At the height of the boom, author and former Wall Streeter John Talbott warned of the crisis to come. Unfortunately, his latest predictions aren't promising.
Comment: when we practice to deceive...Mr. Talbot would luv4 everyone to let his old friends at G/S manage their money via the brilliant idea of giving your money to wall street so that they can invest it with communist dictators in china...pooh pooh on the idea that non ivy league graduates wont throw their money away on rent...oh me oh my...lets see...of the 150 major markets in the us of a, only 50 are in any kind of trouble...run 4 the hills
Comment: Yes, we all knew that prices had to come down at some point . . . I can't wait until they return to the 1997 levels, though. At least, that is what I hope. With three degrees, and soon a fourth, I still can't afford housing in my hometown of San Jose, CA. I wish I had known then what I know now.
Comment: It really didn't take too much intelligence to realize that the housing market was headed for a very stressful downward readjustment as home prices continued to soar into the stratosphere when there was no real increase in value, just a huge inflation of what people were willing to pay buoyed by an insane subprime loan policy. It is all part of the disastrous lack of fiscal planning of this wretched, incompetent administration.
rachetratchetread
Comment: http://calculatedrisk.blogspot.com/2007/11/how-much-cash-is-left-in-home-atm.html
Like Japan, US estate price will fall to the 1986 level ? 1997 level ? or 2004 level ?
Comment: Dan, this and other economic issues is why I can't understand why "It's the Economy-Stupid", is not a central theme in this election. It is as if all of the candidates, especially Hillery, appear to be revolted by the subject. But, to the subject at hand, there is no doubt that falsely encouraging loan practices contributed greatly to this problem. I think that the wildly rapid increase in deficit spending during the current administration, was an equal contributor to this fiscally irresponsible attitude.
Comment: What an outstanding perspective change Las Vegas. realtor! At the peak of the Hampton Roads Virginia market my home shot up from $145K to $330K. I have watched similar homes in my neighborhood drop from 300 to 290 to 280 to 270 and they are now priced at $259. That is about what they were 3 years ago. I see no stop in sight and lots of inventory. Several friends kept trying to talk me into taking out the equity in my house. . .and they really laughed at my 15 year mortgage telling me I was a fool and I should use other peoples money . . . now, I have only 10 more years and I own my rapidly depreciating house free and clear. As long as I stay above 200K in value I will be happy. I can easily see over the next two years this local market settling in at about $230K. I gnash my teeth when the local paper tpaints a sympathetic portrait of a family that did not read the contracts , or those claiming "I didn't know it was an adjustable rate" . . .yes it is sad anytime a person loses a home and a family must move, but we all need to be responsible shoppers. I pray for those affected, but the very tiny minority that were truly fooled into buying a house with a sham mortgage . . .very tiny indeed. If they exist at all. I wonder how many folks with rough credit got into a great house because a mortgage company took a chance on them, and they are paying their bills, restoring their credit . . . one month at a time.
Comment: Falling back in terms of 1997 prices is oversold. Look at the decline in the dollar since then and inflation - in terms of dollars, our houses should continue selling for much more than they did then.
Comment: I'm a licensed Realtor in Las Vegas, Nevada. I agree with this article, but would like to add one more thing - there are always TWO sides to the coin. Instead of all the doom and gloom talk we are hearing in the media, people should be realistic and recognize this market for what it is - an OPPORTUNITY. There will be a lot of happy families who buy homes in the next couple years that they previously could not afford. And now, they'll be able to afford those homes because the PRICES are what have changed, while the loan packages they'll be getting from lenders will allow for smarter purchases and greatly reduced risk later on. Like an earlier poster said, people were buying $500,000 homes with $50,000 incomes with these crazy loan packages. Now, they'll be buying similar homes for as little as $300,000, with loans that come with a 30-year fixed rate. Those buyers WIN BIG. Investors are already catching on to this and buying up the best deals, but rest assured there will be plenty more to come as homeowners with bad ARM loans see their reset dates looming. There will be many more people who don't want to sell that are forced too because of rising payments, and a negative equity that will prevent them from refinancing.
Renters, investors, second home buyers, and those looking to upgrade should be jumping into this market and making it work to their advantage. Meanwhile, those in short sale/negative equity positions who DON'T need to sell right now should stay put where possible and wait for things to come back up.
Robert Beaudette
www.RobertSellsLasVegas.com
Comment: I keep reading this sob-stories about young couples who buy $500,000 houses on $50,000 income. Are you that stupid? Do you not read what you sign? Did you actually think that working as the night manager of a drugstore would get you a half-million dollar house and two cars? Come on, people,..get real!
Comment: I'm tired of hearing about people who bought way out of their depth and are now in trouble...tough sh*t!, These are the idiots who spend two weeks in the Bahamas, while the rest of us stay home and pay out bills, so I don't feel a bit sorry for them. I feel sorry for working families who got caught up in this mess, but, my God, don't you people read what you sign?...weren't you the least bit curious about the fact that you were suddenly able to afford a $500,000 home on a $50,000 income?...Get real!
Comment: Construction permits have been declining since 2005.
We are growing at a rate of .9% per year. Currently that is 2.8 million people per year entering our economy.
Oil, cement, wood, steel and other construction materials continue to rise in cost as demand in India and China sky rocket.
Home prices in numerous markets across the country are affordable for the average wage and continue to appreciate.
All of the macro-markets you mention (remember real estate is local, e.g. in Worcester Columbus Park is probably much different than Beaver Brook Park and one will hold its value better), have been through appreciation booms or at least long build ups of above average appreciation. However, migration trends have shifted away from these markets to the Southeast and Southwest. Check the appreciation rates in NC, SC, GA, TX and NM. Select MSA's within those states, witness Raleigh, Greenville, Austin, Atlanta, Albuquerque, have maintained positive appreciation, in fact above average appreciation over the past 2 years while the markets you are actually referring to have been through tumultuous times. The problem I have with your approach is that you could be accused of creating a self-fulfilling prophecy. What happens when there is a run on a stock?
Rather than lamenting market conditions people should be looking for deals. It is a buyers' market. So, buy! Like the Baron de Rothschild said, "When there is blood in the streets by property." It is times like these when the Warren Buffet's of the world come out to make their deals.
Meanwhile home owners can build equity through social conscience. Google it. There is always demand for communities of caring people, with good schools, high volunteerism, youth programs, parks and generally a high quality of life. So, work on making your neighborhood like that.
Comment: Our houses have been so over priced for so long, its not surprising we are heading for a major bust. I am fortunate to live where i didn't have to spend a half a million for my home. I have a nice 4 bedroom house worth (when I bought it) $200,000. Hope its still worth near that when we sell it.
We can all take ownership of our decisions but gosh the banking/credit/home industry should also be considered part of the problem. Sigh, when will regular people learn that deregulation almost always huts us and puts money in rich folks pockets?
Comment: dclark68, you will likely have to argue your case for a lower property value with the local tax assessor or review panel. It is done all the time.
Comment: dclark68, you will likely have to argue your case with the local tax assessor, or review panel
Comment: While the specter of massive foreclosures is frightening, we ought to temper our fear of that prospect with the knowledge that many are losing homes the never owned. "Owners" who effectively financed 100% of their property value had (or believed they had) no more "skin in the game" than renters. Irresponsible borrowing (and lending) have left us with whole neighborhoods which have turned out to be no more than high class tenemants.l;
Comment: Okay,
The housing market is in a tumble so my question is this.
We are paying yearly personal property taxes on an over inflated house so does that mean that those numbers will be adjusted accordingly, or will the Govt continue to collect on the over inlfated value of the houses.
Just a little food for thought!
Comment: If houses are undervalued does that mean our personal property taxes will be adjusted as well? I mean we are paying over the estimated value then each year so will they decline as the housing market declines.
Just a little food for thought?
Comment: KeyLime is correct - my numbers are "real" price declines after adjusting for inflation. 30% to 50% real declines over five to seven years were the worst metropolitan areas. The national average was more like 25% to 30%. But, if your house does not increase in price during a year of 3% inflation, you really are 3% poorer as you can not afford to purchase the same basket of goods. You may pay off your mortgage in 30 years and have a home worth $400,000 at that time, but when you try to call home to tell them the good news the operator will say, "Please deposit $10,000 for the next three minutes.
Comment: John, do you know what the consequences typically are for not paying property taxes? Surely liens at least. But if municipalities cannot forclose, why pay them and throw more money into the black hole? Can you let them pile up in arrears and pay them only if and when you sell?
Comment: Land, they ain't making any more of it. As a real estate attorney who has been loudly shouting "the sky is falling" myself for over three years (and telling clients NOT to buy), I nevertheless don't agree that the final adjustment in real estate prices will be as severe as the author suggests. We are in the throes of a major correction stemming from a sick and corrupt system of lending and phony appraisal, but the underlying market forces driving long term demand are still strong. When you combine the factors of continuing immigration and population growth and stabilization of our inner cities (which increases suburban home ownership) the true values are skewed upward, way beyond any adjustment for simple inflation. Here "on the ground", absent a major terrorist event which destroys consumer confidence, it looks like this correction will top out at 15% as a nationwide average at the end of three years, and then start a slow recovery- slow because we will be spooked by this debacle for a long time.
Comment: I think that KeyLimePie is on the money, but I would like to hear Mr. Talbott's confirmation that his prognostication was based on home values adjusted for inflation.
Comment: I think Talbott means we will fall to 1997 levels when adjusted for inflation. Not in nominal terms. If housing prices stay the same as they are currently (already having pulled back a bit), while inflation rises at around 3%, then over time you are losing. But it is a loss in terms of opportunity costs. And if you have little money down, little money tied up in your house, then the opportunity cost may not be that great. If you are borrowing a responsible amount at a low interest rate and enjoying the tax benefits, and you would have to pay rent anyway . . . well, then, as long as you don't need to sell suddenly, you should be in pretty good shape.
Comment: The mortgage slump, and when it will end, is really simpler than the press makes it out to be. When housing prices are more aligned with household income, prices will stabilize. The major adjustment that needs to happen is being postponed by sellers who haven't reconciled the fact the home they are trying to sell is overvalued. It's not so much that buyers are unwilling to pay the market price, but are unable to do it without commiting to debt that is disproportionate to their income. Case-in-point: My personal income is roughly 3x the average household (2 earner) income in the Phoenix area, and I can't afford to buy a house. If I can't afford it, how is the average family supposed to do it?
Someone is going to take a hit in order for the market to correct. Those homeowners who bought too much house, or borrowed against inflated values are now going to be liable for their own poor decisions. For those who own a home, without being in over their head, the market correction should be relatively painless.
Comment: The mortgage slump, and when it will end, is really simpler than the press makes it out to be. When housing prices are more aligned with household income, prices will stabilize. The major adjustment that needs to happen is being postponed by sellers who haven't reconciled the fact the home they are trying to sell is overvalued. It's not so much that buyers are unwilling to pay the market price, but are unable to do it without commiting to debt that is disproportionate to their income. Case-in-point: My personal income is roughly 3x the average household (2 earner) income in the Phoenix area, and I can't afford to buy a house. If I can't afford it, how is the average family supposed to do it?
Someone is going to take a hit in order for the market to correct. Those homeowners who bought too much house, or borrowed against inflated values are now going to be liable for their own poor decisions. For those who own a home, without being in over their head, the market correction should be relatively painless.
Comment: The mortgage slump, and when it will end, is really simpler than the press makes it out to be. When housing prices are more aligned with household income, prices will stabilize. The major adjustment that needs to happen is being postponed by sellers who haven't reconciled the fact the home they are trying to sell is overvalued. It's not so much that buyers are unwilling to pay the market price, but are unable to do it without commiting to debt that is disproportionate to their income. Case-in-point: My personal income is roughly 3x the average household (2 earner) income in the Phoenix area, and I can't afford to buy a house. If I can't afford it, how is the average family supposed to do it?
Someone is going to take a hit in order for the market to correct. Those homeowners who bought too much house, or borrowed against inflated values are now going to be liable for their own poor decisions. For those who own a home, without being in over their head, the market correction should be relatively painless.
Comment: 40-50% declines do seem a bit too steep, but clearly Mr. Talbott has a solid grasp on what lending and other economic factors have an impact on the market, and has an intuitive sense of bellwether indicators that most experts chose to ignore. So until he's proven wrong, I suppose we should all brace for the worst.
Comment: This is a bit of an aside, but if the realtor fees were not a factor, people would have an easier way of unloading properties they can't afford. I have a friend in Seattle using http://www.choicea.com which seems like an improved Craigslist to market her property. When is the Internet going to turn real estate on its ear?
Comment: So if real estate commissions were lower or non existant, we wouldnt have a problem? You mean that the current abundance of houses on the market wouldbe alleviated? The more realistic and true approach to "inloading the properties they cant afford" is to come to the realization that they are unrealistic in their pricing. There ARE buyers out there and there ARE buyers desiring to purchase homes. However, most homeowners dont believe their homes are overpriced. So whether real estate commissions are 8% or 3% it will still require sellers to get real on pricing. Use choicea.com or buyowner.com or a realtor. Realtors will net you more money MOST of the time. Lets see when the "internet is going to turn real estate on its ear"..
Comment: Can you spot the realtors in the comments section? Sorry skins1, realtors are a drain on the housing system. They exist in their current numbers by effectively bribing (er, lobbying) each state to maintain the current pricing of commissions.
Comment: This is a bit of an aside, but if the realtor fees were not a factor, people would have an easier way of unloading properties they can't afford. I have a friend in Seattle using http://www.choicea.com which seems like an improved Craigslist to market her property. When is the Internet going to turn real estate on its ear?
Comment: As a young professional in Washington, DC I've been looking forward to exchanging my rent withdrawals for mortgage payments (and at least the feeling that my money is going towards something of value), but I may keep putting off my first purchase if this is in deed the case... I'd want to know more about Talbott's analysis, though, and see what critiques of his methods are before altering any plans I have.
Comment: the slump will end AFTER many feel the bottom is passed. No one catches a falling knife (npjutr is typical of the wait-and-see buyer). The main factor that fueled recent year's price spikes was unprecedentedly easy credit availability to borrowers who were previously understood to be unacceptable credit risks.
As the pendulum swings back to historic norms for lending, the fuel to support inflated prices is in short supply. Prices must fall until the collateral equals the undefaulted paper that remains outstanding. I suspect we've got at least 2 years and probably 5 until this process unwinds.
Consider that Japan's real estate boom has gone bust for nearly 16 years, prices remain 70% below their previous highs, and their central bank rates are still under 1%. People there are afraid to borrow nearly free money to buy homes that they worry may go down further in value.
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