Tuesday, January 24, 2006

Just How Far Down Can Home Prices Fall?

From CNN Money:

Home prices get even more overvalued

Overall, 37 markets were found to be severely overpriced, which meant that they were at least 15 percent more expensive than they should be, and only 6 were underpriced by 15 percent or more. Fifty-seven were deemd to be farily priced.

...

The level of over-valuation matters in three ways, according to Ingo Wenzer, president of Local Market Monitor. The higher it is, the greater the risk of it correcting; the greater the correction can be; and the longer it will take to return to present-day prices after they fall.

"Once markets are overpriced by 40 percent or so, the risk is pretty high and the adjustment can take five to 10 years," said Winzer.

Local Notables:
Atlantic City, NJ 41% Overvalued
New York, Northern NJ 43% Overvalued
(remember these are statistical areas, not actual towns)

Caveat Emptor!
Grim

Thanks to Judy for sending this link in.

15 Comments:

Anonymous Anonymous said...

A long way down to "Normal" prices, but the RE clan will make you believe that things are normalizing now.

Hahaha. Okay with their money!

1/24/2006 07:53:00 AM  
Blogger Richie said...

It's never a bad time to buy!

You can't lose on a house!

It's the best investment you can make!

If you're renting you're throwing your money away!

BUY BUY BUY!

1/24/2006 08:25:00 AM  
Anonymous gary said...

43% in Northern Jersey... that's absolutely valid. This housing thing is beyond whacked. My wife and I were stunned back in '99.

These people are out of their f***ing heads. 600K for a sh*tbox... take a hike pal. And these realtors should be slapped for some of the BS they're trying to shovel.

I told my wife we'll wait 18 months from now and then we'll swoop in like vultures. The Realtors and sellers put us through hell a few years ago so... paybacks are a bitch!

1/24/2006 09:12:00 AM  
Blogger chaoticchild said...

It gets better and more realistic....
I remember a few months ago major media like CNN are still saying that there is no "national bubble". There are might be a few "hot" areas, and these areas prices will stabilized in the next few years.
CNN came out with a report saying NYC areas are about 28-40% overpriced.

Now the whole area is 43% overpriced!!!!!!!!!!!!!!

I can't believe these media anymore.....

1/24/2006 10:02:00 AM  
Blogger njresident286 said...

this weekend i saw my first actual housing price drop. my friend just purchased a 3 bedroom house in springfield, NJ. 8 months ago it was listed for 380,000. someone bought it to flip, put 50k into it and put it on the market for 480,000. no takers. down to 450,000 then 430,000(his break even point).

my cousin got it for 400,000. its a decent place. I personally would not have paid more than 300,000 for it, but either way not a bad deal considering everything inside is new (floors, kitchen, bathrooms, windows)

that guy who tried to flip it took a 30k bath on that house, not including the cost of holding it for 7 or 8 months.

1/24/2006 10:15:00 AM  
Anonymous Anonymous said...

Your cousin is an idiot.

The prices have only started going down. The POS probably is not worth more than $275k-$300k after the upgrades.

Hopefully other buyers have more patience than an infant. 6-18 months is when all the real fun begins.

1/24/2006 10:51:00 AM  
Blogger grim said...

Now now.. No reason for the name calling. We don't know the reasons that surround his decision.

grim

1/24/2006 11:11:00 AM  
Blogger bubble disciple said...

I agree with Grim.
Let's try not to judge people - to each his/her own.
All we can do is share information and try to make informed judgements.

Being called an idiot for buying is just as insulting as being called an idiot for renting.

Things are always more complicated than they appear.

1/24/2006 12:52:00 PM  
Blogger r patrick said...

Just because it is not what you want to buy does not automatically make all places POS.

And I still don't see 50% that would wipe out almost all buyers since like 2001-2003 depending on when the bubble started.

1/24/2006 01:27:00 PM  
Anonymous Soterios said...

I went to an open house in Glen Rock Sunday for a house listed at $500k. Small expanded ranch. Other than expansion which didn't add much to the house, nothing seems to have changed from 1950...

Anyways... as I left, I told my wife that these guys were on drugs, maybe $350 but not $500. So here I read this article divided 500 by 1.43 and lo and behold $350.

I think I've got a handle on this overpriced market. Funny thing, the broker didn't even try to sell us on the house.

1/24/2006 08:58:00 PM  
Blogger grim said...

Many readers here know that I've said Northern NJ requires a 30% reduction is prices to bring prices back in line with fundamentals.

This recent study finds this area approximately 40-43% overvalued. Which matches up exactly with my forecast of 30% declines. It only takes 30% down to negate 43% up.

~350 * 1.43 = ~500
~500 * .70 = ~350

Further validation of the 30% prediction..

Caveat Emptor!
Grim

1/25/2006 06:35:00 AM  
Anonymous Anonymous said...

I would think 40-50% downside in house prices.
People I know complain about several things: Little to no raises, property taxes soaring and utility bills. Thes are from people that have owned a house for 10 years or so and have benefitted greatly from real estate appreciation, but you wouldn't know it by hearing them complain.

1/25/2006 08:21:00 AM  
Anonymous Anonymous said...

"Being called an idiot for buying is just as insulting as being called an idiot for renting."

This is not a bright statement on your part. You know based on your moniker including "bubble" that rents to home prices are going in opposite directions last 5 years.

a $750,000 4 bedroom house that some greedy seller wants $750,000 cuz the neighbor got it from some risk taker using an ARM loan would rent out for about $2500-2600.lets be generous a give'em $2600 a month. Well at $2600 a month it would be 24 times annual rental. Normally should be 15 times. About 37.5% overpriced. This house should be valued for about $465k.

1/25/2006 08:30:00 AM  
Blogger skep-tic said...

I agree that housing is at least 50% overvalued in the NYC-metro area. A 50% haircut wouldn't even bring us back to 2000 prices at this point.

The fact is, there's no good reason for the last 5 yrs of price gains other than the availability of credit. As this credit disappears, expect these gains to go with it.

However, this drop will play out over several years. There will not be an all out crash over the next 6 months. ARMs will readjust in stages. A recession in 2007 will push housing down further. In the end, it might take 5+ yrs for the 50% price decline to happen, but it will happen, and housing might even be cheaper in real terms by 2010 than it was in the late 90's.

1/25/2006 10:27:00 AM  
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4/18/2006 10:59:00 PM  

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