Posted on 12/10/2004 9:05:07 PM PST by nanak
OK. This time they mean it, really. Economists in San Diego and around the country are saying the biggest housing boom in the region's history is slowing and may be finished by the end of 2005.
"The phenomenon of doubling your money in three years is over for this cycle," said Jim Teak, a San Diego-based economist with Prudential Realty of California.
A lot of people agree with Teak. The influential UCLA Anderson Forecast says in a report out today that 2005 could be the year that "reality and reason" finally cool off the housing market.
Higher interest rates will keep overall price increases in the single digits, and may force small price drops in the more expensive neighborhoods, the report said.
Although most homeowners will be able to weather the slowdown, it could be bad news for first-time home buyers and speculators who have bought in recent months.
"If you locked into a great long-term rate, then you are OK," Anderson economist Edward Leamer said. "But people who think they are going flip – get in and get out in the next several years – are the people who need to rethink their strategy."
Of course, some economists have been saying the housing market is overpriced for the past year or longer. UCLA's economists said a year ago that they were starting to worry about a housing bubble, but prices have continued to rise.
The median price for existing single-family homes in San Diego County reached $489,000 in October, up nearly $100,000 from a year ago and a 44 percent increase from October 2002.
Leamer said the elevated prices are more the result of easy-to-get financing than robust economic growth. In the end, economic growth is needed to support the prices, he said.
There are indications all over the county that the market is already softening. Houses that in April would have sold in six days are staying on the market for 90 days, Teak said. Owners of higher-priced homes are being told to prepare to have their homes on the market for as long as six months.
"Six months ago, if you had a house at $900,000, you would have gotten it," Teak said. "Now you're lucky to get $850,000."
The housing slowdown won't be limited to Southern California and could shave as much as a half-point off the growth in the country's gross national product in 2005, Leamer and others said.
"Housing will be the one sector driving the anticipated slowdown in economic growth next year," said Bill Strauss, a senior economist with the Federal Reserve Bank of Chicago.
Beyond 2005, economists are concerned about the large number of adjustable-rate mortgages being sold and what would happen if the rates go up. Several are concerned about the growing possibility of a housing-led recession.
Leamer said the only reason a housing bubble didn't burst in the recession of 2001 was aggressive cuts in short-term interest rates by the Federal Reserve.
The Federal Reserve worked to keep mortgage rates low by cutting the federal funds rate from 6 percent to 1 percent from January 2001 to June 2003. Those low interest rates helped push home prices to the point where the ratio of prices to rental rates has reached record highs.
Leamer likens this ratio to the price-to-earnings ratio on a stock. And as anyone who studies the stock market knows, inflated price-to-earnings ratios are often a sign of a coming bust.
"We are in very uncertain times," said Robert Shiller, a Yale economist who studies economic bubbles. "Some of the adjustables (mortgages) people got in a couple years ago are already losing their interest-rate protections."
Shiller sees the possibility of a long, slow slide similar to what happened in Southern California in the 1990s. Los Angeles home prices dropped more than 30 percent from 1991 to 1997, and prices in San Diego dropped nearly 10 percent from 1991 to 1995.
It could get ugly if prices drop and consumers are unable to handle the increased mortgage debt on top of all the installment debt they have piled up in recent years.
"It may well be that the big win for reality and reason will come in 2006," Leamer wrote in his report. "We are talking a recession driven by a plunge in consumer spending on homes and durables."
In fact, I'm in the ridiculous position of not even being able to afford to buy my own house. I paid $262,000 for my present house in 1998 and it is assessed at $450,000 just six years later. This rate of appreciation just isn't sustainable.
It's already happening. There are more million dollar homes around here then there are multi-millionaires to buy them. Folks are building these huge homes with little down and low adjustable rates, but a half-point upswing on a very expensive home can make you homeless overnight.
house prices are nutz in alot of states.
You're not alone in that.
Five years into a 30 year fixed at 7.125%, refinanced to 15 years at 4.5%, with additional monthly principal. Looking forward to being mortgage free in 10 years.
One thing I don't see discussed in these articles is demand. Demand continues to be high in SoCal. Driven by population and the old reasons, weather, location etc. Demand my reduce the increase and not result in too drastic of a drop in values.
One thing I don't see discussed in these articles is demand. Demand continues to be high in SoCal. Driven by population and the old reasons, weather, location etc. Demand my reduce the increase and not result in too drastic of a drop in values.
Yeah, I hate it too when my little 3 bedroom townhouse rental property that I bought for $90,000 ten years ago drops to $850,000. What a pisser...
The market will do what it always does. Dip a little, stay flat, then take off in 10 to 20 years. Over, and over, and over, it does this...
Cute, then you'll only have to pay ever-increasing property taxes to keep from being put in the nursing home where you once might have worked.
Bingo! The Washington D.C. area has 3% unemployment and is projected to be SHORT 220,000 houses by the year 2020. Prices won't be dropping. If telecommuting takes off and everyone can live wherever they want to do their job then big city housing (read TERRIBLE traffic) is in trouble.
Never worked in a nursing home--are you disappointed?
Here in FL, we have a cap on tax increases--max 3% annually. Property value has tripled in the past 5 years--waterfront, no bridges to the GOM. Have already done the math.
This does not apply to the housing boom that has happened since Bush came into Office in 2000. That housing boom was lower and middle income class families buying homes as a result of his tax breaks. This "study" or opinion of "economists" is just that, and is not the result of anyone being queried in the housing industry.
More lies from the liberal media; anything to try to tear down what President Bush has accomplished. If the people on here agree with them (liberals) so readily, then why the hell did you pretend to vote for him in the first place??
Yea, it's all Bush's fault, isn't it?
Median price of $489,000. That means a family has to make close to $125,000 a year (if I did my math correctly) to be able to realistically afford that house. How many families in California make that much?
BTW, what's property tax in California? Does prop 13 protect homeowners from ever rising property tax?
What goes up must come down.
I kinda feel sorry for those folks in extremely overinflated areas, places like Seattle, Chicago, New York and San Fran.
Maybe I should just say in the blue counties.
prop 13 protects those who don't move. If you stay the assessment doesn't increase. If you move it's based upon value of home you purchased. There is a one time exemption for seniors who move to an equal value or les property.
Just funnin' ya; did the water ever recede?
Give it time, it probably will be seen that way.
I figure my property value can only increase after surviving Hurricane Season 2004 relatively unscathed.
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