Housing Prices To Free Fall In 2008 - Merrill

[Purveyor]

Source: CNNMoney

NEW YORK (CNNMoney.com) -- The worst housing financial crisis in decades is only going to get worse, a Merrill Lynch report said Wednesday.

The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010.

By contrast, the National Association of Realtors (NAR) expects housing prices to remain flat in 2008. NAR did cut its home price estimate for the current quarter, however, to a 5.3 percent year-over-year decline, which represents the steepest drop in that price measure on record. But NAR sees an uptick in home prices in the last two quarters of 2008.

"Merrill Lynch's figures are way too pessimistic, and they are unprecedented," Lawrence Yun, the National Association of Realtors chief economist told CNNMoney.com. "There is so much variation in local housing markets, and we see stable price conditions for 2008."

--
But for those who think that the worst is over, Merrill Lynch said that housing prices still remain comparatively high. The brokerage believes that home prices are still far above historical norms when compared to other measures such as rent or GDP. "By our calculations, it will take about a 20 to 30 percent decline in home prices to correct this imbalance," said the report.

Merrill Lynch believes that housing starts will most likely slide another 30 percent by the end of 2008 - a historic low.



Read more: http://money.cnn.com/2008/01/23/real_estate/merrill_forecast/?postversion=2008012313

[dbackjon]

1. Like Realtors are an unbiased source

They helped create the mess.

[lurky]

8. If they predict a flat year,

you know it's gonna be rough. Normally, they are like, "Buy! Buy! Buy! Prices will rise forever!"

[Rockholm]

13. How is that?

[Warpy]

2. Some places that saw the biggest bubble

might exceed that 30%. Places that saw no real estate bubble and where housing is chronically undervalued, like upstate NY, might see a decline of 5% or less.

My area was overbuilt with the wrong type of housing to satisfy a speculator market. It is going to be a great deal of fun to watch over the next couple of years.

[Purveyor]

3. I think most of Michigan has already seen a 30% decrease over the last 2 years.

With the announcement of nearly 100k union autoworkers being offered a buyout (translate: take it or get laid off) over this past week, there is little hope for improvement here.

[Demeter]

4. Unemployed People Don't Buy Houses--They Try to Sell

and there are no jobs left in Michigan. We've lost population because people go looking for work in Wyoming and Canada and anywhere.

[Warpy]

7. My dad's house in Florida is down

from $220,000 to $165,000. I sold for under $220,000 and the comps were at that time $235,000 and people thought I was nuts for taking that big a "loss" on it.

However, I'd done a drive around the area and counted all the "for sale" signs and realized the glory days were over. I am being applauded for my prescience and I sincerely hope the people who bought it aren't listed in the 5 pages of foreclosures that area of Florida had 2 weeks ago.

[Gormy Cuss]

11. Quite right. In some areas it will be barely noticeable, in others it will be like catastrophic.

My prediction is that McMansions will be converted to multiple unit rentals or condos in some metros.
A 5000 SF house with a three or four car garage would be a couple of good size townhouses, for example.

[Warpy]

14. They're going to be miserable to convert

without a lot of plumbing work. Most of those dumps have 2-3 bedrooms and 2-3 bathrooms, but multiple play rooms: game room, media room, sun room, family room, formal living room, formal dining room, kitchen you could hold a barn dance in.

Some of them will be businesses with living quarters overhead. They'd make dandy restaurants, for instance. It's just too bad that most of them were built outside the center of town.

The ones in the exurbs will end up being bulldozed. No one will be able to afford those long commutes.

[Alcibiades]

17. They overbuilt here, too

It's really bizarre: here in Durham, NC, the city out of the Raleigh-Durham-Chapel Hill "Triangle" that has the most blue-collar image (and reality), they were, until recently, building huge numbers of 250-400k+ homes. Not nearly enough millionaires here to buy them, so many are bought by professional couples earning 50-100k each a year. Maybe a two-earner couple earning 200K here can afford a house that costs that much, but that's not many people around these parts.

Meanwhile, the houses for under 200k for us regular folks simply are not being built, or if they are, they are big ugly snout houses on postage-stamp lots, or townhouses (many of which have needlessly high association fees).

I've been looking for over a year, and we have to be into a new house by May, or we will have to renew our lease. The rub is that, despite having above-average income and average credit, we're having problems getting credit because our student loan balances are considered too high. Six months ago we could have simply done a stated-income loan (aka the "liar's loan") and gotten a loan for whatever amount we needed.

[MidwestTransplant]

20. I mostly agree. Where there was no big spike and the labor situation remains

fairly steady there shouldn't be a huge decline. In other places, the costs FAR outpaced job and wage growth and the only way people were able to afford houses was with teaser rate mortgages. The bottom line, supply and demand have to come into balance and houses have to be affordable or nobody will be able to buy them. Especially now that credit standards have tightened.

[NashVegas]

5. I Guess I Need to Start Saving Up That Down Payment

And finally go for it when they come down enough.

[NMDemDist2]

6. hell, the house I sold in PHX in 6/06 has ALREADY dropped more than that

I sold it for $225K and it's worth about $180K now

I think I did the math right :shrug:

[TechBear_Seattle]

9. Alas, this is very unlikely to happen in my area

Everything I've read -- including non-local news sources -- says that the Seattle area will be largely immune from any major decrease; the supply is just too small for the number of people who keep moving here.

I fear I will never be able to own a home, not even a condo. :cry:

[seriousstan]

10. I hope so, I need at least one more double rental unit. 2 if possible.

[MannyGoldstein]

12. It's About Time

In 1970, a median house cost about one year's median salary. Today, it's something like four year's median salary.

If things return to where they've been historically, housing prices will drop by half or more.

I feel really bad for the folks who get left holding the bag. But the status quo is very, very bad for young families.

[ozone_man]

15. And this will trigger the recession.

Because home loans that people have been living off of the last five years will have dried up. No equity to tap into. No consumer spending, no economy. It's that simple.

[customerserviceguy]

25. It's already started

Back in 2003, interest rates bottomed out. People who used their homes as ATMs would refinance new borrowings with cheaper and cheaper loans that actually sometimes made their monthly mortgage payments decline, if they weren't trying to refi too much credit card debt with each new mortgage. But housing prices were climbing, and the extra equity could be tapped relatively pain-free until 2005. Since then, it's been a downhill skid with no way to do anything but temporarily slow down the momentum at which prices are declining.

I used to work in title insurance, and the real estate records are like tree rings, they show the cycles of boom and bust. Believe me, the coming bust is going to make even the early 80's look tame.

[7 of 11]

16. Certain areas will be immune from overly drastic drops.

The SF Bay Area and Southern California will loose some value but most Realtors are anticipating a return to late 2005 to early 2006 prices. The reason is there is no more land to build on. Especially in SO-Cal where I spend most my time. Every fucking square inch of land has been built over and there is no where to go but up....or out to sea!

[girl gone mad]

23. They made more land in Manhattan.

And in SF they just tear down townhomes and replace them with condo towers. Problem solved.

Why would you listen to realtors?

[superconnected]

18. I sure hope they'll come down and normalize

I want to buy but I'm waiting. Houses have a long way to becoming affordable in my area. They've come down 60k in the last year though.

[bonito]

19. The only way getting through this is JOBS JOBS JOBS

That's the final answer.

[ozone_man]

21. That's right.

Forget the helicopter money. Create jobs. Switching to a green energy policy alone would go a long way to getting us out of a recession.

[girl gone mad]

22. California is already in a lot of trouble.

Phoenix, Miami and Las Vegas, too.

[ConcernedCanuk]

24. "we see stable price conditions for 2008" - Lawrence Yun

.
.
.
Right Lawrence . . .

Lawrence Yun

I'll be waiting to see what your next job is . .

I'll bet it won't be the National Association of Realtors chief economist in 12 months

Ever been on welfare?

Time to learn . .