5 short months later and with enough negative news hitting the market, now I am no longer brushed aside, but rather sought after for one question and one question only;
"Are we at the bottom yet?"
To which I answer, "heck no, we're not at the bottom, this is just the beginning!" with a smile on my face for even though I own a house I enjoy being right more especially when these were the same people ignored me and laughed at my outlandish theories about a housing bubble. And the data would support me on this. This spiffy charts provided by the Minneapolis Area Association of Realtors suggest that the correction has JUST BEGUN! Very similar to the Shiller Roller Coaster chart.
The second question I'm asked is "when will it bottom out?" requesting I give an estimate. So now that it seems I might have people's attention I'm going to bring back two charts that I think you'll pay a little more attention to this time around;
1. National House Price to Rents. This shows you that house prices have increased faster than the cash flows that should afford them; rents. And if housing prices were to get back into historical line, they would have to drop by about 40%.
2. National House Price to Income. This compares the median house price to the median income. This implies that housing would have to drop by 20% to get back into line.
So I don't know, 6 months to a year? Depends on if developers cut back on flooding us with a glut of cookie cutter townhomes and condos. Regardless, it's going to be a while and America is going to get a LONG OVER DUE lesson in them merits of fiscal austerity.
Additionally, I also suggest you read this little ditty because I speculate on the effects on the overall economy and it's just plain freaking funny. This too should have gotten more play than it did.
Alas, I don't play the tune people want to hear, just the tune they needed to hear 6 months ago.
It's interesting that the median and average are tracking each other. This would indicate to me that the shifts are systematic (i.e., occurring everywhere and at all levels) and not related to shifts in one housing price cohort. It might be interesting to graph the relative deviation between the two to get an idea if there really is close tracking.
ReplyDeleteLive in Canada, Married to a banker, in a retirement sort of town that is waaaay out of line home price wise. My banker hubby took a long look at housing prices six months ago and switched from his comission sales postion on the insurance side to a salary postion on the personal banking side. The bust is coming for Canada, and we are in worse shape than the US to get through it unscathed. I am scared for my retirement parents and their friends who seem to have all forgotten the following two things. 1.)Real Estate agents have a vested interest in lying about housing price trends. 2.) There is nothing on this planet (not one thing) worth more than what someone else is able or willing to pay for it.
ReplyDeleteYour estimates are too optimistic. Housing booms are usually followed by many years of flat nominal prices (and thus decreasing real prices, as long as inflation remains positive). Thus the bottom is more in the vicinity of 5 years. Sad but likely (or true!).
ReplyDeleteI, too, believed that houses were overpriced, but we bought one in spring of 2005 anyway, because we wanted to live in one, and I am of the opinion that rent money is money down the drain, especially becuase if we weren't paying the mortgage, we would be spending it some other way. So, if you (or anyone else) buys a house with plans to live in it for the next 25 or so years, then buying a house now, even though the market is cooling, might be the right time for you.
ReplyDeleteJunam
I would like to comment on the last Anonymous post who said that "So, if you (or anyone else) buys a house with plans to live in it for the next 25 or so years, then buying a house now, even though the market is cooling, might be the right time for you"
ReplyDeleteI am not attacking this individual personally, rather the mindset that this person has which I see far too common. This inherited knowledge from our boomer mentors is no longer applicable in todays scene.
First of all...who can honestly plan to live anywhere for 25 years? Alot of things change in life no matter what age you are. It is good to have long-term plans yes, but being so optimistic that you will be in your "dream house" for 25 years in todays world is not rational thinking.
I really have a tough time listening to the argument that "renting is wasting money". Perhaps in some instances this MAY be true, but to have this general sheep-like understanding that renting is wasting money is ignorant. The risks associated with home-ownership far outweigh renting. Once an individual puts the numbers down on paper of the true cost of home-ownership today, you will see that it isn't a waste to rent. In fact, while your hard-earned $ are going into an "investment" like your home...you are paying more for property taxes, maintenace materials, labor costs, utilities and interest costs on that mortgage. All of this goodness delicately wrapped by the fact that losing 3% value on your $350000 house means you instantly lose $10500.
There are just so many negative factors that are in favor of making this housing bubble on of the worst things to happen to people in a long time. Whether you crash and burn when it bursts, or you hang in there an pay your mortgage for the next 30 years...you will have felt the effect of this madness. I do so love the term "Mortgage Slaves" as it is exactly what home-owners will have become thanks to this bubble.