A Record Drop In Home Prices

Washington Post ^ | October 26, 2006 | Kirstin Downey

[GodGunsGuts]

The price of existing homes last month fell 2.2 percent, the largest monthly decline in the almost four decades the number has been tracked, according to an industry report released yesterday.

Nationwide, the number of existing single-family homes sold fell 14.2 percent in September compared with September 2005, according to the report from the National Association of Realtors. The number of sales has fallen each month since March.

Prices fell everywhere in the country, with the Northeast and West most affected. Declines were more moderate in the South, which includes the Washington area....

[GodGunsGuts]

I have made it a practice to avoid acronyms whenever possible.

[Petronski]

Oh, I get, you're talking about someone else.

Sure, Gigi, you're as innocent as the driven snow. Right.

[GodGunsGuts]

Innocent and honest, unlike you.

[Petronski]

Innocent and honest, unlike you.

LOL

Right.

[Torie]

One other thought. Over the long term, single family rental housing (and for that matter 2-4 unit apartment dwellings with respect to which one can obtain favorable fannie mae mortgages) gives returns that are close to TIPS (treasury inflation indexed bonds). Right now the 10 year TIPS rate is about 2.4% (you get that rate plus inflation), and the cap rate for smaller home housing that makes sense as a rental in Socal is about 3.5%. That is about right in relative numbers, given that rental housing has some tax benefits, but has more risk and more bother to manage.

I have owned rental housing for about 35 years, and that is my analysis having put the numbers up on spreadsheets.

[GodGunsGuts]

Thanks for the posts. All your numbers seem to add up. But all bets will be off if the housing market keeps tanking. The problem will only be exacerbated if interest rates rise. Plus, one can only imagine what will happen if a significant portion of the following homes become rentals:

[Torie]

Yes a substantial rise in the 10 year treasury bond rate would be toxic to housing prices in the current environment. Few are predicting that, but if it happens, you will be the clever savant, as opposed to the rube.

[GodGunsGuts]

Speaking of the rental market, the following graph also illustrates how far housing can potentially fall IMO:

[Torie]

Ya, buying rental housing was a great buy in the late 1990's (particularly if you "knew" interest rates would decline. I should have bought more, but I wanted to diversify, since I owned so much already (thus I paid off mortgages, bought savings bonds and TIPS, etc). Now it is a more neutral proposition, with price levels about what they should be, at least in SoCal, for housing that makes sense as a rental. The mini mansion to mansion market is a different puppy entirely. It marches to its own drummer, and has little to do with cap rates etc.

[Torie]

The imputed rent chart, at least for Socal, is way, way off, by the way.

[Toddsterpatriot]

Wow! The household sector financial balance (whatever that means) has turned negative. Debt to income ratio (ignoring assets) continues to rise. And yet since 1996, our financial obligations ratio rose maybe 0.8%. Horrors!

They are not even close to being equally weighted.

Perhaps you'd share?

BTW, 2.1% beats the SP500 average yield.

BTW, that was only one of the 15 stocks. 8 of the other stocks had a yield of 0.0%, which does not beat the S&P 500. If you'd like, I could get you a list of S&P 500 stocks that have a higher yield than 2.1%.

There are a number of other gold stocks that beat this average.

I'm sure you're probably correct, but your claim was they (HUI was the example you used) were "paying better dividends than most other investments for the last five years". Not one stock (or a number) paid more than the S&P.

So when you combine gold stock appreciation with yield, gold blows away the major indices.

No. Stop lying about yield.

Any questions?

Why do you keep lying? If you want to say that gold stock appreciation beat that of the major indices, then say that, just don't make up stuff about dividends.

[Petronski]

Stop lying about yield.

But he just said he was innocent and honest...unless that too was a lie...

[beaware]

Actually, the best thing to do is to have lots of land and plant trees. That way, as the Feds need more paper to print bills, I'll have lots of it so they can make it into paper! LOL

[GodGunsGuts]

BTW (Torie), I think it's great that you have prospered in the rental market. I definitely agree with your second point, but I think the same holds true (to a lesser extent) across the entire spectrum of the housing market.

I have one more chart for you, and then I'm off to the races. You will have to forgive the reverse in course as this idea is rather new to me. At any rate, this chart is potentially the most disturbing of all. It shows the change that occurred in the CPI once we switched to Owner's Equivalent Rent. If the implications are true, then it would suggest that housing (not to mention commodities!) may have kept pace with inflation after all. This, of course, has huge implications for the larger economy...if true. I'm currently trying to dig up more info. to determine if the CPI is indeed understated (and by how much). Needless to say, inflation may be much more pronounced than we have been led to believe.

[MeneMeneTekelUpharsin]

I hate predatory sales pitches that misuse economic information (or lie outright about it) to pimp houses.

Couldn't agree with you more.

[MeneMeneTekelUpharsin]

Quit wasting your time with these people. Those of us who know what is about to happen don't need any more information. Let them find out the hard way.

[GodGunsGuts]

What would the computed rent vs. home price chart look like for SoCal? Just curious...

[Doe Eyes]

Has the government not been able to sell any of it's debt instruments because of this fear of being left holding the bag?

The currency collapses when we can't sell debt. That's when you don't want to be holding dollars. The smart play is to get out before then.

[Torie]

Since 1982, rents in Socal have tripled or tripled and a half, for bread and butter housing, or croissant and butter housing.

[GodGunsGuts]

LOL! I'm inclined to agree with you, but **some** of those who disagree are both reasonable and respectful. And besides, I use these threads for my own education. I learn something new almost every day.