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The Crashing US Housing Metro Areas
The Crashing US Housing Metro Areas – Atlanta home values crash by 17 percent in last year and Las Vegas continues to move lower
US home prices have once again made a post-bubble low in spite of all the artificial intervention and massive bailouts to financial institutions. The bottom line unfortunately is that US household incomes have been strained for well over a decade. You can slice it up by nominal or inflation adjusted data but household incomes have been moving in a negative direction during the 00s and continuing into this decade. Keep in mind there is a massive pipeline of problems still in the housing market with over 5.5 million mortgage holders in some stage of foreclosure or simply not paying on their mortgage. This is more than a housing crisis but a crisis of quality job growth. At the core, that is truly the problem. There are markets in the US that are still correcting severely even after record breaking declines from their peaks reached in 2006 or 2007. Some of these markets are approaching two lost decades which seems stunning but again, this reflects weaker household balance sheets.
Correction still hitting major metro areas
While the US housing market overall did make post-bubble lows, there does appear to be some bottoming out in certain areas. For example, Detroit saw year-over-year prices move up by 1.5 percent. Then again, the median home price in Detroit is in the $60,000 range. But overall the correction seems to be continuing as the large shadow inventory works its way through the market.
When looking at the hardest hit areas, it is interesting to see a mix of low price metros and two very expensive metros taking the biggest annual declines:
Atlanta was absolutely slammed in the last year. Home prices have fallen by 17 percent only in the last year driving home values back to 1997 levels! This is for a very large metro area plagued with massive numbers of foreclosures. Atlanta was the only large Case-Shiller tracked metro area to have a double-digit annual decline. The second biggest hit came to Las Vegas. I’ve talked about this market in the past and cautioned people from diving in before doing careful due diligence. The market has fallen another 8.5 percent in the last year bringing the total decline from the peak to a whopping 61 percent without even adjusting for inflation.
You also see a handful of large mid-tier markets with Chicago, Los Angeles (including Orange County), and San Francisco falling yet again in the last year. For real estate in California, the economy continues to be weak and mid-tier home values are still inflated relative to local area incomes. The mid-tier markets are taking the biggest hits. For example with L.A. the mid-tier is down over 5 percent for the year but interestingly enough, the high tier has made a new post-bubble low.
The weakness is being driven by the large number of distressed properties being sold. Even though foreclosure sales are trending lower, this is being over shadowed by a larger number of short sales being ushered through by lenders. In other words, properties are exiting quicker from the system but they are still distressed. Lenders have a front row seat to what is going on and essentially what they are saying with a swarm of short sales is they believe home prices in the intern will be going down. Why else would you want to exit at this moment if you believed home prices would be soaring shortly? Bank balance sheets are still inflated with poor performing properties and what the Case-Shiller report shows is there is likely to be little support for higher prices anytime soon.
Take a look at the nationwide data here:
Source: Zero Hedge
If you look at a chart like the above, what is the major impetus to rush out and buy in 2012? The trend to the contrary is showing weaker prices and lenders are openly discussing that more shadow inventory will be leaked into the market. Certainly short sales are not going to prop prices up. Here in Southern California, the number of MLS short sales is growing and this has been a big story for 2012. I also realize that some folks think they are going to get a Beverly Hills property for $200,000. That is not going to happen. The biggest long-term driver for housing sustainability is going to be local area incomes and prices in places like Corona Del Mar for example will remain high for the average person because people do have high solid incomes in these markets. A $4 million home going to $2 million is not exactly going to open the floodgates. Those that pretended and over extended will be washed out of the market in the next few years but make no mistake, there are pockets of high priced housing that justify a high price simply because local incomes are able to support prices. The mid-tier markets are the areas that are subject to the biggest shocks in the next year or so. The issue is that many in mid-tier markets somehow believe they are in some of these tiny luxury markets (they are not).
Not sure if it got missed in all the news coverage but the California unemployment rate is back up to 11 percent meaning the underemployment rate is above 21 percent:
If you want to see leading indicators for solid potential growth look at unemployment but also the quality of jobs being added. No use in having everyone working at K-Mart and trying to buy a $500,000 home. The crashing markets of Atlanta and Las Vegas simply show that economic growth is not able to support current home prices even in cheap metros. The lower prices in Chicago, Los Angeles, and San Francisco reflect the correction in the mid-tier markets. What impact will 5.5 million distressed and foreclosed properties have on the market going forward? So far, it has been to push prices lower which isn’t a surprise.
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What's the problem? Just leverage that by 10,000 homes and you make a killing.
A home can be an anchor if you need to change location. Perhaps a new job, perhaps the local gov't looks at you as a cow to be milked, etc. Just buy silver/gold if you're worried about inflationary forces getting out of control. Further, PMs give you the option to leave tomorrow if you need.
By the time people currently in foreclosure are allowed to take out mortgages again, home prices will be CHEAP.
The Texas Ratios of Georgia banks are some of the highest in the nation
http://www.amateur-investor.net/TexasRatio.htm
Personal experience says that the only people buying homes are those naive enough to buy into the Real Estate Salesman hype of "buy a home and rent it out for positive cash flow". What no one understands is that when you "buy" a home, be it on a 15 or 30 yr mortgage, you have to find renters not just for the months after you bought that home, but continually throughout the next 30 years. And the base assumption that the value of the home will go up is preposterous. Home values HAVE gone up in the past, no one is denying that, but that is because the country had a growing economy. Jobs must pay increasing wages in order to cover increasing home prices. Jobs are not paying higher wages, they are ratcheting down pay. There will be no housing recovery. There is a HUGE shadow inventory that still needs to be released back onto the market and this will only tank housing further. Soon enough, you won't be able to give away houses. I certainly would not take a free on given to me in Detriot
Highly recommend reading Grant's very accessible "Fall of Rome." And Faber's fond of citing Asian histories. There are some great "timeline" graphs that will reveal just how parochial and myopic everyone's been since Bushco took office and looted us all.
I see you got a down arrow, but no comment. Anyone want to defend Bushco out loud?
Not that I'm one of the down-voters in this case (or yours), I'd say that anyone who engages in the fantasy of the false left-right divide deserves every down-vote they get.
Your false dichotomy? It's showing.
Look, NA, I see both parties as corporately owned, but there are varying degrees of corrution and damages caused. The eight years of Bushco, as described above, were some of the most destructive ever experienced by this nation, and not just the obvious financial disaster these morons and theives presided over. Lying us into war, Homeland security, stacking the Supreme Court with idealogues who think corporations are people and money is speech are but a few quick examples that come to mind the have fundamentally changed our country and acelerated our decline.
What is "showing" here is the lack of anyone taking up the defense of that pack of scoundrels.
housing will recover around 2033.
I'm curious how demographics are going to play into this endless slump. Not everyone has a mortgage. I sold my house last year, e.g. and moved to Florida to enter geezerdom. But my house was in Northern Virginia and sold quickly and for a good price and I was only 58. There have got to be millions ( 30% of homes have no mortgage) of other baby boomers who are counting on their home equity as part of their retirement funding. They will either want or need to downsize and will, as a result, be an increasing portion of the resale market of non distressed housing. So not only will we have bank REO, shortsales and the normal flow of existing home sales hitting the market in the next few years we will also have this baby boom avalanche of retirees looking to exit their present home to downsize and or relocate.
The subprime crisis is just the tip of the iceberg. Fundamental changes in American life may turn today’s McMansions into tomorrow’s tenements. (The Atlantic)
http://www.theatlantic.com/magazine/archive/2008/03/the-next-slum/6653/
I agree - the boomer demographic is being overlooked with all the other stuff going on, but is going to be a factor for sure.
I moved from San Diego to Boise in "pre-geezerdom".
I own 3X the house for $1,000/mo that I was paying $1800/mo in rent in SD for.
All the whiners crying "property taxes/upkeep" conveniently forget "tax writeoffs/resale".
All the whiners crying "property taxes/upkeep" conveniently forget "tax writeoffs/resale".
So a tax deduction on $10,000 of property taxes is a good thing?
I'd rather have the $10,000.
And resale? Let's see how much resale that house has in 3 - 4 yrs after the housing market drops another 50% (but those property taxes don't).
sangell, this is assuming the typical baby boomer can retire. Most will not and the upkeep/taxes on these houses will just drain them dry.
If they're lucky, they'll get a reverse mortgage from Fonzie.
"green shoots" in the economy = dandelion lawns
On the upside--there is always dandelion wine!
Nothing that QE3, QE4 or QE5 cannot solve. The Bernank has levitated the stock market. He can do the same for the housing market. Letely he has been too busy gracing the cover of magazines and giving lectures to improve the image of the Fed. But Jim Grant is not buying and called the Fed "the vampire squid of vampire squids." Goldman Sachs must be offended at being downgraded.
Nothing that QE3, QE4 or QE5 cannot solve. The BeHrnank has levitated the stock market. He can do the same for the housing market.
But he won't. He doesn't care about the physical housing market, just housing paper held by banks. Secondary market mortgage derivatives held by banks, mortgage-backed securities (MBS), to be specific.
He bought boatloads of MBS to keep their price up, while completely ignoring actual home prices, which continue dropping.
All the bailouts and QE don't help the physical housing market. Not one bit.
It just helps the value of mortgage paper on banks' balance sheets.
Bernanke can't buy houses. He can't buy mortgages either. He can only buy AAA rated mortgage backed securities.
Of course AAA is nonsense. A good portion of the mortgages backing those derivatives are very delinquent or not being paid at all.
But the Fed can only buy AAA paper. Now you know why rating agencies were bribed into giving MBS a AAA rating.
Banks knew mortgages backing those MBS were crap and would start going delinquent or not be paid at all. Sell a 500k home to a welfare mom, and no, you won't ever see a payment on that mortgage.
So banks knew MBS were crap from the get-go. They bribed rating agencies to get those AAA ratings so when MBS started dropping in value banks could dump 'em on the Fed and get full price for 'em.
They started dropping in value rapdily during '08 when the housing bubble started collapsing. By early '09 losses were estimated to be over $500 billion and rising. Losses were actually over $1,000 billion ($1 trillion) ...and rising.
No problem, just sell it all to the Fed and get full original price for it. Bernanke can print however much money is needed to buy 'em, $1 trillion easily, no problem.
So banks were made whole and the Fed ends up with a trillion dollars of worthless MBS on their books Bernanke paid full price for.
Yes, Fed is the dumping ground for worthless finanical paper banks need to get rid of, and they can get full price for it too.
This is one reason US dollar won't be world reserve currency much longer. Other nations see how the Fed is printing dollars to buy worthless crap from banks, and paying full original value for it.
They're getting tired of watching the dollar lose value as Bernanke runs the presses to buy all that worthless crap, and they're quietly doing something about it, finding ways to move away from the US dollar.
I agree. TARP, the stimulus, QE1 & QE2, Operation Push, Cash for Clunkers, Dollars for first time buyers and zero interest rates worked so splendidly that we should try more of the same. And then all we have do is explain with a doleful expression that the economy is slowly improving and what we need is more debt. Everyone knows that massive debt creates prosperity.
Something to take into consideration:
In my neighborhood, we're having a MAJOR problem selling homes. These homes are beautiful and in a great location. However, many of the houses are 2-3 stories and were built atop steep hills. The younger generation has no money to buy these homes and the aging generation refuses to purchase these homes as they know their mobility will be limited in the years ahead (walking up flights of stairs, taking the trash cans up and down the long drive-way).
What are we going to do with all these McMansions where the aging population and increasing young, obese population can only utilize the first floor of these homes?
Both homes and people need to go on a diet before we find a true bottom in housing.
These McMansion will be known as tear downs. But on a more serious note, if they are large enough, then elevators can be installed. Likely a good market for inexpensive elevators. They could be built for light weight use only.
Long chair lifts, too.
Cut 'em up and rent out to ten different people!
Uncle: Or some sort of device for winching these slugs out of bed every morning and depositing them in their cars for the daily run to the donut shop.
It's a growth market. So to speak.
Bet the rodents don't have a problem skipping up a few flights of stairs.
"And the meece shall inherit the earth". Or at least that part of it occupied by McMansions on hilltops.
We are lucky. In Middle Tennessee our prices have dropped about 2% since 2007 (large business growth) but ALL construction has ceased. It is actually the McMansions that offer the best deals. One down the street was reduced from 3 million (spec) to 2 to 1.5 to $1.1 where it finally sold. Homes in the $200K-$600K have retained their value.
Rent out the top floors of the castles!
Like I have said on ZH many times the 300-500K houses in Lincoln ne are hot hot hot. Looked at one last sat in the $350K range sold on monday.
If your house is ready to be moved into.. then it'll bring all the money.
Dammit need to liquidate my bank account into something else physical asap!
... and only 50 miles from Omaha!
This problem will be resolved when the Chinese and Indians come to the US to buy everything with the gold they hold. It will also increase the employment rate as the jobless indebted youth will be trying to pay off their loans by becoming day laborers and servants for their new Asian masters.
Asians hate wooden boxes these recent houses are bbuilt with. They go for brick or stone.
Good luck selling these to anyone but the most uninformed.
Regardless the fact that Chinese have a little oversupply problem of only 60 million empty homes, they are not as stupid and give their cash for crappy US houses.
You don't know much about the quality of residential construction in China if you think their stuff is built better than in the USA.
Two words: Chinese Drywall
I agree that could be what the endgame might look like, but the crumbling U.S. infrastructure may put a crimp in those plans. Who's going to want to pay the trillions needed to fix that mess?
You won't need to. Infrastructure will be on par with rural India and China. New residents won't complain.
I doubt if those new residents are currently eking out an existence in rural India and China, Jimbo.
Also begging from our new masters.
Tent sales are up!!!
So are large cardboard boxes!
The best boxes to build with are fruit and vegetable ones from the super market as they are thick, sturdy, and waxed. This aids in waterproofing your shack. A great location for your new home is under a bridge; this will give you even more protection from the elements and you can panhandle on the road by day.
Broken glass duct taped to a sturdy stick can provide shack defense from other hobos jealous of your cardboard chalet and how you now attract women who have as many as 8 teeth remaining.
and all this without rising interest rates.
"Cardboard box! We used t' dream o' livin' in a cardboard box! We used ta live int 'ole in road!"
Luxury.
You tell the kids this today and they won't believe you!
Cardboard boxes are so 90s. Tar paper shacks are all the rage now.