Tuesday, June 29, 2010

"The Next Leg Down in Housing" Explained - Home Prices to Decline to 1999 Levels on a National Basis

Locally, the drop in sales/contracts has already started with the expiration of the tax cred."  June's asking price will be August's anomaly.  Even an employment bump won't eradicate the area's massive inventory,  for years.   

New Home Sales have collapsed to record lows, and Existing Home Sales declined in May.  The Big Picture has a brief recap of the national housing/credit bubble and explains why prices will continue falling due to
[...] traditional metrics. Whether we are looking at US housing stock as a percentage of GDP or Median income vs home prices or even ownership vs renting costs, prices remain elevated. Indeed, we see prices remain above historic mean.

Consider price relative to income. From 1977 to 2010, the median US home price was 4.1 times median household income. But as the chart below shows, Home prices are still above that mean. Oh, and that mean is artificially elevated due to the 2002-07 boom. Same with home prices relative to rentals, or housing value as percentage of GDP.
A Forbes Op-Ed by Richard Suttmeier points out There is no double-dip, just a continuation of the Great Recession.

Sellers might want to ignore national data or projections, but local buyers know they shouldn't.  It's all connected.


Anonymous said...

IGNORE national data? Is he kidding?!? Would be best laugh all week if it wasn't so completely misguided.

Jim Duncan said...

I used the word "ignore" in order to draw attention to the fact that markets are local. Clearly we're influenced by national trends, but when looking at total foreclosures for the country, they are vastly skewed by Arizona, California, Florida, etc.

I assume that my readers understand what I'm saying, especially when they read the story.

Anonymous said...

How about historical data such as price to income ratio, price to rent ratio? Ignore those also?

Is there something about the Charlottesville local that raises it above the laws of economics? Remember that before the bubble, Charlottesville behaved pretty much like the rest of the country. Could it be that in less then 10 years Charlottesville has evolved into something so amazing that it defies basic supply and demand?

Or is it more likely that given the small size of the area, there is more organized resistance to deflation, but that eventually a deflation of the inflated bubble back to historical norms will ultimately take place?

John Doe said...

Your post says the national numbers "...matter[s] because they reflect national data and trends and impact consumer...psychology. If buyers perceive the market to be better, they're going to feel more confident in their buying decisions."

One way to read this statement is: "It's great to be "confident" because a buyer is going to lose money in a purchase right now. But the money loss isn't really important, as long as the buyer feels good."

This ISN'T TO SAY that that's how YOU intend the sentiment to read, but it IS one reading of the statement.

It's like comparing 2010 sales to 2009 sales. They're up YOY because 09 was the middle of the Great Recession. But area sales are down overall, and in some sectors significantly.

Only using 2009 in comparison to 2010 is too small a comparison, just as "confidence" isn't enough of a motivator to buy.

AliG said...


your blog and posts have typically been straightforward and honest - which is extremely refreshing given that the same cannot be said regarding most of your REA colleagues. However, this most recent piece seems to be a diversion from above said traits. What gives?

A Fan

Jim Duncan said...

AliG -

Thanks for the question (and I apologize to BB for hijacking the comments).

Thank you first for the kind words.

Here was my thinking in writing that post - Charlottesville's market isn't great, but it's not as bad as the hotspots. We're not Detroit, Phoenix, Florida or California. We're not NoVa or Jersey.

The national news influences the psychology of buyers and sellers, and while that's certainly a component and factor to our local market, it should not define the local real estate market conversation.

Our unemployment rates are lower than the national average. People still want to move to the Charlottesville area.

The various local markets all influence the national numbers, and I wanted to do what I've tried to do for years - add local context to the national numbers.

For instance - CNBC this morning said that of the mortgages written last month, 30% were on foreclosures. Great number, but irrelevant to Charlottesville - I'm guessing, but I'd bet that less than 10% of mortgages written last month in our MSA were on foreclosures. I could be wrong, but I don't think I'd be that far off base.

Back to the post - there's a reason that I posted links to so many of the national data - particularly the OFHEO pdf, which has historical data - I want people to read and educate themselves.

Case-Shiller data are irrelevant to our market; they just don't cover our market. Thus, my statement that they are irrelevant.

I'm going to post this comment as an update to my post. I don't want to further commandeer BB. :)

If you have any questions about any of the data or my speculations, I'm always happy to talk. jim@realcentralva.com

C'ville Bubble Blog said...


There were 436 sales during Q1 2010. The foreclosure number is 71.18% of the "sold" number: these properties are now part of the "shadow inventory" that will appear for resale, cheaper, over the next 18 months, adding to the glut of homes already available.


Humpty said...

@Jim Duncan! "CNBC this morning said that of the mortgages written last month, 30% were on foreclosures. Great number, but irrelevant to Charlottesville"

How can you make this statement when 71% of all sales closed in Q1 were foreclosures? The latter clearly indicates that the national numbers clearly apply to CVille.

Jim, I read your blog from time to time and you come across as a stand up and likable guy. However, I think you are in denial when it comes to your marketplace. You need a dose of objective reality. Remove your preconceived ideas and assumptions from your analysis and look at CVille as an outsider. It's a nice college town but there are many of those in the US. Take State College, PA which has relatively no crime and a much larger student body! If you haven't been you should go and see it. There are no ghettos there!

The problem with CVille is that many of the locals think it's the center of the Universe. It's not!

Anonymous said...

Jim and all realtors in this town have to believe in their heart of hearts that these houses have the values that they've been given over the past few years. Sellers believe it too until they have to sell. There are fewer and fewer buyers who see the market the way realtors and sellers do.

C'ville Bubble Blog said...

You have to have some serious belief in prices when sales remain so low, and inventory is at record levels:


Closed sales for MAY 2010 single family homes are BELOW MAY 1999 levels:


Humpty said...

Pending Sales of Existing U.S. Homes Decreased 30% in May

Factory Growth Weakens From China to Europe, U.S.

Is CVille immuned?

John Doe said...

Not immune: Contracts down 50% from April to May for single family home sales in Albemarle and Cville. And 2010 contracts lower than 2009.

See charts #2 and #3


Jim Duncan said...

I think that anyone who says our area is recession-proof or immune or protected is just not paying attention. To anything.

Ahem. And again. And lastly.

C'ville Bubble Blog said...

Area unemployment rises: