real estate will likely be the last pillar to fall
and if it does, our recession will become deeper and longer
I have heard so many platitudes concerning housing
"everyone needs a home"
"the safest of all investments"
"its value can only go up"
"they aint building any new land"
these are all quite simplistic
here is a sprinkle of reality, from August housing stats
this is before the infamous Sept 11th attack on NYCity
median property dropped in value another 2.7% for August only
down 4.4% in the three summer months
May saw median at $175k, August median was $167k
it is accelerating downward, with Aug drop over 2x July's
houses are not selling at previous prices
the two critical realtime indicators that matter to me are "time on market" and "#unsold properties"
they are both rising sharply in every city I checked
there is more to the equation than need for housing and low mortgage rates
fear of future, unemployment rates, reverse wealth effect
each of these plays a big role in setting prices of property
perversely, even a reduction in divorces since Sept has cut down the demand side for housing
the most vulnerable class is highend luxury homes
they have already come down in many metro areas, some bigtime
and that class pushes down on the upper middle class property values
some are deceived into thinking "only highend housing will get hurt"
we have been duped by many pundits
in 2000 we were told early in the year that only internet stocks would be crushed
in mid 2000 we were told that the Fed would engineer a Soft Landing
(if they do, it will be their first in history !!!)
late summer 2000 we were told that fiberoptic stocks would be spared among techs
in autumn 2000 we were told that techs were crushed, but Old Economy was firm and solid
in winter 2001 we were told that energy utilities were still a great sector with terrific pricing power
in spring 2001 we were told the service industry would be spared
in summer 2001 we were told that we would avert an official recession
(NYCity attack changed all that)
but even after all these deceptions have been exposed,
and after the unemployment announcements have been publicized,
and after the NYCity terrorist attack ...
I am dumbfounded that some still believe the last remaining asset class will hold up firm and solid -- REAL ESTATE
how much DENIAL can we bear, and for how long?
job layoffs will play HAVOC soon with real estate
sorry, but real estate is the final pillar to fall
it will come down as consumer confidence comes down
layoffs will throw fuel on the fire, sadly
how many times must we hear "WORST IS OVER" before we get wise ???
REAL ESTATE must fall
it is an asset class whose price is determined "at the margin"
buyers and sellers seek an equilibrium
now the balance has shifted
just as stocks saw fewer buyers recently, so have properties
Offers to Purchase are being pulled left & right
uncertain income is leading lenders to question qualifications
we are in a recession now, no doubt about it any longer
the next deception will be that it will be a quick one
I doubt it
get back to me after the next terrorist attack
what next? major city bridge, state electrical grid ???
if we attack them in retaliation, they will respond in like kind
never happen?
check SF Golden Gate bridge for cops in center spans
check NYC GWashington or Verrazano in center spans
check electrical relay stations outside major cities
do you see any security guards?
heck, some airports are still not imposing much additional effective security
during recessions, property prices go down 20% give/take
with values rising in many areas nearly 100% since 1993, my guess is a decline at least 25% before all is said and done
in some extreme cases, property has sold below replacement cost
when the local or regional economy was hurting badly
show me an economic sector that is strong now
this was true in early 1980's and was true in early 1990's
if supply overwhelms demand, then price drops
and GONE is the wild foreign demand for American property
at least temporarily
my biggest question is whether we will avoid a long and persistent RECESSION
and whether it might turn into a depression following further attacks by mindless evil fools hellbent on destruction
ok, so real estate will probably fare better than most assets
fine, then it wont drop by Nazdack's 75%
or S&P's 35% or Dow's 25%
...... so far
my gut intuitive guess is middle range and upper middle range urban and suburban housing will drop by 23-28%
and highend will drop by 40%
and most commercial property will drop by 30%
/ jim |
