Fox-Pitt Kelton home-builder analyst Robert Stevenson said Wednesday he thinks this year will turn out to be "a bad time to buy a home" as the U.S. economy loses more jobs, especially if buyers don't plan on staying in the house for at least several years.
"While some suggest that now is great time to buy a home given low mortgage rates and falling home prices, we believe that for most homebuyers, the opposite is true," Stevenson said in a report to clients. ...
"Buyers who lose their jobs or who stay in their homes for less than seven years stand to incur substantial losses as home prices decline further in 2009 and the U.S. experiences more moderate home-price appreciation going forward," Fox-Pitt said. "We believe too few buyers do the simple break-even math before sinking their life savings into a house." ...
National home prices were down 23% from their July 2006 peak through October, and Stevenson at Fox-Pitt predicted an incremental 20% drop in prices before bottoming, a peak-to-trough decline of roughly 40%.
"While a drop of 40% seems absurdly high ... it would only put home prices back to where they were at the beginning of 2002," Stevenson said. ...
The analyst's bearish outlook is based largely on escalating unemployment, and jobs are the lifeblood of the housing market.
"As if 2008 weren't bad enough for housing — given the mounting foreclosures, falling home prices, and a tightening credit market — millions more Americans are now in danger of losing their jobs," said Stevenson at Fox-Pitt. "As unemployment heads towards 8%, we expect foreclosures to spike, taking home prices down materially."
Thursday, January 08, 2009
It's a bad time to buy a home
Analyst warns against buying homes now:
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The NAR must be frothing at the mouth over these comments..
ReplyDeleteA bulder telling us not to buy. Isnt this a good contra indicator? After all, its a helluva lot better time to buy than in 2006, yet something tells me, this guy was screaming back then buy buy BUY!
ReplyDeleteAnon, he's an analyst who focuses on home builders, not a home builder's analyst.
ReplyDeleteHis employer is a financial info. service provider. Not a home builder.
Jack is right that the real estate industries are probably freaking out over this.
Ahh - duly noted.
ReplyDeleteI think that the general sentiment of people is to wait...and see...when home prices will stop falling. Home price stability has not happened yet.
ReplyDeleteThe mainstream media in many ways drove the herd to run up home prices. Now the media is driving prices down to insane levels.
ReplyDeleteAnonymous said...
ReplyDelete"The mainstream media in many ways drove the herd to run up home prices. Now the media is driving prices down to insane levels."
That's what you call shooting the messenger. Prices are not down to insane levels. Quite the opposite, inflation-adjusted housing prices are still quite high compared to their historic norm.
It's a great time to invest!
ReplyDeleteCheck the video on youtube:
http://www.hulu.com/watch/36665/saturday-night-live-reliable-investments
In areas that have not yet seen large home value drops, it's great time to sell low and get out before the roof collapses...
ReplyDeleteJames, from what I've read, Case of Case-Shiller stated the norm is for real estate to annually increase about 3% over inflation. I would expect urban job centers like New York and Washington DC to have a high rate such as grow a total of 7% annually. Many areas such as Fairfax County have reached the norm. Go back to 1998 (pre-boom) and calculate the average annual return.
ReplyDelete"James, from what I've read, Case of Case-Shiller stated the norm is for real estate to annually increase about 3% over inflation. I would expect urban job centers like New York and Washington DC to have a high rate such as grow a total of 7% annually. Many areas such as Fairfax County have reached the norm. Go back to 1998 (pre-boom) and calculate the average annual return."
ReplyDeleteThis is illogical as written. While prices will remain higher in areas with high incomes and a dense core, they will not diverge from other areas by growing at their own rate. Affordability is still the big factor.
In general areas at the same rate, maintaining a ratio of suburban to urban to other prices.
New York prices will drop after being propped up for one more year when large bonuses were again allowed despite many banks receiving bailouts. There is just a lag.
For a good time, read the advice that realtors are giving to the person who asked the following question on trulia.com:
ReplyDelete"My husband was recently transferred to Nashville and we've been in the market looking for a home ever since. While I know that Nashville missed the "big housing bubble", it cannot be ignored that housing prices are declining. Yet when checking the sales histories for most of the listings, many of the homes were sold in 2006 or 2007, and now, the sellers are asking for more money than they purchased the home for - sometimes by $100,000 or more (with no major renovations). When is the market going to become realistic about housing values? This is particularly relevant at the $1 million mark, where research shows more than 55 months of inventory. What's going on in the Nashville market - are the sellers just less motivated or are they being poorly advised by real estate agents?"
http://tinyurl.com/7nkclt
Regression toward the mean usually results in overshooting in both directions. So it is reasonable to expect prices to hit the inflation adjusted mean and keep falling. Besides the negative sentiment the massive unsold inventory creates a lot of overhead resistance.
ReplyDeleteIf I had to buy I'd offer 20% under the asking price to take some of the sting out of the downside. Personally, renting looks really attractive. Let the landlord suck on the loses.
How low will she go? Things are ugly but not desperate IMHO. The last big down cycle in the 80's resulted in builders just walking away from unfinished projects creating ghost apartment complexes and subdivisions. Haven't seen that happening yet.
Bubble cycles often end when desperation has set in and feels like it will never go away. I'm afraid all of this bailout talk will put off the onset of desperation.
Put off -- not prevent.
This has a ways to go, and I'm afraid we haven't seen the last of the surprises. If we are lucky we'll enter a period like 1992-1999 where prices were ruler flat. Downright peaceful if a bit boring. Give everyone time to heal before going crazy in the next bubble.
Anonymous said...
ReplyDelete"Regression toward the mean usually results in overshooting in both directions."
Based on history, I don't expect the housing market to overshoot on the way down. Instead, housing prices usually start falling at a slower pace as they approach the historic norm. Then nominal prices sit flat for many years as inflation slowly eats away at the real value of the house until the norm is reached.
Unfortunately, some economists—like Martin Feldstein—are using this unsubstantiated fear of overshooting to justify propping up the bubble. Nobody in the economics profession or the news media ever challenges his unsubstantiated assertion that housing will overshoot.
"Then nominal prices sit flat for many years as inflation slowly eats away at the real value of the house until the norm is reached."
ReplyDeleteI agree with James.
James, seem like a lot of folks in the other blogs such as Northern Virginia bubble blog think it is going to overshoot. It may be wishful thinking on their part since they are in the market to buy a home within the next few years.
ReplyDeleteAnonymous said...
ReplyDelete"James, seem like a lot of folks in the other blogs such as Northern Virginia bubble blog think it is going to overshoot. It may be wishful thinking on their part since they are in the market to buy a home within the next few years."
I think it is wishful thinking. I'd love it if housing would overshoot, but none of the data I've seen suggests that housing has the tendency to do so. The data I've seen from Japan's housing bubble and Los Angeles's late 1980's bubble doesn't show overshooting. I believe in facts and data, not wishful (or fearful) thinking. I think I'll post a blog post on this topic within the next few days.
The problem with real estate stats is that they move at a glacial pace compared to other markets. A property can lose half its value in a day, but until it sells the loss doesn't show up. The effect is blunted even more because prices are reported in monthly and annual averages, not sale by sale.
ReplyDeleteYour point is well taken about not overshooting to the downside. Properties do overshoot everyday -- means and trends don't show it well, and much of the damage is hidden by inflation.
And technical analysis can show anything a person wants. Depending where you draw the trend lines after the 1992 lows, real estate in many markets was well below the historic mean (15 years). The 50 year trend used by Schiller obscures this.
If someone is looking for a real bargain, watch for distressed properties, forced sales, starving builders -- then strike your best price.
Anyway, I'm mostly a stock guy and tend to look at things that way. Trends in stocks are much more relevant -- stocks have market makers unlike the real estate market. Yeah, I know stocks stink and will for a while to come -- I got out 1Q 2008.
One addition to my last comment, moving averages are much more meaningful when looking at trends -- I haven't seen this done for residential real estate.
ReplyDeleteI have been looking to buy a house for a long time now. Turns out that I made the right decision to rent for a while. Now that I am in the market, I am finding that the conforming high value limit being reduced on 1/1/09 is having a major impact on me and on others. I live in Howard County where the limit was just reduced from $560K to $494.5K. What this means is that in order to stay under the limit, a buyer can only look at a house under approximately $620K with 20% down. Sure, if you have a larger down payment that will help. I have been quoted rates as low as 4.625% on conforming loans and as much as 7.125% if you go a dollar higher. And, do you know how many homes are on the market for $620K and higher? A huge number in case you haven't looked. Most people have seen large losses in their home equity and also in their stock portfolios...so coming up with the larger downpayment is not easy.
ReplyDeleteThis issue is really hurting home sales.
http://www.housingwire.com/2008/12/03/study-says-home-prices-likely-to-overcorrect/
ReplyDeleteDon't kid yourselves by thinking that housing is free from market dynamics. Overcorrection is well underway.
If you have money to put down, and are not paying more than 30-40% of your monthly income on your mortgage, then now is the PERFECT time to buy.
ReplyDeletePositive news should be weighted as heavy as negative in the world of blogging. There are companies out there that are thriving, and that are turning the current state of the economy into an opportunity.
I have a sizable down-payment for a Home, My realtor really wants me to buy now? But I see and hear of people getting laid off every Day and walking on there home mortgages, In my opinion, This will continue to drive home prices down. Despite what my realtor thinks, I think the smart thing to do is just be patient and wait.. NO way I would consider buying right now.
ReplyDelete