US house prices in freefall -- redux

[chequita guevara]

http://www.salon.com/tech/htww/2008/04/28/unoccupied_homes/index.html

Overbuilt America

As of the end of March, 2008, there were 129.4 million "housing units" in the United States. According to a report released by the Census Bureau on Monday, 18.6 million of those homes are unoccupied -- an increase of one million over the first quarter of 2007.

18.6 million unoccupied homes sounds like an awful lot. No wonder there was a housing bust! But that number is a little misleading. 4.7 million are for "seasonal use" only, the Census tells us -- unoccupied vacation homes, in other words. 4.1 million are for rent, 2.3 million are for sale, and the remaining 7.5 million "were vacant for a variety of other reasons."

The key figure is 2.3 million -- the total number of homes that are empty and for sale. That adds up to a vacancy rate of 2.9 percent, which is the highest, reports Bloomberg, "since the bureau started keeping count in 1956." 2.2 million homes were vacant and for sale one year ago.

According to the Department of Housing and Urban Development's Second Annual Homeless Assessment Report to Congress, released in March 2008, "the total number of homeless persons reported on a single night in January 2006 was 759,101."

Assuming that number bears some reasonable relation to reality, that would mean there are 24 unoccupied homes for every homeless person in the United States.

[OneFootInTheGrave]

I think you'll be lucky... I give it 5 years + horizon despite of those enormous drops right now... economy is not even in a proper downturn... once that starts it will be true fun, and I am kind of pessimistic... as it looks right now, we will be wishing for Japan type 'situation' with 3-4% unemployment and bit of deflation... in a year or two...

when European house prices in Ireland, UK and Spain collapse, in the middle of US depression with record inflation since early 1980's (without much ground for FED to move)... and add those hundreds of billions in bad debt on top of all those losses that financial industry suffered in US that will be THE real deal... but I give it a year or two... unless some near miracle happens and slows this down, but I don't see this coming... still you never know it's over till it's over

[Kidlicious]

Originally posted by Spiffor
The drop in housing prices are fundamentally a good thing, the prices were completely out of whack. Sad thing the correction had to occur so brutally though.

The miracle of the market

Price drops are not a good thing. It's not going to result in more people owning homes, but less.

[OneFootInTheGrave]

just to give some UK news

http://www.reuters.com/article/marketsNews/idUSL2985097020080429

The revised outlook from HBOS -- which operates the Halifax and Bank of Scotland brands -- coincided with data showing UK mortgage approvals fell to a record low in March as banks continued to tighten their lending criteria due to a global credit crunch. For UK mortgage approvals data double click on [ID:nL2992838]. It also left HBOS among more pessimistic UK housing market forecasters, after its benchmark Halifax house price index (HPI) fell by 2.5 percent in March -- the sharpest rate of decline since the property recession of the early 1990s.

the market is moving as expected despite of house shortages and other price pressures... the prices are way too high, and the investors who have been driving this madness are now slowly but surely backing off as it will not pay anymore over the next ?decade?... it took a bit more than 6 months after the crunch started in earnest for the market to catch up... we are seeing first true results... in 12 months we will be where US is today... and I'd suspect UK, Ireland and even Spain are even more out of whack than US as a whole... we are like San Diego in the house price department only but UK (Ireland too, not sure about Spain) has different strengths in other segments which should prevent such fast and big % collapse... but if unemployment hits here over next few years (fortunately not even on the horizon)... than we will be roasting...

[Ben Kenobi]

Price drops are not a good thing. It's not going to result in more people owning homes, but less.

Suppose the price of gas dropped 10 percent tomorrow. Would you sell more gas then you did yesterday?

For all of the folks who overextended themselves there are 3 or 4 who were priced out of the market.

When the prices come down, these 3 or 4 who didn't buy have opportunities to buy houses. Sure it sucks for the one who overextended themselves, but that doesn't mean there will be fewer people owning homes.

[Dinner]

It's kind of what we expected. The US remains in a credit crunch similar to the Japanese liquidity crisis of the 90's and we're into our third month of economic contraction. Those cities where lots of people own vacation homes (Florida, California, Las Vegas) are hardest hit because people are dumping their second homes/vacation homes in these resort areas.

When the economy is good these vacation areas go up the first and the fastest and when the economy is bad they go down first and the fastest.

[Donegeal]

The value of my places dropped this time too.

[Dinner]

Tell me about it.

[Dauphin]

Originally posted by Arrian
Is there a site that tracks all markets, such that I could find stats on the one I'm in? I'm not concerned about the value of my house (which I bought at or nor peak in June of last year), since I plan to keep it essentially forever and we've a fixed mortgage we can afford, but I'm curious.

Wouldn't matter if you planned to move unless you are downsizing. Market crashes can help upsizing in the same market if you have the cash.

[Victor Galis]

Originally posted by Heraclitus
Let the good times roll!

Actually this is pretty good for anyone that doesn't currently own a house, but might want to consider it in the next few years.

Suppose the price of gas dropped 10 percent tomorrow. Would you sell more gas then you did yesterday?

That's a trick question: What if the price of gas drops 10% because fewer people are buying it. It might cushion the decline, but if the price falls due to lack of demand, the lower price doesn't maintain original levels of demand.

[PLATO]

Originally posted by Oerdin
It's kind of what we expected. The US remains in a credit crunch similar to the Japanese liquidity crisis of the 90's and we're into our third month of economic contraction. Those cities where lots of people own vacation homes (Florida, California, Las Vegas) are hardest hit because people are dumping their second homes/vacation homes in these resort areas.

When the economy is good these vacation areas go up the first and the fastest and when the economy is bad they go down first and the fastest.

You are "kind of" correct here. The majority of the foreclosures are still in the non-owner occupied arena, but a great number of those were speculative buys based on the expanding market. Sadly, the lenders bought into this to maintain volume levels. This had the added effect of driving up the prices for owner occupied properties. This price drive up, combined with loose underwriting criteria and practices caused the current crisis.

The problem now is that the market is so scared that things have swung the other way. With no subprime secondary market and a very skiddish prime secondary market, combined with insanely tight underwriting criteria, many people who could save their homes by refinancing out of an ARM have little or no chance of maintaining a payment they can afford. So far, the lenders that service loans are taking a loan modification path instead of installing realistic guidelines because they are scared that they cannot sell the new loan. Many borrowers are not that receptive to loan modifications as they can be nearly as damaging to credit as a foreclosure (in many cases lenders evaluate a loan modification on credit in the same way they evaluate a foreclosure). With prices declining, the borrower has little incentive to stay in a property under the current "cure".

The good news is that the losses will not be as bad as the write downs. The math is pretty simple when dealing with what the actual returns will be on large packages of loans. The current write downs are based on a "mark to market" movement, not pricing them to the expected return. In nearly every case, these loans are still worth more than what the market will pay. The problem is uncertainty on what they will eventually be worth and investors just don't play that game.

There is a reason that all the portfolios of "failed" lenders are being bought by the big banks. They know the long term truth. When this finally breaks, look for huge profits from people like BoA and Citi.

[Kidlicious]

Originally posted by Ben Kenobi


Suppose the price of gas dropped 10 percent tomorrow. Would you sell more gas then you did yesterday?

Yes, if the price drop was a result of increased supply.

No, if the price drop was the result of decreased demand.

[Dauphin]

Originally posted by Victor Galis
That's a trick question: What if the price of gas drops 10% because fewer people are buying it. It might cushion the decline, but if the price falls due to lack of demand, the lower price doesn't maintain original levels of demand.

It's a trick question because comparing house prices to petrol prices is disingenuous at best or just simply stupid.

[Ben Kenobi]

That's a trick question: What if the price of gas drops 10% because fewer people are buying it. It might cushion the decline, but if the price falls due to lack of demand, the lower price doesn't maintain original levels of demand.

Very true, but that's the appropriate way for the price to go when the demand drops. If the price were to stay the same, then their sales would plummet even more.

[Lancer]

I sold about 18 months too early but right now it's starting to look like I did ok after all.