Home price directions for 2009

Offering its two cents on how various housing markets will fare in 2009 is Housing Predictor.

It seems where it's cold it'll be hot and where it's hot (for the most part) it'll be cold -- at least as far as home prices in 250 markets are concerned. Explains the website:

Two states with reputations for being some of the coldest places in the country dominate the Housing Predictor Top 25 housing markets for 2009. Montana placed all of its five forecast markets on the list, and neighboring North Dakota had 4 markets make the top 25 forecast to have the highest appreciation in home values during the year.

Here are the projected Top 10 markets:

Rank -- Market -- 2009 Forecast Gains
1. Bloomington, IL -- 3.6% 
2. Grand Junction, CO -- 3.1%
3. Billings, MT -- 3.1%
4. Fargo, ND -- 2.9% 
5. Lander, WY -- 2.3%
6. Trenton, NJ -- 2.3%
7. Morgantown, WV -- 2.0% 
8. Logan, UT -- 2.0% 
9. Bozeman, MT -- 1.8%
10. Albany, GA --1.8%

And, closer to home, the predicted Worst 10, where of course you knew you'd find California:

Rank -- Market -- 2009 Forecast Losses
1. Detroit, MI -- 24.3% 
2. Riverside, CA -- 23.9% 
3. Stockton, CA  -- 23.8% 
4. Los Angeles, CA -- 21.7% 
5. Miami, FL -- 21.4% 
6. Anaheim, CA -- 21.1% 
7. Las Vegas, NV -- 19.8%* 
8. Fresno, CA -- 19.7% 
9. Phoenix, AZ -- 19.6% 
10. San Diego, CA -- 19.5%

For a change, California made only six out of the 10 spots. But I'm detecting a pattern here. A lot of the bearish prognosticators seem to be agreeing on double-digit losses for home prices in Southern California this year. The bulls see things improving before the year is out. That's a lot of territory between the two camps. Which are you in?

*Update: Thanks to commenter J.W. for pointing out the earlier typo in Las Vegas.

-- Lauren Beale

Thoughts? Comments?

Comments

[k2polo]

I do not believe the market will improve as far as appreciation or value/sf for homes in the LA/Riverside counties. However, there will be more sales..due to increased quantities of stellar bank-owned properties that are being lost or abandoned by owners. Here in the desert, the season is looking strong....a bit of a surprise for me, as a realtor. There are many buyers out-and every one is looking to "steal" a property. Well, now is the time to do it. 2009 is looking great for Buyers and disasterous for Sellers.

[J.W.]

Is Las Vegas supposed to be -9.8% or -19.8%? Typo??

[cycling in hollywood]

what is the argument for housing recovering in 2009 when the larger economy is collapsing and unemployment is skyrocketing? that doesn't make any sense

[latesummer2009]

It's interesting, that people throw around double digit losses in real estate like it's no big deal. We are in crash mode, with each set of numbers coming in at record paces. We should be accepting these numbers and addressing them, instead of "hoping" they are going to change.

I still believe the high end areas will be hit hardest, as compared to other areas, has only slightly adjusted. The macroeconomics are just plain horrible, and now, it takes it's toll on the wealthy.

www.westsideremeltdown.blogspot.com

www.santamonicameltdownthe90402.blogspot.com

[JS]

This would be a much more meaningful comparison if the cities were of similar size. There are more foreclosures in Riverside than there are people in most of the top 10 markets. Small towns in relatively isolated areas rarely experience the dramatic ups and downs of large urban areas, and skews this comparison. How about the top 50 markets over 1 million, or the top 50 from 100,000 to 250,000?

Apples and apples, please.

Nice job on the blog....

[MyLessThanPrimeBeef]

Trying not to be off-subject, per request from LA-renter, I would say, in response to Lauren's question, that I am neither a bear nor a bull.

Rather, I am a turtle. Everything is slow in a turtle's world and what we turtles perceive here is the end of the world in slow motion, thanks to our guvmint running interferece to the 'creative destruction' that is the most important part of Capitalist Manifesto (Sadly, many would-be, wannabe capitalist pigs skip over that paragraph and many others here in Animal Farm do not like that).

A few questions of mine own though. What makes the forecasters think prices will go up in Grand Junction, CO? Are we rebuilding the Transcontinental Railroad?

Bozeman, MO - why? how? Are they making a movie of the Zen of Motorcycle Maintenance there to account for the boom?

Fargo, ND - are they making the sequel, finally?

[Alan2]

Think prices are low now...
well just wait.

I follow a 90012 condo complex.
Prices last 6 months sticky. No real price drops, around $350psf. Now a comp buster at $264psf. REo with probably all cash. This will set the trend.
With economic problems coming, IMO can see under $200-well under (for this complex)

If tempted, just wait, nothing is going to send prices up,down and then level for years more likely.

Alan2

[Nick]

I would say I'm in the bear camp, although I would not put a "bottom" in late 2009 or mid 2010 outside of the realm of possibility. The government is going to be spending an enormous amount of money rewarding housing speculators and gamblers, and has a strong incentive to stop housing price declines, regardless of the overall long-term damage to the currency or economy. I would not be surprised to see a more direct support approach used within a year or so, perhaps something like paying the mortgages "temporarily" for everyone who can't afford their million dollar house on their minimum wage income. I have no doubt that the government can spend their way to "stabilizing" (in dollars) housing prices.

[Kathy]

Is the staff on an all morning coffee break? Where is the link to Peter Hong's story on the decrease in Los Angeles area rent costs and the impact on the housing market? And yet there is space for the Michael Jackson leasing "story".

I miss Peter Viles.

[monkeyboy]

My two cents.

By the end of 2009, housing prices will not dip more than 10% if at all. The reason - inflation. I know things are deflationary now, but the Fed's stimulus plan will put lots of money out there in circulation. Money will get in the hands of investors or home-owner-wannabes thru job creation, or tax rebates, whatever. Owning assets, like a house, will be one of the best ways to protect yourself against inflation.

[Tim K.]

monkeyboy wrote: "The reason - inflation. I know things are deflationary now, but the Fed's stimulus plan will put lots of money out there in circulation."

The Fed's stimulus will not be able to inflate to anywhere NEAR the amount needed to have the effect you anticipate. In order for you to get that level of inflation, it has to trickle down to actual wage inflation on the order of 200%. Do you REALLY think we're going to see everyone's paycheck double by the end of this year? Or even 3 years from now?

There is the actual money supply, and then there is the virtual supply of money due to lending. The virtual supply of money, the one that banks leverage up to 20X based on internal assets, is not coming back anytime soon. The Fed's intervention will, at MOST, add another 0.1X money supply to the total circulation. It's peanuts.

The ONLY thing the Fed's intervention did was bail out the banks, and even that was minimal in its effect - you'll notice that it's not Banks that are attempting loans, it's still just loans being passed through to Fannie Mae. The ones the banks have to hold onto are still asking north of 7%, and only for pristine borrowers.

Sorry, but inflation is NOT in the cards, not even close. Zimbabwe is able to do hyperinflation - it's not hard. Anyone can print money. The kind of stimulation our government is attempting is not the same thing, and it will have practically zero real effect. Most of it is being advertised that way to the public so that we FEEL like they are doing something, but in reality, it's one giant "nothingburger".

[Cal]

Kathy,

I agree, the blog has become an afterthought. One thing Peter did was post breaking news and kept the comments flowing during that time. That sparked conversation and readership. Now it is mostly random stuff and 3 day old news.

Monkeyboy:"The reason - inflation. I know things are deflationary now, but the Fed's stimulus plan will put lots of money out there in circulation. Money will get in the hands of investors or home-owner-wannabes thru job creation, or tax rebates, whatever."

It is going to take awhile for inflation to grab hold the Fed isn't even predicting higher inflation and they want the market to believe their will be inflation. The reason why is because this isn't a interest rate issue so zero percent interest rates aren't inflationary. All these other programs had been mostly sterlized (buy one thing, sell another) or too small to stop the deflation much less start inflating.

Eventually, yes there will be inflation and it could be harsh. But we are several years away from that and years away from needing that hedge. Remember, Debt during deflation become more of a burden not less of a burden. So you don't want to be taking on significant amounts of debt until you know with some certainty where the market(s) is bottoming.

[el_guapo]

MonkeyBoy,

Inflation will definitely arrive at some point with the money that's being printed. I happily await the day I can put my IRA into Treasuries once inflation gets nasty and leave it there for 30 years. But I don't think inflation will be able to inflate the LA area by the end of 2009. And remember, the unemployed can't pay the mortgage and interest rates will rise along side inflation.

It's really a damned if you do, damned if you don't scenario.

[bigunit]

Turtle - Grand Junction, CO is ground zero for oil & gas exploration here in the U.S. and has been a consistent housing appreciation bet for several years. Most likely due to the oil & gas industry underwriting relocation expenses resulting in the propping-up of the local RE market.

As for the metropolis of Bozeman (Montana not Missouri)...the opening of a new Mickey-D's will increase housing starts. The population is less than 28,000 gun-toting, God-fearing militia members; just over 1/5 the size of the City of Fullerton for comparison purposes.

My personal favorite is Lander, WY population 6,700. Start speading the news, I'm leaving today....

[bigunit]

Good point, Monkeyboy. You've got to put your cash somewhere...putting it into the bank doesn't do any good.

[356man]

Oh hell yes, Fargo, here I come!!! NOT!!!

[Laker]

Cal wrote: "...So you don't want to be taking on significant amounts of debt until you know with some certainty where the market(s) is bottoming....."

Agree. Help me my friend. I can buy a house today, put 20% down, and have a PITI that is same as my current rent. The house that I want to buy is 1000 sf larger, and has 15,000 larger lot. It is also in a better hood. Should I buy today and utilize a 4.385% 30 year mortgage (2.5pt) ???
Although my current rent and future mortgage are same money amount, the mortgage feels like a debt burden while the rent is not...
(Adversely, I can buy same exact apples to apples house and have a mortgage payment of about 20% less than my rent.)

[Cal]

Laker,

There is too many unknown variables to answer your question. Such as,

How long do you plan on staying in the home.
What do you see as a reasonable appreciation rate over that span.
What do you see as a reasonable inflation rate.
Are rents going up or down over the term of your housing stay.
Tax bracket.
ROI on your money currently.

Answer all those questions and plug them in here:
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

If you think there will be zero appreciation and rents stagnate, set 0 and 0 for those sliders. Set the other settings in advanced settings or the box across the top.

After you enter all the inputs look at the breakeven point relative to the number of years you plan on staying in the home. That will let you know the premium or profit relative to your scenario.

Just playing around with the sliders and inputs you can see how highly dependent the situation is on the answers to many of these questions. Since I have a wide range for my belief for appreciation, inflation and rents my break even point varies widely relative to a home of the same payment. Even under my most optimistic scenario my breakeven point is 15 years out.

For large debts taken on during an uncertain time I want as large of a buffer as possible in case I am wrong or "bad things" happen. I do plan on buying when 0% appreciation rates, 0% rent growth and 3% inflation gives me a break even in 7 years. Though I have a higher tax bracket than most but am very frugal on rent, others pay way more than me on rent and make less and their rent vs buy calculation would look quite different than mine. People should strive to keep their recurring costs as low as possible as this is the path to long term wealth, spending less and saving more.

[monkeyboy]

Tim K et al,

Appreciate your thoughts on this. I'm certainly not a student of the internal workings of the leveraged financial markets, but I've been around a while. Inflation is easy to spark and it's the better option for the administration than deflation. Remember the Jimmy Carter years?

I was bullish on housing for the last 7-10 years, but I've now turned. I've just bought a rental property with 10% down and I'll be cash flow positive within the first year. (Bought it for 250k, it sold for 550k at the peak).

I lost money in my the equities market and the floor there can go to zero. I feel that with the choices available today, real-estate is starting to be a good option, especially if you want to be diversified.

[monkeyboy]

If anyone cares. Got my bulls and bears mixed up on my last email. I was bearish, I'm now bullish.

[D]

Cal wrote:

People should strive to keep their recurring costs as low as possible as this is the path to long term wealth, spending less and saving more.

Oh Cal, you are very wise.

[Tim K.]

monkeyboy - I remember the Carter years quite fondly! Not sure if you were studying equities back then, but that was a classically great year to get into large caps. IMO it's a *great* time to do that now. Fundamentals on large companies (NOT banks!) are excellent. But I digress...

Inflation during the Carter years was quite different because back then, the Fed actually had significant control over the supply of money through lending. That hasn't been the case in the last decade. You remember Greenspan's "conundrum"? He wondered why his rates adjusting was basically ineffectual at moving mortgage rates? Well, the Fed has now realized that basically they can drop rates to 0% and the wheel is disconnected from the rudder. The forces of fractional lending are MUCH more up to the whims of the lenders worldwide.

The amount of leveraged money that got removed due to the lack of confidence in mortgage backed securities is, wait for, LEGENDARY. Yes, it's going to take a friggin' miracle to get all that money flying again. The Fed would LIKE to think they can just throw money at banks like they did with TARP and FORCE them to lend. Then again, maybe that's only Barney Frank - he seems to truly be the only one surprised that the banks aren't lending. But banks are just proxies for you and me - if you or I won't want to give money to foreclosed homeowners because we think housing is not going to go up 20% a year, what makes you think anyone else will?

So don't worry about inflation. Remember, high interest rates != inflation. Often they are related, but that was primarily Volcker. IMO, that's exactly what we need right now (high interest rates). Even if the Fed were to raise rates to say, 10%, we're not going to see inflation in wages at that level, which is what really drives rents, which in turn, drives residential housing costs. Not gonna happen.

[Laker]

Thanks CAL for your extensive answer.
You say :"Even under my most optimistic scenario my breakeven point is 15 years out....."

I say wow...are you sure you are comparing apples to apples as far as house you are renting and the one you can possibly buy? Also, in what area are you looking to buy/currently living?

I can see large breakeven points for West side as asking prices haven't yet adjusted, but in some areas of the SFV....boy prices are down 40-50%.

I do like your "plan on buying when 0% appreciation rates, 0% rent growth and 3% inflation gives me a break even in 7 years."

[jparker]

1. Bloomington, IL -- FROZEN HALF THE YEAR
2. Grand Junction, CO -- FROZEN MUCH OF THE YEAR
3. Billings, MT -- FROZEN MOST OF THE YEAR
4. Fargo, ND -- COMPLETELY FROZEN
5. Lander, WY -- PROBABLY FROZEN MOST OF THE YEAR
6. Trenton, N.J. -- TRENTON
7. Morgantown, W.V. -- WEST VIRGINIA
8. Logan, UT -- FROZEN MUCH OF THE YEAR
9. Bozeman, MT -- FROZEN MUCH OF THE YEAR
10. Albany, GA -- HUH?

Didn't I see this list in an article? "Witness Protection - Where To Hide In '09"?

[Cal]

"I say wow...are you sure you are comparing apples to apples as far as house you are renting and the one you can possibly buy?"

Considering im comparing exact model matches in the tract I am in I can say I am confident in my numbers.

I think a lot of people are as stupid on overpaying rents as they are on housing costs. Small changes in rents can make for large differences in housing costs in the rent vs buy calculation. So someone who is paying more for rent will have a lower breakeven point than I will. Im a huge believer in low fixed costs.