From CNN/Money:
Housing slowdown to be widely felt
“You don’t need to be in the market to buy or sell a home to be affected by the cooling housing market.”
“Economists, investors and the Federal Reserve are watching home building and home sales carefully because the sector has reached so far throughout the economy in recent years, lifting all manner of consumer spending and economic activity.”
“Even if prices don’t fall, even if there is no housing bubble about to pop, the cooling real estate market will be felt by many of those who may not be thinking about real estate prices.”
“”It’s going to be very similar to the stock bubble, but even more so. Many who didn’t own stock lost their job when the market plummeted,” said Dean Baker, co-director of the Center for Economic and Policy Research, and one of those who believes housing prices have resulted in an asset bubble ripe for a correction.”
“Even those who believe that real estate prices are not in any danger of collapsing agree with Baker that the reach of real estate extends far beyond those actually building, buying or selling homes.”
“Jeoff Hall, the chief U.S. economist for Thomson Financial, said that for every 1,000 single-family homes built, there are about 2,500 full-time jobs created, $80 million in payroll and $45 million in local, state and federal taxes paid.”
“That means that if the National Association of Homes Builders is correct and there are 150,000 fewer new home sales this year compared to the 2006 record, that’s 375,000 fewer construction jobs, or the equivalent of about three companies the size of General Motors.”
“”If you’re looking for evidence the economy is slowing, it’s housing,” said Baker. “Everything we’ve seen the last four to five months shows pretty clearly that housing is slowing.””
I think it is becoming fairly clear that the cycle has peaked and we are on a downward descent. People I have talked to think that this will last months, not years, and I 100% disagre.
Much of this bubble, just like the stock market bubble, was driven by people’s herd mentality (i.e. they wanted to be on the bandwagon just like everyone else). I think once we start to hear real life stories of people getting burned, the entire countires physchology will change towards housing, and cause a major disruption.
Circa 1999 you would be hard pressed to find someone who did not praise the stock market, but come 2002 no one would even think of putting money into stocks. I think the housing bubble is in the same boat, and the same mentality people had then they will have now.
Hopefully for everyone here who waited, myself included, we can all afford to buy the home of our dreams sooner rather than later, and at a fair price.
The Japanese housing bust which went down 60% peak to trough took 13 years, but the bulk of the drop occurred in the first 36 months from the peak then slowly grinded lower over the remaining years then scraping bottom for several years.
Expect the US housing market if it mirrors the japanese style bust should start to collapse anyday or week now.
Anon 10:49
I agree with you. I think this bust will occur in 2 phases:
Phase I – A big drop over the next 2 – 3 years as the herd runs the other way. Speculators dump and run, people who can’t afford their payments either sell or are foreclosed on, others look to cash out, banks tighten lending standards, buyers play wait and see.
Phase II – A slower decline for 5 – 10 years after initial drop. Prices will drop slowly, possible even appearing flat (before factoring in inflation). Homeowners who were in better economic shape will be loath to sell at a loss, or may not be able to sell if they are underwater. Many will chose to hold on either because they have no other choice or they won’t be able to swallow their pride. Over time, things like job loss, death, relocation or simple resignation that a bounce back looks unlikely, will force sellers to sell at a loss.
wanted to let everyone know, i was under contract to purchase a house in mid july. knew i was overpaying a bit but have circumstances that warranted it and was planning on staying at least 10 years. anyway went through a home inspection and a bevy of problems came back. no way i’m signing up for a money pit so backed out of the deal.
kinda glad actually. out of my control (so the wife can’t yell at me anymore ;) and i can now sit and watch the market unwind. i expect to get a better deal next year even with higher rates (which are coming).
I myself will look to buy next year but contrary to what most ppl think here, I think it’s really ok to buy now if you can get a good lowball-ed deal. Just like buyers, not all sellers are greedy flippers looking to make a quick 100K. Obviously, a lot of buyers are sellers themselves just looking for a modest upgrade for a growing family.
Not everything out there is ridiculously overpriced.
Mr. White
OP – The article predicts the economic results of the expected decline in real estate value.
Anybody here know how NNJ faired overall the last time around when this happened in the 80s? Was NNJ better or worse off than other high-density population areas?
“Not everything out there is ridiculously overpriced”
If a house price doubles in 5 years and the asking price is now only 95% up you don’t think this is ridiculous?
You wouldn’t mind giving a homeowner 35% appreciation over this peiod but 100% is ridiculous or even 90% or 80% 70% or 60% or even 50%.
Things got curshed in NNJ back in early 1990’s. Many bankruptcies, prices dropped big for houses and especially condos. many were underwater for years.
a few more days like this in the market and you will see more inventory.
i have a black suit on today
watching this sell off.
non stop
anon 12:55
I agree with you but I just don’t think it’s realistic to expect prices to decline 60% anytime soon. People say it maybe in 5-10 years. Meanwhile, people start families or outgrow their homes. If you’re planning to stay for the long haul and not going in for a quick buck then I don’t see anything wrong with buying. Again, I don’t mean just buying whatever you get your hands on and buying at asking prices. You certainly have the chance to be more selective and have leverage with price.
If you can lowball then why not? If prices do fall 60%, it doesn’t matter to me if I can provide the best possible home for my kids. I’d rather ride it out than have them grow up in a cramped up 2 bedroom apartment while I wait.
http://money.cnn.com/2006/05/12/real_estate/reguide_moneymag_whatsnext_0606/index.htm
Mr. White
Mr. White,
A house that goes from $350k 5 years ago to $725k today only has to drop 50% to get back to 2000 levels.
I am not expecting 50% but a 35% is very probable imo so this $725K house may fall to $471k. Still gives the long-term holder a nice profit but more fair and rational to the buyer.