"Why Housing Will Not Fully Stabilize and Recover Before 2014" or "You Would Have to Be Fool to Buy a House Now"
The following four charts have been updated 12 months after original publication (5/11/09). These graphics were used to illustrate why the housing downturn would persist through 2013. (Link to Article )
A year has passed during which an economic recovery was widely reported. But housing market statistics have largely stagnated. It appears less likely today than a year ago that housing will fully stabilize and begin a sustainable recovery before 2014.
Of the four charts only "For Sale Only" units demonstrates marked improvement. But this trend results primarily from Government home buying incentives which are fading and efforts to forestall foreclosures which have failed. Regardless, the pace of improvement is insufficient to resolve the housing glut before 2014.
Changes in historical data result from revisions made by the US Census Bureau.
Every home and housing market is unique. Many areas of the country were untouched by the decade-long housing price distortion. But most markets were affected by the bubble and are subject to the national forces which continue to propel housing prices lower.
The above caveat aside, "Anyone who buys a home in the present market is either a fool or unconcerned by the prospect of losing money".
Posted by Whitney Ross at 5/5/2010 3:31 PM 
Categories: Market and Economic Predictions, Housing Market Analysis, AMD Can Not End Before 2013
Categories: Market and Economic Predictions, Housing Market Analysis, AMD Can Not End Before 2013
Excellent work! It's good to see these trends over a period of time rather than the month to month predictions of the NAR and their "next month" pending sales projections or the NAHB claims that it really costs $300/sq ft to build a cracker box house on a concrete slab with almost zero lot line.
I have friends who just started out with their first house using a conventional loan. In the 1st quarter of 2006 they were warned by estate agents that they would NEVER be able to afford a house since it's a proven fact that "house prices never go down" and that renters are losers.
They put down all their savings of $78,000 on a $369,000 cheesebox tract house and even though they can "afford" the huge monthly payment, the exact same house next door to them sold for $128,000 just 2 months ago. Since that time, house prices in that tract are dropping rapidly. It looks like 1/4 of the houses have brown lawns and are rapidly deteriorating. The houses that are not vacant are filled with multiple families who are either squatting or have taken in permanent house guests. Only a few years ago, the tree lined streets offered the precious curb appeal that Realtors are so fond of. Today it look like an Arizona border town with old junk cars parked up and down the streets. There is an absence of "pride of ownership" in this community.
My friends are trying to tough it out, but I have warned thm they have already THROWN away their equity and are "only" losing an additional $36,000 per year in monthly mortgage payments. But when the crisis is over they will still OWE about $300,000 on a house in a BAD area. What would you do? I can tell you one thing. The cheerleaders who made big bucks by lying to them to get their $22,000 commission have earned HATRED. The problem with con-artists is they may have ripped someone off GOOD, but the people they ripped off now HATE anything to do with Real Estate agents.
I want to be present when one of these real estate "professionals" starts claiming that "NOW is the BEST time to buy" and "house prices ONLY go up"!
Yes, they still chant the same slogans and lies during this economic carnage.
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Agree completely!
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Pretty good data. But I do see the market semi-stabalizing in late 2010 (once the FTHB effect is over). Why? They are building new homes in Markets like Phoenix again. And people are buying new homes as the prices are back to earth and are not too much more than bank owned. But let me clarify 'semi-stable'. Prices will fluctuate plus or minus 10%. Higher end houses will still decline but will flatline soon, too. These charts are great for the big picture but when you get on the ground you realize there are guyers out there and houses are being sold. Now some markets will see decline, some flat, and some increase a bit - but overall a flat line. Head to somewhere like Phoenix and see flipper at work buying REOs or Auctions and reselling - most sell within 1 month. Regards, Daniel Kroc @ Reflecture
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Given lapsing Government subsidies, the rising share of distressed transactions and market conditions which lend themselves to falling prices, I have a difficult time believing that housing prices won't be falling at year-end.
I argue that the construction of new homes in markets with excess inventory is not a positive for prices. Builders and flippers may be operating in Phoenix but prices are still plummeting.
I observe that there are no current, fundamental determinants of value which favor sustainable price stability or appreciation. (Interest rates, foreclosure trends, subsidies, supply, demand, perceived risk, financing environment, price trends, valuations relative to pre-bubble levels, etc...)
That is not to say that national prices can not rise. Housing leverage has increased to a level where volatility has never been higher. Government-financed speculation could create steep, unfounded appreciation. This would make our troubles worse and longer-lived as current valuations are unsustainable. But given present fundamentals, high leverage is more likely to force prices steeply lower as equity evaporates and more distressed transactions are created.
Do not mistake transactions being executed, which is a function of the market clearing, with price trends. There are always buyers, just as there have been during the past 4 years while prices were falling.
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I don't know of any markets that were truly touched by the bubble. Even Texas, which everyone coos about, has seen quite a run up in prices. Nothing like South Florida, but the ten year charts depict quite a spike in prices. The thing is, Texas seems to be having a belated bubble. The other thing is that Texas has a weird nondisclosure law where sale prices are not recorded, so you have a hard time establishing averages for an area. Still, I see homes in parts of central Texas that sold two or three years ago for $225K going today for over 400K.
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I include the "all markets are unique" disclosure because if I don't I receive comments from Ord, Nebraska, Deer Lodge, Montana and Little Falls, NY telling me that they avoided the bubble and housing prices are rising.
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Uncle Sam will use your money to bail out todays buyers!!! HA HA HA and they will probably never pay their mortgage and live free.
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Housing as we've known it (Pure pumpndump fraud) isn't going to "Recover". That's like saying your cancer will return.
The FBI is dismantling the RE industry, and the days of appraisers creating value out of thin air, sucking in investors are over.
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Excellent post, albeit I am a little late to join the dialogue. I really appreciate the rigor of your post and emphatically agree with all your points, but have one challenge briefly alluded to in this blog. It's one I am struggling with as well but can't ignore; the power and unfair advantage of being the World’s Reserve Currency. As long as our bonds keep selling, admittedly that is a big factor of my argument, then can we continue to fund through government stimulus longer than other countries? And, can we possibly carry over our recession/depression through this stimulus until economic growth reduces our debt? I hate making this argument because it stinks with huge risk, but must examine the likelihood of its success. If we examine historically our ability to succeed under this approach, it appears to have worked (i.e. 1975 & 1980). Some say we just kicked the can down the road and our day of reckoning is here, but is it? While I have my emergency plan in place because, I too, don’t like the game of chicken we are playing. America has been able to inflate its way out of some nasty messes, following which we had a boom to over 2 million home starts, and significant price appreciation, resulting in economic recovery twice in the last 40 years. Check out my analysis at http://www.avidbuilder.com/content/housing-good-gold. Please don’t misinterpret my optimism for lack of an objective eye. The fear I have is not with housing, it’s the Chinese desire to supplant the U.S. as the World Currency. Once their billion plus population consumes anywhere near what we consume, the dollar will plummet, and the Yuan will take poll position in the World’s economy, along with it the inherent borrow and spend benefits of being number one. If this happens, things are really going to change and everything you have prognosticated will be true, resulting in absolute financial devastation for America. We must believe housing will recover, if not, America will fail. To your point, housing stimulus #1 is going to fail for the very reasons you accurately articulated. However, housing stimulus #2 will be around before the year’s end and perhaps more will follow until policy makers have spun our way to prosperity… I hold my nose as I write this, but it’s the path we are on. Don’t short housing just yet, until austerity measures are the policy de jour, or the bond market chokes on the American dream. The later, God forbid a real possibility.
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