How much will real estate go down?

[Smart Money]

Quote from pitz:

But the houses are far from cheap, and interest rates are on their way up. With official inflation now at ~4%, and inflation in almost every commodity well into the double digits, it will likely be a long time before you ever see interest rates this low again on mortgages.

Agreed. My perspective is that housing did have a run that was partially justified by the lower interest rates, but then it became somewhat of a mania in some areas. Prices should have dropped *SOME*, and they did, like in the so called, "flyover states". But what I've been anticipating is that the devaluation of the dollar would help justify the higher prices of housing, so they wouldn't fall as much. This is where we are now.

With the cost of Diesel at $4.00 a gallon, and because tree harvesting and lumber production is so energy intensive, I believe that the cost of building is now so high that housing costs can't go down very much. Since buying an existing house is a good substitute for buying a new house, those prices will be propped up as well.

IMHO, the bottom line is that if we do have an excess supply of housing, because it costs so much to build them, this inventory is being whittled down and when it bottoms, you'll see housing prices jump because real estate has traditionally been a refuge during inflationary times.

I expect, more devaluation of the dollar, a low in housing inventory which will trigger a price run up, and in the meantime, rents will start to really take off. Right now is an opportunity to buy real estate cheap, at low rates, before this happens. To justify not buying now, you have to bet that rates won't go up *AND* prices won't climb. If either happens, the monthly payments may go up. If both happens, not being an owner is going to suck.

SM

 

[traderdragon2]

" To justify not buying now, you have to bet that rates won't go up *AND* prices won't climb."

Prices have another 20-25% drop to go in the hot markets and there is absolutely nothing out there to cause prices to climb at the rates they did before. Were gonna hit bottom and sit there for a long time in the hot markets.

I V bottom is pure fantasy after the worst real estate crash of all time. I dont understand why people try to scare the fence sitters into buying houses right now. They will lose their asses.

We still have record inventory, more ARM resets on the way, tighter credit markets, record foreclosures that are accelerating, jobs are stagnant, probably in a recession and people thing the time to buy is now before its too late? What are you guys smoking?

We have 2 years min before we are near the bottom and there will be plenty of time to buy after that. If there is a panic at the end of this fall, we could end up with more than a 25% drop from here.

 

[pitz]

With the cost of Diesel at $4.00 a gallon, and because tree harvesting and lumber production is so energy intensive, I believe that the cost of building is now so high that housing costs can't go down very much. Since buying an existing house is a good substitute for buying a new house, those prices will be propped up as well.

You'd think lumber prices would rise, and eventually they will, but actually they are down considerably.


http://www.nahb.org/generic.aspx?genericContentID=527

Lumber prices dropped from a peak of $474/1000 board feet on August 13, 2004, to $238/1000 board feet on March 21, 2008. So lumber is basically half price, even counting the high price of diesel and the crashing US dollar. Most of the Canadian lumber industry has shut down; theres simply no demand.

Simple supply and demand; many house material costs have dropped dramatically, even in spite of inflation. And the days of Homo Depot getting $500 for a few pounds of copper milled into nice bathroom taps are soon going to be over as well as the demand dissipates from a crashing residential construction industry.

IMHO, the bottom line is that if we do have an excess supply of housing, because it costs so much to build them, this inventory is being whittled down and when it bottoms, you'll see housing prices jump because real estate has traditionally been a refuge during inflationary times.

...but that's not borne out in evidence. And there is no labour inflation either, in fact, labour costs continue to drop in real terms as unemployment picks up.

I expect, more devaluation of the dollar, a low in housing inventory which will trigger a price run up, and in the meantime, rents will start to really take off. Right now is an opportunity to buy real estate cheap, at low rates, before this happens. To

...but real estate is far from 'cheap'. And buying at low rates is insanity. Eventually you'll be right, but I suspect we have at least a good decade of stagnation before that happens.

justify not buying now, you have to bet that rates won't go up *AND* prices won't climb. If either happens, the monthly payments may go up. If both happens, not being an owner is going to suck.

Why would prices climb, replacement costs are falling dramatically (see above). Rates are going up, which will depress asset prices further -- high rates are good, IMHO, as you'd rather have a high interest rate mortgage against a cheap house, than a low interest rate mortgage against an expensive house, on account of mortgage interest deductability and relative asset demand.

When houses are yielding far more on a rental basis than the yield on a mortgage bond, I'd consider it. But we're very, very far away from that. And its delusional to think that the market will just bounce back like a dropped kitten.

 

[$preader]

Quote from pitz:


Rates are going up, which will depress asset prices further

I wasn't going to bother posting on this thread any more as this topic seems to have been done to death but I couldn't let this one go - which rates are you talking about?When exactly do you predict rates going up?The next move by the Fed is a virtually guaranteed 25 basis point CUT with probability shifting towards a possible 50 basis point CUT.A rate raise is not on the agenda any time soon.If people are thinking this housing crisis could linger for years then rates will remain low for years.

There are certainly valid arguments for house prices to go either up or down or even just nowhere from here but suggesting that high rates will further heighten a housing decline at this stage is absurd.

 

[pitz]

I wasn't going to bother posting on this thread any more as this topic seems to have been done to death but I couldn't let this one go - which rates are you talking about?When exactly do

Long-term interest rates. The financing used to purchase long-term assets. Also, spreads are widening and will continue to widen as mortgage lenders experience defaults.

you predict rates going up?The next move by the Fed is a virtually guaranteed 25 basis point CUT with probability shifting towards a possible 50 basis point CUT.A rate raise is not on the agenda any time soon.If people are thinking this housing crisis could linger for years then rates will remain low for years.

Sure, but only a fool or a moron would take the risk of financing a long-term asset with overnight money. The Fed only controls that -- overnight money. They don't control anything else.

There are certainly valid arguments for house prices to go either up or down or even just nowhere from here but suggesting that high rates will further heighten a housing decline at this stage is absurd.

Not at all, if you look at the long-term chart of long-term interest rates, we're definitely at, or very close to a bottom. And while 4.5% T-bonds perhaps made sense when inflation was (even officially) 2%, inflation is now much closer to 4% (if you believe the official stats), which means that the real yield on the 30-year T-bond is almost zero.

Not sustainable at all. The last time commodity prices rose this much also brought in double-digit interest rates. Why do you figure its different this time?

 

[balda]

Quote from $preader:

I wasn't going to bother posting on this thread any more as this topic seems to have been done to death but I couldn't let this one go - which rates are you talking about?When exactly do you predict rates going up?The next move by the Fed is a virtually guaranteed 25 basis point CUT with probability shifting towards a possible 50 basis point CUT.A rate raise is not on the agenda any time soon.If people are thinking this housing crisis could linger for years then rates will remain low for years.

There are certainly valid arguments for house prices to go either up or down or even just nowhere from here but suggesting that high rates will further heighten a housing decline at this stage is absurd.

Would you care to explain why on May of 2006 Fed Fund Rate was 5.00 and 30 year mortgage rate was 6.1

Two years later Fed Fund Rate is 2.25 and 30 year mortgage is 5.7

while Fed Fund Rate dropped 2.75 30 year mortgage dropped 0.4.

 

[gnome]

Quote from balda:

Would you care to explain why on May of 2006 Fed Fund Rate was 5.00 and 30 year mortgage rate was 6.1

Two years later Fed Fund Rate is 2.25 and 30 year mortgage is 5.7

while Fed Fund Rate dropped 2.75 30 year mortgage dropped 0.4.

Mortgage rates correlate mostly with 10-year note.

Shorter rates and notes don't always move in lock-step.

 

[pitz]

All I know is I bought my home 5 years ago here in florida and there is no way in the world me nor any of my neighbors would sell our houses now at 2003 prices. That alone becomes self-fulling and helps keep the prices up.

Oh. So you and the neighbours will conspire to restrain trade in homes? Will you break the kneecaps of anyone who needs to move away and must sell? What about the people in your area that die?

I remember when tech stocks were all the rage, and were in decline, people said exactly the same things. "its not a loss if you don't sell". "hang on, these are excellent stocks with good long-term futures". Etc.

If prices don't make economic sense in the long run, then prices will adjust to something that does make economic sense.

It will be region specific downturns and recoveries in my humble opinion

So you buy the NAR/Realtor nonsense of "all real estate is local". Good luck with that.

 

[gnome]

"... All I know is I bought my home 5 years ago here in florida and there is no way in the world me nor any of my neighbors would sell our houses now at 2003 prices. That alone becomes self-fulling and helps keep the prices up..."

When/if the spam hit the fan, you might WISH you could get 2003 prices...

 

[ElCubano]

Quote from gnome:

"... All I know is I bought my home 5 years ago here in florida and there is no way in the world me nor any of my neighbors would sell our houses now at 2003 prices. That alone becomes self-fulling and helps keep the prices up..."

When/if the spam hit the fan, you might WISH you could get 2003 prices...

i bought mine 8 years ago....if they hit that level I'd defintely be scoopin' something up....