Thursday, January 24, 2008

They Said it Could Never Happen. Ever. They Lied.

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Median Home Prices Fall Nationally for the Year
  • The median price for a single-family home dropped 1.8 percent to $217,000, in 2007.

Folks, they told us it could never happen. It never happened in history (well since 1968 at least), so therefore it could never happen. This is why you have to ignore these pundits.

They also conveniently forget to mention what else has never happened; the median home price rising at levels they did from 2000-2006. I don't know the figure % rise off the top of my head, but I know the median price rise was historic and also "never happened". So when you have a bubble, and something goes up at a rate it has "never done so", a lot of "historical" things can happen on the back end. And I'll place a wager that 2008 will be a repeat - median prices will fall again.

Housing prices are still TOO HIGH for people to afford. [Analysis - What Should Median Housing Prices Be Today?] Even if we get these long rates down to 5% - it is not about mortgage rates - it's about affordability. If you force people (gasp) to come up with 5% down, and have a (gasp) FICO score of 680+, and (gasp) have documented income ... well you've just reduced the pool of potential buyers by a huge amount from "anyone with a heartbeat" in 2003-2005. So the supply/demand dynamic has shifted. Layer on top of that the fact that lenders now actually might care what happens to the loan once its originated and you have yet another limiting factor.

Current home owners are still being unrealistic about their home prices, and that is the only reason home prices have not fallen further. They are stubborn - meanwhile the home builders are slashing the prices of new homes [Builders Slash Prices]. I keep coming back to the fact, that eventually current home owners are going to wake up to the fact that home shoppers are going to go to the brand new house 2 neighborhoods over selling for 20% lower than they have their house on the market...

So a lot of people are negative on housing (finally)... except our favorite economist Mr Yun of the National Association of Realtors [Nov 14 - Housing Will be Flat Next Year! Whew!]. In today's story we get more classic Yun "While Yun said he expected sales to start to rebound this spring"... the guy is always good for a laugh... eventually he is going to be correct, I mean he has been calling for the housing rebound since fall 2006 right?

  • Sales of existing homes fell in December, closing out a horrible year for housing in which sales of single-family homes plunged by the largest amount in 25 years. The median home price dropped for the entire year, the first time that has occurred in four decades. (folks its only 4 decades since that's as far back as record keeping goes)
  • For the year, sales of single-family homes were down by 13 percent, the biggest drop since a 17.7 percent plunge in 1982.
  • That was the first annual price decline on records going back to 1968. Lawrence Yun, the Realtors' chief economist, said it was likely that the country has not experienced a decline in housing prices for an entire year since the Great Depression of the 1930s.
  • For December, sales were down in all regions of the country. Sales fell by 4.6 percent in the Northeast, 1.7 percent in the Midwest, 1 percent in the South and 2.1 percent in the West.
  • The inventory of unsold homes dropped by 7.4 percent, raising hopes that backlogs that had hit record levels were starting to be reduced, a key factor necessary to prompt a rebound in the market. (yes, one of the bright spots as we have been mentioning)
  • While Yun said he expected sales to start to rebound this spring, other analysts said housing is likely to remain in the doldrums throughout most of 2008, reflecting in part the credit crunch, which has caused lenders to tighten their standards, making it harder for prospective buyers to qualify for loans

Now for another myth - housing is only 4.5% of the economy so we shouldn't worry about it...

  • The biggest increase (in unemployment claims) occurred in California, up 27,194, an upsurge blamed on higher layoffs in construction and service industries, and Florida, with an increase in layoffs of 8,496, which was attributed in part to higher layoffs in construction. California and Florida have been particularly hard hit by the housing slump.

Again, it's a ripple in a much larger pool. By the time the ripple hits the shore 2 miles away its quite the large sized wave. And with many illegal aliens working in construction the destruction of jobs is far worse than it appears - but of course they cannot apply for unemployment so it doesn't show. But they are consuming just like regular people so their loss of wages hurts shops, restaurants and service industries just the same.

Some people are still holding out for some sort of miracle this spring and a return to good times in the housing market. I say overlay the tech bubble of 98-00 over housing bubble of 02-06. Then realize how long it took to rebound and what a "rebound" actually means... again, not perfect parallels but when the market does come back, we are not going back to bubble levels. Not unless real wages start spiking up 7-10% annually.


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