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]
And meanwhile, Barron’s cover story this weekend was wondering if we’ve already seen the bottom. Clearly, nobody knows and we’ll just have to wait and see.
And while those agressive mortgages seem awfully risky, most buyers who have them are so far ahead of the game they could 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.
10:42 AM
we don’t live in a free market that’s a joke – the government has it’s hand deep, deep deep into manipulating the real estate market -freddie mac/fannie mae anyone. This isn’t simple supply and demand. even with simple supply and demand you need real, not fake money for it to be a ‘free’ market
Wow…
>>”people should know better than to >>listen to them (Fed”)”
Right…listen to donnie 10:10 am on Brownstoner instead
>>real estate agents would basically >>put whatever price they felt >>comfortable with as a asking price
Right again…we live in a MARKET economy where price is set by supply and demand not by real estate agents…hold supply constant and increase demand through low interest rates and guess what – price goes up…it doesn’t matter what real estate agents do…who out there has actually made a decision based on what a Real Estate agent told them?
>>”What a mess the Govt has created.”
Oh God…it’s the governments fault again…what is the “government” supposed to do in your opinion? make sure that consumers don’t buy crappy stocks, don’t borrow too much money on credit cards/mortgages, look both ways before crossing the street…and please don’t say regulate the mortgage business more than it is already…if you bought a house using an IO and/or ARM that you can’t afford because you didn’t read the voluminous government regulated disclosure forms that you have to initial on every page then you are an idiot and even democrats can’t protect idiots from themselves…
Real Estate is a market and markets go through cycles – you just can’t cry and blame real estate agents/government if you don’t time them right and/or put more on the line than you can afford to lose; that’s why rental properties exist.
This market is going to correct and correct hard for all the same reasons that all markets correct – greed and fear. There will be a killing to be made at the bottom.
that was not a normal run up in prices. What goes up must come down. simple logic.
I think the size of the bubble won’t be completely known for a few years.
Brooklyn Brownstones are basically giant IRAs. When the baby-boomers start retiring en masse, there will be even more inventory and alot of bloodletting. Effectively, there will be reduced aggregate demand for housing as retirees downsize or relocate.
I give it 5-years before the retirement selling starts in ernest. Prices will start reacting (if they aren’t already) to these expectations sooner as people that are soon to retire try to get ahead of the drop.
The landing will be a hard one, the fed has down played the situation but people should know better than to listen to them. The fake mortgages leaded to the fake (inflated) house prices. The prices were not real, don’t get me wrong the houses were selling but the real estate agents would basically put whatever price they felt comfortable with as a asking price. Now the reality will hit and hit hard and those real estate agents will have no other choice but to look for jobs elswhere in times on recession. The agents were never needed anyhow. What a mess the Govt has created.
All factors appear to point to a hard fall. As Anon stated, the variable interest rate mortgages and interest only mortgages have put many people into homes they cannot afford, which raised property values drastically. Some of teh home owners on this site argue the unique desirable qualities of a brownstone will keep the market from falling. I agree with this point, but this fails to account for the disproportionate increase in property value as compared to other economic indicators in the last 7 years. the most important discrepancy is between the average income versus the average home cost, the increases are not even close to even. While I still think Brooklyn brownstones will not be affected as hard as the rest of the real estate market, they still are overinflated now and will have to come back to reality.
That’s a scary chart. I would guess, however, that for many people on here who bought multi-families, if you didn’t borrow against the value of your home, you’re better hedged against a drop than other people may be, especially if you have a fixed rate mortgage.
But looking at this chart, for many folks, it’s not going to be pretty. I think soft landing is a dream now.
Another factor – cheap easy-to-get mortgages, people using their homes as giant credit cards (home equity), it seems like it was all a house of cards waiting to collapse. So many people have bought homes they can barely afford, or can’t afford (interest only mortgage payments)! reminds me more of the 1929 stock market crash – too much cheap, easy to get money inflating prices.
I have always speculated, what if loans/mortgages weren’t allowed -and you had to pay cash, wouldn’t property be cheaper? (no interest payments, ect)