Housing Meltdown

[Pepsi]

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Is the housing market downturn affecting you?   It sure is affecting us, and not in a good way.    But, hey, so we couldn't sell the condo we bought in 2001 for $236k for $300k in 2007 - even though an near identical but not quite as nice condo sold next door to us for $365k in 2006!     Now we're renting it and burdened with a $500/month negative cash flow because of it      

But it seems to me that a price increase of $236k to $365k within 5 years would be a boom that was due to a bust.   So real estate is coming back to it's traditional slow growth rates - that's a good thing.   It's the people like me, who factored in rising real estate prices into their financial picture - who are going to pay for this.    Do we deserve it?  Perhaps..


Why home prices could drop 25% more on average before the market finally hits bottom

As Washington policymakers struggle to keep the U.S. out of recession, the swirling confusion over the housing market is making their job a lot tougher. Will American consumers keep shopping or be forced to pull back? Will banks lend freely or be hamstrung by mortgage defaults? What are the best policy options right now? Those and other important questions simply can't be answered without a good idea of whether home prices will rise, flatten out, or keep dropping.

Some experts have begun to suggest that a bottom is in sight. Pali Research analyst Stephen East wrote in a research note to his firm's clients on Jan. 25 that "the sun is not shining very brightly, but at least the worst of the storm has likely passed." With optimism budding, Standard & Poor's beaten-down index of homebuilder stocks soared 49% from Jan. 15 through Jan. 29.

But it's considerably more likely that the storm is still gathering force. On Jan. 30 the government said annual economic growth slowed to just 0.6% in the fourth quarter as home construction plunged at a 24% annual rate. The Standard & Poor's/Case-Shiller 20-city home price index fell 7.7% in November from the year before, the biggest decline since the index was created in 2000.

And that could be just the start. Brace yourself: Home prices could sink an additional 25% over the next two or three years, returning values to their 2000 levels in inflation-adjusted terms. That's even with the Federal Reserve's half-percentage-point rate cut on Jan. 30

While a 25% decline is unprecedented in modern times, some economists are beginning to talk about it. "We now see potential for another 25% to 30% downside over the next two years," says David A. Rosenberg, North American economist for Merrill Lynch (MER), who until recently had expected a much smaller slide.

Shocking though it might seem, a decline of 25% from here would merely reverse the market's spectacular appreciation during the boom. It would put the national price level right back on its long-term growth trend line, a surprisingly modest 0.4% a year after inflation. There's a recent model for this kind of return to normalcy after the bursting of a financial bubble. The stock market decline that began in 2000 erased most of the gains of the boom of the second half of the 1990s, leaving investors with ordinary-sized returns.

Why might housing prices plunge violently from here? Remember the two powerful forces that pushed them up: lax lending standards and the conviction that housing is a fail-safe investment. Now both are working in reverse, depressing demand for housing faster than homebuilders can rein in supply. By reinstituting safeguards such as down payments and proof of income, lenders have disqualified thousands of potential buyers. And many people who do qualify have lost the desire to buy. "A down market is getting baked into expectations," says Chris Flanagan, head of research in JPMorgan Chase's (JPM) asset-backed securities group. "People say: I'm not buying until prices are lower.'" He predicts prices will fall about 25%, bottoming in 2010.

http://www.businessweek.com/magazine/content/08_06/b4070040767516.htm

[lucy]

We got out before the real crisis hit, although we were stuck with a huge increase in mortgage interest from an ARM and our business went south.

We sold at almost a loss, coming out with very little because of that. Real wages and the job market on top of real inflation has hurt the market, not to mention the glut of foreclosres, etc.

And we bought with more than 20% down.

I think it is relative to the local market. Some cities, areas are far worse than others....

But, I have to admit, I am happier renting at the moment. We rent a house we will eventually buy, I think. The prices in the neighborhood have already dropped 15%.

And continue to fall.

[truckcabbie]

3 years ago we made the decision(it took us 6 months)to get out of ours (in the Portland ,Or. area) and bought cheap in Montana, we know we dodged a huge bullet.
1 year after we bought our home it's value was up33% in part due to improvements . last year it held the same value. I was p/o'd because  I thought after spending $4,000.00 putting on a 600sq.ft deck complete with screened off front area ( big bugs here) and a back area for bar-b-q plus hot tub (spa to go thats portable) we'd be able to re-finance another $10,000.00 or so for other planned improvements, cashing in on my DIY project.It didn't hit us until then how bad things are. We could still borrow the money, but decided to wait it out a year to see if things improve.

[Observer]

It is not impacting on me at all.

[truckcabbie]

It is not imapcting on me at all.

glad to hear it.
Mostly my ego got sniped a little.

[Rocketman]

If anyone cares, the Portland Oregon real estate market prices are  still rising-albeit more slowly than in the past decade or so.

But it seems to me that a price increase of $236k to $365k within 5 years would be a boom that was due to a bust.   So real estate is coming back to it's traditional slow growth rates - that's a good thing.

Yes.

[lucy]

The credit/mortgage/liquidity crisis is not just about what affects one personally, but rather affects all of us in the long run as our overall economic health, the soundness of the US dollar, and our ability to generate national "income" or real wealth from a sound base of solid working people who contribute so much to the vitality of the nation indeed provide a foundation for our being a strong and growing country. To be flippant is really sad.

[lucy]

"flippant"...no pun intended//// :blush: