A pessimistic outlook on residential home prices

Highland clearance, old style

Highland clearance, old style

ZeroHedge contributor looks at stagnant, even falling income, stricter mortgage qualification standards, climbing interest rates and predicts that prices have nowhere to go but down.

Based on results, the decline in real household incomes has proven insensitive to a variety of economic theories and policies. Neither the Republican-Bush era tax rate cuts nor the Democratic-Obama Keynesian pump priming at fire hydrant pressures has succeeded in reversing this long term trend. Nor has anything appeared recently to suggest an abrupt reversal is at hand in this key trend of average household income.

In these circumstances the only other possibility for further residential real estate “recovery” would be for government regulators to foster another bubble by effectively relaxing residential mortgage lending standards again.

Two caveats: politicians are already calling for reinflating the housing bubble by lowering mortgage lending standards and in an election year, are likely to do so, and  the statistics relating to income decline cover the unfortunate 90% of the population, not the top 10%, which is the segment buying in Greenwich.

So don’t count on finding that bargain just yet.

18 Comments

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18 responses to “A pessimistic outlook on residential home prices

  1. Riverslide

    So income inequality and government bailouts (the modern end result of lax lending standards) will save us!

  2. The linked article is persuasive: many factors are combining to depress real estate prices in most places. But Greenwich is a relative exception.

    Charles Murray showed in his fascinating book Coming Apart that prosperous and non-prosperous people are having less and less interaction: the rich and non-rich are increasingly living in separate habits, places, interests, cultures.

    Are real estate values having the same barbell effect? Prices on average are nearly flat. However, in the prosperous places, prices are increasing. Perhaps we are not seeing all-stagnation or all-growth, but simply divergence. The real estate equivalent of Murray’s social phenomenon.

    • jb

      True, but some “wealth” is vaporous. A $5 million/year gig on wall street is no longer that reliable. And take a peg down and notice doctors and lawyers are starting to suck wind. Yes, there’s a spike at the top end and for some sustainable but its still supply/demand. Consider: (i) wages stagnating; (ii) recent layoffs at Macy’s, Dell, and wall street firms; (iii) demographics (baby boomers just staring to retire and downsize while the young saddled with huge student loans); (iv) CT’s population numbers getting smaller, etc.

      And, for the past two years, investors have purchased 40-50% of homes and are starting to back off.

      Yes, some spots are isolated, but….

      The next two years should be very interesting.

  3. Joey

    I agree with the Charles Murray’s argument but I am not sure that Greenwich is so immune to stagnant real estate prices. A huge percentage of population in Greenwich is employed in the financial services industry. This is an area that is seeing a sharp decrease in bonuses, and hence total income. Unless Wall Street sees a rebirth soon or the financial types are replaced by someone else (high tech maybe) the real estate prices will be flat or declining for years to come. One sign of the sag in Greenwich is the fact that the real estate prices are quite flat in spite of the low inventory level. Doesn’t mean you won’t see sales activity though.

    Perhaps one wild card for Greenwich could be the sky rocketing real estate prices in NYC. That could help Greenwich but, still, these markets are not perfect substitutes.

  4. ajnock

    Zero Hedge only publishes bearish articles. Don’t let them shape your opinion of the markets.

    • jb

      Very true. They haven’t been right (on average) since the last crash, but they nailed that one. It’s all about supply and demand, with a sprinkle of emotion. Best bet for Greenwich is fairly stable.

      However, another big CT concern not discussed in the article is CT’s financial situation. If Malloy gets re-elected, likely no significant reforms so companies/folks will continue to leave, etc. Thankfully, Greenwich is close enough to NYC.

  5. Hu Nuh?

    Lest we forget: the inevitable rise in State & Property taxes….

  6. 59

    Well,
    If we are talking local, and I mean Riverside, and the dry parts if OG, life is beautiful.
    The fact continues to remain.
    NYC is going gangbusters.
    Typically story goes like this:
    Man lands well paying job
    Man gets swanky NYC digs.
    Man sees tits starting to point in his direction.
    Finally a settles for the pair that also blows him.
    She’s move in, they wed, and voila she’s pregnant.
    BJ’s disappear, kids multiply, NYC too small.
    Result? Move to low tax, big address, pretty good schools, g town.
    Inventory low, prices up, fear of rates rising…and nagging wife and Father Time are all forcing the issue.

    And don’t forget investors & trust funders.
    They will boost prices too.
    Case closed. Sell or stay, you can’t lose, and you won’t do better.

  7. FlyAngler

    Do not forget the concept of “the wealth effect”, even with banker types. Comparing late December 2011 common stock prices to today’s close (~last 24 months):

    JPM 33 to 57 (up 73%)
    UBS 11.6 to 20.6 (up 78%)
    GS 90 to 175 (up 94%)
    MS 15 to 30 (up 100%)
    Citi 26 to 53 (up 104%)
    BAC 5.56 to 16.43 (up 195%)

    SP500 1257 to 1819 (up 45%)

    All of that increased usage of “equity-based compensation” at the end of 2011 and 2012 might not look so bad right now.

  8. What a mess

    Another thing that may help Greenwich real estate. London. London Financial Services are getting crushed by the EU. Bonus taxes, and coupled with $5k euros / sq foot, the most insane real estate prices outside of Hong Kong. Between bonus caps and skyrocketing real estate, those who can leave, will. London Financial Services employees are going to flee The City and come to NYC. NYC will once again reign supreme as the financial supercenter of the world. Some of these people will migrate up to Greenwich, once they see how beautiful it is.

    • Joey

      NYC always did reign supreme after it eclipsed London in the early 1900s. But you are right it is here to stay for a while. I don’t think any London finance types are going to be flocking here though. You got to have jobs for that one. NYC is good though for the oil prince, Russian money launderer, and the Chinese factory owner making all those widgets.

      • housecat

        They park their money in G-Town, too. Why, we are personally blessed enough to have a ____ family living behind us! It’s great, as long as you don’t mind the totally misplaced (unearned) attitude and the security cameras pointed at your property. Such nice people. Love the aggressive dogs, too. Makes me miss the coyotes.

        • Joey

          oh the attitude of new money. I guess they have to at least live in the house more than a few weeks out of the year to learn some good ole New England restraint.

  9. Anonymous

    maybe obama will buy a vacation home in greenwich.

  10. Libertarian Advocate

    Nah, it’s all rich white golfer types there. Errr… never mind.