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I don't think we've even really started to see the Fannie/Freddie min 580 FICO change and the LLPA affecting the market yet. The vast majority of the private mortgage insurance changes just happened at the end of March as well (too soon to be seen in the numbers).
I think the adjustment to the reality that financing is still being rationalized hasn't been made. The sellers and realtors are way behind the ball, only the bank sales (reo, short sales) are getting made in any volume everything else is a relative stand still. The first time home buyer is hit the hardest but that means the move up markets are broke.
People can talk about rampant inflation in commodities but it certainly isn't universal. Housing as a hedge against inflation doesn't mean anything when prices are falling.
Now just imagine if interest rates were at 7.5%.
Ok, enough depressing thoughts we now return you to your normal programming of fluffy bunnies and fuzzy puppy tummies. Ahh.
There are 2 words to be removed from our vocabulary:
Recovery and bottom.Real Estate will be really low on the list of things we need to worry about. From now on lets think about the price of food, civil unrest, retirement funds,gas prices and china . .. This blablabla on home prices gets old, we are going down, with a great recession on top of it. It will take many many years.....
I am leaving for Europe where inflation is rampant and the dollar not worth the paper it is printed on.The G7 has asked the banks to come clean so we could all see clearly in what mess we are and so far no go. We better learn chinese fast.
This graph reminds me of this well thought out video on youtube.
It's a animated rollercoaster representation of the rise and fall of the housing market from 1890 to 2007. Just look at the 1920's (great depression/recession) and keep in mind we are now in a recession.
A lot of folks are saying it's bad now for homeowners...The scary part is that It's just the beginning. It could get as bad, if not worse than the great depression.
The good news is that this has to happen and houses will become affordable for folks who waited and saved.
I predict housing will go down to the high $100k to Low $200k average house price in LA.
This looks good and I've been anxiously awaiting the time when homes in a safe area would be affordable again, but with all of the government interference and the shaky economy, I'm not confident it will happen anytime soon.
JK wrote: "I've been anxiously awaiting the time when homes in a safe area would be affordable again"
Unfortunately, the areas that are *currently* safe might not be safe by the time the economic damage is done to the neighborhood. Big economic changes can unravel local businesses, and display just enough people to change the character of a community.
Your best bet is to wait until the dust has settled and re-evaluate the communities again. Some places might not be quite as desirable as they are now.
Hmm. Can you say credit crunch?? Im sure you all hope this will last forever but it will pass like it always does. And no, real prices (not the skewed median) will not fall to to the levels you all hope. Well I take that back. They might in compton.
"... most analysts don't see a recovery until next year."
Most analysts are wrong.
It's simply impossible for this enormous and far reaching housing/debt collapse to "recover" that quickly. Physically, psychologically and actually impossible.
Every week, "most analysts" just slide the “recovery” to a fuzzy "year or so away". It's just a lazy, placating outlook. When all the previous recoveries (remember, we're supposed to be in one NOW this spring) don't pan out, the definition of "recovery" is changed.
Oh... the sub prime portion corrected... the lenders finally cracked down... the builders stopped overbuilding... the jumbo loan limit was raised... the banks wrote down this and that... the government bailout is in process... the Fed is saving the gamblers, the Treasury is on the case… a slight warm weather sales up tick here and there… all considered "recovery stages". Blah, blah, blah.
"Most analysts" seem to still be using a quasi stock market collapse/recovery time frame because mortgages were securitized/collateralized and sold as investment products. In other words, if those (digital/paper) investment products could just be "marked" correctly (and by artificially constructed and implemented means) and the financial institutions could just reveal their toxic exposure, the credit would flow and the recover would be upon us.
Well, it just isn’t so. We’re talking about millions and millions of real people with real homes in real neighborhoods all across the country… holding, buying, selling, negotiating, faltering, re-financing, foreclosing, selling short, walking away, auctioning, moving, searching, etc., etc.
What's so impressive about this chart is the speed of the decline. I am no chartist - and RE price charts work differently than stock charts - but I would say this looks like it will make a bottom much quicker, and lower, than most people expect. If we assume that the last peak acts as a strong support level, we should in all likelihood see a test of that level - in and around 200K. That is another 40% or so from where we are now, and I'd say it won't take that long. A year maybe. Thoughts?
somebody correct me if i'm worng but isn't this graph just the kind of news most people on this blog have been screaming for for the last year give or take ????????
You think stated income for wage earners is coming back? You think NINA, NINJA, SISA qualification and high LTV interest only 2nds or option arms to masses are just waiting to be unleashed on the market as soon as this stuff clears up?
This isn't anything close to a credit crunch. Someone with provable income and a small down can still buy. A credit crunch is where people qualified to buy are unable to get loans at all.
This is the new reality in lending, it looks a lot like the old reality that existed before the bubble. In fact it is looser than that if you consider where FHA is at now.
People no longer have infinite buying power like they did during the boom. They have buying power limited by their debts and quality of income. What a novel concept.
I dont think the tightening is over. But I don't think we will see a credit crunch (qualified borrowers unable to get credit) due to what the Fed is doing.
Maybe your definition of a credit crunch differs than the traditional and that is what I am not understanding. If you could define what a credit crunch means to you we can debate the issue further.
I'm as anxious as the next person for the market to crash and burn but I also think anyone believing homes in a safe area are again going to go for $200K is dreaming... I don't think those homes will ever get back under $300K. Too many people have been saving and waiting for the $300K mark and at that point, too many (myself included) of them will jump in.
LA in my rear view mirror wrote: "I think the orderlies don't know you chewed through your straps and broke into the computer room after lights out."
I didn't break out, I was kicked out. They had to make room for all the greedy folks that bought during the boom and then went bust. They needed a place to stay...They have no where else to go. They apparently were crazier than me for buying.
I'm back in my apartment saving lots of money (not losing it by buying a house right now and eventaully be in an upside down mortgage). I'm just waiting for the next huge wave of foreclosures that will drive house prices to all time lows.
Or I could use that huge $1500 stimulus rebate for a down payment on a house. Na, on second thought, I think I'll put it in the bank and just tick off the government.
After all, they want me to spend spend spend it.
I guess that's crazy too huh? Ah well, call me crazy.. haha
Hey Peter, run a poll asking people what they think the median housing price will be in March of 2009. It fell $120k in nine months. So I will guess it will fall at least another $120k over the next eleven. $265,000!
Well this graph seems to show what has been said in this blog for a while now. Some of us predicted that the market had to come down to 50% of what it was during the bubble to become barelly affordable in SoCal area. From the 500K peak a price markdown to 250K was expected at least among bloggers here. But at this rate the market will probably overshoots down past the 250K before finally equilibrating into the "affordability" range for buyers. I see it to come to an equilibrium around the low 200K to the high 100K price range. So hold on to your bloomers 'cause this ride goes on.......
The pool of buyers has been permanently reduced by raising down payment levels and eliminating the use of liar loans. Less buyers, lower prices until the liar loans come back. The question is when will those loans be available again so that home prices can again rise? Judging by the ability of lenders to sell them I would say it will be a very, very long time. This would be called an "L" shaped recovery on a chart. Remember, too, that when a foreclosure happens you eliminate a potential buyer from the market for 7 years and as prices decline you add to the pool of those unable to buy a home. Some of these are not sub-prime buyers but just had the temerity to go for a loan based upon the ability to resell their house or refi the loan before the loan reset higher. Ouch. I don't see a recovery for 8-10 years when looking at the numbers except for a flat bottom once all the underwater householders have given up and the banks have cleared their books of ALL OF THE REPO's. There is a glut of repos and banks are having a hard time dealing with them in a timely manner, at present, which will extend this problem beyond the 1.5 to 2 years of price freefall that many are predicting before my prediction of a flat market for the next decade. I watched this work the last time prices fell and this time is far, far worse.
I agree that the drop will be much quicker than the 90s slump. Why? The speed of information exchange is much faster now with the internet (this blog being example of one). That's why the tech bubble burst so fast; everyone with a computer can track prices, read news, see charts, check earnings, etc.
In the 90s, the sellers had to rely on anecdotal information from realtors. Once the "reality" set in, prices started a gradual decline. Now, sellers, buyers, realtors, everyone has access to listing prices anywhere in the country, what the seller bought the house for, how long it's been listed and what its "zestimate" is. People are much more informed about "reality" with real data. Sure, there will be some seller in denial just like there were those who held on to tech stocks until Nasdaq hit 1200. But most will bail once they grasp reality.
The only thing delaying the inevitable is all this talk about a bailout and reducing principal. This creates an air of uncertainty (and hope?) for many sellers and delays the market adjustment.
Valley Renter wrote; "My Goodness... this looks like the Nasdaq chart from 2000! I thought I heard someone say real estate prices are sticky and never drop like stocks!"
(It does, sort of!) But, actual homes (tens of millions of them) are not bought and sold on the NY stock exchange in several months of aggressive trading.
I said above the home buying and selling process (i.e. between actual people with vested interests and emotional ties) will be sticky and time consuming - and in reference to the headline - "most analysts" don’t see a recovery until next year.
I see the chart (and data) too... am pleased... am aware of the speedy price drops... and that there are unique circumstances to this bubble... and collapse... and the manipulations in play... and that info flows in real time, etc.
But, the hugely overleveraged housing market will not collapse AND RECOVER in a year. Not a snowball's chance in hell.
Folks shouldn't fall for the "it's about to turn around any month now so get in quick before all the hot, price-reduced properties are swept up by the pent up demand of a world that wants to live in California Lefty-isms".
Prices still have a long way to drop. Thanks to irresponsible people who "purchased" a home they had no business doing, we have this major bubble to deal with.
The housing mess will not unwind itself in 2008. No way.
This is simply a price correction - it is not the end of the world.
Perhaps, next time, banks will actually verify income statements from deadbeats who lie on their loan applications. Banks who did not have no reason to cry.
Deadbeats who are being foreclosed on have nobody to blaim but themselves and their greed.
This is the time to wait - not buy. At this time next year, prices will have dropped another 15% - 20% more.
While it is an interesting chart keep in mind that median home prices do a better job of indicating the mix of what is selling then actual prices.
Early on when we saw the subprime loans vanish median prices continued to shoot up even though overall price levels were down -- because a larger proportion of sales were happening at higher price points moving the median up.
Similarly we are now seeing jumbo loans freeze up and therefore the mix has moved back toward the low end.
That isn't to say that prices aren't headed down in much of California. It is only to point out that this chart, and all other median price data, is worthless for understanding anything other than the mix of what is selling.
GDC,
I think you have something in your logic behind todays crash being much faster than the 90's.
If we look back at the 90's most people only relied on their agents to do the research. I'm sure 90% of the buyers then did not know how much the house was sold before and sure not the other next door houses. The availability of the internet and the way we can find today the price history, comps, current owner, their mortgage, etc.. gives great tools that was not available before the average Joe. In any crazy up turn or down turn, the knowledge would speed up the corrections. So although the housing in LA will not drop 80% in 6 months, they will drop 20-30% every 12 months...
As Fred has suggested , if prices dropped $120,000 in the last 9 months, i don't see why the current pace will not continue. In fact it is more likely to go faster.
But even with current pace, next year will see medians in the $200s range
Blogs
I don't think we've even really started to see the Fannie/Freddie min 580 FICO change and the LLPA affecting the market yet. The vast majority of the private mortgage insurance changes just happened at the end of March as well (too soon to be seen in the numbers).
I think the adjustment to the reality that financing is still being rationalized hasn't been made. The sellers and realtors are way behind the ball, only the bank sales (reo, short sales) are getting made in any volume everything else is a relative stand still. The first time home buyer is hit the hardest but that means the move up markets are broke.
People can talk about rampant inflation in commodities but it certainly isn't universal. Housing as a hedge against inflation doesn't mean anything when prices are falling.
Now just imagine if interest rates were at 7.5%.
Ok, enough depressing thoughts we now return you to your normal programming of fluffy bunnies and fuzzy puppy tummies. Ahh.
Posted by: Cal | April 16, 2008 at 11:14 AM
There are 2 words to be removed from our vocabulary:
Recovery and bottom.Real Estate will be really low on the list of things we need to worry about. From now on lets think about the price of food, civil unrest, retirement funds,gas prices and china . .. This blablabla on home prices gets old, we are going down, with a great recession on top of it. It will take many many years.....
I am leaving for Europe where inflation is rampant and the dollar not worth the paper it is printed on.The G7 has asked the banks to come clean so we could all see clearly in what mess we are and so far no go. We better learn chinese fast.
Posted by: CD | April 16, 2008 at 11:31 AM
This graph reminds me of this well thought out video on youtube.
It's a animated rollercoaster representation of the rise and fall of the housing market from 1890 to 2007. Just look at the 1920's (great depression/recession) and keep in mind we are now in a recession.
A lot of folks are saying it's bad now for homeowners...The scary part is that It's just the beginning. It could get as bad, if not worse than the great depression.
The good news is that this has to happen and houses will become affordable for folks who waited and saved.
I predict housing will go down to the high $100k to Low $200k average house price in LA.
What does everyone else think?
Check it out..
http://www.youtube.com/watch?v=kUldGc06S3U
Posted by: dclogang | April 16, 2008 at 11:31 AM
This looks good and I've been anxiously awaiting the time when homes in a safe area would be affordable again, but with all of the government interference and the shaky economy, I'm not confident it will happen anytime soon.
Posted by: JK | April 16, 2008 at 11:38 AM
dclogang write: " I predict housing will go down to the high $100k to Low $200k average house price in LA. What does everyone else think? "
I think the orderlies don't know you chewed through your straps and broke into the computer room after lights out.
Posted by: LA in my rear view mirror | April 16, 2008 at 11:59 AM
JK wrote: "I've been anxiously awaiting the time when homes in a safe area would be affordable again"
Unfortunately, the areas that are *currently* safe might not be safe by the time the economic damage is done to the neighborhood. Big economic changes can unravel local businesses, and display just enough people to change the character of a community.
Your best bet is to wait until the dust has settled and re-evaluate the communities again. Some places might not be quite as desirable as they are now.
Posted by: Tim K. | April 16, 2008 at 12:02 PM
Hmm. Can you say credit crunch?? Im sure you all hope this will last forever but it will pass like it always does. And no, real prices (not the skewed median) will not fall to to the levels you all hope. Well I take that back. They might in compton.
Posted by: shockg | April 16, 2008 at 12:06 PM
"... most analysts don't see a recovery until next year."
Most analysts are wrong.
It's simply impossible for this enormous and far reaching housing/debt collapse to "recover" that quickly. Physically, psychologically and actually impossible.
Every week, "most analysts" just slide the “recovery” to a fuzzy "year or so away". It's just a lazy, placating outlook. When all the previous recoveries (remember, we're supposed to be in one NOW this spring) don't pan out, the definition of "recovery" is changed.
Oh... the sub prime portion corrected... the lenders finally cracked down... the builders stopped overbuilding... the jumbo loan limit was raised... the banks wrote down this and that... the government bailout is in process... the Fed is saving the gamblers, the Treasury is on the case… a slight warm weather sales up tick here and there… all considered "recovery stages". Blah, blah, blah.
"Most analysts" seem to still be using a quasi stock market collapse/recovery time frame because mortgages were securitized/collateralized and sold as investment products. In other words, if those (digital/paper) investment products could just be "marked" correctly (and by artificially constructed and implemented means) and the financial institutions could just reveal their toxic exposure, the credit would flow and the recover would be upon us.
Well, it just isn’t so. We’re talking about millions and millions of real people with real homes in real neighborhoods all across the country… holding, buying, selling, negotiating, faltering, re-financing, foreclosing, selling short, walking away, auctioning, moving, searching, etc., etc.
Sticky, time consuming stuff.
Posted by: JohnnyB | April 16, 2008 at 12:07 PM
What's so impressive about this chart is the speed of the decline. I am no chartist - and RE price charts work differently than stock charts - but I would say this looks like it will make a bottom much quicker, and lower, than most people expect. If we assume that the last peak acts as a strong support level, we should in all likelihood see a test of that level - in and around 200K. That is another 40% or so from where we are now, and I'd say it won't take that long. A year maybe. Thoughts?
Posted by: ManuLa | April 16, 2008 at 12:15 PM
somebody correct me if i'm worng but isn't this graph just the kind of news most people on this blog have been screaming for for the last year give or take ????????
Posted by: mike | April 16, 2008 at 12:17 PM
shockg : "Can you say credit crunch??"
You think stated income for wage earners is coming back? You think NINA, NINJA, SISA qualification and high LTV interest only 2nds or option arms to masses are just waiting to be unleashed on the market as soon as this stuff clears up?
This isn't anything close to a credit crunch. Someone with provable income and a small down can still buy. A credit crunch is where people qualified to buy are unable to get loans at all.
This is the new reality in lending, it looks a lot like the old reality that existed before the bubble. In fact it is looser than that if you consider where FHA is at now.
People no longer have infinite buying power like they did during the boom. They have buying power limited by their debts and quality of income. What a novel concept.
I dont think the tightening is over. But I don't think we will see a credit crunch (qualified borrowers unable to get credit) due to what the Fed is doing.
Maybe your definition of a credit crunch differs than the traditional and that is what I am not understanding. If you could define what a credit crunch means to you we can debate the issue further.
Posted by: Cal | April 16, 2008 at 12:34 PM
I'm as anxious as the next person for the market to crash and burn but I also think anyone believing homes in a safe area are again going to go for $200K is dreaming... I don't think those homes will ever get back under $300K. Too many people have been saving and waiting for the $300K mark and at that point, too many (myself included) of them will jump in.
Posted by: JK | April 16, 2008 at 01:02 PM
So is this the chart that buyers should be submitting to the sellers with their offer?
That way the seller can understand that an offer at 25% off isn't a lowball.
:o)
Posted by: E | April 16, 2008 at 01:26 PM
LA in my rear view mirror wrote: "I think the orderlies don't know you chewed through your straps and broke into the computer room after lights out."
I didn't break out, I was kicked out. They had to make room for all the greedy folks that bought during the boom and then went bust. They needed a place to stay...They have no where else to go. They apparently were crazier than me for buying.
I'm back in my apartment saving lots of money (not losing it by buying a house right now and eventaully be in an upside down mortgage). I'm just waiting for the next huge wave of foreclosures that will drive house prices to all time lows.
Or I could use that huge $1500 stimulus rebate for a down payment on a house. Na, on second thought, I think I'll put it in the bank and just tick off the government.
After all, they want me to spend spend spend it.
I guess that's crazy too huh? Ah well, call me crazy.. haha
Posted by: dclogang | April 16, 2008 at 01:46 PM
Hey Peter, run a poll asking people what they think the median housing price will be in March of 2009. It fell $120k in nine months. So I will guess it will fall at least another $120k over the next eleven. $265,000!
Posted by: Fred | April 16, 2008 at 01:47 PM
Well this graph seems to show what has been said in this blog for a while now. Some of us predicted that the market had to come down to 50% of what it was during the bubble to become barelly affordable in SoCal area. From the 500K peak a price markdown to 250K was expected at least among bloggers here. But at this rate the market will probably overshoots down past the 250K before finally equilibrating into the "affordability" range for buyers. I see it to come to an equilibrium around the low 200K to the high 100K price range. So hold on to your bloomers 'cause this ride goes on.......
Posted by: Fourth Generation | April 16, 2008 at 02:03 PM
The pool of buyers has been permanently reduced by raising down payment levels and eliminating the use of liar loans. Less buyers, lower prices until the liar loans come back. The question is when will those loans be available again so that home prices can again rise? Judging by the ability of lenders to sell them I would say it will be a very, very long time. This would be called an "L" shaped recovery on a chart. Remember, too, that when a foreclosure happens you eliminate a potential buyer from the market for 7 years and as prices decline you add to the pool of those unable to buy a home. Some of these are not sub-prime buyers but just had the temerity to go for a loan based upon the ability to resell their house or refi the loan before the loan reset higher. Ouch. I don't see a recovery for 8-10 years when looking at the numbers except for a flat bottom once all the underwater householders have given up and the banks have cleared their books of ALL OF THE REPO's. There is a glut of repos and banks are having a hard time dealing with them in a timely manner, at present, which will extend this problem beyond the 1.5 to 2 years of price freefall that many are predicting before my prediction of a flat market for the next decade. I watched this work the last time prices fell and this time is far, far worse.
Posted by: Bubba the ex-ucs, er Realtor | April 16, 2008 at 02:04 PM
I agree that the drop will be much quicker than the 90s slump. Why? The speed of information exchange is much faster now with the internet (this blog being example of one). That's why the tech bubble burst so fast; everyone with a computer can track prices, read news, see charts, check earnings, etc.
In the 90s, the sellers had to rely on anecdotal information from realtors. Once the "reality" set in, prices started a gradual decline. Now, sellers, buyers, realtors, everyone has access to listing prices anywhere in the country, what the seller bought the house for, how long it's been listed and what its "zestimate" is. People are much more informed about "reality" with real data. Sure, there will be some seller in denial just like there were those who held on to tech stocks until Nasdaq hit 1200. But most will bail once they grasp reality.
The only thing delaying the inevitable is all this talk about a bailout and reducing principal. This creates an air of uncertainty (and hope?) for many sellers and delays the market adjustment.
Posted by: GDC | April 16, 2008 at 02:41 PM
My Goodness... this looks like the Nasdaq chart from 2000! I thought I heard someone say real estate prices are sticky and never drop like stocks!
Posted by: Valley Renter | April 16, 2008 at 03:01 PM
Just to put it in writing and on the web: 225K by 03/09
That would be awesome.
Posted by: ManuLa | April 16, 2008 at 04:47 PM
Valley Renter wrote; "My Goodness... this looks like the Nasdaq chart from 2000! I thought I heard someone say real estate prices are sticky and never drop like stocks!"
(It does, sort of!) But, actual homes (tens of millions of them) are not bought and sold on the NY stock exchange in several months of aggressive trading.
I said above the home buying and selling process (i.e. between actual people with vested interests and emotional ties) will be sticky and time consuming - and in reference to the headline - "most analysts" don’t see a recovery until next year.
I see the chart (and data) too... am pleased... am aware of the speedy price drops... and that there are unique circumstances to this bubble... and collapse... and the manipulations in play... and that info flows in real time, etc.
But, the hugely overleveraged housing market will not collapse AND RECOVER in a year. Not a snowball's chance in hell.
Folks shouldn't fall for the "it's about to turn around any month now so get in quick before all the hot, price-reduced properties are swept up by the pent up demand of a world that wants to live in California Lefty-isms".
Patience grasshoppers...
Posted by: JohnnyB | April 16, 2008 at 05:30 PM
Prices still have a long way to drop. Thanks to irresponsible people who "purchased" a home they had no business doing, we have this major bubble to deal with.
The housing mess will not unwind itself in 2008. No way.
This is simply a price correction - it is not the end of the world.
Perhaps, next time, banks will actually verify income statements from deadbeats who lie on their loan applications. Banks who did not have no reason to cry.
Deadbeats who are being foreclosed on have nobody to blaim but themselves and their greed.
This is the time to wait - not buy. At this time next year, prices will have dropped another 15% - 20% more.
Posted by: sean | April 16, 2008 at 07:05 PM
While it is an interesting chart keep in mind that median home prices do a better job of indicating the mix of what is selling then actual prices.
Early on when we saw the subprime loans vanish median prices continued to shoot up even though overall price levels were down -- because a larger proportion of sales were happening at higher price points moving the median up.
Similarly we are now seeing jumbo loans freeze up and therefore the mix has moved back toward the low end.
That isn't to say that prices aren't headed down in much of California. It is only to point out that this chart, and all other median price data, is worthless for understanding anything other than the mix of what is selling.
Posted by: Sean OToole | April 17, 2008 at 01:26 AM
GDC,
I think you have something in your logic behind todays crash being much faster than the 90's.
If we look back at the 90's most people only relied on their agents to do the research. I'm sure 90% of the buyers then did not know how much the house was sold before and sure not the other next door houses. The availability of the internet and the way we can find today the price history, comps, current owner, their mortgage, etc.. gives great tools that was not available before the average Joe. In any crazy up turn or down turn, the knowledge would speed up the corrections. So although the housing in LA will not drop 80% in 6 months, they will drop 20-30% every 12 months...
As Fred has suggested , if prices dropped $120,000 in the last 9 months, i don't see why the current pace will not continue. In fact it is more likely to go faster.
But even with current pace, next year will see medians in the $200s range
Posted by: Laker | April 17, 2008 at 02:17 PM
No response from shockg on how he thinks this is a credit crunch and how exactly he expects lenders to loosen up?
Posted by: Cal | April 17, 2008 at 05:13 PM