Business Week has a solid article about housing prices in the coming years. "By 2012 we may finally get back to blissful boredom. With any luck, three years should be long enough for the U.S. economy to recover and for the nation's housing inventory to shrink to more normal levels."
"Prices? While they're likely to keep falling a while longer under the weight of foreclosures, the market is definitely closer to the bottom than the top."
In most bubble markets, a bottom in terms of prices is not here yet as prices will continue to fall over the coming months and into 2010. After that I expect a long period of very low price growth. Current buyers would be foolish to expect a quick jump and return to 2005 & 2006 prices.
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"Current buyers would be foolish to expect a quick jump and return to 2005 & 2006 prices."
ReplyDeleteThat should say, "except in the immunozones where they still are at 2005 prices."
"That should say, 'except in the immunozones where they still are at 2005 prices.'"
ReplyDeleteYeah they should expect losses until at least 2012.
OMG!
ReplyDeleteAn article that does'nt go totally stupid about the housing market.Just a little stupid about a possible return to 2005-2006 levels.
"Yeah they should expect losses until at least 2012."
ReplyDeleteCorrect. As always in real estate low end gets crushed, high end gets crushed, economy recovers, low end stabilizes, high end stabilizes, economic conditions improve, housing everywhere improves, but the immunozones stay down down down.
Yeah they should expect losses until at least 2012.
ReplyDeleteChange that from "losses" to "flat", thats probably pretty likely. Alot of places have improved, and seem to have price support (at least in NOVA) right now.
However, there is no way I see that support being strong enough to push prices higher there - they are still to far ahead of fundamentals.
Really, I could see the whole area recovering and fundamentals recovering, but immunozones staying flat for years til fundamentals catch up.
(1) The first wave of destruction hits the low-end of the housing market as subprime mortgages tank. Bubble deniers are caught with their pants around their ankles.
ReplyDelete(2) Trillions of newly-printed dollars are pumped into the economy, the Fed pushes interest rates below 5%, FHA & VA go orgiastic with little- or no-money down loans, foreclosure moratoria, tax credits, etc...and all that barely slows housing's fall for a few months. Delusional optimists call a bottom to housing's collapse and extol the miraculous "immunozones" that defy economic fundamentals and common sense.
(3) Second wave comes when interest rates climb, Alt-A and Option-ARM loans tank, and the government is out of ammunition to fight off the inevitable. Mid-to-high end of the market craters. "Immunozone" believers are happy they remained anonymous lest they be tarred and feathered.
(4) After YEARS of painful readjustment, housing prices are back in line with incomes and other fundamentals. Everything makes sense again. People buy houses at affordable prices and live happily in them. Bubble blogs go extinct. Those that bought at bubble prices are bagging groceries and eating pet food into their twilight years.
"(3) Second wave comes when interest rates climb, Alt-A and Option-ARM loans tank, and the government is out of ammunition to fight off the inevitable. Mid-to-high end of the market craters. "Immunozone" believers are happy they remained anonymous lest they be tarred and feathered."
ReplyDeleteYes yes. Im sure the 400 option arm loans ever made in Arlington, are going to really destroy that immunozone.
Wait, whats that you say? 40-45% of them have already reset or gone into early foreclosure? Oh well, those 220 or so left (about 80 of which will reset each year) are the real shit kickers!
Those 4.65% loans out there probably aren't much (if any) higher than the teaser Option-ARM loans that are out there. And since it's been 4 or 5 or 6 years since most of these folks took out these loans, most are surely in a better position to afford the small amount more ... After all, life goes on, and after 4 or 5 or 6 ... or even 1 or 2 or 3 years, people do get raises or better paying jobs ... or both. Some maybe even came into their inheritances in that time period. life goes on.
ReplyDeleteLance,
ReplyDeleteI thought you were going to prevent these anonymous folks from posting...
Anonymous, if that is your real name, there are about 445 foreclosures in Arlington County today and growing ... and that's with all the moratoria and low rates. Families in Arlington are no better able to afford homes at 5-10 their income than in other parts of the country.
ReplyDeleteLance, Prime is now the fastest growing segment of mortgage defaults. Those borrowers used the same kind of logic that you espouse above. I'm not saying it doesn't work for anyone, but not for most. Also, the interest rates on the Option-ARMs do not track the going rate, they typically reset to a much higher rate to make up for the low teaser rates at the beginning. After 5 years they are just starting to reset.
I think, and it's only my opinion, that the mid-to-high end of the market has not tanked yet because higher-income families have more resources to pull from to keep afloat for a while. But you can't borrow from your future forever, especially if what you are paying for is also draining your wealth. Perhaps things will turn around soon and those who overspent will eke it out, but I think that is wishful thinking.
My point is that why would anyone want to gamble that way now, with hindsight, and pay 2005-2006 prices? That would be even dumber than buying during those bubble years without the benefit of hindsight.
If nothing else, interest rates going up 2-3 percentage points, and closer to historical norms, will bring down prices by about 20-30%. Do the calculation yourself if you don't believe me. Or just ask your loan officer.
"Change that from "losses" to "flat", thats probably pretty likely."
ReplyDeleteYeah except for the fact that the high end places here in montgomery county are starting to REALLY tank now.
Nothing last forever, not even the earth wind and sky.
Noz said...
ReplyDelete"Lance,
I thought you were going to prevent these anonymous folks from posting..."
I think that is directed toward me, not Lance. I was hoping more people would sign up for accounts, as they did when David shut off anonymous comments for a while a couple of years ago. Since that didn't work, I'm just going to me more aggressive at deleting comments by "Anonymous".
"wireknob said...
ReplyDeleteAnonymous, if that is your real name, there are about 445 foreclosures in Arlington County today and growing ... and that's with all the moratoria and low rates. "
Thats fine and they are growing because of job loss and PRIME defaults. Just dont make an Alt A based argument when its clear you dont know what you are talking about.
Noz, great piece of humor about Lance :-)
ReplyDeleteB747
Anonymous said: "Thats fine and they are growing because of job loss and PRIME defaults. Just dont make an Alt A based argument when its clear you dont know what you are talking about."
ReplyDeleteYou need to read more carefully. My point was more general, not just about Arlington nor just about Alt-A. Also, in that part of my original post I was talking about what's coming next, not what has already transpired.
By the way, could you direct me to the data that shows that current foreclosures in Arlington are due mainly to job losses and Prime defaults? I'd also be interested in the data that gives the breakdown of different loan types in Arlington and other DC Metro areas.
No worries as we home builders are not taking the situation sitting down. We know the needs of the public
ReplyDelete