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Housing is a mess: anecdotal & statistical evidence



December 23, 2008 – Comments (10)


I know, I know.  After reading the title of this post, "Housing is a mess: anecdotal & statistical evidence" you're probably saying "In other breaking news, grass is green and the sky is blue."  We all know that housing is a mess, but some people are still a lot more optimistic about the state of the U.S. housing market than they should be.

One newsletter that I subscribe to "The Complete Investor" (probably not for long), just this week said:

"For example, we have mentioned for some time that the housing market has been showing signs of improvement.  This morning the Wall Street Journal finally acknowledged on page C1 that mortgage applications have sharply risen in recent weeks.  They are well above their 10-year average.  In addition, houses are more affordable than they ever have been.  Given the government's willingness to buy Fannie Mae and Freddie Mac's debt, mortgage rates will probably fall further and housing affordability will jump.  Housing may again become a source of funds and growth in an economy starved for both."

This is complete nonsense. 

I will dispute this statement by starting with some anecdotal evidence describing how bad the market has gotten.  I live in the Northeastern U.S., close enough to Wall Street that the massive layoffs that are happening are starting to take their toll on home prices.  Flash back several months.  A really annoying, pompous guy down the block from me decided to sell his house and move to a snootier area because in his words "this neighborhood is too diverse" for his taste (I heard this through the grapevine...but it is totally believable that he said it). 

At the time I thought to myself, sweet the housing market is a mess, this tool is going to get creamed when he tries to sell for no good reason (of course, rooting for a bad comp is like cutting off my nose to spite my face, but that's just how I am).  Of course Mr. Snob ends up getting top dollar for his home...just over $700,000!  I was annoyed that he didn't get pummeled, but glad for the nice comp.

Flash forward to today.  Another one of my neighbors, a great guy and one of my best friends, ended up losing his his job at a hedge fund.  He has to move to another state for a new job and has to sell his house here.  He lists his home for something like $650,000.  Only a few short months after Mr. Snob got top dollar for his home, my friend ends up being forced to sell his for $530,000.  A whopping $120,000 below its initial asking price.

So what did we learn from this tale, other than not surprisingly scumbags get rewarded and good guys get screwed?  The housing market is getting worse, not better.  I used real numbers to illustrate how dramatic the fall in home prices has been over the past several months alone.  This anecdotal evidence jibes with the numbers that the National Association of Realtors published this morning. 

U.S. Economy: Housing Prices Collapse at Near-Depression Pace

Sales of single-family houses in the U.S. dropped 7.6% last month, the most in two decades.  As if the slowing pace of sales wasn't bad enough, home values are falling even faster.  The NAR reported a 13% drop in median resale prices in November.  This is the largest drop ever recorded.  It started keeping records on this data in 1968 and many are estimating that this is the largest drop in home prices since the 1930s.

This quote from the lead economist at Global Insight, a firm that I have a tremendous amount of respect for (unlike the NAR) says it all “Housing is still in a freefall.”

I don't expect things to get better, or even stabilize until late 2009 at the earliest.  That doesn't mean that things won't eventually get better.  They will.  Not only will this mess eventually come to an end, but the stock market will bottom several months before the economy eventually bottoms out.  I have been slowly and steadily buying stock in industry-leading companies that have low debt, pay solid dividends, and which I believe are amazing bargains at this level.  I intend to continue dollar cost averaging into rock solid companies throughout 2009.


10 Comments – Post Your Own

#1) On December 23, 2008 at 3:28 PM, DemonDoug (31.21) wrote:

I have said this many times:

The biggest tragedy when all is said and done is how many people got involved in RE in 2007.  It was painfully obvious to you, me, and so many others, that RE was dead in 2007, starting with the collapse of New Century.  But banks still gave loans, and greater fools believed the NAR and reports like that about "it's a great time to buy."  That NAR commercial about buying a home - puke.

I want people arrested, I want them thrown in jail, I want them in federal "pound me in the ass prison," and I would not be unhappy to have fraud over 100 million be a capitol offense, just like it is in China - because the destruction of fraud of that type is far more damaging than even an individual murder, IMO.

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#2) On December 23, 2008 at 3:53 PM, TMFDeej (97.66) wrote:

Since we're already on the topic of housing, here's another gem of a statistic:

"But a recent report issued by the U.S. Comptroller of the Currency (OCC) found that 53% of borrowers who had their mortgages modified in the first half of 2008 were already at least two months delinquent again."

When mortgage rescues go bad

When are our friends in the government going to learn that slightly reworking mortgages for people who could never afford and should have never been allowed to buy their homes to begin with is not a viable solution to the current housing mess.  Not to mention the fact that giving undeserving people something for nothing is not fair to the people who work hard, save their money, and make large down payments on their homes.

Unlike reworking mortgages, lowering mortgage rates all the way to 4.5% or lower would help make housing more affordable (heck I'd refinance again myself)...but at what cost? 

Lowering interest rates to 0% is bad enough (how do you think that we got into this mess in the first place), but having the government purchase trillions of dollars of mortgages from Fannie and Freddie is nuts.  Oh well.


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#3) On December 23, 2008 at 4:03 PM, TMFDeej (97.66) wrote:

Take a look at this ridiculous chart:

Is it just me, or does this chart make it look like who ever controls interest rates, cough the Federal Reserve cough, has absolutely NO IDEA what they're doing.  We all would probably be a lot better off if interest rates had been much more stable over the past several years than flying all over the place creating and popping bubbles. 

Let's see if they can create another one.  One of these days we aren't going to be able to reflate and we'll have to pay the price for bubbles past.


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#4) On December 23, 2008 at 5:14 PM, starbucks4ever (89.86) wrote:


The real tragedy is that he still got $530,000. If he got, say, only $5,300, I would agree with you that the housing market is in bad shape and that maybe, just maybe, we ought to stimulate potential buyers by cheap mortgage loans or tax credits or whatever. If he got $53,000 for the house, I would say the market is about right and we should leave it alone. But since he actually got $530,000, I have to say that the market is insanely overvalued, and that we need really draconian measures to bring it back to health. These measures should include: cutting off all mortgage credit, putting an end to all interest deductions, raising the property tax to bring it in line with rental costs, and above all, agressive development with the aim to build 10 million housing units per year. These measures will solve the housing crisis by addressing its root cause: insanely overvalued prices that forced buyers into taking scary loans that few could afford and that even fewer should have taken even if they could afford them. By making housing a cheap commodity that it should be we could achieve a 100% ownership rate within a couple of years, remove housing from the list of big-ticket purchases once and for all, and spend the saved money in a more reasonable way.

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#5) On December 23, 2008 at 5:30 PM, ikkyu2 (97.91) wrote:


That chart makes me very angry, and has done so for several years.  It looks exactly like the people setting those rates have no idea what they are doing.  And they are doing it with my money!



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#6) On December 23, 2008 at 9:21 PM, angusthermopylae (37.95) wrote:

Aside from the conflicting statistics, I picture it working like this:

--Prices get too high, other problems occur, and housing starts to tank (2007-2008).

--After the initial dust settles, prices have dropped.  "Hooray!" the people say.  "That house I wanted is now $120,000 lower.  Let's buy it, honey!"  Therefore, some numbers make it look like the RE market is leveling or recovering....(July 2008 - now).

--(Future)  The backlash and reverberations from the economic slowdown continue, and housing prices take another sharp nose dive.  Why?  Because all those people who bought that "cheaper" house are still losing jobs, still having to relocate, and there are still people in the neighborhood who are stuck with a 2006-2007 mortgage who are going under.

It's like having a bad case of the flu--after a while, you feel a little better, then the really bad stuff starts happening.

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#7) On December 23, 2008 at 10:29 PM, thecage41 (96.40) wrote:


    If you don't mind divulging, what are some of the stocks you are watching to purchase?

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#8) On December 23, 2008 at 11:02 PM, falang1 (< 20) wrote:

It seems that most mortgage modification is a joke.  They seem to encourage a short sale or foreclosure.  Which leads me to believe you are right and housing prices will continue to fall.  The median home sale price in my city went from 175k last year to 75k this year.  If you bought high with loads of down payment, good luck.

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#9) On December 23, 2008 at 11:35 PM, dopplebach (< 20) wrote:

People who think that the housing market is showing signs of recovery are smoking crack.  Every article I read or hear along these lines is always the same; they are always looking at the entirely wrong data, and drawing hasty and irrational conclusions.  

 When they say "sales are picking up," they are only looking at sales quantity.  Sure, maybe more homes are getting sold, and perhaps there is some bottom feeding going on.  But really that is only good news for brokers who are working on commission, and investors looking for bargains.  For the other 98% of us, the only meaningful yardstick for a recovery in housing is price.  And that most important metric continues to decline.

Starting on January 2, we're going to start seeing the headlines about massive, deep layoffs in the workforce, which is going to trigger a second wave of foreclosures much worse than what we saw in 2008.  Housing recovery, my arse.

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#10) On December 24, 2008 at 6:32 AM, TMFDeej (97.66) wrote:

Thanks for the comments everyone.

Cage, I would rather not talk about specific stocks because I am still interested in purchasing additional shares of many of the companies that I currently own and TMF rules prevent me from doing so within 10 days of talking about them. 

If you're interested, you can check out a list of the stocks that I currently own by viewing my profile:



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