Monday, August 13, 2007

Significant Real Dollar Price Declines Have Already Occured, More Declines Expected

It has now been about two years since peak real prices in most bubble markets. In many bubble markets real dollar (inflation adjusted) prices are down about 5 - 25% from August 2005. For example a 300,000 single family house in suburban Miami that sold for 350,000 in August 2005 just sold for 318,000. Or a 1br condo in suburban Washington, DC that sold for 325,00 in late 2005 was sold for 295K.

"Art Godi, 71, a longtime Stockton real estate agent and the former president of the National Association of Realtors. When the housing market was hot a couple of years ago, Mr. Godi said, house prices here were increasing 20 percent a year. Now, he said, the prices are falling as much as 10 percent to 12 percent a year. " (NYTimes 8/13/07)

Real prices as well as nominal prices will continue to decline in most bubble markets for many more years. Prices declines in the bubble markets are very likely to vary between 20% - 65% in real dollars (inflation adjusted) from peak to bottom (it may take up to 8 years).

34 comments:

  1. Some good articles on the bursting bubble in yesterday's Los Angeles Times and Washington Post, specifically on the REO glut in the Inland Empire (east of LA).

    And, you have a typo in the headline for this story -- 'Significant,' not 'Signifcant.'

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  2. Yes, unfortunately you are correct. The only problem is that these toxic loans and folks who financed their two hummers, a face lift and their bubble house will impact the rest of the responsible Americans. A recession or worse is definitely on the horizon.

    The optimist.

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  3. The recovery continues in the DC Condo market:

    http://www.gcaar.com/statistics/2007-home-sales/dccc0707.pdf

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  4. The "old" housing tracker website confirms what you are saying for the DC area. It now has data for asking prices going back two years:

    http://www.housingtracker.net/old_housingtracker/location/DC/Washington/

    You can see that median asking prices have dropped over 15% in two years. These are nominal prices. I don't know exactly what inflation has been, but I imagine it has been cumulatively around 5% over two years, so the real decline is 20%.

    ARF

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  5. *kicks dead horse*

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  6. ARF said:
    "You can see that median asking prices have dropped over 15% in two years."

    Two years ago we were in a rising market, now we are not. In a rising market it's not surprising to see someone price their property for 15% or more than their neighbors got for their property. Why should we be surprised that people aren't doing that now? The only thing a lowering in asking prices tells us is that we are not in a boom anymore. But didn't we already know that?

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  7. Lance said...
    “The only thing a lowering in asking prices tells us is that we are not in a boom anymore. But didn't we already know that?”

    Yep, we did.

    But is that all we know? Are lower asking prices the only factor? Hardly.

    We know that foreclosures are on the rise. We know more ARMs will re-set. We know that salaries have not kept up with housing prices. We know that lenders are tightening lending standards. We know that lenders are in trouble. We know that inventory remains high.

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  8. "The only thing a lowering in asking prices tells us is that we are not in a boom anymore. But didn't we already know that?"

    This is probably the closest that Lance will ever come to saying that he was wrong about the housing bubble.

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  9. Its the systems fault, we let this happen

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  10. Lance said,

    "The only thing a lowering in asking prices tells us is that we are not in a boom anymore. But didn't we already know that?"

    We all knew that except for you LOL! nice to see you finally come to your senses.

    Now what did you do with the real Lance??

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  11. WRT ARMs, the pig in the python is early 2008, when more ARMs will reset than for all of 2007. If the current liquidity problems continue, the Fed will be under extreme pressure to temporarily ease rates in the fall to allow for refinancing of some of those ARMs. And the Fed must be worried that "good" borrowers aren't getting fair access to lending capital, e.g., look at the widening spread for prime jumbos. I also expect foreign central banks to pressure for Fed action to calm the markets, thereby allowing foreign banks to unwind some of their MBS positions. I see a 50-100 pt basis point drop by the end of the year. Will it work? We shall see . . . .

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  12. A real 20% decline is a wallop. People who bought in 2004 and 2005 are hurting-- a lot. As prices fall further, their pain will increase.

    ARF

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  13. "A real 20% decline is a wallop. People who bought in 2004 and 2005 are hurting-- a lot. As prices fall further, their pain will increase.

    ARF "


    I bought in 2004. Identical unit in my building just sold for signficicantly more than I paid. This is consistent with statistics for DC, which show prices continue to rise throughout your so-called collapse.

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  14. On July 23 Lance (indicating he KNEW prices would keep going up) said:

    “i guess i like the idea that someday the honest ones among them will say ‘Jez, Lance was right. I wish I'd listened to him. I wouldn't be renting a room in a trailer for so much more a month than if I'd just bought a house before prices rose even further and made it impossible for me to ever buy my own place.’

    On August 15 Lance said:

    "The only thing a lowering in asking prices tells us is that we are not in a boom anymore. But didn't we already know that?"

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  15. Anonymous 6:46 said...
    "Lance said,

    "The only thing a lowering in asking prices tells us is that we are not in a boom anymore. But didn't we already know that?"

    We all knew that except for you LOL! nice to see you finally come to your senses.

    Now what did you do with the real Lance??"

    Not being in a boom anymore does not equal a bubble bursting.

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  16. And in response to sales trends, inventory, foreclosures and ARM re-sets


    Lance said...
    “I and others have gone round and round with you explaining why they mean NOTHING ... absolutely NOTHING ... “
    July 21, 2006 9:09 AM

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  17. Very interesting development with the DC condo "recovery." Wonder what explains it. Anyone know?

    I can only assume that the "buy now or be priced out forever/credit tightening will get worse" mentality is at work here, and since overall condos are more affordable than SFH in DC, this might be the last frontier for those who can still buy, but can't afford the pricier housing.

    If my assumption is correct, this so-called recovery will probably not last.

    Would love to hear your comments about my little theory, which I admit is based on some logic and some intuition, but no numbers.

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  18. "I bought in 2004. Identical unit in my building just sold for signficicantly more than I paid."

    This story may or may not be true, but regardless, it is certainly not representative. The asking price data is most representative, as it shows the full spectrum of all houses on sale, not just the few that are selling these days. The asking price data show a 15% two-year decline. In real terms, that's a 20% decline.

    ARF

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  19. I read a comment by a recent condo buyer in DC that she bought because her real estate agent told her the DC condo market was different because "everyones parents are willing to make the down payment for them". I hadn't heard that one before. I would suspect if the above story is true there was some type of added upgrades or condos fees paid for a year etc....

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  20. "This story may or may not be true, but regardless, it is certainly not representative. The asking price data is most representative, as it shows the full spectrum of all houses on sale, not just the few that are selling these days. The asking price data show a 15% two-year decline. In real terms, that's a 20% decline."


    Except that it is representative, as born out by the sale-price numbers for condos in DC. Sorry, it's true.

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  21. Anon 5:24

    Where are you getting your “sale-price numbers for D.C.”? I hope not from a real estate group that has a vested interest in slicing and dicing the numbers in a way that spins positive for that segmented part of the market without telling you how they are slicing and dicing. Until you post some real numbers, I’m not buying the logical fallacy that “because it happened once, it is happening all over and will continue to happen that way in infinity.”

    Your anecdotal example is certainly possible, because there are those people out there that pay sticker for a new car and listen to their real estate agent as a substitute for doing their own homework. I have a counter example for you. I saw a record for a townhouse in Fairfax that sold for $650,000 in May 2007 and another one in the same complex sold for $580,000 last week. Check out Greater Northern VA Housing Bubble Fallout tagged in the regional sites on this blog, and you will see multiple lists of properties that are being listed at significant discounts under their previous sold price within the last several years.

    As a region, MRIS statistics report that D.C. listing prices are down about 10% YOY, and selling prices are down 5-10% below that. Every projection I have seen demonstrates that thousands of new condos will be hitting the market. In July, 336 condos were sold in D.C., which is up about 10% from July 2006. However, over 1,000 new properties were added to the market.


    So declare “Sorry, its true” all you want, but sorry, wishing does not make it so. Kindly excuse those of us who deal in reality to conclude otherwise.

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  22. Hey, if you want to pretend the numbers are false, go ahead. Whatever gets you through the day. That won't help you afford a house though.

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  23. I am assuming the numbers are not true because you fail to support them. Maybe your 4-year old falls for the ol' "Okay, if you don't want these yummy brussel sprouts, Mommy will have to eat them all" but not me sister. The fact that you would even make this argument convinces me you are full of shit. Or a realtor. Or both.

    Actually, it will help me afford a house, because I won't overpay. The comps I am looking at are tumbling. Which means I can buy a house that is only 2X my annual income, I can pay 20% down, and put it on a 15 year fixed note that I pay biweekly. That helps me get through the day.

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  24. Caveat said:
    "Which means I can buy a house that is only 2X my annual income"

    Good luck finding an $80K house anywhere in this metro area ...

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  25. No, Lance, 2X my income, not yours.

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  26. The actuals in Alexandria are flat to rising since 2005.

    So far, no bubble has burst.

    Has anyone realized that those who are praying for a bubble are betting against inflation, betting against an increasing population, betting against increased commuting distances?

    If prices get anywhere close to Tokyo, Paris, London, Hong Kong, Lance makes a few million dollars and the Lance-go-againsts will be tenants for all time.

    If prices fall 30%, which I doubt they will, you might still be unable to buy because the same forces that cause the fall may take your job and raise interest rates to 12 or 14%.

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  27. This is the dumbest argument I have heard, yet it keeps getting perpetuated: Buy now or be priced out forever.

    Who, the F, is going to buy all of these houses and keep the prices going up if no one can afford them?

    The answer thus far is people who can get free money from wall street morons who thought they could game the risk curve. We all know how that turned out.

    True, there are lemmings in the market, but if they can't get financing to buy a 500,000 house when they only make 90,000, where are all the buyers going to come from?

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  28. "Who, the F, is going to buy all of these houses"

    Who are all the people on the roads?

    Who is in line at the Starbucks to pay $4.00 for a dime's worth of coffee?

    Who pays $1.00 for a bottle of tap water that costs less than the label on the bottle?

    Who patronizes "Gourmet to go"?

    Who hires a gardener to do sweaty work so they have time to drive to a club to pay for sweaty exercise?

    Who ran apartments that you say are overpriced at $500K in DC to $1.2 million in New York, $2 million in Tokyo, $2.5 million in Moskva, and $3 million in London?

    Beats me. I'd like to know where they get their money from. Maybe there's some left there for me.

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  29. Actuals in Alexandria are at:

    http://alexandriava.gov/city/realestate/citycouncil_presentation_2007.pdf
    This is the 2006-2007 report, which is down in some places and up in others.

    Just the 2006-2007 map is here and breaks out the ups and downs by neighborhood. http://alexandriava.gov/city/realestate/map.html

    The 2005-2006 map is here. http://alexandriava.gov/city/realestate/map_0506.html
    Shows some pretty hefty increases.

    The 2004-2005 map is similar.
    http://alexandriava.gov/city/realestate/map_0405.html

    and so on, back a ways.

    Absolutely true, if you bought in 2006 at the very peak, paid too much, there has been a pullback and you're out some $$$$.

    For everyone else, those who bought in 2005, 2004, 2003, 2002, 2001, and back, it's like, OK, so my lazy-ass house didn't make fifty grand for me like it's supposed to.

    It's still a place to live and 3, 4 hundred grand in equity isn't so bad.

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  30. "
    Who, the F, is going to buy all of these houses and keep the prices going up if no one can afford them?"

    Plenty of people can afford them. I can afford them. Or are you the one who thinks there aren't any people with money in DC?

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  31. We'll see who can afford what after another 2 years of continuous ARM based mortgage resets take its toll on the already very jittery stock market and wipes out investment money of whomever is left that _had_ money.

    Add to this... and here I will give you 2 options:

    a) More interest rate hikes that will accelerate real estate declines and errode housing affordability, or

    b) Interest rate declines that will dramatically increase inflation and massively devaluate the US dollar (to the point that in 3 years, it will be the Euro against which Oil pricing is compared and purchased)... and eventually (sooner rather than later) put the US into a recession.

    Just remember kiddies, all booms have their busts, and the longer the boom, the greater the bust.

    The best I can hope for you Uh-mericans is that you elect Ron Paul. It's either that or you're all going to hell, and drag us down into it.

    Canadian Bear

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  32. Bush can try his "bail-out" program if he wants, but that will not change the fact that consumers are running out of money, and that homes can no longer be used as ATMs. A loan is still a loan.

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