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Some Real Estate Won't Recover in our Lifetime ^ | December 22, 2011 | Mike Shedlock

Posted on 12/22/2011 7:20:17 AM PST by Kaslin

A statement by Lawrence Yun, chief economist for the National Association of Realtors as listed in a report on existing home sales caught my eye today.

"From a consumer's perspective, only the local market information matters and there are no changes to local multiple listing service data or local supply-and-demand balance, or to local home prices" said Yun.

On the surface, the statement seems incredulous. How can the national data be completely screwed up, in need of major revisions, if the local data is accurate?

I had a chat with Calculated Risk today regarding that statement by the NAR. Calculated Risk explains various ways the national data can be messed up even if the local data is accurate. It has to do with procedural errors in NAR methodology, extrapolating local data to national trends.

Major Procedural Errors

Calculated Risk covers the revisions (with a nice set of charts), but not the discussion above in his post Existing Home Sales Revisions

When Did Housing Peak?

In our discussion, CR thinks as do I the Summer of 2006 top as shown by Case-Shiller is inaccurate because of Case-Shiller misses incentives such as "free" garages, pools, landscaping, and other upgrades and incentives that started in summer or Autumn of 2005. Moreover, Case-Shiller does not include condo sales, and condo prices started crashing summer of 2005.

I have the peak Summer of 2005, CR has the peak somewhere between summer of 2005 and Spring of 2006. We both agree it was a rolling peak that started slowly, then spread like wildfire mid-2006.

ECRI's Recession Call and Track Record

I also chatted a bit with Calculated Risk on the ECRI's recession call. CR brought the subject up, not me, and he is in general agreement with my interpretation in A Look at ECRI's Recession Predicting Track Record

In regards to a double-dip or back-to-back recession ideas, so far CR has been correct. He did not see a recession in 2011 and one of the reasons was investment in real estate is at or near the bottom and will no longer be a subtraction to GDP.

Indeed housing was a net addition to GDP this year, primarily because of multi-family.

Where to From Here?

In regards to how long this will play out, I think a decade. CR is a bit more optimistic but shadow-inventory (REOs and foreclosures not yet listed) places downward pressure on home prices now. As prices bottom and start to rise, those hoping to get out at higher prices will add to further supply down the road.

Once housing prices bottom, it will not be a mad dash to new highs. "Someone who bought a house for $1 Million who can now only get $500,000 will likely not get back to even in our lifetimes" says CR , adding with a presumed grin, "it certainly depends on how old someone is now".

Let's just call it decades, admitting "local conditions can vary" and leave it at that.

TOPICS: Business/Economy; Culture/Society; Editorial
KEYWORDS: economy; nosale; overpriced; rentalslavery

1 posted on 12/22/2011 7:20:20 AM PST by Kaslin
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To: Kaslin
only the local market information matters

Not all markets fluctuated equally. California's bubble was not indicative of the conditions here in Tulsa. That's a big reason national statistics don't represent (all) local markets.

2 posted on 12/22/2011 7:24:32 AM PST by LouAvul
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To: Kaslin is showing my house in Phoenix being worth less now than what I paid for it in 1984.

3 posted on 12/22/2011 7:27:50 AM PST by DuncanWaring (The Lord uses the good ones; the bad ones use the Lord.)
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To: LouAvul

” That’s a big reason national statistics don’t represent (all) local markets “

Conversely, just because houses in your neighborhood are selling like hotcakes, it’s not indicative of national recovery....

4 posted on 12/22/2011 7:28:34 AM PST by Uncle Ike (Rope is cheap, and there are lots of trees...)
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To: DuncanWaring

Zillow can be all over the place; on my home they short me one full bath and one bedroom, attempted corrections on my part having no change affected.

5 posted on 12/22/2011 7:33:31 AM PST by ErnBatavia (Obama Voters: Jose Baez wants YOU for his next jury pool.......)
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To: LouAvul

Nor here. Prices in my neighbor hood barely fell and have actually continued to rise after the initial debacle.

The time on market rose somewhat but prices did not fall.

6 posted on 12/22/2011 7:39:06 AM PST by bert (K.E. N.P. +12 ..... Crucifixion is coming)
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To: Kaslin

They have just started the recovery process of coming back from government manipulation of the housing market by PRICES DROPPING BACK TO A REASONABLE LEVEL!

7 posted on 12/22/2011 7:42:56 AM PST by Mad Dawgg (If you're going to deny my 1st Amendment rights then I must proceed to the 2nd one...)
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To: Kaslin


The stagnant economy is weeding out the home buyers who were in over their heads. Foreclosures are resulting in rental demand for those who forfeited ownership. Conversely, long-term renters with good credit and savings are now able to purchase homes for less than rent.

People whose equity is higher than current value will stay put.

Real Estate speculators will buy up cheap houses as income property or HUD will step in.

Losers and winners, winners and losers.

8 posted on 12/22/2011 7:45:30 AM PST by sodpoodle ( Newt - God has tested him for a reason..)
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To: Kaslin


9 posted on 12/22/2011 7:46:28 AM PST by GOP Poet (Time for Bambi and his commie crew to go.)
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To: Kaslin

If by never recover, the author is referring to markets located in the slums, he may be right. our lifetime? Uh...that’s just wrong.

10 posted on 12/22/2011 7:51:56 AM PST by irish guard
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To: Kaslin


Real Estate is local; the “sand” states are far worse than the national averages. Some of the better R/E areas around the nation are getting by ok in terms of being able to sell property.

Also, the R/E problem is exacerbated in states where the politics is liberal. Many people know the local economy will be better in conservative states, so the migration will continue until local liberalism is abandoned and then some.

Also, big corporate builders are not the way to go in terms of having a healthy economy and R/E market, but that’s what we have doing much of the building out there.

Once again, small business on the short end and the national economy follows suit.

It’s not the answer many people want, but nonetheless, it’s simple arithmetic.

11 posted on 12/22/2011 7:52:11 AM PST by PieterCasparzen (We have to fix things ourselves.)
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To: ErnBatavia

Zillow appraised valuation is just like anything else that costs you zero, you get what you pay for.

You seriously want to know current market value, hire a licensed appraiser.

12 posted on 12/22/2011 9:36:43 AM PST by X-spurt
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To: Kaslin

Shedlock’s analysis is based on the assumption that we do not get runaway inflation of 10% or more. Long term, housing always goes up with the rate of inflation, assuming income inflation roughly keeps up at the same rate more or less. So if we get to a 10% annual inflation, which is less than the late 70s/early 80s, then we could easily see nominal house values quickly rise back to peak values.

Shedlock’s assumption is, absent stout inflation, assuming we remain in this deflationary climate for the rest of our lifetimes, then yes the peak nominal house values in bubble ares may not be seen again for the rest of many of our remaining lifetimes. I’m 53 so that is only 25 years for me. Fortunately, I bought in California long after the peak decline in values, so while I took a haircut, my value didn’t suffer much and I still am locked into 5% in the event we get that horrific inflation at some point.

13 posted on 12/22/2011 9:42:00 AM PST by Freedom_Is_Not_Free (We be fooked.)
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To: Uncle Ike
just because houses in your neighborhood are selling like hotcakes

Houses in my neighborhood are not selling like hotcakes. That wasn't my point. In my neighborhood, housing did not experience anything like California's "bubble." Our housing prices didn't go into orbit. Therefore, when the adjustment came, housing prices didn't drop all that much in Oklahoma. But the market is still slow, just like everywhere else.

It's slow because lending regulations have tightened across the board. The market was on fire thanks to that fat pig clinton insisting bad credit people get loans. The lending market crashed and now lenders don't lend to bad credit risks. They discovered why those people have bad credit in the first place.

My point was that it's impossible to declare a national "condition" of the housing market because different areas of the country vary widely. That's what the article is suggesting.

14 posted on 12/22/2011 10:25:43 AM PST by LouAvul
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To: bert
That was my point. Here in Tulsa prices have actually risen 3% although it's harder for first time buyers to get loans. I "dabbled" in real estate, and every realtor knows that first time home buyers are what fuel the market. If they can't get loans, the market is in trouble. That's pretty much part of the current problem.

But yes, you're correct, it appears that the market has slowed considerably.

15 posted on 12/22/2011 10:29:10 AM PST by LouAvul
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To: DuncanWaring

ZIllow is getting better in some of those areas their models have traditionally been problematic. Here in the pacific northwest, it’s dead on.

I was in Phoenix a few months back, the west side, and it has really turned around there. Still a ways to go, but it doesn’t look like Beirut anymore.

16 posted on 12/22/2011 10:37:44 AM PST by moehoward
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To: DuncanWaring

Well, not that I don’t Arizona, I do.

But I’ve always noticed real estate *stability* at a price (not necessarily the high amount) is determined by its human habitable status without modern technology or infrastructure.

For instance, the NE is so highly valued no matter what, even in the worst of times, because if everything were to break and stop working (EMP, Aliens, natural disasters) there is plenty of farmland, food and water to naturally live off without much effort right there by your community.

In Arizona, you die... and fast.

Low water, no farmland, no nuclear power (I think?), no life.

I don’t think this will ever change about real estate.

17 posted on 12/22/2011 4:39:22 PM PST by Individual Rights in NJ (Infidel Inside)
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To: Kaslin

Bubble = gov’t intervention.

18 posted on 12/22/2011 5:22:39 PM PST by 4Liberty (88% of Americans are NON-UNION. We value honest, peaceful Free trade-NOT protectionist CARTELS)
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