Bank economists see home prices only halfway through decline, gloom for consumers

[w¡n9Nµ7 §£@¥€r 123]

U.S. home prices are only about halfway through their decline and most of the further erosion should occur this year, major bank economists said Tuesday.

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Additional declines in average U.S. home prices of around 15 percent between now and late 2009 "clearly will be a drag on consumer spending," the engine of economic growth, Hooper said.

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[Gallowglass 0]

It's pretty muuch the same in Ireland and in the UK. Prices began falling last year, and have been trending downwards ever since.

While it's an extremely nasty situation to be caught in if you're a homeowner, the fact is houses were simply far, far, far too expensive related to people's incomes.

This is a hard landing, but it'll pick up again in the realtively near future (post-2009).

[w¡n9Nµ7 §£@¥€r 123]

While it's an extremely nasty situation to be caught in if you're a homeowner, the fact is houses were simply far, far, far too expensive related to people's incomes.

One thing I would point is that 'fair value' isn't determined by mean (or even median) income of all people, but by mean (or perhaps median) income of the pool of potential homeowners. The fact is that using standard UW guidelines, only a subset of the population will ever qualify to buy a home; the rest will rent until they qualify. Using income data of people who are not potential homeowners (at this point in time) is misleading and yet many of the RE doomsday-types constantly trot out that kind of misleading data to support their case.

For example - in my town, average household income is in the 60s; average household income for homeowners is (I forget precisely) around 110. Fair value is determined by the latter, not the former.

After all, BMW doesn't determine market value of its vehicles based on the purchasing power of people who buy Hyundais.

[Gallowglass 0]

There's no such thing as "fair value". The Irish (and I believe the same of the US) situation was one of extremely low interest rates/cheap money, initial interest only mortgages, artificially inflated salaries, no downpayments and dodgy dealings by mortgage companies/banks, allowing people to count frankly stupid multiples of their incomes. All of this fueled demand and the whole thing became a savage upward spiral.

Irish house prices increased approximately 400% (that's not a typo) between 1996 and 2006. The average house price in Dublin was something like €400,000. At last year's dollar-euro exchange rates, that was about $500,000 - maybe more. In 2006, we actually built more houses than the UK - a country with 15 times our population - and prices continued to rise. In 2007 they started falling, and are continuing to do so. at the same time, ECB rates started to increase. Now, people who could have bought houses last year can't, because banks won't lend so freely, and payments are bigger and more expensive. In many cases, these people are doing better than they were in 2006 and 2007, but sellers are unwilling to sell at a loss, so the whole thing slows.....

Many people see this as "the end". No it bloody well isn't. This is a correction. A rough one, but a correction nonetheless. US and EU interest rates in the short term were not realistic, and this in the main contributed to a house-price bubble. People bought houses that they simply could not afford, no matter what their income was and are now in trouble. Unfortunately, there are an awful lot of folks in difficulty worldwide so now we have all manner of problems looming. But everything is cyclical. Watch what happens to the markets once we know who's President-elect in November (doeasn't matter who, just the rest of the world will know who their dealing with). Watch the oil bubble continue to grow, then burst. I guarantee you, oil will rise to close to $200 per barrel by the end of this year, but will retreat to under $100 by 2010. It simply won't be affordable, and alternatives will be found, and found quickly.

The bottom line is to stay within your means, don't lose the run of yourself and rent or stay with family only until you can AFFORD to buy. I will be buying property in the US. Lot's of it. Because, as the man said, the time to buy is when there's blood in the streets. But they're not bloody enough for me just yet.