In the current sluggish (or perhaps worse) U.S. economy, it's becoming known as 'morbid Monday' -- due to the spate of unpleasant predictions publicized on the day.
Oppenheimer analyst Meredith Whitney filled the August 4 installment of the latter by predicting that housing prices will fall more than 30% and banks will remain reluctant to lend until the credit crisis wanes, CNBC reported Monday.
To be sure, the housing sector is a jumbled, uncertain morass, so in order to provide some clarity on the sector (and to either confirm / refute several conventional wisdom points), BloggingStocks Monday corralled economists Peter Dawson and David H. Wang.
Point 1: Those states hardest hit by the housing sector, California, Florida, Nevada, will be the first to recover.
Dawson: Not true. Wang: Most un-true.
"You may find a $300,000 or $350,000 bargain in California or Florida, but understand that five years down the road that home may be roughly the same price in real terms, after inflation," Wang said. "Job creation in an area will determine which way house prices are going in a region in the years ahead, much more than how bad the local housing market is now."
Point 2: Since housing prices have dropped, it's a buyer's market.
Dawson: That's a half-truth. Wang: A half-truth.
"In general, lower home prices, and the large inventory of homes give the advantage to the buyer, but they also increase the buyer's equity risk, and that's something you don't hear realtors talk too much about," Dawson said. "Prices are lower now, but keep in mind prices are likely to fall even more, in most regions of the country. So if you buy now but have to sell in two or three years due to a relocation, you may end up losing a great deal of money. I would not buy a home now unless I absolutely needed the space, for example for a growing family."
Point 3: If my house, or the house I want to buy, is the best house in the neighborhood, I have more protection against a decline in housing prices.
Dawson: Not true. Wang: Not true.
"While it's true the best house on the block generally starts with the highest value, it is not true that the best house is more protected against price declines," Wang said. "The best house could end up losing more value, in percentage and absolute terms, than the median house on the block, because its price contained a bigger bubble, a larger, artificially-high price, due to the wealth effect of the recent housing boom."
A good rule of thumb for potential home buyers? Wang and Dawson agreed that, if you're able to postpone a home purchase, potential home buyers should monitor the price of homes in three or four areas where they'd like to purchase. Track monthly sales prices of houses similar to those you've selected. If prices continue to fall, don't buy. If / when prices are flat or rise for three consecutive months outside the summer months, the market may have turned, or at least flattened, making the home purchase less-risky in that area, from a return-on-equity standpoint.
Housing Sector Analysis: Onto the pertinent, prudent advice from economists Dawson and Wang, I will simply underscore that home buyers / sellers should monitor job creation and economic conditions in their area. If a large employer(s) is closing an office or factory, this is not a good sign for local home prices. Conversely, if a large employer announces an expansion of hiring, this is a good sign.
New Facebook share structure hints at IPO
Before the bell: Futures higher ahead of housing, jobless data
Nuclear power is on the comeback trail
Reader Comments (Page 1 of 1)
8-04-2008 @ 3:48PM
william lindblad said...
Wang and Dawson gave good and honest answers, but when it comes to a purchase decision there are other factors to consider. It IS a buyers market if you are purchasing for long term and mainly, for a roof over your head. As was pointed out, if there is a chance of relocation anywhere on your personal radar, renting is a better option. Now, the second item on the agenda is WHERE? Prices have dropped in nearly all markets and buying will be predicated on one's own agenda. Given conditions, one thing to be aware of is the so called "best house" concept. This does work well when there is an overabundance of empty houses in a given neighborhood and the same thing fits buying a "bargain" within these conditions. These are conditions that seem to make speculators come out of hiding and not all are market savvy. Buying into an area with a cash strapped municipal government can mean high taxes - for years. Insurance is another factor - anything near salt water costs more - a lot more. So, you could be a 1/2 mile off the ocean, on high ground and paying a premium similar to the house on the beach.
Some areas are going to have a resurgence, possibly as early as next spring while others may be years away. The strength of local economies will dictate.
Before anyone jumps - do your homework - the mess is large enough.
8-04-2008 @ 4:00PM
william lindblad said...
Wang and Dawson gave good and honest answers, but when it comes to a purchase decision there are other factors to consider. It IS a buyers market if you are purchasing for long term and mainly, for a roof over your head. As was pointed out, if there is a chance of relocation anywhere on your personal radar, renting is a better option. Now, the second item on the agenda is WHERE? Prices have dropped in nearly all markets and buying will be predicated on one's own agenda. Given conditions, one thing to be aware of is the so called "best house" concept. This does work well when there is an overabundance of empty houses in a given neighborhood and the same thing fits buying a "bargain" within these conditions. These are conditions that seem to make speculators come out of hiding and not all are market savvy. Buying into an area with a cash strapped municipal government can mean high taxes - for years. Insurance is another factor - anything near salt water costs more - a lot more. So, you could be a 1/2 mile off the ocean, on high ground and paying a premium similar to the house on the beach.
Some areas are going to have a resurgence, possibly as early as next spring while others may be years away. The strength of local economies will dictate.
Before anyone jumps - do your homework - the mess is large enough.