Posted on 11/03/2009 6:58:08 AM PST by blam
Property Values Set to Fall 43% From Current Depressed Levels
Michael David White
November 02, 2009
Price Trends / WAR OF THE WORLDS: If you use a 20-year time horizon, and assume prices will return to the trend line, then our residential property bubble will bottom after values fall over 40% from current levels (see above (c) aka “(y) - (z)” aka “Loss Today to Bottom”). I make no predictions. I do watch numbers. The chart shows a catastrophe of falling real estate values loaded up on top of our current catastrophe in real estate values.
No one would question these numbers absent The War of the Worlds. The War of the Worlds is the United States Government versus aggregate borrower income. Uncle Sam is funding every new mortgage – high, low and in between (see chart below--the blue and red represent government-backed loans and the private market is the yellow and green).
It takes very little imagination to see the world of real estate prices vaporizing without government support. If that support was lost, values would crash down faster than a big rock dropped into a shallow puddle.
[snip]
If this happens we will see the nation divided into people of honor who keep making payments based on loan values far about actual value, versus those who walk away.
Anyone care toredict the ration of walkaways? I would guess 60% of all homeowners or more
Related
http://www.businessinsider.com/chart-of-the-day-house-prices-and-median-household-income-2009-11
I don’t believe this at all - the market is currently at or very near bottom, look for an upswing in the next 6 months.
At that point it really all falls apart, and we have to enter a communist society, where ownership is a stupid, outmoded concept, and we all just use stuff without caring how it got there.
A bloody time. A time without rules or laws.
Well, don’t forget about that third group who stays and pays with their free government monopoly money.
Just because you walk away doesn’t mean you are no longer liable for the home.
If the bank won’t buy it back, you may not be paying a payment, but you will still owe for the taxes and liability on that home. That’s where we are in MI. The banks won’t take them back. So you have this millstone, losing value but at least if you keep up your payments, you remain current on taxes and you don’t take the chance of someone gets hurt in your abandoned property (stealing your copper pipes most times).
and how would this happen as we see that smart investor buy up depressed real estate as good investments.
More crap from the sky is falling crowd.
Marxist or Lenist socialism is such a downer.. woo wee...
Great housing price chart. Looks like we now have 2004 levels in late 2009.
So did CRA cause this steep growth?? The myth is that this growth could go forever and that the CRA crashed this great Bush party we had.
I’m with you....one can now buy most homes for less than land construction cost unless in very hot immune area.
seems flat....not poised for a 40% drop..if so, starter home neighborhoods will be all tumbleweeds
rich dad ping
Even worse, we will live in a society that believes being honorable is stupid. I guess though, if you only consider this lifetime and what you can get out of it, that might be so, its a very Nietschean point of view.
However, Eternity is a long time to regret being “smart.”
When the news seems it can’t get any worse, a stock broker once told me, you know you’re at the bottom. We may stay here for the next 3 years, but I think we are pretty much at the bottom of this thing.
No matter which way real estate goes, you can bet that Carlton Sheets will show you a way to make millions!
IMHO:
Depending on the area, go back to late 2003, compare sold prices in a given area.
Ignore the highest and lowest price, get the average price of the rest.
Again, depending on the area, add 4%-6% appreciation to that average price for each of the following years up until 12/09.
Assuming the property and it’s neighbors have been well maintained, you will have the fair market value of your home.
You never "bottom" on a trend line - you crash right through it (or it would not be a trend line in the first place)...
You are right. Why? Because real estate has intrinsic value, and there will never be a lack of demand (short of a nuclear holocaust or medieval-style plague, but no need to even invoke that). That intrinsic value and perpetual demand are why real estate is called "REAL".
Chip board palaces are real alright, a real rip off.
“I don’t believe this at all - the market is currently at or very near bottom, look for an upswing in the next 6 months.”
I hope you are right but a key factor in your prediction is the issue of money from jobs that produce income. Today, companies big and small are not hiring. In addition, lending rules are such that banks aren’t lending readily. An upturn in RE requires buyers with income to obtain loans.
I just don’t see an increase in employment (including increased salaries for those already employed) any time soon. Hope I’m wrong.
In our area, I wouldn’t be surprised if prices fell again, because we have seen an upswing in prices in the past 4 months (from looking at prices, seems our bottom hit in June.) So another correction downward wouldn’t be unexpected (we’re in Florida.)
So what happens to people like us; almost retired, house almost payed off (will be with some inheritance money coming in next year)?
Depending where you are in Florida, I might agree with you, there are some wildly varying markets there. Sarasota has been relatively stable while Miami tanked like mad.
Congratulations on your engagement!
Give the seller two weeks. He may then realize the fish that got away.
Then offer 85% cash as your final offer, good for three days.
If he doesn’t take it, walk away. No sense dealing with a fool.
two important factors in house value are unemployment and interest rates.
Nobody pays the selling price... they make the payments.
Falling interest rates cause prices to rise and conversely, rising interest rates cause prices to stagnate or drop.
$200,000 @ 5% = $100,000 at 10%
Current prices have dropped because tightening of credit (which equals an interest rate of infinity for people turned down for a loan) and rising unemployment.
looking forward:
Interest rates can’t go any lower, so for prices to rise, unemployment must fall.
if interest rates rise, prices will fall
if unemploymnet rises, prices will fall
if unemployment and interest rates stay stable for an extended period (12 months or more) prices will fall under the weight of the forclosure backlog (which will cause further tightening of credit).
"Because local and state governments are losing so much money in tax receipts, you can not make money in Real Estate anymore, because municipalities are going to increase property taxes significantly over the next decade and force older residents to sell their homes and move to lower property tax cities.
I remember this happened in 1987 to my father, who bought his house in Westchester County, New York in 1972 for $60,000. The property taxes then were $1000 a year and in 1987 he was forced to sell the house because his taxes shot up to $15,000 and being retired he felt that they were out of control.
In 2007 I went and visited the current owner of the house and the taxes then had shot up to $35,000. When my father bought his house he paid 1.6% property taxes on it each year and when he sold it he was paying 3.75%. The current owner paid $800,000 for the house and pays 4.375% in house related taxes. But his problem currently is that the house is no longer worth $800,000, but is now worth about $550,000, so his real tax rate is now 6.36%.
The municipality where the house is located is strapped for cash and can not afford to lower taxes, so how is this guy who bought this house for $800,000 ever going to get his money back. Who in their right mind would buy a house with a real property tax rate of 6.36% on it? There is your real problem with Real Estate and the reason why nobody is buying houses even with 4.99% 30 year fixed mortgage rates."
wow, what’s the house payment on an $800K mortgage?
We are voting here today on a property tax increase, I hope it goes down. Colorado Springs had no problems with their budget to go around building buildings for the Olympic committee but seem to have problems funding police and fire...go figure. I might have felt more sympathy for them if they said we need the increase for 2 years or something but it was to be indefinite. Governments are corrupt on every level I think.
Well, when you pile logical argument onto logical argument, like you have, and then provide all those additional facts and market data, like you have, the end result is... not all that persuasive.
Regards,
The answer is that the local government should cease every service not constitutionally mandated,and provide those services at the minimum level allowed by law,which means cutting the government payroll drastically..
Most of what government does now was never intended by the founders,and most of the services ought to be provided by private businesses and church groups.
In another 50 years, I imagine there will be quite a few one hundred year old houses ... but not many fifty year old housesw.
Although I am a Dave Ramsey fan, I would read Harry Dent’s book “The Great Depression Ahead” and follow his advice for the next 2 years or so (which is what I did this summer and plan to do). Sold out of stocks when the market hit 9900 and went to cash. I sleep better now than when I was worryin about rebuilding the value of our retirement accounts by depending on the DOW. No buy and hold for us. Not for the foreseeable future, anyway.
Indicators in the next 6 months or so should show if Dent is accurate in his predictions. Nothing he recommends is injurious, even if he is wrong...imho.
And two words to get through the times ahead: self sufficiency. In every sense. Including defense of self and property and a plan if you need to go elsewhere.
Actually, you are quite correct. The same article also mentioned downsizing trends for energy and upkeep reasons. Predicts houses will be much smaller in 2015 on average.
What most people fail to realize is that after 20+ years of expansion of credit the debt has to be paid back which means years and years of contracted credit availability. In inflation-adjusted terms housing prices will probably fall to historic low levels over the next 10 years.
oh, yeah, like “they” are going to come after 40% or more of the home owning public...
the concept of walking away from everything
rendered worthless and then still taxed by the government... is in the back of my John Galt mind, if it means survival... maybe to fight another day, maybe not
My opinion in this case comes from the sports book/vegas card master school of skepticism. If you KNEW that a horse was a lock, or you KNEW that playing blackjack a certain way would win, you'd be so filthy rich that you wouldn't bother selling a book/dvd about it. If this guy knew his info was right, he'd be primed to make millions, and he damn sure wouldn't share it with me. Scientific? Maybe not, but I've been right more than I've been wrong.
He’s going to be real sorry in 6 months.
I made a cash offer on a house at 90% of its asking price one year ago. It was turned down, and they actually raised the price by saying they were going to take some things away from the property (some nice light fixtures and an outbuilding).
The house is still on the market. The asking is now $10,000 less than than price I offered. The realtor keeps calling me and I am struggling to stay polite on the phone.
My observation is that prices drop to a third of the high and then fairly quickly recover to two thirds of the high and then slowly work their way up again.
The govt has tried their best to avoid it but I think it will happen this way again.
>>oh, yeah, like “they” are going to come after 40% or more of the home owning public...<<
Well, the government may not “come after” you, but someone looking for a quick payout may.
It happened to a woman in Cleveland. The bank never bought back her home. She still owned it and had no clue that she did. Some idiot fell while stealing the copper pipes. He sued her.
I’m just saying that this is actually happening here in MI as well. The bank doesn’t HAVE to take possession of your home. I guess the lesson is, if you walk away, make sure you walk totally away. Not just from the payments.
agree with your method, but not the starting point
i would argue that the start should be 1999
reason is that prices just about doubled in So Cal from 1999 to 2003...and that is just not any thing but a bubble
i thought it was going to blow in 2002, but it nearly doubled again from 02 to 06....
then it blew.
it was kept from correcting by the insane lending practices encouraged by the trading in derivatives of packaged or bundled mortgages....
“More crap from the sky is falling crowd.”
Makes perfect sense to me. I’ve been arguing this for a long time, that housing prices still have to fall about 50 percent.
Who is going to buy houses? Boomers? Boomer kiddos? Here’s a wakeup call, we can’t afford houses. Price houses back to where they were in the 50s, and then we are talking.
“Price houses back to where they were in the 50s, and then we are talking.”
add “inflation adjusted.” and i agree.
Go ask the next one and lower the offer to 60%, however, most all sales of this type require a buy down of the loan by the seller. So a bank/government owned property is best. The person you were dealing with was already upside down that has nothing to do with the current market value.
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