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Fortune: "Home prices will fall another 15% to 30%"

Discussion in 'Political Discussion' started by PatriotsReign, Nov 22, 2010.

  1. PatriotsReign

    PatriotsReign On the Roster

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    Not that I'm a real estate expert, but I not only agree with Fortune's forecast, I was saying the same thing to a real estate agent recently and he told me I was nuts.

    I guess Fortune Magazine is nuts too!

    "Affordability

    The oft-used point to support a bottom in U.S. home prices is affordability, which is underscored by the fact that mortgage rates are at historical lows. While we can't disagree that financing costs are lower than ever, we do disagree on affordability.

    First, credit standards are higher and lenders typically require larger down payments and more upfront points, which increase the "all-in cost" of a house. (If the consumer can get a loan at all.) Second, we believe, based on our supply and demand models, that home prices will fall another 15% to 30%, which implies that the U.S. housing stock is actually overpriced. Finally, and most importantly, our analysis actually shows as houses get "cheaper," or more affordable, demand goes down."


    Why the housing bulls are wrong - Fortune Finance

    This is why I'll never see another economic "Boom" in my lifetime. But I actually prefer it that way. Without humongous booms, there is little chance of deep recessions. Slow and steady growth is what we should be striving for. Not another government created illusion of prosperity.
  2. IcyPatriot

    IcyPatriot ------------- PatsFans.com Supporter

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    #87 Jersey

    A good indicator of housing prices are apartment rentals. If prices were too high there would be more rentals ... but there are many vacancies so I disagree with them. Housing prices may fluctuate but not in that range ... probably more in the 5% up or down range.
  3. Real World

    Real World Moderator Staff Member

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    That figure will prove accurate in certain markets, but a little steep in some others. I personally think another 10-15% is well possible. In our office we're actively looking at property right now, and feel that the market will be ripe for investment in Q1-Q2 2011, and later. We still have empty space moving on 2 years. It's not pretty out there right now.
  4. PatsFanInVa

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    Interesting for those who can't stand the notion of "animal spirits" moving markets - as houses get cheaper, demand goes down. They're obviously not referring to the fact that as someone buys a home, there are fewer buying. They're talking about this market being ruled by panic buying.

    I avoid trying to play markets even in normal times, other than in baskets of equities with low fees (i.e., through my TSP, pretty much the same thing as a 401(k),) and my own horriffic vintage 2005 home purchase.

    Even if I thought the real estate market was set to skyrocket - I lean toward thinking we'll see a long bottom (like it hasn't been long already) and a steady but not dramatic recovery, a couple percent per year - I would not "double down" on real estate.

    Your last point is a good one. We're now at the point where we probably simply have to look around, say "that's the amount of stimulus there will be," and hope for the best. Runaway growth on any front seems not to be a threat, though the amount of money on the sidelines in the "pros' " hands is, in some peoples' eyes, staggering - and the overall recovery does not seem to be faltering. It is fragile yet, and we may get one event that turns down markets, investments, etc. Unemployment measures tend to be trailing indicators but they are, in fact, down as well.

    I am hoping it is a happy accident that we'll end up with this debt/deficit focus now, after the first two years of an enormous stimulus effort. I doubt it. I don't think it's time to put on those brakes, but they're about to go on (except of course very un-stimulative moves like giving tax breaks to the wealthiest. It's the poor and middle class you want empowered to purchase, not the wealthy.)

    The wisest policy is probably to keep the tax cuts to the poor and middle class, temporarily, and ditch the tax cuts to the rich now.

    Anyway, that's a side-road having to do with sustainable economic growth. I don't think we want a v-shaped recovery in either real estate or elsewhere. I can still see crossing some rubicon where that's exactly what happens, once everybody's emotional flip gets switched. ::shrug::

    But the goal would be some aspect of disincentive against that kind of casino mentality... it would be nice, but I don't see it happening. We like to think people will remember, like the 30s generation remembered the bank runs, and our generation remembers 70s-era inflation.

    But with all the shouting and self-contradictory "analysis" out there, I think people are going to be clueless about the lesson. Who knows. I just think we're just waiting for the next "good times" cycle, and then we'll feel like the latest coolest toy is our god-given right, the next casino "investment" is just what the smart money does, etc. The cycle begins again.

    Meh, who knows.

    PFnV
  5. PatriotsReign

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    "Who knows"...that's the statement of the year. I don't even think "the experts" know what they're talking about.

    Regarding the recovery moving along...take a look at Europe:eek: It's faltering and bordering upon collapse (Ireland, Greece...Spain?). Europe is like a house of cards Especially with their inter-dependency and the Euro.

    There are currency wars going on as I write this. Personally, I believe that this mess will take so long to stabilize and turn the corner toward pseudo-prosperity that frugality will be here to stay. Americans are dealing with their debt and we will for a long time to come. I think that experience will teach the vast majority of us to never allow this to happen again. For many, it has been belittling, embaressing and frustrating that we allowed ourselves to spend more than we make.

    I no longer charge anything unless I can pay it off when I get the bill. My current debt other than my mortgage is zero. And I plan to keep it that way!

    I also agree with you in that certain measures should be taken to ensure we don't have any more bubbles on our horizon. Those kill the poor and middle-class and ALWAYS result in more money being concentrated in the hands of the wealthiest. We can't allow that to happen any more than it already has.

    Happy Thanksgiving to you, MrsP and those you love. I mean that sincerely.
  6. PatriotsReign

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    The reason apartments aren't filled is because renters have lost jobs too! Unemployment is so high that it's resulted in foreclosed homes AND vacant apartments.

    The test you refer to typically occurs during a real estate/housing correction. This is not a real estate correction we're experiencing. It's a depression...and if you don't like that term, let's call it the worst recession in US history. Because at the very least, that's what we're living through.
  7. DropKickFlutie

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    I believe recent news showed that renting was at a recent high, and that rental units have been at higher capacity than in the past.

    People are saving and waiting before buying. There are less willing or less able buyers out there right now.

    Given all of this, I still think housing will at the very least stabilize. Inflation is bound to happen, and when it does, it will be good to have a fixed monthly payment for those who own, compared to those who rent and will end up paying more and more as everything in general gets more expensive.
  8. Michael

    Michael Moderator Staff Member PatsFans.com Supporter

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    #12 Jersey

    Yeah except there's still that pesky government with it's hand out. Many might be able to afford the mortgage but, not the 2, 3 + hundred a month in taxes. Right now it's hard to get a mortgage with out at least 20% down as well. Many can't save that much. I'm fortunate in that I sold my house in 03 and am currently considering buying again with 20 - 40% down. I'm not in hurry as I like where I live. It's quiet and I have good neighbors. But, I'm going to talk to realtors in the next month or so and wait for that perfect deal.
  9. reflexblue

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    #91 Jersey

    ''W'' sure f****** things up!!! :mad:
  10. Wolfpack

    Wolfpack Banned

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    It should be noted that just because the article was published it Fortune Magazine, it does not mean that every mind who works for the publication got together and all agreed and got on board with this specific prediction.

    We've all seen it countless times. When times are good it feels like you're never coming down. When times turn tough, it feels like you're never going to get back on your feet. But history has proven that economies are cyclical.

    I don't know how old you are, but assuming you're no older than say mid-50s, and in reasonable health, I think it's silly to say you'll never see another boom.
    Last edited: Nov 24, 2010
  11. PatsFanInVa

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    It's likely we'll go a long time before the boom is in real estate again, but again I have to repeat, who knows?

    One thing I am suspicious of is a thought that I nevertheless think is at least half-true: we may, in fact, have collectively embraced a new normal. In the macro sense, it's true. We all accept that we have to fight tooth and nail to get that "golden-age" American Dream -- but it was never the norm in the first place. The difference is that at one time, that rising comfortable class thought everybody lived like they did. Now we're all supposed to have access to the dream, but we're simultaneously more aware that it's bullsh1t for many.

    That's just woolgathering though. The "new normal" hypothesis has behind it the fact of an historic economic collapse, and the aftermath of addressing it. We are no longer the single pole of geopolitics or the global economic system. We have learned to accept that. In that sense, we're Britain in 1950 or so.

    That predicts some not-so-good outcomes for the U.S., and I'm not extending the British analogy here (please just save the bloody idiotic speculation about how IngSoc sank Airstrip One.)

    I'm talking about the imbalances you can enforce with hegemonic military presence.

    Of course, if we dare cross the Rubicon into "one of many" status for real, we get back some of that expenditure in the form of a military that's not sucking up a quarter of all budgeted expenditures, closer to half of all discretionary expenditures.

    Our sovereign debt issue (for PR) is different from Greece's or Ireland's. Nobody wants the US to default, but of course they don't want us to monetize our debt either (i.e., devalue the dollar to make their bonds worthless.) This is one of the factors arguing against the psychology behind the present run on gold. Will that run continue? Maybe. A lot also depends on whether the "austerity measures" under consideration now come true.

    But remember the premise: everything takes a hit. Feds get frozen at present pay for years, no bonuses or raises no matter WHAT you do. All non-feds like that, and cite surveys that make them think it's right, and ignore other studies that show otherwise. Okay, what's next? Oh yeah. Your taxes also go up. Your military gets cut. Ditto for various services, some of which you use but don't notice. Etcetera, etcetera, etcetera.

    By and large, the debt commission thingie looks really bad to everybody. It looks like a piece of crap to me. Paradoxically, I kind of like that everybody hates it. I could do a much better one. But you bozos would be marching in the streets again. Well, okay then. I am not a big fan of the perfect being the enemy of the good either.

    Anyhoo, the answer I meant to come up with is this: I am suspicious of the current "new normal" thinking because it's precisely what I was hearing in the early 2000s in regard to real estate prices. I kept hearing the same thing: won't the prices some day have to get back to earth? No no no! This time the rules have changed!

    The rules had also changed during the internet bubble and the telecom bubble, of course, and then turned out not to have changed.

    The rules haven't changed with the "Great Recession," but I think they've changed enough that recovery might last a lifetime, if you're 50. But let's call that 30 years - do I think 30 years is the over/under until the next boom? Nah. Where the boom will be and what shape it will take is the kind of thing I like to note as it happens, not predict. I am risk-averse that way, and will leave the wheeling and dealing to brighter lights than myself.

    PFnV

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