Monday, November 05, 2007

How Low Can They Go?

Fellow Housing Bloggers,

This months edition of Fortune Magazine (November 12, 2007) had a great article on housing called How Low Can They Go? by Shawn Tully (no online link available yet). It combined extensive analysis of 54 metro housing markets with the combined work of Moody's, Fortune Analysts, PPR, & NAR. The basis of the article was to provide a snapshot of what the future of housing will look like in 5 years from June 2007. They determined a correction value (sometimes positive) by comparing present day price to rent ratios with the average of the past 15 years. Based on the data from the article I created a correction calculator and analysis for all 54 metro areas. For more background on the article check out this post on it until the actual article become public on Fortune's Website or you can just go buy the current edition of the magazine. I've attached the file and also here is a link for a hosted file. I'm sure this will be of some use to you.

Best Regards and Happy Blogging,

Baltimore Housing Bubble


  1. Very interesting. Perhaps somebody should remind Tully,, Fortune Analysts, PPR & NAR of Lance's new paradigm.

  2. The racial aspect subprime lending issue, explored in “Mapping the Reality of Race,” has been gaining traction in the mainstream media. Sunday's New York Times notes that while there has been extensive coverage of the relation between subprime lending and poor credit, “there has been less attention paid to the concentration of these loans in neighborhoods that are largely black, Hispanic, or both.” Bijaj and Fessenden attribute racial disproportionality in lending to the absence of bank branches in minority communities...

    continue reading

  3. I played with the spreadsheet a bit and I notice a few areas are declining far ahead of its predicted schedule. When I look at their assumptions in the spreadsheet, I see that it basically makes the assumption of not only no undershoot, but that prices will stabilize at high price to incomes despite our current lack of savings. In other words, expect a steeper decline than the spreadsheet shows. However, I do agree with its timeline.

    David, please keep up with the broad perspective. This isn't a local downturn, but a global downturn.

    We also appreciate the effort that moderation takes.

    Got popcorn?

  4. " NEW YORK (Reuters) - The economy might be edging toward a recession in the wake of mortgage-related credit woes plaguing the financial markets, bankers and analysts said on Monday.

    "I think that the risk of a recession is greater than people realize," James Dunne, chief executive of Sandler O'Neil & Partners, said at the Reuters Finance Summit in New York.

    With home prices dropping, more people about to lose their homes due to unaffordable mortgages and sharply higher oil prices, the economy could be on the brink of slowing down, they said.

    "I think there is a serious risk to the economy," Howard Lutnick, CEO of Cantor Fitzgerald, told the summit.

    Charles Peabody, partner at New York-based research firm Portales Partners LLC, said the Fed may have to take more aggressive action and drop the benchmark fed funds rate in an effort to prevent a Japanese-style economic stagnation, which eventually evolved into a deflationary recession.

    "We're moving into a recession, and over time -- the length of which is difficult to predict -- there is going to be a lot more credit problems," he said."

  5. I'm living my life in pursuit of least-cost options. I'm glad to see this rent/purchase extrapolation over a multi-year timeline.

    Now I see that for the next five years, at least, I will continue to enjoy my least-cost decision to rent.

    Neil, where can I get the cheapest popcorn?

  6. Blake,
    Is the effect more racial or economic? In the long run, it doesn't much matter, but are poor blacks getting screwed because they're poor or because they're black? I ask because "racist" is a particularly charged term, and if the problem is economic rather than racial, it means that by pursuing racist actions here, we're ignoring the harm done to poor whites, browns, yellows, etc etc.

    Anyway, just saying.

  7. kevinr:

    Blacks and Hispanics are disproportionately represented in subprime borrowing even after controlling for income level. I link to a study showing that here:

  8. Neil, where can I get the cheapest popcorn?


    I like Cosco. ;) But ol' bucket.


  9. Anon 4:10 AM,

    You say we are in a recession or worse, how does this help you buy a house? Do you think that you might lose your job or that your stock portfolio might crash and burn? Be careful of what you wish for.


  10. Let me be the first—and perhaps only—bubble head to predict there will be no recession within the next 12 months.

    The reason for the time limit is because historically, recessions happen once every 5-10 years. I don't want someone coming back 3 years from now saying, "Look, you were wrong. We're in a recession!" Also, the 12 month outlook is what the Federal Reserve uses.

    Let me also be the first—and perhaps only—bubble head to predict that the next time we do have a recession, whenever it is, it will be MILD.

  11. "You say we are in a recession or worse, how does this help you buy a house?"

    I didn't say that, it was an article.

    "Do you think that you might lose your job or that your stock portfolio might crash and burn? Be careful of what you wish for."

    My job is recession proof for all practical purposes. Nothing short of a truly crushing depression would call its security into question.

    Besides, this has nothing to do with "wishing." It is about dealing with facts and planning for the likely future. Even if my job were in danger it would do me little good to "wish" that it weren't.

    The likelihood that a recession is nearing is very high, whether you wish for it or not. Plan appropriately.

  12. I don't see what being a "bubblehead" has to do with predicting recessions.

    Obviously the bursting RE bubble is going to be hard on the economy, but there is nothing that says a bursting bubble MUST cause a recession.

    The general economy escaped the bursting of the internet bubble relatively unscathed.

  13. James,

    Plus 5 for honesty. The economy seems to be powering through the housing problems. Wall Street hasn't really shown any spillover so far. I think that the worst news is out or, in the alternative, we've become numb to it.

    I fully expected a correction. I don't see the 50% drops that many here call for. I would think, as I've said many times in the past two years, SFH drop up to 25% and condo's up to 40% (peak to bottom). Of course much depends on location.

    The world-wide economy seems to have a moderating effect.