Monday, December 18, 2006

Business Week: 15+ Years Till Recovery

"Housing booms are short and exciting. Housing busts, on the other hand, are long and painful. So don't put much faith in those oft-heard assertions that the worst is already over. Prices are likely to fall further in many markets in 2007. In some others, prices may rise, but at less than the rate of inflation. A BusinessWeek analysis of the past three decades shows that if history repeats itself, it's likely to take 15 years or more for many parts of the country to get back to their inflation-adjusted peaks."
"The biggest losers will fall into one of these groups: cities like Detroit that are suffering economic contractions; cities like Los Angeles, San Diego, and others in California where prices are extraordinarily high and have barely begun to adjust; and cities like Miami, Las Vegas, and Phoenix that have a huge overhang of unsold houses or condos."
"[R]ight now is not the ideal time to buy or move up, even with the recent price declines. The inventory of existing homes shot up 34% from October, 2005, to October, 2006, and now stands at nine months' worth of condos and seven months' worth of single-family houses at the current rate of sales. That backlog will take a long time, and a lot of price-cutting, to clear out."


Anonymous said...

This region is going to be hurting big time. Sac had the bubble of all bubbles. High price appreciation with no underlying economic support.

Rob Dawg said...

I think I'm turning Japanese,
I think I'm turning Japanese,
I realy think so....

[with apologies to The Vapors]

RayW said...

But everyone wants to live here and price isn't an issue!

We all know there are very fundamental reasons why the median price of a SFH in California went from $330,000 in December of '03 to $560,000 in December of '06. I can't think of any but they keep saying there are.

Nothing will bring the prices down...they are there to stay forever and beyond.....and even higher and higher.....remember everybody wants to live here.

paranoid renter said...

wow...for those of us waiting for a bottom to buy, that might be 15 years away!

Rob Dawg said...


No, "recovery" [return] could be as far as 15y away. Opportunity is always but a deal away. I know that sounds trite as there will be deals on the way down for 2-3 years and even better deals 3-6 years and great deals in 6-9 years. The idea is to buy low and reap and/or sell dear. Stupid is to catch a falling knife or stand in front of a freight train.

Anonymous said...

The Federal Reserve is likely to help the market in 2007 by cutting short-term interest rates, which will make adjustable-rate mortgages cheaper.

Now it is my understanding that most ARM's are tied LIBOR how is the Fed Reserve cutting rates going to help.

Anonymous said...

I think if the dollar keeps getting pounded the Feds will raise rates in order to protect monetary policy.

Housing Doom. 50% decline by 2009.

Perfect Storm

Anonymous said...

Rayw: actually, there was a report that said California reported its first net exodus last (or was it this) year!

paranoid renter said...


Why the picture of the old man? Is that how old we will all be when we get to buy??? :-)

Anonymous said...

Paranoid renter, 15 years is not the likely bottom, (when you'll want to buy) it's the next high.

After the last boom (not as severe) prices slid down around 1990. They continued to drop for a few years. Then they were flat for several more. It didn't start to go up (slightly) until around 99 (give or take) with 2005 being the peak high again. Hence, the 15 year cycle.

Now, here we go on the downside of the roller coaster. Again.

So from high to high, it might be 15 years, but the bottom could strike in just 2 to 3 years, with many flat years in between. At least, that is, if history repeats itself.

Hang in there, hopefully great buys are just a couple years away.

Gwynster said...
This comment has been removed by the author.
Gwynster said...

Must remember to use the preview option**

I can check the data at work but I'm pretty sure we saw a significant outmigration in 2005. Here is a US census press release on the 2000 to 2004 dataset

I'm awaiting the 2006 US census estimates for the states and the counties with baited breath.

Gwynster said...

Found some stats I'd already posted

dan said...

Re: Anon, 2:09:00PM

'This region is going to be hurting big time. Sac had the bubble of all bubbles. High price appreciation with no underlying economic support.'

No truer words have ever been spoken on these blogs including those delusional "Living In Urban Sac" blogs....

Anonymous said...

My question is why aren't more investors jumping ship and taking their losses now and putting their houses on the market. Every home on my block except our house is owned by Bay Area investors but none of them have shown any signs of movement. I understand they'd like to weather the storm but it seems that it's going to be a very long storm.

Anonymous said...

Anon 8:06

Just one of the stages of flipper denial.

Things will always get better in the Spring. When the blue birds come out and bambi is playing with thumper.

I like the part when Bambi's Mom gets shot by the hunter. It reminds me of an FB getting screwed when his ARM resets.

Housing Doom 2007.

Perfect Storm

patient renter said...

"why aren't more investors jumping ship and taking their losses now and putting their houses on the market"

Wishful thinking: things will be better in the spring. Unfortunately everyone is planning to throw their houses [back] on the market in the spring, so we'll just have a flood of inventory and few buyers.

paranoid renter said...

Anon 8:06

I assume many of them are sitting on 100+% gains so it doesn't hurt to take a wait-and-see approach. As long as they go get out before all of their gains are wiped out.

Then there's me. I saw one of my stock that I had bought at $11 go to $90 during the boom and then fall all the way to $3 during the bust. I got out at $3. Today it's at $2.50. If I were wiser, I'd have gotten out at $50-$60 having seen it lose 50% of its value. That's why the moment I became aware of a housing bubble, I decided to stay away...I didn't want to lose money in 2 bubbles!

paranoid renter said...

Check out this article.
Predicted fall for Sacramento in 2007 is only 3.4%.

paranoid renter said...

Link got messed up. Trying with tinyurl.

Anonymous said...

Not that I in any way think that the current Sac housing market is a strong one, but a total collapse in the market is just one possible scenario.

I think it is just as likely that we may see a pronounced increase in inflation leading to a decrease in home values in real terms, but a corresponding real decrease in mortgage debt. This inflationary spike may be brought about by a resumption of the easy money policy at the fed designed specifically to stave off a housing collapse.

In any event, timing a market is always difficult, if not impossible. Just as 05 prices seemed nonsensical, so too might 08 prices, etc. If someone truly believes 100% in a significant housing collapse, I would strongly encourage them to use the CME futures to profit from the collapse. Or, merely sell short your favorite public home builder. Since stocks, bonds and other longer term investments will also suffer from any significant housing collapse this would be a good way to profit from market timing.

Me, I'll continue to maintain a diversified portfolio that includes some exposure to residential real estate in good locations.

Anonymous said...


I bumped into this old article about a speech Ms. Appleton-Young gave in Stockton. Amazing what can happen in 18 months and exactly how wrong she was.

My favorite lines:

"Dave Harmon, a Coldwell Banker Grupe broker, said Appleton-Young's presentation was reassuring, because he had been wondering whether the ongoing price escalations were leading up to a bubble.

"She dispelled that," he said.

Many of his clients have been asking him whether they should wait to buy until prices have dropped, he said, but now he can tell them positively that there's nothing to gain by waiting.

"What she has told us is that if you wait, it would be foolish," Harmon said."

She [Ms A-Y] didn't forecast a bursting price bubble for pricey California homes, because a sharp statewide recession would be needed to set that off, and no economists are predicting any such downturn, she said.

"I'm just not seeing it," she said.

I'd get my perscription checked if I were her.

Anonymous said...

That link above was

TS said...

here are two fundamental reasons for the current market 1)markets are fundamentally irrational and driven by emotion,most people buy high snd sell low.2) The real estate industry was talking out of its fundament with forked tongues for years,and the media played shill.