The housing bubble

I just heard on the news that the sales of existing (resales) homes hit a four year low except in the northeast where there is a slight increase in sales. The northeast was the first area in the country where the bubble burst.

[brewer12345]

Don't get all excited just yet. The commode continues to hit the windmill in the northeast, too.

Here is data from the report I was referring to:

The sales decline reflected weakness in the South, where sales dropped by 3.4 percent, and the West, where sales were down by 0.8 percent.
Sales actually showed strength in the Northeast, rising by 5.8 percent, and the Midwest, where they were up 0.7 percent.

Sales of existing U.S. homes drop to slowest pace in 4 years - International Herald Tribune

[brewer12345]

I saw the same data. You still have near-record inventory levels plus lots more foreclosures working their way through the system. Maybe we will see a recovery start in 2009...

[haha]

This contains some helpful commentary from a representative of a large RE Broker.

Yahoo! Personal Finance

On Sunday I participated in a rather trumped up auction on a nice condo in a very good neighborhood. I was only modestly interested should it go at a very low price because one of my requirements is plenty of light, and this place tended to be dark even on a moderately sunny day. I hate to think what it might be like in December.

One of my sons just bought a very expensive house, and the other would buy if only he had the DP. In general, you can't rent a condo for half of the mortgage payment based on 20% financing, let alone covering the HOA fee. Homes are much worse, and high end homes laughable.

The shman in the street, whether potential buyer or hopeful seller gives no credence to the idea that prices could go somwhere other than up.

Ha

Anyway, it didn't sell- the owners had a ridiculous (undisclosed) reserve.

[cute fuzzy bunny]

Isnt asking a broker about the state of the markets a bit like asking Abe Frohman if sausage is good for ya?

[jIMOh]

IMO the RE bubble will not burst fully until the fed raises rates... and I don't think the fed wants to raise rates until the bubble deflates more...

a soft landing so to speak.

sales can be slow of new developments
sales can be slow for houses being put on market by exisiting owners
people don't lose money when sales are slow, they just don't make easy money, or make more money... but they still make money. It's a transaction type business model, so it will not impact overall economy much.

the people which lose will be people which got in over their heads with mortgages
the companies which lose will be the ones which lent money to others with suspect credit

Consider many small businesses are people which help construction of new houses. But these people were paid when the house was sold/built. So from my standpoint the real estate bubble will only impact the banking industry and related types.

There will be some short term panic selling in other sectors, but that is just a buying opportunity because fundamentals did not change.

[kcowan]

Baring any unforeseen events, it will take an average of 7 years before prices start up again in CPI-adjusted prices. This is based on national averages. YMMV

The total decline may be as much as 50% but will probably be closer to 30%.

[Sam]

Quote:

Originally Posted by kcowan The total decline may be as much as 50% but will probably be closer to 30%.

How did you come up with those percentages?

[jIMOh]

Quote:

Originally Posted by Sam How did you come up with those percentages?

The decline only affects people which sell. If people have jobs the effect of this bubble should not impact them.

I've been watching the unemployment rate... the bubble could be bigger than we expect, but if people still have jobs to pay their bills, then the buddle really wasn't that big

[Sam]

Huh?

[jIMOh]

the RE bubble is just noise

the real economy is going well, with relatively high employment rates thus far

[Sam]

The RE bubble is real to me. But I wonder how people come up with 50%, 30%?

[kcowan]

Quote:

Originally Posted by Sam How did you come up with those percentages?

• 30% gets the national prices back to their long term trend line
• 50% lets them overcorrect and drop below the line for a couple of years

I did this work in December 2004 and have not updated it.

Cyclical Bubbles in US National House Prices

I have misplaced a few of the later graphs since then but you get the idea. In fact they were only to convince people there was a bubble and that is no longer necessary just 30 months later. (I used to do forecasting for a living at one time.)

[Sam]

Thanks. I will take a closer look at it.

Was it done to satisfy your own curiosity or were you paid by certain organization to do the research/analysis?

[VoyT]

Quote:

If people have jobs the effect of this bubble should not impact them.

Unless you happen to live in a neighborhood that's seen a lot of foreclosures .... all those vacant houses are such an asset, eh?

[cute fuzzy bunny]

Lets translate that into RealtorSpeak...

"Super quiet neighborhood...almost like you're living alone in the country!"

[justin]

Quote:

Originally Posted by cute fuzzy bunny Lets translate that into RealtorSpeak...

Great neighbors, you never hear a peep out of em. Traffic is never a problem here in this neighborhood.

[lazygood4nothinbum]

maybe someone can help me understand how nar (national association of realtor) figures work. according to a friend of mine who has two realtor friends, our general area has dropped 20 to 30% since peak craziness. according to my own experience, we've dropped the price on our inherited house by almost 20% & we'd take between 20 & 30% of peak price but so far not even a bite, even with two price reductions.

yet nar reports that prices here have not dropped all that much.

for broward county (inherited house is in palm beach county) nar shows dec 2005 medium price at $379k and today's medium price at $367k. that makes my personal house worth at least the medium price (which is under what it seemed to have appraised at in the past, but there is no way i could get that today).

how is it that these supposedly hard numbers don't seem to coincide with what i guess is just perceived reality?

[califdreamer]

One explanation for the difference in median home price numbers and your actual experience is the median figures reflect the mix of homes being sold. In many housing markets today, the low end sales are drying up due to low affordability (from high prices and slightly increasing interest rates) and tighter lending standards. That leaves a higher percentage of sales in the higher end therefore raising the median price even though the value of a particular home is decreasing.

There are other indices, like the Schiller Index used in futures trading, that measure home values by isolating paired sales of particular homes thus taking out the statistical noise of variation in number of sales at different price levels.