Home Prices Seen "Far from Bottom"

Thursday, October 16, 2008 | 07:30 AM

Is about halfway far? That's about where we are. The problems are well known, but let's list the specifics anyway, for the sake of the perennial housing bottom callers:

• Home prices remain elevated by traditional metrics;

• Inventory continues to increase

• Income is not rising, and in many industries is falling;

• Mortgage rates have been going higher;

• Nationwide unemployment is  rising

Other than that, Real Estate is terrific. Here's the required NYT excerpt:

"One reliable proxy of housing values — the ratio of home prices to rents — indicates that in many cities prices are still too high relative to historical norms.

In Miami, for instance, home prices are about 22 times annual rents, according to analysis by Moody’s Economy.com. The average figure for the last 20 years is just 15 times annual rents. The difference between those two numbers suggests that a home valued at $500,000 today might be worth only $341,000 based on the long-term relationship between prices and rents.

The price-to-rent ratio, which provides one measure of how much of a premium home buyers place on owning rather than renting, spiked across the country earlier this decade.

It increased the most on the coasts and somewhat less in the middle of the country. Economy.com’s calculations show that while it remains elevated in many places, the ratio has fallen sharply to more normal levels in places like Sacramento, Dallas and Riverside, Calif.

The current housing downturn is much more national in scope and severe than any other in the postwar period, partly because of the proliferation of risky lending practices. Today, foreclosures are running ahead of the downturn in the economy, a reversal of previous housing slumps."

Also of note is this WSJ article, discussing FDIC chair Bair calls for more actions by Uncle Sam to bailout out distressed mortgage holders:

"Federal Deposit Insurance Corp. Chairman Sheila Bair on Wednesday criticized the federal government for failing to take more aggressive steps to prevent Americans from losing their homes, highlighting a rift between her and other senior U.S. officials over terms of the $700 billion rescue package.

The government plan will help stabilize financial markets but it doesn't do enough to address home foreclosures, the root of the crisis, she said in an interview with The Wall Street Journal...

Ms. Bair didn't single out government officials or leaders, but her criticisms brushed on decisions made by both the Bush administration and Congress. For example, she described painstaking efforts made by lawmakers in crafting the federal Hope for Homeowners program to make sure it limited resale profits for borrowers who received affordable home loans."

The chart tells the story:


chart courtesy of NYT


Home Prices Seem Far From Bottom
NYT, October 15, 2008

FDIC Chief Raps Rescue for Helping Banks Over Homeowners   
WSJ, OCTOBER 16, 2008

Losing Las Vegas Shows How Americans Crap Out in Housing Casino
Daniel Taub and Dan Levy
Bloomberg, Oct. 16 2008

Thursday, October 16, 2008 | 07:30 AM | Permalink | Comments (31) | TrackBack (0)
de.li.cious add to de.li.cious | digg digg this! | technorati add to technorati | email email this post



TrackBack URL for this entry:

Listed below are links to weblogs that reference Home Prices Seen "Far from Bottom":


By the looks of the Los Angeles Graph. if we follow the same pattern from the last RE Bust, we still have another 35% drop in prices to go. My guess is, it could be more as markets tend to overshoot on the downside. Not to mention, the variety of negative factors this time around.

We are in unchartered territory here.


Posted by: latesummer2009 | Oct 16, 2008 7:51:57 AM

The comments to this entry are closed.

Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      


Complete Archives List



Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:

Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo



Odds & Ends

Site by Moxie Design Studios™