Saturday, April 05, 2008

A little humor on home prices

A fellow bear sent my this graph, modified from a CR graph, for a chuckle.

Obviously the green line is non-physical. But look at the blue and red lines. We have YEARS to go in the bust.

I've been crazy busy at work, but I still continue to acquire data for my inventory graphs and from other sources. In a way, we simply need the spring bust to be seen for what it is so that the real problem can be fixed: Housing prices are too high! We had easy credit which created an investment mania that must now go through its natural course.

Got Popcorn?

My best wishes go out to the employees of the three airlines that failed this week: Aloha, ATA, and Skybus. Anyone who is a denier of this bubble needs to come up with a fast explanation as to why air travel, a coincident indicator of the economy, is dropping so fast. Its not just fuel prices. The demand side is down. Its a sad state when the #1 topic on the aviation blogs is who will fail next. In this environment, rumors can bring a company to its knees. Sadly, the demand has dropped far more than the tiny amount of supply that's been removed from the system. Also, due to high gas prices and tightening regulations on MEW, the demand curve had dropped down. Thus, supply will have to be severely curtailed to get most airlines back to a profitable situation. :(

We're just starting to see large scale job losses. This will drive home prices back to historical values quicker than the last housing bubble. Look at the current downslope on the red line. That is unprecedented.

Source CR article

I agree 100% with CR. Prices will not bottom for a long time, but in 2010 they'll be close. I'll go a step further, I believe in 2010 it will be smart to buy. But it amazing to think, prices could drop 30% to 60% from TODAY's values before hitting bottom. Yes, that's a huge spread. Its all dependent inflation, incomes, credit availability, savings rates, and house buyers' investment emotions. Anyone who buys in 2008, in any of the bubble markets needs a JT. DC, LA, Las Vegas, Phoenix, Florida (yes, the state!), California, every secondary home market, and quite a few more will not see a bottom until 2010 at the earliest. 2012 to 2015 is a safe call for the national bottom. Its not possible to have a bottom earlier. I doubt it will be later. Prices will drop too far below replacement costs... Just as we overshot too much, we'll see most bubble markets undershoot by 10% to 20%. A couple will overshoot further.

Got Popcorn?


sandman said...

Agreed 110% Neil.

One thing I'd like to throw out is the fact that CS lags by a few months. The huge price drops we're seeing now are from back in the slow winter season.

Do you think they'll continue through spring? Obviously, the "spring selling season" will be a bust (which won't stop people from hyping up 2009's), but will price decreases moderate to the 3%/mo level?

Rosalie said...

sorry but what is a JT?