The Housing Crisis: How Low Can It Get? Pretty Low!
Author: Charles Feldman • URL: http://www.thefeldmanblog.comMay 14th, 2008 •
I’d like to say that this is as bad as it gets. I’d like to say it, but I don’t think that is true.
In California alone, just released figures show that last month, 1,000 (that’s one THOUSAND) foreclosed homes were brought to auction each and every weekday–a 44 percent increase just from the month before.
Nationally, things aren’t all that much better, except for a few markets.
The National Association of Realtors surveyed the prices of existing single-family homes and found between January and March, median prices dropped in 100 of 149 metropolitan areas, according to the Associated Press.
Too bad that relief doesn’t really seem on the way.
Congress is still trying to come up with some sort of relief legislation that will please Democrats, Republicans and the White House, but credit remains tight and the victims (and yes, many are victims) of what began as a subprime mortgage mess, keep mounting with no end in sight.
Brokers will tell you that as prices keep going down–they are and they will–there will be bargins to be had and they are correct.
The only problem is that the credit crunch also shows no sign of going away any time soon, so that leaves a whole lot of potential bargin takers left in the cold.
Some experts say things will get back to “normal” in a few months; others say years. Does anyone really know?
What do you think? After all, your guess is as good as anyone else’s.
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Tags: california, california foreclosures, default, Economy, foreclosure, Foreclosures, housing, NAR, realtor
Joshua Dorkin
Charles Feldman
Ted Karsch.
Troy Schuricht
Anwell Tsai
Richard Warren
Jim Watkins
Charles, nice post. My crystal ball is cloudy on this prediction, but I’ve recently read something that really makes sense. The WSJ recently published (6 May) an op-ed by Cyril Moulle-Berteaux, a New York based hedge fund guy (Traxis Partners). He made a compelling case in the article that the housing market overall is bottoming more or less now - based on the issue of affordability. He presented some fairly convincing arguments regarding influences on affordability (price corrections, lower mortgage rates, growth in real income), and that measures of affordability in many markets are actually beginning to improve for the better.
I track data in over 280 markets around the country, and there are markets out there that have very sound fundamentals, ongoing price / value appreciation (not great, but still appreciating), and very decent affordability numbers. The great majority of the horrible markets we all hear about in the press interestingly appear to have very poor affordability.
Who knows what will happen, but it does appear that the markets out there that are very poorly affordable still have pain yet to bear. Some of the most poorly affordable markets are in California, Florida, and Nevada - the nation’s foreclosure leaders.
Maybe Cyril Moulle-Berteaux is right; we’re sure going to follow affordability in our markets of interest for and see where things go……
We do business wherever the fundamentals are in place. Your points on the bottom are well made. Possibly the point for investors to understand is this: You don’t have to time the bottom. You just have figure out (tall order for sure) when we’re within shouting distance of the bottom.
I think we’re there. Whether it hits rock bottom next month or next year won’t matter 5-10 years from now on your net worth sheet.
Just avoid like the plague buying without paying homage to the fundamentals, and pay attention to the long term, big picture.
Luckily here in Utah we haven’t suffered as much as the rest of the country thanks to all the mormons who all have 12 kids and they all want to stay and live in Zion.
Charles,
It was a good article though it’s been attacked pretty hard in a lot of blogs. He did miss some points but I agree with you and him that affordability is the key. Unfortunately, we have a long way to go to get back to historical norms. Here’s a chart that pretty clearly demonstrates the issue-
http://blog.metro-real-estate.com/?p=394.
As a broker who sells almost exclusively foreclosures, I’m seeing what you are seeing - more properties on the market than last year, more stressed asset managers and fewer buyers being able to qualify.
Hope we are wrong and the market rebounds but I think we have a ways to go before we are at the bottom.
Looking over some recent data I note the we are going through a “sub-prime” crisis-DUH!
We have NOT even started a bigger crisis, an ALT-A crisis!!!
In looking over some bar graphs I noticed that we are now at an actual low point in the ARM adjustments!
Looking at the bigger picture, the analysts see ALT-A as a BIGGER problem tan sub-prime! Folks CAN NOT re finance like they could have prior to this mess. Lending criteria is getting tighter and tighter and consumer debt is mounting. I think the average American has a 670 FICO.
The highest number of ARM adjustments are set for 2010…..
In some major cities across America, it is common for REO to sit for 100-200 days and sell for 50% of the 2005 value.
In my opinion the crisis has not even begun.
I like Warren Buffet - he makes no predictions but he has been credited with the quotes: If own a farm and you have a drought, you don’t reduce the value of the farm by 30% in the year of the drought. And, capitalism without risk is like christianity without HELL!
I hope this crisis will pass in months. Years will be too long…
Warren Buffett just purchased a massive pool of mortgages and has frozen the rates.
The bottom has not even begun as there is 5-10 times the inventory that will default and need to be liquidated, bring down values even further.
Charles hit the nail on the head here:
“The only problem is that the credit crunch also shows no sign of going away any time soon, so that leaves a whole lot of potential bargin takers left in the cold.”
This is not very low I think.thanks.
You can’t call this as low.Thanks a lot for sharing.
I’m not sure about it but thanks a lot fod sharing
It is so hard to tell when things are going to be back on track, after all you cant track when you enter a recession till long after you are in it. With the slump right now you may have no idea your out till you are out for quite a while.
How long will it last?
Well, it all depends how the economy will do within the next 12 months. The worst the economy gets the faster people will be running into housing and mortgage problems.
Sad but real.