Nothing to suggest a return to normal

From MSN/Forbes

How low will real estate go?

Get used to it: The seller’s market is closing up shop. The days of fat, fast home value increases are gone. Pack away those flipping fantasies.

“The boom is definitely over, there’s no debate about that,” said Mark Zandi, chief economist of West Chester, Pa.-based research firm Moody’s “Now the question is more how hard is it going to land, if it lands at all.”

The answer? Depends who you ask — and what location you’re talking about. How to feel about it? Depends which side of the market you’re on — and what location you’re talking about.

What about six months from now? A year? Five years? Opinions about the future range from hopeful outlooks to doomsday predictions.

“One possibility is that you get a quick return to normal, which is what the economists for the realtor groups tend to hope for,” said Edward Leamer, director of the UCLA Anderson Forecast. “But there’s nothing in the historical record that suggests that we’re going to get a return to normal anytime soon.”

“It is a question of whether it is deep and quick or not so deep and much longer,” Leamer added. His prediction: “Not so deep and rather long.”

The way Zandi sees it, the market is going to weaken considerably more. “It has been correcting for about a year, and it’s got another year to go,” he said.

New York Metro Area Prediction
Source: Moody’s

Here is one more graphic I came across this morning:

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23 Responses to Nothing to suggest a return to normal

  1. SAS says:

    wow, if that chart holds true.

    Recession here we come.


  2. James Bednar says:

    Consumer confidence up this past month, from Marketwatch:

    U.S. Sept consumer confidence rises to 104.5 vs 100.2 Aug

    U.S. consumer confidence rebounded in September, the Conference Board said Tuesday. The consumer confidence index rose to 104.5 in September after falling to a revised nine-month low of 100.2 in August. The rebound was stronger than expected. Economists forecast the index to rise to 102.7 from the initial August reading of 99.6. Lower gasoline prices were seen as a factor improving confidence. The present situation index rose to 127.7 from 123.9, while the expectations index increased to 89.0 from 84.4. Inflation expectations eased in September. Expectations of inflation in the next year fell to 4.9 in September from 5.5 in August. This is the lowest level since March.

  3. James Bednar says:


    Personally, I think it’s a touch optimistic.


  4. James Bednar says:

    From Bloomberg:

    Lennar Profit Falls on Sales Incentives to Buyers

    Lennar Corp., the third-biggest U.S. homebuilder by market value, said profit fell 39 percent in its fiscal third quarter after it was forced to offer incentives to lure buyers.

    Net income in the three months ended Aug. 31 fell to $206.7 million, or $1.30 a share, from $337 million, or $2.06 a share, a year earlier, the Miami-based company said today in a statement. Orders fell 5 percent. Revenue rose 20 percent to $4.2 billion.

    Lennar and other homebuilders are offering inducements such as stainless steel appliances and free landscaping to entice buyers and that has reduced profit margins. Lennar said its gross margin on new home sales was 18.7 percent in the third quarter compared with 26.3 percent in the same period last year.

    “They are discounting a great deal, keeping the volumes up,” said Dan Poole, who helps manage about $34 billion at Cleveland-based National City Corp., including 240,410 Lennar shares, according to a June filing with the U.S. Securities and Exchange Commission.

    “The U.S. housing market has continued to deteriorate, trailing down further and faster than anticipated,” Lennar Chief Executive Officer Stuart Miller said in the statement. “It is not clear that the homebuilding downturn has yet found a floor.”

  5. waters says:

    Yeah, that graph is definitely optimistic. It doens’t jive w/ the Schiller graph which shows that historically busts have the same (inflation adjusted) rate of increase as the rate of increase during the preceding boom.

    This graph is essentially a protracted soft landing.

  6. waters says:

    Sorry, I meant to say–

    It doens’t jive w/ the Schiller graph which shows that historically busts have the same (inflation adjusted) rate of decrease as the rate of increase during the preceding boom.

  7. skep-tic says:

    that second graph is the real story of the market. the claim that we are in the midst of a soft landing is pure fantasy

  8. James Bednar says:

    Testing images in comments..

  9. LeeS says:

    I tend to disagree with the theory that it will be a long downward spiral. In all likelihood, its relative to the economy. Having seen the run ups and the rallies in the market, its just as unsustainable as the housing market.
    Lets not be fooled by the pundits that think everything and its mother is tied to the price of a gallon of gas. With transportation fare hikes, low wage increases, and inflationary adjustments to prices everybody feels a pinch. Combine that with the increasing job losses in the auto industry, increasing leveraging of outsourcing to cheaper nations, and probable job losses from the housing market (from retail lowes and home depot, to mortgage companies, to appraisers), and the domino effect has already been created. Anyone see V for Vendetta?

  10. SAS says:

    Turn on wnyc right now,

    they are atalking about RE in NYC/NJ

    can get it on the net

  11. thatbigwindow says:

    no way

  12. patient homebuyer says:

    most people are expecting a 40% raise in salary before jan 07 so we all can afford a 600k 3/2 1500sf pos with 12k taxes

    then everything will be normal

  13. AHS says:

    Consumer confidence up this past month, from Marketwatch:

    U.S. Sept consumer confidence rises to 104.5 vs 100.2 Aug

    These are the games played to boost confidence due to election year. dont fall for it, the fundementals are still out of whack and there is no way the real estate market is going to recover for a long time.

  14. SAS says:

    Take that back,

    these people are on WNYC are freaking idiots. God damn morons.
    But, there was a few callers calling in with some good input.


  15. skep-tic says:


    I listened to it. Pretty poor analysis. A lot of “NYC is different,” “my neighborhood is different” “my building is different,” etc.

    It’s really simple: 60% increase in inventory since last year. 24,000 new condos scheduled for completion in 2007. Average # of sales per year in NYC is 16,000. This means 1 yr+ of inventory in 2007.

    NYC population growth is flat. M&A activity is high, but hedge funds are losing money. The bond market is predicting a recession. Even if bonuses this year are decent, you will not see Wall St types buying in droves. Layoffs may be around the corner

  16. anon says:

    we’ll see a sharp decline over 07 when recession hits. but how we climb out of the hole the economy will be in? is the question
    how many boomers are looking to retire in the next 3-5 years? and what do they ecpect to sell their house for? of course if they want to downsize. not to forget some have already bought retirement homes and will sell when ready to retire. the glut we see now could stay when retiring boomers sell primary homes.
    could last a long long time

  17. chicagofinance says:

    skep / SAS:

    did you see this?

  18. ithink says:

    While the presumption is that prices are falling drastically, it’s really only the upper tier 25million house dropping to 5million & unfairly weighing these graphs. Regular Joe housing isn’t fairly represented & the prices aren’t appropriately declining.

  19. BergenBuyer says:


    I don’t think you’re reading the graph correctly. There’s no presumption that prices are falling drastically, everyone agrees they haven’t and have just begun to decrease. That’s why there’s only a YOY change of -3.9 in the NE. For example a house sold for $100K in 2004, there was then a 15% increase in 2005 and that same house sold for $115K. Now there is a -3.9% decrease and that same house sold for $110K. The change from 15% to -3.9% of 18.9 is not the decrease in price, it’s simply the change from the previous year’s increase.

    Median home prices have only dropped 3.9% since 2005. We’ve got a ways to go.

  20. skep-tic says:

    from NY Mag:

    ” the eternal verity of real estate is that, by and large, if you stay in the same market, it doesn’t matter when you sell, because the discount of your sale will be offset by the discount on your purchase.”

    article doesn’t really address the problems of first time buyers which is the source of the gridlock. market timing is very significant for 1st timers and there is no reason to jump in right now

  21. BC Bob says:

    “One possibility is that you get a quick return to normal, which is what the economists for the realtor groups tend to hope for,”

    What the hell is their definition of “normal”???

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