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Peter Schiff: Housing prices will go back to 2000 or lower...User Forum Topic
Submitted by hipmatt on August 11, 2008 - 1:31pm
I agree and here is my favorite quote.. August 8, 2008 The American Dream is Just That In holding overnight rates steady at 2% this week, the Fed once again put forth its belief that despite a cascade of horrific financial data, the economy was likely to continue to grow slowly and that inflation would moderate. Although wrong on both counts, this view is consistent with the relative optimism that prevails across the country. After nearly two decades of an uninterrupted consumption binge, most Americans simply refuse to believe that anything can seriously derail the American economy. It’s a pleasant dream, but the wakeup call can’t be too far off. The benign outlook on inflation is rooted in the hope that a slowing economy will pop the commodities “bubble” and break the back of inflation. Despite these pronouncements, most rational observers understand that inflationary pressures are currently intensifying, not abating. Rising commodity prices are not the source of inflation, but merely the symptom of rampant monetary expansion from the Fed and other central bankers around the world. By all indications, the liquidity injections are about to shift into a higher gear. The recent housing bailout bill is the most inflationary legislation ever enacted and there is already talk of yet another economic “stimulus” bill. The new money creation needed to finance these schemes, together with exploding federal budget deficits, will not only reverse the recent declines in commodity prices, but send other consumer prices soaring as well. It is also worth noting that a slowing economy does not, by itself, bring prices down. If it did prices in Zimbabwe would be falling. When combined with responsible monetary policy, a growing economy would tend to push prices lower (based on greater productivity and expanded supply). As far as the economy avoiding a recession, the chances of that are fairly close to nil. In fact, if the government reported legitimate GDP numbers, the recession that is already being felt on a gut level would finally be officially recognized. One reason for the apparent optimism on the economy is the belief that the housing market is nearing a bottom. Every step down the housing abyss seems to convince more and more people that the bottom is in. Last week’s Case/Shiller Home Price report, which showed that real estate prices have now returned to 2004 levels, is the latest piece of such “good” news. In fact in a new national survey by real estate website Zillow found that 62 percent of U.S. homeowners believe that their home is worth as much or more than it was a year ago. Three-quarters of those surveyed expected that the value of their homes would rise or at least stay the same between now and early 2009. Talk about a field of dreams! However, given the horrific fundamentals of the market, I would expect that before the market finds a real bottom, another four years of price increases will be similarly erased; leaving prices at 2000 levels or lower. Although this prognosis may seem dire, it is nonetheless reasonable when you consider the current supply/demand dynamics. Despite the sentimental hope that homes are worth what they cost to build, or what the last buyer paid, in reality they are determined simply by supply and demand. In this case the supply of homes on the market, and the number and motivation of potential home buyers. First supply: In 2008 there are more vacant and “for sale” homes on the market than there have ever been. In the last few years, despite signs of a coming real estate bust, the nation’s largest home builders kept building. As a result, hundreds of thousands of unwanted homes were added to the market. These homes, combined with the existing homes that underwater mortgage holders are desperate to sell, add up to unprecedented supply. Inventory at the current sales pace is approaching one year. The demand side is even worse. In real estate, a buyer’s expectations for future price gains and their ability to obtain a mortgage (with as little money down as possible) largely determines demand. It is telling that the price increase optimism of current home owners does not extend to current home buyers. Also, with lending standards finally being tightened, buyers do not have access to the cash to bid up prices. Many are taking advantage of a still attractive rental market to sit on the sidelines. These dynamics are actually much worse than what were in place in the summer of 2000 when the home price boom was still in its opening innings. All of the factors that were in place to push home prices up to unsustainable levels (unlimited lending, massive speculation, widespread belief in the indestructibility of home prices) are all gone. Prices will continue to fall until all the gains sparked by these forces have been erased. The reckless optimism displayed by the Fed and current homeowners has proven extremely resilient. But sooner or later reality must intrude. Once the wake up call sounds, the economic effects will be severe. Once homeowners realize that their equity is gone, and not likely to return, what incentive will many have to continue making burdensome mortgage payments? With a new wave of option ARMs about to reset, this Christmas it will be the mail, not the bells, that will be doing most of the jingling. For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.”
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Hate to be a party pooper here but ,
The one thing this peter guy leaves out of his theory's is that the vast majority of home owners are just fine and are not going anywhere during this downturn (execpt maybe to pick up a few more investment properties when things get really cheap).
While I do expect home prices could well go below 2000 prices in less desirable area's and in some really overbuilt area's, most of SD does not fit that description.
Stockton or say Sacramento Yes -- that would fit into the above description.
For those who can wait this out, or for those who find some bargins in this downturn, they will be winners in the long run (esp in the SD area).
Just my two cents,
Good luck
This article cites all the obvious things, but does not identify the precise factor that leads him to the conclusion of 2000 prices.
The closest thing I can find is that he says lending standards have tightened to something close to 2000 standards ... "These dynamics are actually much worse than what were in place in the summer of 2000"
What happens if lending standards tighten to 1985 standards (which I could see happening)? Does this mean we are headed to 1985 prices.
Give me something solid to hang your hat on regarding 2000 prices, not all the hype and emotion-laden prose ...
my favorites ...
"interrupted consumption binge"
"It’s a pleasant dream, but the wakeup call can’t be too far off."
"every step down the housing abyss"
"horrific fundamentals"
"sentimental hope"
"sooner or later reality must intrude."
"Once the wake up call sounds ..."
and of course the last sentence ...
"read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.”"
Mock him all you want, but it doesn't change reality. Having read his nearly two-year-old book, I can tell you that everything he's predicted so far has come true. And I would be willing to bet that both of you are homeowners...
A very old man, a native San Diegan, told me a few years ago, that we would be able to tell the bottom of the market when "everyone knows that real estate is the worst investment you can make."
As long as there are people arguing that now is the time to buy, before "it's too late" I'll wait to buy. At least until 2011 or 2012.
I don't have to buy. But it seems there are increasingly plenty of people (and plenty of banks) who have to sell.
Well I think that is the point, in a lot of hard hit area's (in and around SD/OC and LA), your at the point where no one is going to sell Voluntarily.
There are still a lot of nice foreclosures out there but eventually these will go and then there will just be the real dog's etc...,
And while I did sell a home in late 2004, I do own a home (bought at 2002 price levels) and yes I can hold this no problem, and yes I will buy at least one more if I see a real bargin in costal SD come up.
Good luck to you...
I was not mocking him. I was simply chiding him for using a plethora of superfluous superlatives versus hard factual data in this particularly enthralling treatise.
I read his book too and most of the stuffs he said came true. However, I didn't follow his advice on investments which I dearly regret.
In my view, this guy made some obvious calls about some very obvious trends (heck even I sold a home in late 2004 and I don't pretend to be a finance guru or a Nostradamus, on second thought maybe I should write a book too !!!).
All I can say is
GO TEAM U.S.A !!!!
Demand is affected by what buyers are willing and **able** to pay.
People are overstating the effects of foreclosures, IMHO. Even if there were NO foreclosures, prices would go down if lending standards became rational (20% down, 28% max DTI on verified income, 6 months' reserves, etc.).
Loose lending is what drove prices up since at least 2001.
People who "stayed put" didn't affect housing prices on the way up, and they won't affect prices on the way down. The only houses that affect prices are those that sell. If unqualified buyers can no longer buy over-priced homes with Monopoly money, the ruse is over.
You RE guys crack me up! Yeah, 2 years ago you knew something was up but stood your ground??!! (and wisely?? kept your mouths shut? And still sold ADJ ARMS to the $14/hr. hairdressors??) Those of us who have been screaming banshees for the last 7 yrs. are now prophets in the rear view mirrors! San Diego RE is in the process of a donkey wash in a BIG way. Go ahead and "pick up" properties that are a "good value". We haven't had this devaluation since the depression. . . which took 20+ yrs. to recover. PLEASE!!!!!!! explain how this market will come back around Soon !!!!!!!!
BKlawyer,"Those of us who have been screaming banshees for the last 7 yrs. are now prophets in the rear view mirrors!"
How would you explain yourself, especially the prophet part, to the people that you were screaming at in 2001 who sold in 2005?
Nice point Rus.
That's hilarious ! "screaming banshees for the last 7 years" ... and ready to scream for 20 more.
If he keeps with it, BKlawyer is likely to predict two real estate downturns with that one prescient call ! Genius.
related commentary in the media with video..
A Bottom in Housing? You've Got to Be Kidding
http://finance.yahoo.com/tech-ticker/art...
Many forecasters say just wait until early 2009 and home prices finally will start to pick up.
Not so fast says my guest Barry Ritholtz, CEO of Fusion IQ and financial blogger for The Big Picture.
Home prices rocketed well above trend in the past five years, says Ritholtz, and have only just begun to deflate to more normal levels. The housing market will either drop about 25 percent dramatically, or peter out for a decade.
So which is it? Ritholtz thinks somewhere in between.
Plus the summer/suckers rally is now fizzled out...
U.S. mortgage applications declined last week-MBA
http://www.reuters.com/article/bondsNews...
NEW YORK, Aug 13 (Reuters) - Applications for U.S. home mortgages edged lower last week as home loan rates jumped, an industry group said on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity declined 1.5 percent in the week ended Aug. 8 to 425.9, nearing levels seen in late July which were the slowest in more than seven years.
The MBA's seasonally adjusted index of refinancing applications slumped 4.2 percent to 1,074.6 last week, erasing most of the gain seen in the previous one-week period.
The rise followed a jump in the average 30-year fixed mortgage rate to 6.57 percent from 6.41 percent in the previous week.
The gauge of loan requests for home purchases was steady at 315.2, just above July lows.
Sluggish applications are a sign the U.S. housing market remains in the throes of a downturn that started more than two years ago. House prices by some measures have declined nearly 20 percent since mid-2006, exacerbating a rise in foreclosures and turning potential buyers away from the market.
Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), the housing funding giants, are also making it harder to get a mortgage by raising fees on loans they purchase, including increases announced in the past week. By doing so, the companies are ceding market share to government loan programs backed by the Federal Housing Administration, analysts said.
The MBA's government mortgage index rose 0.8 percent last week to 360.3, a level lower than four weeks ago, but more than twice that of a year earlier. (Reporting by Al Yoon; editing by Gary Crosse)
I guess I missed this rally thingy ?
I thought prices have declined rather precipitously over the past 4-5 months.
You guys crack me up even more! Yeah,I get it, "Even a broken clock is right 2x/day". Right. . . . 3-4 years ago I gave seminars w/Papa Kappa about foreclosures and what was coming and how it was gonna go down. 3 rows, each filled with 15 RE agents/brokers, look to you left, look to your right, at least one of the rows won't be here in 5 years. There are BIG time players in this town who are being EATEN alive by what's going on. You'll see their names soon enough. After their BKs. Those of us on the street are seeing it first hand. The rest of you are whistling past the graveyard. . .
How would you explain yourself, especially the prophet part, to the people that you were screaming at in 2001 who sold in 2005?
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In defense of the bears from 2001 (and I'm one of them), we were early, not necessarily wrong. If prices go below 2001 levels, inflation-adjusted, then can we admit that prices were over-valued in 2001?
It's difficult to make predictions when the Fed and govt entities manipulate markets like they did. We've just seen the biggest credit bubble in history.
This was not a "housing" bubble. The normal RE cycle was topping in 2001, and it would have been the right call to hold off on buying IF the Fed didn't let loose with the negative (real) interest rates.
It's the loose lending that drove prices since 2001, not housing fundamentals, IMHO.
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In defense of the bears from 2001 (and I'm one of them), we were early, not necessarily wrong. If prices go below 2001 levels, inflation-adjusted, then can we admit that prices were over-valued in 2001?
It's difficult to make predictions when the Fed and govt entities manipulate markets like they did. We've just seen the biggest credit bubble in history.
This was not a "housing" bubble. The normal RE cycle was topping in 2001, and it would have been the right call to hold off on buying IF the Fed didn't let loose with the negative (real) interest rates.
It's the loose lending that drove prices since 2001, not housing fundamentals, IMHO.
CArenter. I wasn't laughing at anyone who quite reasonably thought that things were getting out of hand in the earliest part of the decade. Of course you are right about the lending driving the bubble. I would like to see the Fed and lots of other parties brought up on public nuisance charges, but it isn't going to happen.
Surely you can see the difference between the post I responded to and anything you have ever posted. you don't seem to try to, incorrectly, paint all Realtors with one stroke.
"You RE guys crack me up! Yeah, 2 years ago you knew something was up but stood your ground??!! (and wisely?? kept your mouths shut? And still sold ADJ ARMS to the $14/hr. hairdressors??) Those of us who have been screaming banshees for the last 7 yrs. are now prophets in the rear view mirrors!"
Some people want to be fortune tellers again ,sometimes with much hostility, instead of debating or exchanging opinions with a tiny dose of humility. I guess it comes from real estate, especially in California, being such a high stakes game for many people.
CA renter- Thanks for watching my back. I had Rich and Ben Jones on my radio show about 3-4 yrs. ago and we discussed what was coming. As Ben Said: "I've seen this movie before and I know how it ends". Well,. . .the credits are rolling. After the show I had death threats by a couple of guys who claimed that RE always!!!! goes up. I, along with other posters, banged this drum for years and were ridiculed by EVERYONE!! Why don't the detractors admit that 7 years of criticism was justified given the 7 years off-the-chart-appreciation which did not track with appreciation in wages.
BKlawyer,
Yes, I remember your radio show with Ben (didn't know you had Rich on as well), and you were right in many of your predictions on the blogs. Also, your "on the street" observations (early on, when the numbers were not showing any deterioration just yet) were much appreciated by me and many others!
As most long-time bears can attest, it's difficult to not indulge in a little Schadenfreude...if only because of the extreme hostility and flat-out denials that RE could ever go down.
--------
Thanks, Rus! There are good Realtors and bad ones, and the realtors on this blog are of the "good" variety! :)
Your (and the SD Realtors --big and small) insights are also much appreciated.
You have to admit, it was tough on the bears in the 2001-2005/6 timeframe. I've had every friend, acquaintance, and member of my family -- with the exception of my dad -- give me a lot of grief for selling and renting. Straight-up screaming matches with the MIL who accused me of keeping her son from ever becoming a homeowner again (I was the one who owned a house when we married).
Sometimes, when we're under so much pressure for so long, it's hard to be humble when it turns out we were right.
Best to all, and have a good night! :)
Didn't he predict $2000 gold in his book?
Also, didn't he preach foreign stocks (emerging markets in particular), throughout much of the book? Did you see Hang Seng and Shanghai Composite lately?
Even a broken clock is right twice a day. Peter Schiff is a broken clock. I don't remember him ever saying anything positive about the U.S. economy. It's always, "we don't produce anything, we're neck deep in debt, evil Federal Reserve and their printing press".
Schiff paints with a pretty broad stroke, but he's been fairly accurate for a few years and taken a lot of heat early on when things were rosey and he predicted trouble. But he does lack hard data for a lot of what he predicts. His book is a good example. He should try to be a little more like Marc Faber and get some data to back his conclusions.
Having said this, prices tend to behave like a pendulum and over correct in either direction. So we could go way low before returning to equilibrium. Touching or going beyond 2000 prices does not seem too far fetched. 2009 is going to be an interesting year as unemployment rises and more financial devistation comes home to roost.
In defense of the bears from 2001 (and I'm one of them), we were early, not necessarily wrong. If prices go below 2001 levels, inflation-adjusted, then can we admit that prices were over-valued in 2001?
GREAT !
I predict that house prices are going to REBOUND after the end of 2008. That's right I AM CALLING THE BOTTOM as of the end of 2008 ! SAVE THIS POST !!!!!
(If I am wrong in the short run, it's because of unforeseen events, but as long as prices go above 2008 levels in inflation adjusted prices sometime in the next decade, the you guys have to consider me a prophet. Note: Mileage may vary. Individual results not typical. May cause gas with oily discharge).
I see a lot of broke poor people and average income does not support current inflated real estate prices in San Diego. I think prices will drop for 2 more years.
It always seemed clear to me that the people giving Schiff heat about housing were "snake oil salesmen". They did not want to see the flow of money away from their product.Some had a stake in trying to do damage control.
I also agree that many many people want to attract investors and investing dollars(maybe book sales?). I would be careful about grabbing onto the shirt tails of anyone specific prognosticator because market shifts are going to affect their accounts.
I take a lot of heat for saying so, but individual investors can make money or improve their lives with real estate a long time before a guy like Schiff is going to be talking about it.
Yeah, if that's true then I called the bottom and I will only be off by two years. The 2001 market top folks were off by 4 years and 80%+ and have declared themselves clairvoyant.
Schiff should get credit where credit is due for acting as a contrarian when the public needed it the most. His advice has probably saved the financial future of hundreds of thousands of Americans.
However, I do disagree with him on one important point. That the financial turmoil is limited to our borders. I think this is a world-wide problem and many other countries are in as bad (if not worse) shape than we are in.
Yeah, if that's true then I called the bottom and I will only be off by two years. The 2001 market top folks were off by 4 years and 80%+ and have declared themselves clairvoyant.
Good post FSD.
That is one of the most innovative angles I have seen here.
I hate it when you bastards actually post something intuitive or analytical. Now I have to spend the rest of the day trying not to get distracted thinking about this.
Damn.
I think Kewp expressed what I was really trying to say,
"However, I do disagree with him on one important point. That the financial turmoil is limited to our borders. I think this is a world-wide problem and many other countries are in as bad (if not worse) shape than we are in."
Also I really seriously doubt coastal San Deigo will go back to 2000 price levels (SD is not Stockton), but who knows maybe a few foreclosure dog homes maybe.
But at that point people will have stop selling voluntarily long before then. then you just have the forced sales to pick through.
At first there are good ones (which will go very fast), then you will get down to the dogs.
And here is my prophecy, when the rest of the worlds economies start to slide, the dollar will rally and gold will sink (Just my opinion results may vary).
And that is from someone who actually made some money from this RE boom/bust thing.
Good luck
I'm from the "being early is being wrong" school. Instead of calling a top in '01, anyone who bought then is likely to still have a tremendous return on their investment. Even after the devaluation we have seen so far. Yes there are some exceptionally bad areas that have been crushed but there are alot of areas in SD where values are still way up over '01 numbers. Owners could probably discount their properties for a quicker sale and still end up with a very nice profit. Tax-free if they're living there.
Coastal North County is still about 40% above 2001 prices for SFR's.