Everybody is on the forecasting bandwagon these days, here’s BW’s crack at it:
An excerpt:
By 2012 we may finally get back to blissful boredom. With any luck, three years should be long enough for the U.S. economy to recover and for the nation’s housing inventory to shrink to more normal levels. At that point, housing will return to its old ways, with prices governed not by national mood swings and global credit crises but by local issues ranging from zoning to immigration to job growth.
Prices? While they’re likely to keep falling a while longer under the weight of foreclosures, the market is definitely closer to the bottom than the top. “We expect prices to drop for another year and then stabilize before starting to rise with incomes,” says Standard & Poor’s Chief Economist David Wyss. Moody’s Economy.com predicts the S&P/Case-Shiller U.S. National Home Price Index, maintained by data specialist Fiserv, will fall about 16% this year before regaining ground.
While the year 2012 sounds sexy enough to sell some magazines, all of these forecasts sound safe and vague – if any of them end of being right, it’ll just be luck.
They also included the list of places where it would be ideal to start over, for those who are looking to leave – none of their picks were in California:
http://images.businessweek.com/ss/09/06/0611_cities_to_start_over/index.htm
Anchorage, Alaska was #1 on their list!
CR had an interesting post this morning regarding the relationship between house prices and the unemployment rate. Not only does it show how ridiculously inflated this bubble was to the the two previous (late ’70s and late ’80s), but it demonstrates that housing prices tend to remain low or continue slowly downward for at least a few years following the peak in unemployment.
It looks like the housing price bottom was when there was one year (1984 & 1995) of flat unemployment, following the peak.
This recovery will probably not follow these trends exactly, due to the amount of stimulus being pumped into the system to save jobs and businesses. What it will likely do is stop the cliff diving and create a more gradual decline, taking years longer than if it were to self correct. That will probably prevent too much of an over-correction and prolong the inevitable a while longer. I wonder if the stimulus and interventions will cause any sort of double dip this time around. We’re certainly in uncharted territory, so anything’s possible.
At any rate, it’s definitely difficult for me to be at all bullish on residential RE, but if you’re in the market for a home that you’re fairly certain you could live in for quite a while, I guess there’s no alternative but to deal with the market as it is right now.
http://www.calculatedriskblog.com/2009/06/house-prices-and-unemployment-rate.html
btw, there was an error in a previous CR post that I quoted and linked to yesterday. Here is CR’s post regarding that one…
http://www.calculatedriskblog.com/2009/06/california-mortgage-loan-data-by.html
In that Chart, it looks like 2001 didn’t behave as did the ones they highlight. It’s tough to draw an accurate conclusion from that data.
But a good chart artist would tell you that the latest Un-employment trend on that graph should scare the heck out you. Entirely possible to go beyond 1983.
I get more and more tempted to learn Chinese for business and these forums don’t seem to help.
A bit surprised that Anchorage is #1. I thought Alaska had a higher cost of living due to it’s location.
NOT surprised at all that California didn’t make the list. As much as I love the family here and the weather…the govt is a mess.
There were only two cities on that list I could bear to live in and I wouldn’t want to live in either at this point in my life. May be a good list for someone younger, to try to catch back up financially after a tough ride on the bubble in CA.
I think the cost of living in Alaska is high, but wages are very good, I’ve heard, so the net is often still better. But it’s a whole different way of life there. Libraries are prized city assets as you can get snowed in for weeks in some “fairly main stream” parts of Alaska (doubt if it’s Anchorage, though). You have to like being a bit of a loner, I think, to be happy there.
If you’re going to go to Anchorage, you’d better have already found your wife. You sure aren’t going to find one in Anchorage.
greenlander,
I, too, have heard that. The ratio of men to women is way out of whack. Might be good pickings for women, though. 😉
I was born and raised in Anchorage. It is a very different way of life there, as shoppingaround said. Anyone who’s lived the far Northern cities will have a good idea because you find the same type of people. Survivors. Living in a harsh weather environment toughens people up. You don’t have to be a loner to like it there…. But if you are looking for some elbow room, there is plenty there and everyone respects those who enjoy their solitude and want to live at the edges. Liking nature and outdoors activities helps considerably, there isn’t much in terms of “high society” or glamor. People are very down to earth. Earthy…is exactly the term to describe them.
Because ye shall know a place by its housing:
Anchorage SFR
http://www.realtor.com/realestateandhomes-search/Anchorage_AK/type-single-family-home?sby=1
JimB,
The early 2000’s would have behaved much the same way, but because of the dot-com bust, the government (Greenspan) intervened and created the situation necessary to fuel the housing/credit bubble. Because we didn’t have the normal cyclical bust (recession) at the beginning of this decade, and instead over-inflated things, the governments of the world have had to step in to help us avoid armageddon. Nobody, including those intervening with our tax dollars, knows how this will ultimately end up, but it doesn’t look very good for housing prices over the next few years.
Sales look like they could rebound soon, but you can’t say the same for prices.
By Janet Morrissey, contributor
Fortune Magazine
June 19, 2009: 4:23 AM ET
http://money.cnn.com/2009/06/18/real_estate/housing_market_bottom.fortune/index.htm?section=money_realestate
NEW YORK (Fortune) — Sales in the decimated housing market may finally be bottoming, but don’t expect home prices to stop dropping before mid-2010 at the earliest, analysts and economists say.
Indeed, prices in the battered housing market could get a lot worse before they get better as an avalanche of specialized adjustable rate mortgages, known as option ARMs and Alt-A mortgages, are slated to reset over the next 18 to 24 months, and rising unemployment causes a surge in the number of prime mortgages going into default. All of this is expected to trigger another round of foreclosures and cause home prices to tumble at least another 20% before the market rebounds, according to market analysts and economists.
Market bulls believe home prices could bottom in the second half of 2010, but the bears warn it could be 2013 before they finally trough. And once prices do reach a low, it could be years before they significantly rebound.
I don’t know much about Alaska — it’s always seemed nice to me — but I do know about some of the other cities on that list and I suspect that the person who made that list doesn’t live in any of them. 🙂 Provo, UT? Richland, WA? **Yakima**!?! It is to laugh. Just be glad you’re in San Diego!
That will probably prevent too much of an over-correction
Ronald,
While I agree with much of what you said, I don’t necessarily agree with this one piece. That would appear to make sense from a momentum standpoint, but otherwise not. If IMHO the stimulus prevents the economy from fixing what ails it then those problems can compound themselves, thereby driving RE further south. Again, Japan serves as the poster child.
tj,
You may be right. Perhaps I should have quantified it as OVER, over correcting. We could still very likely over correct, but I think it is also a question of by what magnitude.
Are we destined to repeat Japan’s mistakes, or did we learn from them. The feds seem content to keep printing and spending money, and they’re bending over backwards (or simply bending us taxpayers over!) to help out the banks. My understanding is that Japan didn’t do enough, they did just enough to keep everything from collapsing completely.
However, I think California is a very big piece of the national recovery puzzle, and things are not looking very good for a decent recovery of the business/jobs market. If the gov can’t raise taxes on residential RE, due to Prop. 13, they will be forced to look for funds elsewhere. Sales taxes are already going up, and I’ve heard discussions about raising property taxes for commercial RE. A good many businesses could either flee the state or look to cut other costs, like staffing fewer employees.
The three big issues for me are:
-solvency of the state and local gov’t; what social issues will arise (less cops, less school funding, etc.)?? –CA is in big-time trouble. I think the US is not in good shape overall, but will come out of this mess long before CA does. So “national” rates of decline mean nothing–except that ours will be worse (or better, if you’re a buyer).
-unemployment–CA has one of the highest (but certainly one of the nicest places with a high rate!)
-supply and demand–yes, there are plenty of people still out there with cash and yes, there are plenty more homes to come out on the market. The question is with all of this pent-up demand, will the right match of properties come out at the right rate to meet it? Or will many people chase the bargains–just to get in–and then when the mid- to upper-tiers start coming out, will there be enough “monied” (read: employed) buyers out there to buy?
My guess is no. I think the underlying economy is still riddled with problems. Unemployment is not going to improve anytime soon. The state and many local gov’t are facing major funding issues. And there’s still a ton of homes yet to come on the market–espceially in CA.
I WILL buy something, as we are ready to settle, with an eye on retirement–I’m no permabear: we’ve bought many, many homes over the years as we’ve moved from state to state; we’ve both made money & lost money. But we won’t buy just “anything” to get in; it’s going to be the right thing at a good price. I don’t really care if it’s at the bottom–in fact, I think it’s unrealistic to even try to time it.
We last bought a home in LA in early 2005 in an area where prices continued upward till late 2007/early 2008. It’s already back down to 2005 pricing; most of C’bad is at 2001-2003. I figure if we had kept our home in LA we’d still be pretty even. And we would have lived there for many years already. That seems okay to me. So I can justify buying in at that sort of price range. (That doesn’t mean, though, that I’m not hoping for 2000 or lower pricing–of course I would like that kind of deal!)
But if I were just starting out, and didn’t have a lot of cash, yet know what I know now, I’d be much more wary about an investment in real estate right now. I would at least have an old-fashioned, conservative take on the % of my income that went to it and how much of my cash I’d need to put down. If I didn’t have at least 6-months worth of necessity expenses in the bank after the down–and maybe even a year– then I’d pass till I did.
From the WSJ:
Then the lights seemed to turn back on in Santa Clara County home sales. Sales were up 40% in December, and kept rising into 2009. The median price, which had slid steadily since June 2008, stopped falling in February. The number of pending sales in the county has nearly doubled to 3,882 as of last week from 2,096 a year ago, according to the Santa Clara County Association of Realtors.
The biggest catalyst, local agents say, has been affordability. By April, the number of Santa Clara county residents who could afford a home in the county, based on household income, had jumped to 50% from 18% two years ago, said Quincy Virgilio, president of the Santa Clara County Association of Realtors.
Typical buyers are Scott and Yuriko Herbig. Mr. Herbig, a 28-year-old engineer, said they had a budget of less than $400,000, and couldn’t find anything in that range when they began looking in 2008. Then, early this year, Mr. Herbig said, the market suddenly started filling with homes under $400,000. The couple in March bought a four-bedroom home in Gilroy for $362,000. “We got lucky,” Mr. Herbig said. “I think we hit right at the bottom.”
Gilroy? So they bought themselves an hour commute?
So, for Los Angeles, they’re predicting a nearly 30% decline over three years? On one hand, it makes me happy to read all these prognosticators calling bottoms in 2011 or 2012, because that’s what I’m leaning toward, but it makes me sad and frustrated because it seems so far off, especially after having waited out the bubble. Finish deflating already, damn you!
Metro: Los Angeles-Long Beach-Glendale
What a Home Will Be Worth in 2012: $253,328
Q4 2008 price: $350,000
Projected price change by MSA: -27.6%
Projected price change by state: -13.2%
Ronald,
Check out CR’s new chart on housing vs. unemployment for LA.
Believe it or not, a lot of people in San Diego county still have jobs. And a lot of these people have been renting for a long time. These renters that were unable to buy during the boom will buy up a lot of the REO inventory as it hits the market. When statistics for unemployment, median price etc. are given for California, coastal SoCal is not even a part of that sample. I am aware that the oft quoted statements about prime coastal being immune from the pullback have some detractors and I am glad prices are off the peak, as I want to buy a house to spend the rest of my life in in North County. But unless the S&P 500 gets to 300 and gasoline is $.50 a gal. I won’t be living in Cardiff for $125,000 anytime soon.
Also, the article reminds me of the annual presentation of ” 10 Best Places to Live” that usually include about 8 “Places” that I would not live under any circumstances.
Thanks tj.
It’s been pretty bad here for a while, nearly two years. Ever since the writer’s strike and the fear over a SAG strike things have slowed way down. Add in the broader economic slump and things feel rather bleak. The subprime bust wasn’t felt here, because there is so little that would qualify as subprime, but when the market tanked last October, people really took notice.
I think there is a lot of under-employment here in LA. The major studios have cut way back, completely cutting out their minor labels (Paramount’s Vantage, Fox’s Searchlight, etc…) and cutting way back on long term deals with writers, directors and producers. That and the transition to digital cinema is having a big impact on the lower tier of Hollywood workers and service companies, who used to get paid quite well. Of course, this is trickling down to all the businesses in town… restaurants, shops, spas, etc… It may be a little early, but the summer tourism seems lower than last year, too.
The unfinished ghost buildings, newly-built condos that have turned rentals (still mostly vacant, btw), and buildings still under construction will continue to depress the rental and purchase markets for quite a while.
The housing peak was later here than in San Diego, but the path to the bottom might be quicker.