A friend of mine emailed me last week with an article that forecast more bad news. And he, I think tongue in cheek, suggested that I must be doing cartwheels because the bad news for the housing market was great news to me.
That got me thinking again about the power of perspective. You see, a great many of the historically grand fortunes in this country were made by people going against the grain. Buying when others were selling, staying when others were going, and taking advantage of downturns and bad news.
Now far be it for me to compare myself to Carnagie, Vanderbuilt, Morgan, or Stanford, but the more that I think about it the more it’s the same. People make money doing the exact opposite of what everyone else is doing. And the real estate market here is a prime example of that.
In fact, one of my favorite quotes is from Baron Rothschild, who said “When there’s blood on the streets, buy propertyâ€. Here in Michigan the blood is flowing like water. So much so that on the last two properties I bought there had been no other offers for months and I received an average discount off of the listing price of $30,000. On $80,000 properties! So much so that since realtors in my target areas heard that I’m a cash buyer, they’re now calling me with fire-sale pricing.
But back to perspective – what’s lost in all of this doom and gloom hysteria is the future. Read the WHOLE article below. What do you see? How about that this latest version of the media-incited apocalypse will end in the 2009-2010 timeframe.
Only two years from now!
I was meeting with a prospective new banker the other day and we talked about this exact subject, and it hit me that if you read all of the prognosticators, all of the armchair economists, and all the opinions, you’ll see something VERY interesting. Something that nobody is talking about.
You’ll see that nobody is arguing about IF the housing market will rebound.
Not at all.
We’re arguing about WHEN it will.
Can you see the difference that perspective makes?
So – are you a half empty or a half full person?Â
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Reuters
House prices seen falling 30 pct
Thursday December 6, 6:41 am ET
By Julie Haviv NEW YORK (Reuters) –
Housing markets from Punta Gorda, Florida, to Stockton, California, will crash and suffer price drops of more than 30 percent before the housing crisis is over, a report from Moody’s Economy.com said on Thursday.On a national level, the housing market recession will continue through early 2009, said the report, co-authored by Mark Zandi, chief economist, and Celia Chen, director of housing economics. The report paints a worsening picture of the hard-hit housing sector, which is in the midst of its worst downturn since World War II. While activity will stabilize in 2009, it will not be until 2010 before a measurable improvement in sales, construction and pricing will emerge, the report said.House prices are forecast to fall 13 percent from their peak through early 2009. After accounting for incentives home sellers are offering buyers, effective declines peak-to-trough will total well over 15 percent, the report said.Punta Gorda, Florida, and Stockton, California, are the hardest hit markets in the U.S., with price declines from peak-to-trough forecast at 35.3 percent and 31.6 percent, respectively.“This is the most severe housing recession since the post-World War II period,” Zandi told Reuters.
These markets have been hard hit due to several reasons, namely the exiting of investors from the areas, a fair amount of subprime mortgage loans causing an increase in foreclosures and overbuilding by home builders, Zandi told Reuters.  Home sales, however, should hit a bottom in early 2008, which will mark a 40 percent drop from peak-to-trough. “The housing market’s most fundamental problem is it is awash in unsold inventory,” the report said.In addition, the housing downturn will take a large toll on the rest of the economy. During the height of the boom in 2004-05, housing contributed nearly a percentage point to annual real gross domestic product, or GDP, growth.In the current downturn, housing will subtract more than one percentage point from U.S. economic growth this year, and a percentage point and a half in 2008, with the effect on growth seen most pronounced next spring and early summer. “The intensifying housing recession is expected to weigh on the broader economy, but not break it,” the report said. The Moody’s Economy.com’s report, titled “Aftershock: Housing in the Wake of the Mortgage Meltdown,” said that when house prices hit their nadir, some 80 of the nation’s 381 metropolitan areas will experience a double-digit peak-to-trough price decline.Price declines, however, will vary in degree throughout the nation, with more than a 15 percent peak-to-trough expected around Washington and Detroit. Significant declines are also expected throughout most of Arizona, California, Florida and Nevada.During the housing market’s heyday, speculative activity was rampant in these areas, causing prices to surge much higher than other regions. The Northeast corridor, and markets such as Boise, Idaho, along with Denver and Salt Lake City, will experience between 5 percent and 15 percent declines. In the rest of the industrial Midwest and parts of the Mountain and Pacific Northwest, prices will fall more modestly.While some point to rising default rates in the subprime mortgage market, which caters to borrowers with poor credit histories, as the root cause of the problems plaguing the housing market, Moody’s Economy.com said an unwieldy supply of unsold homes is the prime factor. The U.S. Census Bureau said that, as of the third quarter of 2007, there were close to 2.1 million vacant unsold homes for sale, equal to 2.6 percent of the stock of owner-occupied homes.A well-functioning housing market has a substantial amount of inventory, but in the quarter century between the early 1980s and mid-2000s, the vacancy rate stayed near 1.7 percent. The difference between the two vacancy rates provides a good estimate of the amount of excess inventory in the market, which currently totals nearly 750,000 homes and is by far the highest level of excess inventory in the post-World War II period, Moody’s Economy.com said.
