“It’s going to be a long time before we see it bottom out and recover”

[cr]

House prices expected to fall until 2009
The continuing spike in foreclosures and a glut of unsold homes will suppress housing prices at least through the end of next year, say officials with the biggest mortgage financiers.

U.S. housing prices will continue to decline at least through the end of next year and may not begin creeping upward again until 2010, executives from the nation’s biggest mortgage financiers said Monday.

Officials with government-sponsored mortgage companies Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) and CEOs from two major mortgage banks told the Mortgage Bankers Association’s annual convention that the continuing spike in foreclosures and a glut of unsold homes will prevent any quick price rebound.

“It’s going to be a long time before we see it bottom out and recover,” said David Lowman, chief executive of JPMorgan Chase’s Global Mortgage unit. “There’s too much inventory already in the marketplace.”

Lowman and the three other participants in a round-table session before most of the convention’s 4,000 participants differed slightly on the size of price declines still upcoming, but they agreed no price recovery is likely until at least 2009.

“I think this year we will see a 2% decline in national home prices, and we’re projecting about a 4% decline next year,” said Thomas Lund, an executive vice president at Fannie Mae.

Prices likely will flatten in 2009, Lund said, before gradually rising.

Lowman said it might be 2010 before the price decline ends.

In certain coastal markets where speculative investing drove up prices rapidly early this decade, the price correction “could be quite severe,” said Paul Bibb, CEO of National City Mortgage.

In Midwestern housing markets heavily hit by job losses, “the softness in those markets is going to continue to depress home prices,” Bibb said.

Patricia Cook, chief business officer of Freddie Mac, the nation’s No. 2 buyer and guarantor of home loans behind Fannie Mae, said investors in mortgage-backed securities likely will remain wary of committing more money to the cash-hungry market until they see a slowing in foreclosures. But that’s unlikely in the short term, because many at-risk homeowners will see their adjustable mortgages reset to higher interest rates in coming months and years. The Federal Deposit Insurance Corp. estimates 2.5 million mortgages made to borrowers with weak credit will reset at sharply higher rates by the end of 2008.

“Until we see that, I think it’s going to be hard for investors to come back in a meaningful way,” Cook said. “We’re probably in for a reasonable period of time that we’ll see continued slowing” in the housing investment market.

Cook and Lund expressed support for legislation that aims to infuse more cash into the market and give lenders more leeway to help at-risk homeowners refinance. Some lawmakers, mostly Democrats, have been pressing regulators to allow Freddie and Fannie to increase their holdings of mortgage debt by 10% above the current limit of $735 billion.

The federal regulator of Fannie and Freddie last month increased their investment caps by more than 2% annually but has declined to allow a larger increase. The White House has said it opposes raising the limits further until supervision of the two is tightened.

Higher investment caps could restore investor confidence that’s now lacking, Lund said.

Lowman and Bibb agreed but suggested such expanded authority should be temporary.

“We are in crisis, so we support temporary measures,” Lowman said.

This article was reported and written by Mark Jewell for The Associated Press.

http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/HousePricesExpectedToFallUntil2009.aspx?page=all

[dontfollowtheherd]

coop, Here's one from today's NY Times – at least its today's here in NY for another 10 minutes. lol. Lots of properties for sale everywhere in the East. Did a fall color trip w/ the wife and saw thousands of for sale signs everywhere and most with reduced banners. Did 5 states and Canada fwiw.

http://www.nytimes.com/2007/10/16/business/16fund.html?_r=1&ref=todayspaper&oref=login

The truest part of this article 3/4 of the way down was this comment imo:

 

“I don’t really see that this is going to make a significant difference,” said Jan Hatzius, chief United States economist at Goldman Sachs. “It seems a little more like a P.R. move, frankly.” Mr. Hatzius said he wondered “why this is going on when previously the official word was that things were getting better.”

I've seen thousands of homes in Las Vegas, Phoenix and a few other states and cities where they are just sitting there. Hopefully no one is foolish enough to let these guys out of their SIV's. It's going to be a looooong time before we see any sense of normalcy in the r.e. market.

 

[Ex-SD]

They may be correct on their timing for hitting bottom for the nation as a whole but they are way off base where the bubble markets are concerned. With the large supply of REO’s that will need to be re-sold and with many more coming………..then add the huge number of foreclosures that will occur with the ARM resets over the next couple of years………..then add in the homeowners who will have to sell due to divorce, job loss, job transfer, etc, and you have so many homes and too few qualified buyers, even at 50% discounts from the peak. There’s a whole new set of qualifying rules for mortgage seekers and they’re not going to give any more $700k loans to berry pickers who make $10 an hour. (no offense intended to the berry pickers-just a reference to a story that I read in a NorCal paper).
So, it’s going to take a long time to get the supply of homes down to a normal level of supply for each market. The end of 2011 to the middle of 2012 will be the earliest time that CA and most of the other bubble markets will hit the bottom and when the bottom hits, prices will remain on the bottom for a long time. I just can’t see anything short of that occurring.

[Bugs]

Crap, if these guys are now saying 2010 that means I’m being too conservative when I think 2011 would be the earliest it could happen. Now I gotta move that back another couple years.

[patientlywaiting]

Great point Bugs. If they optimists are saying 2010, it won’t be until 2013.

[(former)FormerSanDiegan]

If they optimists are saying 2010, it won’t be until 2013.
I have a different take… I expect the experts and media to continually point to a potential bottom 12-18 months ahead.
Even when we do hit bottom they will be saying this and they will be wrong. Don’t worry that your target and theirs line up. They will line up then cross at some point. Then, those who are correct in calling the bottom will appear to be too optimistic relative to the experts and the media.

Quote from Thornberg in LA Times today :
“This thing’s going to get worse when the peak of resets occur next year,” Thornberg, the L.A. economist, said. His prediction: Southern California sales and prices will decline into 2009.

This time next year he will be produce an identical quote with the year 2010 inserted.

[kev374]

There is no need to wait for the absolute bottom because Real Estate is cyclical…as long as the price points make sense and you need to buy then go for it. Even if prices are 10% higher than the bottom I will buy, but since I believe prices are currently 100% overvalued I’m looking at least a 40% nominal correction before I even consider buying.

[kev374]

There is no need to wait for the absolute bottom because Real Estate is cyclical…as long as the price points make sense and you need to buy then go for it. Even if prices are 10% higher than the bottom I will buy, but since I believe prices are currently 100% overvalued I’m looking at least a 40% nominal correction before I even consider buying.

[(former)FormerSanDiegan]

If they optimists are saying 2010, it won’t be until 2013.
I have a different take… I expect the experts and media to continually point to a potential bottom 12-18 months ahead.
Even when we do hit bottom they will be saying this and they will be wrong. Don’t worry that your target and theirs line up. They will line up then cross at some point. Then, those who are correct in calling the bottom will appear to be too optimistic relative to the experts and the media.

Quote from Thornberg in LA Times today :
“This thing’s going to get worse when the peak of resets occur next year,” Thornberg, the L.A. economist, said. His prediction: Southern California sales and prices will decline into 2009.

This time next year he will be produce an identical quote with the year 2010 inserted.

[patientlywaiting]

Great point Bugs. If they optimists are saying 2010, it won’t be until 2013.

[davelj]

Maybe I’m nuts but I (still) think we’ll see the bottom in 2010-2011 or thereabouts. I think this time around, as opposed to the early-90s, we’re going to see more violent price moves each year going forward as institutions realize that things aren’t getting better and just start dumping properties. But, I think we’ll bounce along the bottom for several years after we hit bottom this time around. A philosophical question: If prices decline 35% peak to trough between 2005 and 2011, and then decline by another 5% cumulatively over the next 3-4 years, where was the bottom? The bottom will “feel” like 2011 but the stats will say it was 2014 (or whatever). I guess what I’m trying to say is that I think the lion’s share of the real price declines will occur by 2011, although there may be some nominal declines thereafter. But that’s just a gut guesstimate, of course.

[patientlywaiting]

davelj, i think your prediction will be right on.

Assuming the prices will nominally stagnate from 2011 to 2014, when would you rather buy? Closer to 2011 or 2014?

2014 should present many more choices at the best prices. I probably won’t buy my next “dream” house until then. If it’s just a regular house to live in then anytime during that bottom period would be fine.

Looking back to the 1990s at some of the anecdotal price histories, I think that 1996 was a much better time to buy than 1991.

[patientlywaiting]

davelj, i think your prediction will be right on.

Assuming the prices will nominally stagnate from 2011 to 2014, when would you rather buy? Closer to 2011 or 2014?

2014 should present many more choices at the best prices. I probably won’t buy my next “dream” house until then. If it’s just a regular house to live in then anytime during that bottom period would be fine.

Looking back to the 1990s at some of the anecdotal price histories, I think that 1996 was a much better time to buy than 1991.

[zzz]

Not having been here in SD in 91 or 96, what were the factors outside of low interest rates that started the buying trend? Were there any sound fundamentals – IE. job growth spikes, population spikes, etc. -or was it market perception, speculation, lax lending, etc?

Assuming you have exited the housing market and are a renter – If the market declines by 35%, and the rent vs buy values have relative parity, and alternative investments, discounted payback period are all taken into effect, what would be your advice to others? Buy or continue to rent?

[davelj]

pw, the short answer is: I don’t know. I bought in 2000 and sold in 2004 (long story) and then bought again late last year in a very unusual transaction that protects me from 30% of the downside between when I bought it and 2010 (and the price was already marked down 15% from the seller’s cost basis). If it weren’t for the strange deal I’d still be renting. My advice – worth exactly what you’re paying for it – is that you just keep looking and when you find something you can comfortably afford that you feel is “reasonably” priced (not necessarily the bargain of the century, that is), you buy it. I’d like to buy a condo to use as an office – I rent space right now – so I’m hoping to find something in 2010 or so. I’ve never felt the need to get the absolute best deal in my business life or personal life. I try to find a good deal and leave something on the table. Life’s too short to get caught up in agonizing over every last dime. Just my opinion.

gg, I think the buying trend was started by simple exhaustion of the selling trend. Builders stopped building, employment stopped dropping and people started moving back to SD and it just picked up steam after that. I think I kind of addressed the rent vs. buy decision above. Everyone’s got their own situation. The most important thing is that whatever you’re doing it fits comfortably into your financial picture. As an extreme example, there are plenty of people for whom it makes sense to buy right now. If you have a family that needs to get settled, you’re wealthy and have a lot of liquidity and don’t mind watching your home decline in value by 30% then why wait to buy? Sometimes it’s not worth losing your sanity… especially if you’ve got a lot of cake to begin with.

[cr]

I too tend to think the “experts” extrapolate in straight lines. And we’ve seen it from both sides, in both directions. Month to month sales are up and we’re through the bubble, they’re down and they just now start saying the worst is yet to come.

I trned to agree with a 3-4 timelines best case scenario. At worst it will go down as far and as quickly or slowly as it went up, probably from 2000-2001 prices.

This article in the Daily News today is more evidence of dropping prices:

http://www.dailynews.com/ci_7198220

On average, a foreclosed property sells 20.3 percent below its market value. The median discount level is slightly lower in Orange County at 19.6 percent compared with 21 percent in Los Angeles County.

70 percent of homeowners who are foreclosed on bought their homes between 2003 and 2005. Homeowners who bought during this period and at the peak of the housing market are likely to be in a negative equity position now.

A typical home that goes into foreclosure was originally purchased for $465,000 in Los Angeles County and $532,000 in Orange County.

The average sales price of a foreclosed property is $447,000 in Los Angeles County and $479,000 in Orange County.

[patientlywaiting]

davelj, I mostly agree with you.

My situation is a little different though. I built my house when I was younger and more energetic. Now, although I watch the market, I don’t have much incentive to move unless it’s a deal of a lifetime. That’s what age does to you. You don’t feel very excited about material possession anymore. I pretty much have everything I need.

So if I’m going to buy, it will be at the very bottom where I can choose from a large inventory.

I know that young folks who need a house and are itching to buy, they will jump in at at the first sign of a “deal.”

[zzz]

I think I’m looking for personal details aside, what the clinical real estate driven – most opportunistic time is? Does anyone have any empirical data on historical trends that have shown when it becomes more economically effective to buy versus rent? At what price per sq ft, evaluating interest rates if they are moving inversely to prices, etc, inventory levels and their trends, etc. to determine optimal time to buy versus rent.

I know there is no magic ball – I’m just looking for some statistical analysis if anyone has looked at this?

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

The thing that worries me is what I think I (as well as a lot of others) are seeing in the finance markets (stocks and fixed incomes), I have said this before and I will state it here again, I think the Fed/Government knows there cannot be allowed a serious economic downturn (and therefore there is much control in verious forms going on) for several reasons,

1) By 2003 Pension funds were going belly up in record numbers because of the stock market decilnes (The fed just cannot affort to bail these out)

2) The economy is seen as a large part of the war on terror (it cannot be allowed to fail in any significant way).

3) The risks here is that the U.S.A. would lose and never be able to regain it’s world leader status (think USSR).

I believe there will be continuous heroic efforts to avoid any serious economic downturn.

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

The thing that worries me is what I think I (as well as a lot of others) are seeing in the finance markets (stocks and fixed incomes), I have said this before and I will state it here again, I think the Fed/Government knows there cannot be allowed a serious economic downturn (and therefore there is much control in verious forms going on) for several reasons,

1) By 2003 Pension funds were going belly up in record numbers because of the stock market decilnes (The fed just cannot affort to bail these out)

2) The economy is seen as a large part of the war on terror (it cannot be allowed to fail in any significant way).

3) The risks here is that the U.S.A. would lose and never be able to regain it’s world leader status (think USSR).

I believe there will be continuous heroic efforts to avoid any serious economic downturn.

[zzz]

I think I’m looking for personal details aside, what the clinical real estate driven – most opportunistic time is? Does anyone have any empirical data on historical trends that have shown when it becomes more economically effective to buy versus rent? At what price per sq ft, evaluating interest rates if they are moving inversely to prices, etc, inventory levels and their trends, etc. to determine optimal time to buy versus rent.

I know there is no magic ball – I’m just looking for some statistical analysis if anyone has looked at this?

[patientlywaiting]

davelj, I mostly agree with you.

My situation is a little different though. I built my house when I was younger and more energetic. Now, although I watch the market, I don’t have much incentive to move unless it’s a deal of a lifetime. That’s what age does to you. You don’t feel very excited about material possession anymore. I pretty much have everything I need.

So if I’m going to buy, it will be at the very bottom where I can choose from a large inventory.

I know that young folks who need a house and are itching to buy, they will jump in at at the first sign of a “deal.”

[cr]

I too tend to think the “experts” extrapolate in straight lines. And we’ve seen it from both sides, in both directions. Month to month sales are up and we’re through the bubble, they’re down and they just now start saying the worst is yet to come.

I trned to agree with a 3-4 timelines best case scenario. At worst it will go down as far and as quickly or slowly as it went up, probably from 2000-2001 prices.

This article in the Daily News today is more evidence of dropping prices:

http://www.dailynews.com/ci_7198220

On average, a foreclosed property sells 20.3 percent below its market value. The median discount level is slightly lower in Orange County at 19.6 percent compared with 21 percent in Los Angeles County.

70 percent of homeowners who are foreclosed on bought their homes between 2003 and 2005. Homeowners who bought during this period and at the peak of the housing market are likely to be in a negative equity position now.

A typical home that goes into foreclosure was originally purchased for $465,000 in Los Angeles County and $532,000 in Orange County.

The average sales price of a foreclosed property is $447,000 in Los Angeles County and $479,000 in Orange County.

[stansd]

Dave,

I’m keenly interested in the way you structured your transaction to protect from the downside…that’s the type of thing that really could remove some friction in the market, especially in the current environment. Heck, I’d buy now if someone would protect me from the downside in exchange for receiving any upside in the next 5 years.

If you are willing to share some details, I’d love to see them.

Stan

[davelj]

Stan,

If you post your email address I’ll email you a copy of the contract.

It’s an unusual deal, however, that requires a few elements to be present. First, the seller has to be a “true believer” in that s/he believes that the price of the property is going to come back within the term of the contract. Second, the seller must have enough equity – or be able to write a large enough check at closing – to collateralize the downside protection portion of the guarantee for the buyer. And third, despite the previous two elements, the seller has to have some urgency to unload the property.

I think it’s very unusual to find all three elements present regarding a property that you’d actually be interested in purchasing. Frankly, I just got lucky.

Nevertheless, I’m happy to send you a copy of the contract.

[NotCranky]

Golgal,

I don’t think one can get a fix on what you are asking in your last post.You either make your best educated guess, wait until it seems like a no brainer or go look for a location that seems like a no brainer.

Now, I think you want to know how do you make an educated guess?
Wait until it seems like a no brainer and guess that you are right. Right now we can’t make it be a no brainer no matter how hard we try. But when the time is right it will be easy to see the “no brainer” aspect.

I know that is too flippant…I think it works as good as being smart does.

[4plexowner]

golfgal – I will be timing the bottom in part based on what joe 6pack and associates are saying about real estate

when an actual bottom in our real estate market occurs, Mr 6pack will be extremely negative about the idea of buying real estate

instead of berating you for being a fool by throwing your money away on rent, these ‘experts’ will now be berating you for even considering putting your hard-earned money into real estate

at that point buy as much real estate as you can

[4plexowner]

golfgal – I will be timing the bottom in part based on what joe 6pack and associates are saying about real estate

when an actual bottom in our real estate market occurs, Mr 6pack will be extremely negative about the idea of buying real estate

instead of berating you for being a fool by throwing your money away on rent, these ‘experts’ will now be berating you for even considering putting your hard-earned money into real estate

at that point buy as much real estate as you can

[NotCranky]

Golgal,

I don’t think one can get a fix on what you are asking in your last post.You either make your best educated guess, wait until it seems like a no brainer or go look for a location that seems like a no brainer.

Now, I think you want to know how do you make an educated guess?
Wait until it seems like a no brainer and guess that you are right. Right now we can’t make it be a no brainer no matter how hard we try. But when the time is right it will be easy to see the “no brainer” aspect.

I know that is too flippant…I think it works as good as being smart does.

[davelj]

Stan,

If you post your email address I’ll email you a copy of the contract.

It’s an unusual deal, however, that requires a few elements to be present. First, the seller has to be a “true believer” in that s/he believes that the price of the property is going to come back within the term of the contract. Second, the seller must have enough equity – or be able to write a large enough check at closing – to collateralize the downside protection portion of the guarantee for the buyer. And third, despite the previous two elements, the seller has to have some urgency to unload the property.

I think it’s very unusual to find all three elements present regarding a property that you’d actually be interested in purchasing. Frankly, I just got lucky.

Nevertheless, I’m happy to send you a copy of the contract.

[stansd]

Dave,

I’m keenly interested in the way you structured your transaction to protect from the downside…that’s the type of thing that really could remove some friction in the market, especially in the current environment. Heck, I’d buy now if someone would protect me from the downside in exchange for receiving any upside in the next 5 years.

If you are willing to share some details, I’d love to see them.

Stan

[davelj]

pw, the short answer is: I don’t know. I bought in 2000 and sold in 2004 (long story) and then bought again late last year in a very unusual transaction that protects me from 30% of the downside between when I bought it and 2010 (and the price was already marked down 15% from the seller’s cost basis). If it weren’t for the strange deal I’d still be renting. My advice – worth exactly what you’re paying for it – is that you just keep looking and when you find something you can comfortably afford that you feel is “reasonably” priced (not necessarily the bargain of the century, that is), you buy it. I’d like to buy a condo to use as an office – I rent space right now – so I’m hoping to find something in 2010 or so. I’ve never felt the need to get the absolute best deal in my business life or personal life. I try to find a good deal and leave something on the table. Life’s too short to get caught up in agonizing over every last dime. Just my opinion.

gg, I think the buying trend was started by simple exhaustion of the selling trend. Builders stopped building, employment stopped dropping and people started moving back to SD and it just picked up steam after that. I think I kind of addressed the rent vs. buy decision above. Everyone’s got their own situation. The most important thing is that whatever you’re doing it fits comfortably into your financial picture. As an extreme example, there are plenty of people for whom it makes sense to buy right now. If you have a family that needs to get settled, you’re wealthy and have a lot of liquidity and don’t mind watching your home decline in value by 30% then why wait to buy? Sometimes it’s not worth losing your sanity… especially if you’ve got a lot of cake to begin with.

[zzz]

Not having been here in SD in 91 or 96, what were the factors outside of low interest rates that started the buying trend? Were there any sound fundamentals – IE. job growth spikes, population spikes, etc. -or was it market perception, speculation, lax lending, etc?

Assuming you have exited the housing market and are a renter – If the market declines by 35%, and the rent vs buy values have relative parity, and alternative investments, discounted payback period are all taken into effect, what would be your advice to others? Buy or continue to rent?

[davelj]

Maybe I’m nuts but I (still) think we’ll see the bottom in 2010-2011 or thereabouts. I think this time around, as opposed to the early-90s, we’re going to see more violent price moves each year going forward as institutions realize that things aren’t getting better and just start dumping properties. But, I think we’ll bounce along the bottom for several years after we hit bottom this time around. A philosophical question: If prices decline 35% peak to trough between 2005 and 2011, and then decline by another 5% cumulatively over the next 3-4 years, where was the bottom? The bottom will “feel” like 2011 but the stats will say it was 2014 (or whatever). I guess what I’m trying to say is that I think the lion’s share of the real price declines will occur by 2011, although there may be some nominal declines thereafter. But that’s just a gut guesstimate, of course.

[Bugs]

Crap, if these guys are now saying 2010 that means I’m being too conservative when I think 2011 would be the earliest it could happen. Now I gotta move that back another couple years.

[Ex-SD]

They may be correct on their timing for hitting bottom for the nation as a whole but they are way off base where the bubble markets are concerned. With the large supply of REO’s that will need to be re-sold and with many more coming………..then add the huge number of foreclosures that will occur with the ARM resets over the next couple of years………..then add in the homeowners who will have to sell due to divorce, job loss, job transfer, etc, and you have so many homes and too few qualified buyers, even at 50% discounts from the peak. There’s a whole new set of qualifying rules for mortgage seekers and they’re not going to give any more $700k loans to berry pickers who make $10 an hour. (no offense intended to the berry pickers-just a reference to a story that I read in a NorCal paper).
So, it’s going to take a long time to get the supply of homes down to a normal level of supply for each market. The end of 2011 to the middle of 2012 will be the earliest time that CA and most of the other bubble markets will hit the bottom and when the bottom hits, prices will remain on the bottom for a long time. I just can’t see anything short of that occurring.

[dontfollowtheherd]

coop, Here's one from today's NY Times – at least its today's here in NY for another 10 minutes. lol. Lots of properties for sale everywhere in the East. Did a fall color trip w/ the wife and saw thousands of for sale signs everywhere and most with reduced banners. Did 5 states and Canada fwiw.

http://www.nytimes.com/2007/10/16/business/16fund.html?_r=1&ref=todayspaper&oref=login

The truest part of this article 3/4 of the way down was this comment imo:

 

“I don’t really see that this is going to make a significant difference,” said Jan Hatzius, chief United States economist at Goldman Sachs. “It seems a little more like a P.R. move, frankly.” Mr. Hatzius said he wondered “why this is going on when previously the official word was that things were getting better.”

I've seen thousands of homes in Las Vegas, Phoenix and a few other states and cities where they are just sitting there. Hopefully no one is foolish enough to let these guys out of their SIV's. It's going to be a looooong time before we see any sense of normalcy in the r.e. market.

 

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