

If you look at building materials prices over the past couple of years, many materials have more than doubled over the past two years. The housing bubble has helped drive that.

But now we should be saying, what goes up, must come down.

[HEY4QDEMS]

The game is to figure out where the bottom is and get in before it goes back up.

My moron brother-in-law, keeps telling me how the home prices in my neighborhood and going to be less that 100k within a year, (we live in Boston metro -west), dream on.

He's a bum and a loser always calling me for cash so his phone won't be shut off, or so he won't be evicted and always talking about his next get rich scheme.

[theBuckwheat]

The left normally loves to ignore the principles of a free market. But, it seems that they cannot wait for the free market to work and they hope that the "clearing" price for homes is far enough below the going rate that it will do what, exactly? Indeed, why the cheering from the left that housing prices may go down? What values, hopes and expectations are we seeing in this display of projection? That it will be emotionally satisfying to see others take a financial hit because they foolishly paid too much? Is there also a hope that any dissatisfaction this may cause can be picked up by the left and translated in to votes and power? Looks like it from here!

[Hydroshock]

We got the same brother's in law?

[what's up]

You are saying nothing new.

The MSM spouts this every day. It's old, old news.

[SouthernBoyupNorth]

Low enough for me to buy a unattached SFH? I hope....

[Common Tator]

When gasoline prices go through the roof the public can not afford bigger house payments. The price of Gasoline is starting to fall. Gasoline will fall a lot more. As it does home sales will go up.

[Disturbin]

"My moron brother-in-law, keeps telling me how the home prices in my neighborhood and going to be less that 100k within a year, (we live in Boston metro -west), dream on."

You can't get a trailer in metrowest for under 100K!

[stylin19a]

He's a bum and a loser always calling me for cash so his phone won't be shut off...

I think i see a solution here....

[Lurking in Kansas]

Here we go again.

Hey, MSM, get a clue, that's why is called a 'cycle'.

[wtc911]

If you are investing in RE long term then buy when it feels right, don't try to time it and get in at the bottom. Buy low sell high is the phrase, not buy at the bottom, sell at the top. Trying to time it will drive you crazy and the odds of getting it 100% on target at both ends are minimal at best.

The key is to make sure that the income on the property services the debt (including expenses) plus 15%. You won't go wrong that way no matter where in the cycle you buy.

Good luck...

[Jim Noble]

Bulls make money, bears make money.

Pigs get slaughtered.

This will be over when every no-down-payment loan, every interest-only loan, and every negative amortization loan is liquidated and the borrowers (who haven't sold already) are all dead on the floor.

[HEY4QDEMS]

I think i see a solution here....

LOL

[Youngman442002]

So if you are out looking for a new house....ask the owners if they are liberals.....or I should say "progressives"...if they say they are....then offer them 25% less....they know they should take it...because the housing market is bad....the MSM has told them so

[Paisan]

You're right. I just checked Realtor.com. Nothing's coming down in MA.
I live in SC and I check periodically to see what I would pay for a comparable house in my old neighborhoods - 01760, 01701, 02301.

[Moonman62]

Few, if any, economists are enthusiastic about current market conditions, thanks to a host of bleak figures recently released by home builders, federal agencies and the National Association of Realtors.

The Citigroup analyst had good things to say about the home builders yesterday.

[wtc911]

Pigs get slaughtered.

-----------------------------------------

Pigs get fat - hogs get slaughtered.

[Moonman62]

This will be over when every no-down-payment loan, every interest-only loan, and every negative amortization loan is liquidated and the borrowers (who haven't sold already) are all dead on the floor.

That sounds a lot like what the liquidationists told Herbert Hoover at the beginning of the Great Depression.

[colonialhk]

They are also missing the point that the cost of materials has gone way up so if you compare the cost of building what you may have now you are way ahead of the game. Unless you are leveraged out the ying yang!

Statement to the pundits....Its where I live....not a liquid investment!

[Moonman62]

When gasoline prices go through the roof the public can not afford bigger house payments. The price of Gasoline is starting to fall. Gasoline will fall a lot more. As it does home sales will go up.

Interest rates are already going down, which is even more important.

[RockinRight]

Let me know when I can buy a 2500 square foot colonial for a dollar.

;-)

[OldEagle]

My personal opinion is that prices went way too high after Katrina and now normalcy is returning.

[Obadiah]

Funny you should mention that, as no one else has. Unbelievable how the cost of building materials have gone up. Because of a recent hail storm, we got an estimate to reside our house. $16k just to reside the house! We know what we paid to build our house in 1998 and were amazed by this cost. So, if it costs $16,000 just to side our house, imagine what it would cost to build it today!! Oil has increased prices in everything, including housing.

[Toddsterpatriot]

Is there also a hope that any dissatisfaction this may cause can be picked up by the left and translated in to votes and power?

Yes. The question is, why do supposed conservatives on FR join in and cheer for a crash?

[DCPatriot]

Lawrence Yun, a senior economist for NAR...National Association of Realtors, is more optimistic. He claims that the market has returned to more earthly figures after a period of unsustainable growth. "Any decline will be very short-lived," he said. "By the spring of 2007, the market will begin to see increased sales and strengthening in home prices."

I've been a realtor in the Washington DC, Maryland region for almost 29 years.

Mr. Yun is on crack!

I predict $700K SFD (single family detached) homes in Montgomery Country Maryland will be selling for below $600K by the Spring of 2007...Townhouses at $400K will be mid to low $300's.

IOW....at 12% to 15% decline in SOLD prices compared to today.

[svcw]

Well, falling hah! where does this stuff happen. Not in my neighborhood. An ordinary, nice but ordinary, house are selling at over 1M is just a few days. We bought our house in 1993 for 300K, just listed it for 1.3M and it sold in one week....weird just plane weird.

[akorahil]

Let me know when I can buy a 2500 square foot colonial for a dollar.

Like this?

[NY.SS-Bar9]

Nothing's coming down in MA.

Ditto in the nortern NYC suburbs - the number of sales is flat or down, but the prices are up 8% this year.

[Leroy S. Mort]

Well, falling hah! where does this stuff happen. Not in my neighborhood.

Nor mine. Appraisals are up over 30% where I live and there are three new very high end subdivisions being built within a mile of my house.

[Katya]

Ten years after any boom and bust....everyone wishes they had bought during the LAST boom. Prices may decrease in the short term, but don't expect it to last for more than five years....if that long.

[spanalot]

Pigs go to the trough, hogs get slaughtered.

[Alberta's Child]

There is no way the U.S. housing market is going to go into any kind of major across-the-board decline. The reason for this is quite simple . . .

This country's standing policy of unfettered immigration (legal and illegal) pretty much guarantees that there will always be robust demand for housing -- particularly in our major metropolitan areas.

[roaddog727]

"The key is to make sure that the income on the property services the debt (including expenses) plus 15%. You won't go wrong that way no matter where in the cycle you buy."

BINGO!

We have a winner!

[2 Kool 2 Be 4-Gotten]

A minor housing downturn is a threat to the real estate market (by definition) and the larger economy as a whole (maybe worth a percent or so shaved off of GDP estimates).

The biggest danger I see is a major housing downturn posing a threat to the entire financial system such as the 80's S & L situation, or the Japanese situation in the 90's, just made worse by the leverage and the use of exotic deriviatives and hedging strategies. Don't know how likely such a scenario is but that is the one that probably keeps Bernanke awake at nights.

[theBuckwheat]

>>
...why do supposed conservatives on FR join in and cheer for a crash?
<<

Everyone likes their own expectations of the way the market is going to behave to be validated.

The difference is that a conservative knows that there are timeless principles at work (even if they are not always clear), and the liberal prefers his own alternate reality, where only good intentions matter, feelings prevail over logic and where events are always foreseeable,

Both parties could, on occasion, arrive at similar expectations from their different directions. This may be the case with the housing market.

The factor that neither party seems to consider is the role of the Federal Reserve (a private corporation chartered by the US government). The Fed flooded the banking system with "liquidity" immediately after 9/11 to preclude that event from tripping the economy into a recession.

Whenever the Fed injects money, it must go somewhere. It never just sits. The last time they injected money was in the months prior to December 31, 1999 in an effort to guarantee that the financial system would not seize up in the event the worries of the Y2K Alarmists came true. Even though the Fed turned the spigot off just a few months later, that "liquidity" (ocean of US Dollars in electronic form), washed into the stock market.

As the economist Ludwig vonMises warned, when the central bank puts more money into the economy than it otherwise needs, the excess helps give people the *appearance of prosperity*, and this leads to them making unwise investments, and borrowing money for unwise purchases.

Then, as now, this "mal-investment" shows up as a bubble in some market that is large enough to absorb it, and as the realization of the true value is made by more and more participants, they stop spending. Now they have to make the mal-invested money pay off or they cannot service the loans they took out.

This is all classic business cycle theory from Mises and the Austrian school. (They have some wonderful seminars and lectures in free podcast, MP3, form and free, downloadable books at www.mises.org)

So, the housing market will eventually come back to true value in areas of the country where easy money has financed too many unwise buyers. The rise in interest rates makes this a natural event that will come, just as surely as the rising of the sun.

The best thing that government can do is to not pump more money into the than the economy otherwise needs. The second best thing that government can do is to allow the market to clear the excess prices naturally. This will mean some pain, but it is far more healthy than if government tries to protect malinvestors from themselves.

[Eagles Talon IV]

Yes of course. MSNBC as the epitome of prognosticators has deemed the Real Estate market has gone into a decline from which it will never emerge. In fact, home prices will get to a level where the seller will have to give is home to a "taker". not a buyer because the only cash transaction that will take place will be what the seller has to pay the "taker" to own his property. You can't make this stuff up.

[Eagles Talon IV]

Yun was speaking broadly while you are talking about one specific area that may have seen extraordinary appreciation in the past few years.

[Mariner]

"Not happening in Indiana"

It's happening in Phoenix.

While the official numbers show a flat market...unsold homes have increased to 50,000...approx 8 months of inventory. MANY of those homes are owned by investors...or even people who have to move. Another bunch are new homes built on spec.

All will eventually have to be sold at some price but NOBODY is buying, including myself.

I'm RENTING a new home of 1700 sqft at $1000/month. There are 3 other rentals on the same block and another 5 homes for sale. Overall about 10-15% of the subdivision is for sale or rent or both. About 1/2 of those are not occupied.

As the inventory mounts people are getting desperate...those who HAVE to sell. Prices are beginning to move down and homes are beginning to move...very slowly...

The correction is in process here. Subdivisions where homes sold for $350k in early 2005 are moving homes at $290...angering the buyers from 2005.

Why ANYONE bought a home in a frenzied market is beyond my level of comprehension. It's clear prices will continue to fall with this level of inventory and interest rates inching up.

The MLS has home that have been on the market for over 6 months and gone through 5-6 price reductions. Once they finally sell, we'll see some SHOCKING numbers in the next NAR quarterly reports.

[2 Kool 2 Be 4-Gotten]

Most excellent post.

[NYC Republican]

Nothing's coming down in MA. Ditto in the nortern NYC suburbs - the number of sales is flat or down, but the prices are up 8% this year.

Same story in Fairfield County, Ct.

[stockstrader]

That's because the Indiana market has been absolutely pathetic over the last several years. Real estate appreciation has been near the bottom of all 50 states--with better appreciation almost EVERYWHERE.

[who_would_fardels_bear]

"The game is to figure out where the bottom is and get in before it goes back up."

There's a place near hear called 'Bare Elegance' where you will find a number of fine bottoms. And yes, you do have to get to them before they go back up ...
... on stage.

P.S.: As far as whether or not we had/have a real estate bubble imagine a group of tightly clustered single family homes located just around the corner from a strip bar, off a major secondary route, and located under a freeway flyover. This may not be a bubble, but someone has been smokin' some strange stuff lately.

[caver]

"That's because the Indiana market has been absolutely pathetic over the last several years. Real estate appreciation has been near the bottom of all 50 states--with better appreciation almost EVERYWHERE."

That may be true averaged over the whole state but south central Indiana has by my guess, higher than avearge home prices. I have watched certain neighborhoods go higher and higher. Of course, these are the most desirable neighborhoods.

It sounds like a good thing for Hoosiers that their houses are not over inflated. Why by something that is worth less only a couple of years later? People have to be responsible for their own buying decisions.