Monday, January 05, 2009

This Didn't Take Long

It is January 5th and already the morons are coming out of the woodwork. John Burns, the president of some real estate consulting agency that he founded so that he could be president, is suggesting that if you have a long term plan, 2009 is the year to buy and his favorite market is right here in my back yard, Washington DC, because affordability is no longer an issue.

I'll start with the first part of his statement. Calling 2009 as the year to buy if you have long term plan is just asinine. Nearly every market in the country is predicting a year over year decline in the double digits. Why buy something that you KNOW is going to decline in value? Certainly not to make this guy look like some kind of genius. Then he calls DC his favorite market. Sure his observation about a stronger job market than most areas of the country is a keen statement of the obvious, but its not the reason to jump into a market that is going to be declining as much as 20%. Heck, even overly optimistic CNN/Money called DC one of its worst markets for 2009. If you want to buy a house that will appreciate, I'd try hitting up a market that isn't on anyone's 10 worst list. Mr. Burns (lol, Simpsons reference) even says that affordability is not an issue, yet the latest from Case/Shiller still shows that nearly all markets are still over priced.

Thomas Lawler who is also the president of a consulting agency that bears his own name is off trawling for a stimulus package that will likely be close to a trillion dollars. We just had a stimulus/wealth redistribution this past summer. Once the checks stopped going out, the stimulation went away and we discovered that we were only deluding ourselves into believing that putting a couple hundred bucks in people’s pockets would stop our economic decline. Surprise, people spent the money on gas and milk rather than big screen TVs and cars. It will be the same thing once these checks go out and get spent at the grocery store or better yet, they get mailed to the credit card company. Lets face it, everyone already has their big screen HDTV’s and most people are still paying down their loan shark 22% Bank of America credit lines that they used to buy these TVs.

Michael Felder who is the president of a company I have never heard of, but at least isn't named after him is being rather moderate in his pessimism. He's only predicting a 5-10% downside for 2009 and isn't stumping for much from Washington. I think he is being optimistic in seeing any signs of recovery this year. With 3 more years of hard core ARM resets, the bottom is not before 2012. Builders have to stop building and people who can’t afford the homes they over paid for have to put them back on the market at reasonable prices. You can’t prop up the system anymore.

Sam Liber who is the CEO of Alpine Woods Capital Investors, is riding the fence. He predicts either a death spiral for housing or a scenario where lower interest rates motivate qualified first time buyers to jump into the market while ignoring the downside on the largest investment of their short lives. I am not sure there will be a death spiral, but prices have to come down a lot more before they are believable as affordable.

If you look at the chart below, from Robert Shiller, you'll see where the last two housing booms have been followed by declines to pre-boom levels. There is no reason to believe that the current boom will be any different. Just because its 5 times as large as the booms in the 70s or 80s doesn't mean that it will behave any differently. Hang onto your hats.
The only thing missing from this article is Lawrence Yun predicting that prices have bottomed for the 500th time in the last 2 years.


Ed said...

Good to see the honesty of showing Shiller’s chart! I have been updating -- see first and last charts here:
“Real Dow & Real Homes & Personal Saving & Debt Burden” at
And see here the (extrapolable) straight line fits to the last 13 months:
“Homes’ Mispricing: Straight Lines! / Futures”

The homes & stocks USA history is “serial herd behavior”.

Dead End said...

Those are some interesting insights which are probably over the heads of most people. That said, with your permission, I would like to link you page.

- Ross

Ed said...

My site just aims to show the past soundly, for the common good. So, please feel free to:
link to pages,
use charts,
paraphrase/supplement text.

William Penn said...

You are spot on about the DC market. It is still way overpriced by any objective measure. I'm a 37 year-old professional with a family and we are proud to be renting a very nice home at a comparably low monthly outlay. The problem with most of these "think tanks" on housing stimulus is that they are focused on mortgage rates as if that is the impediment to more buying. The reason I and other like me are not buying has nothing to do with mortgage rates and has everthing to do with THE PRICE!!! We refuse to pay for a wildly inflated asset and so its a waiting game. This return to normality (I wont call it deflation) in housing prices will take a LONG time because reality is a bitter pill for homeowners to swallow indeed. I plan on buying in mid to late 2010 for the record.