Posted on 05/14/2012 10:18:24 AM PDT by blam
GARY SHILLING: Home Prices Will Plummet 20% From Here
Mamta Badkar
May 14, 2012
Despite growing consensus that it is now cheaper to buy a home than rent one, Gary Shilling, president of A. Gary Shilling & Co. says by previous standards home prices are still high relative to rents.
In his latest editorial in The Wall Street Journal, Shilling writes while home prices have fallen 34 percent since their peak in early 2006, they are not cheap if prices continue to fall:
"But even if homeownership was cheaper than renting, as some claim, buying a house now would be a disastrous investment if prices fall another 20% or more."
Shilling says homes are going to lose market value in coming years because of excess inventories. He says there are an excess of 2 million inventories and that it will take at least four years to work off this excess and quite some time for those surplus homes to bring down prices:
(snip)
...Now that mortgage servicers have reached a $25 billion settlement with Washington and state attorneys general, foreclosures are likely to roar back. That likely will trigger the additional price decline, since the National Association of Realtors says foreclosed houses sell at a 19% discount to other listings, and sizable sales of real estate owned by lenders drag down the entire market. The total peak-to-trough decline in single-family house prices then would be more than 50%.
If those foreclosed out of their abodes move to rentals, they're occupying other housing units, so there is no change in overall inventories. But if they double up or move in with their parents—as statistics show they have been doing—even more excess inventory results."
Read the entire piece at The Wall Street Journal
(Excerpt) Read more at businessinsider.com ...
The usual suspects: Manhattan, SF Penninsula, Silicon Valley; where there are large work centers and are hard to get to from cheap locations; will continue to go up.
Even in Denver, or Boulder for that matter; there are urban centers that never declined much and probably will not.
As said in another thread: if it’s suburban (or rural), reachable only by car, and over $250K; it’s going down.
The guy is wrong. Buying a bank owned/foreclosed unit is better than renting if you’re staying around awhile.
Yep, and ouch!
Mike
I wonder if he is considering “replacement cost”. Is the cost of lumber, labor, drywall, plumbing accessories, carpet, roofing etc. going to fall 20%.
Somehow I doubt it. People will pay a premium for a new house but the difference is not that large. If new home prices don’t fall then used houses won’t either.
But what institution is going to give a loan to anyone if they feel the price might decline another 20%. Their client would be under water within the first few years.
Same question to a buyer are you willing to take that chance?
If so, I guess I better wait to buy.
True, but ONLY ON THE AVERAGE.
Some homes are going to lose a LOT more than this. Others will do just fine.
Back in the insane 1990s/2000s builders down here were throwing up ugly ass-ed homes in ugly ass-ed neighborhoods as fast as they could build them. They were charging insane prices. And thanks to liar loans, people were buying them. Now most of those blights are largely deserted.
In older, more established neighborhoods, the prices didn't go up like a rocket, but they haven't dropped either. A neighbor that lives across the street and a few houses down bought their house in 1998 for $160k. They just sold it for $215k. Not the best return on investment, but certainly no loss.
I presently live in a 1 bd rm apt @1430 per mo. We need to move to 3 bdrm house (I don’t want to share the house with other renters which is the trend) Best we could do was 2000.00 plus Oil, Gas, Elec. If prices have fallen I couldn’t swear to it.
HAHAHA! I did some googling and it pointed me to this freerepublic thread from 2006 on housing prices. Look at the amount of “it’s going to be just fine” posts. In hindsight it is very interesting.
http://www.freerepublic.com/focus/f-news/1711321/posts
I bought a small farm with a new house on it in central, rural KY in October of 2008. There is no way I would have bought a home in Seattle at the time. But a farm is a TOOL. and my property is actually worth MORE than it was when I bought it. I think it is partly due to a migration from the cities by those at a time in their life where they can afford it and see the value in it.
House prices are high because the banks were bailed out. They could have sold their stock at lower prices, but they were bailed out, so they could keep their home stock prices artificially high, so they don’t make a loss on those mortgages.
Government caused the propblem by forcing them to lend to unworthy borrowers, then government bailed them out when the scam collapsed. Who loses? Any of us ordinary schmoes who wants to buy a house loses.
I’m in the central valley in California. I think I made out OK, too. I paid all cash for a house for $140G 15 years ago, pre-boom. Sold it during the boom for $427,500, then bought a brand new house on rural acreage during the boom for $335G. Now, my present home is only worth about $180-200G, but since I paid all cash I basically traded equities, with money left over. If I had to cash out I would take a hit...but since I would be re-buying if I sold, I then could buy something similar also at a post-boom reduced rate. The ones who are suffering are the ones, usually young families, paying mortgages, now seriously under water.
Yes, and even many of those that bought just a year ago are already suffering the consequences of trying to catch a falling knife. They are already underwater.
Thanks
That was a fun read.
Prices have a way to go down still, even afer the recent fall-off. When we get back to historical pricing of 2-3 times local incomes, we will be at a normal level.
3 times local income means $50K MEDIAN income puts a $150K price tag. This is without the excessive taxes and other burdens localities have heaped on property owners in the last 15 years.
With 10-15K property taxes, and Single Family Homes prices at 325K, one needs a stable income of $150K or so with nearly 100K seasoned cash-on-hand for down payment and closing costs. Monthly of over $1,800 with cash out the window vs a rental monthly of 1200-1400 and all that cash still in your pocket.
We will overshoot, as in all corrections.
The hardest part about the next leg down will be the shadow inventory that is sitting. There are many still holding on, watching the declines, but who will be under water with another 10% drop.
I certainly hope so!
When homes became the central object in "get rich quick" schemes, the downhill slide can only be a matter of time.
Most of us could do without the artificially increased prices and the resulting yearly rise in taxes.
Criminals in and out of office are the only winners.
Adjusted for inflation,they needed to sell for 225K just to break even.
Wonder what ever happened to that poster.
Rental prices keep going up as home values go down. So yes you can’t rent a house for less but you sure can buy for less. The sale value of my house has fluctuated back and fourth but the rental value has risen steadily.
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