Cheery News on Home prices

Prediction: Price fall to continue through 2010

Jan. 14 (Bloomberg) — U.S. home prices, already down 23 percent from their July 2006 peak, will continue to fall until the third quarter of next year, PMI Mortgage Insurance Co. said in a report.

Ninety-seven percent of the 381 U.S. metropolitan areas surveyed are likely to have lower home prices in September 2010, according to the Walnut Creek, California-based insurer’s Market Risk Index, which assigns a score to every region based on the likelihood real estate values will be lower in two years.

All real estate is local. Until it isn’t.

14 Comments

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14 responses to “Cheery News on Home prices

  1. gideonfountain

    My, that’s fascinating! How do they know? Oh, that’s right, they’re GUESSING, just like everyone else.

  2. Peg

    Gideonfountain has a point. I can recall almost everything one could read intimating that real estate simply had no limits on the upside – at least, until about 3 years ago…….

    • christopherfountain

      Oh, I just post these things for fun. The trouble is, if the media reports something as “fact”, people believe it, even if it contradicts what was said the day before. Watch, for example, main stream media’s coverage of Wall Street in which, every day, they trot out an explanation why the market moved up or down that day. It’s usually exactly opposite of yesterday’s explanation and yet no one calls them on it, ever.

  3. Peg

    Christopher – my favorite example of this phenomenon isn’t when it’s from one day to the next. It’s when a SINGLE publication has contradictory news stories in the same issue, same date!

    Yes; it happens.

    No wonder the newspaper business is struggling even more than ours is! And I do predict that houses and condos will, one day (I hope in our lifetimes!!) will be hot commodities.. while newspapers, as we now know them, will literally cease to exist.

  4. Retired IB'er

    I take exception to describing the forecast of further price declines in housing as “guessing”.

    IMHO, it does not take a particularly good “crystal ball” to get a decent handle on future house price levels. All one has to do is look at current median income and house price levels and compare them to historical ratios to get a reasonable view. This is particularly true with the wild card of “easy financing” no longer affecting the housing market.

    If, in a particular market, the historical ration of median house price to income was 3 times, and is still currently elevated at 4 times let’s say, it is a fairly safe bet to assume prices will decline 25% (assuming income doesn’t rise, a safe bet in this economy).

  5. gideonfountain

    Could be true. I currently have a handful of offers (on behalf of clients) on various Greenwich properties but the sellers ain’t bitin’. According to noted Greenwich-residing author Martin Gross, that is “the classic sign of a market bottom”.

  6. Retired IB'er

    Gideon wrote: “According to noted Greenwich-residing author Martin Gross, that is “the classic sign of a market bottom”.”

    Yeah, that somehow reminds me of seeing light at the end of the tunnel only to find out it is a train heading straight for you.

    Time will tell, but given the current economic downdraft (as an aside the FED beige book described CRE in Boston as “grim and depressing” – very un-FED like wording) I think that sellers not “bitin'” is more indicative of them not yet accepting the new reality as opposed to the correction has hit bottom. Don’t forget, it took us ten years to get to where we are and I, for one, find it highly improbable we will correct the substantial excesses from the housing market in a short period of time.

  7. Peg

    On the other hand, in Minneapolis, I had two sales right at the end of the year. Both involved delighted buyers – and – not as happy sellers. One was cash – but – the buyer with a mortgage is getting a rate unheard of for 37 years.

    In our market, sales actually have picked up from a year ago – though there is a tremendous discrepency in pricing. The price of “distressed” (short sales or bankruptcies) is $149K. “Not in distress” is $230K.

    I appreciate that this is another world from Greenwich pricing. But, in our local market, we do see some stabilization. At least – for the moment.

  8. holycomeoly

    gideaon – Do you have your brother’s sarcastic wit or are you serious? I hope its the former.

  9. anonymous

    Spoke with an appraiser recently, he is using a 1% decline monthly for Greenwich pricing for the time being! This guy lives in Town so its not someone who knows our market.

  10. gideonfountain

    Hmmm…let me think….I would say “seriously sarcastic” sounds about right. But, yes, I’m serious, laddie! Greenwich sellers will soon bite the bullet and, in turn, our buyers will improve their offers a bit and the log-jam will ease.

  11. CEA

    Gideon: I hope you are right, but fear you are wrong.

    I work in finance, and today there were another slew of layoffs (Barclay’s and Lazard), and the Citibank/Morgan Stanley broker joint venture is thousands of people of overlap. The market here is based significantly on the financial services market in New York and the secondary jobs it creates (like, for lawyers, say). As someone on the front lines, the layoffs just started in earnest this fall (one year after the credit crisis started) and thus we are only 4 months into them. I believe we are, at best, halfway there.

    Most firms have laid off 10%-15% of their staff. But: the market is down 35%; the IPO market is down 70%; mergers & acquisitions were down over 30%. That is a lot of excess capacity (markets -30%, labor only -15%) banks are holding onto “just in case” and some have already started the jettisoning.

    Next, take a look at some of this week’s problems: Deutsche Bank just announced a $6 bil loss; HKSB needs to raise billions; UBS and CS have said they have to have more writeoffs.

    Hedge funds are not paying redeeming investors in cash anymore (Paul Tudor Jones, GoldenTree) or are limiting the cash they can take out (just about all other funds – AQR, for one local shop).

    So layoffs, writedowns, and inability to access cash. I’m with Retired IB’er – that is a train headed towards you, not the light at the end of the tunnel.

    CEA

  12. DebtVulture

    “Spoke with an appraiser recently, he is using a 1% decline monthly for Greenwich pricing for the time being! This guy lives in Town so its not someone who knows our market.”

    Nominal mortgage rates may be the lowest in 37 years, but if your house is going to decrease 1% a month, that REAL rate is the highest its been in a LONG time.

  13. Retired IB'er

    To further CEA’s point on the job front, Jamie Dimon (CEO of JPM) answered a question about head count within JPM’s investment bank today with the response: “when we added Bear Stearns we said it would add 6000 people to the IB net. The head count looking forward is more like as if you didn’t add Bear Stearns at all.”

    Ouch! That is a lot of people in the NY metro area looking for jobs and many of them with their net worths impaired (to put it mildly).