When does the bubble end?
So yeah, I'm a "n00b" as I guess they say on the intertron to this website, so I'm sure this topic has been covered. If so, redirect me.
Anyway, I'm just curious as to when people think that house prices will stop declining and level out again? I'm just interested in seeing opinions on this subject.
Anyway, I'm just curious as to when people think that house prices will stop declining and level out again? I'm just interested in seeing opinions on this subject.
Comments
1) Optimist - 2012 they stop falling and level out
2) Pessimist - We do a "Japan" and they keep falling...and falling
So are you feeling lucky today?....
Predictive is what SeattleMoose did, with a prediction of 2012 (which is pretty reasonable as a guess IMO).
Prescriptive would be to explain what the market will look like when we do reach a bottom. FWIW, a prescriptive is still a prediction, but it is much easier to be accurate in this mode. That's because we've seen a lot of bubbles, and we know how bubble psychology works. We haven't seen as many real estate bubbles, so it's more difficult to state exactly how long or how low prices will go.
So, what's the prescriptive explanation? We'll reach the bottom once general consensus is that nobody should be in the housing business anymore. Stages you might recognize before that point are(in order): everyone should be in real estate, it can't go down, dropping prices are a minor set back, and most people will not lose money.
The bubble ends when prices fall to the Fall of 04 or Jan 05 price....That is when the big jump began.....and it is a reasonable place to assume it will end....Unless Obama gets elected and then there is no telling how far we will fall as the Economy crashes under the tax increases and spending plans.
P.S. I am not for McCain either.
I'm predicting that local prices will continue to decline until somewhere between July and December of 2009, at which point I see flat prices until about 2012 when I see prices rising again.
Outlying areas like Snoq Ridge, SE Renton, Kent, Auburn, Marysville, Arlington etc, will fall and not flatten until 2011-2012.
Areas closer in to job core centers will stabilize whenever lenders, banks will lend money which they do not have right now. When consumers realize that its time to save up the minimum 3.5%-5% down payment and show a well structured personal balance sheet. Guessing time frames on any of these events is like throwing darts at a board blindfolded.
--Number of home sales increase significantly
--Median prices shows an increase year-over-year for at 6 months.
--Changes in regulations/policies around mortgages in the US. Some emblematic examples include -- guidelines around the eligibility of a mortgage are significantly changed/increased, policies around tax break on the mortgage-interest change, etc, etc
---A couple of major financial institutions vaporize
and this follow-up: More on Catching the Bottom in Housing
Note that the follow-up is the author actually answering questions that his readers had (it got posted to digg and reddit so there were a lot of readers), so if you have some rational explanation why he could be wrong I'm sure he'd like to hear it as would I.
I hope lenders do not however loosen up standards, even though there is already talk of lowering credit score requirements if cash reserves are stable and seasoned.
Gaging a bottom there is nobody out there that can make an educated guess on when it will be, anyone who is throwing "thoughts" out there is just guessing trying to impress everyone that they called it a few years from now when in reality it was a shot in the dark. This is a market just like any other with a myriad of factors thrown in, trying to do it on fundamentals of wages, inflations, median home prices vs. median income, is interesting and fun, this is one of the few markets driven by first of all emotions and desire for a basic need, then by peoples desire to achieve income great enough to afford it.
Sorry to get off track on the previous post.
The majority of the notes that I pull up right now due to become REO in the fore coming months 85+% of them are 80/20s i.e. 100% loans.
Furthermore:
60%+ of the due to be REO are purchased in 2006-2007. Go figure.
Median is not an accurate stat to get the picture of how loans were originated as its a 50/50 balance. Seattle in its major bubble was JUMBO loans and required at least 10% down to qualify for most people. Outlying areas were conforming limit loans which were easily done on 80/20s.
Housing is related to the broader economy and if prices dropped so much, the broader economy would have to be in terrible shape. House prices are down probably 6-10% across the country (I don't know the exact number), but the S&P is already down 20%,and people are losing a ton of money in their investments and 401Ks.
When prices fall 60-70%, a large number of banks would fail, credit would be very hard to get, the local economy would be devastated, and a ton of people would be unemployed, and the ranks of the homeless would grow. At the housing bottom, neighborhoods would be devastated with foreclosed/abadoned homes and the crime rate will go up.
There will be great deals in housing, but they will only be for people who were already rich and have cash to pay down, and can get credit at reasonable rates.
I don't know if this will happen or not, but if you believed that situation, then you should probably just think of raising cash, and preserving capital - buying a house or any other high priced item would be silly.
I don't really agree that housing in this country (at least what people think of when they say housing) is a "basic need" any longer. When people were living 10 to a 700 sq ft home, it was a basic need. Now, a typical home has at least one room for every member of the household, and more frequently one bedroom/bathroom per resident. That's actually a luxury at that stage.
My point is even a starving college student or illegal immigrant is usually able to find and afford the need portion of housing. I will grant, however, that a little extra space in your home (say a bedroom for everyone) is a more "fulfilling" luxury than say a latte.
RCC When was the last time that people were living 10 to a 700 sq ft home?
A bedroom per resident is not a luxury, it is a basic need, that the majority of the people strive for and work for.
I would posit that if one looks back at the 50's and 60's - which are generally romanticized as a golden age for the US - there were plenty-o-shared bedrooms. At least based on the size of the houses built then - for baby boom families. Needs are relative thing, it seems.
DJ, this as 60 years ago. A whole lot has changed in peoples "needs" since then. I haven't met one person who says that they want to have their kids stacked by 3 or even 2 to an 11x10 bedroom, with bunk beds.
The bubble ends when it's near-universally agreed that RE is a really bad investment.
So when do you think this will happen if ever?
That's spot on. Not only do I think things will get pretty bad, but if you look around a little you can find a lot of it is already beginning to happen. Banks failures are accelerating, people's 401k s are losing lots of money and there are lots of neighborhoods that are already devestated and have become almost ghost towns. Housingpanic just had a video the other day showing some ghost neighborhoods and they've had several videos before of other neighborhoods. And as for capital preservation? I and many others have been doing that for some time now. It's now about return of capital rather than return on capital. I just wish I had more time to prepare.
In my crystal ball, I see declines for the next few years, then we bounce along the bottom for at least another 5 after that. So maybe after 6 years, we finally destroy the dreams of the last optimistic RE investor, then we can start to see appreciation a couple years after that.
My crystal ball has a major crack running through it, unfortunately, so it's more art than science reading it.
Wants and needs are very different. There are plenty of people in this country that share rooms.
As for the bottom, I think we are already seeing what is going to happen. Even in many falling areas, high end homes close-in are becoming and will continue to become more expensive while farther out areas become less desirable and continue to fall. Farther out areas in growing areas will shift to less expensive construction and apartments, while the luxury stuff is built downtown. What is happening to suburbs in non-growing areas is just ugly.
So if you are looking for in-city, the bottom has passed, whereas if you are at the lower end you have plenty of time but you will not be as close to the city as you could have been previously.
So, I like to exaggerate...slightly.
Just look at the 1950s. Here's the result of a super quick Google search. If you want even more information about home sizes, go here.
If you are in your twenties, your parents were probably born into a home that was smaller than 1000 sq ft. But how many people actually lived in one of those small homes? I did a few searches, and it looks like the typical family had about 3 children.
In 1900, according to the second link I posted, a 25x30' home was not uncommon. That's a 750 sq ft home. At the time, it was average for families to have 4 children.
These are averages, so you can be certain that some people lived in a below average sized homes with an above average sized family. Is it so hard to believe that 60 years ago a family of say 7 might be living in a 900 sq ft home?
Contrast that with today's family of 4 or 3 or 2 living in a 2500 sq ft home. A room for every resident is absolutely a luxury, and it's a luxury that has only been within the reach of average Americans for the last generation. Personally, I'm proud to live in a nation where this luxury is so common it's actually taken for granted.
This isn't true. It just takes longer because the move-up buyers have to first disappear because they give up selling their lower-end homes. High-end typically have more patience and are slower to cut as well. You can see this happening with foreclosure data in LA, which puts pressure on price. Foreclosures started out mainly in the outlying areas, but they are now moving into the ritzy areas of town.
This will happen everywhere. Even in (gasp!) Ballard!
See Calculated Risk.
High end homes in LA didn't go up nearly as high as the median, so they don't have as far to fall. That means that foreclosures will not get as bad, because there is less motivation to just walk away. The rate of increase graph from CR would be more convincing if it was percentage of total homes rather than a percentage increase over a very small number.
The LA high end seeme to be dropping about as fast as the rest of the market:
http://www.papereconomy.com/CSI.aspx?id ... showhigh=1
The asking prices on housingtracker suggest that are holding their prices at this point, while the rest of the market is still dropping. You can laugh at those numbers, but to me it is a reading of their perception of their market looking forward, and they know more about that than we do.
Bottom calling the upper-end at this point has no facts to back it up. The higher-end will fall, and substantially. Just a little later than lower-end.
Oh snap! Humble-off. My family of 5 grew up (80's to early 90's) in a 3 bed 1 bath, 1008 square-foot house.
In case we need more proof, take a gander at this documentary. True, these men are discussing life in Britain, but it's still strong evidence about just what you need -vs- want.
Video streaming over inter-connected networks? Luxury!
I highly doubt that in mass the majority of the people out there are the "Hey, I want my kids to live two to a room, thats what I will work for to achieve, get education, move up and increase income, invest, so that all through middle and high school they will be proud of what I can provide for them".
Anyone want to point out anyone like that?
People who do have kids 10+ years old stacked two to a room are meeting a basic need not a goal of at least 90%+ people out there.
I went to school, graduated in mid 90s everyone in my class who I knew and have spent time with 20-40 people had their own room.