Thursday, February 17, 2011

The Year 2023: Montague Miller Tells Home Sellers This Is When Bubble Prices Will Return

If you're considering lising, the local realty company says, here are 5 Reasons To Sell Your House Now.  The top reason is that pricing won't return to pre-2007 figures until 2023.  

It's interesting that Montague Miller's blogger uses this data nugget now, as this pricing info was big news in 2009. 

66% of all 2010 home sales in this area were First Time Homebuyers, so this is part of the local effort to get "move-ups" back into the market.

19 comments:

Anonymous said...

Just wow. Points 1 and 2 contradict each other. "Prices are going to go down" vs. "the house you want to buy will never be cheaper." WTF. How about "sell now and rent for a while"?

Humpty said...

Very good point about the contradiction in points 1 and 2. However, the Fed is doing it and everyone in real estate has conflicting opinions. Why? Because one is made with the "truth" hat on and the other with the "Realtor" hat! LOL

I've been in RE all my life and I can predict with confidence prices will come down. As to when they will return to 2007 prices? who knows? but I can say it won't be for years unless we see hyper-inflation which is not far fetched either.

The country has lost its financial compass. We have a bloated government that obstructs and taxes business in every way possible, we have unions that are raping the tax payer (check your RE taxes) and we have citizens looking for free handouts, subsidies and bail outs.

Every household has a national debt equivalent to $45,000. How on earth will this ever get paid? We have politicians and economists that will lie, cheat, invent and make believe all will be well and we have a dumb majority of citizens that buy their bullcrap!

The Fed is playing games to stay afloat. We print money to pay our way and buy back our own bonds to keep interest rates at bay. Eventually the FED will run out of balls to juggle. God help us when that happens. The Cairo protests will look like a family picnic.

Put all politics aside because both parties have BSed the public. We need to cut every entitlement/liabilities to match revenues after we develop a plan to payback the debt. If we do this the dollar will soar, making imports cheaper and foreign investments will pour back into the US economy (jobs).

We cannot service the debt even if we increase taxes on the rich to 90%. I don't care whether you voted for Obama or Bush. If you think there's a difference you are fooling yourself. They are just representing different constituents. Their policies are un-American and are leading to disaster.

Since making predictions is free I predict that by 2023 our economy will implode!

Sasha said...

All,

There is not as direct a link between prices dropping and homes being affordable as it may seem. If prices drop 10% and interest rates rise as much as 1%, you may find yourself paying more for the exact same home on a monthly basis. In that sense, that home just became LESS affordable, despite it's lower price. There are several factors built into affordability- price does not stand alone.

AliG said...

wow Sasha - think about what you just said. I hope you are not saying stuff like this to your clients.

Just Asking said...

Sasha, why would prices go down *only* 10%? Are you even familiar with the bubble increases in this area?

Or since you're a newbie, you just believe the values as presented by your superiors?

What kind of real advice do you give your buyers?

Anonymous said...

Just Asking-
I share with you frustration in this market.
I do think Sasha might have meant 10% simply to illustrate the math, and in any case, demeaning comments lower the discourse.

AliG, and Just Asking-
Buying a property is complex. I like Sasha raising the point that the analysis process of determining affordability, and by inference other aspects of a property, like value, or suitability, is not always straight forward.

AliG said...

I agree that determining affordability and what one should pay for a house is "not straight forward" and, in fact, is quite complex. That is all the more reason that real estate agents, who have a fiduciary responsibility to their clients, do not misinform them.

I am sure Sasha is a responsible, ethical and well meaning person, which is why I appealed to her to think through her comment and perhaps apply some critical analysis to it. The comments are just wrong for multiple reasons. Starting with the idea that you can just pull out of a hat two numbers - one for an interest rate increase and one for a price decrease as if they are not related. I can list other reasons Sasha's comment was erroneous and bad advice, but would rather throw the question back to you (annonymous 1:08). Do you agree that "There is not as direct a link between prices dropping and homes being affordable" as Sasha stated?

The current financial crisis, unemployment, and in fact global ripples are, in part, a result of the housing collapse that occurred in the US. Many people who should have known better got trapped in this mess, lured by the myth of the affordability of credit without paying enough regard to the value of the underlying asset. It is time that real estate agents understand this and educate their clients appropriately.

Anonymous said...

Blog on the blink again?

Anonymous said...

AliG-
Do I agree, "There is not as direct a link between prices dropping and homes being affordable" as Sasha stated?
If affordability means, "to manage to bear without serious detriment", then I think there is an indirect link.
I am not finding many loweried priced homes without serious detriment, nor finding much land with lowered enough prices to afford an exit strategy. Prices are still too high in general.
But the good stuff with the low prices exist, and they go in a few days.
I am looking and researching.
Good question, AliG.
How about you!?

From: Anonymous 108

AliG said...

Houses become more affordable when their prices drop. Period. How much more affordable they become may be tempered by rising interest rates, but not to the point of making the house less affordable then at the lower price. There are several reasons for this, all related to simple math and economics.

To start with, a consumer has a set amount he/she can pay for a down payment and per month. During the bubble, this constant was turned into a variable by financial products with laxer credit requirements allowing minimal or no downpayments and ever reducing amounts of principal repayments for periods of time. However, that is mostly done with now, and we are back to, “how much do you have as a downpayment” and “how much can you pay a month” as a limiting factor on the amount you can borrow and therefore spend.

If interests rates rise, a smaller percentage of people will be able to afford any home at a given price (i.e. due to the monthly payment requiring higher interest payments), and therefore due to economics 101, the supply and demand curve will shift so that the price will necessarily have to decrease. But even as the total monthly payment may stay the same, i.e. due to lower principal and higher interest, the total affordability improves due to the fact that you earn greater tax deductions (higher interest payments) and downpayment is smaller (lower total price).

This is not even taking in to account the benefits of lower property taxes and property insurance with the lower house price, or the lower closing and/or selling costs.

Finally, and possibly most importantly, the future is never certain. You may hope to live in a house for 30 years but due to unforeseen circumstances have to move in 5. Interest rates are currently at near all time lows. They have only one way to go and that way is up (it has already started). When you sell, chances are the interest rates will be higher and therefore the “affordability” lower. If you have overpaid for a house now because of low interest rates, you will lose money when it comes time to sell. What will you tell the prospective buyer “this would be a great price if interest rates weren’t so high?!”

The truth is that rising interest rates will, overall, make homes more affordable due to the downward pressure on home prices. The only ones who will tell you different are people who stand to gain from propping up housing prices.

AliG said...

Dear Bubble Blog,

It is difficult to carry on a discussion if comments are not posted in a timely manner.

Thanks,

AliG

C'ville Bubble Blog said...

AliG, you are correct. Apologies for that. Comment moderation is on to prevent spam, but the setting isn't automatic, so if it doesn't get turned on, it inhibits convo. We'll do better at it. And we especially don't want to lose your insightful comments.

Anonymous said...

Charlottesville home price appreciation chart.

Prices are going to be falling for a long time.

http://www.forecast-chart.com/prices-home-charlottesville.html

Anonymous said...

I agree prices are going to keep falling and maybe for a long time.
However, how does the graph, showing a five year cliff-dive, (sobering), predict more decline?
Thanks. Anon 108

Sasha said...

AliG, Anon, Anon108, and Just Asking,

My apologies for not responding to this sooner. I thought I had responded right after AliG's original question several weeks back but came across this today and realized I had disappeared from the conversation unintentionally.

AliG- I think you have misconstrued my comment, which I think is helpful for the sake of discussion, but my original comment should probably be revisited. I stated, "There is not AS DIRECT A LINK between prices dropping and homes being affordable as it may seem.... There are several factors built into affordability- price does not stand alone." When I stated this, I was suggesting that correlation does not imply causation.

On it's face, (AliG- I am aware that you are in disagreement) I still think it is oversimplified to say that if prices drop, homes become more affordable, period. Just as I think it is oversimplified to say that rising interest rates also make homes more affordable, period. I assume that there are probably some others out there who'd agree with me- at least a handful who, in the early 80's, were thinking about buying a home with mortgage rates hovering at 15+%. (And in case anyone is tempted here to make a jab about my age, consider this me beating you to it!)

I picked a 10% price drop and a 1% interest rate increase (as an example, not as a prediction) because both are feasible, and while I agree that a 10% drop could be very generous, I made a point to also be very generous about the likely upcoming mortgage rates increasing, as I also feel that those could increase far, far higher than by just 1%.

For the sake of discussion, I don't mind that my comment was extrapolated to an extreme further than where it was intended, because it brings up a lot of good points.

I do believe that prices are still on the decline, and I tell that to each and every seller and buyer that I work with. I do NOT believe that the prediction of future price drops is a reason for many of the people whom I work with to NOT buy a home, or even to NOT buy a home right NOW. Strangely enough, I make sure that everyone I work with is aware of that prediction (and some will choose not to work with me as a result), and many of my buyer clients proceed on to buy a home. Just as many seller clients choose to wait to sell their home for another 1-2 years, despite my warning that the value they will be able to get THEN will very likely be lower than it is today. I often tell people to sell and then rent and wait- some do, most don't. Many people will tell me very candidly that regardless of whether or not that prediction is true, it doesn't alter their decision about what is right for them right now. People buy and sell for hundreds of reasons aside from just price, affordability, future market value, and long-term investment, and if I can find any fault with the general direction of comments on this blog at all, it's that they often seem to overlook that one very significant fact.

My job is not to make predictions from a crystal ball. My job is to provide my clients with the best information and data relevant to their real estate decision that I can, connect them to a lender who is utilizing good business practices and keeping people well aware of their costs, and what the full upfront impact that the decision to buy or sell will be, and then to support and guide them in whichever process they decide to embark on, whether it be buying, selling, or waiting.

I couldn't agree more about the future being unpredictable. This could all be wrong. Interest rates may hover at this historically low number for years. Prices may start appreciating again beginning today. Your taxes could very easily be higher despite a lower sales price. The mortgage interest deduction may disappear. All of which bring me back to my original point... There are several factors built into affordability- price does not stand alone.

AliG said...

Sasha,

I am not debating whether now is the right or wrong time to buy for an individual. As you have stated there are many factors aside from cost that should be taken into account. But I do argue the point that fundamental economic laws are in opposition to your statement : "There is not as direct a link between prices dropping and homes being affordable as it may seem."

There IS a direct link, and buyers should be aware of that. Just because other factors such as higher interest rates or loss of the interest tax deduction (will never happen with this president or congress BTW, but that is another discusson)will moderate just HOW much more affordable it is, it does not change the fact that it is more affordable non-the less.

What it really comes down to is this; advising people to buy now as opposed to waiting, for the SOLE reason that houses might be more affordable now due to rising interest rates is BAD advice.

However, I should provide the following disclosure - I am neither an economist or a REA. If there are any economists out there who would like to weigh in on this matter please do so. If I am wrong then I would like to know about it so that I can buckle down and find me a house before the rates go up. If I am right, then perhaps Sasha may start providing slightly different advice.

No Name said...

If you buy now...and some people HAVE to...or at least really WANT to...you are going to lose money.

If you will be in the house long term...10 years or so...you might break even.

But if you have to sell...in 5 years or so...interest rates WILL be higher. And prices will have DROPPED.

DO THE MATH ON THIS at 6% and 7%.

THEN you see the reality of this situation.

craigger said...

I think Sasha makes a valid point if you plan to live in the house for the entire term of your 30 yr mortgage. The PV ends up being the same from a nominal standpoint. However, if you pick an ARM, or plan to not live a house for 30 years, I would have to say she is missing a couple of key points.

1) as mentioned by one commenter, if you have to sell the house in 5 years, and prices go down, it doesn't matter what your mortgage rate was, as you will lose equity because you have to sell at a lower price. This will be much more expensive than renting.

2) Even if you agree that low interest rates and high house prices are "as affordable" as low house prices and high interest rates (A direction Sasha leans towards). There is a BIG aspect that is missed. Namely, the borrower has a NO COST OPTION to refinance the high rate mortgage at a lower rate for the entire term of their loan, while being able to maintain the SAME LOW HOME PURCHASE PRICE. Someone who currently has a 4.85% 30yr mortgage has no such option, as that is as low as the 30yr will ever go (especially when we are running 220B plus deficits per month, but that's another post). And if they overpay they are stuck with that purchase price.

C'ville Bubble Blog said...

"Why High Interest Rates Are Good For the Future of the Housing Market and Those Buying Houses"

http://www.lewrockwell.com/orig8/sercely2.1.1.html