" '08 is going to be worse"...

Good evening. The Case-Schiller index -- the one that calculates home price trends by tracking the sales histories of individual houses -- shows local prices falling by 7% in the past year.

From the LATimes: "U.S. home prices continued to fall at a fast pace, and price declines in Los Angeles and Orange counties outpaced other major metropolitan areas in September, a national index released today shows.

More: "Local prices dropped 7% from a year earlier, according to the Standard & Poor's/Case-Shiller composite index. The index showed that home prices fell an average of 4.9% in 20 metro areas nationwide."

So what does next year look like? Not good for new home sales, according to the CEO of D.R. Horton: "Donald Tomnitz, speaking at a JPMorgan Chase & Co. conference in Las Vegas, said that ' '08 is going to be worse than '07 for us and for the industry in general.' "

Thoughts? Comments? Insights? Email story tips to peter.viles@latimes.com
Photo Credit: LATimes

Comments

[amir]

Yes folks, we're just warming up.

2008 is the year where a tsunami of mortgage re-adjustments are hitting. Foreclosures from 2005 and 2006 will hit us while major construction companies and banks will stop doing business all together.

All bets are off.

[Cal]

Calculated Risk posted the number to todays Goldmand Sachs conference call on housing:

http://calculatedrisk.blogspot.com/2007/11/
goldman-sachs-on-housing.html

Why Housing Still Holds the Key to US Monetary Policy
Replay Numbers: 800-332-6854 or 973-528-0005 (toll)
Conference Entry Code: 4890513

Between the mortgage losses hitting leveraged institutions and their opinion that housing demographics are negative (they believe we've been overbuilding for awhile AND the home ownership rate is contracting) they were very negative on housing and the economy in general.

[srla]

Wow, what a radical prediction - housing prices are going to drop further! Thank goodness we have "experts" to issue such insightful predictions.

I swear, the average poster to this blog has a far better handle on current real estate market fundamentals that 98% of the so-called experts quoted by the media.

In the Peter Hong article you referenced in your earlier post, he called Leamer and Thornberg "among the most bearish of analysts" because they point out that the housing boom "pushed prices out of sync with incomes". So apparently they are bears because they cite relevant trends rather than ignoring them?

It is simply unfathomable that reporters continue to publish predictions made by economists who were blind-sided by the downturn - without ever mentioning this fact. Yet these same reporters feel compelled to label experts like Learner, Thornberg, Schiller, and Baker as"bears", when all these men have done is deliver on one prediction after another. I am left to concluded that such reporting is either biased or utterly incompetent, or perhaps both.

It is an utter shame that American journalism has sunken to such lows.

[William E. Jones]

I have a good friend in the mortgage/finance industry who has access to a lot of information about things that are about to happen. We were talking yesterday about how far along this crisis is, using the metaphor of a football game. I said, "Aren't we pretty close to half-time?" He said, "It's more like we're just past the kick-off." Sounds like things can get a lot worse.

This whole mortgage crisis/housing downturn reminds me of the Vietnam War. During this time so many leaders in finance and government have alternated between denial, spin, ineffective, half-baked schemes to "fix" the problem, and early declarations of "victory" (or "the worst is past...the upswing will kick in any minute."). I wish someone would level us, but maybe we're like the people Jack Nicholson's character talked about in "A Few Good Men." "You want the truth? You can't handle the truth!"

[Victor the Predicter]

Outstanding Contrarian Predicter award:

Patrick.net has this headline for story in MSN money about a guy who asked himself a few years back how to make money from the bubble, got an education, and did it:

http://preview.tinyurl.com/2gzcyk

(please feel free to continue the chain, e.g. "Lou Dobbes commented on a blog entry today by Victor the Predicter, via Partrick.net, via MSN.com)

[MyLessThanPrimeBeef]

The commercial real estate should not be overlooked either.

'In the bond market, commercial property investors are about as creditworthy as U.S. homeowners with subprime mortgages.' - in today's Bloomberg.

http://www.bloomberg.com/apps/news?pid=20601109&sid=au2XBiCyWeME&refer=home

[Victore the Predicter]

Prediction validated in under two hours???

Earlier this morning I predicted we'd start to see ads from discount retailers appearing on the blog instead of all the mortgage/developer ads. Just caught a JC Penney ad here! But then Macy's fired back with a double banner after the page refreshed.

IP that the next JP Morgan Chase conference will be held at Motel 6 in Pacific Palisades next year.

[Bart]

The National Association of Realtors say prosperity is just around the corner - 2008 will be a banner year,

"Lawrence Yun, chief economist for the Realtors, said he believed the drop in sales, which left activity in October 20.7 percent below the level of a year ago, was nearing its end. He said a greater willingness of lenders to start offering jumbo loans again and the use of Federal Housing Administration-insured loans in place of subprime mortgages will help generate a rebound."

Obviously Yun is 100 times smarter than those dummy CEOs from JPMorgan Chase & Co. I'll bet the National Association of Realtors wish they had 50 Yuns on their payroll.

[GDC]

The NAR and Yun are clueless. When will they realize that in order to drum up sales for their own, they need to pressure SELLERS to lower the price rather than pressure buyers to accept a higher price. The naive buyers have all bought within the past 4 years - the only ones left are like those on these boards - the cynical (rational?) ones. If prices drop, people will buy. The biggest idiots are the seller/listing agents who cave in to deluded sellers and list a home at 2005-6 prices - countless hours and efforts expended and the houses sit for months with no action and no commission. Once they acknowledge that prices must drop, they will see increased sales activity.

[MyLessThanPrimeBeef]

Apparently, the saga in Germany is not over yet either.

'Die Schieflage der Mittelstandsbank IKB durch die US-Immobilienkrise ist schwerwiegender als bisher bekannt. Die KfW Bankengruppe muss daher ihre Risikovorsorge um rund 2,5 Milliarden Euro erhöhen. Das ist noch nicht alles. Diesen Freitag wird der KfW-Verwaltungsrat in einer Sondersitzung das weitere Vorgehen in Sachen IKB beraten.' --- from today's Welt Online.

That's an increase to 2.5 billion Euros in loan loss provision by KfW Bankgroup, presumably the parent company of IKB, with more coming this Friday.

http://www.welt.de/

[longdriver]

"08 will be worse"

DUH!

[Adam Villani]

"Worse?" Does this mean it would be better if only the tiniest percentage of Southern Californians could afford to live here? If even more people had to pay more than they could afford for housing? Housing prices dropping is good, not bad.

[Horizontal Translation]

Good Grief MYLTPB, at least provide the link to the google online translator.

This will let you deliver news to readers in 12 more languages

On an unrelated note, Peter - a wish list for blog: could you eventually migrate this thing to a format that has a rating system that allows readers to vote on particularly good posts and also provides a built-in search engine? Plus, if your in-house statistics people are up to it... a link to real time graphs of foreclosures, sales prices, inventory, housing starts,rental rates, case-shiller data and the like? It's pretty easy to graph this stuff and makes it much easier than wading through the data in tables.

[toby]

50%.

That's how much housing has to drop before normal people (85% of the US population) can afford to enter the market.

Without normal people...you basically don't have a market.

[yourkillingmelarry]

SRLA,

Great Post! I totally agree. I remember all those California economist indicated that there would be no housing downturn because the area is no longer dependent on aerospace. This event has made fools of many presumably smart people and has wrecked their credibility IMO. Learner, Thornberg, Schiller, and Baker are the winners in their field. Through rigorous analysis they identified an obvious misallocation of credit in the market place, went against the grain of their peers and the MSM by pointing it out and have been proven accurate. You are correct these are the real economist, not "The Bears". I think journalist have a tough time with events like these, first when this problem was being identified it was speculation...accurate speculation based on data and facts but speculation none the least. Journalist have to report facts, and the facts until late 2005 into 2006 were that home sales were soaring and so were prices. The most frustrating period for me was right at the peak when the LA Times along with all other media outlets were reporting facts that were backward looking which were rosy when in real time blatant signs were emerging that there were major problems namely the drop in sales, rise inventories and foreclosures. I have written many e-mails to the Times, OC Register, and SD Tribune among others during that time.