The Case-Shiller housing index has dropped like a rock. Contrarians are calling a bottom. I am still of the opinion that as long as there is a sizeable minority saying that the market has capitulated, the market has not capitulated.
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I dunno. In some areas the prices will continue to drop, but that's because they were absurdly inflated to begin with. In other regions, however, particularly certain "desirable" urban areas and their close-in suburbs, you may start to see a leveling off and even some very modest gains. Most of Washington DC and its inner suburbs, for example, has been stable in price lately.
if you look at the month over month data, this month is a very optimistic report. it's not going to switch from losing 2% a month to positive overnight, but there are clear signs that there is a strong deceleration.
2 months ago (and for many months in a row previously) there were no MSAs that had positive HPA month-over-month
last month there were 2 MSAs in the positive.
this month there were 8 MSAs in the positive.
here is the composite month over month data series for the last 12 months:
-0.20%
-0.34%
-0.68%
-0.85%
-1.38%
-2.07%
-2.08%
-2.30%
-2.63%
-2.17%
-1.36%
it's not a rosy picture, but there are positive signs.
This blogger agrees with you, but notes the rental market is still robust:
http://bannedindc.wordpress.com/2008/06/24/race-to-the-bottom/
Isn't the natural bottom in housing prices the equivalent rental cost? Leaving aside the ownership premium and tax benefits, if the Monthly(mortage + taxes)
When bubbles burst, they will almost always over correct to the downside.
We have a lot further to go, in my opinion.
It does indeed depend on where you are. It doesn't help that all the indices are flawed. Case-Shiller counts the non-conforming loans, but only surveys the largest metro areas. (Raleigh-Durham, for example, which is much like Charlotte, is left out.) The OFHEO numbers leave out subprime mortgages and others. So it goes.
It's not entirely surprising that the rental market has held up in DC (and elsewhere, though I'm less familiar with it), as rents didn't go up so high either. (That's largely why I thought it was a bubble and rented instead of buying when I moved to the area in 2006.)
The regional differences are impressive. There is indeed a pretty strong correlation between how high prices got and how far they've declined. Some obvious exceptions, like godforsaken Detroit and surprisingly healthy considering their price rises Seattle and Portland.
The regional differences are impressive. There is indeed a pretty strong correlation between how high prices got and how far they've declined. Some obvious exceptions, like godforsaken Detroit and surprisingly healthy considering their price rises Seattle and Portland.
Case-Shiller releases the "national" index quarterly (quotes because it's still only 70% of the country, 100 metro areas instead of 20).
Isn't the natural bottom in housing prices the equivalent rental cost? Leaving aside the ownership premium and tax benefits, if the Monthly(mortage + taxes)
I feel that the "ownership premium" is a myth, and people were only paying it when the money was free and they were expecting a 20% YOY return on the house. The elephant in the room are the negative-amortization loans where 80% who had them we're making minimum payments. This means their loan values are increasing, so when the payments reset they not only have to start paying full interest on a higher loan balance, but principal as well. We've just started having these reset, which could potentially put even more homes on the market.
I happen to live in one of the largest bubbles in the nation (San Diego) and it seems like it's nowhere near a bottom. We hit the bubble peak at around 2005. Inflation adjusted, we're still about 30% above the year 2000 prices. I'm thinking the bottom is going to be somewhere around whatever the historical norm is for home price/income ratio.
Agreed.
Definitely location-related; some people like to speak of "a new plateau" but that doesn't make sense if the locals can't afford a house. We sustained the illusion that prices could rise continuously for a while because of the silly loans but reality had to intrude sometime.
(I live in California. It will be nice when prices get more sane— because of the locale, I'm not sure they're ever going to get entirely sane.)
Actually ... the way market lemmings usually work is that when the bulk of folks begin to clamor that a bottom is in order ... it's already long since happened. Markets lead & analysts follow.
Oddly enough, I don't think price history is too informative about future prices; inventory might be of interest. We have found however the appropriate technical term, 'drop like a rock,' that John McCain should use when speaking of terrrorism and economics?
Thank goodness this Presidential Administration made home ownership a key priority, or we'd really be [messed].
ed- WalMart didn't get to be the number one retailer followng the motto "Always high prices."
Am I the only one who thinks lower housing costs are a good thing?
ed- WalMart didn't get to be the number one retailer followng the motto "Always high prices."
Whaaaa??
Considering Detroit: It includes the city and suburbs, which suffer from the inner city rot and the decline of the US auto industry.
Ann Arbor, on the other hand, is not included and I suspect that the real estate numbers there are much less dismal, and possibly healthy. Google recently opened an office there, and the university continues to grow...
hodak-
If your a first time home buyer, or you want real estate at all. Your quite right. Housing is just a symptom of overall market weakness thats why everyone is decrying it.
ben,
Sure, people lamenting falling housing prices are mostly homeowners. My point is that they're irrational for lamenting it, unless they're literally invested in the idea that their property should go up without any work or risk on their part. The reality is that housing is no more a symptom of market weakness than are sailboats or leather handbags.
Even if you have owned a home for decades, you should hope for lower real estate prices just as much as you should hope for lower prices of furniture or automobiles. Sure, your own home is cheaper, but so are all the other places you might want to move into. Everyone, except for real estate speculators, is better off with lower home prices, which, after all, is a reflection of lower land values.
Land is an economic input, like raw materials or energy. It's a measure of how messed up people are in their thinking that they decry the rise in oil prices while bemoaning the fall in land prices.
Re: Ann Arbor, on the other hand, is not included and I suspect that the real estate numbers there are much less dismal, and possibly healthy. Google recently opened an office there, and the university continues to grow...
While Ann Arbor is not in anything like Detroit’s situation, it too has taken a hit—in part because its housing prices were out of line. Also, Ann Arbor too has lost jobs (it’s still in Michigan, you know). I have family there still, so I keep well-informed about
M. Hodak,
Maybe in the aggregate housing price drops are good, but you shouldn't pretend that the aggregate figures don't include millions lot of people taking painful loses. Moving some production to another country can be a net gain for the U.S. as a whole, but I wouldn't expect that fact to be very reassuring to those who are laid-off. There are plenty of people who need or want to sell in a declining market but who won't be in a position to take advantage of declining prices. Also, for much of the country, declining house prices are due to losing jobs in the region.
Land may be an economic input, but housing is much more for most people. I'm not talking about realtor/builder ra-ra. Where you live determines what jobs you can reasonably compete for, the quality of education your kids are likely to get, your odds of being victimized by crime, etc.
Maybe in the aggregate housing price drops are good, but you shouldn't pretend that the aggregate figures don't include millions lot of people taking painful loses.
You'd have to have something invested in the house, to actually lose it. Many of these people didn't own the house, the bank did. I hardly consider somebody who puts zero down, zero closing costs and doesn't even pay the full interest a homeowner.
Where you live determines what jobs you can reasonably compete for, the quality of education your kids are likely to get, your odds of being victimized by crime, etc.
All of those nice areas had rentals available that had half the monthly cost as a house. There is no reason that anybody needs to buy a house in the US to lead a good life. They bought because they wanted to make lots of money in a couple of years without investing any time or money.
JordanT, maybe cities on the coasts have plentiful rental houses, but in most smaller cities and towns in the midwest, rental housing tends toward the lower end of the scale. I don't know about the rest of the country. And, if you do find something nice, it is likely to cost as much to rent as to buy (even assuming 1%-2% maintenance costs a year). And, you are much more likely to be required to move when a rental than a house you own.
I certainly agree that someone with no equity in a house isn't really an owner. I don't see the decline in prices as uniformly bad and one of the good points is that it should shortly become impossible to get those types of loans.
maybe cities on the coasts have plentiful rental houses, but in most smaller cities and towns in the midwest, rental housing tends toward the lower end of the scale.
Rentals can be found in my city (San Diego) in all but the most exclusive neighborhoods. The problem is that housing prices here are completely out of line with what the house rents for. At the peak of the bubble houses that went for over $500K were only renting for $2,100 or so. Close to $1Mil houses were renting in the $3,00 range. The apartment I rent for $1,600, the comps were about $450K My guess is that in cities where the cost of renting = housing is probably a sign that the area didn't see the crazy bubble appreciation, and won't see major declines.
The foreclosure problem is largely in the areas that saw huge appreciation, but without the increase in wages to support it. California, Nevada, Arizona and Florida have the lions share of foreclosures.