Housing Prices Have Already Fallen More than During the Great Depression ... How Much Lower Will They Go?

George Washington's picture

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Derpin USA's picture

First and foremost, swings in values from bubbles to busts always include a low-side swing below actual value. That's the nature of the beast. It's rational to expect that even if current home prices are rational and logical, they will still fall further regardless of other factors.

But there are other factors. There is the contraction in the credit market itself. There is the tightening of lending standards and down payment requirements. There is the shadow inventory being held by banks and currently off the market (a current positive but longterm negative).

Most importantly in my eyes is the fact that the average credit score in the country has dropped significantly, and a far higher percentage now have a foreclosure on their report. So long as banks hold these people to the old standards based upon normal economic conditions, this will continue to be a large contributing factor.

A 15-20% drop from here is not just possible but likely, and as it continues, strategic defaults will become even more commonplace, leading to a wonderful feedback loop of prosperity.

Buck Johnson's picture

The price of realestate will never get back to what they where.  In another generation it might, but by that time it we won't be using the dollar anymore.

Akrunner907's picture

Burn baby, burn.  I think we will see another 20 to 30 percent drop in real estate values from their current level.  It is time for realignment of the global economy and the US and Europe have only one direction to go - DOWN!

I am Jobe's picture

Shocking. Just unbelievable.

Arttrader's picture

Perhaps the more relevant question is:  were they having enough children per family to create reasonable demand in the 20 years after the crash.  They were then.  We aren't now.

apberusdisvet's picture

Housinjg prices fall = lower tax base = failed attempt to raise property taxes = greater unemployment in public sector = more foreclosures = neverending downward spiral.

Meridith Whitney was just one year too early on municipal defaults.


At least a decade of pain.

sitenine's picture

[deleted by author]

Smiddywesson's picture

Yes, real estate isn't coming back anytime soon.  There aren't any jobs for the hordes of unemployed people who used to service the housing bubble.  Taxes are going up everywhere as tax revenue declines and I don't see that reversing.  Farmland is a good investment, but only if you have enough cash to defend it from the tax man.  A lot of people lost everything to the tax man during the Great Depression.  This time around, people don't have any savings, many are out of work, inflation is squeezing us, and they are slying preparing to devalue the currency.  

Bottom line on farmland or housing: Don't bit off more than you can chew.    

MIDTOWN's picture

You can't put a date on this... The investors in the securitization process have been burned by fraud.  The issues that led to the fraud have not been addressed and the criminals in the process are still on the streets.  FNMA is toast, Freddie Mac is toast.  VA loans are the only guaranteed loans that are still obtainable under reasonable terms.


I look for the values to drop to price levels similar to those seen prior to securitization.

spinone's picture

Residential is going to be a side show compaired with the damage done by CRE. Expect another bank crisis.

Temporalist's picture
Buyers, sellers of food stamps use Facebook to connect



blindman's picture

directly related to income distribution, no?
so should go very low until such time the
average person is given commercial bank status
and can borrow at .01 % from the fed just like
derivative leverage gods, and if it goes bad
they get bailed out.
related carry trade movie.
ICELAND: Main reason for capital controls was the carry trade; ‘glacier bonds’ amounted to 50% of GDP

Eireann go Brach's picture

George, you really like to validate yourself and feed your own ego..you have some good reports but the ego feeding is annoying.

JamesBond's picture

what do you expect from the KING of cut-n-paste?

lamont cranston's picture

The bottom will not be in until 2015...maybe - too much property out there, unless the banks decide to bulldoze on a mass scale.

Plus, there's no job growth, so where will the  buyers come from? I'd downsize if I could find a buyer.

YTD through 5/31, 57% of my company's environmental RE consulting biz comes from short sales and bank REOs. 3 years ago it was ZERO.

PulauHantu29's picture

From what I can see there is no bottom yet. Even two analysts, one from DB and one from GS said housing prices will not stop dropping until jobs stabilize and that will not happen for 8 to 10 years.

That's about right if you look at RE cycles historically---they run in 8 to 12 year cycles.

diesel1104's picture

I have been told on good authority that banks here in FL are actually paying up to $35,000 to homeowners who have already stopped paying there mortgage to actually allow the bank to take over the house without protest.  His comment was that they (banks) must e getting lots of money from somewhere to make those deals.

malek's picture

Sorry GW, but your maneuvers so to not collide with the opinions of Paul Krugman are an attempt at futility.

Vampyroteuthis infernalis's picture

The sheeple will accept their fate until nothing is left. They will wake up poor and homeless. Only until then, will a constructive dialogue that may lead to a solution of the mess occur.

silvertrain's picture

I like farmland also..Even smaller mini farm tracts like 10 acres are holding decent value and are being bought up in my area..Ive been watching this very closely as I would like a 20 -40 acre piece and I am thinking that the time has come to act for myself..Its still running at 4k an acre for A-1 Ag and isnt budging, I am not going to wait much longer...

Bicycle Repairman's picture

"Wall Street Journal also notes: the bottom has yet to be reached.  We think prices will fall by a further 3% this year, and perhaps even further next year."

LOL.  Unemployment is rising.  Wages are dropping.  Savings are evaporating.  Lending standards are getting tougher.  Interest rates are at an artifical low.

It took a generation for housing to recover from the great depression.  And in between there was a little thing called total USA victory in WWII.  This time it will take several generations, if ever, for RE recovery.  Any USG efforts to promote recovery will simply extend the recovery period.  And you can expect the USG to throw everything they have at it.  Including your grandchildren's futures.

MrBinkeyWhat's picture

I am a real estate appraiser. (stop it OK). When the market is set by foreclosures, and there is an indeterminate number of additional foreclosures, what is the smart money going to do? Wait for the dump...DUH!

At some point the "real value" of the asset is revealed.

Personally I like farm land, but that is another story.

DosZap's picture


Personally I like farm land, but that is another story.




Good luck finding any for sale, that will actually produce food, that 90% of the people cannot afford

now because of skyrocketing prices.


Plus, prepare for the  Fed Conglomerate to stop you from growing food  to just FEED yourself and families.( can't have that)


I still find it somewhat amusing, that there are actually people here(on the Hedge),that think the .gub wants to SOLVE this problem.


Newsflash, they are doing this to you & I on purpose,the sooner you get IT, the better chance of survival you will have.

Spitzer's picture

And the Aussy and Cad housing bubble continues to grow.

Vampyroteuthis infernalis's picture

The Aussies' bubble is already bursting. Canucks are next.

2DollarBill's picture

$28 million, 9000 sqft condo just sold in Toronto to a foreign buyer. $3100/sqft has to be the top.

Smiddywesson's picture

No, I adamantly disagree that this is another Depression, it's much worse.  Banks faced a liquidity crisis back then,  not insolvency. Four very important differences exist today:

1.  This is a global economy.  There aren't any economies exiting recession before us, or entering after us, everything is one big economy.  These events used to be dampend a bit by irregular effects on foreign markets, but trade won't save you now because your trading partners are also feeling the pain.

2.  The Great Depression didn't involve global soverign debt levels equivalent to insolvency.  This is a very big gorilla in the room.

3.  The efficiency problem:  Efficient economies and resource delivery systems produce great results when everything goes splendidly, but fall apart when anything unexpected happens.  Zero Inventory and Just In Time Delivery resulted in the shelves being bare within 3 days in Japan.

4.  All of our local farms are gone.  The US was primarily a agricultural and manufacturing economy back in the Depression.  Today it is a service economy and is particularly sensitive to a depression.

5.  Propaganda control of the people:  People are more ignorant than they were back in the day, but not about everything, just money and history.  They know they are being stolen from and they know who is doing the stealing.  The propaganda machine is holding back the floodwaters of emotion.  Rather than people learning about what has happend a little at a time and growing to accept it, they are going to learn all at once.  That can lead to civil unrest when a group of pampered mushrooms learns they are just a statistic.

Need I go on?  Things are very different today.  People don't have the innocent trust in government they had during the Depression and they certainly don't have the civility or respect for the law they had then.  This is going to turn bad in a way that will make the Depression look like nothing. (Not to mention the coming trade wars, EMP exchanges, and cyber wars).  This is going to be a wild ride for the next 25 years, at least.

Smiddywesson's picture

"It is not too late for President Obama and Congress to restructure the US financial system, fix the housing market and create the conditions for true economic growth."

Great article GW.  I love the quote concerning the USG having a choice to fix the system or just prop up prices, and they chose to prop up prices.  I definitely don't agree with the person you quoted that it's not too late, however it may have been when he said it.  

We have reached 100% debt to GDP.  Anyone who believes they can repair the system now is sticking their heads in the sand.  All they can do is buy time and move us to a new system, a system which will screw the average Joe who still has any money left, because they need all the money they can get to eliminate all that fiat debt.  We already know what type of financial system the central banks are slowly creeping towards, and I have no idea what the price of gold will be, but it would be wise to get out of fiat into anything that will hold value.  This is going to be a very exciting summer.

DavosSherman's picture

All bubbles overcorrect - we'll have a 40% retracement from 1999 levels.  Another depression is what this is.

mayhem_korner's picture

All bubbles overcorrect...

What's your basis for this?  Implicit in your thought process is that you have some insight as to where prices ought to be at all times. 

Try to define "overcorrect" without a reference to the "correct price" and you should see the flaw in the construct.

Hook Line and Sphincter's picture

Bubbles do overcorrect. But this time, like reverse rent control, you might see the gov go more insane and come in to set the prices, regardless of whether real estate sells. Got to stop those TBTF balance sheets from showing more insolvency than they already do you know. After which they have provided enough time to cover tracks, obfuscate, and loot the remaining wealth they let it crash, and pick up the remains por nada.

I'm still wondering how a few people without credit will be able to buy or rent these home and business structures without credit or jobs, and how the remainder of the populace in camps, are going to have the money to afford their rent once released...


TheMerryPrankster's picture

Its like a FEMA roach motel, once you check in, you never check out.

The real question is when does the encroaching economic rot infect Washington D.C.? The rulling class will do nothing to fix the real problem and everything to support the status quo, until the gangrene appears on their own body politic.

Housing is a symptom, not a cause per se. As a fever is an indication of an infection, so to housing is a symptom of the real disease rampant unemployment caused by destruction of the economy through globaliztion of "free trade" the syphillis of the economic thinkers which rots their brains and leads to ever more desperate and stupid predictions and observations.

Repeal "free trade" let China rot, rebuild the nation with domestically produced goods,crops and services. its certainly repairable, we were once a vibrant self sufficient nation, we could do it again with proper leadership and policies.

Bradley Manning sits in prison without a trial under the auspices of being a traitor to this nation, when the real traitors dine on filet mignon at Darvos.

Housing prices will represent a reasonable multiple of real wages, as real wages decline so to will house prices.

Xavier Doe's picture

"Bradley Manning sits in prison without a trial under the auspices of being a traitor to this nation, when the real traitors dine on filet mignon at Darvos."


dxj's picture

... but was there a giant housing bubble prior to the great depression? Not exactly a useful comparison and borders on hyperbole.

ratso's picture

Great point. The questions is "fallen from what level?"

No one has ever written about a housing bubble preceding the Grest Depression.

The Great Depression is not a parallel historical event.

Arttrader's picture

Perhaps the more relevant question is:  Were they having enough children to create reasonable demand in the 20 years after the crash?  They were then.  We aren't now.

Prometheus418's picture

Perhaps I'm missing something in your comment, but yes, Virginia, there *was* a giant housing bubble prior to the Great Depression.