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Realty reality: Housing prices are headed way down
LA Times ^ | 28 December 2007 | CHRISTOPHER THORNBERG

Posted on 12/28/2007 12:09:11 PM PST by shrinkermd

In 2002, the median price of a single-family home in Los Angeles was $270,000 and the median homeowner's income was $65,000. With a $50,000 down payment, the annual cost of that house (taxes, insurance and payment on a 30-year fixed-rate conventional mortgage) would add up to about 33% of the median household's income -- just under the 35% mark that the Federal Housing Administration calls the upper limit of "affordable."

By 2006, the cost of that same house doubled, to $540,000 -- pushed by unbridled speculation fueled by unparalleled access to mortgage capital. But median income rose a paltry 15%. So today that same set of costs come to 60% of gross income.

That might be a manageable burden when home prices are rising at double-digit rates, creating new equity that can be accessed to support spending -- but not when prices are flat and the home-equity ATM is closed.

There are "experts" out there who once preached that there was no bubble; they now preach that all real estate is local and that prices in your neighborhood won't be affected by foreclosures and price declines elsewhere.

The cold, hard truth is that foreclosures are serving only to hasten the painful process of shifting housing prices back to a level the market can sustain. Prices must and will fall. Everywhere. Probably 25% to 30% from their peak.

(Excerpt) Read more at latimes.com ...


TOPICS: Business/Economy; Culture/Society; Editorial; US: California
KEYWORDS: affordability; costs; housing; housingbubble; realestate
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To: the_devils_advocate_666

Bought mine in 1998, re-fi’d three times at lower rates. 15 yr at 4.875% with 9 years left won’t hurt me. If prices go down 25%, will still be up 75k on what I paid.


21 posted on 12/28/2007 12:29:05 PM PST by milwguy (........)
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To: brownsfan
If you’re living in a “fly over” state, this isn’t a big deal.

Fly-over state here. We're doing OK. Strong local economy, not very many speculators up here and very few of the gimmick loans.

We bought a new home a year ago (fixed 30yr at 5 1/2%) and are planning on being in the house for the next 20 years. I was heartened to see the real estate roundup yesterday showing how we haven't fit into the trend, with even more homes sold and an average sale price up 8% through 11/2007 compared to 2006.
22 posted on 12/28/2007 12:30:38 PM PST by philled ("CNBC?...You might as well be doing ham radio at that point."-- Dennis Miller)
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To: shrinkermd
Our county continues to consider our neighborhood "high desireability" and appraise homes well over what they sell for (considering they were built at different times, by diffrent builders and each having varying square footage.)

I have fought the raises each time (taxes are based upon such appraisals) and have won some/lost some and usually split the difference.

I'll have lots more ammunition in my arguments based upon falling prices, foreclosures and stagnant real estate sales.

23 posted on 12/28/2007 12:33:16 PM PST by zerosix (native sunflower)
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To: shrinkermd

Good news? Bad news? Medium news?


24 posted on 12/28/2007 12:35:14 PM PST by Larry Lucido (Hunter 2008)
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To: shrinkermd
Pure agitprop, as usual.

Prices must and will fall. Everywhere. Probably 25% to 30% from their peak.

This would be true were there no demand for new construction, which can't be built for the price to which they would love the market to fall. What the LA Slimes doesn't tell you is the degree to which the regulatory government of which they are so enamored has driven construction costs that high.

A typical building permit in my county now costs over $50,000 alone, never mind the interest cost while obtaining it, which can take easily over a year and often two. Paying for those two costs is well over a third the cost of the house over the lifetime of the mortgage. IOW if we got leftists like the Times out of the way, the bubble would never have happened.

25 posted on 12/28/2007 12:36:47 PM PST by Carry_Okie (Grovelnator Schwarzenkaiser, fashionable fascism one charade at a time.)
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To: Moonman62

Could anyone really afford their first house and furniture at the same time? I couldn’t. Now my mortgage payment is equal to my car payment. I don’t know what my house is worth and neither will anyone else until my wife and I are gone and it gets sold.

The problem is with speculators. The housing bubble was basically a ponzi scheme. Those that flipped early and often made tons of money. The ones that got in late took it in the shorts. Mortgage companies jumped in with both feet using the inflated values of the homes as the assessed value. My brother made money and lost money. One of his lawyer buddies put 10% down on 10 $1,000,000 condos in Florida (new construction). He just walked away and let the bank take them back. That’s the problem. This was NEW construction based, not on the demand for housing, but pure speculation. It will take 10 buyers to purchase the units that this bozo ordered. He lost a ton. The bank lost a ton, but the builder made a fortune. Money doesn’t disappear. It just moves around.


26 posted on 12/28/2007 12:40:21 PM PST by Soliton
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To: shrinkermd

About time reality caught up with the housing market

Just keep the government out and let it adjust itself


27 posted on 12/28/2007 12:44:41 PM PST by uncbob (m first)
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To: Soliton
The problem is with speculators.

No it wasn't. A rising market creates speculators, not the other way around.

28 posted on 12/28/2007 12:48:46 PM PST by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: MNJohnnie

Based on what is this assumption reasonable? 5% tail of the market does not wag the 95% of the dog


Yes, but the dog is the ABS market and the tail is Joe Shmoe Homedebtor.


29 posted on 12/28/2007 12:50:15 PM PST by AdamSelene235 (Truth has become so rare and precious she is always attended to by a bodyguard of lies.)
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To: shrinkermd

Meanwhile in many areas, the housing inflation continues at a rate near 5%.


30 posted on 12/28/2007 12:52:00 PM PST by bert (K.E. N.P. +12 . Moveon is not us...... Moveon is the enemy)
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To: shrinkermd
"Probably 25% to 30% from their peak"

I love these guys who tell stuff 9 months to a year AFTER it's already happened.

31 posted on 12/28/2007 12:53:45 PM PST by moonman
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To: shrinkermd

That’s not how markets correct.

People were saying all sorts of “the market should correct to X level” after the end of 2000 and equities started selling off. They were mostly wrong.

Markets are most irrational at their tops and bottoms. They invariably become absurdly over and under valued at the extremes of market sentiment.

We’re no where close to a bottom on the real estate market(s) yet, ie, the market sentiment has not reached a negative enough level. When the “conventional wisdom” becomes “the smart people always rent their housing” and “only idiots buy real estate” - then we’ll be close to a bottom.

There is one more aspect of real estate markets that many people overlook: at some point, downturns in specific real estate markets become their own problem. When enough houses are sitting empty in a real estate development, crime rates go up, vandalism may start to become an issue and lenders become very nervous about writing mortgages in those neighborhoods, which further exacerbates the problem and forestalls recovery of prices.


32 posted on 12/28/2007 12:53:49 PM PST by NVDave
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To: shrinkermd

I want to know when mortgage rates will go down. They’ve been around 6% for a while now. When will the rate cuts affect mortgage rates?


33 posted on 12/28/2007 12:55:41 PM PST by rintense (Thompson/Hunter 2008!)
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To: shrinkermd
NOT happening here in Central New Jersey, or even in NYC. Slight decrease to flat around here for the past few months.

FL and AZ are getting creamed.

34 posted on 12/28/2007 12:56:19 PM PST by Clemenza (I NO Heart Huckabee)
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To: Moonman62
No it wasn't. A rising market creates speculators, not the other way around.

Pass a law that says that, henceforth, you can only own one home at a time. What would happen? Homes would appreciate with population growth and money supply

Besides, rising and falling markets reflect organic supply and demand. Speculation is gambling and it continues until the money runs out (usually borrowed money). Speculation is the cause of all economic bubbles. They pop when the money stops.

35 posted on 12/28/2007 12:57:23 PM PST by Soliton
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To: shrinkermd
I would not mind seeing prices drop in half, and the sooner the better. This way my property taxes will drop.
36 posted on 12/28/2007 12:58:23 PM PST by Mark was here (Hard work never killed anyone, but why take the chance?)
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To: shrinkermd

It’s not so much the mortgage payments, I’m paying $1000 a MONTH just for insurance and property taxes!

Now that’s a market that desperately needs correction- and it probably won’t happen. Thieves.


37 posted on 12/28/2007 1:02:14 PM PST by ovrtaxt (Hunter is ignored by the MSM for a reason.)
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To: shrinkermd
.......and the problem is?

All I hear from these doomsayers is blah, blah, blah, blah, and more blah, blah, blah, blah.....

Dog goneit...this story is so very tired.

38 posted on 12/28/2007 1:06:43 PM PST by cbkaty (I may not always post...but I am always here......)
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To: Clemenza

Not in E. Texas, either. Always could buy a very nice house reasonably here....didn’t soar, so it isn’t tanking.

Hank


39 posted on 12/28/2007 1:13:55 PM PST by County Agent Hank Kimball (Well, really just plain Hank Kimball. Well, not "just plain" Hank Kimball, just Hank Kimball....)
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To: brownsfan

I live in “flyover country” too. We bought this house 15 years ago and about 5 years ago paid off the mortgage. Now we are thinking of moving to a different “flyover state”.

I am considering putting a price on my house and letting it sit until I get my price for it. I would go ahead and buy my new house, again, possibly paying cash for it.

I have a son who lives near me and could take care of this house for me while I live in another one. The only disadvantages I can see would be real estate tax and insurance would still have to be paid. $800 tax and about $600 insurance. If it never sold I wouldn’t be bothered too much as my kids would inherit it.

It sounds like the best of both worlds to me - buy low and sell if and when the market is up again but I’m sure that someone will be along shortly to tell me why my plan is full of holes.


40 posted on 12/28/2007 1:14:35 PM PST by Graybeard58 ( Remember and pray for SSgt. Matt Maupin - MIA/POW- Iraq since 04/09/04)
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