Do you think housing prices are STILL going down in California? (Santa Monica: balloon payment, loans)

[motoman]

Originally Posted by wehotex

i don't believe anything that the pundits are saying. how many times (for years) did we hear when the prices had topped out, and then they continued to rise. likewise, i think that there will be many that will say that the market has bottomed out, but will continue to decline even further.

Those in the real estate business were saying prices had bottomed two years ago. I guess they missed that one a bit.

[sheri257]

Originally Posted by motoman

But now look what has happened. The numbers seem to vary by source, but I think it's safe to assume prices have fallen 15%-20% in many areas, including LA. Think about that. After the last bubble burst in California, it took prices five years to fall 11% (it was 21% in LA). This time, in just one to two years, they have already fallen 15%-20%. Two years into the last bubble in LA, prices were down just 10%. That should give you some sense of the relative magnitude of this bubble.

I agree with your analysis. BUT ... what concerns me is that prices are falling so fast this time, the bottom could hit just as fast.

You obviously don't think so but, this is what concerns me. Because the speed of these price drops is unprecedented ... as far as I can tell.

[motoman]

Originally Posted by sheri257

I agree with your analysis. BUT ... what concerns me is that prices are falling so fast this time, the bottom could hit just as fast.

You obviously don't think so but, this is what concerns me. Because the speed of these price drops is unprecedented ... as far as I can tell.

Right. The price decline is unprecedented because this bubble was unprecendented. Look at the price to income multiples. Even during the last bubble they never got over 7x. In this bubble the multiple was over 10x at the peak. What that means, on a relative basis, is that this bubble was over 40% (10x / 7x) more severe than the last at the peak. So you should expect a similar magnitude of decline during the bust.

There is still so many mortgage resets and such that will occur this year that inventory levels will continue to rise. I read not long ago, one of the major builders, which has actually been one of the most realistic and accurate in their assessment of the market, even though they got caught up in it as well, said it will take another 3-4 years to work through their inventory. Most people can't comprehend that. Waiting 3-4 years for anything seems like an eternity, doesn't it?

You also have to take into account that overall debt-to-income levels in the US are at their highest point in history, the savings rate is basically zero, inflation is not under control, incomes aren't growing much, the world economy is starting to slow, etc., etc., etc. That means there isn't much opportunity for upside potential because people are maxed out on their spending and debt levels. There is nothing left to propel this market. Something has to give, and it's going to be spending, including housing.

We'll get this initial fall-off, but then at some point prices will just gradually decline, by say 3%-5% per year like they have in past downturns. The reason is people don't dump their houses like they do stocks and such. Their house is the last thing they want to give up. So they only do it (for the most part), when there is absolutely no way they can hold on any longer. Which means it takes longer for things to adjust. In the real estate market, that means a matter of years, not months.

Be patient, but keep your eyes peeled for opportunities, just as you are doing.

[JTGJR]

Originally Posted by sheri257

I agree with your analysis. BUT ... what concerns me is that prices are falling so fast this time, the bottom could hit just as fast.

There was an article about that topic in yesterday's LATimes . . .

[shannon94]

Originally Posted by motoman

Right. The price decline is unprecedented because this bubble was unprecendented. Look at the price to income multiples. Even during the last bubble they never got over 7x. In this bubble the multiple was over 10x at the peak. What that means, on a relative basis, is that this bubble was over 40% (10x / 7x) more severe than the last at the peak. So you should expect a similar magnitude of decline during the bust.


You also have to take into account that overall debt-to-income levels in the US are at their highest point in history, the savings rate is basically zero, inflation is not under control, incomes aren't growing much, the world economy is starting to slow, etc., etc., etc. That means there isn't much opportunity for upside potential because people are maxed out on their spending and debt levels. There is nothing left to propel this market. Something has to give, and it's going to be spending, including housing.

doing.

Right on motoman!! I'll add that California's unemployment is rising as well.

[motoman]

Originally Posted by JTGJR

There was an article about that topic in yesterday's LATimes . . .

Great article. Thanks for passing it along.

[motoman]

US Household Debt - Social and Economic Policy - Global Policy Forum

Household Debt Service and Financial Obligations Ratios

Household debt goes through the roof - BusinessWeek

FINANCIAL OBLIGATIONS RATIO: FINANCIAL OBLIGATIONS AS A PERCENTAGE OF DISPOSABLE PERSONAL INCOME; SEASONALLY ADJUSTED

HOMEOWNER FINANCIAL OBLIGATIONS RATIO: MORTGAGE: FINANCIAL OBLIGATIONS AS A PERCENTAGE OF DISPOSABLE PERSONAL INCOME; SEASONALLY ADJUSTED


Notice how US household debt levels followed the latest housing boom. Home prices will fall, and at the same time this debt has to be repaid. That means people have less money to spend because a large chunk of their income goes to paying back this debt. That means the economy slows because consumers make up about two-thirds of the US economy. This debt doesn't get paid off overnight. It will take time.

[ParkTwain]

Household debt has increased because wages and salaries in the aggregate haven't kept pace with overall prices in the aggregate. So the companies offering more and more consumer credit and those holding back on wage increases are in effect playing chicken with each other. And dare I mention that a surplus of low-priced labor (compliments of massive illegal immigration) tends to supress increases in wages and salaries in the aggregate.

[motoman]

Originally Posted by ParkTwain

Household debt has increased because wages and salaries in the aggregate haven't kept pace with overall prices in the aggregate. So the companies offering more and more consumer credit and those holding back on wage increases are in effect playing chicken with each other. And dare I mention that a surplus of low-priced labor (compliments of massive illegal immigration) tends to supress increases in wages and salaries in the aggregate.

Wow! So what you're saying is that it's not our fault for trying to buy that house we had no business trying to buy, or taking out that home "equity" loan to take a vacation or buy that big screen TV that we really couldn't afford. No, it's our employers' faults for not paying us enough to support our inability to control our spending.

I need to go ask for a raise. I want to go to Vegas this weekend and I can't afford it.

[Rats]

Should go down another 20% or so from today's values. However, don't try to time the bottom. All the good deals will get scooped up before you know it.