Moody's Does Not Expect Housing To Return To Pre-Bust Levels Before 2020

Tyler Durden's picture

Troubled rating agency Moody's, in its most recent Resi Landscape publication, has provided some very brutal projections for the housing market turnaround, which, if true, will promptly make any V-shaped recovery conversation moot. And for all homeowners who are holding on to underwater mortgages hoping for a quick bubble #2 inspired turnaround, you may want to reevaluate: quote Moody's "It will take more than a decade to completely recover from the 40% peak-to-trough decline in national home prices."

From the report:

Even under strong economic and demographic conditions, the demand for homes will increase moderately relative to both, with sales per households lower during the recovery period than the during the first half of this decade. The pace of new and existing single-family home sales will increase to 6.2 million per annum by 2012, well shy of the 7.5 million units sold at the peak in 2005. Similarly, homebuilding will rebound, but a lingering overhang of inventories, combined with consolidation in the industry and caution on the part of both homebuilders and lenders to builders, will keep the pace of construction from reaching the peak it achieved at the end of 2006 of over 2 million units. The overhang of inventories from the earlier construction boom will be drawn down by the end of 2011, bringing the supply and demand for homes in balance.

The reality is that even as the broader economy still suffers under record excess slack, and one could easily disagree with Moody's on their rosy expectations for a broad economic turnaround, even the permabullish rating agency has to acknowledge that there is simply no demand to satisfy the glut of overbuilding seen during the bubble years. Between these two pillars of household net worth: the economy (traditionally manifested in the stock market, although no so much lately) and housing, the US consumer will likely be forced to continue retrenching for decades to come, which makes any talk of a V-shaped recovery, even ignoring for a moment the temporary impact of government stimuli, moot.

Additionally, Moody's analyzes the expected "rebound" by geographic region, with an overall expected return to a "peak" level by 2020. 

Hard-hit states such as Florida and California will only regain their pre-bust peak in the early 2030s, well after the nation does. New York will also be a laggard, although its overall decline in prices will be less severe. The main constraint on New York's outlook is Wall Street. In general, the length of the downturn and the length of recovery in a region will depend on the degree of aggressive lending or overinvestment in housing that occurred during the boom. On the recovery side, states with weaker job growth will also take longer to return to peak.

Then again with Moody's unprecedented track record of being wrong on everything, it would not be too surprising to see a compressed housing bubble peaking some time next year, comparable to what has been seen in Hong Kong, where the population has already forgotten about the excesses of two years ago and is bidding up matchbox apartments into the stratosphere. With the US economy now able to sustain only by creating and popping various asset bubbles, perhaps the best thing for America would be to go through one more quick housing ramp, followed by an even quicker crash, which would likely be the last one in the history of this once great country, as it would end with a completely worthless national currency and a decimated middle class.

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Daedal's picture

Maybe on a nominal basis. But on a real basis, I think those projections are still too rosy.

FreddyInBangkok's picture

they're probably right. they're not stupid, just bent,, or, obedient if you like.

Sir John Templeton said houses will go to 1/10th (real). he's probably going to be proved right too.

if you'd like to know what the financier J. Epstein's penis shape is see here.

http://link.brightcove.com/services/player/bcpid1859729971?bctid=4071655...

Bernie Lo boasted on air last week his HK condo is worth $3 million US, up 100% in minutes & almost levitated from his chair.

 

 

 

Anonymous's picture

Just when you think its safe to click a link... Interesting bit of Pulitzer prize winning journalism from the the Palm Beach Post. Well now that we know the shape, anyone care to weigh-in on the length?

Anonymous's picture

While I tend to agree with Moodys, it's very hard to take anything they predict and inject it into any model. The rating agencys have come and gone.

DaddyWarbucks's picture

"Then again with Moody's unprecedented track record of being wrong on everything, .."

Any comment must start with this most fundamental truth. 2020? Let's face it, the horizon may as well be 20200. What they are really saying is that it's not coming back but they must always add the "goldilocks" ending to any public statement.

I am not an economics expert like many here  but local prices must eventually go to a level supported by local incomes and let's be clear here, local incomes means whatever crumbs are leftover by the looters. Just look at where incomes are and where they are going( who among us really knows? ) and calculate what price they may support sans credit. There you have a probably overconservative but defensible estimate of price.

Sqworl's picture

FLA and CA have a 5 year inventory....

roadlust's picture

Exactly.  People couldn't afford housing prices in CA even BEFORE the "meltdown," based on a real income level, but rather financed them with imaginary net worth from the sales of their previous overpriced houses.  (And Boomer's inheritences from dead depression era saver parents, which was being plunged into huge down payments on otherwise unaffordable houses.) 

They certainly won't be able to afford the "old prices" now with tight credit, reduced incomes, and their previous imaginary "net worth" shrunk by 30 percent. 

No, it will be a long time before people are able to "afford" housing that far over their actual personal incomes again.  The real estate Ponzi scheme which drove this country's "wealth" for two decades is over.  And that's a good thing.

 

Hephasteus's picture

You have to also take into account household contraction and expansion. You can't drive up prices without signficant household expansion. If this economy isn't allowed to correct you'll have 3 families in every house.

Anonymous's picture

Before the bubble burst, we were already headed to many homes having two families simply because of the aging baby boomer demographic... they're net sellers of homes because they either a) move in with relatives or b) move into a care facility...

It's my understanding that the only way the big $ homes in CA and FL are moving atm is that multiple persons are buying them... I see no reason why a 5 bedroom mansion can't be a 5 apartment complex with lavish community facilities... welcome to the new normal.

MountainHawk's picture

People will forget, people who experienced this crisis will die off, bubbles and speculation will return, and catastrophe will once again return.

Anonymous's picture

I wonder how Minnesota ended up in such bad shape? Housing prices never reached the crazy levels seen in states such as FL, NV, CA and AZ and the economy isn't that bad like MI.

Anonymous's picture

Good question. I just sold my house in south Minneapolis in a single day. I had a lot of equity, and it was cheap. Finding the next house is tricky because prices haven't fallen as much I expected (my pricing eye may be more 1997 than 2009). I'm seeing a lot of houses where owners are stuck and can't come down to sell, because it would be a short. And shorts and REO's being picked off for a song by insiders with cash. But things never got THAT crazy here, and they haven't dropped more than about 20% from the peak, I'd say. IMHO.

Cow's picture

Time to be a renter and not an owner.

bpj's picture

If there is any truth to global warming then why would anyone buy in AZ?

 

Anonymous's picture

What's the difference between highs of 117 and highs of 120? Fucking hot is fucking hot.

Anonymous's picture

The housing does not gain in value ever(except in certain areas) a house can't appreciate in price on it's own it has to be because the area is getting more exclusive or in 80% of case Inflation. So they say inflation will catch up with deflation in 10 years hmmmm, I think it'll be sooner

Anonymous's picture

Glad to see south carolina slated to rebound early - I have some beachfront land I want to sell to rich people

Anonymous's picture

What a bunch of garbage. 2030! Come on. Who in their right mind thinks they can accurately model that far out. Was this work done by new grads?

Anonymous's picture

What a bunch of garbage. 2030! Who in their right mind thinks they can accurately model that far out? Was this work done by a bunch of new grads?

Anonymous's picture

With 50% of mortgaged homeowners underwater, more people will be less nomadic I presume. Or they'll just throw in the towel on the first , the heloc and the credit cards and build log cabins in the rural wilderness from scratch. Outhouses. Water purification systems. ATV transportation. Communal living. Eat berries, elk, fish and shit like that.

It's either the frontier lifestyle or move in with the parents. In a world with no credit, the rent factor becomes an obstacle to more pleasurable activity....like eating and moving on private wheels.

Millions will be without unsecured credit cards and no heloc during this period. So it's probably safe to assume that life will return to the more austere consumption levels of the 70s/80s periods for an extended period. There were no helocs then either. The hundred million boomers will gradually move into the inevitable non-consumption life phase. As the boomers start dying off, their inheritors will gradually begin to rebuild the bubble to future unsustainable levels. That assumes most boomers haven't pissed away what's left catching falling knives and paying much higher taxes on the 401-k withdrawals. Or figured out how to stuff those remaining T-bills into the hole with them.

The gilded age of consumption comes to its inevitable conclusion for now. It's an adjustment to normal. Everything will be just fine.

McGriffen's picture

I wish they'd stick to whatever it is they do well...just can't think of it right away.

In DFW & Texas, the oil bust / S&L bust combined for quite a whammy in the mid-80s. Some of the further-flung regions were still recovering during this recent boom, but that speaks to demographics and local economies (oil-based) much as anything.

if the California government doesn't truly address their issues, then yeah it could be 20 years +/-...

 

Anonymous's picture

at least moody's laid down its msnbs supplied pom-poms long enough to pull its head out of its butt...regardless of whether its dates are too long or too short the tone of the
article is far more realistic than what i would have expected from them....

on the other hand, it will have absolutely no bearing on its ratings of anything so i have to consider the report cannon foddor for reality but nothing more....expect more qe / stimulus funds to find its way into moody's asshole for a long round of pump ratings....

that agency is so disreputable that i would rather get my ratings advice from crack addict whore than moody's....

MsCreant's picture

I would think a crack addict whore would know a lot about the fundamentals of the economy. Think about it.

So what you are saying is Moody's is not even a good whore?

Anonymous's picture

Having Minnesota on the same timeframe as Cali, Nevada, and Florida is highly questionable. While Minnesota has many problems in RE and CRE, there is simply no way that it has the same oversupply nor the extreme level of foreclosures as the real bubble states.

aus_punter's picture

maybe the bottom really is in

Anonymous's picture

What to conclude? They're lying, once again, as usual for obvious or not so obvious benefit. Or, they're predicting massive inflation in the years ahead, which is the only thing that could get prices back up there again.

Careless Whisper's picture

This report, if you believe it, is actually GOOD NEWS. Good News if you are a Buyer now because;

1. Moody's feels the bottom in residential real estate has been reached.

2. Real Estate prices will increase at a slow but steady rate over the next 10-15 years.

Anonymous's picture

Forget the anthrax.
Divide and conquer.
Protecting the guilty.
Sell the 9/11 cover-up.
Pure propaganda via media.
New PR face in the White House.
AIPAC Neocon stage management.
Same puppet masters behind the curtain.
Follow the orders of the "Federal" Reserve.

Anderson Baldwin Carter Choate Clemente Gonzalez Gravel Kaptur Kucinich McKinney Nader Paul Perot Sheehan Ventura

Ned Zeppelin's picture

TD, anyone: where can one obtain this report in full?

tramanton's picture

I wish they'd stick to whatever it is they do well...just can't think of it right away. In DFW & Texas, the oil bust / S&L bust combined for quite a whammy in the mid-80s. Some of the further-flung regions were still recovering during this recent boom, but that speaks to demographics and local economies (oil-based) much as anything. if the California government doesn't truly address their issues, then yeah it could be 20 years +/-... Pellos M

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zara454's picture

People couldn't afford housing prices in CA even BEFORE the "meltdown," based on a real income level, but rather financed them with imaginary net worth from the sales of their previous overpriced houses.  (And Boomer's inheritences from dead depression era saver parents, which was being plunged into huge down payments on otherwise unaffordable houses.) They certainly won't be able to afford the "old prices" now with tight credit, reduced incomes, and their previous imaginary "net worth" shrunk by 30 percent.

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irena's picture

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