Hope springs eternal: talk that housing has bottomed

[SeanO]

Re: Hope springs eternal: talk that housing has bottomed

Ok so its for NY and not CA, but still.

Rents are down in the areas I suggest may be bottoming as well. So what?

Rents, like home prices, will drop as household incomes decline. At first glance it is actually surprising rents have declined so little when compared to prices. The reason is that neither rent payments or housing payments got that far out of line with incomes. What really got out of line was prices - due to loan terms.

[mesyn191]

Re: Hope springs eternal: talk that housing has bottomed

Rents are down in the areas I suggest may be bottoming as well. So what?

Generally in a housing bust rents will hold up but home prices will go down to meet them, bottom out near local rent prices and then rise again slowly, to have them both go down simultaneously is ominous.

[SeanO]

Re: Hope springs eternal: talk that housing has bottomed

If the area is undeveloped period and you get some big investors coming in to buy it all up and build on it you can see land/home prices sky rocket. There were all sorts of areas in the 90's bust and 70's too that "were going to be big" but ended up turning into ghost towns. Leathal Weapon 1 or 2 (can't remember) was shot on location in one of those, the owners were greatful to have the movie guys destroy it all for them since they were supposed to pay for demolition IIRC.

Not sure what that has to do with anything. The areas I suggested might be bottoming are large and have been important economic hubs since before the gold rush. It would take one hell of a speculative development to fundamentally move their prices.

There are also tax credits/exemptions or in some cases they actually just start giving people money directly to buy homes.

Clearly these are influential, but they are never sufficient to change the fact that loan terms and income dictate price. The 250/500k capital gains exemption clearly incentivized speculation than any other recent government effort, but while it perhaps primed the pump prices didn't move noticeably until after interest rates dropped and loan terms loosened.

The GI Bill in 1944 probably had the biggest impact in history, but again it did so by changing loan terms.

I was talking about where the prices were 2 years ago, it just so happens that they also are where prices were ~10 years ago. ;)

Um, no. 2 years ago they were 233% higher than both today and 10 years ago.

I see where you're coming from, and I agree that not all areas will tank as bad as say Riverside

My point wasn't that other areas won't decline further. It was that the hardest hit pockets have likely bottomed based on current conditions as they have corrected beyond what should be necessary given current incomes and loan terms.

I just don't think you're appreciating just how catastrophic the job losses and long term job drain out of CA and other major bubble states will be for their respective housing markets/economies. Personally I think things are going to get fairly bad in CA (no, not Mad Max bad...), and I don't plan to stay there much longer.

Actually I've been clear that significant declines in income would cause prices to fall further. Again... prices are a function of income and loan terms, so of course that means price will fall if income falls. It also means prices will fall if rates increase or lending terms tighten further. Both of those are possibilities. But for now these areas have over corrected - perhaps in anticipation of those eventualities.

If they were truly interested in keeping people in their homes you'd see them do cram downs IMO. I think they just care about the banks' balance sheets though so you're going to see more variations of loan mods similar to Obama's plan, at least until its clear that such plans aren't and won't work. I don't think that is going to be clear to the masses much less congress until late in this year at the earliest.

Having purchased property out of bankruptcy proceedings I can tell you that bk cram downs will be a mess. At the same time it seems ridiculous to me that bk judges can modify the terms of almost any other contract - including pensions earned over 50 years - yet not touch home mortgages.

[mesyn191]

Re: Hope springs eternal: talk that housing has bottomed

Not sure what that has to do with anything.

Well you said this, "You simply can't have speculation in housing without loose lending.", I was just giving an example of one way you could, if I mis-read/interpreted it then my bad.

Clearly these are influential, but they are never sufficient to change the fact that loan terms and income dictate price.

The gov. can change the laws at will to do as they please though to manipulate the market, I don't believe that is something that you can afford to be so blase about!! For instance though you believe other wise I'm not so sure this bubble could've happened (certainly not have gotten so big) without the capital gains exemption law you mentioned.

Um, no. 2 years ago they were 233% higher than both today and 10 years ago.

Maybe the way I'm using isn't the most "correct" way but most people I've met don't talk about home price appreciation/depreciation you are...

My point wasn't that other areas won't decline further. It was that the hardest hit pockets have likely bottomed based on current conditions as they have corrected beyond what should be necessary given current incomes and loan terms.

I guess we're going to have to agree to disagree, AFAICS no area has bottomed yet due to the job losses alone.

Having purchased property out of bankruptcy proceedings I can tell you that bk cram downs will be a mess. At the same time it seems ridiculous to me that bk judges can modify the terms of almost any other contract - including pensions earned over 50 years - yet not touch home mortgages.

Isn't there some law working its way through congress to give judges back the power to modify mortgage contracts?

[vanvaley1]

Re: Hope springs eternal: talk that housing has bottomed

Again... EJ's Geographic Regions Cascade theory fairly well explained this. The most desirable pockets will be the last to fall back to affordable levels, and it won't be over until they do.

I always get a chuckle reading the "10 best places to buy" articles as they inevitably focus on areas that have seen values drop the least - yet those areas are the ones most likely to still correct. I'm a believer in location, location, location, but when only 15% of residents can afford a home you have a problem. When 70% can, you don't.

I've heard that small isolated college communities hold their value well. I've only seen and experienced that twice so I can't suggest that it's a national trend.

[DaveBrown42]

Re: Hope springs eternal: talk that housing has bottomed

Latest Case-Shiller numbers will be released in just over 4 hours. I'm guessing all the optimism will recede a bit.

[DaveBrown42]

Re: Hope springs eternal: talk that housing has bottomed

I'm not a fan of the "times income" analysis (3x vs. 4x)... too simplistic as it fails to take into account changes in interest rates. We may get to 3x prices, but it will only be because rates jump significantly, and our current govt seems hell bent on keeping mortgage rates low regardless.

True. The majority of Americans are Monthly Payment Consumers who buy exactly as much house as the bank will approve them for. The actual price of the house is largely irrelevent.