Comments on: A Closer Look at the Second Leg Down in Housing http://www.ritholtz.com/blog/2010/06/2nd-leg-down-in-housing/ Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media Tue, 14 Feb 2012 17:38:10 +0000 hourly 1 http://wordpress.org/?v=3.0.5 By: Yield Hog: Redux? « Baskerville Capital http://www.ritholtz.com/blog/2010/06/2nd-leg-down-in-housing/comment-page-1/#comment-375512 Yield Hog: Redux? « Baskerville Capital Mon, 23 Aug 2010 12:20:11 +0000 http://www.ritholtz.com/blog/?p=57040#comment-375512 [...] reality, I thought it would be a good time to revisit a particular past folly described in this article: Following the 2,000 Dot Com crash, then Fed Chair Alan Greenspan brought Fed Funds rates down to [...] [...] reality, I thought it would be a good time to revisit a particular past folly described in this article: Following the 2,000 Dot Com crash, then Fed Chair Alan Greenspan brought Fed Funds rates down to [...]

]]> By: Robert M http://www.ritholtz.com/blog/2010/06/2nd-leg-down-in-housing/comment-page-1/#comment-365824 Robert M Mon, 09 Aug 2010 14:26:55 +0000 http://www.ritholtz.com/blog/?p=57040#comment-365824 I realize this is late but does anyone maintain a new home prices vs median income smoothed for interest rates. Having been a homeowner during the phases of sky high interest rates I find it fascinating that home prices were low to income in the 80's w/ interest rates so high yet flat as they came down. Having bought in 1991 @9 7/8th%, watched as homes didn't appreciated till 1998 at all, actually saw a home bought in 87 sell for less than paid for in 1998 and then a doubling in prices in 2002 yet the chart says no impact by interest rates. I realize this is late but does anyone maintain a new home prices vs median income smoothed for interest rates. Having been a homeowner during the phases of sky high interest rates I find it fascinating that home prices were low to income in the 80′s w/ interest rates so high yet flat as they came down. Having bought in 1991 @9 7/8th%, watched as homes didn’t appreciated till 1998 at all, actually saw a home bought in 87 sell for less than paid for in 1998 and then a doubling in prices in 2002 yet the chart says no impact by interest rates.

]]> By: Updating the Case Shiller 100 Chart & Forecast | The Big Picture http://www.ritholtz.com/blog/2010/06/2nd-leg-down-in-housing/comment-page-1/#comment-356951 Updating the Case Shiller 100 Chart & Forecast | The Big Picture Wed, 28 Jul 2010 15:49:06 +0000 http://www.ritholtz.com/blog/?p=57040#comment-356951 [...] A Closer Look at the Second Leg Down in Housing (June 24th, 2010) PERMALINK Category: Bailouts, Credit, Real Estate. [...] [...] A Closer Look at the Second Leg Down in Housing (June 24th, 2010) PERMALINK Category: Bailouts, Credit, Real Estate. [...]

]]> By: Buying A House http://www.ritholtz.com/blog/2010/06/2nd-leg-down-in-housing/comment-page-1/#comment-350081 Buying A House Wed, 21 Jul 2010 00:05:28 +0000 http://www.ritholtz.com/blog/?p=57040#comment-350081 [...] fast, they are going to be dropping prices.  Ten months is a huge supply as you can tell, and  Barry Ritholtz’s blog was picked up by the wall street journal is predicting a price drop in the housing market to help [...] [...] fast, they are going to be dropping prices.  Ten months is a huge supply as you can tell, and  Barry Ritholtz’s blog was picked up by the wall street journal is predicting a price drop in the housing market to help [...]

]]> By: Weekend reading: House prices still over-valued http://www.ritholtz.com/blog/2010/06/2nd-leg-down-in-housing/comment-page-1/#comment-342723 Weekend reading: House prices still over-valued Sat, 10 Jul 2010 10:47:34 +0000 http://www.ritholtz.com/blog/?p=57040#comment-342723 [...] US blogger Barry Ritholtz says US houses are still significantly over-valued. That would be bad news for everyone, given that the US consumer is vital for a global [...] [...] US blogger Barry Ritholtz says US houses are still significantly over-valued. That would be bad news for everyone, given that the US consumer is vital for a global [...]

]]> By: Housing Prices Are Still Too High, Says These Charts » My Money Blog http://www.ritholtz.com/blog/2010/06/2nd-leg-down-in-housing/comment-page-1/#comment-340954 Housing Prices Are Still Too High, Says These Charts » My Money Blog Wed, 07 Jul 2010 04:04:21 +0000 http://www.ritholtz.com/blog/?p=57040#comment-340954 [...] Ritholtz of The Big Picture thinks that housing prices have much further to fall. Here’s part of his analysis: Today, [...] [...] Ritholtz of The Big Picture thinks that housing prices have much further to fall. Here’s part of his analysis: Today, [...]

]]> By: Are Home Prices Too High — or Too Low? | The Big Picture http://www.ritholtz.com/blog/2010/06/2nd-leg-down-in-housing/comment-page-1/#comment-333675 Are Home Prices Too High — or Too Low? | The Big Picture Mon, 28 Jun 2010 10:40:28 +0000 http://www.ritholtz.com/blog/?p=57040#comment-333675 [...] readers expressed surprise that I still believed home prices remain too high, as discussed in the A Closer Look at the Second Leg Down in Housing last [...] [...] readers expressed surprise that I still believed home prices remain too high, as discussed in the A Closer Look at the Second Leg Down in Housing last [...]

]]> By: daro http://www.ritholtz.com/blog/2010/06/2nd-leg-down-in-housing/comment-page-1/#comment-330664 daro Fri, 25 Jun 2010 08:03:04 +0000 http://www.ritholtz.com/blog/?p=57040#comment-330664 rates are very low so mortgages are affordable but people are still not buying, why? 1) it is very hard to sell and people fear that if they need to move they will never sell their house without a loss-- reasonable 2) people fear being laid off and will not be able to make payments- reasonable 3) people fear that the market is in a tailspin so why should they risk putting up 20% equity when people recently bought homes with no equity and there is a good chance prices are going lower. They are following the crowd: real estate is bad now. reasonable 4) some people do not have the 20% equity required- true before, more so now 5) some people have lousy credit. why would banks lend them money when they can borrow from the fed for zero and lend it to the treasury for much more and make a risk free spread. No wonder the banks are not lending to real businesses or people! a shocker. 6) rates are so low now that any drop in interest rates does not give it a one for one lowering in monthly payment due to amortization. look at a mortgage amortization chart carefully like I did in 198o's when I was a commercial mortgage broker. you will see what I mean re "constant payment" other observations of course the tax credit worked. with an FHA loan, there was no equity in the deal. of course people would do that. no equity no risk. everyone is walking away from crappy deals so if things get bad these buyers will walk too. why wouldn't they, they have no equity in the deal anyway. The fed announced it bought 1.3 trillion of mortgage backed securities. that means that the fed owns the worst of the worst of mortgage loans. they have not foreclosed most of it. they will be very slow to foreclose. but when they do they will either have to print money to pay the real estate taxes and maintenance (inflationary) or sit on vacant homes (not pay taxes-- which will cripple local governments). If there is too much inflation than holders of mortgages including some banks will get crushed when rates take off . But wasn't that the point of buying the MB securities in the first instance, namely to save the banks? the fed is in a a bind. they did not foresee how much demand would drop off. But we are in depression so that cant be a suprise (with huge unemployment). I do not think the fed can hold up this market. it looks like they boxed themselves into a corner. there is just way too much supply now and much more coming and not nearly enough buyers who are willing to put 20% down on a property in this environment. that wont change until the employment picture changes. so my guess is that until you see the employment picture improving dramatically prices can only go down. they can shock absorb some of the decline, but they cannot stop it. I lived through the last real estate crash. what happened. the banks stopped lending. the values dropped between 60 and 80%. the people who understood real value stepped up with all cash (except for friends of Pres. bush sr.) and bought real estate. things slowly improved from there over many years. no one is stepping in until the numbers make sense. they are not anywhere near that level (when you include the risk to your equity/mobility). The other difference is that the last crash involved commercial real estate. this involves resi. home buyers are much more picky (or scared) when it comes to an "investment" and risking their money for a house. they would rather rent. rates are very low so mortgages are affordable but people are still not buying, why?
1) it is very hard to sell and people fear that if they need to move they will never sell their house without a loss– reasonable
2) people fear being laid off and will not be able to make payments- reasonable
3) people fear that the market is in a tailspin so why should they risk putting up 20% equity when people recently bought homes with no equity and there is a good chance prices are going lower. They are following the crowd: real estate is bad now. reasonable
4) some people do not have the 20% equity required- true before, more so now
5) some people have lousy credit. why would banks lend them money when they can borrow from the fed for zero and lend it to the treasury for much more and make a risk free spread. No wonder the banks are not lending to real businesses or people! a shocker.
6) rates are so low now that any drop in interest rates does not give it a one for one lowering in monthly payment due to amortization. look at a mortgage amortization chart carefully like I did in 198o’s when I was a commercial mortgage broker. you will see what I mean re “constant payment”
other observations
of course the tax credit worked. with an FHA loan, there was no equity in the deal. of course people would do that. no equity no risk. everyone is walking away from crappy deals so if things get bad these buyers will walk too. why wouldn’t they, they have no equity in the deal anyway.
The fed announced it bought 1.3 trillion of mortgage backed securities. that means that the fed owns the worst of the worst of mortgage loans. they have not foreclosed most of it. they will be very slow to foreclose. but when they do they will either have to print money to pay the real estate taxes and maintenance (inflationary) or sit on vacant homes (not pay taxes– which will cripple local governments). If there is too much inflation than holders of mortgages including some banks will get crushed when rates take off . But wasn’t that the point of buying the MB securities in the first instance, namely to save the banks? the fed is in a a bind. they did not foresee how much demand would drop off. But we are in depression so that cant be a suprise (with huge unemployment).

I do not think the fed can hold up this market. it looks like they boxed themselves into a corner. there is just way too much supply now and much more coming and not nearly enough buyers who are willing to put 20% down on a property in this environment. that wont change until the employment picture changes. so my guess is that until you see the employment picture improving dramatically prices can only go down. they can shock absorb some of the decline, but they cannot stop it.
I lived through the last real estate crash. what happened. the banks stopped lending. the values dropped between 60 and 80%. the people who understood real value stepped up with all cash (except for friends of Pres. bush sr.) and bought real estate. things slowly improved from there over many years. no one is stepping in until the numbers make sense. they are not anywhere near that level (when you include the risk to your equity/mobility). The other difference is that the last crash involved commercial real estate. this involves resi. home buyers are much more picky (or scared) when it comes to an “investment” and risking their money for a house. they would rather rent.

]]> By: FT Alphaville » Further reading http://www.ritholtz.com/blog/2010/06/2nd-leg-down-in-housing/comment-page-1/#comment-330631 FT Alphaville » Further reading Fri, 25 Jun 2010 06:57:16 +0000 http://www.ritholtz.com/blog/?p=57040#comment-330631 [...] ‘The residential real estate market is about to experience price [...] [...] ‘The residential real estate market is about to experience price [...]

]]> By: Shadow Inventory Cannot Be Denied | http://www.ritholtz.com/blog/2010/06/2nd-leg-down-in-housing/comment-page-1/#comment-330624 Shadow Inventory Cannot Be Denied | Fri, 25 Jun 2010 06:39:46 +0000 http://www.ritholtz.com/blog/?p=57040#comment-330624 [...] And, more recently, Barry Rinholtz explains why (with chartpr0n), why housing still has a ways to go. [...] [...] And, more recently, Barry Rinholtz explains why (with chartpr0n), why housing still has a ways to go. [...]

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