The Standard & Poors/Case-Shiller index’s most recent report shows that home prices across the country are sliding. For economists, this is yet another unexpected decline. For readers of non-mainstream news, analysis and opinion, this was to be expected.
Robert Shiller, co-creator of the index joins the Wall Street Journal and shares his perspective:
It’s still only a few months we’ve seen these declines. So, it’s not clear that we have a downtrend.
But, if home prices continue on this pace down, I think the economy has serious reasons to worry.
…
According to our survey, forecasters are expecting on average – these are professional forecasters – prices will be up 7% by 2014. So, that’s not bad, but it’s not great either. On the other hand, a good share of those forecasters are predicting declines. I think the outlook has become steadily more pessimistic over the last few months. With today’s announcement our professional forecasters are going to be a little more pessimistic.
The same professional forecasters who didn’t see the collapse of 2008 coming are being relied upon now to tell us what is coming next. Like Ben ‘the sub-prime crisis is contained’ Bernanke, the mainstream forecasters out there are touting the group think line. No one wants to step outside of the group and tell us how it really is – even if they know what’s coming.
Luckily, we don’t live in the mainstream bubble, so we don’t have a problem being called fear mongers. In reality, we’re just reality mongers.
And the fact is, that the home price decline has a long way to go.
In May of 2010 we responded to a report which showed the home construction was up. In that response we penned the reasons for why the real estate market will not only not recover, but will continue to decline – significantly. Rather than trying to explain it in different terms, here’s what we wrote in May:
We have the government tax credit now expired, roughly 7 million plus foreclosed and delinquent shadow inventory homes that have not yet been reflected on banks’ books, credit markets remain tight, mortgage rates will likely rise due to federal debt problems, millions of adjustable rate mortgages are resetting interest rates higher over the next two years, and home prices in many areas have resumed their downward slide.
While today’s news may seem positive, one must consider the dynamics of the entire real estate market before rushing to judgment about a recovery in real estate.
Our view since the Summer of 2009 has been that the bottom for real estate is not yet in, with average national home prices still well above the historical, inflation adjusted price of around $110,000 (going back 100 years).
This is a credit contraction and the pendulum is now swinging in full force from the top of the bubble to the extreme opposite. If history is any guide, corrections are equally as violent as bubble formations, if not more, because the momentum in the other direction can be ferocious and very fast. This means that the pendulum will not simply revert to the mean, but will likely overshoot in the opposite direction.
Since the housing bubble’s peak, which reached an average national home price of around $200,000, we’ve seen real estate prices deflate nearly 20% to about $165,000. So, just to revert to the historical average of around $110,000 housing prices would need to slide another 30% from here.
Over the last twenty years the Japanese real estate market, blown from an easy money bubble and the expectation that real estate will never go down because people keep being born, has lost over 70% of its value (inflation-adjusted).
We can expect the same in the US. That means we’ve got about 30% to 50% more to go in terms of real estate declines. It sounds crazy, yes. But, it’s been a pretty crazy last couple of years, as well. So crazy that had you predicted ten years ago that we’d see a detonation of the real estate bubble, the insolvency of every major banking institution in the country and the trillions in bailouts that followed you would have been called a doom and gloom quack.
Biflation is the order of the day, where debt-based assets like homes will continue to lose value, while essential goods like food and energy will continue to rise.
When we talk about tanking real estate prices going forward, it should no longer be ‘unexpected.’
Video Interview with Robert Shiller and the Wall Street Journal:
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Right, no surprise to us, thanks to your site Mac and others like it. My next step is to cashout refi and secure as many crisp 10 dollar bills as I can. You know, diversify.
Paid off the house this past September…at least we will have a roof over our heads.
After renting most of my adult life, living low on the hog, I entered the market for a single family detached in February of 2000. Six months later I fired my buyer’s broker, who in 60 outtings hadn’t shown me anything I really liked.
Upon retaining a new BB I found what I hoped to find the second time out. All the “smart money” personal finance advice was “Carry the biggest mortgage you can afford and invest all that money you would have wasted paying cash.”
From living low on the hog I’d been saving and investing. Knowing pack mentality when I saw it, I ignored all the “smart money” advice. I sold the most disappointing four-fifths of my stocks. I paid  cash, wrote my own terms, closed when I wanted the closing. I had a fully paid home in the neighborhood of my dreams. Sizable equity investments remaining. And enough cash to handle renovation and the inevitable repairs. No “home poor” for me.
Thinking for yourself is risky. It puts the responsibility where it belongs. You might fall on your face. You might also come flying home an ace.
Jumping anise breath nymphomaniac cheerleaders am I happy I resisted the temptation to get into those “hot” mortgage backed securities five years ago.
Turn off the television. Ignore the financial press. Decide on your own goals. Degree of risk you’re comfortable with. Time table. Â Nobody knows your financial situation, or cares more, than you do. Do your own research. Be prepared to live with the outcome without self reproach.
For whatever it’s worth, for tax purposes the county still assesses my home at about 40 percent more than I paid for it. Since I own free and clear, and need to live somewhere, I couldn’t care less what its market value becomes, because I’m staying here until my final breath.
People should not listen to financial and any kind of experts that come on TV. All they have is a mouth-full of horse shit. This is America!
The demographics for housing starts in America is over and has been for some time. The inventory of empty forclosures is up and will continue to rise, which is why Uncle Ben is building excess reserves for his member banks.
QE3 anyone?
We ain’t seen nothing yet. Wait until the commercial mortgages that roll over can’t be renewed. Then banks will be under even more pressure causing even tighter lending standards. The spiral will continue.
LOL regarding “unexpected.”
99% of economists find anything that could remotely be considered as bad news to be “unexpected”…and that includes Bernanke.
That is why Bernanke’s recent comments about the “recovery” have me convinced that we are screwed…or at the very least, the worst has yet to come.
While I can feel a certain sorry for people who got burned in the real estate mess, I certainly hope it NEVER goes back to where it was,the SOBs in local govt used that inflated period to justify triple and quadruple increases in property confiscation (otherwise known as taxes) and even with the bottom falling out they of course wont lower them at least not willingly.
People got greedy and got burned ;they also got stupid and got burned but thats their problem,make better,saner choices next time.
Not everybody sees/uses their home and land as an investment cow,rather we use it to actually live on(what a concept eh?),people shouldnt have to lose their homes just because some other moron is more able/willing to cough up the yearly extortion/blackmail moneys demanded by govts to fund mostly useless projects and programs that in general do not benefit the victims!
Sure there were lying unscupulous people(govt/corp/bankers and brokers)Â who meant to decieve people and defraud them but a fish has to bite the bait in order to be hooked and as things proved out…theres a lot of suckers out there, many good people to be sure,but also a lot of people who should have known better,how much you wanna bet we do it all over again as a nation first chance that comes along?
Comments…..REB-you got it right…if it walks like a duck, it just might be a duck. if a deal sounds to good to be true it probably is! a lot of folks have been whining big time over the raw deals they made buying homes/real estate…but i really feel that most of them knew they were getting in neckdeep and could not afford what they were buying. and yes they will do it all over again given the chance.
I bought a double when others were buying their McMansions. I get monthly rent. When other were doing stocks…I did metals. Who’s laughing now. It’s all going to crash. Now be careful…the last wealth they will come after is the metals. Be ready to cash it in for fully owned rental property when that comes. It’s asset classes folks. Do the opposite the herd does and you’ll be fine. PS. Ammo up. Pantry up like a Mormon. You’re going to need it. Further, watch for matial law…one way ticket to the fema camps. The new wealth will be…free and clear with a safe full of metals…wood for heat, chicken coup for protein. Get ready to go back in time. I’m saving my metals for the big collpase…then I’ll move to the woods and buy a foreclosed farm with a box of God’s money. The world is not ending…just the dollar and the American dream. The fall of Rome. It’s not a crash…it’s a slow burn!!!!    ps. DON’T EVEN THINK OF STARTING YOUR OWN BUSINESS.  YOU BEST BET IT TO BUY COUNTRY LAND WHERE YOU CAN BE SELF SUFFICIENT.
Without intervention, prices will fall until income is in line with home prices.
If income is falling too,… well, the correction to the downside is going to be a dusie.
It doesn’t seem like further intervention is possible, but no one should discount the abilities of the can kickers who have kicked the can down the road for a long time now.
Whatever they do to extend things will make it all that much worse later on.
For many people, renting makes sense.
Mobility is an asset for those who need to follow the jobs.
P.M.I. is an expense renters don’t have to deal with unexpectedly.
It’s doubtful there will be a shortage of homes available for rent in the future in many areas due to the high foreclosure rates, so the risk the landlord will move his homeless brother-in-law in, is a risk that is offset by the high vacancy rate.
Just don’t forget this one thing, home, “ownership” is a liability, Not an asset.
It’s not-so-funny how preppers are made out to be wrong and crazy, or worse, the same way those who claimed there was a bubble in housing back in 2003-2004 or before. Seriously, the same attacks against preppers today are exactly what those who warned of the housing collapse experienced years ago. I know, because I was one.
Dollars and credit will become even more scarce in 2011.Â
Energy prices, food, clothing, health care, insurance, entertainment, mortgage interest and all taxes will rise.Â
The value of your used tangible assets and everything else including your income will fall.Â
USD index will be 185 by xmas 11.
A new larger war come October will take several million off the streets.
Are these people stupid? “Unexpected”? Really? No, they “expect” it but if they told us that then we would be closer to knowing their deceit. The simple fact of the matter is all that has happened and all of it was known, predicted and mostly done with a purpose in mind. Think of three similar situations:
1. If someone breaks into your house and steals your TV, you’re pissed.
2. If someone accidentally “falls into your house” and your TV ends up sliding out with them, well, you’re still pissed but might not prosecute them.
3. But, if by some chance and idiot, who is drunk thinks hes locked out of his own house and so, mistakes your house for his and breaks into your house and is taking the TV to be repaired, well, you just think he’s an incompetent imbecile.
The problem is that the incompetent imbecile isn’t. He appears drunk and appears well meaning or mistaken or incompetent. You almost feel sorry for him. What you don’t realize is that you caught him with the TV *AFTER* he just unloaded your safe and your jewelry box. You didn’t realize this because he put fake costume jewelry and counterfeit bills back into the appropriate places.
#3 is the story of our government. They’re not incompetent. They’re not drunk (unless its with power). They’re not stupid. They think YOUR house is theirs and they know you’d be pissed if you knew they thought of it that way. So, in order for them to collect, they simply feign incompetence and stupidity.
The only part that is unexpected is that they have unexpectedly got caught and have to feign incompetence (again).
Comments…..NR, NR do you read, DO YOU READ ???
” we will print ” ,
” we will print ”
— your house is YOURs–
but
your debt is OURs, OURs.
King David complained in Psalm 69:4Â “Those who hate me without reason outnumber the hairs of my head; many are my enemies without cause, those who seek to destroy me. I am forced to restore what I did not steal.”
Balance is the ‘ word ‘ , be smart!
“The tax system does not exist because they need the money ( The Bernank can simply print it ). Taxes are what make the Dollar legit. You can barter, or use alternate record keeping schemes to avoid the dollar – but you WILL have to pay taxes in Dollars – or the state will employ violence against your person. It is no coincidence that the Income Tax system and the Federal Reserve system came into being at the same time ( around 1913).”
Go figure.
Comments….. An older than me says:
“We were offically bankrupt when the FED started buying Treasuries….. a country that can not help the many who are poor, it can not save the few who are rich. ”
Be smart.
Comments….. The economy will not improve until unemployment goes way down, and people start buying houses and cars. I don’t see either happening in the next few years. People are still getting laid off and businesses are still closing. People opened up their wallets for Xmas because they were tired of holding back. Maybe they spent money they did not have or could afford to let go of but they did it any way. Let’s see how many clerks get laid off in January, and how many businesses fold. My house is paid off as well and I don’t plan on moving any where. The only way the price of homes can hurt me is if I want to take a reverse mortgage out on it down the road. That would be my last resort.
jeff1 got it right…..diversify into crisp new uncirculated ten dollar bills.
OFF TOPIC EMERGENCY NOTICE
BUY J. P. MORGAN STOCKS (JPM) AS MUCH AS YOU CAN RIGHT AWAY. INTERNET SCUMBAGS MAX KEISER, ALEX JONES AND THAT GUY FROM GATA NAMED MURPHY HAVE BEEN URGING EVERYBODY TO BUY SILVER COINS IN A DELIBRATE SCAM TO RAISE SILVER PRICES AND STOP JP MORGAN FROM NAKED SHORT SALES OF SILVER DERIVATIVES THUS PREVENTING THE RISE OF THE PRICE OF SILVER.
SILVER IS ALMOST $31 . BUY JPM NOW BEFORE IT’S TOO LATE…
Your wrong. This will not get better until the petro dollar & derivatives unwind.
Â
Goldenfoxx said, “People opened up their wallets for Xmas because they were tired of holding back. Maybe they spent money they did not have…”
It is said by more than a few people over at thehousingbubbleblog.com that the reason so much spending is happening is because of the large number of people who have have stopped paying their mortgages and are living rent free.
mushroom – you’re so right!! Â Those scumbags!!!
Bwahahahahahahahahaha!!!
We need to keep silver prices down (so we can buy more at cheaper prices)…
Ask yourself, do you have enough yet? Â Then buy more! Â $30.50 right now!!!
All Good comments so far.I just bought a house with a 30 yr mtg@5%.I knew the “value” could decline 30-50%.Not the reason I did it.I’m TIRED of paying rent and water and lights on someplace that I WOULD be put out of if the next month’s rent isn’t paid.Hyperinflation?I win!More deflation?I still enjoy where I live and bought with a eye on a place with ample space to grow much of the food I “need” for the next 30 years..Can’t do that in a six-flat.Have permission from the local HOA to have solar if I want to from.”Might” put in a well if possible.If the “Feds” go rabid(and they seem a touch closer each day)want my place they will take it(see American Indian history).I suspect they’re going to be too busy/broke/at a loss dealing with the larger problems coming down the pike for them.
I bought so the people on the other side of the wall are at least 15ft.behind a fence.Should they decide to do the drug lifestyle all they can take are the so-called valuables and not kill me outright with the toxics they’ll produce.Screw renting.
Let’s be honest fellow citizens,America is failing as a Empire as we know it.It MAY take only a few years or a number of decades.None can say with any clarity.
The Roman Empire failed,yet not All cities of the empire failed with them.Even Rome itself didn’t fail until the Vandals cut the viaducts suppling water to Rome.Then they went from about 1+ million to 20,000 in short order.When the water,electric,gas are no longer working THEN everything will hit the pot.Life didn’t end for the common Roman.But it did change.
What’s the color of your parachute?
All the best to all
GFG
Dumb me!  I thought paying off my real estate was smart,  but now I look like  BooBoo, the fool.
If I could get a big fat mortgage again, I would buy all the gold/silver  I could get my hands on,  and then let the banksters have my house back,  that no one will buy.
Wow! Â That might even be called “investing” Â in todays upside down world.
She says timing is everything.
Comments…..Anonymous
She says timing is everything.
——————-
Who is she?
lostinmissouri: Don’t worry you aren’t lost, you have discovered what true freedom from debt is. Welcome to the club od being debt free!
No suprise on this article. With 18 million empty houses in this country and millions with under-water mortgages and banks holding millions more foreclosures off the market, one couldn’t expect anything else.Â
Building in this neck of the woods is worse than dead. A few re-models but absolutely no development taking place. Area boomed in real-estate from about ’96 through 2006. My own home is down by 32 percent according to the County Appraiser. No worry…we own it and never believed the value they put on it in 2007-08. Still worth 225 percent of what it cost us to build in ’96. Add it perhaps $800 rental value for 14 years and we’re fine. Truly wish others were sitting as well.Â
Happy New Year!
We have been married 11 years and still rent. Missed out on those lower prices before the bubble because we were still in college & too poor. Kicked ourselves as we watched the prices go out of our reach.Â
During those years, a friend of ours commented that there was a passion of his he’d love to pursue, but couldn’t afford to take off the golden handcuffs because he had a mortgage. We began to see the bright side of not being tied down to a huge liability like a home.Â
Well, then the bubble popped–at least in most markets. Ours didn’t really go down much, but some. Then interest rates were low, and that tax credit was offered. We didn’t take the bait. Still rented.
All these years, friends keep asking why we aren’t buying. After all rates are sooo low and prices are down. We also make a pretty decent income. There are two reasons:
1. I am a worry wort. Buying just hasn’t felt right. If the shtf, we can move in with relatives and bless them with our added incomes and supplies. I am free because I’m not worried about a house.
2. For the same monthly payment, I’d rather have a higher interest rate and lower principal. That way, in a windfall, we could pay off the low principal and be free sooner. Or interest rates could go down and we could refinance. I expected prices would go down. In our town, baby boomers own large houses and multiple houses. To retire, they will have to sell and downsize.Â