It’s Friday, and despite all the rosy "bottom" prognostications from some analysts, economist Robert Shiller still sees more pain ahead for housing. He says: [Thanks L!]
Home price declines are already approaching those in the Great Depression, when they plunged 30% during the 1930s. With prices already down almost 20%, it’s not a stretch to think we might exceed that drop this time around.
There are about 10 million homeowners whose debt is higher than their home value, which has broad implications for how Americans feel about their wealth and spending habits (read: more pressure on consumer spending).
The current hopeful consensus — that house prices will bottom soon and then begin to recover — is most likely a dream. Housing markets don’t usually have "V-shaped" recoveries. And even if house prices stabilize in nominal terms, after adjusting for inflation, most homeowners will continue to lose money.
What else is the word on the street today? Any links, stories, news we should be aware of? This is an open thread, and the floor is yours.
twist -
Just like Tom Zimmerman said a year and a half ago, house price drops drive defaults (and vis versa). This is Roubini’s “vicious circle.”
Doomers have put up with my rants about accounting rule SFAS 140 ever since I came on board in July 2006, so they might want to join me in raising an eye brow at this amazing story.
“Fannie Mae Investor Sues Citigroup, Merrill Over Stock Drop”, by Patricia Hurtado, Bloomberg, September 5, 2008.
Tanta covered this 13 months ago for heaven’s sake. Was everyone outside of the blogging community asleep prior to 7/7?
BLOOMBERG, 9/5
“The worst states are getting worse,” Brinkmann said, noting that overbuilding occurred in California and Florida, and their numbers will continue to drive the national ones. Those states, he added, also are the two with the most mortgage loans outstanding.
Brinkmann said he hasn’t investigated why states like Massachusetts, for example, showed marked improvement. But what’s happening there might indicate how markets without massive overbuilding problems might recover in the months ahead, he said.
THIS CONFIRMS WHAT MY WACHOVIA FRIEND SAID ABOUT CALIFORNIA–IT’S TOTAL B.S. TO THINK ANY CALIFORNIA HOUSING MARKET ISN’T BEING HIT, AND THAT THE HIT ISN’T INCREASING. THEY JUST WON’T REPORT THE TRUTH ABOUT THE “HIGH END” AREAS OUT HERE. THE CALIFORNIA ECONOMY IS TANKING VERY, VERY QUICKLY.
AND NO, PLACES LIKE MASSACHUSETTS AREN’T THE GOOD FUTURE OF HOUSING–THEY’RE THE BAD, BECAUSE THEIR HOUSING ‘STABILITY’ OR ‘RECOVERY’ IS ABOUT TO GET SIDESWIPED BY THE COLLAPSE OF THE OVERALL ECONOMY. THE ONLY REASON ‘BETTER’ HOUSING MARKETS HAVE SURVIVED IS JOBS. BUT EVEN A MAKE-WORK, TROUGH-FEED LIKE MASSACHUSETTS WILL GET HIT VERY SOON. FIRST THE SAFE JOBS LIKE STATE EMPLOYMENT WILL GO. THAT’S HAPPENING IN CALIFORNIA NOW BIG TIME.
JUST TRY TO GET THE REAL TRUTH ABOUT THE CALIFORNIA ECONOMY–ALTHOUGH THE MAFIA OUT HERE ATTEMPTS TO COVER IT UP AND SWEETEN THE POISON, WE ARE IN A VERY DEEP RECESSION IN CALIFORNIA NOW, AND WITHIN TWO OR THREE MONTHS WE WILL BE IN A DEPRESSION.
JUST COME TO SAN FRANCISCO AND LOOK AROUND–’FOR RENT’ SIGNS ON EVERY PRESTIGE BUILDING, ON EVERY BUILDING PERIOD.
CALIFORNIA IS ONE BIG CONSPIRACY OF SILENCE–A LIE, A PATHETIC JOKE.
jryskmpr:
I spent Labor Day weekend in Long Beach, and was struck by the number of repo-ed boats there were in the harbor. [I took a picture, but it didn't turn out very well.]
I wondered how many were financed by HELOCs, leaving owners underwater, or real estate industry people who thought the good times would go on forever.
There were condos for sale all over Long Beach- and more under construction. It’s clear the problems are going to keep on coming.
twist -
Just saw your posting to the sidebar of part 3 of Henry Blodget’s 3 part interview with Robert Shiller. The parts are as follows:
The bullet points in the video make a sort of running PPT commentary and review, for what it’s worth (thank heavens for Dvorak
)
I disagree with Shiller on the cause of this bubble. The U.S. economy was down to the last match and combustion was essential.
The housing boom was an ill conceived orchestrated event aimed at spurring the economy and enabled by low interest, low qualifying standards and boat loads of inflationary money introduced to the secondary lending market.
So what went wrong? Wages did not inflate as they had in every past, purposely induced, inflationary scam. As the ARMs, negative amortizations and interest-only-resets matured; the all important wage hikes so heavily counted on, had actually gone negative.
When a county exports jobs and imports a foreign labor source, unbelievable as it may seem to some, wages are forced down, not up.
Sacramento is way more frightening than San Francisco. SF didn’t build too much, really.. Sac has huge areas that are newly-built and have never had an occupant. We were driving around a couple months ago and about every 1/2-1 mile or so was a brand new strip mall, completely empty. The houses surrounding were also all new subdivisions, and didn’t appear to be selling too well.
I hung out with a guy last week who bought his house out in Maricopa in 2006 for (he said) 300K. He said his neighbor just sold the same model for 120K. He then proceeded to tell me “Now is the BEST time to buy!!”
Right.
Still going to rent for awhile…
Nevanna:
Yes, I have talked to a lot of idiots like him, too. People forget the lessons of history. True, lots of money was lost in the stock market of October 1929. But even more money was lost in February through March… people thought prices had stabilized, and they hadn’t. They just kept dropping, and wiping out investors that thought they’d bought a bargain.
Phoenix is entering the first stages of a full-blown Depression. I’ve said it on this board a dozen times. The city ‘leaders’ have always counted excessively on homebuilding to lead the metro economy. It’s pretty much over with, now. And with it, go the a good chunk of the millions of fast food restaurants, soulless malls, absurdly distant housing developments.
Good riddance. We need to concentrate now, on repairing past mistakes.
Yossarian-
I’ve thought the same thing. America can’t keep building houses forever to drive the economy. It’s about time we accepted that this bubble has come and gone and focused on what we will do now for a living instead of throwing good money after bad.