Pessimism pervades the housing market. Every major group with credibility that analyzes the housing market is predicting further price declines. The only group forecasting price increases is the the NAr (PDF of NAr forecast). What a surprise. The clueless shills at the NAr couldn’t bring themselves to give an accurate forecast, so instead they manipulated the numbers to come up with a tiny price increase in 2012.
In addition to the eight groups projecting price declines (S&P Case-Shiller -3.7%, LPS -4.8%, FHFA -1.8%, FNC -4.6%, CoreLogic -4.3%, Radar Logic -7.1%, Clear Capital -2.2%, Zillow -4.6%), I have forecast a -1% to -4% decline in local prices primarily due to upcoming lender supply. The tenth forecaster predicting lower prices is Fiserv.
Don’t Expect Rise in National Home Prices Until 2013: Fiserv
01/30/2012 By: Carrie Bay
The analysts at Wisonsin-based Fiserv, Inc. are forecasting average U.S. home prices to fall by another 2.7 percent through the third quarter of 2012, before rising 3.8 percent by the third quarter of 2013.
The company says the monthly mortgage payment for the median-priced U.S. home has dropped to $640, nearly 45 percent below the housing bubble peak of $1,150 and its lowest level since 1994. Mortgage payments now account for only 14 percent of monthly median family income, according to David Stiff, Fiserv’s chief economist.
By nearly any measure, affordability is at record levels. Only in places like Orange County were lenders have withheld product from the market are prices just now reaching historic affordability levels. In places like Las Vegas, affordability has never been as good as it is today.
This improvement in housing affordability is expected to drive sales activity going forward, and while not enough to change Fiserv’s predictions for the direction of home prices at the national level, the company does foresee notable improvements in select markets.
Stiff notes that while prices continued to fall in most markets, sales activity picked up at the end of 2011, setting the foundation for price stabilization in 2012.
Sales activity will increase this year due to the improving economy and good affordability. The direction of house prices will not be determined by demand. It’s supply that will govern what happens, and right now, REOs are being withheld from the market here in Orange County as inventory recently hit a 20-month low. The banks have no shortage of REO, so the recent trend is entirely by choice by lender’s asset managers.
Stiff also cited the impact of improving economic indicators, such as consumer confidence, which while still extremely low, has bounced back from its sharp decline following the downgrade of U.S. debt.
He stressed that if the job market continues to improve, then the rebound in consumer confidence will be sustained this year and more households will be willing to purchase big ticket items such as a house.
“[W]e do anticipate that increasing sales activity will begin to drive small increases in prices in as many as half of U.S. metro areas,” Stiff said.
So why do prices keep falling?
The problem for housing is an imbalance between supply and demand. The banks are clearing out the delinquent mortgage squatters, and these houses will increase the supply of for sale homes. Further, the sellers will be motivated. The displaced former owners will not have the down payment or qualifying credit to buy anther house which removes them from the potential buyer pool reducing demand. So what we are left with is an increase in the supply of motivated sellers and a decrease in demand. That spells trouble for home prices.
To see this in action, take a look at the Las Vegas housing market. Affordability has never been as good as it is today. It costs less on a monthly payment basis to own a house than it does to own a car. Despite this fact, prices keep falling due to the imbalance between supply and demand. A similar dynamic will be operative locally over the next few years.
For more news, market analysis and property profiles, please see the South OC Housing News.
The former owners of today’s featured property went Ponzi. The paid $395,000 back in 1989, and it went back to the bank for $583,746. After 22 years of ownership, they should have had the property nearly paid off. Instead, they withdrew several hundred thousand dollars and spent it. Now they are broke and their credit is shot. They’re not big shots now.
– —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- —- — ————————————————————————————————————————————-
Proprietary OC Housing News home purchase analysis 
24681 CHARLTON Dr Laguna Hills, CA 92653
$588,000 …….. Asking Price
$395,000 ………. Purchase Price
2/22/1989 ………. Purchase Date
$193,000 ………. Gross Gain (Loss)
($31,600) ………… Commissions and Costs at 8%
============================================
$161,400 ………. Net Gain (Loss)
============================================
48.9% ………. Gross Percent Change
40.9% ………. Net Percent Change
1.7% ………… Annual Appreciation
Cost of Home Ownership
—————————————————————————— 
$588,000 …….. Asking Price
$117,600 ………… 20% Down Conventional
3.92% …………. Mortgage Interest Rate
30 ……………… Number of Years
$470,400 …….. Mortgage
$111,512 ………. Income Requirement
$2,224 ………… Monthly Mortgage Payment
$510 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$147 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,881 ………. Monthly Cash Outlays
($358) ………. Tax Savings
($687) ………. Equity Hidden in Payment
$158 ………….. Lost Income to Down Payment
$167 ………….. Maintenance and Replacement Reserves
============================================
$2,160 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$7,380 ………… Furnishing and Move In at 1% + $1,500
$7,380 ………… Closing Costs at 1% + $1,500
$4,704 ………… Interest Points
$117,600 ………… Down Payment
============================================
$137,064 ………. Total Cash Costs
$33,100 ………. Emergency Cash Reserves
============================================
$170,164 ………. Total Savings Needed
——————————————————————————————————————————————-
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599……
sales@ochousingnews.com…..
We're sorry, but we couldn't find MLS # I11156439 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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36 Responses to “Ten housing analysts predict falling prices in 2012”
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Is FHA really going to insure $104.5 billion of mortgage debt that will be underwater?
by North OC Housing News
I keep reading articles about the FHA refinance program for underwater mortgages and it’s top housing news item this week. As you probably had read it’s a proposal to use FHA to refinance home owners that have negative equity (underwater) loans that can’t get this refinancing. It’s estimated to reach to 3.5 million to 5 million of these home owners and to refinance their existing home mortgage at the current low mortgage rates. The targeted loans are ones that were not package through Fannie Mae or Freddie Mae. Then I started to wonder how much would this FHA insured debt would be underwater? Not the total debt, but the debt that will not be secured by an asset, just the FHA insurance plan.
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Man…I don’t feel especially pessimistic, but I really don’t get the idea of affordability being at record levels. Compared to the fever pitch of the housing bubble and every year following the bust, of course; but certainly not in the years before the bubble. In any of the regions I look at, I’m still seeing mid-range SFH selling for *way* more than they did during the boom years of 97-99 — in large part because the GSE backed 97% loans that are helping lenders shoehorn innumerate buyers and one-trick-speculators into over-appraised properties.
Remember ’97-’99? I sure do. If you could say the word *computer* you probably had a pretty decent “tech job” paying a pretty nice salary; mid-grade was less than a buck and a decent sit-down dinner for two with tip was less than 25 bucks (yes, I remember and even have receipts.) Today, energy prices are much more volatile, but trending upward, health care costs are way WAY up and local taxes in most of the areas where I look at housing have definitely gone up…and yet, employee compensation has not kept pace at all, and indeed, when adjusted for inflation, is flagging considerably when contrasted with the rising cost of living. I was in school in ’97 working full time making just under ten dollars an hour. I paid all my own bills;rent;food;gas and tuition out of my own pocket. I did okay. I presently know several young adults making the SAME wage I made then today, (I shudder to think…), so again, the idea of affordability when it comes to any commodity just makes me scratch my head.
With housing, with the various buffers in place to keep the market from tanking too precipitously past the mean, (it will — I would bet all of my money on it if I could somehow), I can see no compelling argument for buying a house in the next few years beyond the purely emotional — no matter how good affordability looks compared to 2004. Maybe a “genius investor” or two will make some hay in the near term, but I think the herd mentality there tells you everything you need to know about that strategy, (how many more landlords do you know today than you did five years ago?) As far as families buying primary residences, I think part of the problem is that the envelope was pushed so far during the credit/housing bubble that the baseline for perceived value has been altered upward in the consumer mindset. There are still people who are wholly credulous and willing to overextend themselves on a house loan — again, as long as there is facility available for them to do so.
Personally speaking, I feel at this point, it’s best to just wait until housing is no longer a hot button issue, and then either buy something in cash or pay it off in six or seven years. I’ve been sitting on this goddamn fence so long I don’t even feel the splinters anymore.
I agree. Affordability is a relative term. Back when no one cared about savings or running up debt, affordable had a completely different meaning. Now with the horror of the worst recession fresh in the minds of multiple generations, why is the past definition of affordable still applicable? 3.5% is the new 20% for down payments. That leads to higher monthly payments. While interest rates are artificially keeping that payment lower than it should be, you still have a new philosophy out there that says, “I don’t have several thousand dollars for a down payment, I don’t have a couple thousand dollars for monthly payments, and I don’t want to spend my money on something that is losing money.” It is going to take years, if it ever happens again, for Average Joe to decide that a house purchase is truly affordable.
All measures of affordability are computed on a monthly payment basis. With interest rates below 4%, even a conservative debt-to-income ratio makes the current prices payment affordable.
If you look at the actual amount financed and compare that to 15 years ago, then yes, houses are not affordable. People buying all-cash do not look at today’s prices and think houses are cheap. People financing the transaction look at their PITI and see the cost is less than a rental, so for them, houses are affordable.
Even if we only consider the monthly nut, on mid-range SFH homes in coastal states (3 bed/1.5 bath – 1500-1600 sq ft) in a decent area, the carrying costs are still typically more than a third or more of a family’s net take home.
It’s weird; it’s like there’s a partition between the boomers and Gen Xers who purchased housing before lending went ape and first time buyers today. I have friends who bought their homes (fitting the profile of the mid-range home described above) who visibly blanche at the notion of a 2 – 2.5K monthly on an average SFH.
Perhaps my perspective is colored. My mom was a real estate agent for a spell back in the late 80′s through to the early ’90s. I very vividly remember what one could get for a quarter million in ’95, and it was a veritable spread in a tony area. Nowadays, it’s a block house with a carport and a faded pink bathroom.
Anyway, thanks for the blog Irvine Renter. Good stuff and good work.
Current average US worker weekly pay: $935
Current average OC worker weekly pay: $999
Clearly, current OC home prices have much further to fall.
I wonder if we will ever see a RICO lawsuit against the banks? If only Eliot Spitzer hadn’t fooled around with that hooker, we might be seeing a completely different housing market right now.
If Elliot Spitzer hadn’t fooled around with hookers, Wall street would have found another way to get him.
NEW YORK (CNNMoney) — When the unexpected strikes, most Americans aren’t prepared to pay for it.
A majority, or 64%, of Americans don’t have enough cash on hand to handle a $1,000 emergency expense, according to a survey by the National Foundation for Credit Counseling, or NFCC, released on Wednesday.
Most Americans can’t afford a $1,000 emergency expense
This is very different from my parents the silent generation born between 1925 and 1945. They were better savers.
Scary if not beyond amazing. Similar stats have been published before. I remember a few years ago that the percentage often quoted was 50%, not 64% (Authors comment: I am writing from memory so I can’t cite an exact reference). One thing for sure: the trend line is certainly not down.
Whats even more interesting are some of the 800+ comments posted to CNN Money article cited in link. Here is one I really like.. (couldn’t of said it better myself)
“..So Americans don’t have $1000. What do they have? Cell phone, cable tv, computer, 20 pairs of shoes. It’s just a question of priorities. This is after all a rich country. Dumb, but rich…”
Spot on, we all live in a culture that promotes / values over consumption.
We buy things we don’t need with money we don’t have to impress people we don’t know.
The entire housing bubble is proof positive of that notion. Factor in cars, clothes, expensive vacations, useless bling and etc, and here we are.
Question that I don’t know how to answer: What will reverse this trend or can it even be reversed? As a culture, are we going to spend our way in oblivion? I would like to think not.
CR called the bottom the other day
I didn’t see that. Which post?
http://www.calculatedriskblog.com/2012/02/housing-bottom-is-here.html
That was pretty bold, concerning we still have federal debts issues.
Since market fundamentals have been utterly trumped by public-policy and central bank intervention, it’s not possible to quantify ‘the bottom’.
Accordingly, CR’s credibility ‘stock’ has substantially dropped. Just say’n.
You have to be careful calling bottoms. Last year on the old blog, I stated we would never see sub 5% mortgage rates again on a 30-year fix rated mortgage. How did that prediction come out…
A year ago, I thought I would see the beginnings of the GSE privatizations or at least some plan. It’s moving in the other direction. Nobody saw the mortgage tax in November that was passed in December. It’s very dynamic housing market we have here. Supply and demand are being centrally controlled, or at least they are trying to.
I’m not so sure that CR’s credibility has dropped. If anyone truly ‘knows’ the data, it is CR. He’s been publishing and tracking housing/econ data for the last four years fairly religiously.
That being said, most of last year he was bullish on the economy compared to other housing/econ commentators, but the economy did improve slightly in 2011. If he’s seeing an improvement in housing (nationally), he might be right. Whether it’s the true bottom or a minor lull (like 2010) is another issue, but we might be in for a noticeable uptick this year.
There is one issue that is hard to predict is politics. If, the QE’s are stopped, the fed rate is increased, the GSE/FHA complex is scaled back I expect to see much larger drops home value drops. However, 2012 I don’t expect to see that, and in 2013 who knows.
True market forces currently, don’t exist in the housing market. For example, 97% of home loans are touched by the government.
I replied but I don’t see my reply posted so here they are:
http://www.calculatedriskblog.com/2012/02/housing-bottom-is-here.html
http://www.calculatedriskblog.com/2012/02/housing-two-bottoms.html
Not great news for Larry over on Dr. Housing Bubble.
Vegas rental market is a mess (unsurprisingly).
http://www.doctorhousingbubble.com/doubling-down-on-rentals-las-vegas-real-estate-las-vegas-rentals/
Oh no, more bad news about Las Vegas? I’ve never seen a negative story on Las Vegas.
The entire post is based on an anecdote from someone who posted on Patrick.net. His charts are for commercial rentals not single-family detached homes. The commercial rental market is a terrible mess. It is more volatile than the single-family market, not well correlated, and commercial always lags the residential market.
It does make for a good headline and more negative sentiment on Las Vegas. It does serve to keep away the competition for the properties I want. That makes me happy.
The basic premise is that everyone and their dog has jumped into the “investment property” market in LV and it is putting massive downward pressure on rent returns. The ROI on these “cashflow” properties is turning out to be much less than expected. Are you not seeing that?
You are on the ground there and would know better than me, that’s for sure. I am curious to hear what you are experiencing.
Rents did weaken during the holidays. There is one property I am having difficulty renting, but other than that, properties rent quickly at prices comparable to recent rentals.
Keep in mind, as long as there are people with jobs, there is rental demand. Only a flood of previously empty houses would cause rental rates to crater long term. Each foreclosures that puts out a former owner creates a new renter, so rental demand mirrors employment. Employment in Las Vegas has been improving. Only the construction sector is keeping unemployment high right now.
I have one recent acquisition for rent right now and another coming online in two weeks. If I have problem renting those, and if I have to lower rents $100 to get them rented, then I will start to worry about rents in Las Vegas.
IR you deserve credit for putting yourself out there for scrutiny. Most of us have the luxury of anonymous screennames and our investments decisions are not a matter of public record. It’s probably annoying to have to defend your strategy all the time.
One thing I think your Vegas plan has going for it is a good risk/reward ratio. Even if rents do tank, you could easily liquidate to the hoardes of speculators still pouring into the market. I think the risk of severe losses is minimal at this point, and as long as you’re cashflow positive, then everything is fine. I don’t think most Californians can even relate to cashflow investing these days.
Speaking of Vegas and CR….
Las Vegas House sales up 12% YoY in January, Inventory off sharply
Mellow Ruse, what’s cash flow??
“It’s probably annoying to have to defend your strategy all the time.”
I don’t mind. Most people don’t fully understand contrarian investing with a long-term view. I want sentiment to be bad. I want everyone to think it’s a bad investment — at least until I get all the properties I want. I want to have completed all my purchases by the time everyone believes house prices have bottomed and it’s safe to invest there again. By then, the best deals are gone.
I may be a year or two too early. Rents may decline from where they are today. I doubt it, but I could be wrong. People need to know there are risks to this investment strategy. Rents would have to decline 40% from where they are now before I will be cashflow negative. I don’t see that happening.
Here’s something I don’t get. “The commercial rental market is a terrible mess. It is more volatile than the single-family market, not well correlated, and commercial always lags the residential market.”
Why should that be? Consider Irvine. The commercial rental market, i.e. TIC is carrying the highest rents in the county. This is because they single-handledly control 39,000 apt units in Irvine alone. Therefore, they have effectively set the bar for all of the county.
The Irvine Company has a monopoly in an “A” market. The Howard Hughes Company in Las Vegas has a similar situation in Summerlin, and they also have maintained rents at higher levels than the rest of their commercial market. The rest of Las Vegas is not an “A” market, and they have too much commercial as a hangover from the bubble. Those two factors have crushed their commercial market. If I knew more about distressed commercial property investment, this would be an interesting market to operate in.
Oh man.
The pressure to buy, from “concerned” family and friends is getting strong again.
“economy recovering” – “record low interest rates” – “low down payments”
DON’T MISS THE BUS, my dad says.
as an aside, you show a picture of 8 “projections/predictions” yet that graphic clearly calls those numbers a “scorecard” representing y-o-y declines as of Nov 2011. As in, the past. What am I missing?
I copied that graphic from the story. I assume it means their projections were based on November’s data.
Ok, I don’t think Case Shiller, for example, does forecasts?
Have a feeling those are all the y-o-y declines from the past year, via different sources.
The negative price forecasts from Case-Shiller thru Zillow are pretty darn amazing.
Now that Zimbabwe Ben has telegraphed his interest rate intentions thru 2014, if even the *hint* of higher yields appears in the 10-year bond outlook, look out below.
If such an event comes to pass, me thinks even the -7.1% forecast by Radar Logic might be a bit optimistic.
Going to be an interesting Spring selling season to say the least.
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