Tuesday, August 29, 2006

"20% decline in median single-family house prices nationwide"

From Forbes:

End Of The Bubble Bailouts
By A. Gary Shilling

For a quarter-century, Americans’ spending binge has been fueled by a declining savings rate and increased borrowing. The savings rate of American consumers has fallen from 12% in the early 1980s to -1.7% today (see chart below). This means that, on average, consumer spending has risen about a half percentage point more than disposable, or after-tax, income per year for a quarter-century.

The fact that Americans are saving less and less of their after-tax income is only half the profligate consumer story. If someone borrows to buy a car, his savings rate declines because his outlays go up but his disposable income doesn’t. So the downward march in the personal savings rate is closely linked to the upward march in total consumer debt (mortgage, credit card, auto, etc.) in relation to disposable income (see chart below).

Robust consumer spending was fueled first by the soaring stock market of the 1990s and, more recently, by the housing bubble, as house prices departed from their normal close link to the Consumer Price Index (see chart below) and subsequently racked up huge appreciation for homeowners, who continued to save less and spend more. Thanks to accommodative lenders eager to provide refinancings and home equity loans, Americans extracted $719 billion in cash from their houses last year after a $633 billion withdrawal in 2004, according to the Federal Reserve.

But the housing bubble is deflating rapidly. I expect at least a 20% decline in median single-family house prices nationwide, and that number may be way understated. A bursting of the bubble would force many homeowners to curb their outlays in order to close the gaps between their income and spending growth. That would surely precipitate a major recession that would become global, given the dependence of most foreign countries on U.S. consumers to buy the excess goods and services for which they have no other markets.

29 Comments:

Blogger thatbigwindow said...

I think 20% is a fair amount in reduction of what the sellers are currently asking...

8/29/2006 02:21:00 PM  
Anonymous Anonymous said...

Depserate fool
http://newyork.craigslist.org/
jsy/rfs/200237608.html

8/29/2006 02:34:00 PM  
Anonymous Anonymous said...

20% fair? who seezzz U?

NOT

How about 30% for starters then maybe we get down to earth.

Blled'em dry. Let the sellers squirm and panic with their bloated dream prices.

That's right dream prices...like it's 2005 over again.

TOO LATE!

YOU MISSED THE BOAT!

SUCK IT UP AND DROP THE PRICES GRUBBERS.
HEHEHE

8/29/2006 02:37:00 PM  
Anonymous Anonymous said...

20% fair? who seezzz U?

Don't forget, we are talking national here. That doesn't mean 20% uniform across all markets. CA, AZ, FL & the Northeast will likely get hit harder, while other areas get hit less.

8/29/2006 02:54:00 PM  
Anonymous Anonymous said...

Wow, this board is getting worked up into a frenzy. It doesn't make sense to say that X% or Y% off of the asking price is fair. Some sellers may have inflated their prices by 10% others by 50%. The only "fair" way to evaluate prices is to look at the last known sales price. Assuming this was before the bubble got going (say pre-1998), why wouldn't you just grow the home price at whatever growth rate you deem appropriate. That may range between 4% and 8% I believe depending on the neighborhood. Of course you would have to add on any improvements that may have been made to the home since the current owners have purchased.

Say someone just built a McMansion in a nice neighborhood within 45 min commute to NYC, and lists the asking price at 450k. You are telling me that person should expect to only get 360k for the house? Makes no sense.

It is just as greedy to think you can ride the bubble bursting downward to the lowest possible point and buy at the exact right moment as it is to think you can ride the wave up and sell at the peak. The market may take a couple of years to reach rock bottom but there will be smart buyers out there over the next year who get in at a fair price and 10 years from now will have seen their home values grow.

-Seneca

8/29/2006 03:00:00 PM  
Blogger RichInNorthNJ said...

Seneca,

Amen!

8/29/2006 03:08:00 PM  
Anonymous Anonymous said...

For me, fair is the price I would pay for a house so that I could rent it out and make a little money for my effort. That simple.

In my town, a huge number of small capes are rentals. $1500/mo. Remember, I live an hour from Edison, but these numbers go for a lot of South Jersey as well, below Route 195.

Last year, asking was $280k. This Spring, $230k. Now, some are on this week for $197k. In my opinion, they still need a huge shave to make it worth my while at $1500 + taxes and insurance. The folks who bought in 1999 at $100-$110k are making it, but tax increases really make it tough.

Some landlords might take these places higher, if they're betting on higher rents and holding long term (ten plus years), but no higher than $125k or they get killed. Depends. Now that the stupid flippers are gone and the real investors are waiting, we'll see.

Pat

8/29/2006 03:27:00 PM  
Blogger BergenBuyer said...

Treasuries back at peaks after Fed minutes
(Wraps reaction to minutes, auction, latest price action)By Burton FriersonNEW YORK, Aug 29

(Reuters) - U.S. Treasuries got a boost on
Tuesday after minutes from the Federal Reserve's latest meetingcame out less hawkish than some had expected, pushing yieldsto five-month lows for the third day running.
Overcoming earlier losses after an auction of U.S.government bonds, gains late in the session pushed yields onbenchmark 10-year Treasuries down to 4.781 percent, theirlowest since late March.
The rally came after minutes from the central bank's Aug. 8meeting showed it decided to pause after 17 straight hikes inthe two years to June to limit the risk of overtightening, eventhough it was still keeping a watchful eye on inflation.
The tone of the release soothed some concerns that it mightreveal that a greater minority of the rate-setting Federal OpenMarket Committee had been in favor of raising rates. At themeeting, Richmond Fed Bank President Jeffrey Lacker voted foranother quarter-point rise in borrowing costs.
"I think we're just going to keep getting a little bid onthis, basically because of the expected slowing growth andongoing expectations of slowing growth," said Beth Malloy, bondmarket analyst at Briefing.com in Chicago.
Two-year notes were last trading unchanged from Monday,
yielding 4.873 percent.

But benchmark 10-year notes were 2/32 higher in price,yielding 4.783 percent, though they have had trouble stayingbelow 4.79 percent in recent sessions.
AT THE AUCTION
After bonds rallied almost non-stop since late June,
traders have become reluctant in recent sessions to chase
prices higher.

Earlier in the day, bonds weakened ahead of the TreasuryDepartment's sale of $22 billion worth of two-year notes.
After the auction, dealers said there was some concern over weakness in the indirect bids component that is seen as a proxyfor foreign central bank demand.
Foreign central banks have been major buyers of Treasuriesin recent years and any sign that they are leaving the marketis a cause of concern for traders.
"The percentage of indirects was relatively low at 22.8(percent). That is the lowest since they've been reporting thisdata," said Mike Cloherty, head of rates strategy at Banc ofAmerica in New York.
"The old low had been 25.6 percent, so definitely not agreat deal of support from indirects."But overall appetite looked fairly healthy with thebid-to-cover ratio coming in at 2.32, which took some of the sting out of the low reading on indirect bids.

8/29/2006 03:52:00 PM  
Anonymous Anonymous said...

Acutally I think 40-50% decrease should about put the market back to where it should be.

One thing I am curious about is when the market declines more and more and people get screwed cause that got an interest only of ARM, arent banks gonna get really screwed. I mean lets say you purhased a place for 315K and now its only worth 225K. Your interest rate adjust and you cannot afford to make the payments so you go through foreclosure yatee yatee and than the bank owns it. 295K is still owed on the proerty, but the same type of place is going for 225 or less come on people do the math which would you buy? Banks are gonna crash and burn.

8/29/2006 04:00:00 PM  
Anonymous Anonymous said...

I think it will be interesting to see if people have good memories--but not the way you think.

How many people have kicked themselves for not buying a 3 bedroom NYC coop at a low price during those "desperate" days in the early 1990s?

Think they're going to let that opportunity go by them again?

Of course there will be price declines--but in the best locations, there will also be people who won't want to wait for the bottom.

Hoboken and Jersey City are one thing. Park Avenue and Hamptons waterfront is quite another.

Location, location...it will become more important than ever.

8/29/2006 04:27:00 PM  
Blogger Flop that house said...

Pat,

I have to disagree with your analysis. If the house you are looking at is at $280K and reduced to $197K and the rent is $1500/month. you are looking at price-to-rent ratio dropping from 186 to 130.

Your annual rent would be $18000 and you will have to have almost 10% drop in price annually to cover for that. However, you will have to pay for taxes and maintenance, which in my case will be almost equal to my tax break.

In my case, I hope bergen county has simliar price drop. have not happen yet, but will be looking.

-Flop that house

8/29/2006 04:33:00 PM  
Blogger RichInNorthNJ said...

Aug Home Data Weak

NEW YORK -(Dow Jones)- Sales and home prices fell at a faster clip than expected and inventories climbed further in August as the housing market continued to deteriorate, according to a Banc of America Real Estate Agent survey.

And market experts believe the housing downturn will likely last longer than homebuilding stocks currently reflect.

The study, released Tuesday, shows consumer sentiment toward buying a home soured in August.

"Consumers are shifting from a mindset of waiting for a better price to one where they do not want to buy at this time, no matter what the price is," the study said.

"We think this shift in sentiment is particularly worrisome, as it could take time before the mindset shifts back and could lead the downturn to last longer," Banc of America analyst Daniel Oppenheim said.

More at link above...

8/29/2006 04:41:00 PM  
Anonymous Anonymous said...

"Wow, this board is getting worked up into a frenzy. It doesn't make sense to say that X% or Y% off of the asking price is fair. Some sellers may have inflated their prices by 10% others by 50%. "

How about 300%:

http://www.elliman.com/761413

Original price in 2003 = $834,000
Asking price in 2006 = $2,29 million

Seneca,

So what underlying economic fundamental justifies a 3x appreciation over 3 years?

If we get back to 2003 prices, then that means a 62% haircut in price.

Only an utter moron pays the asking price for the above loft. So, what's a reasonable sale price cut? 10% 20% 30% 40% 50% 60%

This market is not about some blue collar retiree asking for 100% appreciation for her purchase price from 1974. Its about speculation from hot shot players.

jmr

8/29/2006 06:06:00 PM  
Anonymous Anonymous said...

Its about speculation from hot shot players.

The guy who owns the 21 Astor Pl condo that appreciated so much doesn't even have a mortgage on it...he paid it off earlier this year.

He's a hot shot, all right, but apparently a solvent one. Sorry fellas, I know you wanted to think that he was just another increasingly desperate "greedy grubber."

Not.

8/29/2006 08:00:00 PM  
Anonymous Anonymous said...

I had dinner tonight
with a Doctor friend
who lives in Bergen County.

He really believes that prices
in BC are not going to drop as
fast as other areas.

I changed the subject and spoke
about hot cars, he was also unaware
of the white flight from NJ along
with business flight.

8/29/2006 08:59:00 PM  
Anonymous Anonymous said...

Does "corporate-owned" mean REO in a listing or a transfer buyout? Why no property transfer history?

Seeing a lot more of this in listings on MLS.

Thanks,

Pat

8/29/2006 09:01:00 PM  
Anonymous UnRealtor said...

20% -- not early enough:

http://tinyurl.com/e4so5

Before you sign the papers, study the above chart carefully.

8/29/2006 09:02:00 PM  
Anonymous Anonymous said...

A 20% reduction is not enough - unless, the house not over priced to start. I am not funding some geezer's retirement, and forking over $$ to some lying, realtor moron anytime soon. Prices are still too high.

8/29/2006 09:18:00 PM  
Anonymous Anonymous said...

jmr,

You may have missed my point. I think we are in violent agreement with each other. I could have just as easily said "Some sellers may have inflated their prices by 10% others by 300%. "

I think NYC real estate, especially Manhattan RE, is a slightly different beast than NY suburb real estate but regardless, I don't think a 3x price apprciation at 21 Astor makes any more sense than you do. Nevermind that there have been sales in the 2.5 mil. range in the past months in that building and it can claim famous residents like the producing Weinstein brothers, its still not worth the ask.

That being said, anyone wanting to live in Manhattan has to be realistic. A lot of the property values were driven up by foreign investors who used monopoly money to buy their condos due to the crazy exchange rates. You also have mad money in the city, so many millionaires, these are not people who quibble over a million dollars here or there.

"So, what's a reasonable sale price cut?"

I don't know but a recent sale indicates these places will sell for close to a 10% discount off that asking price. That might sound nuts to "regular" folk but when you have money to burn, who cares about a few hundred grand more or less.

8/29/2006 10:33:00 PM  
Anonymous Anonymous said...

With a 3-5 year deep recession, a 50% decrease isn't impossible.

8/30/2006 12:34:00 AM  
Anonymous Politely said...

"It doesn't make sense to say that X% or Y% off of the asking price is fair.... The only "fair" way to evaluate prices is to look at the last known sales price."

I would say that, absent fraud, the "fair" price is the one that's agreed to between the buyer & the seller. Of course that price may not seem so fair to one party as time passes, depending on how the market moves. And while this discussion has been based on asking what % reduction results in a fair price, I think the real questions (the ones we keep asking ourselves on almost every thread) are "how much is the market going to fall from current levels" and "how much do I offer so (if it gets accepted) I don't get burned by the falling market." Of course, the seller may not agree with your assessment.

And... I would say most millionaires would feel pretty bad about losing "a few hundred grand more or less" and almost all would probably quibble at least a little bit over a million dollars. Now... centimillionaires or billionaires... well, maybe they don't care. :)

-P

8/30/2006 01:50:00 AM  
Anonymous Anonymous said...

I am not funding some geezer's retirement

Good thing us old geezers didn't take that attitude when it came to funding your public education with our tax dollars.

8/30/2006 06:25:00 AM  
Anonymous Anonymous said...

And what about paying for your Social Security and Medical benefits? When I get older, I doubt those benefits will be as generous as they are now so please don't speak about public education. You can always move to a lower cost state. Everyone has to pay to the government to cover SS and Medicare (if one wants a job that is).

8/30/2006 08:39:00 AM  
Anonymous Anonymous said...

You can always move to a lower cost state.

Yes...but I was talking about the 30+ years we geezers have spent paying taxes on our properties.

Your comments confirm my thoughts that this has become an age divide issue, with 20- and 30-somethings upset that they "missed the boat."

Remember, it's not boomers (like your parents?) buying $300 jeans and sushi dinners.

8/30/2006 09:20:00 AM  
Anonymous Anonymous said...

"Yes...but I was talking about the 30+ years we geezers have spent paying taxes on our properties."

so they didn't have public schools when you were a kid?

8/30/2006 09:39:00 AM  
Anonymous Anonymous said...

Good thing us old geezers didn't take that attitude when it came to funding your public education with our tax dollars....
Thanks anyway - went to private school. If your bitter your tax $ went to a public school, it's better than having a county jail in your backyard. Get over it -I'm not over paying for a house.

8/30/2006 09:49:00 AM  
Anonymous Anonymous said...

so they didn't have public schools when you were a kid?

Of course they did. 40 kids to a classroom. Split sessions. The public schools I went to in the '50s were nothing like the upscale suburban public schools my kids went to in the '80s.

Get over it -I'm not over paying for a house.

Nor should you. So keep renting. Your landlord will thank you. Or are landlords greedy grubbers, too?

Perhaps you'd like to try living in a tent so that no old geezer profits from your situation.

My point was that you're attacking "old geezers" who have owned for 30+ years. We're not the desperate sellers.

Think about it: Do your parents eat sushi every night on the home equity line?

8/30/2006 10:16:00 AM  
Anonymous Anonymous said...

If your bitter your tax $ went to a public school

Not bitter at all...just sharing society's costs.

Are you bitter about Medicare and Social Security?

Or would you rather send old geezers out onto ice floes?

8/30/2006 10:25:00 AM  
Anonymous Politely said...

I'm generally bitter every year from about February 1 to April 15, but I get unbelievably irate when I find that AMT requires me to add back the amounts I paid in state, city, local & property taxes as income. And of course, the more property tax I pay, the more AMT I have to pay.

Small children, and even some adults, become afraid of me during tax season.

-P

8/30/2006 11:40:00 AM  

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