Will housing prices continue to drop

[Charles]

Originally Posted by Calix

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

Has an analysis been done that supports this?

How many people will sell their home to live off? Where will they live if they do sell their home?

[RobE]

You fence sitters aren't holding up your part of the bargain! heh heh heh.
Irvine Housing Blog - Irvine Real Estate - The California Social Contract

(make sure to read the whole thing).

[EscapeCalifornia]

Originally Posted by Charles

Has an analysis been done that supports this?

How many people will sell their home to live off? Where will they live if they do sell their home?

I doubt there will be a mass sell off of residential property like that. Even when they do go into a retirement home or die, they (or their kids) might prefer to rent it out and generate cash flow each month instead of selling it. Also, can't kids inherit their parents house and keep the prop 13 tax basis? That would be an incentive to keep the house in the family and live in it for cheap.

[jbunniii]

Good article from last week's Economist:

America's housing market: Where it all began | The Economist

"Given these downside risks, the recent pop in house prices will probably fizzle. Most economists expect them to fall by a further 5-10 percentage points, to their long-term trend line at roughly 40% below their peak, and not to reach bottom until some time in 2010. The pessimists predict they will go crashing through the trend-line to as little as half their 2006 high.

Analysts at Goldman Sachs, no fools when it comes to housing, hint at several years of stagnation. They argue that the rate of home ownership, currently just over 67%, will fall back to the 64-65.5% level that prevailed before prices took off in the mid-1990s, cutting deeply into demand for properties. This view is supported by a recent Fed study, which found that more than half of the boom-era rise in ownership was due to “innovative” mortgage products, many of which are now history.

It could be even worse. Now that the myth of ever-rising house prices has been shattered, it may be time to embrace another inconvenient truth: that prices can take decades to recover, at least when adjusted for inflation. A study in June by the Federal Housing Finance Agency, a regulator, pointed out that in parts of Texas house prices still languish some 30% below their 1982 peaks in real terms."

[Charles]

Originally Posted by EscapeCalifornia

can't kids inherit their parents house and keep the prop 13 tax basis? That would be an incentive to keep the house in the family and live in it for cheap.

I'm pretty sure that is correct.

There is another incentive to for your older parents/grandparents to not sell their home: medi-cal planning. A primary residence is not a countable asset. Eligibility for medi-cal (paying for nursing home) depends on an assets test and an income test. A person who has $4M home (primary residence) and $15,000 in the bank qualifies for medi-cal. A person who has no home or a $200K home and $400K in the bank would have to spend down (pay his own way) most of that $400K until he would be eligible for medi-cal.

That's how you can have one person with a $4M home having medi-cal paying for their nursing home while another guy with $400K or $4M in the bank must spend it down first.

Medi-cal planning.

http://www.a-1law.com/ep3.htm (broken link)

[Fontucky]

Originally Posted by Charles

I'm pretty sure that is correct.

It is.

That is, it was when my folks died back in the mid-nineties.

[Calix]

Originally Posted by Charles

I'm pretty sure that is correct.

There is another incentive to for your older parents/grandparents to not sell their home: medi-cal planning. A primary residence is not a countable asset. Eligibility for medi-cal (paying for nursing home) depends on an assets test and an income test. A person who has $4M home (primary residence) and $15,000 in the bank qualifies for medi-cal. A person who has no home or a $200K home and $400K in the bank would have to spend down (pay his own way) most of that $400K until he would be eligible for medi-cal.

That's how you can have one person with a $4M home having medi-cal paying for their nursing home while another guy with $400K or $4M in the bank must spend it down first.

Medi-cal planning.

Medi-Cal Planning (http://www.a-1law.com/ep3.htm - broken link)

Charles, I appreciate both yours and Escapes perspectives and find myself often in agreement. Perhaps my original statement led to a bit of a perceived overreach. I am not saying this is going to be a mass sell off, rather, it will be a slow bleed for a generation or more.

Also, while your analysis is correct and prudent advice in regards to MediCal planning, as more boomers tax the system, please don't assume that the current provisions will be in place in the future regarding homes as they are today particularly as boomers overwhelm the available resources. The CA budget in particular is at the breaking point and there is a ceaseless search for additional tax revenue and funds to keep even the most basic of services available. It is highly unlikely that they will allow such a massive loophole where enormous amounts of wealth can be hidden before a person can siphon off the public largress for too long, particularly as more and more boomers become fully dependant on the system.

I am making a forecast, perhaps it is wrong, but I do know that much of what has been discssed is based on PAST performance and today's condition and future outlook is VERY different than the past 50-100 years. Models that assume a normal rate of growth will be crushed as the change in demographics currently underway is unprecidented in human history.

Google seach demographic data and you will quickly find that populations are declining in nearly all developed countries and the fundamental assumptions of global demand will not hold in a 20-40 year projection.

As always timing is everything, but I fundamentally do not believe that home prices will return (in inflation adjusted terms) for the foreseable future and that with the next generational cohort 40% smaller than the baby boomers, the demand curve will retract much more than is anticipated by many. FWIW, that's my perspective on home prices at large, micro markets may vary

[4skippy]

The fact of the matter is...2005-2007 revisited....I just sold my LV home for $23k over apprisal for cash....More buyers than houses here, as in No CA....We've been trying to purchase in Patterson/Newman for almost a month...same story, multi offers, mostly CASH, which by-passes the apprisal to control....The Robo Signing banks can't release the many properties with of the proper docs.....so here we are AGAIN.

[tickyul]

Many Markets are VERY competitive....bidding wars, multiple offers, 120% offers....yep, the housing crisis is a scam.


The federal government WANTS to pump up another bubble to make housing even LESS affordable. A normal correction was not allowed to take FULL effect. So you have the corrupt government pumping billions into F&F so that they can further pump up housing costs and make the nation appear RICHER........what a joke.

[Des-Lab]

Originally Posted by tickyul

The federal government WANTS to pump up another bubble to make housing even LESS affordable.

No. The Feds want to inflate Housing Bubble 2.0 to put people back to work and get some money floating around. Not out of spite to make housing unaffordable (although an argument can be made to say that weeding out the vultures and bottom feeders could be a good thing: you want a house? you pay up. If not, then enjoy the annual rent increases in your apartment.).

Let's face it. The first housing bubble largely covered up the fact that we otherwise have little fundamental economy left outside of prescription drugs, tattoo parlors, and burger joints. Despite this, the bubble years-roughly 2002-2007 were a bull market party where everyone was having a good time and making a lot of money. This meant everyone from general contractors to electricians to home improvement stores to the dude that sells granite countertops to the jet ski dealership to house flippers and the MILLIONS of people who got into selling real estate. The underlying fundamentals (lax lending standards, serial refinancers, unsustainable price to income ratios, but that's another story) may have been a fraud, but during those years, the paychecks and lifestyles directly or indirectly tied to the bubble were very real.

Now that the hoax economy was revealed for what it was, many of those very same people who benefited were left strung out to try. And they are PO'ed and nostalgic about it. Big time. This is why the pleas, attempts, calls, and demands to restart it have relentlessly marched on like the Battaan Death March ever since the crash. We will not let it go.

Since there is little else we can (or even know how to do) to get our economy back on its feet, we're going to do really the only thing we think we can-and know how to-do: relive the middle of last decade.

True, it will end badly with a repeat of 2008. But in the interim, we'll get another party (and maybe a few people who, knowing the eventual outcome ahead of time, may prepare for it and not be as blindsided). There here and now matters much more than something that's years from now.

Not saying it's right or even prudent. But it's reality nonetheless. And I suspect that as usual, "herd irrationality" behavior will again prevail.