Predictions for 2009 – Real Estate Trends
If you’re like me, you’re glad that 2008 is over. Blah, what a year.
Unfortunately, the prognosis for 2009 isn’t all that great – but there is a silver lining.
Why home values may take decades to recover – USATODAY.com
National Association of Realtors chief economist Lawrence Yun predicts home prices will keep falling in 2009 but could return to their 2006 peak in three years, not counting inflation.
Let’s get through 2009, and then real estate prices will soar once again!
What are your predictions for 2009? Which cities will be included in the Real Bay Area? What will be the price per square foot this time next year?
January 1st, 2009 at 7:52 am
My prediction for 2009: pain, loss, and price rollbacks, not that it’s going to do any good.
Lower prices, even in the RBA, until 2012.
Happy New Year, everyone, from the land close to water where so much is underwater.
madhaus in South Florida
January 1st, 2009 at 8:43 am
I think 2012 is optimistic for the end of price declines.
“The Obama administration has just about one year of a lull before the next wave hits in 2010. The third year of the Obama administration 2011 is going to see similar pain to 2008.”
http://socializedlosses.blogspot.com/2009/01/update-of-mortgage-reset-graph.html
Happy New Year.
January 1st, 2009 at 8:49 am
Thanks for the graph, Lionel. Looks like those Pay Option ARMs are going to be hurting a LOT of people.
January 1st, 2009 at 9:04 am
I think we need to remind ourselves of a couple of things:
First, when the guy at the local bar or the housewife at the Laundro-Mat are all predicting the end of real estate as an investment, usually that’s a pretty good sign the opposite is true.
Second, the Bay Area is not at the epicenter of this crisis. Unlike during the dot-com collapse, there aren’t mass layoffs here. The desirable areas are always in short supply, and prices are holding up despite what crap-shitter index says with its useless aggregate data. The RBA has arguably the best real estate market in the country, and homeowners should rejoice. The primary difference from before is that the gap between the haves and have-nots have widened. Even without any appreciation, homeowners in the RBA have made major advances relatively toward their counterparts in other parts of the Bay Area and in the rest of the country. At the end of the day, real wealth is measured relatively as much as it is measured absolutely.
January 1st, 2009 at 9:12 am
“The desirable areas are always in short supply, and prices are holding up despite what crap-shitter index says with its useless aggregate data.”
LOL useless aggregate data. The entire real estate market is going down the toilet and you mention desirable areas. Just how many people live in those desirable areas? What percentage of the real estate market is that? Even billionaires have lost a huge portion of their wealth to this real estate mess.
You are such a fvcking moron. Happy New Year!
January 1st, 2009 at 9:21 am
Alex,
Just check out the long list of RBA cities discussed before. I’m sure you can find it through Google, or wait til Pralay returns from India.
January 1st, 2009 at 9:31 am
In my mind, the state budget crisis is not something to be taken lightly.
I think under such extroadinary conditions, we need to consider all options, including legalizing gaming and prostitution near Metropolitan areas within California. I just returned from Vegas. Just look at all the magnificent hotels and world class facilities, and think about the amount money that’s keeping the place going. Decemer is supposed to be low season, and yet the place is packed with visitors. You can’t sense any downturn there whatsoever. If Nevada can do it, so can wel. Gambling and the tax revenue it generates can be a great stimulus to the California economy.
January 1st, 2009 at 10:01 am
> You are such a fvcking moron. Happy New Year!
Best line ever!
As far as legalizing prostitution, think of all the houses the pimps would buy. That would definitely help the RBA real estate. Imagine the new catchphrase: “easy access to 280, 85 and whorehouse”
Happy New Year to everyone!
January 1st, 2009 at 10:24 am
Short the RBA market in 2009, with possible, possible opportunity to not lose your shirt buying in 2010, depending on the percentage declines the RBA actually books this year. If prices come down 20% by December, the bottom might be close, if not, significant price drops continue through the first half of 2010.
January 1st, 2009 at 10:28 am
Vegas is about to get torched. Anyone who aspires to a Vegas-like economy is truly delusional. There is nothing remotely productive about gambling and all the other social ills that tied to it. Vegas will ultimately look like Atlantic City c. 1980′s. The only reason there are numerous visitors in Vegas now are that hotel prices have been radically reduced in response to the recession. Do you really think that Wynn’s 2 billion-dollar hotel can survive on reduced hotel rates?
January 1st, 2009 at 10:29 am
Don’t be limited by Vegas’ entertainment. Let’s expand the open-air market for pharmaceuticals from EPA across 101 to PA. Let’s use cntract hits as revenue producing opportunities. We can even auction off which regular on burbed gets offed first; both raising money for the economy and improving the comment quality with one swell foop. Why the possibilities are only limited by how much equity you can cash in!
/snark
January 1st, 2009 at 10:40 am
Thank god you’re back RE. Pretty much everyone here (except me of course) started to go native in your loss. They have now convinced themselves that prices are going to fall until 2012, and thats just the beginning of the madness.
January 1st, 2009 at 10:54 am
I agree, welcome back RE. Although I shake my head and chuckle in amazement at the stuff you write (although I don’t think you truly believe most of it yourself), it was getting pretty boring with you gone.
January 1st, 2009 at 10:57 am
Lawrence Yun was high when he made that prediction.
January 1st, 2009 at 11:08 am
What a way to start a new year – fighting, name-calling and death threats. Are you all hungover? I’m staying in my new-year-optimism for at least a couple more hours. In that spirit, here are a couple of realistic yet somewhat warm & fuzzy Op-Ed pieces that might lighten you guys up a little bit.
http://www.dallasnews.com/sharedcontent/dws/dn/opinion/viewpoints/stories
/DN-weiner_01edi.State.Edition1.1a48da1.html
http://www.washingtonpost.com/wp-dyn/content/article/2008/12/31/AR2008123102777.html?hpid=opinionsbox1
January 1st, 2009 at 11:09 am
clickable first link:
http://www.dallasnews.com/sharedcontent/dws/dn/opinion/viewpoints/stories/DN-weiner_01edi.State.Edition1.1a48da1.html
January 1st, 2009 at 11:11 am
I don’t think it will be a terrible year, for either real estate or the local economy. I suspect we start to pull out of this in summer sometime. Notice the whole great depression scare is now history, for one thing. The refi incentives have worked, despite what those on this thread say, refi apps are the largest since 2003 and that was not supposed to be possible according to Mr Mortgage and his brethren.
January 1st, 2009 at 11:12 am
WG, I said prices would not rise until at least 2012, not that they would keep declining until then.
nomadic, you should know me better than that. I’m making death threats like Swift advocates cooking Irish babies. Come on.
January 1st, 2009 at 11:17 am
My post was also tongue-in-cheek. There’s still a lot of grumbling this morning.
The gambling thing was pretty dumb though. Detroit took that route about 10 years ago too. Worked great for them, eh?
January 1st, 2009 at 11:29 am
Yeah I know madhaus, I actually agree there is a good chance prices will be flat until at least then. But the initial post by someone, probably bob was predicting a decline until 2012. Thats not likely at all. As far as comparing this to the early 90s RE collapse, there are a few things to keep in mind.
- the peak in RE was Fall 2005 so we are 3 years into it.
- In the early 90s we were deflating since the dollar was rising, it delayed RE appreciation
- this decade the signs point to inflation with all this liquidity
- the stock market has lost its appeal as an investment vehicle completely, in the 90s stocks were competing with housing.
Yesterday the jobless claims were much better than expected, and mortgage refi apps are the highest in years. The doom and gloom scenario is overreaching.
January 1st, 2009 at 11:34 am
WG, the peak of the market depends on where you are. The low end might have peaked in 2005 (not even sure I agree with that); the high end (RBA) peaked this spring.
nomadic, thanks for the clarification as well as the link.
Wftw, LOL at #14. Good one.
January 1st, 2009 at 11:36 am
The refi incentives have worked, despite what those on this thread say, refi apps are the largest since 2003 and that was not supposed to be possible according to Mr Mortgage and his brethren.
I agree, refi APPS are up; the big question is how many of these people actually got refied. My next-door neighbor here in Seattle was bemoaning their inability to refi their 7-year ARM the other day, remarking how smart we were to rent (we rent the exact same house). She mentioned they have about a year before they would have to make a drastic change in their finances. What’s remarkable to me is that her husband is a well-paid telcom exec; one wouldn’t assume they were in financial trouble from a cursory glance at their lives. In other words, if they’re having troubles, there are many other people out there who are in similar situations.
Anyone who thinks this will end without a hard landing is delusional. I’m at a top-notch research institution, and it’s reeling from a top-to-bottom 15-20% funding cut. In its 150 years of existence, it hasn’t experienced that drastic a cut. I’m very fortunate in that my dollars are federal and Obama will keep me going for a while, but for many others these next years are going to be brutal; as one could imagine, a 15% cut is very, very painful.
As to the comment that the whole great depression thing has been dispelled, I’d love to know your sources. Here’s someone who did a pretty good job predicting the previous year. And he has some pretty sobering predicting for our nascent year:
The economy will not recover in 2009. Job loss will continue through the year and unemployment will reach 8% in the “headline” statistic by the end of the year. U-6 (broad unemployment, or the closest to “real” unemployment without government “cooking”) will top 15%. All the “talking heads” are predicting a turnaround in the second half of 2009. They will be wrong. Look at their records for 2008 – all of them were predicting closes at or above 1500 for the S&P 500. Why does CNBC continue to put people on the air who, if you listened to them, cost you 40% or more of your money?
Deflation, not inflation, will become evident well beyond housing. Other capital goods beyond housing will see real price declines for the first time since the 1930s. Debt is inherently deflationary; the “hyperinflationists” will once again be shown to be wrong (how many years running will it be now?)
Housing prices will continue to decline. I believe we’re about halfway done with the price correction. Those who think we will turn this in 2009 are wrong – unless we get an all-on collapse in prices in early 2009, which I do not believe will occur. I’ve heard several claims we will have positive year-over-year home price changes in 2009. I’ll take the other side of that bet.
The Fed’s attempt to “pump liquidity” will be shown to be an abject failure. We will see either a Treasury Market selloff or worse, severe instability in the dollar at some point in 2009.
GDP will post a 12-month negative number and there is a decent shot that we will actually see an official depression print before the end of 2009, defined as a 10% decline peak-to-trough.
http://market-ticker.denninger.net/archives/689-Where-We-Are,-Where-Were-Heading-2009.html
January 1st, 2009 at 11:39 am
WG, refi apps don’t equal refis. As as been stated, many of those application won’t even make past initial review. It also doesn’t speak as to who is refinancing. Long time homeowners like my parents are refinancing right now because it is a no-brainer, however, they don’t need help. We’ll see if those Option ARM holders in need of help are actually able to get it. I doubt but we’ll see.
We’ll also see about the local economy. I hope it’s not terrible but signs point that direction. There have definitely been rumblings of massive tech layoffs, not including laid off contractors who don’t show up in the statistics. I know my commercial real estate clients are extremely bearish and they typically have a pretty good barometer on things.
January 1st, 2009 at 11:54 am
“Thank god you’re back RE. Pretty much everyone here (except me of course) started to go native in your loss. They have now convinced themselves that prices are going to fall until 2012, and thats just the beginning of the madness.”
LOL – more brilliance from the ex-sales guy from San Jose turned small time real estate mogul. The only person who thinks Real Estater (our resident moron) is a ‘class act.’ Our dynamic duo is quite hilarious. And what do they have in common? They both paid too much for homes that they thought were ‘desirable.’
Watch as prices continue to fall until 2012. I recognize that it is difficult for you to understand, but people do not make enough money to pay back the loans that were taken out.
January 1st, 2009 at 12:12 pm
I have to agree that this board would be boring without the resident real estate bulls.
I just hope this board calls them out at the end of 2009 for their ridiculous predictions.
We all know where the housing market is going next year in the Bay Area and that is DOWN. And that’s a good thing for most of us who didn’t become indebted during the housing bubble.
January 1st, 2009 at 12:38 pm
I just returned from Vegas.
RE, you should know that New Year’s Eve is the busiest day of the year for LV; pretty much the entire population of SoCal is there. You can hardly judge how the city is doing based on a visit at the end of the year. I’ll be going in mid-February, and we’ll see if it’s still packed.
Secondly, I call meaningless anecdotal data. Staying at a hotel on the southern Strip gives you a vastly different outlook than staying at a hotel downtown. Like RBA real estate, tourism in LV is heterogeneous.
January 1st, 2009 at 12:40 pm
LV is one of the most depressed real estate locations in the country for good reason if you ask me. The job base is mostly low level workers and there is no issue with land. People that want to buy property would be better off buying in Tracy or some exurb here than there. They have busses of foreclosed homes for the bay area people and I get mass marketing BS on LV all the time.
January 1st, 2009 at 12:43 pm
R, every piece of news you guys just brush off. My favorite was whoever said a few posts ago that one of the issues with Bay Area is EXECUTIVES IN DENIAL. LOL. In other words these executives refuse to see how bad things REALLY are? Its a mixed up muddled up shook up world.
January 1st, 2009 at 1:13 pm
#4 – “At the end of the day, real wealth is measured relatively as much as it is measured absolutely.”
Oh wait who cares, someone else lost MORE!
RealEstater submits his own quotes of the day now.
Why, but of course relative wealth matters. As in, am I more wealthy now than last year?
January 1st, 2009 at 1:22 pm
“My favorite was whoever said a few posts ago that one of the issues with Bay Area is EXECUTIVES IN DENIAL.”
Yes, we all know execs are a different breed of people who cannot bury their head in the sand.
Like those outstanding individuals in charge of the big 3 (Mulaly excluded) who want to put people to work building cars that nobody wants.
2009 may see WG become more outrageous as he moves from denial to fear.
RE will not likely progress as he is unable to learn.
January 1st, 2009 at 1:36 pm
Lionel says: “My next-door neighbor here in Seattle was bemoaning their inability to refi their 7-year ARM the other day, remarking how smart we were to rent (we rent the exact same house). She mentioned they have about a year before they would have to make a drastic change in their finances.”
Do they have an option-ARM? If not, then your neighbor lady probably doesn’t know the terms of her mortgage. My ARM will readjust early next year. At present interest rates, it would come down at least 0.5%. Still, it sounds like what little they might have put as a down payment must have disappeared.
January 1st, 2009 at 1:42 pm
A new moment of levity – did any of you see some of the new shows premiering on HGTV today?
“Desperate to Buy” ——— Oh. My. God. REALLY? So shameless!
“Income Property” ——— Can’t afford your mortgage? Well, then take on another $20k of debt (or more) and renovate your basement/shed/outhouse/garage/extra-room so you can rent it out!
January 1st, 2009 at 2:02 pm
“Do they have an option-ARM? If not, then your neighbor lady probably doesn’t know the terms of her mortgage.”
It’s a 7-year they financed in 2004, I believe. I think she’s rightly worried that rates could bump up in 2011.
January 1st, 2009 at 2:38 pm
Lionel, is this a 7 year balloon loan (7+1) or 7/23 (7 fixed, 23 ARM)? Because if it’s the former, they won’t be able to keep the house if they’re underwater.
nomadic, I saw that HGTV show advertised when my folks were channel flipping. Incredible.
Okay, no burbed regulars were threatened in this post.
January 1st, 2009 at 3:58 pm
To echo Prof. Bleen (back on post #26) – RealEstater is high. The city of Las Vegas is on the decline. Read the Time Magazine article “The Good Times Stop Rolling: Vegas Meets the Recession”: http://209.85.173.132/search?q=cache:ahHcRhW9YlcJ:www.time.com/time/business/article/0,8599,1868932,00.html%3Fcnn%3Dyes+time+magazine+vegas&hl=en&ct=clnk&cd=1&gl=us
January 1st, 2009 at 4:34 pm
“Lionel, is this a 7 year balloon loan (7+1) or 7/23 (7 fixed, 23 ARM)? Because if it’s the former, they won’t be able to keep the house if they’re underwater.”
Madhaus, I don’t know. It would be a huge loss for us if they had to move. They’re terrific neighbors. I walk their daughter and mine to school most days and we commonly reciprocate child-care/playdates. I hope they can figure it out.
January 1st, 2009 at 4:35 pm
madhaus says: Okay, no burbed regulars were threatened in this post.
Aw, that’s not as much fun. I guess the hostility was magnified by my sleepiness this morning.
.
The thing with gambling revenues in Vegas is that it’s been a mecca for it for decades. People go from around the country, and even around the world, to gamble there, eat at the fine restaurants, etc. LV is like a sick small-scale model of top tourist attractions around the world. The town is like Disneyland for grown-ups. (IMO, it wallows in its mediocrity.) My point though is that people go for the whole ambiance & excitement. Adding gambling to any other locale won’t generate near as much revenue.
January 1st, 2009 at 5:31 pm
Happy New Year to everyone.
One thing you have to realize about the Option ARMs, is that even if they refi to a 4.75% 30-year they are in for a major payment shock, as the best they are likely to get is 4.75% 30 year fixed (not to mention points they have to pay), the teaser rate on the minimum payment is probably 1-2% as if it were a 30yr fixed, but the interest difference between the index and the minimum is tacked on to the balance. Either way we are going to see something like payments go up from $1670/month for a 500k loan to about $2600/month, with a non tax deductible principal payment in it, anybody who purchased with an Option ARM because they couldn’t afford it otherwise will have to increase their income, or cut on expenses, or just walk-away at recast. Certainly if you can’t afford the loan it is better to walk away at that point.
Why wouldn’t they walk away earlier? Well that is easy to answer, what is the rent on a house/condo worth about 500k? Most likely the rent on that is about 1800-2400/month. Renting is more expensive, plus you can’t stick it out in hope that the market turns around. At least until October plenty of people thought the market might turn around.
But paying the minimum the balance would go up:
Well true, but it doesn’t matter, if you used the Option ARM to purchase a house. In California if you take a mortgage to purchase a house, and you don’t refinance, then you can just walk away and the bank takes the house, they can’t go after the difference.
The idea that these people would walk away before recast is laughable at best. They might have a little equity, or be upside-down only a little so far, especially if they live in the RBA, since prices in a few parts are up, and they peaked in 2007 not 2005/’06. The owners also have to look at the prospects that interest rates will fall further or that the government will come in and bail them out in some way, or options for mortgages will expand further. And example that would help out this homeowner would be a 4% IO mortgage, payment would be $1666/month, right in line with their current mortgage.
January 1st, 2009 at 5:31 pm
Las Vegas is a prime example of a “build it, and they will come” type of success story. By comparison SF is too much of a run-down, nothing happening type of city that is not living up to its potential. Since SF is already a world-known destination with somewhat of a reputation for its racier side, and has got a nice assembly of buildings and infrastructure at its core, it should be able to incorporate many of the elements that Vegas has to enhance its revenue producing opportunities. When SF voters struck down measure K, most of them must’ve been high.
January 1st, 2009 at 5:55 pm
anon says,
>>Watch as prices continue to fall until 2012.
The financial crisis, like the 911 terrorist attack, is not something that happens over and over. It’s more like a once in a lifetime event. With the government’s resolve to do whatever it takes to contain it, I would be far more concerned with an over-correction resulting in hyper inflation than continued downturn until 2012.
January 1st, 2009 at 6:55 pm
“The financial crisis, like the 911 terrorist attack, is not something that happens over and over. It’s more like a once in a lifetime event.”
Wow, I don’t even know where to start. Comparing 911 to the financial crisis. Good god. RE, mind explaining how they are similar so that I can respond?
January 1st, 2009 at 7:15 pm
R, come on. They are similar because both 911 and the financial crisis caused the fed to pump the system with massive liquidity. There are similarities for sure although the outcome is not easy to predict.
January 1st, 2009 at 8:30 pm
The financial crisis, like the 911 terrorist attack, is not something that happens over and over. It’s more like a once in a lifetime event.
My father proves you wrong. He was born in early 1929. Better make that “twice in a lifetime.”
January 1st, 2009 at 8:59 pm
Man, you guys are really harshing my mellow today! 2009 is going to be better, dammit! ‘Cause I said so.
January 1st, 2009 at 9:25 pm
Wait, I thought of another way the financial crisis is like 911. Because Bush told us to go shopping to solve everything. I *love* shopping! I’m going out to buy four dozen Sprinkles cupcakes!
Oh wait, I can’t. I’m still in f—ing Florida.
January 2nd, 2009 at 9:53 am
thanks, madhaus. you rememinded me I have a sprinkles gift card. off to the Stanford Mall I go!
btw, as I think I have mentioned before, I believe the peak for Palo Alto in the $1.5-2M price range (the low end) happened in August 2008. as we look back, this will be the most overpriced transaction for a very long time. 443 Ferne, 1884 sq ft, 7519 sq ft lot, extremely south palo alto, $1.795M on 8/22/08.
January 2nd, 2009 at 5:40 pm
Wow, steve, that one does look insane. $1.8M for an Eichler (or fake Eichler)?
January 2nd, 2009 at 7:23 pm
Thank you steve for the observation on peaking in the RRBA, as well as the reminder that I am still 3000 miles away from the Sprinkles Cupcakes.
I think we should have a burbed get-together at Sprinkles. We can wait 30 minutes in line to buy our cupcakes, so we can complain about the most overpriced homes while looking at tiny pictures of them on our respective PDAs.
So who was it who wanted to buy in PA and couldn’t find anything appropriate for a million five, was that you?
January 2nd, 2009 at 9:38 pm
I think under such extroadinary conditions, we need to consider all options, including legalizing gaming and prostitution near Metropolitan areas within California.
The Greatest Little Whorehouse in Cupertino! And if the pimps buy during the downturn, they can benefit from Prop 13 too!
January 3rd, 2009 at 5:05 am
madhaus, yes, that was me. we’ll see what 2009 holds. right now, Palo Alto prices are at fall 2007 levels. los altos and menlo park a little lower. but, what’s happened is that sellers are stuborn and only move-in condition properties not next to train tracks etc are trading hands — so no one knows what the market price for anything is right now.
nomadic, that was a real eichler, and it was nicely updated. however, it is not in green meadow and sold for at least 250K more than it was worth before the crash. someone really wanted it, though, and, being palo alto, they likely had the cash to afford it.
January 5th, 2009 at 10:25 am
I totally agree with RE for once – we should legalize pot and prostitution in CA.
I don’t happen to think it will increase housing prices, but the state could use tax revenue from legal pot sales, and save a ton of money on not enforcing pot and prostitution laws.
I think the pot is more of a payoff for the state than prostitution (which has more problems with it, IMHO), so let’s start there.
RE, will you write up the proposition to get it on the ballot this year! It’s so nice to be agreeing with you on something.
Cause everything else you said was completely wrong.
Steve was right on – RBA peak in Aug. 2008. I’m totally seeing it in Kensington – an RBA section of the East Bay. Visited open houses this weekend…haven’t seen opportunities like this since about 2004. Maybe 2003. And inventory is starting to go higher than ever – in the middle of winter!
January 5th, 2009 at 10:41 am
Pot is already practically legal in CA. The damn feds keep picking on us for it, so lobby your U.S. Congressperson…
Then, maybe we could get RE to share some of what he’s smoking.
January 5th, 2009 at 10:53 am
WTF? Where did I say we should legalize pot use? I am strongly against pot use except for limited medical circumstances. Legalizing pot will create all kinds of health burdens on the state. It would be totally counter-productive to the bottom line.
January 5th, 2009 at 12:17 pm
I don’t smoke it, but pot should be legalized if not for the potential taxes that could be collected from it. That and perhaps more ‘healthy’ cigarettes could be developed from the industry.
A.Lewis, I’m noticing the same in my own East Bay town; Alameda, which is another one of those mostly white, semi-gentrified neighborhoods where locals just a year ago said prices would never go down that much. Yet last week I saw several homes for sale all in the 350-400k range, and these were probably 550-600k at the peak.
January 5th, 2009 at 3:35 pm
> I totally agree with RE for once – we should legalize
> pot and prostitution in CA.
Second that. Besides, it will solve the issue with unemployment in the valley with one stone. Where all those unemployed engineers will go? Right, pimps will have the answer.