Sunday, June 12, 2005

Growing Signs of A Housing Slowdown

From today's NYTimes, we have an article titled "Signs of Spring Slowdown." In this article:

  • "After a torrid first quarter that spun the sales prices of Manhattan apartments to breathtaking highs, anecdotal evidence suggests that the headiness has started to dissipate. While the jig is hardly up, brokers are saying that the tempo resembles a more seasonable waltz, and that there are signs of growing price resistance among buyers.
  • " ... chief executive and president of Corcoran, adding, "What tells you if prices are going up is the price per square foot." She said that data from the firm's signed contracts show condo and co-op prices per square foot of $1,003 in March, $1,016 in April and $1,009 in May."
  • " and a professor of economics at Yale University. Mr. Shiller shared the results of a Lexis-Nexis search he conducted among major newspapers: In May, 77 articles contained the words "housing bubble," nearly double the 40 logged in April."
The evidence of growing bubble talk and stagnating prices continues. Stagnating prices will lead to a change in market sychology. Many more people will no longer believe in the contintuation huge price apprecaitions. This will lead to panic selling especially amoung speculators, investors and second house owners. Price declines will start occuring. Look for price declines of up to 50% in certain markets over the course of a few years (inflation adjusted).


  1. Growing signs of a housing slowdown. Glowing evidences of an October credit bubble bust!

  2. October is a solid guess.

  3. 50% decline over a few years? Come on. That would be the largest decline ever. With growing demand (population increase, especially to areas most vulnerable to an adjustment), a decline of that magnituted, is just not realistic. More likely is flat prices or a modest 10 to 15 annual drop, which would likely level off after that.

    Speculators and folks subject to a credit bubble are vulnerable. But owners with fixed rate mortgages who plan to stay put for 5 years have little to worry about.

  4. What's special about October. I believe the housing market (especially in southern California) is at or very near a peak, but I'm wondering how you narrow down the time for it to pop to a specific month.

  5. It's not unreasonable to think that the largest decline ever will follow the largest rise ever. Trying to predict the moment of bursting, though, is futile. It is entirely possible that the bubble bursting won't be a quick event. Regional bubbles have caused prices to go flat before, adjusted for inflation, over very long periods (15 years in a row in Florida, starting in the 80s, for example). So prices might not drop at all, or they might drop a little, and then wait a long time for inflation and the rest of the economy to catch up.

  6. "50% decline over a few years? Come on. That would be the largest decline ever."

    Don't forget we've seen the largest increase ever. No one has problems with that I notice.

    Regression to the mean would imply a 50% drop in prices here in the Bay Area of Caliphoney. Usually what happens is the mean is undershot. So a 60% drop is not unreasonable.

    Of course, the drop will not occur all at once. It will be spread out over 5 years or so and then houses will likely stay at or near fair value for 10 to 15 years after that. Unless there is some unforseen extreme event in which case anything can happen. I look forward to a normal housing market again.

  7. I live in Southern California and really need a larger home for my growing family, but I can't bring myself to pay 1.3 million for a house that was selling for $750,000 three or four years ago. Since I'm still trying to figure out what to do, I've been checking the website listings for our local real estate agent. Recently, I noticed that many of the prices had been reduced significantly (some as much as $200,000) from the original asking price. Of course this may be a result of the original offering price being completely unrealistic but I just noticed today that they changed the website so you can no longer see the original price (it was always there with a red line through it before). Is this a possible sign that the bubble is popping?

  8. 50% drop not crazy. As per other sources, Tokyo realstate today is 50% of prices 10 yrs ago, when it was at its peak.

    Population growth: I do not know about the rest of the country, in Miami Dade County, population growh has not changed in the last 4yrs ( average of 29k to 36k net increase, since prices started to increase dramtiaclly, the same as for the last 20 yrs.).

    Are there any figures that show a net (dramatic) popilation growth, in the overheated markets.

    Immigration has been mentioned, but since 9/11 immigration laws have made it harder to immmigrate into the USA (legal immigration and some illegal immigration are the only ones that can afford to be buying houses).

  9. October is a volatile month in the financial market.

    Expecting CCDs in October!

  10. The 50% reduction in certain markets prices would be based on the housing bubble pop coupled with a recession induced by the housing bubble bursting.

  11. With a depression, we may see drops of up to 80%.

  12. Thanks to all for responding to my comment about a 50% drop being a record drop (and in my opinion unrealistic).

    Bubble "pop" or "burst" seems to imply a quick event. However most of the response posts here seem to expect a more reasonable decline over time or flatness. Perhaps the words pop and burst should not be used if all you mean is a "slow down in growth" "flattening" or "modest annual decline for sustained period."

    If that is all you mean by "pop" then isn't a purchaser who wants to keep/live in the home for more than 5 years still wise to buy in order to take advantage of the low interest rates?

    If so, and the math of interest rates and home value, so support purchasing now, then shouldn't we recharacterize the potential bubble pop as a problem for short-term investerors/speculators and individuals subject to a credit bubble?

  13. "modest annual decline for sustained period."

    10% a year for five years is NOT a modest annual decline!

    It's a 50% drop in 5 years.

    In real estate, that's a POP!

    Better sell your McMansion ASAP.

  14. An annual decline of 10% per year for five consecutive years results in a 41% decline, not %50.

  15. after going up 40% it fell 30+% from 88 to 1995
    in CT,RI and most of MASS