The Possibility That Landing Is Hard, Not Soft
This chart puts the real estate run-up of recent years in some historical perspective at a time when market news continues to disappoint. (The black line starts at a baseline value of 100 back in 1890 and is inflation-adjusted over time.) Rising inventory, falling building permits, fewer sales. And while homeowners, especially those of us…
This chart puts the real estate run-up of recent years in some historical perspective at a time when market news continues to disappoint. (The black line starts at a baseline value of 100 back in 1890 and is inflation-adjusted over time.) Rising inventory, falling building permits, fewer sales. And while homeowners, especially those of us who purchase in the last two or three years, are watching closely to see the impact on their own financial status, economists are thinking more and more about how a weakening real estate market could impact the broader economy, as lower levels of equity materially and psychologically impacts consumer behavior. The Times lists the three possible outcomes: Soft landing, prolonged slump and full-on crash. Which do you think is most likely?
Reading Between the For-Sale Signs [NY Times]
Bull markets and bubbles are always bigger than people imagine, and the bottom is always worse than people thought they would be. What we’re seeing now is just a hiccup and the real downturn has yet to really start. The best time to buy? When everyone is says Real Estate is the worst investment. The worst time? When everyone says it’s the best time.
Look at the similarities in the dot com bust and the housing boom:
Dot Com: prices will go up everything has changed, earnings don’t matter, it’ll be worth so much more years down the road.
Real Estate 04-06: Prices will go up everthing has changed, rents don’t matter (rents as a % of market value is way out of historical wack) Real estate, espeically Brooklyn Brownstones, are unique, god is not making them any more…. they go up in value until more people want to sell them, than want to buy them.
Go back to 1992, 1993, 1994, 1995 try and sell any real estate, it was very difficult…… add that it is such an illiquied asset…
the bigger the run up, the bigger the bust ……….
“10:45am…looks like your foil-hat may be a little tight this morning…
Firstly – find me one house in the area that we care about (ie brownstone brooklyn) that has anything to do with FNMA/FHLMC given their loan limits of $400K on a single family house. So I’m not sure that paranoid speculation about government manipulation impacts “our” market”
Thanks for the gratuitous insult…
you were implying this was purely free supply and demand market, clearly, it is not. ‘our market’ does exist as a separate entity, the nation wide real estate boom has, for example, caused foreign speculators (who, according the Christian science monitor, make up as much as 30% of real estate buyers in NYC) to, well speculate. There are plenty of people in this market to make a quick buck -not to own homes. when you get enough people doing that, you get inflated prices. Not quiet the tulip craze of holland, or even the dot com boom, but due for a serious correction? just look at the hockey stick graph.
“Rents are going up because thousands of people want to live in NYC. ”
You’re making the “NYC is different” argument – which would be great is EVERYONE didn’t make that argument about their area. NYC is different, but not so different that prices can’t drop.
I’m not really sure how rising rents help housing prices – if more people are renting, less people are buying. Supply is already up and demand is way down. So, that leaves prices to go down.
Rents are going up. How can the market crash?
Rents are going up because thousands of people want to live in NYC. And these thousands of people would buy, but the price isn’t right.
How can the real estate market crash? It may adjust slightly downward as rates rise, but it will be impossible for prices to “crash” because there is a rising rental market acting as upward pressure.
Just a thought.
10:45am…looks like your foil-hat may be a little tight this morning…
Firstly – find me one house in the area that we care about (ie brownstone brooklyn) that has anything to do with FNMA/FHLMC given their loan limits of $400K on a single family house. So I’m not sure that paranoid speculation about government manipulation impacts “our” market
Secondly – sure FNMA/FHLMC has their issues; there’s an inherent conflict of interest by being a publicly owned entity that existed for 30-years as a government agency. However, if you would like to have a stab at restructuring the multi-trillion dollar US mortgage market you and Donnie should give it a go. People seem to forget that it’s only because of property rights and the liquidity of our mortgage market that we are even having this debate about housing values – that’s why there’s no “chinafarmstoner.com”
Thirdly – don’t believe a lot of the fraud allegations about FNMA/FHLMC. While you and Donnie are restructuring the mortgage business, you can clear up the ambiguities in FAS133 application to mortgage derivatives
To Anon 10:26 – do you not think that impact will be exacerbated by 1. all the condo’s being built now and in the pipeline 2. AY (if it is built as planned) will be bringing 7000 units of mostly luxury housing online in the 5 to 10 year time span when you predict that retiree’s will be creating a glut of homes for sale.
5% over the next 12 months.
I agree with the I/O poster. Nobody who bought 18 months ago is selling at a loss. Or they can hold on for 5 years and be fine. These loans ARE aggressive but they remain a small % of loans and are not at risk thus far
“the futures markets are predicting a 5% decrease in prices in NYC”
In what time period? Futures markets aren’t crystal balls into the future.
still refinance or sell if they can’t afford the rate increase. Most of those loans had 5/7 year fixed rates and, so far, I don’t see the issue.
umm, if they sell they might have to sell at a loss, thus be liable for the balance of the mortgage.
according to the Times this weekend, the futures markets are predicting a 5% decrease in prices in NYC. so people will be back to where they were at Christmas 2005. I think we can handle that.