How far are we from a bottom in U.S. home prices? There are many estimates that there could be another 10% or more for the national average and median prices to decline. This author estimated that 2010 had a most probable decline around 11% from December 2009, with further declines possible in 2011. Little decline has actually been seen as prices are quite near where they were nine months ago. However, in the past couple of months predictions of further price declines have increased. Two weeks ago I pointed out that the outlook for home prices may be degrading.
20% Price Decline to the Bottom?
Barry Ritholtz provides the following chart, originally from the New York Times, but updated for The Big Picture by Steve Barry.
For larger image, click on graph.
This decline is certainly within the possible limits I have discussed earlier in the year (see here and here) but the projection curve drawn by Steve Barry shows a much more gradual drop to the bottom than I have envisioned. I estimate that he is showing another 3.5 to 4 years to get 90% of the way there and 5-6 years to fully bottom out. My thinking has been that the drop to the final bottom will be much quicker, driven by the weight of foreclosures over the next one to two years. However, current market conditions are causing me to reconsider.
Could Housing Go Below “Normal”?
What has not been considered by either Barry or me is the recurrence of another depression for housing, such as occurred from WW I to WW II. What sort of economic disaster would cause home prices to decline 55% to 60% from here? That is what would happen if the decline reproduced the 1920 bottom.
Or, asking a different question: What sort of economic disaster would result if home prices declined 55% to 60% from here? In such severe deflation, most mortgagors would default and every mortgage lender would be insolvent. There would be no future TARP or other shenanigan that could accommodate that eventuality. This will be discussed further later in the article.
Under Water Mortgages
Calculated Risk has an excellent post about underwater mortgages. CR states that 4.1 million homeowners owe 50% or more than their house…
In February 2007 I suggested a 4% mortgage delinquency rate could trigger a decline in the entire housing market. Since that proved prescient, we should revisit the analytic tool behind that call: the Pareto Principle.
There is a whiff of euphoria in the housing market, a heavily touted confidence that "the bottom is in." It’s all roaring back--rising sales, multiple bids by anxious buyers, 3.5% down payments, low mortgage rates and the bonus of an $8,000 first-time home buyer credit (a gift from U.S. taxpayers). Housing Lifts Recovery Hopes (Wall Street Journal)
Foreclosure-related sales account for over 30% of all sales nationally, and over 70% in hard-hit markets such as Las Vegas, but like piranhas feasting on a school of weakened fish, nobody in the real estate business mentions the huge losses of capital and equity which created all these "bargains."
All we need for a complete bubble reflation is people avidly gaming the system… oh wait, we have that, too. A recent Time magazine cover story on Las Vegas contained this informative tidbit (courtesy of Michael Goodfellow):
(Realtor) Boemio specializes in short selling, in a particularly Vegas way. Basically, she finds clients who owe more on their house than the house is worth (and that’s about 60% of homeowners in Las Vegas) and sells them a new house similar to the one they’ve been living in at half the price they paid for their old house. Then she tells them to stop paying the mortgage on their old place until the bank becomes so fed up that it’s willing to let the owner sell the house at a huge loss rather than dragging everyone through foreclosure. Since that takes about nine months, many of the owners even rent out their old house in the interim, pocketing a profit.
Hmm, isn’t this the same recipe of froth, low down payments, cheap, easy mortgage money and scamming which got us in trouble the last time? Only the lenders lose, but then now that Ginnie Mae and FHA have stepped up to replace the disgraced, bankrupt shells of Fannie Mae and Freddie Mac, then it really isn’t the lenders taking the risks, it’s the U.S. taxpayer (again).
Colin Kaepernick has made headlines in recent days for his decision to sit during the National Anthem. According to the mainstream media, his reasoning is simple (because the only thing that is comprehendible to the majority of Americans is a soundbite) - police brutality and the oppression of people of color.
Implicit in that simple narrative is one thing unsaid - it's Trump's fault... and Hillary will fight the good fight to support black people.
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When one looks back over the past 10-years and compares the performance of Banks to the broad markets, banks look broken. We shared with members last week that since the highs in 2007, banks have under performed the S&P 500 by nearly 77%. Is this under performance about to end?
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Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer. One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."
Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.
Genetic components are the DNA sequences that are 'inherited.' Some of these genes are stronger than others in their expression (e.g., eye color). Yet, some genes turn on or off due to external factors (environmental), and it is und...
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Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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