More on Housing Prices
by Tom on August 1, 2009
in house prices
More on the Case Shiller Home Price Index
by Tom on July 28, 2009
in house prices
That chart illustrates part of the “problem” for the news. It’s a very two sided report. If you look at May vs. June, some of them looked pretty good. If you look at June vs. June of 2008, it’s not so good.
This chart shows that the rate of decline has reversed itself, but the rate of decline is quite a bit different than an actual increase in property values.
Not trying to be a bearer of bad news, but we need to keep things in perspective. Are we closer to the bottom in the housing than we were 6 months ago? Absolutely. Are we there yet? I don’t think so.
Tom Vanderwell
P.S. Thanks to Barry Ritholtz for the charts!
Expecting the PMI companies to loosen up their guidelines? Think again….
by Tom on July 7, 2009
in house prices
This is the first report that I’ve seen that is anticipating lower housing prices in 85% of the country in 2011 compared to now. Ouch.
Expect a couple of things if this is indeed the direction the market is going:
- Short of a massive government intervention in the mortgage insurance industry, we won’t be seeing any relaxation of mortgage loan-to-value guidelines.
- Expect that more and more people are going to need solid answers to their real estate needs when they look at the question of whether and when to purchase. I’ll be talking about it more as time goes on, but I’ll give you a couple of hints. Job security, geographic plans, interest rates and housing needs all play into it.
Tom Vanderwell
PMI Expects Lower Housing Prices in 2011 : HousingWire || financial news for the mortgage market
Home prices will be lower in two years compared to Q109 for much of the country’s metropolitan statistical areas, (MSAs) according to an economic trends report released by PMI Mortgage Insurance Co.As many as 324 — just over 85% — of the country’s 381 MSAs are facing the risk of lower home prices in 2011. In addition, 28 of the top 50 MSAs are now in the report’s highest risk category.
Florida, California, Nevada and Arizona are home to 36 of the most risky MSAs, but other regions are not immune, according to PMI’s chief economist and strategist David Berson.
Confessions of a former real estate bull – Jan. 5, 2009
by Tom on January 10, 2009
in Market Musings, house prices
Confessions of a former real estate bull
As chief economist for the National Association of Realtors, David Lereah was famously optimistic. Now a private consultant, he’s abandoned what he calls the ‘positive spin.’
By Donna Rosato, Money Magazine senior writer
Q. Were you wrong to be so bullish?
A. I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right in line with most forecasts. The difference was that I put a positive spin on it. It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.
Q. The NAR’s latest forecast calls for a slight increase in home prices next year. Thoughts?
A. My views are quite different now. I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we’ll see a very modest recovery in sales activity in 2009. But we’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It’ll take a long time to get back to the peak prices we saw in many markets.
Q. Any regrets?
A. I would not have done anything different. But I was a public spokesman writing about housing having a good future. I was wrong. I have to take responsibility for that.
Confessions of a former real estate bull – Jan. 5, 2009.
I think this is one of the first times I’ve ever agreed with David Lereah……
More on the Case Shiller Price Index
by Tom on January 5, 2009
in Market Musings
Looking only at 1 statistic can be a dangerous thing, but I’m going to ask you one question:
If you look strictly at the Case Shiller graph (thanks to CR for it!) tell me. Where’s the bottom in housing prices?
Is It a Terrible Time to Move?
by Tom on December 9, 2008
in Market Musings
Paul Kedrosky, one of my “must read” authors wrote an article that points out some of the “dynamics” to falling house prices that many people don’t take into considerations:
- The mobility effect – if you can’t sell your house, you aren’t going to take a new job somewhere else. If you can’t take the new job, you end up stuck with a job that you aren’t as happy in, aren’t as productive in, or don’t get paid as much for.
- The increased probablity of “walking away” because of a value that is way less than what you paid for it. If you bought a home in San Diego in 2006 for $550,000 and borrowed $500,000 and now it’s worth $350,000, it’s going to be a LONG time before you’d be able to sell the house and recoup some of your investment.
Read what he has to say (excerpts) and then tell me, do you think it’s a good time to move?
…….First, a declining house price makes you poorer. That’s no fun, especially because being poorer—a negative wealth effect, in deliriously opaque econo-jargon—will generally lead to you spending less, and Americans are nothing if not indefatigable spenders. (Whether that is a good idea, or whether it should even be a goal in the future, are different questions.)
Second, a declining house price can lead to you owing more on your house than it is worth. The term of art for that situation is being “upside-down” on the mortgage, which makes it sound more like a tai chi position than the sad state of financial affairs it is. Generally speaking, people who owe more on their mortgage than the house (or apartment or condo) is worth don’t stay that way for long. They walk away from it. After all, why keep making payments on a property that has to gain in value just to get you back to the point where you’d make no money from unloading it?
The third thing that can happen is rarely mentioned. The mobile American labor market breaks down when housing prices fall. Why? Because people will likely move less frequently, if at all. Tearing yourself away from a house when you know you are going to lose money on the sale (assuming you can sell it) is no easier than selling a stock when it is down, and there are plenty of reasons to think it’s harder. What does the evidence show? According to some new research, using data from 1985-2005, money-losing homeowners were 50 percent less likely to move than was otherwise the case.
. By way of context, about 12 percent of US homeowners move in a typical two-year period, making Americans among the most mobile citizens of any developed economy in the world. People move for a host of reasons, but most common among them are economically driven factors, like a new or better job.
Is It a Terrible Time to Move? – The Daily Beast.
Where Homes Are Worth Less Than the Mortgage aka “Underwater Housing”
by Tom on November 28, 2008
in Market Musings, house prices
The New York Times has an interesting graphic with information on the percentage of homes that are “under water.”
Where Homes Are Worth Less Than the Mortgage – Interactive Graphic – NYTimes.com.
A couple of thoughts about this report:
1. For the last several years, we’ve seen an increasing “wealth” effect where people felt more inclined to spend money because the value of their homes was going up.
2. Now we are and will for a long time see the opposite effect as people feel less wealthy (poorer?) because they don’t have as much equity in their houses. I expect that the retailers are feeling that today as the “black Friday” sales are not going to be nearly as good or as profitable as usual.
3. The true effect of people who are underwater on their houses haven’t yet been felt. Here’s my view of it:
- Those who owe just a little more and plan to stay for a long time AND their finances seem to go okay will be fine.
- Those who owe a HUGE amount more than what their house is currently worth and don’t plan on staying there a LONG time, are going to be increasingly likely to walk away from it.
- Those who owe a HUGe amount more than what their house is worth and run into financial problems (layoffs, medical issues etc.) are going to be more inclined to say, “I’m out of here.”
What’s that going to mean for the housing market? A couple of things:
- Increasing levels of foreclosures, especially in states with a high percentage of underwater home owners.
- Increasing downward pressure on home prices.
- Reduced sales of homes going forward because of the number of people who can’t move because they can’t sell their home.
4. The other thing that this graphic shows is how the new Paulson plan, the plan of the week, the plan where he’s buying mortgages that Fannie and Freddie own will not be as effective as it would otherwise because:
- Many homeowners can’t refinance because they owe more than what their house is worth. I’ve already had a number of past clients who want to refinance but can’t because of the value.
- Many of the people who might want to buy a new home if rates dropped substantially aren’t necessarily going to be able to because their house isn’t worth enough for them to be able to sell it and get a downpayment out and move on.
I’ll have more later. Let me know if you have questions.
Thanks!
Tom Vanderwell
Home prices in free fall – Nov. 18, 2008
by Tom on November 18, 2008
in Market Musings
National home prices, driven lower by a flood of foreclosures, plummeted in the third quarter by a record 9% year-over-year, according to a report issued Tuesday.A flood of foreclosures has driven home prices down. As many as 40% of all sales made during the three months that ended Sept. 30 were properties repossessed by banks. The banks are eager sellers. The longer they hold the vacant homes, the more it costs them in maintenance, taxes and insurance.
Three California markets recorded the steepest year-over-year declines in median prices: Riverside-San Bernardino, east of Los Angeles, where the median price plunged 39.4% to $227,200; Sacramento, down 36.8% to $212,000; and San Diego, down 36% to $377,300.
But while California saw significant declines, fully 79% of all metro areas recorded price drops for the quarter, according to Mike Larson, a real estate analyst at Weiss Research.
“We’re clearly seeing a broadening, as well as a deepening of the declines,” Larson said. “That indicates we’ve moved past the time when price drops were fed by bursting of real estate bubbles to one in which the broad economic downturn, marked by job losses, is taking hold.”
Home prices in free fall – Nov. 18, 2008.
Two quick thoughts:
- What goes up too fast will come down faster.
- I think that what Mike Larson says is somewhat key to understanding the whole thing. It appears in many markets that the price declines are building up speed. That would, if it holds true, be because of the second wave that’s being caused by the economic downturn. When you combine a bursting bubble with an economic downturn, it takes another hit on the economy.
Stay tuned.
Home Prices Tumbled in August – NYTimes.com
by Tom on October 28, 2008
in Market Musings, Uncategorized, house prices
The Standard & Poor’s/Case-Shiller 20-city housing index dropped a record 16.6 percent in August from the year-ago month, the largest drop since its inception in 2000. The 10-city index plunged 17.7 percent, its biggest decline in its 21-year history.
via Home Prices Tumbled in August – NYTimes.com
Is this a bad report? No, I really don’t think so. It says a couple of things to me:
1. The adjustment between housing prices and incomes is still moving forward. We haven’t yet reached the point (on a national scale) where there are enough people saying that housing is cheap enough that we feel comfortable buying a new or different house. Keep in mind that this report came out in August and a lot has happened since August.
2. While real estate is local, the adjustment to housing prices is not. All 20 of the cities that count in the Case Shiller index showed price declines. The rate of decline is obviously different in one area to another, but the general trend is all downward.
3. In my opinion, the biggest differentiating factors between those that are moving downward faster vs. slower are two things: a) Jobs – the areas with the biggest job losses have seen bigger housing drops and b) Speculation – those areas where the speculation was higher saw prices rise faster and are correspondingly seeing bigger drops.
Stay tuned, I’ll continue to keep you informed.
2.
We’re not alone….
by Tom on October 20, 2008
in house prices
But I’m not sure that it really helps…..
