Shiller: Housing Prices Will Continue to Drop 10%-25%

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EDITOR’S NOTE: We already said it here. Now Shiller is saying it. Housing prices WILL keep going down despite the amount of the drop already apparent. And the prices are lower than anything that is actually measured.

Example: AFTER the crash, a friend of mine put his house up for sale for $495,000. The house had been appraised at $895,000. No buyers even looked at it. He lowered it to $445,000. Nothing. He lowered it to $395,000. Still nothing. He lowered it to $349,000. A buyer showed up and the deal was closed at $325,000 on a home with 7 acres, greenhouse, pool, etc. Cash proceeds after the closing were less than $300,000. The price used for measurement by Shiller and others is $325,000. So the actual proceeds are around 10% less than the price on the contract. The $895,000 home went down to $300,000, a decline of 74%+,  and by all reckoning by experts who have been proven right many times over, if he had waited any longer he would have received even less.

Buyers are both not interested and not getting financing even if they were interested. The only deals that are being made are cash purchases, which in my example, was exactly the case. Buyers will remain uninterested as prices continue to slip, and even when prices seem to bottom out they will start heading for lower territory after a while, as this crash has continually demonstrated. Title and title insurance is becoming an increasing concern by buyers and the prospective sources of lending. If the property was ever subject to a loan that was claimed to be securitized, the satisfaction of the old mortgage was probably void or invalid, but that might be OK because the old mortgage might not have been valid to begin with.Who wants to play in that sandbox?

The entire problem relates to one thing: just as prices were artificially inflated by Wall Street antics, now the prices are being artificially deflated by Wall Street antics. The answer is the elephant in the living room. None of the mortgages that were claimed as securitized were valid, enforceable or foreclosable. The “inventory” of REO homes doesn’t really exist. The assets on the balance sheets of banks don’t really exist. And rather than face the problem, everyone is rearranging deck chairs as the Titanic sinks sending all of us to our doom, because of the ensuing drag on the economy. At some point Wall Street will no longer have a voice. Until then both the housing market and therefore the economy will be headed south.

 

Home-Price Drop of 25% Wouldn’t Shock Shiller

By John Gittelsohn – Jun 9, 2011Bloomberg

Robert Shiller, the economist who co- founded the S&P/Case-Shiller index of U.S. home prices, said a further decline in property values of 10 percent to 25 percent in the next five years “wouldn’t surprise me at all.”

“There’s no precedent for this statistically, so no way to predict,” Shiller said today at a conference hosted by Standard & Poor’s in New York.

U.S. home prices plunged 33 percent in 20 cities through March from their 2006 peak, reaching their lowest level since 2003, according to a Case-Shiller report on May 31. The decline signaled a “double dip” as the index fell below its previous post-housing-bubble low set in April 2009. Prices more than doubled from 2000 to July 2006.

A backlog of foreclosures poised to hit the market means prices may stay depressed, dissuading builders from starting new construction. Unemployment, which rose to 9.1 percent in May, and stricter lending conditions are signs that any recovery in housing may take years.

Shiller’s comments paint a more pessimistic possibility for home prices than other forecasts. Additional declines will be “incremental,” Bank of America Corp. (BAC) Chief Executive Officer Brian T. Moynihan said on June 1.

While it would be a surprise to see prices fall steeply, it’s possible for homes to lose more value if inflation picks up, Karl Case, co-founder of the index, said today.

Real Terms

“You could have flat nominal prices but still have it go down 20 percent,” Case said during an interview at the conference. “If house prices stabilize, they could still go down in real terms. If we had inflation, it’d be great, because it’d mask a 25 percent decline.”

A model for the U.S. may be Japan, where home prices fell for 15 years after that country’s real estate bubble burst in the early 1990s, Shiller said.

“They lost close to two-thirds of their value,” Shiller said. “Then they went up for one year in 2006 and then they started going down again.”

Forecasting home prices is impossible because there’s no historical precedent for the real estate bubble of the 2000s and the subsequent price drop, Shiller said.

“In real terms, there has never been a bust of this proportion,” he said. “Even in the Great Depression, home prices fell nominally approximately almost as much as they did recently. But that was with all prices falling. So real estate prices didn’t go down hardly at all during the Depression.”

To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

14 Responses

  1. We must not let our housing crisis lead us into a swap, buy a house, get a green card. I

  2. My experience is that the Asians, especially Indians and Chinese, are flooding into the housing market. Soon we will providing green cards to them on the basis of owning a home. In other words, we have a scenario which means that the housing crisis is going to lead to more far reaching issues of colonization, corruption etc. which will in the long term do more to damage our economy than any internal financial crisis. Our country is in the process of being colonized because of the greed of Wall Street and the stupidity of the politicians. The future is one of Asian domination, exclusion and religious change. The law will also be changed to allow Shria. Pity.

  3. that’s right dodododdo.

    as the majority are actually doing alright they do not care. Do you not think the same happened during the depression??????

    The problem is and what is not pointed out to the majority, is that it does actually effect them, but they do not see it as you state. They just do not understand as they have no reality on it, no agreement.

    It’s a hard one for sure.

  4. There are a lot of people in WA who are loosing their homes. But then again there are an awful lot of people who are not because they are employed by Boeing, Microsoft and the military bases. These are the people who don’t understand why people lost their jobs and can’t quite picture the foreclosure mess. I have been seeing a lot of business that have been here quite while closing up shop. New business opening are almost none. If they do open, it is a matter of time before they also close. There are an awful lot of people who just don’t get it because it is going so well for them. These are the tough ones convince that all is not well with the world.

  5. sure, keep paying on your debts to these financial institutions????????????

    While Senator Weiner is sticking in weiner into places he should not be???????????

    Great Representation, why he’s on top of it all.

    Where’s Obama, playing golf no doubt, maybe getting together with Bush & Clinton and creating a commercial so you can donate to some cause, yah that makes them look like caring people?????????????????

    Give me a break/

  6. “The only deals that are being made are cash purchases, which in my example, was exactly the case.”

    BUT WHAT IF THIS HAPPENS??????????????

    http://mandelman.ml-implode.com/2011/06/bank-of-america-forecloses-on-un-mortgaged-florida-home%E2%80%A6-thats-hardly-news-is-everyone-missing-the-point-here/

  7. Shelley:

    Maybe this is why they are building all those prisons:

    http://www.huffingtonpost.com/janet-tavakoli/chicago-gang-violence-_b_873200.html

    The efforts by the administration to basically do nothing to help the American people to heal after the RAPE of the homeowners by the Wall Street/Banksters and subsequent total collapse of the economy has led to MORE CRIME…and it will get MUCH uglier if we stay on the path we are on…so, now I think I know why all those new prisons are being built…

  8. I agree with Shelley Erickson and dodododo thier is not enough being done for the home owners in WA. state.Our state AG is not doing his job and neither are any of our county recorders.Evidentley no one in this state views these things as problems an thier un willing to discuss fraud.

  9. @Shelley

    One can only hope that those prisions will be fiiled with the banksters, foreclosure attorneys, trustees, robo-signers, wall street goons, judges and all other low life scum involved in this foreclosure mess. I am from WA also and McKenna I feel has not done enough to help us in WA with the foreclosure mess. For what little he has done, I can’t see myself voting for him to be Gov.

  10. People are forming groups to fight this crime and the government is funding prisons all over America for martial law. It is getting scary. My sons and multiple customers of mine are building prisons all over the place that are empty and told they wont be open for a year and a half to two years, even when they are completed, as most of them are. One customer tells me he has been asked to go to Alaska to build three more prisons. There are over 800 in America already, that are empty right now. I would like to know why? The banks have all our tax money and all the wealth and all the property, they dont need our tax base anymore, they have stolen billions if not trillions of dollars right from under our noses, and control our country.

  11. I should add my business is stable because we have pooled together in one large building and I have the renters income to help me and they have a haven to stay in business. Low over head.

  12. I believe the situation is worse than people realize and we know it is bad now. Business customers and friends of mine are declaring bankruptcy that have had businesses for over twenty to thirty years, My business has dropped dramatically over the past five years and has dropped again dramatically in the past month. Businesses like mine are planning to close at the end of summer, and are telling their clients they are closing soon. My business is more than one business I lease spaces to thirteen businesses that are within the walls of my same business, and we work well together to make one big day spa along with my tanning salon. I have outlived all businesses like my business in the past thirty years. I am the only one that can say I have been in my business for over thirty years in this state, as far as I am aware of. For sure in the Seattle, Tacoma, to Bellevue area. I have lease booth renters that have come to me that have had large hair salons from all over this city and downsized due to the economy. They don’t have the overhead at my place., and pay reasonable rent, or they would have been out of business. We help each other. It is good for me and good for them. Large businesses I know of have closed their businesses and gone to work for wages somewhere else and are fighting to save their homes. Everyone I know of that is still filling out paperwork with the banks to save their homes are still being told all the paperwork has not arrived. The banks are doing the same old same old, and people are re preparing their paperwork over and over to get more time because at this point they are sure the banks are messing with them and have no intentions of helping them. They have been through this over and over and the banks are sending out the paperwork to make it look like they are doing something , while trying to keep Elizabeth Warren out of office, and to put laws in place to be forgiven and to steal our homes. Our Attorney General here has kept silent and I am sure he is not intending on helping the homeowners over the banks. Our recorders office sent me a letter they would accept fraud recordings until our attorney general takes the lead and tells them otherwise.

    We are following the lead of our State Attorney General.

    Cathy Shearer

    Recording Lead

    Pierce County Auditor’s Office

    2401 S. 35th St. Room 200

    Tacoma, WA 98409

    (253) 798-2139

    Csheare@co.pierce.wa.us

    From: Shelleys[sent: Tuesday, May 31, 2011 8:55 PM
    To: Cathy Shearer
    Subject: Re: records fraud

    That is not my point. I gave proof to your office to persue fruad charges on the offenders and to collect recording fees for all the assignments that were not recorded my MERS. MERS owes your department millions of dollars in recording fees. SEE:

    State of Washington people receive very little help.

    Rob McKenna just announced he is running for Governor. People are angry, awakened and scarred and they will vote out public officials with a bad track record whom do not help American victims of these crimes.

  13. John Gittelsohn (reporter) “You could have flat nominal prices but still have it go down 20 percent,” Case said during an interview at the conference. “If house prices stabilize, they could still go down in real terms. If we had inflation, it’d be great, because it’d mask a 25 percent decline.” The writer is an idiot ,, inflation would mean higher mortgage rates and that means lower prices due to lower demand (affordability) ,, in the Carter inflation years proces fell as mortgage rates rose ,, people were adjusting the purchase price to get the payment they thought was appropriate for a particular house..

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