[Sixstrings]

Way back in August 2006, near the top of the housing bubble, I suggested a two-part scenario for the housing bust: it would take eight more years to play out, and the declines would occur in sharp downlegs following a phase-shift model.

Here is the chart I presented at that time as a possible time model:



A few months later, literally at the top of the housing bubble in early 2007, I suggested that a mere 4% of homeowners defaulting could trigger a collapse of the entire U.S. housing market.

That is pretty much exactly what happened, for when the 4% who couldn't pay their subprime mortgages folded, they took down an exquisitely corrupt and vulnerable banking sector and the FIRE (finance, insurance, real estate) economy which had come to depend on it.

(snip)

As I noted in Phase Shifts, Stick/Slip and the Demise of Our "Socialist" Housing Policy (February 26, 2010), the "recovery" in housing visible in the chart below was entirely the result of a 99% "socialist" Central State intervention/prop job: the Federal Reserve bought $1.1 trillion of dodgy mortgages to mask the bad debt and keep interest rates low, and the Federal government flooded the housing market with fee money via subsidies and absurdly cheap, central State-guaranteed FHA loans.

Now that this massive Central State intervention has ended, housing sales and values are succumbing to gravity. home sales and prices fall:

"The National Association of Realtors said Monday that sales of previously occupied homes fell last month to a seasonally adjusted annual rate of 4.88 million. That's down 9.6 percent from 5.4 million in January. The pace is far below the 6 million homes a year that economists say represents a healthy market.

Nearly 40 percent of the sales last month were either foreclosures or short sales, when the seller accepts less than they owe on the mortgage.

One-third of all sales were purchased in cash - twice the rate from a year ago. In troubled housing markets such as Las Vegas and Miami, cash deals represent about half of sales.

The median sales price fell 5.2 percent to $156,100, the lowest level since April 2002." (source: http://www.dailyfinance.com/story/real-estate/existing-home-sales-fall-9-6/19886244/)
Sales of new homes tumbled 16.9% in February from the prior month to a seasonally adjusted annual rate of 250,000, the lowest level since the series began in 1963.

The median price for a new home sold in February fell 13.9% from the prior month to $202,100, the lowest since December 2003.
http://www.zerohedge.com/article/guest-post-phase-shift-next-leg-down-house-prices

So the upshot is.. "quantitative easing" (money printing) is near-term life support, not a solution. That wad has pretty much been shot.. if the world keeps QE'ing then we're all going to collapse. At some point the QE's will have to stop. Then interest rates will rise and folks gettin' a mortgage will be the least of our problems -- the government itself could be facing 10 - 15 times the interest it now pays on the national debt.

[Fishman]

Man, that is one brutal graph. I think its accurate also. At least with QE I can finish paying off my house with worthless dollars. Lets see what I need at Wallyworld tonight, rice, popcorn, 22lr cartidges, hmmm....

[Sys1]

I've heard today on economic news radio about a 7% decline in real estate (old one) in France.
In 2008-2010, QE/bailouts were used to allow the economy to grow again while actually, most of this virtual money ended as virtual growth aka real estate speculation. Before "the crisis", Banks used to make their profit with the real estate bubble they made up. Ironically, bailouts just inflated more this bubble, simply because banks could not have invested anywhere else but real estate, stucked in their own trap. If they had done the opposite they would have had to sell their real estate assets, flooding so much the market that it would have ended with massive lose. From virtually owning billions of virtual money, they would have earned nothing but bankrupt.
And now? Bailouts have just amplified the previous situation, meaning that the pop will hurt much more than anytime in the history. But what has changed is that it's now certain that as we fall from the undulating plateau of peak oil, central banks will have to increase interest rates in order to cool down inflation.
What will be really funny is that as interest rates will go up, it will be together with oil prices while real estate collapse for good. Governments, banks and medias will get mad as the situation doesn't fit in any of their beautifull lessons they learnt at the economic school. Then they will have to deal with Joe Sixpack as soon as he'll figure out he lost his retirement, job and even access to his account.
I guess that by this time, our elites will have already close the doors of their vault 13...

[pup55]

The house across the street from me is about 2200 square feet, was built in 1996 and originally sold new by the builder for about $185K...

About 8 years later, It was sold to a family of five, cute little blond mom, cop dad, and three little blond kids, for $250K. They allowed one of their parents to hold the mortgage, since they could not afford the house on the cop's salary....the original owners, by the way, moved out to the ritzier subdivision a little farther out, where the bought a $400K house, had it professionally decorated with all of the upgrades.... nice place, evidently, I never was there....there was apparently some gloating on the part of the stepford wife, who had the new house and was not keen on slumming it with the old neighbors...

Now, the house across the street is empty.The listing price? $185K, same as the original selling price, and there have been zero buyers and even zero shoppers in nine months, Whichever of the parents that owned the place put about $20,000 in "upgrades", granite, hardwood, the whole bit.... The little blond and the rest of the family had to downsize to a smaller, older house not too far away.

The builder family? They are living in the basement of the wife's parents.... they lost that nice house, the guy is doing small scale fixemup work, when he can get it... presumably that place is sitting empty. No more gloating by the stepford wife. She was in the hospital for knee surgery, was reportedly too embarrassed at her new place to have any of her old neighbors visit her.

So we're in Phase 3 already right? Prices back to the 1996 level, still no buyers, there have been two strategic foreclosures on the street, a couple more other places sitting empty....

There's my real estate market.

Those mortgages, with the exception of the mom mortgage, are sitting in some bank's portfolio at this moment as having some value, but their value is basically zero..... No one knows the value of a piece of real estate in the neighborhood, nor does anyone know what the bank is worth...

[Lore]

Case-Shiller is predicting yet another 20% drop in home prices.

There are some very well respected housing economists, including Robert Schiller (creator of the Case-Schiller index), who are far more pessimistic than I about the future of housing prices, thinking prices could drop 20% or more from current levels.
http://www.zacks.com/stock/news/49521/U ... les+Plunge

Robert was right about the last drop.

[Thralen]

That all depends, can you call it a collapse in price if the asking price goes down but nobody is buying?

Thralen

[eXpat]

Household wealth down 23% in 2 years - Fed

NEW YORK (CNNMoney) -- The average American family's household net worth declined 23% between 2007 and 2009, the Federal Reserve said Thursday.

A rare survey of U.S. households, first performed in 2007 but repeated in 2009 in order to gauge the effects of the recession, reveals the median net worth of households fell from $125,000 in 2007 to $96,000 in 2009.
Titled "Surveying the Aftermath of the Storm," the report offers a broad look at how the financial crisis impacted individual households.

It is widely known that the 2008 financial crisis resulted in the vaporization of trillions of dollars in household wealth. But Federal Reserve officials said Thursday the new report offers a look at exactly how hard the recession hit families, and how they reacted.

The numbers paint a stark picture.

Families that owned stock saw their portfolios drop by more than a third to $12,000 from $18,500, on average. The value of primary real estate holdings decreased by an average of $18,700.

And families took on more debt, pushing median total debt levels to $75,600 from $70,300. They also made less money. Media household income dropped from to $49,800 from $50,100.

http://money.cnn.com/2011/03/24/pf/financial_crisis_outcome/index.htm

[Timo]

Housing values and prices aside for a moment, what does this say about people's willingness to maintain the houses they own and live in if they can get a new house for less than cumulative repair costs, like paint and guttering, plumbing, electrical, and leaking basements, and termites, etc.....? It becomes easier and more financially feasible to treat properties as disposable since the price of a new house could be seen as smater than spending money to maintain an old house. Forget about the housing market! This could easily lead to the rapid decay of neighborhoods across the country, the whole world, even! The only way to prevent this is to lower the costs of regular housing maintenance. The handyman will have to charge less for his services to make maintenance more feasible for the homeowner. Otherwise, the homeowner will just accumulate the savings from doing nothing because he knows he can get a new house for the same cost. This housing price collapse will have astounding and devestating ripple affects.

[dolanbaker]

Housing values and prices aside for a moment, what does this say about people's willingness to maintain the houses they own and live in if they can get a new house for less than cumulative repair costs, like paint and guttering, plumbing, electrical, and leaking basements, and termites, etc.....? It becomes easier and more financially feasible to treat properties as disposable since the price of a new house could be seen as smater than spending money to maintain an old house. Forget about the housing market! This could easily lead to the rapid decay of neighborhoods across the country, the whole world, even! The only way to prevent this is to lower the costs of regular housing maintenance. The handyman will have to charge less for his services to make maintenance more feasible for the homeowner. Otherwise, the homeowner will just accumulate the savings from doing nothing because he knows he can get a new house for the same cost. This housing price collapse will have astounding and devestating ripple affects.

That can only be a short term outlook, simply because the overhang of decent empty houses will soon be bought up, plus the fact that empty houses also deterioate.

In a few years without maintenance all houses will become dilapidated!

Ireland has a huge oversupply of housing, and it's a common site to see empty mew houses as well as abandoned older houses in various states of dilapidation.
http://www.ghostestates.com has extensive coverage of the situation with abandoned new houses.

[Lore]

Housing values and prices aside for a moment, what does this say about people's willingness to maintain the houses they own and live in if they can get a new house for less than cumulative repair costs, like paint and guttering, plumbing, electrical, and leaking basements, and termites, etc.....? It becomes easier and more financially feasible to treat properties as disposable since the price of a new house could be seen as smater than spending money to maintain an old house. Forget about the housing market! This could easily lead to the rapid decay of neighborhoods across the country, the whole world, even! The only way to prevent this is to lower the costs of regular housing maintenance. The handyman will have to charge less for his services to make maintenance more feasible for the homeowner. Otherwise, the homeowner will just accumulate the savings from doing nothing because he knows he can get a new house for the same cost. This housing price collapse will have astounding and devestating ripple affects.

Here's whats hurting new home sales, besides the lack of buyers.

The price differential between new and existing home prices was historically around 15%. It is now 30%. You get much more house by buying an existing home. Of the existing home sales a huge portion of them are foreclosure sales and all cash sales.

[Pretorian]

In a few years without maintenance all houses will become dilapidated!

well obviously not all of them. There is a Roman fortress in Yugoslavia that was on and off a residence for hundreds if not thousands. Just make houses properly and they will last hundreds of years with little or no maintenance. Granted, its not the case if 2X4s and drywall is your idea of a house.

[pup55]

Well, around here, people are being responsible, and for the most part are not letting their places fall down completely..... the jerk realtors that have been assigned the job of "showing" the walkoffs are responsible for at least mowing the lawn and keeping the places from being overrun....

Over Christmas I took a day and drove around the delightful community of Cape Coral, FL one of the epicenters of foreclosure in the nation, and down there, it was not at all uncommon for there to have been pretty minimal maintenance, cleaning or anything else in some of those cases....houses full of junk and trash... of course, you get get a lot of them for around 1/3 of their most recent comparable home sale price...there are actually bus tours, brits and other foreigners touring these places in the hopes of picking up a bargain....

so at some point, when these places get heap enough.... a buyer will come out of the woodwork at least in FL.

[sicophiliac]

This isn't an entirely bad thing the way I see it. As a resident of the bay area its always seemed to be almost an impossibility to ever own a house around here. During the bubble we had run down shacks on the bad side of San Jose going for 500-600 grand easy ! A nice house was around 800 grand at least, and unless you were in on one of the now infamous sub prime/shady loans or be house poor and living paycheck to paycheck you'd need to be rich to actually buy one of them.

Now the idea of buying a house or a condo seems pretty reasonable if you have a halfway decent job or two incomes. Rent out a room to a friend and it becomes even more attainable.

We all know that the housing bubble was a big joke, low interest rates with easy loans made it happen and made the prices get to an unsustainable level. If prices keep falling it'll be healthy as the housing market will reach a state of equilibrium with the rest of the economy. Homes should be, in my opinion a source of financial security and stability in peoples lives, a roof over your head, serving the basic human need for shelter. This whole basic concept had been forgotten and houses became a freakin financial tool or source of borrowed cash.

I say let them keep crashing ! If I still have a job and a savings account ill be happy to buy one !

[Ibon]

As wages have dropped and banks have tightened lending practices we see that home prices are out of sink with what most folks can afford. On the other hand the cost of building a new home is historically high with commodities like iron, copper, wood, cement, fuel etc. rising. So aside from excess inventory of the moment at some point pricing has to reflect what people can pay. Parallel to the news that housing will drop there is a lot of speculation about another drop in the dollar. Well, at some point that $ 138,000 dollar home will "rise" in price as the dollar loses more and more value. But the commodity prices will then be so high in dollar terms that the cost of an existing home will have to be in some relation to the cost of building a new home.

We have historically high inventory out there.

I just heard 33% of home sales are now cash deals. If you have cash there is a great buying opportunity coming up once housing corrects again but before your dollars become less valuable. And before commodity prices rise.

When everyone is in sync about the housing pricing hitting bottom that is the time to pull the trigger and buy.

A house is still a hard asset. That is still true in spite of the correction.

[pedalling_faster]

That all depends, can you call it a collapse in price if the asking price goes down but nobody is buying?

well, yeah - and the banks are playing all sorts of games to keep the prices from falling further. i.e., withholding houses from the market by delaying foreclosure -which, oddly enough, ends up favoring defaulted homeowners in many cases.

for homes in the USA, the continuing devaluation of the US$ also relates to the value of those homes.

[sicophiliac]

As wages have dropped and banks have tightened lending practices we see that home prices are out of sink with what most folks can afford. On the other hand the cost of building a new home is historically high with commodities like iron, copper, wood, cement, fuel etc. rising. So aside from excess inventory of the moment at some point pricing has to reflect what people can pay. Parallel to the news that housing will drop there is a lot of speculation about another drop in the dollar. Well, at some point that $ 138,000 dollar home will "rise" in price as the dollar loses more and more value. But the commodity prices will then be so high in dollar terms that the cost of an existing home will have to be in some relation to the cost of building a new home.

We have historically high inventory out there.

I just heard 33% of home sales are now cash deals. If you have cash there is a great buying opportunity coming up once housing corrects again but before your dollars become less valuable. And before commodity prices rise.

When everyone is in sync about the housing pricing hitting bottom that is the time to pull the trigger and buy.

A house is still a hard asset. That is still true in spite of the correction.

True that the building materials for new homes may become more expensive but I assume that most of the actual cost of a house is related to the land itself and the labor costs involved with paying people to construct it. Given the shitty economy and job market the labor costs will probably stay low, the land value might decline more too.

I agree with you that a rebound in home prices might be primarily due to a devaluation of the dollar. Maybe owning a house outright or with minimal debt would be a good inflation hedge? Providing somebody with a tangible asset and a place to live instead of just a bunch of money in the bank that's slowly being devalued. Compare that with a renter who would have to cough up with higher and higher rents as inflation spirals out of control.

[MarkJ]

I just heard 33% of home sales are now cash deals. If you have cash there is a great buying opportunity coming up once housing corrects again but before your dollars become less valuable.

We've always bought housing, building lots and acreage for cash, but when local properties hit bottom a couple years ago, we were competing for properties with mostly cash buyers, most of them investors, flippers and landlords, not typical owner-occupied buyers.


What really skyrocketed was the price of building lots and subdividable acreage, especially land with municipal water/sewer and natural gas and/or limited zoning and deed restrictions.

Much of this land tripled in price in less than two years.


What's killing property values in many urban areas of Upstate New York is insanely high property taxes.

Potential buyers get all excited when they see big beautiful urban homes selling for around 100K, but cringe when they see the property taxes, which are often $6,000 plus per year.

Three years ago I built and sold a modest 2,200 sq/ft spec home in Montgomery County on 2.5 acres for 265K. Currently, the property taxes are about $7,200 per year. The owners are selling because of the rising property taxes.

[Ibon]

Potential buyers get all excited when they see big beautiful urban homes selling for around 100K, but cringe when they see the property taxes, which are often $6,000 plus per year.

Three years ago I built and sold a modest 2,200 sq/ft spec home in Montgomery County on 2.5 acres for 265K. Currently, the property taxes are about $7,200 per year. The owners are selling because of the rising property taxes.

What are the tax rates in New York. How can a $100k home have $ 6000 property taxes but a $ 265k home only go up an additional $ 1200 to $7200. Are the tax rates pro-rated?

I know in many states homeowners are having their properties reassessed after the housing market crashed and are having their property taxes reduced. New York not? Or are the tax rates just so high?

[MarkJ]

What are the tax rates in New York. How can a $100k home have $ 6000 property taxes but a $ 265k home only go up an additional $ 1200 to $7200.

The 3 components of the total property tax bills, city/town/village tax, county tax and school tax vary substantially by region.

For example, these two homes are about 15 minutes apart, but the taxes are night and day since Saratoga County taxes, Galway Village taxes and Galway School taxes are much cheaper than Fulton County taxes, Gloversville City taxes and Gloversville School taxes.

http://www.coldwellbankerams.idxco.com/ ... gID=213892


http://www.coldwellbankerams.idxco.com/ ... gID=216093


The poor urban areas have very high taxes since the majority of the county tax levy is consumed by unfunded state mandates such as Medicaid, Welfare, Special Education etc.

School taxes are very high in the poor urban regions as well since they have a much higher per-student cost of education, plus substantially more special needs students, special need pre-schoolers and lower tax revenue per student.

These areas have numerous apartment buildings, two family homes and multi-family homes which don't pay their fair share of property taxes since property taxes are based on value of the structure, not the financial impact of the residents.

Since much of the housing stock in these regions are 1800s/Early 1900s structures in need of numerous repairs and upgrades, property values are low, so tax rates are high. To add insult to injury, heating costs of many of the older structures is extremely high as well.

I know in many states homeowners are having their properties reassessed after the housing market crashed and are having their property taxes reduced. New York not? Or are the tax rates just so high?

Many local regions weren't reassessed for many years, or they weren't taxed at full valuation, so even though some property values dropped substantially, taxes went up substantially due to the new assessment, full valuation, or both,

For example, one of my properties was assessed for $70,000, but I only paid taxes on a percentage of the value. After the reassessment, they doubled my assessment, plus I was taxed at full valuation. I was also hit with a few Stealth Tax Increases as they eliminated garbage pickup, transit service and reduced the frequency, or quality of other services funded by property taxes in the past.

Although I'm assessed at around $140,000, the current market value of the 1930s structure and 3-1/2 acre lot (before the tax increase) was probably about 100K. Since my taxes more than doubled, they've reduced the value of my property substantially.

Taxes are very high in parts of New York as we have the most expensive unfunded State mandates and highest Medicaid and Educational expenses in the US.

9 Mandates that Consume
90 Percent of the County Property Tax Levy

http://nysac.org/documents/CountyCalltoCut.pdf

[Pretorian]

Mark, I still think cold day in hell will be sooner than you will stop extracting $$ from these ungodly counties and botched cities full of racially challenged individuals. And I wish you the best of luck.