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Charting The Secular Decline (To Come) In Advanced Economy House Prices

Tyler Durden's picture





 

It would appear that Americans are in general an optimistic bunch. The slightest green shoot of economic growth, or market trend-reversal, or Tigers' home run in the World Series and it is instantly extrapolated into "what could be". The US housing market (among others around the world) is just such a glimmer of hope (and homebuilder stock prices surely provide all the proof you need... just like JCP's 12% jump on 9/19? followed by its 46% decline since...). The trouble is, no matter how much you want something to happen; sometimes, there really is no way it's ever gonna happen. To wit, the young/old dependency ratios in the following six major economies of the world suggest whatever 'Eastman Kodak' bounce some housing markets are experiencing will inevitably be short-lived (no matter how much foreign cash is driven back into these advanced economies).

Economies are becoming a little 'over-burdened'...

 

which suggests the driver for house price appreciation just won't be there...

 

Charts: Citi

 


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Wed, 11/14/2012 - 12:44 | Link to Comment Canadian Dirtlump
Canadian Dirtlump's picture

I just cashed out of the market in Alberta and am hoping for a "blowtorching."

Wed, 11/14/2012 - 12:46 | Link to Comment mick68
mick68's picture

I cashed out of the Vancouver market last year, the "blowtorching" is occuring as we speak. Good fun to watch from the sidelines.

Wed, 11/14/2012 - 12:51 | Link to Comment economics9698
economics9698's picture

Which one of the ZH’ers sells opium? Bullish. 

Wed, 11/14/2012 - 12:45 | Link to Comment mick68
mick68's picture

All that's left is hope, and those who didn't see this coming are clinging to it for dear life.

Wed, 11/14/2012 - 14:12 | Link to Comment LMAOLORI
LMAOLORI's picture

 

 

Sorry it's HOPELESS 

How 'Fiscal Cliff' Could Affect Mortgage Interest Deduction

http://www.cnbc.com/id/49822678

Wed, 11/14/2012 - 12:46 | Link to Comment SafelyGraze
SafelyGraze's picture

this is why so many of us advocate tearing down 20%-40% of all private dwellings in order to increase demand for the remaining ones.

*green* ones. owned by the fed. with built-in monitoring systems.

Wed, 11/14/2012 - 12:59 | Link to Comment JPM Hater001
JPM Hater001's picture

Don't make me go all Walden on your ass.

Wed, 11/14/2012 - 13:01 | Link to Comment SilverMoneyBags
SilverMoneyBags's picture

Broken window fallacy.

Wed, 11/14/2012 - 13:33 | Link to Comment Greyzone
Greyzone's picture

Why not just let house prices settle to their natural value? That would actually make houses affordable instead of an "investment" which they never really were anyway. Sure, someone gets to be the bigger fool but in a bubble market someone has to be the bigger fool ultimately.

Wed, 11/14/2012 - 13:52 | Link to Comment hidingfromhelis
hidingfromhelis's picture

What, we should allow market fundamentals to reassert themselves?  Blasphemer!

Wed, 11/14/2012 - 15:03 | Link to Comment TruthHunter
TruthHunter's picture

 "tearing down 20%-40% of all private dwellings"

 

Detroit seems to be doing its part

!

Wed, 11/14/2012 - 12:46 | Link to Comment Jayda1850
Jayda1850's picture

I was, shockingly, enlightened to a strange and hardly coincindental fact by Bob PISSani. The mortgage interest deduction was instituted in 1913, the same year as the federal reserve. What better way to get americans deeper and deeper in debt with the big banks than making interest tax deductible. kinda like that was the plan all along.

Wed, 11/14/2012 - 12:51 | Link to Comment Mrmojorisin515
Mrmojorisin515's picture

the same year as the IRS (GASP)

Wed, 11/14/2012 - 12:49 | Link to Comment Midas
Midas's picture

China has a ways to go to get back to the 60s and 70s.

 

Wed, 11/14/2012 - 12:47 | Link to Comment edifice
edifice's picture

Oh, I can't wait to buy a house... In 2025...

It's funny, friends and family are telling me to buy now; telling me it's a buyer's market. I keep trying to explain we've just come off of the dead-cat-bounce in housing and it's downhill from here, for at least another decade. Nobody listens.

Wed, 11/14/2012 - 12:54 | Link to Comment Anton LaVey
Anton LaVey's picture

Excellent choice of words: "dead cat bounce".

Around here, some people are starting to notice that, yes, the real estate prices are not going up anymore... They are kind of levitating, and sloooooooooooowly going down, like a car at the very top of the roller coaster.

When the drop comes, it's going to be astounding, especially to people like a friend of mine, like yours I suppose, who told me that real estate is so great in our city it can only go up.

Some people, who are still buying like crazy, will lose their shirts in this.

Wed, 11/14/2012 - 13:34 | Link to Comment Offthebeach
Offthebeach's picture

I do a lot of work fixing up housed for resale. Foreclosures, estates of the dead or nursing homed parents/mothers.
Anyway, the quality of the housing stock is decaying. A lot were poorly built, with junk material and were not or can not be afford repairs.
This doesn't show in the stats for price/sales. Particle board, OSB, medium density fiberbord with photofinish wood..... dry, UV cracked vinyl siding. I am even starting to see Aztech PVC trim aging south.

Old folks will let the house go. There is a lot of ruin in a house. I now get requests to just patch a roof shingle section, which I do. These are on dead, brittle roofs that should of been replaced 10 + years previous.
I was at a nice condo in a nice cul'd sac. The lady was wearing a winter coat, it was cold inside. Another nice house had a ugly old wood stove on tile backerboard on the nice wood floor. The stove was flued out the chimney. They wanted me to cut the ceiling, and collect the heat off the stove into the AC ducts so they could get the heat to other parts of the house. I did it.

The less new houses, the older the housing stock, the lower quality, more in need of repair...every year, a little more so.

Wed, 11/14/2012 - 14:26 | Link to Comment cynicalskeptic
cynicalskeptic's picture

All that crap built in the exurbs when gas was cheap will end up empty and abandoned.  The same for many houses built in places like Vegas and Phoenix - unaffoprdable wothout AC and with water getting scarcer.......

Much of the newer houses built here in NYC burbs over the past 40 years is garbage - literally falling apart before your eyes.  Built late on  they used leftover lots to start with - often problematc (like those houses in SI that flooded during Sandy - built on wetlands).  There are plenty of townhouses and condos that are godawfully bad - as well as fake stucco McMansions rotting away.   BTW many of those recent urban developments didnt; turn out so well either (Battery Park City anyone?  Brooklyn waterfront lofts?)

BUT well built housing in good locations - close to mass transit in established neighborhoods - will hold value.  Two stops out of Grand Central or Penn Station will sell long before places and hour and a half out.  A friend in upper Westchester isn't seeing much interest in a nice large house upcounty for just that reason while houses here close in are selling.   If you bought at peak of market you're still screwed but if you bought at a good time in a good location you'll do alright.   As for all the boomer retirees in AZ and FL... who in the hell wants those places when they kick it?

 

and BTW - there were enough older places around here that were 'let go' by some old person - we bought one.  But they're worth a total redo (and after 75-10 years most need it anyway) because of WHERE they are.   More than enough demand from Manhattan types having kids who want to live in the burbs.  h

Wed, 11/14/2012 - 13:27 | Link to Comment alangreedspank
alangreedspank's picture

Right. Ever since I realized the baby boomers were buying their houses for roughly twice their yearly income, I've known it's a toxic market to buy in.

Wed, 11/14/2012 - 12:49 | Link to Comment vast-dom
vast-dom's picture

Correlating to the bankster QE dependancy ratio.

Wed, 11/14/2012 - 12:49 | Link to Comment swissaustrian
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Switzerland is not part of that trend, so isn't Canada or Australia.

Wed, 11/14/2012 - 12:50 | Link to Comment Canadian Dirtlump
Canadian Dirtlump's picture

I found God in order to pray for us to join the club.

Wed, 11/14/2012 - 12:56 | Link to Comment Anton LaVey
Anton LaVey's picture

Hmmm... Not included right now, but you can bet they will be included in the price drop that's coming.

If I remember correctly, Australia's market is supposed to implode pretty soon, at least according to Steve Keen (a very smart guy and economist).

Wed, 11/14/2012 - 13:03 | Link to Comment swissaustrian
swissaustrian's picture

Switzterland's real estate market has 2-3 more years of rising prices ahead, if not more. We have all the ingredients for a RE bubble:

Low interest rates, heave capital flight by rich foreigners and money laundering in prime RE, massive population growth due (legal) immigration, tax incentives to purchase RE etc.

Wed, 11/14/2012 - 14:11 | Link to Comment Urban Redneck
Urban Redneck's picture

2,000 of France's 280,000 millionaries already lived in Switzerland before Hollande was elected.  Offsetting EU exports with importing EU millionaires should keep the bubble growing a little while longer, especially since certain parts of Europe are hell bent on making life miserable for the "rich."  If the Germans ever get over their guilt complex- the housing market in Switzerland could easily be propped up for a decade.

Wed, 11/14/2012 - 18:29 | Link to Comment ForTheWorld
ForTheWorld's picture

As much as I think Steve Keen is correct in his call, it's sort of like the boy crying wolf - he's been calling for the bubble to burst for at least five years, and now no one listens to him. At best, we've had less than a 5% drop in prices in the last two years - hardly record setting. In the end though, it does equate to a drop in real prices/investment return when factoring inflation into the equation.

However - the prevailing thought still is that Australian real estate cannot drop in price more than it has, and this is just a blip on the way to new highs.

Wed, 11/14/2012 - 13:33 | Link to Comment alangreedspank
alangreedspank's picture

Canada is definitely scheduled for a crash. If non performing mortgage go up a few percent, the whole CMHC goes belly up and will seek a bailout from the feds (they are essentially a government entity). Politicians know this and are trying to lob the CMHC's assets over in the private sector so they don't have to face a shitstorm when the shit hits the fan.

Wed, 11/14/2012 - 13:55 | Link to Comment Sockeye
Sockeye's picture

CMHC is actually a crown corporation. Underappreciated fact ---> us hosers don't actually have our own government, eh. Thoroughly pwned by QEII herself.

Wed, 11/14/2012 - 12:49 | Link to Comment buzzsaw99
buzzsaw99's picture

if they are dependent on me they are up shit creek. [/gone galt]

Wed, 11/14/2012 - 12:51 | Link to Comment CunnyFunt
CunnyFunt's picture

Next week's data should be interesting, especially now that the erection is over. Short the feces out of PHM.

Wed, 11/14/2012 - 12:56 | Link to Comment ebworthen
ebworthen's picture

I keep hearing everyone on the boob tube and the interwebs say that housing has recovered.

Does "recovery" mean that because of the lowest mortgage rates in history and millions needing to sell because they are broke make a recovery?

I don't see it, and I don't get it; beyond the MSM trying to pin the tail on the donkey and heading for somebody's Mom.

Wed, 11/14/2012 - 14:13 | Link to Comment e-recep
e-recep's picture

calculatedrisk's bill mcbride is sickening me. he is a complete sell-out. all his articles have positive sounding manipulative titles about "unemployment" or "house prices". what a prick.

Wed, 11/14/2012 - 13:02 | Link to Comment SilverMoneyBags
SilverMoneyBags's picture

Declining housing prices is a GOOD THING for people under 30. You know the people who are going to be bogged down with all of the debt from the 30+ crowd.

Wed, 11/14/2012 - 13:21 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

House?  You'll get "stack and pack" and like it.

Wed, 11/14/2012 - 13:03 | Link to Comment mrktwtch2
mrktwtch2's picture

not wjere i live (in a chicago suburb)..i bought my 1700sq ft 3 bed condo for 227k in 2003 and finally sold it for 172k after being on the market for 6 months...all said and done i walked awuy with 1200 bucks..lol but i had shelter for 9 yrs..

Wed, 11/14/2012 - 13:20 | Link to Comment FrankDrakman
FrankDrakman's picture

Hmm.. $55k for 9 years ~= 108 months.  That's only $508/month, plus whatever you had to pay in condo fees. I have no idea what the latter were, but even at $500/month, you were getting a 3 bdroom place for around a grand. Don't know what rents are like in Chitown, but in Toronto, that would be a steal.

Wed, 11/14/2012 - 13:57 | Link to Comment BraveSirRobin
BraveSirRobin's picture

Hmmm, 55k is only the loss in equity. You also need to add property taxes, maintenance costs, and interest, plus closing costs, points, realtor commission, etc, etc, etc. I bet when all is added up, you can easily add an additional 100k on top of that. So, $155,000/9/12 = $1,435/month.

Could also add other costs, such as opportunity costs for any money down, but also need to add back any home mortgage interest deduction, and offset to income on loss from sale.

Not an easy calculation, certainly with the data we have here, but certainly quite a bit more than $500 per month.

Wed, 11/14/2012 - 15:53 | Link to Comment ebworthen
ebworthen's picture

That's because Toronto, and every other big city with a lot of government employees are way overpriced.

When the cuts to government employment get really serious, and the current bubble is popped, look out below!

I don't know about Chicago but there are condos in Washington D.C. area, older ones in not the best neighborhoods, that are close to $400 a month or higher.  CRAZY.

Wed, 11/14/2012 - 14:02 | Link to Comment Spacemoose
Spacemoose's picture

so the only question is:  will inflation of the dollar outrun deflation of the home's value?

Wed, 11/14/2012 - 14:37 | Link to Comment Diogenes
Diogenes's picture

In other threads, I learn that massive money printing will inevitably lead to inflation. In housing threads, I learn that house prices can only go down, down, down.

Can anyone explain how the price of building materials, labor, etc can fall while prices in general increase? Or how the destruction of thousands of houses won't result in a shortage sooner or later?

 

Wed, 11/14/2012 - 15:16 | Link to Comment astoriajoe
Wed, 11/14/2012 - 15:46 | Link to Comment bart.naf
bart.naf's picture

Cash Shiller 20, just CPI adjusted to get closer to an apples to apples comparison, shows no housing recovery but rather lower highs and lower lows.

http://www.nowandfutures.com/images/case_shiller_housing_recovery2.png

 

 

The rhyme with the 90s is unmistakable.

http://www.nowandfutures.com/images/case_shiller_housing_recovery3.png

 

 

 

XHB homebuilders index has peaked on a YoY basis:

http://www.nowandfutures.com/images/homebuilders_xhb.png

 

PHLX homebuilders index has peaked on a YoY basis:

http://www.nowandfutures.com/images/homebuilders_phlx.png

 

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