House prices to drop much lower: Greenspan

[retire@40]

I still agree with the old man. As much as prices have dropped, real estate is still not a good investment right now.

House prices to drop much lower: Greenspan - Yahoo! News


Fri Sep 21, 3:25 AM ET


VIENNA (Reuters) - A big overhang of property will bring U.S. house prices down further, but it is too early to say if the economy will plunge into recession, former Federal Reserve chief Alan Greenspan was quoted as saying on Friday.

Greenspan said in an interview with Austrian magazine Format that low interest rates in the past 15 years were to blame for the house price bubble, but that central banks were powerless when they tried to bring it under control.
"It's a difficult situation, there is an enormous overhang on the real estate market," Greenspan was quoted as saying. "Many buildings which just have been finished can't be sold ..."
"So far, prices have dropped only slightly. But it was enough to cause alarm around the world," he said. "Prices are going to fall much lower yet."

 

[twaddle]

Eh, that's just one man's opinion, and he's certainly been wrong about housing before.

OTOH, traders in the futures market agree with him:

Lansner on Real Estate » Blog Archive » Traders see 15.4% dip in LA/OC home prices by '11 - OCRegister.com

Miami, down 29.1% through 2011
San Francisco, down 26.2%
USA (10 cities), down 23.2%
DC, down 20.7%
Vegas, down 19.5%
San Diego, down 19.2%
Denver, down 19.2%
New York, down 18.3%
Boston, down 17.7%
Chicago, down 10.8%

 

[W2R]

VIENNA (Reuters) - A big overhang of property will bring U.S. house prices down further, but it is too early to say if the economy will plunge into recession, former Federal Reserve chief Alan Greenspan was quoted as saying on Friday.

I would have to agree with Greenspan, in that I would imagine that we are not at the bottom of the "trough" in housing prices throughout the country. However, some locations in the country have already reached the bottom of the trough, while others have yet to get there. Specific timing of the housing crunch in various cities is listed and/or predicted in this article . I have also read predictions in at least two other articles (which I won't bother to look up) that say housing prices for the country as a whole will tend to bottom out towards the end of 2008.

But then, who knows? Greenspan's guess is as good as any, and to me it is not at all alarming in the context of what general consensus seems (to me) to be.

 

[twaddle]

I predict that somebody will be predicting that the bottom is one year away for the next 5-10 years.

 

[justin]

Lansner on Real Estate » Blog Archive » Traders see 15.4% dip in LA/OC home prices by '11 - OCRegister.com

I'm assuming that is a nominal loss of 15.4%. That equates to a real loss of 25% assuming 3% inflation compounded over 4 years.

 

[twaddle]

I'm assuming that is a nominal loss of 15.4%. That equates to a real loss of 25% assuming 3% inflation compounded over 4 years.

Yup. These things are really impossible to predict. It's hard enough to get the direction right, let alone the magnitude and timeframe.

But I estimated that prices would need to come down about 50% in real terms to get back to the historical appreciation line. Who knows how long that might take, but one possible path is that we simply go sideways for a decade or so.

 

[FinanceGeek]

So riddle me this, why are is there so much new construction going on in so many of these sun-belt locales given the impending decline? It seems no matter where I travel I see tons of new cookie cutter communities springing up.

 

[brewer12345]

So riddle me this, why are is there so much new construction going on in so many of these sun-belt locales given the impending decline? It seems no matter where I travel I see tons of new cookie cutter communities springing up.

What's the old saw?

"Builders will keep building as long as banks will keep lending."

Or maybe it is this one:

"All RE markets are local."

Time will tell. But I think that in the overheated areas, we will see prices continue to drop for at least another year or two.

 

[justin]

Maybe losing $10,000 per house or just breaking even is acceptable in bad times. That way, when good times return, they are ready to go full speed. And they have inventory ready to move. Accepting a (hopefully) small-ish operating loss for a couple of years while hoping for a turnaround would position a company well for the recovery. However, if you lay off 2/3 your workforce, sell 2/3 your equipment and stop building almost altogether, it would be hard to ramp back up to full production when times get better.

 

[barbarus]

I had no idea about what was going on in housing til I discovered these guys.
They have been much more accurate than Greenspan/Bernanke or the NAR.
Almost like the blog takes a novel approach and actually tells the truth or sumthin'.

(As does ERF)!


The Housing Bubble Blog

 

[twaddle]

"Builders will keep building as long as banks will keep lending."

One thing that surprised me this time was how quickly builders reacted to the bust. In SoCal, at least, inventory overhang is *much* lower than it was during the last bust. Maybe due to faster information flow?

The other thing that is different this time is that home ownership rates are up about 5% or so. That could justify part of the run-up *if* those folks can actually afford to keep their homes.

 

[Retire Soon]

Real estate prices, like stock prices will eventually revert to the mean. It is not different this time. This reversion to the mean can be accomplished by a drop of 50% in value as twaddle said, or there may simply be no price appreciation for perhaps the next 10 years.

 

[laurence]

Where's honobob to tell us there is no real estate bust and that any losses reflect a personal failing?

For your primary home ownership this is actually good news. Re-asses those taxes and lower your bill!

 

[JustCurious]

Real estate prices, like stock prices will eventually revert to the mean. It is not different this time. This reversion to the mean can be accomplished by a drop of 50% in value as twaddle said, or there may simply be no price appreciation for perhaps the next 10 years.

I think it will be a combination of the two, a 20-25% drop over the next 1-2 years (which is already happening in my area), followed by price stagnation for the next 5 years.

 

[dex]

I'm noticing a lot of empty store in strip malls in the Atlanta area. And a lot of strip malls being built.
Anyone else notice this?

 

[honobob]

Where's honobob to tell us there is no real estate bust and that any losses reflect a personal failing?

For your primary home ownership this is actually good news. Re-asses those taxes and lower your bill!

Personal failing or perhaps just stupidity!

Please explain, "For your primary home ownership this is actually good news."
I'm pretty sure you don't know what you're talking about! You're not living over your parents garage are you?

 

[REWahoo]

I'm noticing a lot of empty store in strip malls in the Atlanta area. And a lot of strip malls being built.
Anyone else notice this?

Dex, it's been a while since I've been to Atlanta, so no, I haven't noticed.

 

[Payin-the-Toll]

Always admired A.G., but he had his 17 years, so I think he should shut-up and let B.B. run the show.

 

[2B]

Always admired A.G., but he had his 17 years, so I think he should shut-up and let B.B. run the show.

I agree. The old fossil just needs to shutup. He comes out with a book detailing how he disagreed with all the decisions made during his tenure by everyone else. Now he tells us! Of course, he's hyping his own book to further feather his nest. Of course, keeping the interest rates at 1% and hyper inflating the money supply had nothing to do with the housing bubble.

All real estate is local so the big impact is being felt in the former boom areas -- California, Las Vegas, Florida and Arizona. The problem with these areas is that housing became unaffordable to the typical buyer and only with exotic mortgage products could the inflated purchase price go through. The only reason an individual would take a mortgage like they got is they "knew" that the rising prices would bail them out. The mortgage tightening is having an effect in other areas but not as dramatic.

FWIW, Houston is still going up slowly because of the rising employment in the area. It's a long way from calling anything a boom around here but homes seem to be selling and for a little bit more than last year.

 

[audreyh1]

Always admired A.G., but he had his 17 years, so I think he should shut-up and let B.B. run the show.

LOL! But maybe he's making Ben look real good these days. So maybe he should keep babbling on......

Audrey

 

[bright eyed]

So riddle me this, why are is there so much new construction going on in so many of these sun-belt locales given the impending decline? It seems no matter where I travel I see tons of new cookie cutter communities springing up.

i'm guessing the plans were drafted, approved etc. during the peak...that happened around here... a new housing dvmt (in the last patch of land left) was planned during the boom and is nearing completion...i think they expected it to sell out right away...but the sales on the townhouses are lagging (although i think they are still trying to hold on to the asking price)...further out from LA into riverside and beyond where the housing tracks have been going up at crazy rates - i'm starting to see tons of ads for free upgrades, below builder cost etc. to keep the sales going.

maybe one day i can actually afford a house around here!

 

[haha]

Quick note from what may be the last housing market still charging ahead. 2 friends last week bought a 1100 sq ft co-op apt in an old building, no provided parking, in a good central residential neighborhood of Seattle. Paid $390,000, which was $20,000 above the asking price. That's right, a bidding war among 3 buyers!

Ha

 

[Spanky]

Good luck to the one who won the bid.

 

[chinaco]

We are intending to downsize in 4 years when I ER. Sounds like we are downsizing and didn't even move yet. But not in the way we were hoping to downsize.


Housing looked like a bubble, I believe it is correcting itself.

Dirt Cheap interest rates are not good for an established economy. Especially for the long haul. I hope Ben B doesn't go too low. Unfortunately, everything is interconnected. The $ is in the toilet. I am confident that we can turn things around. An administration change will probably help.

 

[HFWR]

I'm noticing a lot of empty store in strip malls in the Atlanta area. And a lot of strip malls being built.
Anyone else notice this?

The North Dallas Tollway corridor looks the same to me...