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Shiller: Housing Has “Chance” to Bottom But Suburban Prices May Not Recover “In Our Lifetime”
Shiller is one of the co-founders of the Case-Shiller index that tracks home prices. The shift toward renting and city living could mean “that we will never, in our lifetime, see a rebound in these prices in the suburbs.
Thank you OP for the most informative thread Ive read here in 5 years, and I think the quote below, he is right on the mark.
~~A perpetually sluggish housing market, which Shiller believes has become "more and more political," might push the country into a "Japan-like slump that will go on for years and years."
Captain Bill:
Several nonjudicial states that had severe housing problems, such as Arizona, have seen foreclosure rates drop below the national average. While there are signs that home prices are beginning to rise the large “shadow” inventory of potential foreclosures could face renewed price pressure once banks take back and list for sale more of those properties. Arizona has a higher rate of underwater mortgages than most other states (#5) which could result in even higher default rates.
A reduction of shadow inventory from 6 million units to 5 million units is not a sign of a healthy real estate market. Someday..... these houses will hit the market.
This crisis is far from over.
Last edited by 399083453; 09-12-2012 at 08:28 AM..
Captain Bill:
Several nonjudicial states that had severe housing problems, such as Arizona, have seen foreclosure rates drop below the national average. While there are signs that home prices are beginning to rise the large “shadow” inventory of potential foreclosures could face renewed price pressure once banks take back and list for sale more of those properties. Arizona has a higher rate of underwater mortgages than most other states (#5) which could result in even higher default rates.
This crisis is far from over.
Yes it is #5, however, that does not mean that all houses, nor even a majority of them will go into default, or foreclosure. I'm underwater and paying a higher than current interest rate but would not even consider defaulting. There are many others in my same situation. With what is happening in our market, and the trend that has been going on for the past year, leveled off during the slow season, and now beginning that trend again, I have more confidence in our Phoenix market.
It will get harder to get a home loan or refinance. Source
Fannie Mae, the largest source of money for U.S mortgages, told lenders that it’s tightening some of its qualification standards for people buying homes or refinancing loans.
A reduction of the maximum loan-to-value ratios for some adjustable-rate mortgages to 90 percent, from as much as 97 percent That one is going to cause problems for many consultants coming out of the recession. They will have to buy less of a house than they want. The self-employed will need to wait an additional year to prove the recession is over and their income is secure.
An increase in required credit scores for certain loans Scores will need to be at least 640, up from a previous minimum of 620. Also eliminating a policy that provided lenders the flexibility to accept scores 40 points below its normal requirements
36% percent will be the “stated maximum,” ratio for home expense though the ratio can be as high as 45 percent if the borrowers meet credit score or cash reserve thresholds. A 36% stated maximum will be huge. The benchmark was widely ignored by lenders, but now they will have to pay attention to it. People with large student loans, car loans, and credit card debts will suddenly be unable to buy homes. This will knock out many potential first-time buyers.
Demanding more tax returns from self-employed borrowers (This can knock a decent portion of borrowers out of the picture who had a rough year in business two years ago. Two years of personal and business returns will be required to verify incomes, up from one year of personal returns)
Fannie Neighbors ended. a program that also offers the aid to low-income individuals or public safety, education, military and health-care professionals.
Borrowers without traditional credit will be limited to loans for one-unit homes that they plan to live in, and the company will no longer accept “exterior-only” property appraisals for mortgages run through its computer software.
Yeah, its pretty easy to manipulate foreclosure numbers. Simply stop or slow down foreclosing. LOL. But those problem houses didn't go away, they are simply waiting to be foreclosed on aka, shadow inventory.
I'm underwater and paying a higher than current interest rate but would not even consider defaulting. There are many others in my same situation.
True, many people will not default. But in the end, its really all about jobs. In order for people to stay in Arizona or any other state, people need income to pay for the home. Jobs are a HUGE problem.
Many people who "hang on" simply deplete their savings, 401k, etc before defaulting. This can buy people a good amount of time, but once that money is gone, they will default. People with little to no income who are paying their mortgage with their savings/401k is just another example of upcoming "shadow inventory"
Source
Survey Study Of YouWalkAway.com Clients In Relation To Retirement & Foreclosure
Thank you OP for the most informative thread Ive read here in 5 years
Your welcome. As painful as it is, we have to talk about this stuff. The good, bad, ugly. Emotions run high because we are discussing people's jobs and the largest investment in people lives.
And because of this, I cant think of a more important topic to discuss.
True, many people will not default. But in the end, its really all about jobs. In order for people to stay in Arizona or any other state, people need income to pay for the home. Jobs are a HUGE problem.
Many people who "hang on" simply deplete their savings, 401k, etc before defaulting. This can buy people a good amount of time, but once that money is gone, they will default. People with little to no income who are paying their mortgage with their savings/401k is just another example of upcoming "shadow inventory"
Source
Survey Study Of YouWalkAway.com Clients In Relation To Retirement & Foreclosure
Many of us are not depleting our savings. We could afford the home when we bought it and we can afford the payments now.
I don't read articles that promote strategic default, nor do I read doomsayer articles. While I do agree that strategic default is a business decision, and I do not criticize those who utilize it, I'm of the mindset that I made a contract and will honor it, both because of personal ethics, and because intend to keep good credit.
I tend to make my decision on what the market will do by studying statistics rather than reading those articles. While I may make mistakes, and may be wrong in my assessments, I'm not bearish like others. I'm in the field with the bulls because of what I see in the statistics and trends.
I'm going to repeat what I've said elsewhere on this board, it seems to keep getting lost. The market can sink and RE can be a good place to have some of your money tied up, and bulls/bears can be correct.
People tend to forget the value of the dollar is declining, and there is 0 reason to think that is a trend which will reverse anytime in the next 10 years. By historical standards, if the dollar keeps falling, interest rates stay low, home prices remain flat, you can be making the right decision by owning a home or investing in RE. If home prices fall another 10-15% from current levels nationally, it's time to load up on ammo and Alpo and lock yourself in the basement.
The last recession triggered a demographic change which is playing out in 'hot' real-estate markets, namely the flight to metropolitan areas where jobs are. Those areas are places where the smart people live, where there are thriving universities, and where jobs are being created. It is feeding on itself, and should be the trend for where jobs+growth = hot housing markets for the next couple decades: Boston Metro, NY Metro, DC/Baltimore Metro, Orlando-Tampa Metro, Chicago Metro, Houston, SF-Bay, Sea-Tac, Dallas Metro.
If you can afford a home...and if you live in one of those metropolitan areas I mentioned...and if your employment is stable and there are growth prospects (eg - software engineer in SF or biotech in Boston)...and if your neighborhood feed a strong public school system, why not buy a home to live in or as an investment?
I don't see stocks or bonds outperforming inflation over the next decade, and both those assets are in deep doo doo if we encounter Japanese style deflation over a protracted period of time.
Rents meanwhile, hard to see those going lower.
Home prices, the same. Dollar may lose value, but a 300k home today should sell for 300k in 3 years, but the dollar might have 10% less purchasing power. This is the outcome (or deception) our government wanted, it's better than people buying for 300k and in 5 years having to sell for $270k. People can live with inflation, but straight up deflation would be an absolute disaster.
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