House Prices Are Still Too High And They're Going To Tank -- Ritholtz

We had Barry Ritholtz on TechTicker yesterday. He's still a big bear on housing...

We're on our way to a second leg down in housing prices, says Barry Ritholtz, writer of The Big Picture a founder of investment research firm Fusion IQ.

Even after a plunge of more than 30% from the 2007 peak to the 2009 trough, house prices still did not fall to their long-term "fair value" level relative to incomes and rents of the past century. Over the next year or so, Ritholtz expects prices will resume their fall and drop at least another 10% before bottoming.

What are the factors that will continue to drive prices down? Mainly, an ongoing imbalance of supply and demand.

Basically, we still have way too many houses for the current level of demand. It's true that houses are more "affordable" than they have been for decades, but many of the folks who might be interested in buying houses have lost their jobs or are working off huge debt loads accumulated in the past. And that means that they're not queuing up to buy still-over-priced houses again.

Normally, after a bubble, prices not only return to the mean but crash right through it, and Ritholtz thinks that that may be possible again this time.

Santa Barbara is high, yet the agents tell us that prices have been falling. The cheapest place in SB is $400K a small 2bd condo.

Yes, that sounds more like it. I woudn't think $187K would even get you a '70s trailer in a mobile home park in SB!

Bummer about the price drop on your home; ours has also seen a big drop (San Bernardino Co.), but as it's in a very cool location, is pefect for two self-employed, work-at-home folks like us, and doesn't have a homeowners association(!!!), we're sticking around as long as God allows! And the upside: our property taxes are almost half what they used to be, plus I'm pretty sure that if we put this place on the market right now, we'd get more for it than the appraisal indicates it's worth; if we put it on the market at what "they" say it's worth, it would sell in about two seconds.

Personally, I think real estate in a good location is always a smart investment, and I'm sanguine that homes in areas with good climates, scenic settings, and/or vibrant economies, are always the last to dip in price and the first to go back up. Property values reflect demand for a location, and locations can't be duplicated. God isn't making any more California coastline (at least, not anytime soon, I hope!).

I think that in time, perhaps a long time, but then again, God works His miracles in wondrous ways, so maybe relatively soon, property values will come back in areas with natural/economic appeal (climate, views, commerce) and people who walked away from homes and mortgages NOT because they couldn't afford the monthly payment but because they were so hung up on the numbers of being "upside down," are going to kick themselves in the butt.

If I had a the dough, I'd yank it out of the market and be buying all the coastal property I could right now, and prices are quite low and dropping lower in certain areas, even in Santa Barbara county, for pretty decent and sometimes downright NICE homes only a mile or two (or less) from the beach. Banking on the future ... I grew up in a coastal town that was nothing special then, and where boring old two-bedroom, one-bath 60s tract homes that average joes lived in, now, even in this market, sell for a minimum of $500K, usually more in the $600-700K neighborhood. It happend then ... it WILL happen again in other coastal communities not yet discovered by outsiders. :^)

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.