House Prices Are Nowhere Near A Bottom Says Analyst

[LibForestPaul]

http://www.zillow.com/blog/research/...cross-markets/

As long as wages stagnate home prices will languish along with them. Sure, population growth leads to a natural demand for housing, but it also injects competition for wages. With an overall stagnating economy, the trend for housing prices continues to be a correction to historical norms.

Under the cover of artificially low rates, this appears to make housing affordable. The counter point again being, the price to income ratio is still 10% above historical norms. So we either need to see incomes rise or prices fall.

The bump in the last 3 years is a cyclical bump (even tho it isn't really a bump). This is investment money looking for a home. Sure people are levering up on the shadow inventories, but there is no easy way for someone without cash to do this.

And of course the best REO is going to catch a competitive bid from the relatively few investors with non debt based capital.

For every REO that catches a 50% bid, there is 3 that catch no bid. So while we may see REO bid 50% of ask from 100k to 150k, we see 3 more REO bid 0% of ask from 100k to 0. So for every REO that sells pushing the price up, you have 2 that hold neighborhood values flat, and 1 that drops the value.

Cyclical bump. Historical revision to the mean. Prices are too high vs income. Affordability is STILL artificially low. Thus 90% government backed purchases which do absolutely nothing to move the market and arguably shrink it. vs a measly 10% cash buyers setting true value based on the hope that the other 90% will find income to live up to their end of the bargain.

I do not buy until interest rates are at least 8% preferable 12%. When rates do rise, and the peoples wages have not moved, how are they going to afford to pay a higher monthly mortgage payment? They are not, so the principal must decline. Then I pay cash, after the principal drop.

[wgadget]

_a

I have considered that ,no real reason not to just destroy the junk shit , lots will be worth more without them , maybe , some day , and it eliminates the cheap housing , bargains, older stuff , not desireable to the "green" nutjobs, who , now , basically run the Senate and White House administration, own , The Vampire , EPA....

AHA! NOW it's making sense why the banks are currently allowed to let abandoned foreclosures sit for FIVE YEARS without offering them up for sale. They WANT them to deteriorate. Wow...

[carclinic]

Most people when buying a home look at how much a month it will cost them and use that to figure out what price of a home they can afford. If they want to buy and interst rates go up, they will not necessarily decide not to buy but will want to buy a slightly lower priced home. In 1980 mortgage rates actually hit nearly 20% and people still bought homes. Historically, six percent is still a low interest rate on a mortgage. Refinancing of loans would drop pretty significantly if rates went back up to six percent but sales would not necessarily plunge.

http://www.bankrate.com/finance/mort...est-rates.aspx

I bought my condo at 6.75% 5 years ago, and I survived.

[Zippyjuan]

I bought my condo at 6.75% 5 years ago, and I survived.

After refinancing a couple times I was paying 5.85% on mine. During the housing boom they were six to seven percent mostly.

As for affordability, article from March 2012:

http://www.inman.com/news/2012/03/8/...igh-in-january

NAR Housing Affordability Index hits 42-year high in January

Index based on home price, income, mortgage interest rate data
By Inman News, Thursday, March 8, 2012.

The National Association of Realtors' (NAR) Housing Affordability Index reached a record high this January, at 206.1. January 2012 is the first month since the index's inception in 1970 that the index has hit or passed 200, the group announced this week.

The index, calculated monthly by NAR, is built from the relationship among three data points: median home price, median family income, and average mortgage interest rate. The higher the index score, the greater the affordability.

The index aims to measure the affordability of a median-priced, existing single-family home by a median-income-earning family. An index of 100 represents a family's ability to exactly afford such a home, with a 20 percent down payment and mortgage payments at 25 percent of the family's gross income.

Late 2011 saw a steady monthly rise in the index from June's 172.4, the 2011 low, to 197.9 in December 2011. The index has risen from 169.4 in 2009 to 174 in 2010, and to 184.5 in 2011.

http://research.stlouisfed.org/fred2/series/COMPHAI

Even in terms of gold the are more affordable:

http://www.cqcabusinessresearch.com/...rices-in-gold/

[LibForestPaul]

After refinancing a couple times I was paying 5.85% on mine. During the housing boom they were six to seven percent mostly.

As for affordability, article from March 2012:

http://www.inman.com/news/2012/03/8/...igh-in-january



http://research.stlouisfed.org/fred2/series/COMPHAI

Even in terms of gold the are more affordable:

No, gold's price simply has adjusted up relative to the dollar commodity. House commodity prices still must fall, dollar denominated.

[LibForestPaul]

What are the "prices" regarding homes over $1mil or $10mil? How are their price deltas fairing?

[newbitech]

After refinancing a couple times I was paying 5.85% on mine. During the housing boom they were six to seven percent mostly.

As for affordability, article from March 2012:

http://www.inman.com/news/2012/03/8/nar-housing-affordability-index-hits-42-year-high-in-january

NAR Housing Affordability Index hits 42-year high in January

Index based on home price, income, mortgage interest rate data
By Inman News, Thursday, March 8, 2012.

The National Association of Realtors' (NAR) Housing Affordability Index reached a record high this January, at 206.1. January 2012 is the first month since the index's inception in 1970 that the index has hit or passed 200, the group announced this week.

The index, calculated monthly by NAR, is built from the relationship among three data points: median home price, median family income, and average mortgage interest rate. The higher the index score, the greater the affordability.

The index aims to measure the affordability of a median-priced, existing single-family home by a median-income-earning family. An index of 100 represents a family's ability to exactly afford such a home, with a 20 percent down payment and mortgage payments at 25 percent of the family's gross income.


Late 2011 saw a steady monthly rise in the index from June's 172.4, the 2011 low, to 197.9 in December 2011. The index has risen from 169.4 in 2009 to 174 in 2010, and to 184.5 in 2011.

http://research.stlouisfed.org/fred2/series/COMPHAI

Even in terms of gold the are more affordable:

regarding the inman link for the NAR calculations on affordability: You do the math on that? What jumped out at me was the part in red. Also, this calculation is STILL a function of price to income ratio, which is STILL above the historic mean. I'd like to see a definition of what this monthly report considers affordable. If it is what I have highlighted in red, then I think the report is self serving to that organization if not completely delusional.

Consider the raw numbers in a couple scenarios, no tax, no insurance, no interest, just straight up monthly principle payments over 30 years (360 payments).

20% down is necessary for affordability.
A = 100k = 20k down = 80k principle / 360 = 2,666/year * 4 = 10,664 minimum (gross income).
B = 150k = 30k down = 120k principle / 360 = 4,000/year * 4 = 16,000 minimum (gross income).
C = 200k = 40k down = 160k principle / 360 = 5,333/year * 4 = 21,333 minimum (gross income).

Now lets add rates in and see what happens.
3.5%
A = 17,232 minimum
B = 25,864 minimum
C = 34,486 minimum
4.5%
A = 19,456 min
B = 29,184 min
C = 38,913 min
5.5%
A = 21,803
B = 32,704
C = 43,606

And finally, lets take the middle rate, 4.5% and add in property tax and PMI, both of which are typically held in escrow and included as part of the non-principle, non-interest monthly payment. Since the borrower is putting down 20%, we will ignore PMI, although I am not sure if lenders have adjusted upwards their PMI rates. We'll just leave it at that. For taxes, I looked at this link by a tax payer association study in 2011 to get an idea of what regional rates are urban and rural. 1.33% seems to be middle ground for our basic study here on the NAR data.

So at 4.5% interest and a 1.33% tax rate

100k - 20k down and minimum of 30,096.48 (gross income) monthly rent payment of $627 or $7,524 a year
150k - 30k down and minimum of 39,825.12 (gross income) monthly rent payment of $830 or $9,960 a year
200k - 40k down and minimum of 49,553.28 (gross income) monthly rent payment of $1032 or $12,384 a year

now, anyone want to see what is left over after income tax?

here i'll do it real quick. This is for estimated 2013 finances.

100k home, after tax and mortgage payment is 20,305 disposable income minimum affordability. $1,692 a month
150k home, after tax and mortgage payment is 25,180 disposable income minimum affordability. $2,098 a month
200k home, after tax and mortgage payment is 29,031 disposable income minimum affordability. $2,419 a month


Now, raise your hand if your rent payment is 1/3 or less of your overall monthly bring home.
Congratulations! You are pre-qualified for a home loan!

Now, raise your hand if you have at least $20,000 in the bank.
Congratulations! We now would like to run your credit and see home much of a house you can afford!

Now, raise your hand if your credit score is between 500 and 600.
Congratulations! you can afford to live in a 100k or cheaper home!

Now, raise your hand if your credit score is between 600 and 700.
Congratulations! you can afford to live in a 100k-200k home!

Now, raise your hand if your credit score is over 700.
Congratulations! you can afford to live in a 200k or more expensive home!

If you made it this far, then the housing market is booming! If you made it this far and don't have your doc stamps, the market is still looking for a bottom and you better sell now!