More red meat for the housing bears

February 12, 2006 7:57 PM

Home Prices Do Fall A look at the collapse of the 1980's real estate bubble through the eyes of The New York Times
Better with Times select. Also better with Firefox's fetch text extension
posted by Kwantsar (33 comments total)

When most people say 'down' in that case they're usually talking about going down below the pre-hype level, and those charts clearly show that they don't.

Up 3, down 1, up 3, down 1, etc, doesn't count as down overall.
posted by HTuttle at 8:11 PM on February 12, 2006

I also see no "collapse" here. I see a trend line going up, period.
posted by frogan at 8:28 PM on February 12, 2006

that's a strange perspective, 'tuttle. the same could be said about the stock market; but I'm sure millions of people certainly felt that prices were "down overall" after '01.
*shrug*
yeah, it all depends on how you look at it. i think it's important to acknowledge that housing prices do fall; in the 90's it was about 10-25%. that's enough not to ignore.
posted by thekorruptor at 8:29 PM on February 12, 2006

The average American moves every 7-years.
posted by stbalbach at 8:31 PM on February 12, 2006

Yea but a lot of people have bought houses since it has gone up - and it has been elevated since about mid-2004 (at least in my area). I'm one of those people unfortunately.

I'm hoping that any price sags take out the high end of the market more than the low end - houses that once sold for $750,000 end up selling for $600,000, while houses that sold for $250,000 dont really move much since there is still a lot of demand in that segment of the market, plus higher interest rates make large new loans untenable. It makes sense in my community. And one of the things unique to my local market is a hi-rise condo boom. So there are lots of condos in prime areas that are start at $500,000, saturating that market segment.
posted by SirOmega at 8:31 PM on February 12, 2006

Buy high-sell higher?
posted by Mr Bluesky at 8:39 PM on February 12, 2006

great point, stbalbach.
if you look at the chart; someone who bought at the market high in '88, needed to wait until around '01 to break even. that's along time to be upside down on a loan.
so given this one example, one could expect to wait 10+ years, if you bought the last couple of years, before you could sell and make $. I'm, of course, assuming we passed the top of the market already. I see this as a fact.
posted by thekorruptor at 8:45 PM on February 12, 2006

The problem in the current market is that people have refinanced their homes as valuations have climbed. So the impending price drop will effect more people than in previous market corrections.
posted by mullacc at 9:03 PM on February 12, 2006

The problem in the current market is that people have refinanced their homes as valuations have climbed.

Hmm, isn't that mostly just a problem for the bank, if they have to forclose?
posted by delmoi at 9:21 PM on February 12, 2006

It's nice to see this analyzed - I've been wondering this myself as I'm steadfastly refusing to buy property (I enjoy my freedom, thanks) and all my friends are buying houses at ridiculous prices because the price "isn't going down!"
posted by iamck at 9:24 PM on February 12, 2006

I've linked this before but this site bears repeating *for southern ca market only*
posted by thekorruptor at 10:07 PM on February 12, 2006

Dear Pollyannas: Keep in mind that the chart portrays a time when mortgage interest rates dropped from 15%(plus) down to 5%. That steady decline in rates minimized the troughs in the housing cycle. If rates get halfway back to their peak over the next 10-20 years, the likely movement in prices will be 3 years down, 1 year up, 3 years down.

Plus, note the first Boomer turned 34 in 1980. A similarly sized price-boosting demographic group is not on the horizon--unless we let 'em all in willy-nilly at the borders.

I'm not sayin', I'm just sayin'. And as to your individual housing prospects, if you can afford the payment and don't get laid off/transferred/divorced and have to move, it doesn't matter what happens to housing prices.

As for me, I saw a sweet double-wide (used) for $2,400 the other day. That's what my sister pays in rent each month to live in NYC. It'll be nice to have the extra space to accommodate her during the coming housing crunch.
posted by Kibbutz at 10:13 PM on February 12, 2006

HTuttle: When most people say 'down' in that case they're usually talking about going down below the pre-hype level, and those charts clearly show that they don't.

If you control for inflation (it looks like they didn't, especially looking at the income graph, but I could be wrong) and project 2006 to look like 1988, I think the graph shows very level prices, perhaps even slightly falling.

There is probably something very interesting in those numbers actually. With what might be seen as decreased cost of moving onto previously undeveloped land (aka suburbia) house values should be falling a little.

Tracing the value of neighborhoods would be much more interesting. That would be a much better indication of the relative value of real estate investment.

One thing I really wonder about is the value of condos over time. A 20 year old building must suffer a price penalty...
posted by Chuckles at 10:24 PM on February 12, 2006

I find the Vancouver Housing Market blog to be a great resource if you're following this with interest in Western Canada, as I am.
posted by stavrosthewonderchicken at 11:22 PM on February 12, 2006

Thanks for that link stavros!
posted by Chuckles at 12:23 AM on February 13, 2006

The problem in the current market is that people have refinanced their homes as valuations have climbed.

Hmm, isn't that mostly just a problem for the bank, if they have to forclose?

The only part of the economy here in Massachusetts that has really "grown" (quotes because it's a specious growth) over the last few years is home refinancing. Real income is down but people cashing out the huge increases in equity in their homes have kept the economy going.

That influx of money into the economy dries up when housing prices fall (or even just fail to rise fast enough) or interest rates rise (which would in itself be a negative pressure on housing prices). There is some worry here about a meltdown effect if housing prices fall. There are a lot of feedback loops in effect which could send prices plummeting: no new money from home refinance, the economy shrinks, people lose their jobs, less demand therefore for housing, lather, rinse, repeat. Banks won't be the only ones with problems.
posted by TimeFactor at 12:59 AM on February 13, 2006

I'm not sayin', I'm just sayin'.

Could anybody explain the meaning of this, for those of us who only speak English?
posted by Kirth Gerson at 2:52 AM on February 13, 2006

Kirth, it's a colloquial, shorthand way of saying, in effect:

"I'm not trying to extrapolate too much of a conclusion from what I've said, but only providing some interesting yet limited facts and insights which may be illustrative, but not completely conclusive, about the topic at hand."

Formulated as:

"I'm not sayin' (some broader conclusion), I'm just sayin' (something about the issue which may be indicative and/or interesting)."
posted by darkstar at 3:11 AM on February 13, 2006

Or in the vernacular:

"I'm not talking shit here, I'm telling you how things are."
posted by Smart Dalek at 4:19 AM on February 13, 2006

well put, darkstar.
posted by Hat Maui at 4:49 AM on February 13, 2006

It sure felt like down to me. I bought a condo in the Boston area for $126K in 1988 and sold it in 1996 for $106K.
posted by notmtwain at 5:10 AM on February 13, 2006

Thanks, darkstar. Is Smart Dalek's interpretation as contradictory as it seems?
posted by Kirth Gerson at 6:48 AM on February 13, 2006

Chuckles: Why would there be a penalty for a 20 year old building with condos?
posted by MrMulan at 6:48 AM on February 13, 2006

Also different this time:

- Majority use of ARM or I/O mortgages for purchasing. Many people's payments will increase dramatically in 2-5 years.

- Lower lending standards and "stated income" loans. Anyone who can fog a mirror has been able to get a mortgage in the past 5 years.

- Higher percentage of "investors" purchasing for speculation as opposed to people who buy for a place to live.
posted by de void at 6:50 AM on February 13, 2006

The first and the third are the real killers, once that "investment" property has it's morgage payment tripple people are going to start dumping property which will force valuations down. The smart people will take the loss as soon as they can, those with no other liquid holding could be boned as you can't sell a house if you don't have enough cash to pay the full amount owing to the bank.
posted by Mitheral at 8:14 AM on February 13, 2006

Kind of fortuitous that the banks recently got the new bankruptcy law past a few years after starting these neat new loans for people who can't them! Just lucky timing I guess.
/gullible
posted by thekorruptor at 8:41 AM on February 13, 2006

Why would there be a penalty for a 20 year old building with condos?

The 'features & amenities' will be far from state of the art. The maintenance will probably be slipping, in common areas as well as in the units. If maintenance isn't slipping, maintenance fees are probably way up. It won't 'feel new' to the customer - which appears to be increasingly important to.

I have heard others suggest this kind of thing, but I really don't know for sure.
posted by Chuckles at 8:44 AM on February 13, 2006

Are those who say the chart contradicts the thesis looking at the correct series?
posted by Kwantsar at 9:32 AM on February 13, 2006

There's still money to be made, here. Just wait until the market falls and then buy.

That's what "buy low sell high" is all about. Only most people think you should buy when the market is high.
posted by nyxxxx at 9:33 AM on February 13, 2006

delmoi: Just a problem for the bank? How about the former homeowners? It could be slightly inconvenient.
posted by mullacc at 1:26 PM on February 13, 2006

I'm not sure what conclusions to draw from this, but the trend of mortgage originations by purchase vs refinancing is very interesting. The data is here, but in quarterly non-graphically format. If you annualize this data and look at the purchase originations, it's very stable and has grown consistently but not wildly since '90. Refinancing, on the other hand, jumps dramatically with changes in interest rates.

In '03 (the record year for total originations), refinancing activity was $2.5 trillion while purchase was $1.28 trillion. The next year, refinancing activity fell to $1.5 trillion while purchase inched up to $1.31 trillion.
posted by mullacc at 2:16 PM on February 13, 2006

In 1987, my parents sold their house in north Jersey for 5x what they paid for it 12 years before.

When I visited the area in 1990, it was empty with a foreclosure sign on the door.
posted by codswallop at 7:34 PM on February 13, 2006

House of cards - a good summary of all the issues.
posted by Lanark at 2:00 PM on February 14, 2006