Realty reality: Housing prices are headed way down

LA Times ^ | 28 December 2007 | CHRISTOPHER THORNBERG

[dangerdoc]

$20,000 in gold in 1913 would be worth about $500,000 now so where does that leave your numbers?

[fightinJAG]

Your analysis is correct. And quite obviously so.

[fightinJAG]

Google “foreign buyers” “real estate” and “New York City” and see what you get!

[fightinJAG]

P.S. How much new residential construction has occurred in Manhattan in the last, say, five years?

[Soliton]

I sure hope that's a joke.

not a joke, but not a proposal either. just a thought experiment on supply and demand

[Soliton]

Thanks! In almost 9 years on this forum, you are the first to agree with anything I said. :-)

[RFEngineer]

“Money doesn’t disappear.”

It’s most certainly disappearing and lots of it.

Some putz pays $500k for a McMansion in the DC suburbs. His 500k goes to the builder/seller, but he has a $500k asset, and things being what they were the past few years, he probably also has a full $500k note.

Score:

Seller: $500k
Putz’s House: $500k
Putz’s Mortgage: -$500k

Total: $500k

Fast foward a few years. Putz’s subdivision had lots of speculators, and he had a few subprime neighbors.

Speculators couldn’t sell,and didn’t want to pay so they walked. Several houses in foreclosure this way.

Putz’s neighbor A got a new job on the west coast. He puts his house up for sale, but nobody bites. After a few months of eating it, he rents it out to an illegal immigrant clan. They park 10 cars on the street and have loud parties, but Neighbor A gets the cashflow to stay solvent.

Putz’s neighbor B also got a job transfer.....they tried to work the two household deal while the house was on the market, but it looked like a long haul and couldn’t do it.
Nobody wants to live next to the 10-car pileup, anyway.

Neighbor B walks, the bank gets the house back but not before the tenants in Neighbor A’s house strip it of all copper pipes and wiring.

Ok so now Putz’s wife says I’m moving to Florida with or without you.

Putz can sell his house for $500k, or anywhere close. He calls his bank and negotiates a short-sale - at a 30% discount.

Here’s the score now:

Original Seller: $500k
Putz’ House: $350k
Putz’ Mortgage: -$500k

Total: $350k

The $150k delta just up-and-disappeared. Yeah, Putz will have to pay the IRS some fraction of the $150k because of his “gain”, but that’s a pitance.

This scenario is repeating itself all over the place. Money IS disappearing.

Who knows whether we’ll face inflation, deflation, or periods of both....but something has to give.

You tell me....where’d the money go?

[the anti-liberal]

"Smart move in my opinion."

Not just smart, but sane! It would be insane to keep your house on the market with the dollar where it is and the market where it is.

But there aren't many sane folks out there...

[NittanyLion]

just a thought experiment on supply and demand

As conservatives we should know that when government sets artificial limits on supply and demand bad things tend to happen. By way of example, a law limiting everyone to only one house provides a powerful disincentive to those members of society who work hard in hopes of one day owning a mountain or beach home.

[gitmo]

Prices must and will fall. Everywhere.

Our local paper reported yesterday that housing prices have continued to rise in the Charlotte area unabated.

[Soliton]

Money IS disappearing

Yeah, the original seller got it and he made a bundle because the inflated house value

[Soliton]

By way of example, a law limiting everyone to only one house provides a powerful disincentive to those members of society who work hard in hopes of one day owning a mountain or beach home.

What if they allowed a primary residence and a summer home only?

[DB]

I don't think prices will fall to much less than what it costs to build the same house today in today's dollars. There are many expenses from permit fees, water meter fees and material costs that aren't going back down again. Copper, wood and concrete are much more expensive today than they were in 2002 due to world demand and the devalued dollar. That demand is unlikely to decline with China and India finally modernizing. In addition our devalued dollar buys less.

The bottom line is demand for housing and the value of the dollar. If our population continues to grow, which it certainly looks like it will, there will be an ever increasing demand for housing. Since dollars are worth less it will take more of them to buy what one could when the dollar was worth more. Two trends that are unlikely to change anytime soon.

[gitmo]

I want to know when mortgage rates will go down. They’ve been around 6% for a while now. When will the rate cuts affect mortgage rates?

I remember about 30-35 years ago being told that the then-current interest rates (10%) were the lowest I would ever see in my life, and I would be a fool to pass them up.

[groanup]

There was a vicious cycle of credit card spending then re-fi to payoff plastic then run up credit again only to re-fi to payoff credit cards again. That game is over.

I know. It was over in the '70's, 80's and 90's and now it's over again.

It will be over a few more times I suspect.

[NittanyLion]

What if they allowed a primary residence and a summer home only?

Who's "they"? A few central planners in DC?

Are you really asserting that a few elected officials and/or unelected bureaucrats can run the real estate market better than the collective choices of tens of millions of individuals?

[Caramelgal]

Pass a law that says that, henceforth, you can only own one home at a time.

Say what? Are you serious?

Pass a law?

Speculators (the flippers and investors) don’t create the demand. They see a rise or potential rise in demand and jump in while prices are still low enough and demand is increasing enough to make the investment profitable. While a gamble, true speculators know their risks and potential exposure.

Speculation is not necessarily a bad thing. The Western pioneers/homesteaders were speculators. Today’s so called urban pioneers are speculators.

The Gold rush prospectors were speculators and so were the oil drillers. The whole premise of the Stock and Commodities markets is based on speculation.

The free market economy is built on and driven by people willing to take risks and make investments.

As I see it the cause of the housing bubble and its subsequent burst has more to do with people’s unrealistic understanding of basic economics and acceptance of what is affordable. They wanted the big ostentatious house with the big cars in the driveway on a townhouse and compact car salary and were willing to do whatever it took to get it now instead of saving for the future, and buying up over time.

When lenders started coming out with these interest only ARM’s to meet the demand, they were gambling that the borrower’s income and the property’s value would rise proportionately with interest rates. They gambled wrong. But it was the borrowers who made the worst gamble. In many cases they took the, “I’ll worry about that tomorrow” attitude and many didn’t even bother to read the fine print.

[Soliton]

No, no, no. I used that as a way to illustrate a point earlier about supply and demand.

I was in no way suggesting that the government actually do anything like it. I believe in the free market.

[prov1813man]

Saw the same thing in N California. Bought at the end of a slump in the mid eighties for $200k. Turned down offers near $500k in the late eighties. Dumped house on market in 93 for $340, house is now at $1m.

Anyone who has been around for the last 50 years or so recognizes this pattern. At some point in the next 5 or 10 years, armageddon aside, prices will be significantly above previous “peaks”.

[fightinJAG]

If prices do not fall, or lower prices do not sufficiently bring back buyers to the market, the only other thing that can happen is (1) new housing starts completely stop (except for paid-for custom homes)+(2)only people who MUST sell their homes put their homes on the market (IOW, no “just want to move” sellers to increase inventory).