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when will the housing market recover?

Discussion in 'Finance, Investing & Economy' started by minerva, Oct 20, 2009.

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  1. minerva

    minerva Member+

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    I apologize if there is already a thread on this, but it doesn't look like any threads here have gotten much attention lately, so I figured I'd start a new one specifically about the housing market in the US. I was hoping for a recovery within 3 years, but after reading this, I'm not so sure. I have a house in FL that is being rented out because I couldn't sell it after I moved for my job. of course I'm losing money on it every month, and I'm seriously thinking about doing a short sale on it. just wondering how much lower it's going to go...

    here's the latest bad news:

    More gloomy news for U.S. housing

    If you thought home prices were bottoming out, you may be wrong. They're expected to head a lot lower.

    Home values are predicted to drop in 342 out of 381 markets during the next year, according to a new forecast of real estate prices.
    Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. For the following year, the firm anticipates some stabilization with prices rising 3.6%.
    In the past, Fiserv anticipated the rapid decline in home-sale prices over the past few years -- though it underestimated the scope.
    Mark Zandi, chief economist with Moody's Economy.com, agreed with Fiserv's current assessments. "I think more price declines are coming because the foreclosure crisis is not over," he said.
    In fact, those areas with high concentrations of foreclosure sales will experience the steepest drops, according to Fiserv. Miami, for example, is expected to be the biggest loser. Prices are forecast to plunge 29.9% by next June -- after having already fallen a whopping 48% during the past three years.
    If Fiserv's forecast holds, Miami real median home price will tumble to $142,000 by June 2011.
    In Orlando, Fla., the second-worst performing market, Fiserv anticipates a 27% price collapse by June 2010, followed by a less severe drop the following year. In Hanford, Calif., prices are estimated to drop 26.9% and continue falling 9.5% in 2011; in Naples, Fla., they're expected to fall 26.8% and then flatten out.
    Other notable losers include Las Vegas, where prices have already fallen 54.6% and are expected to lose another 23.9% by June 2010. In Phoenix values have already collapsed by 54% and could fall another 23.4%. In both cities, Fiserv anticipates the losses to continue into 2011, but they will be less than 5%.
    Prices had stabilized
    The latest forecast is at odds with the past few months of the S&P/Case-Shiller Home Price index. That report has given hope that most housing markets may have already stabilized because the composite index of 20 cities rose in May, June and July. Nationally, it found that home prices have gained 3.6%.
    Brad Hunter, chief economist for Metrostudy, which provides housing market information to the industry, however, expects a change in fortunes, however.
    "I'm afraid Case-Shiller may be just a temporary reprieve," he said.
    He pointed out that the tax credit for first-time home buyers helped support prices during the three months of Case-Shiller gains. By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors. But the market assistance ends when the credit expires on Dec. 1.
    Hunter also sees a new wave of foreclosure problems coming from higher priced loans and prime mortgages. He expects a high failure rate for option ARM loans that were issued to prime customers so they could buy homes in bubble markets, such as California and Florida. In those areas, prices for even modest homes had skyrocketed.
    Winners
    A handful of metro areas will buck the trend, according to Fiserv. Six markets will remain flat, and 33 will actually post gains. The biggest winner will be the Kennewick, Wash., metro area, where home prices have ramped up 8.9% over the past three years and are expected to increase another 3.4% by June 2010.
    Fairbanks, Alaska, prices are anticipated to rise 2.5%, while Anchorage will climb 2.1%. Elmira, N.Y., prices may inch up 1.8%.
    The nation's biggest metro area, New York City, will underperform the nation as a whole over the next two years, according to Fiserv. Prices, which have already fallen 21.7% to a median of $375,000, are expected to fall 17.4% by June 2011.
    Home values in the nation's second largest city, Los Angeles, have fallen 43.3% since June 2006 to a median of $313,000. They are expected to dive another 20.2% over by June 2010, and then start to climb in 2011. Chicago prices, which have fallen 25.2% to $227,000, will drop only 4.1% over the next 12 months and then starting to climb.
    The Detroit metro area now has the dubious distinction of having the lowest home prices in the country. Prices have dropped 51.7% to a median of $50,000. They're expected to fall another 9.1% and then stabilize.
     


  2. Matt in the Hat

    Matt in the Hat Moderator Staff Member

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    It's only bad news if you are a seller. If you are buying it's an amazing opportunity.
     
  3. Txtriathlete

    Txtriathlete Super Moderator Staff Member

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    Not really sure what you mean by amazing... if amazing is a better price compared to 2005, then yes, you are correct. Amazing in terms of future growth though, is rather misplaced.
     
  4. minerva

    minerva Member+

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    my problem is I can't buy an new house because I can't sell my current one.
    I would suspect that a lot of people are in the same position - where they got laid off in one geographic area, but can't move to a new geographic area to get a new job because they can't get rid of their house. and the banks aren't very helpful either - as they basically require you to ruin your credit first before they will work with you and help you. rather than looking at your situation and say, even though you're not behind on your payments yet, soon you will be as you exhaust your savings, so let's work something out now. no, that would make too much sense. instead you have to ruin your credit first.
     


  5. prk166

    prk166 Moderator Staff Member

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    My thoughts, too. And at that it depends on the market you're in.
     
  6. Matt in the Hat

    Matt in the Hat Moderator Staff Member

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    Depends on what you mean by future. 5 years? 20 years? I'm thinking long term primary residence here.
     
  7. prk166

    prk166 Moderator Staff Member

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    Primary residence where? Fargo? Mobile? Buffalo? Tyler? Duluth? Atlanta?
     
  8. Txtriathlete

    Txtriathlete Super Moderator Staff Member

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    In my opinion RE isnt going anywhere for the next 5 years, so yes you have a point 20 years might be a different story, yet if its not going anywhere (corrected for inflation) for now, then whats so amazing?
     
  9. prk166

    prk166 Moderator Staff Member

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    No offense but if I'm not making good money on an investment over the next few years, I'm not interested. History is full of "oh, it'll pay off mad money in 5/10/15/20/30 years" type investments. Rarely do they pan out.

    Historically as a whole in the US, housing hasn't been any better of an investment than government bonds. Either fundamentally something's changed that would change this or we're talking about specific areas in specific markets.
     
  10. bojendyk

    bojendyk New Member

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    Do you have any in mind? Investing in a passively managed index fund is boring and unglamorous, but the long-term results are fantastic, and you don't get reamed on transaction costs.

    My experience has been that the least trustworthy proposed investments are those that promise big short-term gains.

    While this rings true, I'll note that I'm given the choice between (a) investing in a home that yields a return equal to government bonds and (b) paying rent, I'm going with option A.
     
  11. minerva

    minerva Member+

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    it would be nice though after paying a mortgage on a place for 6 years to at least make a little money on it when you have to move, or at the very least, break even. instead, thanks to people's greed, we're in a situation where you not only take a loss on it, but you ruin your credit for the future so that you cannot buy a new house in the new location. maybe I'm just bitter...
     
  12. Cascarino's Pizzeria

    Cascarino's Pizzeria Member+

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    Foreclosures won't decline until there's positive employment and that's not happening until sometime in 2010...possibly. Some neighborhoods will take many years to get back to "normal"
     
  13. Txtriathlete

    Txtriathlete Super Moderator Staff Member

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    I agree, by some of the posts here, it seems that if you hold anything long enough it will earn you something, well thanks! Dow Jones for the past 10 years? not so great, but I'm sure in 2020, it will be positive! Wonderful!

    Fact is that there is always a bull market somewhere that one should be in, housing's bull (read bubble) died and it will be a long time before its considered ripe again for a run.

    Sadly we saved the dot com bubble with a housing bubble, and now we are searching for the next bubble...At some point we shall run out of things to inflate, and we will have to take the bitter pill, its just that everyone wants to postpone that inevitability.
     
  14. minerva

    minerva Member+

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    yeah, it's just a lesson learned I guess. you know, all your life people tell you that real estate is the most solid investment, and owning your own home is such a great idea, and I bought into it - litterally - when I was 26. at 26, I owned my own home. then work comes calling, next thing you know you're in colorado, and you have to sell your house in FL - not a good spot to be in.
     
  15. Txtriathlete

    Txtriathlete Super Moderator Staff Member

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    Its tough, and being mobile will be more important in the years to come. I changed my career a few years ago, just because I got burned financially too, fortunately, I have been incredibly lucky ever since.
    On a more personal note though, you are young, so these are things that you have plenty of time to recover from.
     
  16. minerva

    minerva Member+

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    yeah, I do have time on my side, and working for the Government, my job (income) is pretty steady. I am by no means as badly off as so many others. it's just one of those things - an event like this, kinda like 9/11, will effect your psyche and build who you are and how you think about things for years to come. thanks for the encouraging word though.
     
  17. uclacarlos

    uclacarlos Member+

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    Maybe if you live rent-free w/ mommy and daddy. If not, then the true earnings are astronomically greater.

    The key w/ real estate is that you have to bear in mind that it is a marathon, not a sprint. Just keep that in mind and you'll sleep a lot easier.
     
  18. prk166

    prk166 Moderator Staff Member

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    No, they're not. Once you account for expenses, historical returns on housing in the US have been 3 to 4%. Some housing in certain areas does better, some does worse.

    And of course those returns aren't a given. Some think they're even lower. Note that a mere .7% return in real dollars would be a negative return once expenses are covered. 2.3% wouldn't be much of one once those are covered either.

    http://online.wsj.com/article/SB124051414611649135.html

    Mr. Shiller's chart shows that home prices from 1940 through 2000 rose at an annual real, or inflation-adjusted, rate of 0.7%. Data from the Census Bureau, however, puts the real rate at 2.3% for that period. Part of the difference may be due to improvements in the quality of homes, Mr. Lawler says, but he doubts that accounts for the whole gap.



    Of course there are marginal costs to take into account as well.
     
  19. Sachin

    Sachin New Member

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    Of course, this measure doesn't take into account the consumption of actually living in the house. Remember, a house is not a commodity like gold or frozen orange juice concentrate. It has utility beyond its price appreciation.

    @Minerva:

    I'm sorry you're stuck with a house you can't sell. I share your pain, as I'm stuck with one too. Mine is just down the street, however. :rolleyes:

    I hope you've rented it out so you can have at least a little income coming in.
     
  20. uclacarlos

    uclacarlos Member+

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    Compare that to the expense of renting and you've got a different picture.

    Say you buy a house for $100,000. And let's take that 0.7% real gains over 15 years. You sell the house, pay the commissions and fees and you're left with a net gain of $11,000.

    For your hypothesis that govt bonds yield a better return, take that 20% down payment, add $1,000/year (1% is the recommended upkeep on a home) for 15 years at 2.5% and you finish $16,600.

    Great. So you "made" $5600 more off a govt bond.

    Now show me a place in this country where you can live paying $373 A YEAR in rent so that you can break even.

    If you were talking investment properties, that's a different story. But then again, you open up so many more tax write-offs that you can't use as an owner-resident.
     
  21. Sachin

    Sachin New Member

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    Actually, if you take the down payment of $20,0000, and add $1,000 per year for 15 years at 2.5%, that comes out to nearly $47,000 after 15 years (assuming no withdrawals).
     
  22. uclacarlos

    uclacarlos Member+

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    It's $11,700 extra above what has been invested ($20,000 + $15,000).

    The .07-4% figures include calculations of capital investment ($15,000 in this hypothetical case), so that's why I didn't count the figure in either calculation.

    But the point is that the vast majority of ppl in this country do NOT live rent free, so in order to make a decision about buying or renting a home, investing in non-real estate vs. real estate, you *have* to take into account paying somebody else's mortgage vs. your own.
     
  23. prk166

    prk166 Moderator Staff Member

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    Yes, there are marginal costs to take into account. You have to live someplace. But you also have to take into account the $7k in closing costs and $12k to the realator you end up paying when you sell or the chance that you're going to be shelling out $8k for new shingles or $18k to have that sewer line connection redone, the $3200 in property taxes you pay each year, etc, etc. These different studies are trying to take into account all of those things in calculations (it depends a bit on the study).

    The context for this is housing as an investment and at that questioning if it's a great time to invest. Historically it hasn't been a great investment.

    Anyway, when you rent, a bit of a point of order, you're not paying someone else's mortgage. You're paying rent. The cost of rent may or may not reflect the costs the owner incurs. For example, my cousin bought a condo in 2005. Dumb move and worse, 2 years later, instead of taking a $25k hit he's decided to slowly bleed, renting it out for @$300 less than his costs. Rent reflects the market, not the owners costs.

    But you're right, if you're going to have to live someplace keep in mind that you're going to have a base cost. But that's different than housing as an investment. And keep in mind even within the context of having to live someplace, there are different costs involved. Sure, you need a roof over your head. But do you "need" a $1800/ month 3 bedroom house for that or will a $1300 / month apartment do well?

    There are a lot of nice things about owning. But my two bits is that you do it because you want to and treat it as an expense. IMHO too often people call it an investment when they don't behave that way. They paint it colors they want it to be or they buy in a neighborhood that's unlikely to undergo big price increases. If it's really an investment for you, treat it that way. Otherwise acknowledge it as a nice thing, a bit of luxury, kinda like having prime rib every now and then versus every night.
     
  24. uclacarlos

    uclacarlos Member+

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    The point to remember is that $1300/mo = $15,600/yr that you already are going to have to pay no matter what. Anything beyond that -- or whatever the number may be for the individual in an individual market -- is what truly becomes an "investment" that you can compare to govt bonds or what have you.

    By the way, with interest rates so low and the market so ****ed for sellers, you can get frickin' amazing deals on rental properties, so much so that even b4 taxes breaks, your mortgage/insurance/property taxes are lower than the rental income.

    But given that there are still a shitload of foreclosures shadowing the market, rents will continue to decline. But still, there are some steals out there.
     
  25. IntheNet

    IntheNet New Member

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    I expect housing sales to keep sinking; the administration has done absolutely nothing to address the problem and the depressed economy, together with the promise of higher taxes and ever greater unemployment, feed upon themselves to convince potential home buyers to stay put and await a better market before buying a home. Couple of related comments that impact the realty market:

    The driver of our current economic crisis (the primary factor that caused the mess) being the government's Barney Frank mandate for banks to loan to low-income folks unable to adequately pay for a home - nothing has been done about that.

    The contributor to our current economic crisis (a contributing factor to the mess) being all those toxic real estate assets (bundled loans) that no bank wants - nothing has been done about that.

    A yield of the current economic crisis (a net result if your will) is ever growing tighter credit from lending agencies and banks. Despite the trillions that this administration has wasted thus far, credit is still not being extended by banks and lending agencies to the general public and the few investment dollars available for housing loan are largely being targeted to the commercial sector rather than residential property loans. Nothing is really being done about this either.

    Lastly, Timothy Geitner has no clue how to address any of this housing mess, in his capacity at Treasury or in his capacity as the economic adviser to the president. If such incompetence is present as Treasury Secretary, why would anyone expect our economy (particularly the housing market) to improve? It will only get worse...

    So despite spending trillions, the current administration is done very little to help the housing market - minor tax incentives for home buyers that were thrown into the stimulus were shown not to help convince buyers to buy homes! Since the housing market has a domino effect on other professions (realty, appliance, home improvement, etc.) expect these professions too to experience high unemployment.

    A sad state of affairs and no help whatsoever from the administration.
     
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