Bump.
What a maroon ... he titles his piece “Housing Prices Near or at Bottom? ( Why the housing bears are wrong )” and then boldly states “IF YOU WANT TO KNOW HOW SMART I AM...” and then the best he can say is “prices can’t go down forever”.
Used to be that when supposed “experts” like me talked, all people could do was listen. Now they can talk back, and their ideas can compete with mine head-to-head on the web.
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While I do not know enough about this person to say whether he is right or wrong, I do know this statement sounds arrogant and elitist. These people can’t know anything! They don’t have a column like me, how dare they question my knowledge!!!
No, they will not go down "forever".
They will go down until the average buyer for the average house in an average neighborhood that has an average job for that neighborhood can actually afford to pay a down payment AND principal AND interest at a fixed rate each month without going bankrupt.
Until hoses prices go down to that level, the houses prices may bounce up and down all they want above that level but those houses will remain unsold.
If the ninja and liar loans are unavailable, then house prices will have to fall back on the old dependable 3 x income formula.
No, but there are plenty of examples where markets go down for 30 or 40 years.
Two years is not "forever".
True.
And guess what? Today home prices have fallen so much, mortgage rates are so low, and personal income is so high — that homes are more affordable today than at any other time, ever
Flat out lie.
Mrs. steveo is in the mortgage biz... She had her best month (April) in a long time. The vast majority were sales... People still want homes and if the price is right, and the loan makes sense it’s a done deal.
The houses are built by illegal aliens so the residential housing sector does zero zilch notta for the economy. In fact it just adds more burden by creating a boom in the illegal alien population and anchor babies.
House prices are so high that even if a household earns $100,000 a year and they have 20% down they cannot afford to get in, An $80,000 down on a $400,000+ house which is the absolute bottom on the edge of the ghetto surrounded by nasty dirty mexicans would cause payments of over $3000 ( over the 30% net income margin) If they do buy they will be hanging by a thread in jeapordy of going into forclosure if gas prices go up again or one of thier bosses sneezes and decides to replace them with a mexican because the entire population demographic is turning mexican fast .
I know because I have been searching for two years, 90% of california metro area neiborhoods are infested with packrats from south of the border. That drives the livable white neighborhood housing prices through the roof, into outer space.
the only way a good buyer can get in is to have a gigantic down payment
Slash prices on houses and they will sell, simple economics.
That is a great line.
I question one of his axioms:
“What establishes value in a home price? Like anything else, it’s a question of historical norms.”
Actually, no. It’s a more fundamental question. The ratio of value to price, like anything else on the market.
I don’t mean value in a particular market, I mean absolute value. For example, you can buy a $20 pair of sunglasses for $200 in the upscale market across town. But their absolute value is still $20.
So what is the value of a $200,000 home that is being sold for $500,000?
Now people can still spend $500,000 for a $200,000 home, but most often only if they can get a lot of credit. And this same principle applies to businesses and our nation itself. We can only have a ridiculously high national debt, because someone is willing to lend us the money to buy things we can’t afford.
And what happens when nobody wants to lend money, so that people can no longer buy a $200k house for $500k?
Reality happens. The price of that house needs to drop to a little above $200k before it *should* be sold. If people can only pay cash, they will want value for that cash. Absolute value. They question the whole premise of why they should pay $500k for a $200k house.
But what about people who have $500k they want to spend on a house? Easy. They buy a house for a little more than $500k that is actually *worth* $500k. If nobody is selling a house that is actually worth $500k, then the buyer finds somebody who will build them a *new* $500k house.
And no, Mr Contractor, you have no reasonable expectation of being paid $700,000 net profit for building a $500,000 house.
Again, reality happens.
Now there is still credit available out there, even if it is tight right now. And the powers that be LIKE to spend more than they make, and want everyone else to overspend as well. But how long do you think that will last?
Time will tell. Eventually it has to end, however.
Mr. Luskin is right so far as he goes. But there's one very important element he completely leaves out.
Movement in the housing market is determined by affordability---as Luskin points out, a dynamic of home prices, the cost of money and personal income. But it's equally determined by emotion (for lack of a better word). IOW, it's not enough for housing to be affordable. Buying or selling a home, or investing in real estate, also has to be desirable---i.e., something the individual wants to do for reasons above and beyond the fact that he can now "afford" a different house.
What I see in this market that is new is a complete change in the mentality that underlies the housing market. I've explained it before with reference to years ago when the mentality (emotion) about cars was that it was desirable--almost necessary---to trade in one's car every few years, if not every year, and that one of one's goals in life was to get an ever nicer ride.
Somewhere along the way this mentality changed. More and more people began hanging on to their cars longer and longer, even until they were junkers and driving them into the ground. It no longer was the socially required/expected thing to do to always be getting a new car and always be trying to upgrade one's auto. People on a large scale decided that a certain level of car worked for them and that was that. We never went back to the scene where cars were traded like marbles and they were the ultimate status symbol (except for a much smaller social segment who continues to care about such things).
This downturn has been so shocking to middle America and hit so deep into the populace that it seems many have re-evaluated why they wanted to keep moving from home to home every few years anyway. The new mentality is "eh, this place is good enough; let's just get on with our life."
Since the market has always had only a relatively few buyers and sellers who HAD to move (for a job, a family reason, etc.), and was mostly made up of people who WANTED to move ("I really need a mudroom;" "I'd like to be closer to work or have a bigger yard"), a wholesale change in how people formulate their housing desires will be a big determinant of how low prices have to go before even people who are satisfied with staying put go, "That deal is too good to pass by."
I do agree that the potential impact of the housing sector's collapse on the general economy may be overblown. However, within the sector it's the Great Depression and most of us knew people whose financial mindsets were set by the Great Depression for the rest of their lives. That, too, may be true in the housing sector's "Great Depression."
There is a mass awareness of a fact that people previously failed to appreciate: that real estate can, in fact, lose value for a very long time. Once that is internalized by many, many people, there will be many who won't be looking to dabble in the market unless they absolutely have to.
The deeper this new mindset is ingrained, the deeper prices have to be cut to overcome it. IOW, if indeed the whole mentality about whether one even "needs" (i.e., WANTS) a new house has changed, the amount of resistance to returning to the market has changed---it has increased and exponentially. Therefore, the "cure"--lowering of prices---has to be even stronger to overcome that greater resistance.
For the bubble states, however, this is still just beginning. Although the bubble burst well over a year ago in central California, it is only now starting to get to the premier markets like San Fransisco and Silicon Valley. Prices will eventually have to get cut by about 50% more, but there are still a lot of factors delaying that, from the psychology of the defaulted home renters to the banks struggling to avoid taking possession of an enormous number of properties and taking the loss.
In order to call the bottom in northern California, The foreclosed properties will be bought from the banks at the same rate they are being added, and they will no longer be driving the prices down. None of this is close to happening yet. I don't see it happening this year.
Don is frequently on CNBC. Always interesting to hear or read.