Tuesday, December 27, 2011

Back to 1999 — Calculated Risk

Is the bottom in housing just about in? CR thinks so.
In real terms - and as a price-to-rent ratio - prices are mostly back to 2000 levels and will probably be back to 1999 levels in the next few months.
Note: Last year I guessed that prices would decline another 5% to 10% on these national indexes (from October 2010 prices). So far prices have fallen another 3% to 4% on these indexes - with more to come - but most of the price declines are over.
Read it at Calculated Risk
Real House Prices and House Price-to-Rent


Matt Franko said...


Natural gas is hitting at least 5 year lows. Gas is a major energy source to the building materials industry.

Kiln dried lumber, wallboard, portland cement use gas as the heat source in the manufacturing process.

So while gas is down, housing has to be down.

What is left is petroleum as this is the energy source related to transportation of the building materials and certain heavy equipment used at the construction sites.

Petrolem (under OPEC control) is still high. When petro finally tanks, I believe housing prices will take the next leg down as the high cost of transportation/equipment operation embedded in the housing prices thru the petro channel will be eliminated....


reslez said...

With all due respect to CR, after a bubble prices don't correct to the historical average. They overcorrect. Go back to 1999 -- you have increasing housing values adding to equity, there's high workforce participation and wage growth. All of that's gone. Unemployment is high. Job uncertainty is high. People who've dropped onto the disability rolls aren't about to go out and buy a home. People who know they might lose their job and have to spend 12 months looking for another don't want a mortgage payment. (So maybe rentals are the place to be?) Consumers are scared and not about to revert to "normal", they are in full on depression mode. This is a generational change.

If nominal price declines are over, real increases aren't in the cards. There's still huge oversupply in housing. Real wages are dropping. How does the consumer afford a larger loan in these conditions? If anything loan standards are more stringent, not less. The 1% are the only ones buying. Maybe that's what CR means? A generation of citizens locked out of home ownership? The re-feudalization of America. This used to be such a nice country....

Sign of the times: the impoverished are now called "extreme cheapskates". Check out the cable show -- consumers who can't afford beef, can't afford chicken, reduced to boiling goats' heads. Yeesh.