  Iheartthed Member Username: Iheartthed Post Number: 3818 Registered: 04-2006 |
A Sharp Drop in Home Prices at End of Year Home prices in the United States plunged at the fastest pace on record in December, a sign that housing is likely to continue declining in the months ahead as the economy sinks deeper into recession. Single-family home values in 20 major metropolitan areas fell 18.5 percent in December compared with a year earlier, according to a data released Tuesday by Standard & Poor’s Case-Shiller home price index. Housing prices dropped 2.5 percent from November to December. Nationwide, housing prices in the last three months of 2008 sank to their lowest levels since the third quarter of 2003. Prices fell in all of the 20 cities surveyed by Case-Shiller, but the declines were starkest in Phoenix and Las Vegas as well as much of Florida and Southern California, where development has all but dried up. ~~~~~~~~~~~~~~~~~~ The good news is that Detroit's home value declines were roughly average compared to the entire 20-city index. The bad news is that Detroit never experience the price bubble that other areas experienced, which is why prices as a whole are lower there now than they were in 2000. But that aside, the news is probably worse for places like Phoenix, Miami and Las Vegas, where a significant part of the local economies were built on... well built on building. Now that there is no more building, because there is virtually no more buying (speculative or otherwise), there will be major economic contractions in those areas. I have to imagine that what is going on in those places is on the scale of - or larger than - what would happen if Chrysler were to close up shop. | ||
Heedus Member Username: Heedus Post Number: 11 Registered: 06-2008 |
Really, even given (1) that Michigan has been in a recession (which was most likely softened a little by G.R.) for the past eight years and the fact and (2) that several auto suppliers could risk going down as a result? | ||
Rooms222 Member Username: Rooms222 Post Number: 187 Registered: 04-2005 |
I think we are having the contraction in viable households even without building,which means our prices continue to fall at an average rate, even when our prices are much further below our recent housing price averages. The Case-Shiller set each of the 20 metro areas it covers to an index level of 100 based upon housing prices in 2000 (i.e. 100= 2000 prices). Detroit is the only market of the twenty where prices are below that level. We are at 80.93 right now (i.e. our prices are 80% of our year 2000 levels http://www.freep.com/article/2 0090224/NEWS05/90224032/1001/N EWS/Metro+Detroit+home+values+ dive+in+2008 | ||
Iheartthed Member Username: Iheartthed Post Number: 3819 Registered: 04-2006 |
quote: Yes, even given that. At the heart of this entire financial crisis is the housing crisis. Detroit's economy isn't really reliant on construction. Yes, Michigan has been in recession for eight years, but that was largely due to other factors... until recent months. The economic contractions in other parts of the country are just getting started. Look at how fast California's unemployment rate has nearly caught up with Michigan's... | ||
Mwilbert Member Username: Mwilbert Post Number: 511 Registered: 11-2007 |
There were many parts of the country that were very dependent for employment on construction spending that is probably not going to reach mid-2000's levels in my lifetime. The problem is that employment in the auto industry (in Michigan, anyway) is probably not going to reach those levels in my lifetime either. | ||
Det_ard Member Username: Det_ard Post Number: 25 Registered: 02-2009 |
Based on the Case-Schiller index, Los Angeles homes could drop another 50% overnight and they'd still be ahead compared to Detroit today. (LA=171, DET=80, indexed to 100 in 2000). | ||
Professorscott Member Username: Professorscott Post Number: 1837 Registered: 12-2006 |
OK, but a reality check: why were home prices ever this high? Example: The first house that me and Mrs. Prof bought was in the beautiful city of Berkley, in 1990. The house next door - very similar - had sold in 1986, for $43,000. We paid $66,000 for ours, and it was in bad shape. We sold it in 1995 for $90,000. I talked to the guy who owned it in 2005, he had it for sale and was asking $199,000. What in the world happened between 1986 and 2005 that this house was supposedly worth almost five times as much money, when inflation over that 20 year period was just about 78% (that is, a typical consumer product which cost $100 in 1986 cost $178 in 2005), so the $43,000 house should have been worth about $76,500, not almost $200,000. Now what's happening? Someone is trying to sell this type of house in that area for $120,000 to $150,000 and they feel like they're losing out big time. No, they aren't; in fact, prices were artificially inflated for a while. Part of the reason for the bizarre overpricing of houses in the 1990s and early 2000s is simple microeconomics: easy lending increased the number of potential home buyers rather dramatically. Whenever demand rises faster than supply rises, prices go up. (Recall home builders were furiously building new houses throughout that period to try to keep up with demand, but they just couldn't.) Now, what's happened lately? Econ 101 again. Credit has dried up (apparently banks have forgot what it is they do for a living), which means very few people are able to buy a house right now, so demand is way down. The supply is constant at the moment, so if demand is down, prices go down. But prices haven't "crashed"; they're just back near what, rationally, they ought to be. | ||
Ktkeller08 Member Username: Ktkeller08 Post Number: 27 Registered: 10-2008 |
Professorscott, I think you're right on many counts, but you're also forgetting one important factor. Detroit isn't just at say, a 98 price level compared to 2000... no Detroit is at a full 19+ percent drop in prices. And since NO other metro has dropped... not even a singe percent (metro's like Cleveland are low at 105, but still not even close)... I think you are missing the point. Detroit housing prices are not where they ought to be, they are where they are because, simply, demand has not met supply which has not really increased much in the first place. To me this tells me a very simple explanation. Detroit and it's surrounding metro are at less than 81% of their 2000 price levels because of one simple thing: Economic Decline. This has led to fewer people employed and thus fewer people wishing or able to own residential units. | ||
Sumas Member Username: Sumas Post Number: 757 Registered: 01-2008 |
I think there is one other factor. People are greedy. They took out easy second even third mortgages. Housing prices fell so they had no equity. They then bought homes that they could afford after milking the financial institutions and walked away from their original home. On our block alone, there was 13 foreclosures, 10 of which I know, bought homes elsewhere before they took the walk. All 13 homes have now been sold. Now, the cycle starts again. Another neighbor took a walk, bought a home elsewhere, so we have a new vacant home that we need to keep an eye on. I have a close relative who plans to do the same. Milked equity, plans to buy a cheap foreclosed home and will walk away from a really beautiful home that got leveraged to the max. Is this smart or just greedy? | ||
Iheartthed Member Username: Iheartthed Post Number: 3826 Registered: 04-2006 |
quote: Yeah, but the difference is that... No matter what, people will probably always be building cars in Detroit for years to come. But what will people be doing in Vegas if they aren't building houses? Las Vegas nearly doubled in population between 1990 and 2000. All of those people didn't move to Las Vegas to work at a casino. | ||
Atl_runner Member Username: Atl_runner Post Number: 258 Registered: 10-2003 |
It's a matter of where the educated populace is. Business's are formed, and often relocate to area's where they can attract talent. Just because Vegas was reliant on building for awhile, doesn't mean it can't be re-created as something else. If it's populace has a higher education level than say, the Metro Detroit Area, where do you think X business will choose to re-locate? What I'm saying is that I'm not sure worrying about what other areas are going to do, matters one bit. Detroit needs to worry about Detroit, and compete to become the best at way more than just building cars. | ||
Ray1936 Member Username: Ray1936 Post Number: 3937 Registered: 01-2005 |
As a Metro Vegas area resident (Henderson, actually), I'm well aware of the situation here. One big difference between Vegas housing and metro Detroit is that the vast majority of homes in foreclosure here were bought by investors, mostly from California. When a 900 square foot home in California sold for $500,000, investing in a 1800 square foot home in Las Vegas for half that seemed like a no brainer. So they began to buy like crazy, and more houses were built and sold than there were occupants for. Thus, when the investor couldn't get a renter for his property he was in trouble, and when the overbuilding and mortgage scandal caused property value decline, foreclosure was imminent. Not to say there were not people who just overbought in their housing choice and couldn't make it, just like in metro Detroit. But the investor factor was much more the problem here. Marge and I bought a new home in 2006 for just under 300k. Today, I'd be lucky to sell it for 240k. However, we paid cash and plan on spending the rest of our lives in this (beautiful) home, so it's no problem. The kids' inheritance just took a bit of a beating, that's all!  | ||
Det_ard Member Username: Det_ard Post Number: 34 Registered: 02-2009 |
quote: You also had a lot of baby boomers who got burned by the tech bubble in the stock market but weren't content to settle for 5% - 7% long term equity returns. Real estate became the next magic money generator. Do little to nothing and make huge profits. Lots of money flowed into real estate investments in the "hot" areas that are now deflating. Detroit is really a unique case. Eventually, when job losses stabilize there will be fewer foreclosures and our real estate market will return to a more typical owner-occupied resale market. Unfortunately due to the lower level of jobs the value of our real estate will not bounce back to where it was. Baring some unforseen resurgence in our economy there will be a long time period where house values stagnate, at relatively low levels. Only as job growth occurs will we see improvements in real estate values. What's really bad for certain areas is that the least desireable areas will be increasingly abandoned as a smaller population shifts to occupy the best available housing. Low-income Detroiters shift to better neighborhoods in Detroit. Those Detroiters move to more appealing inner ring suburbs like Oak Park, Southfield, Livonia or Eastpointe. Those people move to Farmington Hills, Troy, Clinton Township and on it goes all up the chain as each household finds more appealing housing at the same price they used to pay for less appealing housing. The worst areas get abandoned. Think parts of Detroit, Pontiac, Inkster, River Rouge, Ecorse, Highland Park, and the like. It won't be pretty but that's what happens in an economically declining region. |
