A new study from Harvard's Joint Center for Housing Studies says the U.S. housing market is likely to keep slumping for a long time. Here's coverage from the Washington Post. That makes sense to me -- to have a speedy turnaround, you'd really need to have a speedy crash and that goes against the psychology of the whole enterprise. I believe the way these things usually work is that nominal prices stagnated for a while, allowing real prices to fall (and especially allowing real prices to fall as a share of household income) over time without people engaging in steep price cutting.
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Long Way Down
24 Jun 2008 04:22 pm
Comments (12)
I dunno, nominal prices are crashing pretty fast right now.
As for a "recovery" in the housing market, does that happen when the trend line turns upward, or when prices re-attain their bubble peak? The latter might actually never happen...
I believe the way these things usually work is that nominal prices stagnated for a while, allowing real prices to fall (and especially allowing real prices to fall as a share of household income) over time without people engaging in steep price cutting.
Agreed, although I believe the old adage about "there's no national housing market just a bunch of regional ones" still remains substantially the case, as well. My sense is metro areas with low rates of ownership (like here in Boston, for instance) will likely recover (or are already beginning to recover) more quickly than places where home ownership is cheaper and more widespread. Even (or especially) in good economic times, pricey metro areas tend to have lots of people priced out of the market, and therefore plenty of pent up demand. If the job market tanks in such cities (as in New England in the early 90s and Southern Cal a couple of years later) all bets are off, and you're likely in for a sustained slump. But right now in these parts, at least, the regional economy is modestly outperforming the national one, the job market appears decent, and the floor under house prices, is, I suspect (at least in areas with tolerable commutes downtown) pretty high.
I'm still convinced the political class is desperately hoping for steep inflation, as the only way to get the housing market back to sanity. Unfortunately, the really screws things for the rest of us who did not take on enormous debt.
This gets back to what Matt said about renting v. owning. For renters, this whole foreclosure stuff is starting to have an impact. Less people owning homes means more demand for rentals means rental prices rising. For instance, at rent renewal this year my rent went up $200/m from 18 months ago, almost a 16% increase. If this report is correct, in two years it'll probably go up a lot more because of heightened deman.
But then Washington doesn't care about renters so i guess we aren't important.
Rents might not go up so much, depends on your market. At the peak of the bubble, a lot of markets saw condo construction skyrocket. As these buildings come online, some are converting to rentals as there are fewer buyers given tighter credit requirements.
Hello:
I am in homebuilding (in Florida no less) and we here have been discussing it for a while now.
Don't look for a V shaped recovery. It will look more like a L where we slide along the bottom for a long while.
Our consensus for this market was that by 2012 the inventory should be normalized and we will be back to 1992 levels.
A logical strategy if you have deep housing debt is to buy bank stocks in your retirement accounts. Either inflation happens or it doesn't. If it doesn't, banks are cheap. If it does, real estate debt is cheap.
It is fairly easy to control inflation with a benign government. It is fairly easy to buy stocks. Thus, my guess is that bank stocks are hugely undervalued unless America is in a prolonged recession...10 years or so. If that is true, then the energy world makes future planning all but impossible...which probably accounts in part for very high commodity prices along with minor threats of significant inflation. It could be such a perfect storm, and if it is, there's no safe strategy...Canadian dollars and assets seem a good bet...based on oil, gas, and global warming. What I'd love to be able to do is to borrow US dollars to buy Canadian assets long-term.
Don't look for a V shaped recovery. It will look more like a L where we slide along the bottom for a long while.
I agree, it's amazing that people think that this bubble is "special" and that it won't follow the model of previous housing bubbles. The only special thing about it was it inflated far further before crashing. This was mostly due to such lax lending standards that anybody with a pulse could get a $500K home loan with zero down in bubble cities. If 20% down loans had been the norm, we'd have seen a fall from the bubble prices long before 2005.
I disagree with the pent-up demand comment from Jasper, as this bubble ushered in record highs of home-ownership rates. Anybody who wanted a home in the last few years was able to get one. They were priced out, but banks lent them the money to purchase anyways.
Re: On the other hand, it's kind of crappy if you do have to move (for a job or something) and can't stick with the buy and hold strategy.
If you bought your house back before 2002 or so, or if you put down a lot of money, you can probably still sell for more than you owe.
Re: Less people owning homes means more demand for rentals means rental prices rising.
Actually the exact opposite is happening: rents are dropping, notably in the bubble-and-bust markets like S. Florida. That's because people who can't sell their homes, but need to move, end up renting them out instead. And it's not as if houses themselves are vanishing (outside a small number of badly bvlighted urban areas where empty houses are being razed). All that housing that no one can sell is going to end up a rentals. Of course renters may end up with amateur landlords or worse, landlords on the edge of foreclosure.
WaPo's headline was hilariously Orwellian: "Housing Rebound to be Prolonged." That's sound awfully fun, doesn't it, children?
I believe the way these things usually work is that nominal prices stagnated for a while, allowing real prices to fall
When people had some skin in the game, this was typically the case. Walking away from the house, was also walking away from a 20% down payment, a significant amount of money. With zero down, closing costs rolled into the loan and negative amortization loans many people have no money invested. Many people are just walking away, because there is no incentive to stay in a house you have invested zero in.
Comments closed July 08, 2008.
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Heads in the Sand
I believe the way these things usually work is that nominal prices stagnated for a while, allowing real prices to fall
Or to translate this into practical terms: people who can live in their houses don't sell them at a loss. So with some notable exceptions, the market basically goes sideways.
On the other hand, it's kind of crappy if you do have to move (for a job or something) and can't stick with the buy and hold strategy.
Posted by The Atlantic cleaning staff | June 24, 2008 4:35 PM