Housing Collapse Continuing Through 2009?

hosue.jpgThe New York Times has a very depressing article today on the continuing fall of housing prices, and the very real possibility that we are nowhere near the bottom. The article predicts continued declines trhough next year, and maybe longer in places like LA where housing is still relatively expensive compared to rents and incomes.

The No. 1 thing that drives housing values is incomes,” said Todd Sinai, an associate professor of real estate at the Wharton School at the University of Pennsylvania. “When incomes fall, demand for housing falls.” ……One reliable proxy of housing values — the ratio of home prices to rents — indicates that in many cities prices are still too high relative to historical norms.

In Miami, for instance, home prices are about 22 times annual rents, according to analysis by Moody’s Economy.com. The average figure for the last 20 years is just 15 times annual rents. The difference between those two numbers suggests that a home valued at $500,000 today might be worth only $341,000 based on the long-term relationship between prices and rents.

The price-to-rent ratio, which provides one measure of how much of a premium home buyers place on owning rather than renting, spiked across the country earlier this decade.

It increased the most on the coasts and somewhat less in the middle of the country. Economy.com’s calculations show that while it remains elevated in many places, the ratio has fallen sharply to more normal levels in places like Sacramento, Dallas and Riverside, Calif.

The article also points out that mortgage rates have bounced back up (last week, they hit a low point, hovering around 6%). The average 30-year mortgage is hovering around 6.75% — and that’s for the lucky people who can qualify. Banks are so tight with lending rules right now that even those with excellent credit and big down payments are being denied.

In an effort to help drive down rates, the Treasury Department has announced plans to buy mortgage-backed securities issued by Fannie and Freddie. The government also recently increased the amount of loans the companies can buy and hold. That’s where government plans to buy mortgage-backed securities comes in, with the hope that will convince lenders to loosen the purse strings, but, as the article points out:

Still, those efforts will take time to have an impact and it is not clear whether they will be sufficient to get banks to lend more freely, especially in areas where jumbo loans make up a bigger percentage of lending, like New York and parts of California and Florida. Economists say that prices in those places will probably fall further.

  • http://countrywide-foreclosures.blogspot.com/ Arash

    All I can say is that Countrywide foreclosure count has increased from 12000 to 19000 in 3 months, you figure if you want to wait for these to come on the market or you want to put an offer today.
    http://countrywide-foreclosures.blogspot.com/

  • http://patrick.net Sean

    Depressing? Depressing is living in this crummy apartment another year or more because it’s still so much more expensive to buy.

    I sure wish the government would stop thinking about how to keep prices artificially inflated and let the prices return to where history says they need to be. That would be the quickest way to get this mess over.

  • Earth Ling

    Nothing depressing here! I’m waiting for this bubble to burst so I can buy a property with CASH I have saved up for a fat down payment. You know, the type of stuff that wasn’t in fashion before and created this double and tripling of home values in big cities that is utterly ridiculous? Fall baby fall. I’m loving seeing homes come down $150-300k in a matter of months already in LA. High five to Shawn. Anyone would be crazy to buy now, no matter what realtors say. You don’t buy at the beginning of the roller coaster down.

  • Earth Ling

    Sorry, sean. :-)

  • dafox

    Sean is absolutely right.
    Redfin, you guys have the data – I’d love to see a median household income vs median selling price map. if you did it by zip code that’d be super sweet!

    I know here in OC, the historic median multiplier is 4.7. Currently its still over 6!
    http://spreadsheets.google.com/pub?key=pGy0BQU1PZ9And2KJvInRJg

  • Brian

    Of course it’s going to continue. Through 2009, through 2010, through 2011. I won’t start thinking about buying until 2012.

    Just Google “mortgage reset chart” and you’ll see what’s ahead of us. We’ve got a good 3.5 more years of this.

  • KJ

    As always, there’s a way to proper in this type of economy. People who are cash rich right now, like Earth Ling, are in a good spot.

  • http://www.edhardyworld.co.uk ed hardy

    You will be successful.