Home values need to fall another 50%

[SurfaceUnits]

NEW YORK (CNNMoney.com) -- The federal government's takeover of Fannie Mae and Freddie Mac may save the battered real estate market from a complete meltdown. But financial experts say the bailout won't lead to a housing recovery just yet.

Instead, some on Wall Street said the housing sector is in as tough shape today as it was before Sunday's rescue by the Treasury Department.

"This isn't curing the patient. This is preventing the patient from developing a new problem he can't survive," said Barry Ritholtz, CEO and director of equity research, Fusion IQ.

Ritholtz and others pointed to a series of problems plaguing housing that the bailout of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) does little, if anything, to address.

In particular, there is still a large supply of unsold homes on the market and an increasing number of foreclosures that threatens to add to the glut.

What's more rising unemployment and increased job losses should add to the woes for lenders, brokers, builders and others tied to the housing sector.

"Now we have a recession,'" said Dean Baker, co-director of the Center for Economic and Policy Research.

Baker added that even with home prices declining at a rate not seen since the Great Depression, the housing bubble hasn't completely deflated yet.

In fact, some argue that considering the rise in home prices during 1996 to 2006 when compared to inflation, incomes and rents during the same period, home values need to fall another 50% in order to get back to normal.

http://money.cnn.com/2008/09/08/news/economy/fannie_freddie_housing/index.htm?postversion=2008090816

This mortgage mess isn't going to clear up anytime soon and if you are going to buy a house, you need to go back 6-8 years to get a reasonable value for the house.

[nrc]

I think the notion of a "housing industry" is going to have to change. We can't continue to build out new homes and then sell them like new cars. Even the crap they're building these days doesn't fall apart fast enough to support that and even if it did, people are still stuck a house they can't sell.

[TravelGal]

Our house has already lost 33% of its value from the peak. Quite a bit less than 6-8 years ago. If it falls another 50%, it will be down to 1995 levels. I must say that I fervently hope that does not happen.

[cameraman]

That is written by someone living on one of the coasts where houses run triple or more their construction costs. If you were to take many of the houses around here and cut their prices in half you would be perilously close to the replacement cost of the structure while ignoring the value of the land.

[sadams]

Think of the loss to city and town tax revenue if prices drop 50%. Most municipalities use property tax heavily.

[Elmo T]

Interesting website to track estimated price of homes - not sure of their calculation methods:

www.zillow.com

So much depends on location and the specific market. I can tell you building permits for new homes are down substantially in this area. Homes taking the biggest hit are in the mid-range $400K to $750K - or so the builders are telling me. There is still a strong market for the high end homes - especially those over the $1 million point.

For resales, we went years without ever seeing a "for sale" sign. Now they seem to be everywhere.

Our house topped out at exactly double what I paid :saywhat: and we've seen about a 25% from that peak.

[JLMannin]

That is written by someone living on one of the coasts where houses run triple or more their construction costs. If you were to take many of the houses around here and cut their prices in half you would be perilously close to the replacement cost of the structure while ignoring the value of the land.


Agreed. Read what the author says, then think Las Vegas, Pheonix, Southern California, and Florida - areas where houses were built with zero intention of ever living in them, but were rather built on speculation where the day of delivery, they were put on the market for a quick resale at a huge profit.

If housing proces in Indy dropped 50%, we would be back to 1980's prices or earlier.

[eiregosod]

This mortgage mess isn't going to clear up anytime soon and if you are going to buy a house, you need to go back 6-8 years to get a reasonable value for the house.

I agree. The skyrocketing property values basically transfered wealth (and future earnings) from young people to old people. The current batch of 30 year olds arent going to see much political power in their lifetime. If fannie and freddie were not buying up all the crud over the past 8 years then the housing market would not have gotten so expensive. The institutions that cut the initial mortgage didnt care if the mortgage holder could pay back the loans, they only cared about picking up a fee selling those mortgages onto the Federal Mortgage company.

House prices tend to fall 60% from their peak after a bubble.

[eiregosod]

Agreed. Read what the author says, then think Las Vegas, Pheonix, Southern California, and Florida - areas where houses were built with zero intention of ever living in them, but were rather built on speculation where the day of delivery, they were put on the market for a quick resale at a huge profit.


"It's the empties, stoopid."

[SurfaceUnits]

Check out this Charlie Rose discussion on freddie and fannie, when it goes live. View the related videos in the mean time

http://www.charlierose.com/shows/2008/09/08/1/a-discussion-about-the-acquisition-of-fanny-mae-and-freddie-mac

[Ankf00]

Interesting website to track estimated price of homes - not sure of their calculation methods:

www.zillow.com

cyberhomes and domania are similar. supposedly zillow's more accurate on the coasts than mid-america

[SurfaceUnits]

Banks get it in the teeth again

So much for the financial sector snapback. Shares of credit-sensitive financial companies sold off Tuesday, a day after the group rallied on resolution of the status of mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE). The biggest losers Tuesday were led by some of the companies that sat out Monday’s rally, such as Lehman (LEH), which sank 28% on a report that its efforts to raise money in Korea have failed, and Washington Mutual (WM), which hired a new CEO but also admitted that it had entered into a memorandum of understanding with its regulators - a sign of potential concern over the company’s risk-management and capital practices.

Others joined the downdraft Tuesday, with companies potentially in need of new capital to offset coming losses from the mortgage mess leading the way down. Wachovia (WB), downgraded at Merrill Lynch, dropped 6%, and AIG (AIG) retreated 9%, while Washington Mutual dropped 15% to within a quarter of its 52-week low. The selloff reflects the reality that while a healthier mortgage market is necessary for an economic recovery, it is far from sufficient on its own, in the face of falling employment and stagnant wages.

“This latest dramatic intervention may well have a beneficial impact on the availability of affordable mortgage financing,” Merrill Lynch economist David Rosenberg wrote Monday, “but because the lack of demand is much more related to the fact that we are over-housed … this will probably not be enough to bring about the bottoming of the housing market, at least over the near-term.”

[Insomniac]

I'm just glad social security wasn't privatized. I can't imagine what kind of risks would've been taken with a $trillion account. There'd be nothing left but filthy rich fund managers.

[nrc]

I'm just glad social security wasn't privatized. I can't imagine what kind of risks would've been taken with a $trillion account. There'd be nothing left but filthy rich fund managers.

I suppose that depends on the program. My money is fine.

[Michaelhatesfans]

This can't be as bad as people are making it out to be. I mean, there was a man on television just the other day saying that things were just fine.

[SurfaceUnits]

the Charlie Rose video is up, you really need to watch it.

[Methanolandbrats]

Leveraged money is many, many times the amount of actual assets. Multiple pyramid schemes are beginning to unravel as the pool of buyers has dried up. Uh, oh.....

[gerhard911]

I just got the notice from my County Auditor that the Ohio required tri-annual reappraisals in my county are being done. What do you want to bet THEY think the housing market is still quite strong :irked:

[indyfan31]

Think of the loss to city and town tax revenue if prices drop 50%. Most municipalities use property tax heavily.

You also have to think of the windfall they had when home prices spiked, if they blew all that extra money and now in trouble, it's their own damn fault.

Where I live we had single family homes selling like crazy for constantly rising prices for a few years. that means they got re-assessed and taxed at the new values which resulted in a lot of extra tax monies.

What this city of 30k people got for it was new street signs, street lighting, landscaped medians and a huge aquatic center with 2 pools and a water park for kids. Now that land values are dropping they're spending less, but they're still in the black. Go figure.

[dando]

I just got the notice from my County Auditor that the Ohio required tri-annual reappraisals in my county are being done. What do you want to bet THEY think the housing market is still quite strong :irked:

Franklin county elected not to re-appraise...I wonder why that would be. :irked:

-Kevin

[oddlycalm]

I think the notion of a "housing industry" is going to have to change. We can't continue to build out new homes and then sell them like new cars. Even the crap they're building these days doesn't fall apart fast enough to support that and even if it did, people are still stuck a house they can't sell.

Agreed, the problem is how to achieve that end without some level of regulation, and if you do regulate, how do you achieve that regulation?

We conducted a little experiment that seems relevant. Oregon adopted strict land use laws in the early 1970's under the strong leadership of Republican Governor Tom McCall and cities and towns had to come up with urban growth boundaries which were reviewed periodically. The goal was to protect agriculture, forests and keep urban sprawl in check.

The results of 30+yrs of land use planning are interesting in the face of the current situation. By containing sprawl the value of urban land stayed high so the urban decay seen in many US cities didn't happen in the same way here. Prices are highest in the downtown area and generally decrease farther out which is opposite of most urban areas. Wealthy suburbs exist but property values in them appreciated at a slower rate than in Portland. Renovation of urban houses is the norm, not the exception, so neighborhoods have remained intact and retained their flavor. A lot of the building jobs here are actually rebuilding jobs. Home prices have fallen less than 10% from their peak which stands in stark contrast to much of the country.

Agricultural land has been preserved so that local food is a reality. Dairies, poultry farms and other more aromatic agrarian endeavors have remained close-in and the explosion of demand from farmers markets, neighborhood markets and restaurants featuring local food has meant the survival of many small and specialty growers. Local food is a big deal in an era of expensive fuel. As I've mentioned before, our road race course also remains inside the city limits and has a light rail line to the front gate though our wonderful and historic 1/2 mile oval is gone.

Much of this regulation has recently been undone by the home building industry and timber companies looking to cash in by subdividing their logged-off land, so the future may look different. IMO the kind of land use regulations we passed in the early 1970's would be impossible to pass today, even in the face of obvious success.

oc

[Insomniac]

I suppose that depends on the program. My money is fine.

I'm thinking along the lines of some of those Bear Sterns funds. I'd feel very worried if I was counting on social security and it was privatized.

[G.]

Agreed, the problem is how to achieve that end without some level of regulation, and if you do regulate, how do you achieve that regulation?

We conducted a little experiment that seems relevant. Oregon adopted strict land use laws in the early 1970's under the strong leadership of Republican Governor Tom McCall and cities and towns had to come up with urban growth boundaries which were reviewed periodically. The goal was to protect agriculture, forests and keep urban sprawl in check.

The results of 30+yrs of land use planning are interesting in the face of the current situation. By containing sprawl the value of urban land stayed high so the urban decay seen in many US cities didn't happen in the same way here. Prices are highest in the downtown area and generally decrease farther out which is opposite of most urban areas. Wealthy suburbs exist but property values in them appreciated at a slower rate than in Portland. Renovation of urban houses is the norm, not the exception, so neighborhoods have remained intact and retained their flavor. A lot of the building jobs here are actually rebuilding jobs. Home prices have fallen less than 10% from their peak which stands in stark contrast to much of the country.

Agricultural land has been preserved so that local food is a reality. Dairies, poultry farms and other more aromatic agrarian endeavors have remained close-in and the explosion of demand from farmers markets, neighborhood markets and restaurants featuring local food has meant the survival of many small and specialty growers. Local food is a big deal in an era of expensive fuel. As I've mentioned before, our road race course also remains inside the city limits and has a light rail line to the front gate though our wonderful and historic 1/2 mile oval is gone.

Much of this regulation has recently been undone by the home building industry and timber companies looking to cash in by subdividing their logged-off land, so the future may look different. IMO the kind of land use regulations we passed in the early 1970's would be impossible to pass today, even in the face of obvious success.

oc

****in' hippies! :mad:

(good explanation, as always.)

[datachicane]

****in' hippies! :mad:



Easy, there, I got my hair cut yesterday. Lost 20lbs or so. I used to do it annually right after Jerry came to town, but since then, well...

[oddlycalm]

Easy, there, I got my hair cut yesterday. Lost 20lbs or so. I used to do it annually right after Jerry came to town, but since then, well...
You're in for a treat because at some point it generally just up and disappears all on it's own...:D

oc

[Methanolandbrats]

You're in for a treat because at some point it generally just up and disappears all on it's own...:D

oc:rofl: Ya, I'm at that stage, most of mine is in the shower drain.

[datachicane]

I'm proudly going grey at a furious rate, definitely beats the alternative.

I'm one of those guys whose hair grows pretty much straight out, kinda like a whitey-fro. I've already lost so much that if I were a normal person I'd have been bald years ago, now I just look slightly less fro-ish. My wife's been campaigning to get me to trim my eyebrows :saywhat:, since she sez I'm in danger of looking like a transporter-accident evil bearded Einstein.

[oddlycalm]

she sez I'm in danger of looking like a transporter-accident evil bearded Einstein.
Yup, the world is full of critics. :laugh: Years ago, after a cut and beard trim in the one-chair shop in the booming metropolis of Elgin, OR, an old farmer told me I looked like a gawdam buffalo. :cool:

oc

[Ankf00]

total necro-bump, but the OP fits in with National Association of Realtors announcing how they overstated home sales the past 5 years. 1 in 7 never happened.

http://www.marketwatch.com/story/existing-home-sales-downwardly-revised-14-2011-12-21-100210


WASHINGTON (MarketWatch) -- An average of 14% fewer existing homes were sold annually between 2007 and 2010, according to revisions reported Wednesday by the National Association of Realtors,

[SurfaceUnits]

The median price of a previously owned home decreased 3.5 percent to $164,200 from $170,200 in November 2011, today’s report showed. (give or take 14%) :laugh:

www.census.gov/const/uspricemon.pdf

[cameraman]

total necro-bump, but the OP fits in with National Association of Realtors announcing how they overstated home sales the past 5 years. 1 in 7 never happened.

You sell a house, that is 1. You sell another house and now you have sold 2. Seriously how ****ing difficult is that:irked:

[Tifosi24]

You sell a house, that is 1. You sell another house and now you have sold 2. Seriously how ****ing difficult is that:irked:

The NAR is, in my estimation, the worst source for anything data. They are nothing but a pure lobbying group that messes with its numbers all the time. They were talking about these revisions on the news this morning and a lot of it came from double counting MLS results that would be posted in multiple cities. There is a neighborhood where we were looking for homes that would have houses posted as three different cities based on the realtor. My guess is that the NAR counted each home sold in that neighborhood as three homes sold.

[Methanolandbrats]

Kinda OT, but before the dust settles on global deleveraging, EVERYTHING is gonna fall 50%.