johnnymk

Three quarters of housing markets - many in crashing Sun Belt areas - face price declines over next few years.

http://money.cnn.com/2007/09/19/real...ey_mostpopular

NEW YORK (CNNMoney.com) -- Over the next few years, more than three-quarters of the nation's housing markets will suffer some decline in home prices. Many will experience double-digit hits in a forecast that has worsened considerably in recent months.

According to an analysis conducted by Moody's Economy.com, declines will exceed 10 percent in 86 of the 379 largest housing markets. And 290 of the cities will experience price drops of 1 percent or more.

The survey attempted to identify the high and low points of housing prices in each of the markets, some of which started declining from their peak in the third quarter of 2005. All are median prices for single-family houses.

Nationally, Moody's is projecting an average price decline of 7.7 percent. That's a jump from the 6.6 percent total price drop that the company was forecasting in June and more than twice that of last October's forecast of a 3.6 percent price decrease.

Many of the worst hit cities are in Sun Belt areas that experienced outsized home-price growth during the real estate bubble, according to Arnold Slesers, an associate economist at Moody's. The home price correction in many of these cities will be severe as unsold new homes and leaps in foreclosures add to already big inventories.

The Stockton, Calif., metro area, where Moody's predicts a 25 percent price drop, will be the hardest hit among the 100 most populated cities surveyed.

Prices in Stockton - in California's Central Valley - rose quickly through 2005 as many would-be Bay Area buyers, frozen out of the expensive San Francisco area housing market, moved in. That influx drove up the median, single-family home price to about $375,000. Stockton prices peaked during the first quarter of 2006 and have gone downhill since. Prices likely won't turn around until the end of next year.

Just a tick or two behind Stockton in the Moody's survey were two Florida metro areas, Palm Bay/Melbourne (down 24.9 percent) and Sarasota/Bradenton (down 24.8 percent). All three markets are on almost the same peak-to-trough schedule, with Moody's forecasting that Sarasota will bottom out in the third quarter of 2008, a quarter sooner than the other two.

Outside of the Sun Belt, the worst hit areas are in the Midwest, where auto industry layoffs and plant closings have devastated local economies.

Detroit prices are experiencing the steepest fall of any large Rust Belt city. Moody's forecasts a 21.3 percent drop in Motown, which was hit earlier - in the third quarter of 2005 - and will suffer longer than most places. A turnaround in Detroit isn't expected until early 2009.

Six of the nation's 10 biggest cities face price declines of 1 percent or more with Phoenix, at a 17.8 percent loss, undergoing the worst reversal. The San Diego area will suffer through a 10.9 percent fall, Los Angeles (down 10.6 percent), New York, (down 5.3 percent), San Jose, (down 4.4 percent) and Philadelphia (down 3.1 percent) will also fall.

Among smaller cities, the biggest price declines will be in Saginaw, Mich., where the drop is forecasted at a numbing 31.8 percent. Other devastated markets will be in Punta Gorda, Fla. (down 28.8 percent), Merced, Calif (down 26.5 percent) and Santa Barbara, Calif. (down 25.9 percent).

The markets where Moody's is forecasting growth generally have one thing in common: Home prices in these cities are quite low. The top appreciating market will be the Brownsville/ Harlingen area in Texas, forecast to rise by 7.9 percent between July 2007 and the end of 2009. The median single-family home price there is less than $120,000.

In Killeen, Texas, the No. 2 appreciating market, prices are forecast to rise 4.6 percent and the median home price is about $129,000. Other inexpensive housing markets showing predicted price growth include Buffalo/Niagara Falls, N.Y.; Pittsburgh and Huntsville, Ala.

The table below shows the 100 largest-by-population markets among the 290 metro areas that are forecast to have declines of 1 percent or more. In an analysis that considered mortgage rates, the local job market and other factors, the study makes projections on when those markets would peak, when they would hit their worst point, and how much the total decline would be.

Table provided on link

zippyjuan

If prices have trippled in the last five years or so (like San Diego), and now drop even 25%, they are still up 2.25 times what they were. By historical averages, you are still above that. Unless you bought in the last couple years and intend to sell in the next couple, you are not doing that bad. And if you hope to buy but cannot afford to now, things could get better for you.

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Maarchk

Yeah, its really not a big deal. anyone who bought their house more than 3 years ago shouldn't be majorly affected. If you bought it at its overpriced peak, that sucks but that is true with buying anything that is over priced.
There are always winners and losers. People who sold their house before the prices shot up are sad they lost out, so it happens in all directions. I dont know why this housing correction is such an amazing issue.

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attgig

bought my house last year. possible life changes could force me to sell in a year or so. :-(

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renovation

i dont have a lot of feelings for those who bought in the last 5 years around me .that bought to invest .they used other people money on shady at best loans. thinking they turn the property at a large profit .now they find they cant give it away and they still must make those house notes. they can't find renters willing to pay what they need to cover there loan payments. and a lot of these investment propertys were not worth a 1/4 of what the loan amount was really worth even at the time .they thought they were being slick and live above there means .2 new cars a pickup truck ,jet ski or 2 ,boat ,camper ,and what ever else ,now there looking and seeing there job is gone or maybe leaving , there in way over there heads and know were to turn as they have taken every once of blood money out of there investments.

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Kevster

This article is wrong. Much of Stockton's 'would-be Bay Area buyers' were nothing more than speculators trying to ride the housing boom. The same thing happened in Elk Grove (just south of Sacramento). Many of these houses were never lived in by the new owners and are now either sitting empty or rented out.

The author of this article should have done better research, as this has been well documented by the Sacramento Bee.

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InfiniteNothing

I'm kinda thinking inflation will save/perpetuate the bubble. A house is a comodity and comodities always get more expensive when the dollar weakens.

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zippyjuan

Housing is not quite a true commodity since people do not buy houses every day or even every year. They do buy things like energy, food and clothing on a regular basis. Housing also does not necessarily move with the price of commodities. Commoditiy prices were pretty stable during the housing boom (except for a brief period when energy was up- it has since retracted and food has been slowly but steadily rising) and have not changed that much during the current phase of the correction.

InfiniteNothing

Surely house prices at least go up when inflation is high.

zippyjuan

Aside from the Great Depression and WWII, housing prices have really varied little after inflation is accounted for for over 100 years. Setting a home in 1890 at an index of 100, prices have rarely gone up more than 20% - not in a year, but in total value since then- until the most recent price explosion. Inflation can actually depress real home prics since people have less money to spend on a new one.

Daedalus

People borrow money to buy houses and there is a strong correlation between mortgage rates and inflation--at least as stong as the correlation between inflation and income. If folks are paying 10% on home loans but don't see the same rise in overall incomes, the effect will be to pull housing prices down. It's an exponential relationship and the net effects get increasingly dramatic the higher rates go. Calculate the difference in payments per $100k for 10% vs. 12%. Double-digit mortgage rates were the norm for the majority of the post-WWII economy, and I won't be surprised to see them again within 5 years given the "real" inflation we're already seeing. The govt loves to exclude the "volatile" components of inflation, but who the heck doesn't consume food or energy on a daily basis? With globalization, the continued long-term fall of the USD and the growth of 3rd-world economies, these excluded components will keep on going up at an alarming rate for the forseeable future.

zippyjuan

Interest rates include an expected real rate of return- a "premium" if you will above the expected rate of inflation. O yes, if inflationary expectations are for high inflation in the future, a lender will demand a higher rate of interest for a loan. A higher mortgage rate means higher monthly payments to purchase the same priced house or a buyer will have to pick a lower priced house to have the same payment. This is why housing prices will not tend to move with the price of other commodities.

Recent prices soared because loan structures and low rates allowed people to purchase more expensive homes than they would have otherwise. This was completely unrelated to the prices of other goods and services in the economy.