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XMFSinchiruna (26.96)

Housing Discussion with Charts

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March 17, 2008 – Comments (9) | RELATED TICKERS: TOL , KBH , RYL

 

I see the above chart as a great place to start.  We can get into a whole discussion of why home prices skyrocketed as they did at another time, but the important point is that home prices in 2007 as a ratio to disposible income were higher than they had been since the early 1950s.  Seeing how quickly we had arrived at that point on a chart like the one above makes it so clear that a correction was inevitable.  And indeed, judging by the sharp peaks in 1973 and 1989, it is clear that the present correction will be deep and severe.  The forecast last year by Bank of America for the housing downturn to last through at least 2010 sounds conservatively reasonable, though I believe the de-leveraging of derivatives that will accompany this particular housing crash will make it more severe and longer-lasting than any of the previous corrections on the chart.

The next chart, below, tells me that we are still in the very early stages of the housing downturn, since we have yet to see meaningful reductions in the mean sales price of existing homes on a national basis.  Sure, the losses have shown up first in states like Florida and California, but the suggestion by pundits that this suggests a geographically contained recession in just a few states is beyond ridiculous.

The above graph shows about a 10% correction in nationwide mean sales price in place.  Looking backwards a bit on this chart reveals how recent these price increases were, which in my opinion portends the depth of the inevitable correction.  Again, as a conservative base I would anticipate a 20% reduction, especially since devaluation of the dollar / inflation will serve to keep the dollar amount propped up, but I maintain the possibility for a much deeper correction in the neighborhood of 30% or more.

9 Comments – Post Your Own

#1) On March 17, 2008 at 3:46 PM, XMFSinchiruna (26.96) wrote:

This chart shows that sales volume has dropped off dramatically, while the mean price according to the green chart above has not come off as sharply.  We all know that through all this time, default rates have been on the rise as well.  The inputs for downward pressure are all in place, but we've seen a delay in the effect on prices.  I'm sure I'm not the only one who can walk his/her neighborhood and find a huge increase in the number of for sale signs.  The market is flooded with homes for sale, but sellers are not yet settling for realistic prices, so many sales which are occuring are priced well above where they should be, while many more sales are not taking place because of a disconnect between sellers' expectations and buyers willingness / ability to pay.

This will change when sellers are forced to sell, and the buyers take over the pricing power within the marketplace.

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#2) On March 17, 2008 at 3:54 PM, XMFSinchiruna (26.96) wrote:

What will force sellers to become more "motivated"?  Well, the debt levels of the average American households are at record levels, and as the home equity on which so much of that credit spending is based erodes further, many households will face insolvency.  The following chart is another look at the same problem.  Not only is the increase in debt burdens and home mortgage borrowing a nasty contributor to the present downturn, but it was also a direct root cause of the housing bubble in the first place.  The easy money available to consumers through unsavory lending practices and low interest rates created an untenable situation that could not have held any longer.

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#3) On March 17, 2008 at 5:06 PM, XMFSinchiruna (26.96) wrote:

This chart above lays out the problem inferred in comment #2 above more plainly.  The debt load of the American consumer is increasing as mortgage rates reset and families borrow their way to maintaining their lifestyles in this rising cost environment, while the value of their homes, and often also the collateral for their borrowing, is decreasing in value at a similar rate.  The result is a painful squeeze on the consumer which has yet to play out.

In addition, the loose lending practices of recent years lured many speculators into the housing market who have built up very little equity in many cases. Those with the least invested into their mortgages will be more likely to walk away as the squeeze continues, which will further erode the home values of those who try to stick it out.

 

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#4) On March 17, 2008 at 5:11 PM, XMFSinchiruna (26.96) wrote:

Ouch... this one needs no explanation

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#5) On March 17, 2008 at 5:19 PM, XMFSinchiruna (26.96) wrote:

So you were hoping to buy a house?  Me too!  And the above chart relates to my strategy... invest in gold and silver throughout this crisis and then convert part of your earnings into a down payment once the markets have A.) fully valued gold to $1,650 or beyond, and B.) Mean home prices in dollar terms have come down considerably from present levels.

The above chart is, of course, quite outdated.  Gold is now over $1,000 and the mean home price has come down a bit... but do the extrapolation for yourself... Once again, this has much further to play out before I can recommend that anyone consider buying a home.  Gold and silver are the safest asset classes, in my opinion, in which to wait for the right time to buy.

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#6) On March 17, 2008 at 5:25 PM, XMFSinchiruna (26.96) wrote:

Here's another visual relating to comment #3 above.  This is a chart of mortgage debt as a percentage of GDP vs. the amount of equity people have in their homes.  The inverse directions of the trends are clearly visible here. 

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#7) On March 17, 2008 at 8:51 PM, dwot (39.29) wrote:

Good posts...

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#8) On March 18, 2008 at 5:48 PM, ATWDLimited (< 20) wrote:

Strong data, I think the charts speak volumes.

Check out this data on wages, infaltion, debt and the bad economy we are in now. The real cause of the boom/bust cycle is...

Wage and income growth vs inflation/cost of goods. This caused people to borrow money to amek up the gap. What better athing to use as collateral than rising house values, easy money. Until my house loses value, the dollar is still declining and my salary doe not keep up with the costs of living large, the days of easy credit are over.

Look at some charts to see what happened. 

 

 

As you can see as government borrows, inflation occurs, the consumer borrows too, wages stagnate, goods increase dollar values and when the bubble bursts, the whole tower collapses.

In fact coem visit my blog post on the DEBT NATION. 

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#9) On March 18, 2008 at 5:53 PM, ATWDLimited (< 20) wrote:

Strong data, I think the charts speak volumes.

Check out this data on wages, infaltion, debt and the bad economy we are in now. The real cause of the boom/bust cycle is...

Wage and income growth vs inflation/cost of goods. This caused people to borrow money to amek up the gap. What better athing to use as collateral than rising house values, easy money. Until my house loses value, the dollar is still declining and my salary doe not keep up with the costs of living large, the days of easy credit are over.

Look at some charts to see what happened. 

 

 

As you can see as government borrows, inflation occurs, the consumer borrows too, wages stagnate, goods increase dollar values and when the bubble bursts, the whole tower collapses.

In fact coem visit my blog post on the DEBT NATION. 

Report this comment

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