How much will real estate go down?

Quote from 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.
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You might be right for the frothy markets dropping another 25%. But this is the law of large numbers. I'm speakng about "most" locations. FWIW, I'm not trying to "scare" anyone. If anything, I'm offering a counterpoint to the drivel printed in the newspapers and giving an honest assessment based on what I'm seeing in my market and my experience.

SM
 
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.
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Oh man, I gotta side with Pitz on this. High rates makes housing less attractive on a monthly payment basis, so people are less inclined to buy. Further, since buying is a substitute for renting, demand for rentals goes up. I think Pitz was talking about the mortgage rates, which are loosely correlated to the Feds rates. Also, Me and Pitz were not talking short term...at least I wasn't.

SM
 
Quote from pitz:

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.



...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.



...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.




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.
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I agree with 90% of what you're saying here. I don't think it will bounce back like a dropped kitten in the short term (or for the long term), but I think payments are near a low. I was interested (and informed) by what you were saying about lumber prices...but I knew about labor. I believe that over the long(er) term, the eroding dollar will have to raise the costs of labor and materials because foriegn demand will drive it up. Prices on these goods will get relatively expensive to us Americans because our Dollar is weak, just like the laborers working in the Nike factories that couldn't afford to buy those shoes. Stupid anecdote, but I'm already seeing it in the classic car market....lots of cars that Americans can't afford are being shipped over to Europe right now because they can afford them. It is those type of market forces that will drive up the cost of our Lumber, and the laborers will eventually get fed up here and start demanding more money.

So maybe in the short run there won't be a bounce, but I still think that if you're shopping for monthly payments, now is a good time to pull the trigger. From here, every successive month will mean higher and higher payments for the same houses.

SM
 
From here, every successive month will mean higher and higher payments for the same houses.
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This is the easiest myth to debunk; affordability, as a percentage of disposible income, is already non-existent. "higher and higher payments" on an item that is in surplus? Ummm, I don't think so ;).

Unless, of course, you're referring to the removal from the market of products like option ARMs, and other 'innovations' that actually allowed people to make minimal mortgage payments, while their overall debt level remained the same or even rose. Then I agree :).
 
Quote from pitz:


Why do you figure its different this time?
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And why do you assume it will be the same?

You assume rates will go up - so what?You don't know that.You assume the real yield on T-Bonds is unsustainable but you don't know that either.

It seems to me that you're predicting these things with huge confidence as if they've already happened but they haven't.

Rates are low and there are some cheap deals out there,if that definition of cheap is outside of your budget then that's your fault.
 
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.
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I was countering the care-free comment that rates were "going up" - all you've pointed out is that rates in general have been cut.
 
Time to scoop again?

Quote from mgabriel01:

In california --- the 20 year old cinderblock ranch with 1900 sq feet that was build for 60K ---- and rocketd to 500k in 2007 --

is back to 350K after a 30% drop

so the people being hurt by that are ?
speculators
fools
carpetbaggers

and of course...... anyone who took a HELOC to 95% LTV
(but you shouldn't do that anyway if you are using that money to buy a plasma and a new escalade)
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