From Yahoo! Finance:
Five years after the housing market peaked, conditions are not improving in most areas. The latest data shows housing prices are still down and housing sales are sluggish. New home sales hit a record low in February and the S&P/Case-Shiller home price index suffered it’s sixth-consecutive price slump in January.
Unfortunately, the halcyon years of real estate will not return, no matter how much stimulus is pumped into the economy, says Harry Dent founder of HS Dent. Demographics and debt can no longer support it, he argues. “Housing is not coming back. Baby boomers are done buying housing.” Simply put, “housing is dead,” he declares.
Worse yet, the bursting of the housing bubble will continue until we’re back to pre-irrational exuberance levels, he tells Aaron in the accompanying clip. “Just to erase the bubble, (housing) has to drop 55% [from the peak], not the 33% we’ve seen on the Case-Shiller thus far.”
The drop could be as bad as 65% from the peak before Case-Shiller bottoms sometime in 2013, he says.
The trouble with housing is a global phenomenon. “This is a worldwide real estate and credit bubble. We’re going to see a worldwide crash,” Dent predicts. Shanghai, Hong Kong and Mumbai are especially fragile, noting home price to income levels have reached 40 -to-1 in Shanghai.
There is no subprime rot in Asia as there was in the U.S.. The problem in the emerging markets is based on over speculation by the relatively small wealthy class. “The wealthy are speculating in housing, even if they’re putting down more cash. This is a bubble of the wealthy and it will burst.”
Dent also mentions in this video that the Dow could be at 3,000 as early as 2012:
I’ll bite on this . . .I am heading to Shanghai at the end of April, so will report back on my observations there on real estate. Now to Mr. Denton – I am old enough to remember Paul Eardman’s “Crash” books – Crash of 88, Crash of 95, etc. etc. Every few years someone comes up with a crash/depression book. These books may actually be a sign that we have reached bottom.
Since I am “on the street” everyday, I do see signs of economic recovery, and I didn’t need the UT this afternoon to tell me that SD County had a record 1.9% growth in the economy. Some of my tech friends are now getting two or three job offers, and my downtown condo closed 4 sales in March. Ok, the prices are down, but as Jim always says, “There is nothing that price can’t fix.” My two cents – 2011 is the bottom for real estate – probably around September.
The Dow down to 3,000? I can’t even imagine. That would really hire retirees and those about to retire hard.
“Just to erase the bubble, (housing) has to drop 55% [from the peak], not the 33% we’ve seen on the Case-Shiller thus far.”
This could only be believed by someone who doesn’t understand the difference between real and nominal prices.
Sad, but true. They’ll be a few strategic and scenic areas that will perk along. But much of the rest of the country is toast. Mostly burnt.
Housing prices will continue to come down because those folks age 25 to 40 just don’t have jobs that pay enough to support high price homes.
Until we bring industrial/production type jobs back to the United States, we will continue our downward drift toward the trailer park and the multi unit apartment building.
When they exported almost all of our manufacturing overseas, there was really no way for most people to buy even moderately priced homes without resorting to the gangster, fraudulent, liar loan tactics that characterized 2001 to 2007. And I repeat, there is no way housing starts to make sense until the gangster/criminal element is rooted out and sent to jail.
And that hasn’t happened yet.
“Since I am “on the street” everyday, I do see signs of economic recovery,”
At what price? How many trillions is the governments annual budget deficits? Add FED QE1,QE2, TARP. What happens when all this ends? On top of which we’re going to get more retirees and more social security/medicare/medicaid expenses. Add state and city budget deficits. I don’t mean to sound pessimistic, but it looks bad, and the politicians are making it worse on a daily basis.
So, here’s a little tidbit from Wikipedia about Mr. Dent:
“In 2000, based on his forecast that economic growth would continue throughout the 2000s, Dent predicted that the DOW would reach 40k, a prediction which was repeated in his 2004 book. In his book, he also predicted the NASDAQ would reach 13-20k. In late 2006 he revised his forecasts to much lower levels, estimating the Dow would reach 16-18k and the NASDAQ 3-4k. In January 2006, he predicted that the DOW would reach 14-15k by the end of the year. It ended 2006 at 12,463, 11% below the lower end of his prediction. It ended 2007 at 13,264, again significantly lower than Dent’s revised prediction of 15,000 by early 2008. Since then, the Dow crossed 14,000 in late 2007 before retreating.”
Whatever.
I have no doubts that there will be more pain in housing to come.
The feds are basically at a point where they are damned if they do and damned if they don’t.
Here’s a good read as to why.
http://charleshughsmith.blogspot.com/2011/03/ive-got-funny-feeling-about-stock.html
I don’t see any reason the housing market will return to rational levels in CA. It hasn’t in the last 50 years, why now? I’m being serious here, there is a high premium for CA – right or wrong – and it’s not going away. If house prices drop even temporarily, there is always someone from another country or state more than happy to buy it from us. Let’s be realistic here.
I can speak from personal experience, CA houses look cheap to many foreigners. In their own currency, it hasn’t dropped in value! My mother in law is thinking of buying rentals here because prices are actually cheap in her currency which as appreciated 80% against the dollar in 5 years.
If housing is like an equity, then it will not hit bottom until it is absolutely hated. Articles like this occur in the first stages of forming a bottom. But this is only the begining. There needs to be false bottoms to lure people in and get burned – this really builds up the hatred – until finally no one wants the thing. Then there is a true bottom.
I’m looking for a place for my family to build memories, so I am quite happy to buy at this point. But if this was a stock, I’d look somewhere else.
> “housing is dead,” he declares.
Housing will never be dead for people who want to raise families and contribute to a community.
If housing is dead for people who want to make 25%+ returns per year with no effort, that’s just as well, IMHO.
Housing deflation combined with rising inflation on basic necessities is the worst economic combination for the majority of Americans.
http://www.youtube.com/watch?v=z_Am64AAlPk
Inflation has been mentioned here – something to keep in mind, that inflation since 2006 (just looked at BLS stats) has been over 10% in the past 5 years since the peak of housing prices, so if housing is down 33% from peak, add at least 10% inflation in, and you are already at 43%off peak. And we KNOW the BLS stats are BS. Even my Trader Joe’s cerial is up 20%!!!
Well for china I think Dent got it wrong,
Yes they buy these condo’s for mostly cash (business people mostly) ,
They cannot remove their money from the country, so they park it in Real estate or industry, Inflation is killing them in for bank deposits. They are also experiencing wage inflation big time as well and they still have 70% of their people living on farms that are now being industrialized big time and those people have no choice but to move to the cities so I think he got it way wrong in china. (Those real estate investors are not going anywhere).
In SoCal at least I think he is about equally as wrong (my opinion).
At least coastal areas.
MarkinSanDiego,
Bubblenerd is 100% correct, at what price? The Fed. can’t keep printing for ever and we can’t borrow for ever. The biggest bond funds are NOT willing to lend to this country any more because of the risk of default, same goes with foreign countries, that only leaves the Fed. to print and buy our long term treasuries but the markets will NOT take that kindly if there is a QE3, QE4 and on and on. The solution to our problems WILL be devastating and if we don’t do anything about it, well, I will leave that to your imagination.
Also, China is a land tenure society. All lands belong to the people. You think you own it…NOT, you have right to occupied at the mercy of the government.
The prediction of which I’m most confident is that Mr. Dent will continue making predictions regardless of the accuracy of his prior predictions. I admire his tenacity.
Totally agree with rich t. We may see 1990’s real prices (we probably already are some places), but we ain’t gonna see 1990’s nominal prices. Same with Dow 3000. It’s nominal dollars. Not gonna happen.
Arty,
Kinda like California, huh? You buy a place for a million bucks and you pay the state $1000 a month rent for the rest of your life.
New residential development in countries like Singapore and Malaysia are built on leased land.
Yes, they all all over priced.
In “normal” areas outside of unique places like CA, housing is likely dead. Here in Ohio the prices are still falling and will likely continue to do so. Owners no longer have any equity so they can’t sell and move up to the next larger home as they have for 20 years.
Buyers don’t have 20% down or decent credit, so they can qualify for a loan. This isn’t going to change quickly either. Most down payments were coming from the equity realized after selling a home that was only lived in for a few years. That’s not happening now, so the down payments are gone.
Overseas investors aren’t buying in the midwest or in the typical US town. Manufacturing jobs are gone, income is down, and the only result of all of this is lower house prices and less people with any equity at all.
The worst part is that now we are creating a whole new flock of potential foreclosures by all the FHA loans. Buyers are purchasing homes with only 3.5% down in a falling market. It only takes a few percentage points in price erosion and these new buyers are already underwater.
I’m afraid this whole thing is a mess!
Bubblenerd aside, I see it slowly coming back myself. There comes a time when listening to gloom and doom turns into white noise.
Sitting and crying, “Woe is me, woe is me.” is not helpful. If one has two working feet and is able bodied, it’s been long past time to get up and get going.
“There needs to be false bottoms to lure people in and get burned”
Mean like the massive one we had in 2009?
This might help.
http://www.mbconfidential.com/2011/04/shiller-ditches-yale-for-sc-mb.html
Who is this clown again? Oh yeah, 2012 the Mayan predictions of the world ending is coming true too.
The only thing sadder than this article and clown, is those of you that buy into his view, not even questioning is background and integrity.
Mr Varones, I like your blog, but your comment above that prices aren’t going to reach nominal prices from the 90’s anywhere is already quite wrong in a few places I am quite familiar with.
@Anonymous
“If one has two working feet and is able bodied, it’s been long past time to get up and get going.”
The point I’m trying to make is that misguided and dimwitted “economic” policies are destroying people’s hard work and capital, just to give an illusion of prosperity for a year or two.
Case in point:
http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2010/09/01/clunkers_a_classic_government_folly/