Will housing prices continue to drop (Irvine, Patterson: apartment, to rent, countertops)

[Angel Bear]

Where I live the housing prices are dropping like crazy. I live in Metro Detroit. I saw in the paper recently a home that was 2800 sq. feet, 4 bedrooms, 2 baths, hot tub, pool, granite counters, etc., etc. for $275K! Said house used to go for $450-550K.

Of course, we have no jobs here and the economy is hurting...

Glad I didn't buy a McMansion...LOL.

So, you could move here and get quite a bit of house right now...wild, huh?

[killer2021]

The housing prices are way out of whack. This is one of the largest housing bubbles in US history! It is not going to be a soft landing. Housing prices are stagnant right now because it takes a while for the housing market to deflate. This crash is going to last 5 years+ at least. The sub prime fallout is just the start of this mess. 1 in 5 homes was purchased with a sub prime loan which means that 20% of potential home buyers are completely out of home purchasing power (how can they buy home if no one gives them the money?). It is going to be very difficult for people to get mortgages. They are going to have to fully document their income and 20%+ down payment. If it is very difficult to get a loan then very few people can buy and those that can buy are going to be very limited to what they buy because they are going to have to borrow within their means.

To further elaborate on the problems there is approximately 1 million people who are in risk of foreclosing on their homes in the next 6 years. These homes will add to ever increasing inventory.

That is just considering the housing market when you factor in the effect of the housing collapse on the stock market we are looking at a serious recession ahead of us. For the past 10 years home owners have been betting on appreciation to bail them out their financial problems. They have been using HELOC to use their credit to purchase home improvements and mostly consumer spending. 70% of the US economy is based on consumer spending! Just look at all the US jobs that were created in friday's jobs report. Mostly service sector jobs. Guess what happens when consumers can't get access to their home equity and stop spending? The economy tanks and we fall into a recession. Many people will loose their jobs.

The only way we can get out of this mess is if we prolong it by the fed lowering interest rates. However this appreciation cannot continue forever and eventually we are going to fall into a housing collapse and ultimately a recession that will soon follow.

Just look at the Japan RE bubble. We have all the same characteristics and that Japan bubble took 15 years to correct itself.

Anyone who denies these claims is not looking at the facts the way they are and is simply in denial. This RE bubble is going to deflate and it is not going to be a soft landing like we had with the dot-com crash. It will be much worse. Get your money out of RE before it is too late.

[Ultrarunner]

It is true that the number of sales in my East Bay neighborhood is down, but sale prices are up 1.2%

I feel sorry for folks putting off buying a home because prices are still going up and home and borrowers face more scrutiny as mortgage interest rates move upward.

My Godfather bought a home in my neighborhood for $2,900 in the 1930's, my Grandparents paid $6,000 in the 1940's, my parents paid $16,000 in 1959 and I paid $65,000 in the early 80's. Each generation said the same thing, who can afford to pay that kind of money for a house when I only paid "X" amount when I bought mine.

The old adage is, "You snooze, you loose"

[EscapeCalifornia]

Originally Posted by Ultrarunner

It is true that the number of sales in my East Bay neighborhood is down, but sale prices are up 1.2%

I feel sorry for folks putting off buying a home because prices are still going up and home and borrowers face more scrutiny as mortgage interest rates move upward.

My Godfather bought a home in my neighborhood for $2,900 in the 1930's, my Grandparents paid $6,000 in the 1940's, my parents paid $16,000 in 1959 and I paid $65,000 in the early 80's. Each generation said the same thing, who can afford to pay that kind of money for a house when I only paid "X" amount when I bought mine.

The old adage is, "You snooze, you loose"

That's true to a point but the ratio of income to house price is crazy right now. 3-4x your annual income doesn't buy a damn thing here unless you're making over $100k and want to live in a condo. You'd choke and shake your head if you know my ratio. And I bought the smallest house on the street.

[Roma]

Originally Posted by Ultrarunner

It is true that the number of sales in my East Bay neighborhood is down, but sale prices are up 1.2%

I feel sorry for folks putting off buying a home because prices are still going up and home and borrowers face more scrutiny as mortgage interest rates move upward.

My Godfather bought a home in my neighborhood for $2,900 in the 1930's, my Grandparents paid $6,000 in the 1940's, my parents paid $16,000 in 1959 and I paid $65,000 in the early 80's. Each generation said the same thing, who can afford to pay that kind of money for a house when I only paid "X" amount when I bought mine.

The old adage is, "You snooze, you loose"

So true, so true.

[NYSD1995]

Originally Posted by EscapeCalifornia

That's true to a point but the ratio of income to house price is crazy right now. 3-4x your annual income doesn't buy a damn thing here unless you're making over $100k and want to live in a condo. You'd choke and shake your head if you know my ratio. And I bought the smallest house on the street.

So much has changed in the past ten years that it is hard to compare today vs. the past.

The 3-4 income rule comes from a time when a person could get a good-paying factory job at 18 years old and expect to own a home and raise a familiy with a single income. Social services like hospitals and schools were top-notch and affordable.

Today, we have an increasing gap between the upper and lower socioeconomic strata of our society. Wages at the median have not kept up with nearly any expense in our society - housing, tuition, or medicare. State-provided services are struggling, union manufacturing jobs are disappearing and being replaced with low-wage retail jobs.

Similarly, there are more new grads earning 60k+ than ever. The skilled labor market is on fire. Employment rates for college grads are at all-time highs. At the high-end of the wage scale there is more opportunity than ever. The wealthy now have become the ultra-wealthy.

The reality in any coastal real-estate market:
- 100k+ incomes are essentially required
- dual incomes are the norm
- higher percentages of income are being devoted to houses
- Massive amounts of equity remain in the market for sellers
- money is still relatively cheap and easy to get

The unfortunate side effect of all this is that median income earners are priced out of the market even with a double-digit price decline.

[shannon94]

Originally Posted by PureHapa

Prices haven't dropped. Sales have slowed down, but prices actually are going up. In today's news, the median CA home topped a half-million dollars for the first time.

the median prices are about 18 months behind.

[Charles]

Why a Housing Rebound Could Take 20 Years - Rick Newman (usnews.com)

[Calix]

Another major factor that most forget to take into account is the enormous generational gap and the sheer lack of demand that there will be in the future, far beyond what most people realize. They don't realize it because they use the years during the generational boom to measure what demand will be like in the future.

The Baby Boomer cohort represents about 77 million people, Gen X and Gen Y represent about 44 million people.

There is going to be massive wave of retirements over the next 20 years

Baby Boomers will liquidate REAL ESTATE over the next 20 years and beyond to fund their retirements.

Baby Boomers own most of the real estate in this country.

There are simply not enough buyers to purchase the real estate that will be available for the next generation. You can not look to the past 50 years for a comparison. There has always been MORE young people than old, buy and large, that is changing and will fundamentally alter the dynamics of the market. Prices in CA will take a very long time to truly rise and may never reach an inflation adjusted peak.

Don't fall for the other common Realtor lie that "millions of wealthy immigrants will swoop down and buy every track house in CA for quadruple its asking price". It isn't likely to happen. Furthermore, birthrates are dropping nearly everywhere in the world and our fundamental economic systems are based on increase in growth of demand. Alter this formula and you have significant disruption. There is likely to be a protracted economic slump as assets are liquidated across the board by an aging population and overall consumption falls. Some may cheer this reduction in consumption, but recognize that during the downshift (which will take a generation in itself) there will be massive economic turmoil and assumed economic norms based on the last 100 years will no longer be valid.

There is an interesting article by a Boston professor that talks about this phenomenon:

http://www.economist.com/media/globa...storm_e_02.pdf

We'll see what the future brings, but think that there are far fewer kids to buy up all their parents homes when they are selling them to fund their retirements. Not quite a good scenario for super high home prices.

[jbunniii]

Thanks for reviving this thread. It was a pretty amusing walk down Memory Lane. Could there been any worse advice regarding real estate in 2007 than "you snooze, you lose"?

Only one post, by killer2021, correctly identified the situation as a bubble waiting to pop, even though the exact same bubble-bust pattern had played out in California just 15 or so years earlier, on a smaller scale.

It's amazing how short our collective memories can be, especially when we have a financial stake in believing that "it's different this time."

The most prescient observation: "Just look at the Japan RE bubble. We have all the same characteristics and that Japan bubble took 15 years to correct itself."

To that I would add, with the benefit of hindsight, that our government has deployed exactly the same failed policies that Japan tried: lowering interest rates to zero, propping up "zombie banks" rather than letting them fail. (Hello, Citi!) The result in Japan has been nearly two decades of stagnation. What's the quote about those who fail to learn from history?