The US Housing Crisis is Over
Here’s a more bullish counterpoint to ‘Chicken little’ Lereah’s opinion that the US housing market is in for more pain – The Wall Street Journal is declaring that after 3 years of decline the US housing bust is over.
The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.
How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.
Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.
Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.
Thanks to BCbuds for the link (which will expire in 7 days)
May 9th, 2008 at 12:21 am
"That’s interesting. I have done the math over and over again in south granville (not the MLS south granville), and I just can’t justify paying about a 100% premium to buy *new* versus renting old."
I bought old. The place is equivalent to an old rental which would probably be what I'd be living in if I still rented. I don't like to pay high rents and don't need granite countertops, although as an owner, I can always renovate if they suddenly become a "necessity". The value is mostly in the land the building sits on.
Brand new buildings are like new cars. They depreciate a lot in the first few years. One place I looked at was only four years old and was listed at around 30% of what it cost new. But you have to be careful when you're buying into an older building and make sure the roof, boiler and whatever has been replaced when they reach the end of their lifetime. Renting old in South Granville is better than buying new anywhere right now.
May 8th, 2008 at 10:43 pm
I was also very concerned about the 2 big holes in the ground across the street, where Alto and some other condo building is going up. It’s also across from the Odyssey, so, it will be a very noisy block for a few years.
This is too much..in a few years, it will be the airport syndrome at Howe and Davie…new naive condo owners under water petitioning city hall to shut down all the bars (who pay high taxes) who were there first.
May 8th, 2008 at 10:30 pm
…i mean there is only sooo much i am willing to pay for a granite counter top and a rainscreen ticking time bomb.
May 8th, 2008 at 10:27 pm
WOW, that inventory is exploding!
I'm so friggin excited, I won't be able to sleep tonight.
May 8th, 2008 at 10:27 pm
I don’t know where everyone is getting the rental prices. I wouldn’t mind cashing out the equity in my condo, but have been looking for a rental for a couple of years and have yet to find anything in a neighbourhood I like that’s less than my mortgage + strata fees + taxes. My insurance would go up as a renter. And I have a dog.
That's interesting. I have done the math over and over again in south granville (not the MLS south granville), and I just can't justify paying about a 100% premium to buy *new* versus renting old.
May 8th, 2008 at 10:17 pm
.
.
225 new (net)listings per day in peak selling season is INSANE. Christ,that would mean over 19,000 inventory by the end of may. With sellers starting to panic, how long until we add 300 per day?
May 8th, 2008 at 10:02 pm
If I were to sell today and the market went down by 50%, I’d be mortgage-free, but I’d never make up what I’d have to pay in rent while waiting for the market to crash even if I invested all the equity when I cashed out.
That's absurd. Suppose your condo has a market price of 300K. If you sell you've got 150K cash since you say you have 50% equity.
You can easily rent a nice condo for 1250/month or 15K a year.
You can get 4% on the 150K no problem, that's 6K a year.
Net cost of shelter 9K a year or 750/month waiting out the crash.But that's less than what you're paying right now on mortgage, condo fees, taxes, etc.
When opportunity cost knocks, answer the door.
May 8th, 2008 at 9:40 pm
Great evening!! over 200 new listings on paulb's site tonight. All downhill from here!
May 8th, 2008 at 9:18 pm
"What do you mean it doesn’t hurt you if you are in for the long haul.
Of course it does. Even if you have bought recently, it still makes sense to sell now and rent. Then buy when the market is 50% of its current value. You will have $150K less mortgage."
I don't know where everyone is getting the rental prices. I wouldn't mind cashing out the equity in my condo, but have been looking for a rental for a couple of years and have yet to find anything in a neighbourhood I like that's less than my mortgage + strata fees + taxes. My insurance would go up as a renter. And I have a dog.
If I were to sell today and the market went down by 50%, I'd be mortgage-free, but I'd never make up what I'd have to pay in rent while waiting for the market to crash even if I invested all the equity when I cashed out. Yes, I've done the math over and over. If I wasn't sure of this, there'd be a For Sale sign up.
May 8th, 2008 at 7:40 pm
That's funny, I was walking by 1212 Howe and I didn't see a line up.
May 8th, 2008 at 5:43 pm
Those of you waiting for a 50% drop, how do you plan to get a mortgage if that happens? If the market drops that much, there will be mayhem in the banking industry, which means they will stop lending.
No there won't and no they won't.
First, you're forgetting that only BC has such an extreme level of overvaluation. The rest of the country is not going to see anywhere near 50%, not even Alberta. So the effect on Canada's banks overall is going to be diluted.
At the bottom of the early 80's bust, qualified buyers had no problem at all getting financing, and that was after a 45% nominal decline, both here and in Alberta. And to top it off the Bank of BC and two Alberta banks had failed. The upcoming bust is not going to be bigger than that.
Note also that even today with the current unprecedented national bust and credit crisis in the US, qualified buyers there are having no problem getting financing.
Second, high ratio mortgages are all insured, almost all by CMHC, so the banks have no downside on a bust anyway, other than some overhead costs associated with foreclosure.
IMO Canadian banks have already incurred far greater losses from their holdings of uninsured US mortgage garbage than they will in the upcoming BC/Alberta bust and Toronto correction.
I have 100% cash for my next purchase and I've love to see the banks stop lending so I can buy at Great Depression multiples, but it's not going to happen.