[Sixstrings]

$this->bbcode_second_pass_quote('', 'W')ay back in August 2006, near the top of the housing bubble, I suggested a two-part scenario for the housing bust: it would take eight more years to play out, and the declines would occur in sharp downlegs following a phase-shift model.

Here is the chart I presented at that time as a possible time model:



A few months later, literally at the top of the housing bubble in early 2007, I suggested that a mere 4% of homeowners defaulting could trigger a collapse of the entire U.S. housing market.

That is pretty much exactly what happened, for when the 4% who couldn't pay their subprime mortgages folded, they took down an exquisitely corrupt and vulnerable banking sector and the FIRE (finance, insurance, real estate) economy which had come to depend on it.

(snip)

As I noted in Phase Shifts, Stick/Slip and the Demise of Our "Socialist" Housing Policy (February 26, 2010), the "recovery" in housing visible in the chart below was entirely the result of a 99% "socialist" Central State intervention/prop job: the Federal Reserve bought $1.1 trillion of dodgy mortgages to mask the bad debt and keep interest rates low, and the Federal government flooded the housing market with fee money via subsidies and absurdly cheap, central State-guaranteed FHA loans.

Now that this massive Central State intervention has ended, housing sales and values are succumbing to gravity. home sales and prices fall:

"The National Association of Realtors said Monday that sales of previously occupied homes fell last month to a seasonally adjusted annual rate of 4.88 million. That's down 9.6 percent from 5.4 million in January. The pace is far below the 6 million homes a year that economists say represents a healthy market.

Nearly 40 percent of the sales last month were either foreclosures or short sales, when the seller accepts less than they owe on the mortgage.

One-third of all sales were purchased in cash - twice the rate from a year ago. In troubled housing markets such as Las Vegas and Miami, cash deals represent about half of sales.

The median sales price fell 5.2 percent to $156,100, the lowest level since April 2002." (source: http://www.dailyfinance.com/story/real-estate/existing-home-sales-fall-9-6/19886244/)
Sales of new homes tumbled 16.9% in February from the prior month to a seasonally adjusted annual rate of 250,000, the lowest level since the series began in 1963.

The median price for a new home sold in February fell 13.9% from the prior month to $202,100, the lowest since December 2003.
http://www.zerohedge.com/article/guest-post-phase-shift-next-leg-down-house-prices

[Fishman]

Man, that is one brutal graph. I think its accurate also. At least with QE I can finish paying off my house with worthless dollars. Lets see what I need at Wallyworld tonight, rice, popcorn, 22lr cartidges, hmmm....

[Sys1]

I've heard today on economic news radio about a 7% decline in real estate (old one) in France.
In 2008-2010, QE/bailouts were used to allow the economy to grow again while actually, most of this virtual money ended as virtual growth aka real estate speculation. Before "the crisis", Banks used to make their profit with the real estate bubble they made up. Ironically, bailouts just inflated more this bubble, simply because banks could not have invested anywhere else but real estate, stucked in their own trap. If they had done the opposite they would have had to sell their real estate assets, flooding so much the market that it would have ended with massive lose. From virtually owning billions of virtual money, they would have earned nothing but bankrupt.
And now? Bailouts have just amplified the previous situation, meaning that the pop will hurt much more than anytime in the history. But what has changed is that it's now certain that as we fall from the undulating plateau of peak oil, central banks will have to increase interest rates in order to cool down inflation.
What will be really funny is that as interest rates will go up, it will be together with oil prices while real estate collapse for good. Governments, banks and medias will get mad as the situation doesn't fit in any of their beautifull lessons they learnt at the economic school. Then they will have to deal with Joe Sixpack as soon as he'll figure out he lost his retirement, job and even access to his account.
I guess that by this time, our elites will have already close the doors of their vault 13...

[pup55]

The house across the street from me is about 2200 square feet, was built in 1996 and originally sold new by the builder for about $185K...

About 8 years later, It was sold to a family of five, cute little blond mom, cop dad, and three little blond kids, for $250K. They allowed one of their parents to hold the mortgage, since they could not afford the house on the cop's salary....the original owners, by the way, moved out to the ritzier subdivision a little farther out, where the bought a $400K house, had it professionally decorated with all of the upgrades.... nice place, evidently, I never was there....there was apparently some gloating on the part of the stepford wife, who had the new house and was not keen on slumming it with the old neighbors...

Now, the house across the street is empty.The listing price? $185K, same as the original selling price, and there have been zero buyers and even zero shoppers in nine months, Whichever of the parents that owned the place put about $20,000 in "upgrades", granite, hardwood, the whole bit.... The little blond and the rest of the family had to downsize to a smaller, older house not too far away.

The builder family? They are living in the basement of the wife's parents.... they lost that nice house, the guy is doing small scale fixemup work, when he can get it... presumably that place is sitting empty. No more gloating by the stepford wife. She was in the hospital for knee surgery, was reportedly too embarrassed at her new place to have any of her old neighbors visit her.

So we're in Phase 3 already right? Prices back to the 1996 level, still no buyers, there have been two strategic foreclosures on the street, a couple more other places sitting empty....

There's my real estate market.

Those mortgages, with the exception of the mom mortgage, are sitting in some bank's portfolio at this moment as having some value, but their value is basically zero..... No one knows the value of a piece of real estate in the neighborhood, nor does anyone know what the bank is worth...

[Lore]

Case-Shiller is predicting yet another 20% drop in home prices.

$this->bbcode_second_pass_quote('', 'T')here are some very well respected housing economists, including Robert Schiller (creator of the Case-Schiller index), who are far more pessimistic than I about the future of housing prices, thinking prices could drop 20% or more from current levels.
http://www.zacks.com/stock/news/49521/U ... les+Plunge

[Thralen]

That all depends, can you call it a collapse in price if the asking price goes down but nobody is buying?

Thralen

[eXpat]

Household wealth down 23% in 2 years - Fed
$this->bbcode_second_pass_quote('', 'N')EW YORK (CNNMoney) -- The average American family's household net worth declined 23% between 2007 and 2009, the Federal Reserve said Thursday.

A rare survey of U.S. households, first performed in 2007 but repeated in 2009 in order to gauge the effects of the recession, reveals the median net worth of households fell from $125,000 in 2007 to $96,000 in 2009.
Titled "Surveying the Aftermath of the Storm," the report offers a broad look at how the financial crisis impacted individual households.

It is widely known that the 2008 financial crisis resulted in the vaporization of trillions of dollars in household wealth. But Federal Reserve officials said Thursday the new report offers a look at exactly how hard the recession hit families, and how they reacted.

The numbers paint a stark picture.

Families that owned stock saw their portfolios drop by more than a third to $12,000 from $18,500, on average. The value of primary real estate holdings decreased by an average of $18,700.

And families took on more debt, pushing median total debt levels to $75,600 from $70,300. They also made less money. Media household income dropped from to $49,800 from $50,100.

[Timo]

Housing values and prices aside for a moment, what does this say about people's willingness to maintain the houses they own and live in if they can get a new house for less than cumulative repair costs, like paint and guttering, plumbing, electrical, and leaking basements, and termites, etc.....? It becomes easier and more financially feasible to treat properties as disposable since the price of a new house could be seen as smater than spending money to maintain an old house. Forget about the housing market! This could easily lead to the rapid decay of neighborhoods across the country, the whole world, even! The only way to prevent this is to lower the costs of regular housing maintenance. The handyman will have to charge less for his services to make maintenance more feasible for the homeowner. Otherwise, the homeowner will just accumulate the savings from doing nothing because he knows he can get a new house for the same cost. This housing price collapse will have astounding and devestating ripple affects.

[dolanbaker]

$this->bbcode_second_pass_quote('Timo', 'H')ousing values and prices aside for a moment, what does this say about people's willingness to maintain the houses they own and live in if they can get a new house for less than cumulative repair costs, like paint and guttering, plumbing, electrical, and leaking basements, and termites, etc.....? It becomes easier and more financially feasible to treat properties as disposable since the price of a new house could be seen as smater than spending money to maintain an old house. Forget about the housing market! This could easily lead to the rapid decay of neighborhoods across the country, the whole world, even! The only way to prevent this is to lower the costs of regular housing maintenance. The handyman will have to charge less for his services to make maintenance more feasible for the homeowner. Otherwise, the homeowner will just accumulate the savings from doing nothing because he knows he can get a new house for the same cost. This housing price collapse will have astounding and devestating ripple affects.

[Lore]

$this->bbcode_second_pass_quote('Timo', 'H')ousing values and prices aside for a moment, what does this say about people's willingness to maintain the houses they own and live in if they can get a new house for less than cumulative repair costs, like paint and guttering, plumbing, electrical, and leaking basements, and termites, etc.....? It becomes easier and more financially feasible to treat properties as disposable since the price of a new house could be seen as smater than spending money to maintain an old house. Forget about the housing market! This could easily lead to the rapid decay of neighborhoods across the country, the whole world, even! The only way to prevent this is to lower the costs of regular housing maintenance. The handyman will have to charge less for his services to make maintenance more feasible for the homeowner. Otherwise, the homeowner will just accumulate the savings from doing nothing because he knows he can get a new house for the same cost. This housing price collapse will have astounding and devestating ripple affects.

[Pretorian]

$this->bbcode_second_pass_quote('dolanbaker', '
')
In a few years without maintenance all houses will become dilapidated!

[pup55]

Well, around here, people are being responsible, and for the most part are not letting their places fall down completely..... the jerk realtors that have been assigned the job of "showing" the walkoffs are responsible for at least mowing the lawn and keeping the places from being overrun....

Over Christmas I took a day and drove around the delightful community of Cape Coral, FL one of the epicenters of foreclosure in the nation, and down there, it was not at all uncommon for there to have been pretty minimal maintenance, cleaning or anything else in some of those cases....houses full of junk and trash... of course, you get get a lot of them for around 1/3 of their most recent comparable home sale price...there are actually bus tours, brits and other foreigners touring these places in the hopes of picking up a bargain....

so at some point, when these places get heap enough.... a buyer will come out of the woodwork at least in FL.

[sicophiliac]

This isn't an entirely bad thing the way I see it. As a resident of the bay area its always seemed to be almost an impossibility to ever own a house around here. During the bubble we had run down shacks on the bad side of San Jose going for 500-600 grand easy ! A nice house was around 800 grand at least, and unless you were in on one of the now infamous sub prime/shady loans or be house poor and living paycheck to paycheck you'd need to be rich to actually buy one of them.

Now the idea of buying a house or a condo seems pretty reasonable if you have a halfway decent job or two incomes. Rent out a room to a friend and it becomes even more attainable.

We all know that the housing bubble was a big joke, low interest rates with easy loans made it happen and made the prices get to an unsustainable level. If prices keep falling it'll be healthy as the housing market will reach a state of equilibrium with the rest of the economy. Homes should be, in my opinion a source of financial security and stability in peoples lives, a roof over your head, serving the basic human need for shelter. This whole basic concept had been forgotten and houses became a freakin financial tool or source of borrowed cash.

I say let them keep crashing ! If I still have a job and a savings account ill be happy to buy one !

[Ibon]

As wages have dropped and banks have tightened lending practices we see that home prices are out of sink with what most folks can afford. On the other hand the cost of building a new home is historically high with commodities like iron, copper, wood, cement, fuel etc. rising. So aside from excess inventory of the moment at some point pricing has to reflect what people can pay. Parallel to the news that housing will drop there is a lot of speculation about another drop in the dollar. Well, at some point that $ 138,000 dollar home will "rise" in price as the dollar loses more and more value. But the commodity prices will then be so high in dollar terms that the cost of an existing home will have to be in some relation to the cost of building a new home.

We have historically high inventory out there.

I just heard 33% of home sales are now cash deals. If you have cash there is a great buying opportunity coming up once housing corrects again but before your dollars become less valuable. And before commodity prices rise.

When everyone is in sync about the housing pricing hitting bottom that is the time to pull the trigger and buy.

A house is still a hard asset. That is still true in spite of the correction.

[pedalling_faster]

$this->bbcode_second_pass_quote('Thralen', 'T')hat all depends, can you call it a collapse in price if the asking price goes down but nobody is buying?

[sicophiliac]

$this->bbcode_second_pass_quote('Ibon', 'A')s wages have dropped and banks have tightened lending practices we see that home prices are out of sink with what most folks can afford. On the other hand the cost of building a new home is historically high with commodities like iron, copper, wood, cement, fuel etc. rising. So aside from excess inventory of the moment at some point pricing has to reflect what people can pay. Parallel to the news that housing will drop there is a lot of speculation about another drop in the dollar. Well, at some point that $ 138,000 dollar home will "rise" in price as the dollar loses more and more value. But the commodity prices will then be so high in dollar terms that the cost of an existing home will have to be in some relation to the cost of building a new home.

We have historically high inventory out there.

I just heard 33% of home sales are now cash deals. If you have cash there is a great buying opportunity coming up once housing corrects again but before your dollars become less valuable. And before commodity prices rise.

When everyone is in sync about the housing pricing hitting bottom that is the time to pull the trigger and buy.

A house is still a hard asset. That is still true in spite of the correction.

[MarkJ]

$this->bbcode_second_pass_quote('', 'I') just heard 33% of home sales are now cash deals. If you have cash there is a great buying opportunity coming up once housing corrects again but before your dollars become less valuable.

[Ibon]

$this->bbcode_second_pass_quote('MarkJ', '
')
Potential buyers get all excited when they see big beautiful urban homes selling for around 100K, but cringe when they see the property taxes, which are often $6,000 plus per year.

Three years ago I built and sold a modest 2,200 sq/ft spec home in Montgomery County on 2.5 acres for 265K. Currently, the property taxes are about $7,200 per year. The owners are selling because of the rising property taxes.

[MarkJ]

$this->bbcode_second_pass_quote('', 'W')hat are the tax rates in New York. How can a $100k home have $ 6000 property taxes but a $ 265k home only go up an additional $ 1200 to $7200.

[Pretorian]

Mark, I still think cold day in hell will be sooner than you will stop extracting $$ from these ungodly counties and botched cities full of racially challenged individuals. And I wish you the best of luck.