When Will Real Estate Recover Its Losses?
Paul Kedrosky directs us to a recent study by Moody’s (of all folks) that looks at that precise question: When will collapsed U.S. real estate prices regain their prior peaks?
The map below suggests 2020 as the year nationwide — and while on the pessimistic side, that might not be too far off. Note the wide regional disparities.
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Paul cites other data (not on the map) that according to Moody’s, California, Arizona and Florida won’t fully recover until (brace yourselves) early 2030:
Hard-hit states such as Florida and California will only regain their pre-bust peak in the early 2030s, well after the nation does. New York will also be a laggard, although its overall decline in prices will be less severe. The main constraint on New York’s outlook is Wall Street. In general, the length of the downturn and the length of recovery in a region will depend on the degree of aggressive lending or overinvestment in housing that occurred during the boom. On the recovery side, states with weaker job growth will also take longer to return to peak.
Moody’s may not be the best analysts of this data, given their past track record. Regardless, I would take the other side of that bet . . .
De.li.cious
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September 19th, 2009 at 10:10 am
But when will the bidet market become flush once again?
September 19th, 2009 at 10:54 am
Provided California doesn’t fall off into the ocean, why can’t they allow increased immigration from Asian countries? It’s worked for Vancouver, British Columbia.
September 19th, 2009 at 10:55 am
Paul Kedrosky writes:
“Of course, given Moody’s well-documented issues, ahem, on the way into the real estate bubble, maybe we shouldn’t have over-much confidence on the collapsing/expanding real estate market’s supposed trajectory from here.”
Another comment on his blog:
“By the way, is this the same Moody’s which used to throw around AAA ratings to everybody fogging a mirror ?”
Also, consider that Social Security and Medicare are projected budget killers starting from about 2017 onward. Taking that into account, how much recovery will there really be?
P.S. In my opinion, ALMOST ALL 10-year projections are worthless. For a variety of reasons.
September 19th, 2009 at 11:01 am
hr makes a good point , and then some..
also, are they talking Real, or Nominal valuations? and, in which Currency are they presuming these ‘valuations’ ?
September 19th, 2009 at 11:18 am
This is nonsense – Houston area just hit a new all-time high.
I know many areas in other states including CA at or near all-time highs.
Real estate is a very local business -
September 19th, 2009 at 11:20 am
what a preposterous question. once again calls are being made for recovery to previous highs when we have not even finished business on the downside. how jv. very few people could afford real estate in it’s lunacy . wages will not be going up anytime soon and the entire economy will once again fall into the abyss. i expect this will be the path for the next decade.
September 19th, 2009 at 11:26 am
1st glance… Florida recovery by 2023 vs. remaining life expectancy…?
September 19th, 2009 at 11:29 am
i.e. Florida is a recourse state, but we do not have inter-generational mortgages…
September 19th, 2009 at 11:31 am
Well we better have some rampant wage inflation for the supposition that prices will recover in a decade to be true. The headwinds for housing prices include higher taxes, high debt loads, tighter underwriting, and higher interest rates. Housing has had the wind at its back since the mid 80′s , massive credit expansion, loose underwriting and lower and lower rates. If you look at a 30 yr fixed rate chart you’ll see a straight downward channel, nobody can fathom interest rates going up..
September 19th, 2009 at 11:33 am
EricTyson:”I know many areas in other states including CA at or near all-time highs”
Prices? Sales Volume?
I’d love to hear one place in CA at or near all-time highs with either. Just one.
Also, RE may be local but interest rates and loan underwriting are national.
September 19th, 2009 at 11:42 am
Ah, Houston in the summer!
In the state’s largest metropolitan area, Houston home sales have been on a dive for close to two years, but values in many areas of the market have held up remarkably for the time being. About a third of all home sales are foreclosures, and as foreclosures increase with the moratoriums expiring values will fall. More business failures, job losses and bankruptcies are hitting the state’s largest populated area. The impact will have a devastating blow on the Houston economy, which is forecast to see average home prices deflate 9.8% in 2009.
City Forecast
Houston − 9.8%
Dallas − 9.2%
Austin − 4.8%
San Antonio − 10.2%
Lubbock 1.6%
Amarillo 2.1%
El Paso − 8.7%
Despite a huge drop in new home construction, the Dallas-Fort Worth area still ranks second in the country in new home sales. Houston tops the nation. But home sales are well off their record pace and home values are falling. Sales haven’t slowed to a halt like in many other areas of the country, but increasing foreclosures will begin to have a more severe impact on the market over the next year.
Source (posted today):
http://www.housingpredictor.com/texas.html
_________________
http://www.bankrate.com/brm/news/mortgages/states.asp
National delinquency survey:
States
Percentage of past-due mortgages
Alabama
6.55
Alaska
2.90
Arizona
2.44
Arkansas
4.84
California
2.19
Colorado
3.58
Connecticut
3.31
Delaware
3.61
District of Columbia
2.85
Florida
3.59
Georgia
6.18
Hawaii
1.62
Idaho
2.80
Illinois
4.31
Indiana
6.61
Iowa
3.70
Kansas
4.24
Kentucky
5.20
Louisiana
10.66
Maine
3.75
Maryland
3.26
Massachusetts
3.49
Michigan
6.68
Minnesota
3.08
Mississippi
11.36
Missouri
4.96
Montana
2.36
Nebraska
4.01
Nevada
2.80
New Hampshire
3.46
New Jersey
3.50
New Mexico
3.66
New York
3.86
North Carolina
5.31
North Dakota
2.19
Ohio
6.30
Oklahoma
5.11
Oregon
2.18
Pennsylvania
5.28
Rhode Island
3.68
South Carolina
5.36
South Dakota
2.39
Tennessee
6.20
Texas
6.47
Utah
3.56
Vermont
2.63
Virginia
2.86
Washington
2.41
West Virginia
6.13
Wisconsin
3.40
Wyoming
2.28
Top 5 (lowest percentage of delinquencies)
—
Hawaii
1.62
Oregon
2.18
North Dakota
2.19
California
2.19
Wyoming
2.28
Bottom 5 (highest percentage of delinquencies)
—
Mississippi
11.36
Louisiana
10.66
Michigan
6.68
Indiana
6.61
Alabama
6.55
Source: National Delinquency Survey from the Mortgage Bankers Association
September 19th, 2009 at 11:43 am
Valuations- that’s the name of the game. Also, I ask myself, how do prices recover and advance in a demographic context in which 70+ million boomers will be leaving homeownership behind?
Population trends don’t seem so positive. Here’s some to think about- the Garcia govt in Peru is disbursing approx. 100 PEN (s0les) a month to poor mothers of young children in the poorest areas of Peru. Flip side of that coin- women of child-bearing age in the poorest socioeconomic groups (E and F) are limiting the number of children they are having to 2- that is happening across LA.
September 19th, 2009 at 11:44 am
I have heard that living in Houston in the summer is like living in a dog’s mouth. I lived in Austin and in July and August it would get so hot that the birds would f_rt dust…
September 19th, 2009 at 11:50 am
Did I mention, you should buy now or be priced out forever?
_______
If anyone truly believes RRE is on the upswing (in any US market), they should be buying houses (even if they already “own” one). After all, there is little to no downside risk, if you really believe the RRE market is strong.
September 19th, 2009 at 11:59 am
Happy 5770-
just saw this on BoingBoing- wonderful: http://www.boingboing.net/2009/09/19/happy-5770.html
September 19th, 2009 at 12:13 pm
Effective Demand – the most desirable neighborhoods in SF and Orange County. The Victorian I owned in SF years ago just resold for a higher price than it sold for several years earlier.
September 19th, 2009 at 12:23 pm
I don’t have the granular detail of SF that I have of other places but I’d be shocked if there were homes selling above the boom prices (outside of major rehabs). There is no place in OC that valuations are higher now than the peak. I’ve seen exactly one home that sold in 2006 go above the price it sold for back then.
OC is performing relatively well to many other areas but prices are most definitely down and nowhere near their pre-boom levels.
What year was SF Victorian last sold?
September 19th, 2009 at 12:31 pm
my guess is real estate will continue to decline- and the rate of decline will increase again- many, many homes kept off the market by the banks due to moratoriums and delaying the realization of the loss- with the hope of improvements in values-
we are in the eye of the storm-
Marcus is correct in his assessment- if you think RE has no where to go up from here- start buying- and if you think the V shaped recovery in equity prices has been proven- then- start buying-
remember- no balls- no blue chips
September 19th, 2009 at 12:43 pm
”I know many areas in other states including CA at or near all-time highs”
Would those be the deep backwoods marijuana-growing areas of northern California? The places where nobody lives but marijuana growers?
Or maybe the meth-lab areas in the desert around Barstow?
September 19th, 2009 at 1:55 pm
Supposing that the 2005-06 prices in most of California were fundamentally irrational, why would you expect those highs to ever return?
September 19th, 2009 at 2:11 pm
Eric – just called my cousin up in sf who sells quite a bit a RE in pacific heights and nob hill. His response to your statement was “who is this guy? He’s full of shit” he also said that he has quite a few large Victorians he’d like to sell you.
September 19th, 2009 at 2:32 pm
ET,
Phone home,
you’ve blown your cover.
Nanu, Nanu.
September 19th, 2009 at 4:20 pm
Eric Tyson said “Houston area just hit a new all-time high”
Foghorn, agree….not sure what planet this guy is on….
September 19th, 2009 at 4:20 pm
Eric Tyson = Don Luskin
September 19th, 2009 at 5:02 pm
Houston home prices hit record high
Area still sees 13.5 percent decline in year-over-year sales
By NANCY SARNOFF Houston Chronicle
July 21, 2009, 8:55PM
A drop in the number of low-priced homes sold out of foreclosure helped push Houston’s median home price to an all-time high in June.
The value of a single-family home in the area climbed to $164,500, up from $160,050 a year earlier, the Houston Association of Realtors said Tuesday.
June also marked the second straight month in which the median price jumped, after falling for the previous seven.
Still, median prices fluctuate depending on what types of homes are sold each month.
The median is the midpoint at which half the homes sell for more and half for less.
“I wouldn’t interpret it that the market is suddenly so much better,” said economist Jim Gaines of Texas A&M’s Real Estate Center. “But going up sure beats going down.”
Indeed, Houston’s housing market never saw wild price swings and has held up better than many other parts of the country.
http://www.chron.com/disp/story.mpl/business/6539800.html
September 19th, 2009 at 5:05 pm
Eric Tyson. You must mean you “know many areas in other states including CA at or near all-time highs”
in FORECLOSURES, right?? .. certainly not in sales prices.
I am literally about to choke to death on my laughter.. I also think your comments are damaging your reputation.
September 19th, 2009 at 5:10 pm
Karen: No need to choke to death…like email, pardon the lack of precision Karen, could have said including SOME in CA.
You can’t use statewide data to make these blanket statements, real estate trends by neighborhood and areas smaller than the size of the town.
It seems that the folks here making these broad, sweeping hugely negative statements about RE don’t invest in it.
September 19th, 2009 at 5:15 pm
Eric, what I think you aren’t considering is price per square foot in the numbers sighted by the Houston Association of Realtors.. further, you must realize it is in their best interests to skew the data to the bright side?
September 19th, 2009 at 5:25 pm
Here are the top one-third of metro areas for holding value since ’06…the last # for each line is the median home price for the second quarter of 09 and you can compare that to prior years and quarters…nearly all of these areas are at or near highs
Yes, these aren’t the biggest metro areas but this shows that many homeowners aren’t “under water” or down 30-50 % in recent years.
Metropolitan Area 2006 2007 2008 2008.II 2008.III 2008.IV 2009.I r 2009.II p
Davenport-Moline-Rock Island, IA-IL 119.7 108.7 94.2 86.7 101.1 98.1 100.3 113.2
Cumberland, MD-WV 95.7 109.4 99.5 101.5 102.4 96.9 114.9 123.5
Elmira, NY 86.8 81.6 87.7 76.4 104.9 80.9 77.1 85.0
Beaumont-Port Arthur, TX 112.7 123.0 127.4 124.9 129.6 132.6 129.1 138.6
Jackson, MS 147.1 139.0 128.7 129.5 135.0 126.6 122.6 140.1
Buffalo-Niagara Falls, NY 97.9 104.0 105.4 108.2 114.2 106.2 99.2 115.4
Bismarck, ND 134.9 152.9 155.2 152.5 146.3 164.5 153.3 157.8
Springfield, IL 105.4 109.0 108.0 112.3 110.9 96.7 111.4 116.2
Shreveport-Bossier City, LA 132.2 135.6 138.5 142.5 140.2 139.2 136.0 146.8
Topeka, KS 106.1 111.9 108.0 110.3 111.8 104.8 106.5 113.3
Houston-Baytown-Sugar Land, TX 149.1 152.5 151.6 153.4 160.2 142.1 138.5 157.4
Indianapolis, IN 119.3 120.5 111.2 118.4 117.9 100.2 94.6 121.3
Amarillo, TX 114.9 118.4 124.7 124.6 128.3 122.6 122.0 127.3
New Orleans-Metairie-Kenner, LA 173.1 160.3 160.5 162.9 166.8 154.9 150.8 165.8
Baton Rouge, LA 169.5 174.4 165.0 165.7 170.9 156.4 159.4 168.5
Florence, SC 119.5 124.2 117.3 114.2 118.5 119.1 98.5 115.5
Sioux Falls, SD 138.0 144.5 142.3 144.4 144.5 142.4 95.5 146.0
Peoria, IL 112.7 118.6 122.1 124.8 125.3 117.2 109.8 126.1
Tulsa, OK N/A N/A 136.9 132.0 139.8 N/A 127.0 133.2
Syracuse, NY 116.8 121.8 120.2 123.6 127.3 114.1 113.7 124.6
Fargo, ND-MN 136.5 140.9 139.1 140.2 138.8 140.1 134.1 141.2
Little Rock-N. Little Rock, AR 127.0 129.1 129.8 133.7 129.9 125.2 125.4 134.6
Cedar Rapids, IA 133.8 136.2 136.5 141.2 135.4 136.9 127.3 141.7
Kennewick-Richland-Pasco, WA 156.1 169.2 166.1 163.4 171.0 165.9 159.3 163.9
Yakima, WA 136.5 156.5 153.3 162.3 154.3 145.9 143.5 162.8
Bloomington-Normal, IL 152.2 154.0 159.8 152.8 168.4 159.3 153.8 153.0
Austin-Round Rock, TX 173.7 183.7 188.6 194.2 190.9 184.8 182.3 194.0
Rochester, NY 114.8 117.9 117.0 119.2 123.6 112.5 105.6 119.1
Dallas-Fort Worth-Arlington, TX 149.5 150.9 145.8 151.0 150.2 138.0 135.7 150.7
Durham, NC 172.8 178.4 180.6 185.9 177.9 165.6 171.5 185.5
Springfield, MO 124.8 122.6 121.1 121.2 123.2 117.1 116.3 120.9
Lincoln, NE 137.5 137.5 135.2 133.5 140.1 133.1 132.4 133.1
Youngstown-Warren-Boardman, OH-PA 81.5 78.9 71.7 71.7 74.3 61.7 51.2 71.5
Wichita, KS 114.9 115.6 121.8 125.8 125.3 118.2 108.1 125.3
Boulder, CO 366.4 376.2 359.6 375.8 361.5 324.7 328.4 373.3
Denver-Aurora, CO 249.5 245.4 219.3 225.2 225.1 200.8 192.9 223.7
Charlotte-Gastonia-Concord, NC-SC 190.6 204.3 197.8 201.3 210.9 186.3 171.5 199.7
Milwaukee-Waukesha-West Allis, WI 220.9 223.4 212.3 219.9 216.8 194.9 190.8 218.1
Pittsburgh, PA 116.1 120.7 118.4 125.2 122.7 109.1 103.4 124.2
Raleigh-Cary, NC 213.8 224.2 223.4 213.2 221.9 230.9 223.0 211.3
Reading, PA 143.2 154.7 155.7 153.6 163.5 155.1 145.2 151.9
Canton-Massillon, OH 109.3 110.3 92.5 102.8 98.5 80.4 66.2 101.5
Champaign-Urbana, IL 143.0 144.1 141.9 142.9 146.4 132.0 141.6 141.0
Kankakee-Bradley, IL 131.5 134.5 130.8 134.0 140.8 125.6 116.6 132.2
Columbia, MO 139.3 147.1 146.3 146.5 151.3 138.1 152.6 144.3
South Bend-Mishawaka, IN 92.7 90.7 86.0 89.4 88.0 80.8 61.8 88.1
September 19th, 2009 at 5:26 pm
Sure, I have a very savvy friend (former accountant by profession) who has bought at least one condominium in Oceanside, California and has made offers on others for the purpose of rental income.. prices fell between 50 and 75% in that area! She’s still shopping but she knows how to run the numbers. She also knows she’s assured of tenants because of the Camp Pendleton Marine Corps Base.
Anyway, that’s a bit different than claiming prices are at all time highs in some areas. I live in Orange County, California. Homes within 2 miles of my door have dropped their price by millions and still haven’t sold. My friends recently dropped the price on their old home (it’s been vacant for at least 2 years) by 500K. They’ll be erasing another 500K off before it ever sells.
September 19th, 2009 at 5:33 pm
Yes, of course not EVERYONE was refinancing and pulling cash out over the last 8 years.. and areas that didn’t see their homes inflate 300% aren’t watching them deflate as rapidly or horrifically either.
September 19th, 2009 at 5:58 pm
I will add this much to the discussion: If Sen. Isakson (R), Georgia, (and formally a real estate professional) is successful in having the tax credit increased from $8000 to $15,000 (almost double!) and expanded to all homeowners (not just first-time!) Cursive and Mrs. Cursive are putting their house up for sale. This may be the last opportunity to unload in a Depression. Now, Mr. Tyson, does my sentiment provide any clue as to what is going on with housing? To put it in different terms, would you open a car dealership at the moment? Or would it be better to wait for CFC II? Welcome to Amerika 2009, where it’s the government or nothing at all.
September 19th, 2009 at 6:15 pm
“A drop in the number of low-priced homes sold out of foreclosure helped push Houston’s…”
The obvious question is… is it natural and sustainable? Or are more of these houses being kept off the market, temporarily?
September 19th, 2009 at 7:39 pm
Karen: folks who have dropped prices that much clearly grossly overpriced their properties to begin with.
September 19th, 2009 at 7:54 pm
Cursive Says:
If Sen. Isakson (R), Georgia, (and formally a real estate professional) is successful in having the tax credit increased from $8000 to $15,000 (almost double!) and expanded to all homeowners (not just first-time!).
If taxpayer monies go to real estate investment its free enterprise but if it goes to health care its socialism? I’ve got to go back and reread this Republican capitalist fiscal conservatism stuff; I must have missed that chapter.
September 19th, 2009 at 8:10 pm
From my earlier comment (re: home sales/prices in Houston):
“About a third of all home sales are foreclosures, and as foreclosures increase with the moratoriums expiring values will fall.”
Moratoriums. There you go.
September 19th, 2009 at 8:26 pm
Cursive Says:
If Sen. Isakson (R), Georgia, (and formally a real estate professional) is successful in having the tax credit increased from $8000 to $15,000 (almost double!) and expanded to all homeowners (not just first-time!).
If taxpayer monies go to real estate investment its free enterprise but if it goes to health care its socialism? I’ve got to go back and reread this Repub capitalist fiscal conservatism stuff; I must have missed that chapter.
September 19th, 2009 at 8:46 pm
karen,
w/this: “I also think your comments are damaging your reputation.”
as the, now, reviled and, egregiously excoriated hose-bag, Ayn Rand, might advise: “you may want to “check your premises”..
http://www.thefreedictionary.com/egregious
http://www.thefreedictionary.com/excoriate
September 20th, 2009 at 1:42 am
“Karen: folks who have dropped prices that much clearly grossly overpriced their properties to begin with.”
They grossly overpriced their properties for today’s market because they saw people getting those kinds of prices in the housing bubble market of onlyt a few years ago — or themselves bought grossly overpriced properties only a few years ago.
I saw the same thing in Boston during the housing market trough of the early 1990s after the Northeast housing bubble of the 1980s had burst. A lot of owners stubbornly held on to unrealistically high asking prices for years on end. They themselves had paid unrealistically high prices during the 1980s bubble, and they just could not believe they weren’t going to get their money back.
That list you posted of urban areas where prices are holding steady — nearly all the urban areas on that list are either in the Midwest or in Texas, neither of which went through the recent crazed housing bubble. Everybody knows that. That list doesn’t prove a thing about California or the other areas that did go through a crazed bubble, and where prices won’t be recovering any year soon.
The areas that did go through a bubble, where housing prices will probably go lower and stay down for a very long time, those are the big population areas of the US. So they will have a much bigger depressive effect on the economy in coming years than all those small, sensible, bubble-free areas in the Midwest.
September 20th, 2009 at 3:58 am
I notice in EricTyson stats he posted there is no California MSA’s.
September 20th, 2009 at 12:40 pm
RE Reality check……in the Real OC
_______________
EricTyson Says:
September 19th, 2009 at 12:13 pm
Effective Demand – the most desirable neighborhoods in SF and Orange County. The Victorian I owned in SF years ago just resold for a higher price than it sold for several years earlier.
_______________
Example: My late sister’s 2br/2bth condo in Irvine (Woodbridge) sold for 599k (termed a fixer-upper) in Feb of ’06. Present value is 468k.
The first buyer walked from a 10k down for reasons that were never explained.
As always, your mileage may vary……
September 20th, 2009 at 1:21 pm
ED: I never said an entire MSA, I said “the most desirable neighborhoods…”
Karen: I agree with you…clearly, at a statewide level, CA has done relatively poorly in this real estate downturn and the healthiest regions tend to be in the middle of the country
September 21st, 2009 at 4:47 am
[...] Une question que nous nous posons : “When Will Real Estate Recover Its Losses?” Eléments de réponses : http://www.ritholtz.com/blog/2009/09/when-will-real-estate-recover-its-losses/ [...]
September 22nd, 2009 at 6:40 pm
What if mortgage interest rates go up a bunch?