It continues to amaze me that so many people assume that the price of their house will go back to its 2005-2006 value sometime soon.
That value was a bubble! An anomaly. An aberration.
Today’s prices are likely to be it for a while — if they don’t drop further what with all the foreclosures yet to come.
It depends on what market you’re in. In much of the country, the bust is not really all that bad, because there was never really much of a boom.
Louisville, Kentucky, where I live, has spent the last 20 years enjoying steady 3% a year appreciation of home values. During the boom, a favorite topic of conversation used to be how cool it would be if we could just a have a few years of 25% appreciation like California and Florida.
Now that the bust is here, we’re all grateful we didn’t get our wish. While home values in the boom markets have dropped as much as 50%, in boring old Louisville home values actually went up slightly. That is not to say that there aren’t specific neighborhoods where prices have fallen. The exurban McMansion market has taken a significant hit, as have some sprawling developments that were aimed at sub-prime borrowers. But in the established, close-in, middle class neighborhoods where most of us live — the boring neighborhoods — the housing market is steady, if perhaps a little slow.
So, to get back to the point, there are a lot of people in areas not very involved in the boom and subsequent bust, where home values will recover quickly, because they really don’t have that much to recover from.
Tom, I don’t understand why you begin with “It depends” because so far as I can tell you are agreeing with my point, which is simply that today’s prices are the new base.
Unless I misunderstand, that is exactly what you seem to be confirming for Louisville — prices haven’t changed much (you say they actually went up slightly) and don’t have much to recover. Isn’t that the same as saying, “Today’s prices are likely to be it for a while”?
Man: Yes, but I came here for an argument!!
Angry man: OH! Oh! I’m sorry! This is abuse!
Man: Oh! Oh I see!
Angry man: Aha! No, you want room 12A, next door.
Man: Oh…Sorry…
Yeah, I guess. But my larger point is that prices in much of the country are already at or near 2005-6 levels, and that what little may have been lost (in many markets) will certainly be regained as the recession ends, which I’m assuming will be in the next year or so.
Technically, we’re both right. But I’m righter because I’m a guest here.
Monty Python – Argument Clinic
Or, as Atrios says: “Reinflate the bubble!”
Not re-inflating at all. The bubble was largely a local phenomenon. Here’s a map of foreclosure rates; most of the country (geographically) is plugging along under 1%, which is more or less typical even in good times. It’s only in certain areas where foreclosure rates have skyrocketed, driving prices far, far down.
My point is that while it may be delusional for someone in, for example, San Bernardino County, California to believe that prices will soon rebound to 2006 levels, in most of the country it’s not delusional at all because prices haven’t fallen substantially since 2006.
The mortgage problem pervades the financial system not because there are bad mortgages spread evenly throughout the land, but because securitized debt backed by bubble-inflated mortgages is in the portfolios of virtually every financial institution in the world. Thus does San Bernardino County’s foreclosure problem cause the failure of banks in Iceland. Also the loss of my previous job.
The S&P Case-Shiller national index reached 189.93 in the second quarter of 2006. It was 128.81 for the first quarter of 2009 (and likely down a little since). That’s a 32.1% decrease in prices nationwide.
Your neighborhood in Louisville may be holding its own, and indeed most areas aren’t like San Bernardino County, but the simple fact is prices are off one-third nationwide and “Today’s prices are likely to be it for a while.”
Ditto Ken — foreclosure rates may not be down nationwide, but that doesn’t mean housing prices aren’t. In addition, as Matt Yglesias points out today, foreclosures affect all home prices in the neighborhood. So, even if foreclosures are at 1% nationwide, that’s still driving down the value of homes in a far greater geographic area.
My point — and it’s really too small a point to justify all of this — is that housing prices are local, and that many localities are relatively unaffected by the housing crash. Nationalizing statistics on both home prices and people’s opinions on likely recoveries ignores the regional intensity of the burst bubble.
Also, I like to piss Ken off.
True, he does — and often succeeds. Not that pissing me off is all that difficult.
But from now on when I make any generalities I’ll exclude Kentucky and other localities that Tom seems to think are not part of the U.S. economy.
Oh, BTW, at the end of 2008, 15.3% of the 200,000-plus mortgages in Kentucky had negative equity.
That’s easy to understand. Unlike conventional homes, trailers are a depreciating asset.
Uncle.
Yeah, it’s kind of like Godwin’s Law. (As a Usenet discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches 1.) Call it Tom’s Corollary. “As a discussion about Kentucky grows longer, the probability of someone making a trailer joke approaches 1.”
We could get a whole conversation going just about such corollaries. It would be fun. There are so many….
“As a blog comment thread grows longer, the probability that I will be the only person participating approaches 1.”
Debby, I was thinking it might be interesting to see how long we could keep this thread going before Tom would give up on having the last comment, but I can see that ain’t gonna happen.
This isn’t Tom or anyone who has ever met Tom, but I think it’s unfair that you say Tom always has to have the last word. That doesn’t sound like the Tom I know. I mean, that I don’t know. I think you should be nicer to him.
Yeah… quit pickin’ on him.
Man: Oh look, this isn’t an argument!
Other Man: Yes it is!
Man: No it isn’t!
Man: It’s just contradiction!
Other Man: No it isn’t!
Man: It IS!
Other Man: It is NOT!
Man: You just contradicted me!