Another one for the housing bears

Finally, someone who has opened their eyes open.

yep. Wall street has called around 20 bottoms to the housing market in the last several years - the only ones with worse records are the realtors.

Housing will continue to go down until it hits its fundamental price. That could be quick, or slow, but will happen either way. Bubble prices were, by definition, MUCH higher than prices should be - that's what makes it a bubble... and bubble prices, ie post 2001 when Greenspan started giving out free money, are not normal - people who think "housing prices will go back to normal" are right - but they are often assuming that normal was 2004, and that's dead wrong.

Normal was in the late 90s. And is when rent/own and salary/price ratios make sense - ie track historic norms. Which they will, ex crazy credit. And that happened already, and will not happen again (well, not in this market at least... bubbles don't recur in the same market..)

"The bulk of recent foreclosures have been among previously rock solid borrowers with prime mortgages, the pieces notes, citing recent stats released by the Mortgage Bankers Association."

This is a confirmation of what I've seen as the biggest fallacy in peoples' analysis of the situation over the past 3 years or so. I hear people say things like "You can't blame Fannie Mae or Freddie Mac... after all they weren't behind the _subprime_ mortgage crisis." It's more than just a subprime problem.

Any time you use leverage to make a speculative purchases of assets that eventually depreciates, bad things will happen. When you're $150k under-water, the terms of the loan are a relatively minor detail. Mortgages that were sold for overvalued properties are very dangerous regardless or whether they were prime or subprime.

I have no formal education in economics, just a healthy dose of common sense, and I always understood this. How did our "best and brightest" fail to see this?

Nothing that hasn't already been pointed out before by Charles, Lance, Marcus and myself.

There has been little positive structural change to the real estate market, financial markets and general economy.

- A problem of excess credit and massive debt levels is being "solved" by additional credit and additional debt

- There are still trillions of dollars in mortgages yet to reset

- You give a handful of banks billions of dollars, suspend mark to market and give them other ways to cook the books, and suddenly they turn record profits - meanwhile many of these banks are still insolvent.

- Does anyone really know what is going to happen with the $500+ trillion derivatives market? I don't, but I'm guessing the worst.

- How much longer will foreigners continue to lend us money to fund trillion dollar deficits? On June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners. Bottom line, those recent "successful" auctions, may not have been so successful after all. Has it been the FED mopping up the bonds that foreigners don't want to buy? The net result of all this is much higher interest rates which will kill any rebound in housing and the economy.

- Unemployment will continue to rise. I think an unemployment rate of only 10% is optimistic.

- The savings rate in May was 6.9%. Since consumption is about 70% of GDP and Americans have been running a negative savings rate up until about a year ago, well you can do the math. I'll ignore the fact that government counts debt payments as savings. Bottom line is that 6.9% percent, that up until know was going towards consumption, is now being subtracted from GDP.

I could go on, but I'm simultaneously preaching to the choir and having my argument fall on deaf ears.

Folks, my personal view: Time to buy is now or soon. By my count the majority of people on this board are Real Estate bears - maybe the reason is because most are disenfranchised home seekers who in the past have been shut out of the market by the high prices. Yes, things were outrageous and the market was crazy and unreasonable..have we hit a bottom? Maybe, maybe not. But its not as far away as all of these bears think. Sorry, Massachusetts isn't the same as the rest of the country - never has been and won't be now. If your waiting for a 4 BR gorgeous home within 128 to hit 400K, it wont. Remember, when everyone is saying sell, that is probably the time to buy and when everyone is saying its time to sell its probably time to buy...

we're not even close to a bottom. Every subsidy conceivable has been thought off and yet the market still has tons of over-priced inventory. Interest rates could be 2%, but why would one buy when values are dropping 10-15% per year. Clearly real estate as an investment/asset class has seen it's best days and will come back into favor for a very, very, long time. All efforts by govt., the banks, NAR, etc are all designed to avoid "price discovery". Do what ever has to be done to give housing a pricing floor. None of this will work as the market, (even one heavily subsidized), will find its true value. It is interesting to see the bulls gradually capitulate as another quarter of declining prices comes to fruition, you see it here first hand as many of the cheerleaders have disappeared. We're headed much,
much, lower...

much, lower... much lower...

Housing prices may dip 50% from here. Or they may soar. It depends on the Fed, the price of oil, the trade deficit, monetary policy, the size of government, healthcare, technology, education, immigration, disease, warfare, culture, food supply, demographics, and just about everything else you can think of. Today we have deflation, but 5-10 years from now inflation and deflation possibilities are pretty much 50-50.

Im seeing a lot of famous people dying this week in their 50s. Im enjoying my house... now. I work hard, and my family is enjoying a great home in a great location, today. Im not going to wait 5-10 years for all of the factors I listed above to sort themselves out. It is my understanding that you cant take your US-manufactured money with you anyway..

There's an element of truth to "all real estate is local". The subprime phase affecting lower income areas is just about played out. We are now entering the phase where middle to upper income towns will begin their reversions to the mean in terms of historical pricing.
I have a good friend in Andover who was telling me the RE market in (the sovereign country of) Andover was on its was back up in 2006, then 2007....
The price adjustment will be helpful to the overall economy and probably help the individual owners overall.

Have we bottomed probably not, but I don't see the market going "much much much lower.." I keep hearing regurgitated arguments that have been recycled from other authors from different websites...but based on this market we are getting close to equilibrium. Supply and demand is still a force in determining price and there is wealth in Mass, whether it be from the intellectual capital here or the overseas students or other. Good houses are selling...when a good house is well priced, people know it and it is bought...I feel everyone takes comfort in the bears perspective that the sky is falling to justify thie feeling that they will be able to "get in" miraculously one day...with median home prices in mass at $280K I''mnotsure where they expect them to go....sorry just don't see it. sure

aj,
I agree with you that we haven't bottomed out yet but there is nothing to support your arguement that we are getting close to any sort of equilibrium in the local housing market. It's comical at this point how for the last several years some folks see this silver lining this time of year with the traditional uptick in sales and start claiming that the market appears to be turning around. Then as spring becomes a distant memory and the summer rolls on the news from the data gets sour once again.

Nobody is saying the sky is falling but until we reach historic fundamental prices in the Mass housing will continue to drop. Several years ago so called experts were saying the the local RE market would only drop 2-3% from it peak for various reasons you speak of and look where we are at now!

AJ, the bears here are mostly real estate developers/investors. The theory that its lack of money and sour grapes is interesting, but doesn't relate to the facts. In general I'd guess the bears have rather more money than average - understanding finance and economics tends to lead to that, unsurprisingly.

Notice the "bears" use math, and data? Not hope and anecdote and sayings? There is actually a way to price real estate, and the bears argument is that is mispriced.

People who say one can't predict are like people who say you can't predict the weather - all they do is expose their own ignorance. Yes, all models are wrong. But that does not mean the same thing as useless...

And as always, you are welcome to search back through the years on this blog, and call me out on any predictions I got wrong. You won't find any - probably pure luck.... certainly not math...