Economist: Housing Slump May Exceed Depression

[Purveyor]

Source: Associated Press

NEW HAVEN, Conn. — An influential economist who long predicted the housing market bubble cautioned Tuesday that the slump in the U.S. housing market could cause prices to fall more than they did in the Great Depression, and bailouts will be needed so millions don't lose their homes.

Yale University economist Robert Shiller, pioneer of the widely watched Standard & Poor's/Case-Shiller home price index, said there's a good chance housing prices will fall further than the 30 percent drop in the historic depression of the 1930s. Home prices nationwide already have dropped 15 percent since their peak in 2006, he said.

"I think there is a scenario that they could be down substantially more," Shiller said during a speech at the New Haven Lawn Club.

Shiller's Standard & Poor's/Case-Shiller home price index is considered a strong measure of home prices because it examines price changes of the same property over time, instead of calculating a median price of homes sold during the month.

Shiller, who admitted he has a reputation for being bearish, said real estate cycles typically take years to correct.


Read more: http://www.chron.com/disp/story.mpl/ap/fn/5720450.html

[DemocratInSoCal]

1. And This One Will Take Even Longer

Because they're trying to drag it out, so the worst doesn't happen during 2008.

And you know what? I think they're going to do it. The collapse will occur After the Democrat takes office, perhaps in early-mid 2009.

[Demeter]

2. The Law of Gravity Will Not Be Denied

and although Bushbots are moving heaven and earth trying to keep the crash from happening while Bush is still in the country, the odds are against them--unless they throw their own money into the breach (yeah, great idea! a bunch of broke and broken Bushbots sounds like a perfect solution to me!)

[LiberalEsto]

4. I agree with you

If they have to give up the White House, they're going to leave the biggest mess they possibly can.

[On the Road]

3. It Will Take Some Years for It to Wind Out

Ultimately, what will save home prices may be inflation.

[Javaman]

5. I always get the feeling everytime something like this comes out...

that, "they" know how bad it's going to get but they just drip out the information so as to prevent a run on the banks or general panic.

[corkhead]

6. the collapse of the "almighty" Dollar will counterbalance the drop.

in the coming years, $100,000 will still buy the same house as before, but that is also what it will cost for a loaf of bread.

[n2doc]

7. Not everyone bought or refi'ed a house in the last 2-3 years.

Those who bought before that point will be fine with a 30% drop. Hell, if your house tripled in value between 1990 and 2005, a 30% drop means it still has doubled.

Housing in SE coastal Georgia is still holding up ok.

It would be interesting to see a plot of home ownership by # of years owned.

[Fovea]

8. That depends on oil.

Exurbia will not rebound like small towns and inner cities.
Any house you have to drive 25miles home to won't be attractive.

If you have an energy efficient home, in a good local economy, you will work out ok. Out in outer nimbyville, things may be Hooverish for the foreseeable.

[girl gone mad]

37. The prolem is..

the run up was so extreme in the cities that many businesses left and moved their jobs into the exurbs.

[Zhade]

50. Of course, that coast will move inward within decades (if that)!

NT!

[EVDebs]

9. This has me scared shitless and the Fed has no clue as to how to prevent it...nt

[natrat]

13. please the fed is in on it , they dont give a shit about fixing it,

they want prices to decline so that the corporations can acquire real estate at a fraction of current prices

[Hydra]

17. What Nat said

The Fed could fix this overnight. The fact that they created this mess should have you more worried...you probably won't like their "solution."

[nodehopper]

32. how could they fix it overnight?

[Hydra]

38. The problem with how people are looking at this is that most don't understand currency

The Fed spins dollars out of nothing, as do the banks. The balance point is the goods and services people will provide for the currency. The Fed and the banks are deliberately limiting the money supply, and as such, money for wages is not as available, and consumer spending is slowing on everything but essentials like food, fuel and housing which prices are going through the roof.

The Fed could stop this immediately by providing funds for the express purpose of creating jobs and increasing wages, rather than propping banks up and pushing the debt based economy into even more ludicrous territory.

This will never happen, though. The people behind the Fed are like the Farmer in the "Goose that laid the golden egg"- they're killing the hen in the attempt to get more gold. Either that, or this is more disaster capitalism. I tend to think the latter, because these people are not fools. As I said, we probably won't like their "solution."

One of the solutions that's been proposed is to allow the Fed to purchase stock with their monopoly money...I think that's a bad idea, but I can see why they would like it. They get to buy everyone out...for free.

[scarface2004]

10. somebody should have told cretin bush...

you don't have to do this!

[bean fidhleir]

11. It's all part of the same global problem: unopposed capitalist greed

As Lovelock said, it's like 1939 - everyone knows what's happening, but the people in charge keep trying appeasement. They're hoping they can fend off the worst til they personally have their money and can run.

Everything is either a direct or knock-on effect of capitalism and capitalist greed. Musical chairs, and the wealthy have a dedicated seat that can only be taken away by us, and only if we unite. The "canary" species are already going or gone, the poor humans will be next, and after them, we "privileged" ones are up. Will we unite and act, or will we choose to sit around and play status games instead?

[Jackpine Radical]

12. Jeez, I misread the end of the first sentence in that story:

I thought it said "bailouts will be needed so millionaires don't lose their homes."

Sometimes my eyeballs make interesting mistakes.

[happygoluckytoyou]

14. JOHN "THE REPUBLICAN" MCCAIN.... WEAR THE TITLE PROUDLY ON THE BUMPER OF THE STRAIGHT TALK BUS

JOHN "THE REPUBLICAN" MCCAIN.... WEAR THE TITLE PROUDLY ON THE BUMPER OF THE STRAIGHT TALK BUS
JOHN "THE REPUBLICAN" MCCAIN.... WEAR THE TITLE PROUDLY ON THE BUMPER OF THE STRAIGHT TALK BUS
JOHN "THE REPUBLICAN" MCCAIN.... WEAR THE TITLE PROUDLY ON THE BUMPER OF THE STRAIGHT TALK BUS

[liberal N proud]

15. But this time the government will stand idly by and watch with fascination

[MannyGoldstein]

16. In 1970, A House Cost ONE Median Year's Salary

Today. it's 3-4 years' median salary. If we go back to 1970 relative values, prices will drop by 50%-75%.

I'm not saying it will happen. But it certainly could.

[ckramer]

18. 3-4 times salary? Where?

[Lorien]

39. Average salary: 60k. Average home price in my neighborhood: 400k

at bit more than 4 times, but there are many neighborhoods like mine nation wide. I bought my home 11 years ago for 150k, now it's valued at 460k-which is about what a slightly smaller home with no garage (2 car garage here) and a yard half the size of mine with no trees across the street sold for three months ago. It's still nuts out there!

[darue]

42. I can't believe people are still paying that kinda money

houses are only worth that kinda money when viewed as investment vehicles. let's NOT bail out any house flippers please.

[dmallind]

45. Quick questions

Do you support union scale wages for construction workers?

Living wages for those who manufacture fixtures, fittings and appliances?

Safety and code enforcement for new construction?

How many hours of labor are in a house? How much SHOULD a house cost?

[darue]

46. How much SHOULD a house cost?

the house (don't know about land values) but the house should COST the buyer about 115-125% construction cost. that seems a reasonable margin and yes, everyone involved should be union and well paid. but that's for brand new. generally, housing values should be inflation adjusted. so if the value of a dollar goes down, the house is worth more dollars. but speculative house flippers and loans to people who don't meet the standard requirements should not be able to create artificial scarcity and drive up the cost of purchase in existing houses. The default assumption would be that a house holds it's value if well maintained. Neighborhood considerations and such would have some effect over decade long time spans, but not in a couple years with sky-rocketing jumps in putative value.

[dmallind]

47. No problem with any of that

But I suspect the construction costs of new homes is more than many assume. I know I could not build any liveable house for the median price of existing homes in my area. Should non-new houses decline in value? Even updated and well maintained ones? Surely scarcity should apply too - as populations increase more houses are needed.

[darue]

51. well, I guess they're ultimatly worth what people'll pay for them

it's just a lot of folks are taking out these HUGE loans, that I don't see how they ever plan to pay off, the banks ends up owning a lot of these houses.

[dmallind]

44. heck it's about 2X here

3-4 is in the relatively boom areas.

[muriel_volestrangler]

19. In Britain, the average house price is about 8 times median salary

http://www.telegraph.co.uk/property/main.jhtml?xml=/pro...

I should think it hasn't been as low as 4 times median salary since about 1995. 4 times would be easily sustainable.

[darue]

43. in brittan they also have council houses you can rent for cheap.

cost of rent is killing me.

[HockeyMom]

30. We bought our first house in 1978

in Queens, NY. It was a small, attached, 2 bedroom, and we paid $47,000 for it. We put $10,000 down. Our combined income back then was around $50,000.

[PSPS]

31. That was before my time, but you are correct.

After we all had moved out, my parents sold their ~2,500 SF 6 bedroom one bathroom (!) house for $17,000 in 1971. A good middle-class income back then was about $10,000/year.

I bought my first house in 1985 for $80,000 when my annual salary was about $44,000.

A year ago, a typical house of this ilk would cost around $650,000, and very few people were making over $300,000/year, even counting two income earners (something you certainly didn't have to do in the 70's. It took Reagan to bring the necessity of two incomes to sustain a household.)

In many areas of the country, especially the coastal states, you'll see property price corrections over the next two or three years of at least 40%. In the over-bubbled markets like California and Florida, it could easily require a 60% correction off the highs. In many areas in California, for example, you've already seen 20 - 25% corrections just in the last six months.

[InkAddict]

40. Many areas, especially in the Rustbelt, never experienced the

boom in RE value of established neighborhoods or local wages, but they're sure experiencing the BUST through foreclosures and job loss.

[IDemo]

20. Shiller: Housing slump may exceed Depression

Source: Associated Press

Bailouts will be needed so millions don’t lose homes, top economist says

NEW HAVEN, Conn. - An influential economist who long predicted the housing market bubble cautioned Tuesday that the slump in the U.S. housing market could cause prices to fall more than they did in the Great Depression and bailouts will be needed so millions don’t lose their homes.

Yale University economist Robert Shiller, pioneer of the widely watched Standard & Poor’s/Case-Shiller home price index, said there’s a good chance housing prices will fall further than the 30 percent drop in the historic depression of the 1930s. Home prices nationwide already have dropped 15 percent since their peak in 2006, he said.

“I think there is a scenario that they could be down substantially more,” Shiller said during a speech at the New Haven Lawn Club.

Shiller’s Standard & Poor’s/Case-Shiller home price index is considered a strong measure of home prices because it examines price changes of the same property over time, instead of calculating a median price of homes sold during the month.

Read more: http://www.msnbc.msn.com/id/24257182 /

[NC_Nurse]

21. My house goes on the market Friday.

I'm praying. A lot.

[babylonsister]

24. Wow, sorry to hear that, unless you're not.

Good luck, NC_Nurse.

[Dr.Phool]

27. What part of NC?

I know two women who are moving to Asheville next week. I don't know if they've bought yet, or are in the market, but I'll see them Friday.

[On the Road]

22. I'm Actually Shocked

that home prices only fell 30% during the Great Depression.

[enid602]

23. true

That probably made them a much better investment than stocks and bonds.

[customerserviceguy]

29. They only fell that much

because bankers hadn't come up with some of the very fancy tricks they've used over the past few decades. Back then, you had to have a substantial down payment, and there were no interest-only, negative-amortization, variable-rate loans. The Roaring Twenties were a time of relative inflation, and if you bought a house in 1925 with a 25% down payment, the rise over the rest of the Twenties, minus the drop in value during the Depression meant that you still had some equity in your house that wasn't worth walking away from.

Not the scenario we see today, by a long shot.

[happyslug]

34. But most people did NOT have 20-30 year mortgages, they had ONE year mortgages

At the end of every year the Mortgage had to be re-newed by the bank. If the bank did NOT re-new the mortgage, you lost the home. Often seen in the Westerns of the 1930s, the bank foreclosing on the farmer for failure to pay the mortgage (In some cases to re-new the mortgage).

The 20 year mortgage was invented during the 1930s to prevent such problems. The Government set up a company that bought 20 year mortgages from the bank and sold them to people who wanted long tern investment. This program, when proposed, was attacked as a government hand out, the problem was the company doing the the buying of the mortgages from the bank made money, setting up the present business of re-selling mortgages to third parties.

My point is that 20 or 30 year mortgages, as a rule, did NOT exist prior to the New Deal, people had to deal with mortgages at the end of the year. Each new mortgages had to have a bigger down payment (i.e. to slowly pay off the debt) but if the bank needed the cash for other matters, it could and often did NOT re-new a mortgages, instead selling the home off. The New Deal program mentioned above ended such practice, but remembered in the movies till after WWII.

Side Note: People forget that in 1935 FDR, devalued the Dollar in terms of Gold, Prior to 1935 the Dollar was worth $20 an ounce, afterward it was $35 an ounce. This 40% drop in value is often ignored (except by gold-bugs, which I am NOT). Thus you have people saying the Stock Market recovered by 1937, while other economists saying the market did not recover till 1954 (i.e. from the drop in 1929). In dollar terms the stock market and most other items had recovered by 1937, but given the 40% drop in the value of the Dollar, the stock market did not recover till 1954 and housing was undervalued till the post WWII Housing shortage. People forget the 40% drop in value of the Dollar set by FDR and that it also meant that things valued in dollars also dropped 40% in value.

Now the US dropped Dollars being $35 an ounce in 1971 (Nixon had a choice, Cut the military by the amount needed to balance the budget, which meant pulling out of Vietnam, OR giving up trying to keep the Dollar at $35 an ounce, Nixon elected the Military, and we have had a steady inflation rate ever since). A reduction in value of the Dollar BY THE GOVERNMENT is no longer possible, we are stuck with the decline in the dollar via inflation. The Government has no mechanism to keep the value of the Dollar up, with the massive deficients Bush has been running we are headed for trouble.

[nilram]

35. Thanks for that explination, fascinating! -nt

[On the Road]

49. That is Probably True

although with the levels of unemployment then, I just thought there would have been a flood of foreclosures and a dearth of buyers that would have resulted in a bigger downturn.

In some places, whole neighborhoods were wiped out. A lot of upper-class homes in cities were converted to single-room occupancy. Just goes to show there's always a level of support there.

[speedoo]

25. Schiller's a very smart economist.

People should not ignore him.

[DemocratInSoCal]

26. People WILL

CNBC won't allow any negative nelly's on their broadcasts.

They've already Banned Peter Schiff, because every time he comes on speaking about how right he was, it makes them look stupid.

[speedoo]

28. I rarely watch CNBC anymore.

I just don't see much value in most of their programming. But Schiller is a major economist, widely respected, and they would be stupid not to have him on.

[Gormy Cuss]

36. Shiller is not only a smart economist, he's one of the smartest housing market economists

In other words, this is his specialty. Shiller isn't always right but he's a top experts in this area, not just some talking head. You are quite right that people should not ignore him.

[corporatemedia]

33. So that means bush is right? This isn't a recession. n/t

[4dsc]

41. Todays homes a very overpriced

I don't who in their right mind would buy a house in todays world given they are overpriced, IMHO, by at least 30%..

[AngryAmish]

48. I just bought a house yesterday

or at least signed the contract. It is about 2 years income for my wife and I. But my wife wants to quit working to stay home with our tot, so we didn't go for the giant house.