Ryan

Not a lot of talk on this thread yet specifically about the plight of condo owners. Even accepting NAR estimates, sales of existing condo units were down 26% year-over-year in March (compared to 18% sales decline for single-family homes). The real issue is what happens when, say, 1/6 units in your building is in foreclosure, and now the rest of the owners have to take on an additional share of assessment fees that are no longer being shared by the whole building. Interesting New York Times article on this topic:

"Collateral Foreclosure Damage for Condo Owners" 5/15/08
http://www.nytimes.com/2008/05/15/business/15condo.html?page… - Yesterday, 09:49

New foreclosure data shows April foreclosures up 65% from same month last year; problem is probably worse, because many foreclosures have not yet been processed because public agencies cannot process the filings quickly enough.

http://biz.yahoo.com/cnbc/080514/24615625.html

CNBC
Home Foreclosures: Crisis Is Only Getting Deeper
Wednesday May 14, 12:15 pm ET

It’s another record in the real estate market, and it’s not a good one. RealtyTrac, the online foreclosure sale site, which has also been tracking foreclosure activity since the beginning of 2005, reports the single largest one-month volume of foreclosure activity it’s ever seen.

Again, they’ve only been doing this for three years, but you get the idea.

Foreclosure activity in April--that’s default notices, auction sale notices and bank repossessions (so yes there can be more than one hit on the property, but we look at the total percentage increases)--was reported on 243,353 properties. That’s a 65% increase from April of 2007.

Alright, so what about all the reports that borrowers are being helped, and all those programs to find and refi borrowers, and what about the word from some other sources that foreclosure numbers are actually dipping?

Well here’s a disconcerting answer: Apparently the system, that is whatever court or clerk or local bureaucratic office is stuck with recording all this stuff, is stressed. In Ohio, for example, I’m being told that it can take two to six months to get your filings in the system.

"In states like Michigan, we’re hearing from some of the trustees who actually do the foreclosures that the lenders have asked them to slow down because they don’t want to process any more into a market that won’t absorb the properties back through sales," says Rick Sharga of RealtyTrac.

In Florida, a St. Lucie County court actually added a night shift to handle the massive backlog of foreclosure filings. The clerk of the courts was quoted as saying the caseload has become, “just horrendous.” The court used to handle about forty filings per month.

In January they were tracking 715 foreclosure filings. Some are reporting lower numbers because the numbers simply can’t get into the system.

The folks at RealtyTrac, and granted these folks list foreclosed properties for a fee, say they don’t believe we’ll see the numbers start to slow until the second quarter of 2009. May and June of this year, according to banking estimates, are supposed to be the peak of adjustable rate mortgage resets from subprime loans initiated in 2006.

Lower interest rates on Libor (one of the most common of benchmark interest rate indexes used to make adjustments to adjustable rate mortgages) and other indices that correlate to ARM loans could help, as could continued efforts from FHA and lenders. But the sheer volume, it appears will remain high for now.

All those foreclosed homes on the market will continue to push inventories up and push prices down in neighborhoods across the country. - Wed May 14 2008, 11:51

Very good (and short) article from the American Enterprise Institute for Public Policy Research discussing how several negative economic factors are currently creating an "adverse-feedback loop" and slowing the economy. The article states that 1/3 of all U.S. home owners will have negative equity in their home by the end of the year. - Wed May 14 2008, 09:19

I'm not sure if we have any NPR fans reading this thread, but if so, last week's episode of "This American Life" is excellent and on point. The show discusses what caused the credit crisis by interviewing individuals from various phases of the credit industry and can be downloaded onto your MP3 player.

http://www.thislife.org/ (the show title is "The Giant Pool of Money") - Tue May 13 2008, 17:29

I do agree with some of the others below who have complained that this thread has degenerated into a lot of bickering. Some of it is inevitable due to the "Slash"-type who come here for no purpose other than to muddy up an otherwise-impressive ongoing discussion. But to the extent possible, let's keep this discussion issue-focused (instead of personality-focused). Most of the personal issues can be worked out (or fought out) via email, but if this forum is to remain productive and educational, we really need to scale back the personal elements. I imagine I have been guilty of this as well, so I'm not trying to call out any person in particular. Maintaining an issue-focused thread also reduces the burden on moderators, which I'm sure they would appreciate. Since we're all adults, I don't think this should be too difficult.

Moderators: thank you for correcting the thumbs-down issue. - Tue May 13 2008, 15:43

Hey wsj, I checked alexa.com, and your claim is bogus. There is maybe a three-day dip, but certainly not a two-week dip--also compare trulia.com to zillow.com and you'll see they mirror each other in the slight decline over this period. More interestingly, try Realtor.com and you'll see the same dip, but even more pronounced.

Maybe all real estate sites are getting fewer hits because fewer people are interested in buying.

I also find your repeated claims (under various member names, of course) that you have the power to "have every realtor in the country" act in a particular way hilarious.

Everyone monitoring this thread knows that you are one person with close to twenty different names, and everyone knows you're manipulating the thumbs-down system by creating names for no other purpose than to add a thumbs-down and throw in your newest useless tidbit (after getting called out under your "Go Cubs" alias this weekend this question received 17 TDs in a one-hour period--after receiving a total of seven in the previous month). So round up all of your friends--Slash, What?, Wsj, Go Cubs, Ryan's Mom, Zach's Mom, and the other fifteen people we've long forgotten, and enjoy watching Fried Green Tomatoes again tonight with your Mom and Dad in their Lakeview condo. - Tue May 13 2008, 15:24

A contract is NOT a moral obligation. JR, you continue to embarrass yourself by comparing mortgage default to murder and marital infidelity. A contract is a legal document expressing the duties of the parties, and the penalty to be assessed if a party to the contract fails to heed those duties. In the housing context, the mortgage is nothing other than an agreement--legal, not moral--, on the part of the buyer, to make monthly payments to the lender; and if he does not make those payments, the lender is entitled to recapture the home from the defaulting buyer.

If morality were involved, lenders would probably want to meet with the buyer's friends and family, perhaps even clergymen and former school teachers, to find out as much as possible about the buyer's moral character. But they don't. They look into his finances, (sometimes) legal status and judgments outstanding, and credit history--all financial and legal, but certainly not moral, indicators. Furthermore, when someone defaults on her mortgage, she doesn't face criminal penalty (as when truly moral issues are involved, such as taking another's life) -- she loses whatever she agreed to lose in the contract.

Legal scholars have been trying to emphasize this point to the JR-type for more than a century:

"Nowhere is the confusion between legal and moral ideas more manifest than in the law of contract. Among other things, here again the so-called primary rights and duties are invested with a mystic significance beyond what can be assigned and explained. The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it — and nothing else... But such a mode of looking at the matter stinks in the nostrils of those who think it advantageous to get as much ethics into the law as they can."

--Oliver Wendell Holmes (the most cited Justice, to date, in United States Supreme Court history), "The Path of the Law," 1897 - Tue May 13 2008, 09:56

Realtyexec, that is a fair point--I hadn't properly considered credit score. But it doesn't change the fact that the loan market of yesterday allowed people to play with house money; financially, they only stood to gain. The credit score hit is a serious consideration to take into account, but when one's home is worth $80,000 less than one's loan (which is very common in your neck of the woods--California), credit score concerns become secondary. In any case, the credit hit is an after-the-fact consideration and factors little into the initial decision whether to purchase a home beyond one's means--in my opinion, most people don't buy a house thinking about what will happen to their credit when they foreclose. It only factors in later, when the speculation-induced damage has been done. - Mon May 12 2008, 20:19

JR, sometimes I feel like you are living in a different universe. I don't know how anyone can disagree with Richard's most recent post, which you described as "disgusting." He simply stated the obvious--that it's natural for individuals to act in their own financial interest. Offer: "no down payment for this gigantic house--if it appreciates (which it has done for years!), you reap ALL OF THE REWARDS (minus a 6% commission); if the housing bubble bursts, you bear none of the risk!" What's "disgusting" about accepting this offer??

Suppose I ask you to call heads or tails. If it's heads, you win $50,000. If it's tails, I shake your hand and you walk away with an "aw, shucks." What's "disgusting" about accepting my offer to play in this game? You'd be a moron not to play. Many people who "played" in the housing boom of the past decade stood to gain (and did gain) much more than $50,000. I doubt they think there was anything "disgusting" about their decision. And many people have faced foreclosure in the past few years as housing busted. Oh, well! Now they're in a new home or are renting, and the move/foreclosure was a pain, but with no money down, it's no skin off of their backs. For these people, the coin came up "tails," but there's nothing "disgusting" about it. - Mon May 12 2008, 20:00

See my updates below: last night I called out "new contributor" "Go Cubs" as being another Slash alter-ego, and this thread's thumbs-downs quadrupled from 7 to 28 within a one-hour period.

Moderators, thank you for your continued efforts to keep this thread clean, and I'm sorry that it has become more time-consuming than most. I don't mind that there are some thumbs-downs (which can be expected for a relatively controversial question), but I do want to uphold the integrity of the "thumbs-up/thumbs down" procedure by not allowing one individual to give 20+ TDs in the course of an hour (obviously artificial considering the question received only seven authentic TDs--assuming the others were authentic--over the previous four-week span).

Next I expect Slash to give this thread TDs more subtly--say, four here, five there, etc., so as not to be so obvious. It would be great if we could eliminate this (and him) by banishing him completely in some way. - Mon May 12 2008, 13:52

Twenty thumbs-downs on this question in 16 minutes now (after seven in the previous four weeks)--keep 'em coming! This is like watching the ball drop in Times Square. You know it's coming, but it's still so exciting! - Sun May 11 2008, 19:26

Now you're answering like a real person--glad you took my advice. You've sure contributed a lot in the past fifteen minutes for someone who casually observed for the first 740 posts.

See you under your next name, sweety!

Ryan - Sun May 11 2008, 18:55

Whatever you say, Slash!

I noted in my post what wikipedia said--that the two-word is often used, but "Lakeview" is "increasingly used," hence its use by the community's Chamber of Commerce.

Also, great job sidestepping Exhibits A, B, and D. You get creepier by the second.

An authentic poster would either ignore my post or put me in my place for even questioning her--they wouldn't try so hard to prove themselves, as you just did. Finally, nice touch on the use of "honey" and "sweety" (three times! ...yes!). Way to prove you're a real live woman!

Also, you used the "spin this one" lingo(quoted directly from your last post) to prove your point to Aj under the "Realtor B" alias three days ago. Sorry to out you like this--and on Mother's Day!

Go Cards! - Sun May 11 2008, 18:43

Go Cubs is just Realtor B's newest alter ego.

Exhibit A: Yesterday Realtor B asked us "retards" to comment on how prices in Lakeview could be rising if Chicago prices were falling. Today "Go Cubs"--who claims to have been casually watching all along (she summarizes her view of all 700+ posts!), but has never contributed--arrives on the scene to "chime in" for the sole purpose of informing us that Lakeview prices are strong and that he/she/it knows "several investors" with "tens of millions of dollars" who are just waiting to jump into this market--like most crap Realtor B spews, completely unverifiable and almost certainly false information.

Exhibit B: like every other one of Realtor B's split personalities, this "new contributor" created her account TODAY--the same day she posted.

Exhibit C: both Realtor B and "Go Cubs" described the neighborhood as "Lake View," which is odd because the Chicago neighborhood "Lakeview" is one word. See wikipedia: http://en.wikipedia.org/wiki/Lakeview%2C_Chicago

See also "Lakeview Chamber of Commerce": http://www.lakeviewchamber.com/

See also Trulia's listing of Chicago neighborhoods, which includes "Lakeview."

The two-word spelling is seen in some instances, but it is by far less common, and it is certainly odd that both Realtor B and Go Cubs would "randomly" use this spelling.

Exhibit D: two days ago, Roger fixed up the artificial thumbs-down problem, bringing this thread's thumbs-down total to seven. Yesterday, "Realtor B" was created, and there was immediately an eighth thumbs-down. Today, "Go Cubs" was created, and the thread (predictably) received its ninth thumbs-down, even though "Go Cubs" expressed that he/she/it was amused by the thread, and no other new contributor appeared.

It's clear Slash/Rob Banks/Buster Hymen/Ryan's Mom/Realtor B/etc. is up to his old tricks. This time he apparently sought to at least start under the guise of being a serious contributor ("Go Cubs"!!) undoubtedly to try and bolster his beloved "Lake View" neighborhood before getting dismissed again. Making his "new contributor" an apparent female was a nice (though not clever) touch.

Moderators, again, if there is any reasonable way to prevent this individual from further burdening our discussion, please try. As I sift through the thread's history and check my memory, I believe this is the eleventh alter ego he has created, which demonstrates tremendous time and effort expended for the sole purpose of destroying discussion and education (also recall that his numerous alter egos have repeatedly called for this thread's termination--apparently sabotage is Plan B). - Sun May 11 2008, 18:05

JR: "Surely you jest. I haven't seen ANY pro use the profany I have seen coming from certain other posters."

JR, have you been reading anything coming from Realtor B, a Naperville "Real Estate Pro"? Search the entire 729-post thread and I don't think you'll see any "profany"--or any profanity, for that matter--from those contributors who are down on real estate. A few posters have bashed the value of Realtors generally, but I can say pretty confidently that none on this side of the fence has wished cancer or AIDS on others' family members.

I really don't know what thread you're reading. - Sun May 11 2008, 13:54

Another coincidence: creation of Realtor B's account ----> another thumbs-down for the question.

Roger or whoever--thanks for taking care of the artificial thumbs-down problem. I know it doesn't really matter, but it was annoying seeing this thread's thumbs-downs accumulate with each new alias account. - Sat May 10 2008, 08:48

Nice scare tactics, Realtor B (yet another "contributor" who created his account YESTERDAY). If you haven't noticed, most contributors to this thread have high respect for real estate agents who can make an argument based on facts and acknowledge strengths and weaknesses in their arguments.

Most threads are filled with Realtors patting each other on their backs. This one is generally more critical. Is it really your belief that the presence of one bearish thread with a few Realtor-critical (or skeptical) comments warrants a full-out boycott of this website? How whiny. I'll bet you were the kid in kindergarten whose report card said "Doesn't play well with others." - Sat May 10 2008, 08:41

JR: I think you meant "ROTFL," meaning "Rolling on the floor laughing." Otherwise you're just "rolling on the floor," which makes you seem surprisingly insane (or a fire victim, in which case you should focusing on escape instead of this thread!).

Helping people with internet jargon since 1992,

Ryan - Sat May 10 2008, 07:45

Another great article regarding those who keep chanting "the worst is over":

http://www.abc.net.au/news/stories/2008/05/09/2240270.htm - Fri May 9 2008, 18:59

Another housing article from the latest issue of The Economist (discussing housing bailout efforts):

Home truths

May 8th 2008
From The Economist print edition
Congress can't stop people losing their homes, but it can do a little to help

AMERICA'S policymakers have fought the credit crunch with gusto. The Federal Reserve has slashed interest rates, pumped liquidity into markets and spun a new safety net for investment banks. Politicians have applied a fiscal stimulus and, to keep housing finance flowing, relaxed prudential controls on government-sponsored mortgage lenders. As The Economist went to press, the House of Representatives was set to vote on the latest plan: to stem foreclosures and stabilise house prices by allowing the government to reinsure up to $300 billion of problem loans through the Federal Housing Administration (FHA).

It is not hard to see why politicians are so keen to help. For all the hope that the worst may be over in financial markets, the housing mess is getting nastier. Nationally, house prices have fallen between 3% and 13% depending on which index you look at. And they have further to sink. The stock of unsold homes is huge and the ratio of prices to rents suggests that property is still expensive (see article). Some 1.5m households went into foreclosure in 2007, up 50% from the year before. And with 9m people owing more than their house is worth, that figure is likely to soar.

In general, governments should not try to prop up prices in inflated markets. However, as Ben Bernanke, the Fed chairman, argued this week, there is a case for government intervention to avoid unnecessary foreclosures. Evicting a homeowner and selling his property takes months, during which vandalism and legal fees can destroy a large part of the home's value—and drag down the price of the neighbours' homes as well. Borrowers and lenders would often be better off renegotiating and writing down loans than going through foreclosure. Yet securitisation has made it harder to reschedule loans and nobody knows how far house prices will fall. Too few home loans have been renegotiated.

So is the FHA plan the answer? Supporters, from Wall Street financiers to all three presidential candidates, claim it will do great things: save 1.5m people from losing their homes and, as a result, help to stabilise house prices. Opponents, including the veto-wielding Bush White House, lambast it as a misguided taxpayer rescue for the imprudent. Neither is true.

Criticism notwithstanding, the plan is hardly a bail-out. Lenders would have to write down their loans to 85% of the current value of a house. Borrowers would pay a fee for the insurance and give up a share of any later price rise to the government. By reinsuring more mortgages, the government would take on more risk, but the bean-counters at the Congressional Budget Office (CBO) put the explicit subsidy at about $1.7 billion over five years—a fiscal rounding error rather than a reckless handout. Yet because the plan involves little government cash and is voluntary, its effects will be modest, helping half a million households at most avoid foreclosure, according to the CBO. For all the hoopla, the FHA plan will be a useful addition to the anti-foreclosure tool-kit. But it will do less than its supporters hope—or its detractors fear.
The virtues of modesty

That is no bad thing. The role for government is to prevent more foreclosures than necessary, not to prevent them altogether. Given the scale of likely house-price declines and the laxity of lending standards during the bubble, many Americans are in homes that they cannot afford. In these cases, the right answer is to make foreclosure faster and less damaging to everyone else, so that homes can swiftly be bought by people who can pay for them. A useful counterpart to the FHA plan would be a federal effort to streamline the states' convoluted foreclosure laws. You will not be surprised to hear that no politician has supported that. - Fri May 9 2008, 17:32

"The courage to end it"? Isn't that a bit dramatic? Besides Chris, the only person who has called for an end to this thread is Rob Banks/Buster Hymen/Heywood Jablowme/ whateverelseproperlydemonstrateshisselfdisdainandinsecurity.

Chris, again, STOP READING. It's easy. The proper cancer treatment is to remove the cancer, not kill the patient. And this thread's biggest cancer (BY FAR) is your partner-in-crime who keeps calling for the thread-killing and hurling juvenile insults at contributors under whichever name hasn't been deleted yet.

I created this thread, and at least ten individuals continue to actively contribute. Just in the last day we received updates on this thread regarding new housing price numbers, California Assn. of Realtors updates, and Warren Buffett's recent comments regarding the housing market. All very valuable information that I would not have otherwise found.

I understand your frustration with the personal stuff going on, and I repeat my request to Mike and others to keep this thread civil and, in turn, productive. But there's no need to shut it down.

As a side note, this thread now has 17 thumbs-downs. At least ten are attributable to Heywood Jablowme and his schizophrenic friends. - Fri May 9 2008, 15:44

The weather analogy (that real estate, like weather, is "local," so it cannot be inferred from national numbers) has strong rhetorical appeal but is logically weak. You can only compare houses to weather if houses and weather are analytically similar in some way. They aren't. Simply put, housing prices have nothing to do with temperature and barometrics. The only *alleged* similarity is that both are "local," which presumes precisely what you are attempting to prove by creating the analogy, making it circular and logically irrelevant.

To the extent we accept the weather analogy, how about this: while we may not know the precise figures, we do know that the "nationwide" (as opposed to "local") temperature will drop significantly from July to December. Minnesota's temperature will drop. So will Orlando's. The drop may be uneven, but the temperature WILL DROP EVERYWHERE. This is because United States temperatures are driven by constants--the Earth's rotation/tilt, distance from the sun, etc.

Similarly, we may not be able to accurately predict how bad it will be (see: California Association of Realtors, which recently adjusted its 2008 forecasted price declines from 9%--March's estimate--to nearly 25%--May's estimate). But we can say it will be bad--(almost) everywhere. This is because home prices are based on predictable underlying characteristics which all point toward exactly what we have been seeing for several months in a row--rapidly accelerating price declines. It's not as if what is "randomly" causing prices in California to drop is also randomly affecting Las Vegas, Florida, the East Coast, Chicago, etc. in the exact same "random" way. No, markets across the country are falling because the same NATIONWIDE issues (lack of buyers, foreclosures causing price declines which cause foreclosures which cause further price declines ad infinitum, etc.) are affecting every region.

Bring your umbrella--wherever you may be. - Thu May 8 2008, 22:00

I hope Trulia never shuts down this thread.

Whatever anyone else wants to believe, I am a real person who was absolutely planning to buy a house until about a month ago. My wife and I were in a contract to buy property at 4547 N. Ashland (Chicago), and we got out of the contract due to some problems revealed during our home inspection. My wife and I were checking websites such as craigslist, buysiderealty.com, and others on a daily basis looking for new listings.

Then I found this website and was drawn to a comment and report cited by Trulia member John the Bruce. The report persuasively argued that home prices would continue to fall in the short- and medium-term future. I had heard home prices were falling, and my intuition was that this made it a particularly *good* time to buy, because I would get more for my money. I never considered the fact that prices could *keep falling*, perhaps dramatically. After all, real estate prices have been increasing every year since I was about ten years old, and Realtors I talked with always (yes, in my experience, ALWAYS) told me that it was a good time to buy. I just assumed that any price drop must be temporary.

After I read John's link, I did some research on my own, and I created this question thread. It is hard to overstate how grateful I am today for this website and the contributions made to this thread by several Trulia members. As a once-objective and unbiased mind, I am now absolutely convinced that prices will continue to drop for at least another year, and I firmly believe that the information gleaned from this thread has protected my wife and I from losing a great deal of our savings in an ill-advised real estate purchase. The Center for Economic and Policy Research (an organization with neither a "horse in the race" nor a tarnished reputation, see: NAR) recently estimated that, based on the most recent Case-Schiller data, more than $6 trillion worth of home equity will "disappear" in 2008 alone due to home price deflation. This equates to an average of $85.000 of lost equity PER PERSON.

http://latimesblogs.latimes.com/laland/2008/04/disappearing-…

I am gladly not a part of this statistic. If anyone stumbles onto this website, and onto this thread, and makes a wise decision based on objective data instead of NAR spin, then the thread continues to serve a valuable purpose. To anyone reading this right now, I would recommend reading the first 100 or so comments, which are substantively the strongest, or you can click the link above entitled "Highest Rated" for the answers other Trulia members have chosen as the best.

I am not aware of any other resource on the internet right now with more comprehensive analysis or better data links than the posts contained in this thread. Those who call for the termination of this thread are obviously bothered by the prospect of regular people having easy access to valuable information--there is no other explanation, because anyone who is simply annoyed by this thread could easily choose not to read it.

Finally, I would note that with 600+ posts, it is more important than ever to properly flag posts worthy of "thumbs up" so future readers can actually find the best information. - Thu May 8 2008, 17:36

Deborah, I don't want to speak for Ben, but I don't think he meant the "Joe Sixpack" comment the way you took it. I usually interpret "Joe ____" to mean your everyday person. Perhaps the "Sixpack" surname refers to working class buyers (which describes most people), but I don't think there's anything inherently offensive about that. The point Ben was making (at least how I took it) is that your everyday worker--"Joe Sixpack"--used to be able to buy a multi-hundred-thousand dollar house with no little or no money down, regardless of his credit rating. Today, the "regular buyer" needs to put up about $45,000 in cash to buy his "average priced" ($225,000 or so) home--AND he needs a very strong credit score. In some parts of the country, even this will not be enough, as banks are increasingly skeptical of approving loans for declining assets. "Joe Sixpack"--meaning, as I take it, persons of average wealth, average credit, etc.--can't buy a house today, at least not the way he could a few years ago.

There is nothing local about the underlying problem facing the real estate market. Tens of millions of buyers--everyday people--have received rubber-stamp approvals for their home loans. This is no more. Banks are requiring large down payments and high credit scores, and this means substantially fewer buyers can buy, which means substantially less demand, which means substantially reduced prices. I don't have to hypothesize--this is happening. - Thu May 8 2008, 08:18

Slash and Chris Freeman, this thread remains the top rated on Trulia, and by tonight's end there will likely be more than 100 responses (by twenty-five different people) TODAY. You don't need to constantly chant "kill the thread" (and accuse Trulia of evil-doing) every time Mike posts a response that makes you feel insecure. Your attempts to quash the opinions of others is not welcomed in most countries not-named-China.

With that being said, Mike, you are going a bit (OK, a lot) overboard. I don't mind your passionate stance, but keep in mind two things: first, you have good points to make, and you do a nice job of supporting your opinions with articles and data, but when you get emotional with your posts and generally berate Realtors, you lose credibility and it takes away from your overall effectiveness. Second, I think it's important to not generalize so much. I think you're right that Realtors are not as critical to making a home purchase today as they were ten years ago (due mostly to websites like this). But I think it is equally true that Realtors continue to provide a great service to those buyers and sellers not able or willing to do it on their own. I just turned 25, but in three months I'll become a lawyer and charge people $300/hour for my services. A fair argument can be made that I'm not worth that, but the bottom line is that some people (and companies, of course) will gladly pay it. As long as people continue to gladly hire Realtors, I don't see the point of being so fussy about it. Similarly, I agree with you that MANY Realtors (and the NAR, in my opinion) greatly contributed to many wrecked lives in this country through the "Great Time to Buy (and Sell)" propaganda, and the well-being of buyers was shoved to the side in the name of more sales and more commission, but I also think it's true that many Realtors have been and continue to be realistic about this situation, and a few have really contributed to this thread. I don't think it's fair to say they are all worthless and will be making $10/hour in another industry next year.

Just my thoughts--obviously this thread has taken on a life of its own, so no need to listen to me anymore. - Wed May 7 2008, 17:47

In other news from this week...

*Moody's, in a report for forbes.com, reportedly predicts that home prices (at least in some markets) will continue to decline between 10-25% in 2009.

*Fannie Mae president stated we are only now "in the belly of the cycle" (that is, at our worst point, but not close to over), and the company has upped its 2008 forecasted price declines from 5-7% to 7-9%.
http://biz.yahoo.com/ap/080506/economy.html

*Quote of the week: "Where in the world does it stop?" --National Association of Homebuilders chief economist David Seiders, on the worsening rate of foreclosures and resulting falling prices.
http://seekingalpha.com/article/75863-moody-s-sees-prices-10… - Tue May 6 2008, 21:35

[Some, not all] REALTORs say the darndest things!
My wife recently received this email from "Agent Erwin" of Nexus Chicago Realty Group, LLC. I'm not sure how he got her email address...maybe from a sign-in sheet from last year, when we were actually considering buying a home. I wanted to see if anyone had thoughts on it. The message strikes me as plainly irresponsible. Don't REALTORs owe a fiduciary duty to their clients? If so, aren't they breaching that duty by soliciting clients in a way that misrepresents the true nature of the housing environment? Most people don't know how to do their own home research, and instead they rely on real estate "professionals." If an email like this induced me to buy a home that fell in value 15% after I bought it, I'd be pretty upset. I particularly dislike the line that says "We know that home prices are leveling off in Chicago!" --assuming, as I believe, that he means price DECLINES are leveling off.

Anyhow, the soon-to-be lawyer in me can't help but wonder whether we can expect a class action lawsuit against REALTORs in the near future, or individuals suits against certain agents. I believe agents have a duty to inform their home-buying clients that the market is volatile and uncertain, that prices may continue to drop, etc. If people trust in and rely on their REALTOR's judgment, and that REALTOR misleads the facts, I think they should pay for it.

[[[
*Do you want to be a homeowner?

*Do you have a credit score of 620+?

*Do you plan on living in your home for 5+years?


What are you waiting for???


Finance costs will rise as the economy recovers, so trying to time real estate might not pay off
[visual aid, described in following paragraph of email]

Consider a typical home that sells for $218,900. You put down 20% and get a 30-year fixed-rate mortgage at today's rate of 5.5%. monthly principal and interest come to $944.31. Let's say that in 12 months from now the same house goes for 10% less, or $197,010. But by then the recession is history and the Fed is jacking up rates to stem inflation. If mortgage costs rise just half a point, to 6%, your monthly payment would be $944.94 and you'd have saved NOTHING. Meaning while, home prices might steady and sellers might become less willing to negotiate. And you have spent a year living someplace you'd rather not be.

In today's housing market, the real risk is in waiting to buy a home! We know that interest rates are low TODAY! We know that home prices are leveling off in Chicago! We know that there are plenty of homes on the market to choose from! We know that sellers are willing to bargain. And we know that builders are willing to offer attractive incentives to get your business!
Any or all of these favorable variables could change for the WORSE twelve months from today! - Tue May 6 2008, 21:29

That's a great article Paul, thank you. Paul Krugman is one of the most respected living economists. A couple other points in that article which I found very interesting:
--prediction that 1/4 of all American homeowners will have negative equity before the housing correction is over
--the possibility of "overshooting." Many people assume that prices will drop until they are in line with what the "should be"--whatever that means, and then they will stabilize. I thought it was interesting that Krugman believes prices could "overshoot" in the negative direction and fall farther than necessary due to the negative snowball effect (price drop causes foreclosures which cause price drop, etc.). This makes sense--if home prices rose unjustifiably for a decade based on superficial investment optimism, who is to say prices can't dramatically fall below baseline levels based on (perhaps unfairly hyped) negative trends? - Thu May 1 2008, 12:25

I don't have much to add to this discussion right now, but I do want to address a stream of annoying comments: (1) I never sought to solicit advice to advise me whether to rent or buy. Read the question: I specifically say I'm leaning toward renting (in the interest of disclosure), and I just wanted a forum to discuss the issue and exchange data/opinions. (2) I'm tired of the "this thread is still going?!?" comments. If you aren't getting anything out of it anymore, then stop reading. What would you have me do, delete the thread? I'm not sure why these people are so committed to stifling others' discussions. Considering this thread has more "thumbs ups" than any in the history of this website, I'd prefer to keep the discussion active as long as others are getting something out of it. It's rather ironic that people keep contributing these worthless comments in order to point out that the discussion isn't productive.

I don't have time to search the internet all day looking for new housing articles/data, but I do have time to check this site and read the 2-3 new solid links each day, so the thread is valuable to me if only for this reason.

In the meantime, Mike, you really piqued my interest--can you tell us more about your old position? I am definitely interested in hearing what a former real estate VP thinks about this market. - Wed Apr 30 2008, 17:06

Aj, I'm not sure if you had said it before, but I thought your last post's analysis made a lot of sense. It would be nice to know exactly what is going on in a particular neighborhood, but there just aren't enough home sales (especially in this market) to get a large enough sample to confidently reflect what's going on. For me, Dann, the C-S data is just the best (most objective, most reliable, etc.), so that is why I value it over almost anything else I could read, and I just cannot believe that Chicago (city) prices can be steady while Chicago (metro) prices are falling quickly. I understand there is some conflicting data and appreciate your reasonable disagreement.

Here is a Chicago local market report by Chris Ford, Realtor (found on Realty Times website):

There has been a noticeable slow down in sales of both the single family and condo market. Properties that show very well and are priced correctly are moving. But if you don't get an offer in the first 30-45 days, properties are sitting and market times are going up as well as inventory. The avg days on the market for Condos has gone up to 200 days Buyers are being very particular in what they want and if they are not finding exactly what they want they are moving on to the next property. Developers are being forced to offer big incentives to attract buyers and resale properties are being forced to lower their prices and expectations if their property has not sold quickly. A strong marketing plan is needed by sellers to attract as many buyers to their property as quickly as possible. As we move into the traditionally active Spring/Summer selling season with lots of left over inventory and new listings coming on the market I believe this trend will put even more pressure on sellers who have been on the market for some time to further lower prices. Making for advantageous deals for Buyers. - Tue Apr 29 2008, 11:59

Couple of thoughts re recent posts:

Chandler: I think you raise a good point about buyers' alarming tendency to make their lives' biggest investment without really researching. Sadly, I was one of them. Last summer I heard that home prices were starting to fall, but I believed what I heard on radio commercials put on by Chicago-area Realtor Associations: that the problem was confined to the coasts. My wife and I found a house we liked listed at $700k, and we thought we got a "steal" when we got it for $620k. This was a great price according to comps I was seeing (reinforcing your theory that, at least to a limited extent, stupid buyers create more stupid buyers). This spring, we did our home inspection, which revealed that the home's wrap-around front porch was defective and needed to be replaced. We couldn't work this out with the seller, so we walked away.

Today, I am so thankful that our inspection revealed that defect. Best $395 I ever spent.

JR: in response to Chandler's message about buyers overpaying, you wrote "Now where do we place the blame for inflated prices? Hmmmmmmm.....?" Not sure what you're getting at here. The vast majority of buyers rely on their trusted Realtors when deciding whether and how much to bid. Overpaying is also surely based, at least in part, on highly successful Realtor ad campaigns which gave Americans the impression that prices were inevitably (and dramatically) rising, so (1) no home investment could be a bad investment; and (2) pay now--whatever it takes--because you may not be able to find a home later.

Dann: it's clear we have different opinions as to what is happening in Chicago, but I appreciate your insistence! I imagine that for every example or friend you can call, someone else has a counter example showing things aren't so hot in Chicago. For instance, a few months ago my wife and I saw a home we liked in the north part of the city. It was listed at $829,000 (out of our range), but we wanted to keep an eye on it. The home is now listed at $699k and is still on the market (and I can verify it is a beautiful home). It is also true that home sales *in the city* remain at a 17-year low, and Chicago was second nationally in foreclosures in February. I just think it is silly to believe that the problem is confined to the outer suburbs but not the city--after all, the city (not the suburbs) saw the most significant price appreciation in the previous ten years. My feeling is that we have a long way to go. Meanwhile, Case-Shiller shows Chicago prices are now down 8.5% year-over-year, meaning the average person who bought a $500k home LAST YEAR has now lost $42,500 in equity. And--once again--the price decline was steeper this month than the previous, showing the price free fall is intensifying, not slowing.

(Reposted after correcting typos) - Tue Apr 29 2008, 07:14

Extra! Extra! Case-Shiller's February data was published this morning (link below).

Highlights:
--17/20 metro areas posted "record low annual declines"
--10-city composite data showed a year-over-year price decline of 13.6%
--not so local: all 20 cities showed price declines from the previous month
***
--"There is no sign of a bottom in the numbers." David Blitzer, Chairman of Standard & Poor's Index Committee - Tue Apr 29 2008, 06:45

Hey everyone, let's focus on the issues.

On a lighter note (?), here is an article on "America's Worst-Selling Housing Markets":
http://www.forbes.com/2008/04/15/homes-sales-worst-forbeslif… - Mon Apr 28 2008, 21:37

Dann, if I understand correctly, your last post amounts to this: in deciding whose opinion to trust, if given a choice between...

Person A: intelligent, unbiased, opinion based on hard evidence; or
Person B: "experienced," but livelihood depends on making money from home investments and sales;

You would trust the opinion of Person B in answering the question "what is going to happen to home prices and sales in the future?" Likewise, you seem to trust the opinions of national and Chicago-based Realtors (quoted in the April 23 Tribune article) over the opinions of award winning economists. Fair enough--at least you put your money where your mouth is by, apparently, purchasing over 100 investment properties. Just don't act shocked when others find your position difficult to understand.

Remember, several Realtors who have added to this thread--people who would LOVE to believe that you are right about Chicago's resilient home prices--have conceded that the market has changed and prices are falling, despite their bias.

Also remember that your neighborhood Chicago Mercantile Exchange traders also apparently believe local home prices will continue to fall for the foreseeable future:
http://www.cme.com/trading/dta/del/delayed_quote.html?Produc… - Sat Apr 26 2008, 17:28

This blog post (dated 4/25) from a Chicago real estate broker takes on some of the problems with the Chicago Tribune story that Dann keeps citing: - Sat Apr 26 2008, 13:21

Paul, I can't figure out how to do that--don't think I can. I wanted to modify my question early on in hopes of stopping the numerous "Interest rates are low and it's a buyer's market!" responses, but I don't think I can do that without starting a whole new question. - Sat Apr 26 2008, 10:39

Thanks to everyone for their contributions to this thread--as of this morning (4/26/08), it is the "best rated" question on Trulia! This is a bit of a misnomer, because my question is fairly unremarkable--rather, it it the thoughtful contributions of others who have made this thread strong.

To anyone now reading from this thread for the first time: please scroll back to the beginning of the thread. That is where the most substantive thoughts/arguments/data were discussed. There have been some great comments and links in the past week, but comments 1-75 or so were (in my opinion) what really got this thread going so strongly.

Thanks again to all contributors-- I never thought I'd be so excited for the next month's Case-Shiller data (released this Tuesday!). : ) - Sat Apr 26 2008, 09:52

Paul (Chicago Home Buyer Paul, that is--three posts or so below)--I'm not sure if you were joking or not, but when I see that graph, it scares the heck out of me. Yes, the graph clearly demonstrates that prices increased at unprecedented levels from the mid-90s until now. But the point is that gain was largely artificial--home prices were not intrinsically worth more, but they were buoyed by cash from disappointed stock market participants (mostly in 2001-02) and a surge in new buyers due to poor lending standards (no one needed a down payment, lenders approved individuals with poor credit, etc.). Add to this Realtor "Buy buy buy!" propoganda, and yes, as the graph shows, prices went up.

But all of those factors are gone now. We are now seeing that graph start to dip--and boy does it have a long way to fall to be in line with historical price trends. That's actually the most graphically frightening evidence I have seen yet of how far prices could fall before this market correction is over. - Sat Apr 26 2008, 08:06

Today's national (not local!) real estate news (link below):

Opening caption: "Sales of new homes plunged in March to the lowest level in 16 1/2 years as housing slumped further at the start of the spring sales season.

The median price of a new home in March, compared with a year ago, fell by the largest amount in nearly four decades."

And while the slump may not affect all local markets, it is affecting every region: "For March, sales were down in all regions of the country, dropping the most in the Northeast, a decline of 19.4 percent. Sales fell by 12.9 percent in the West, 12.5 percent in the Midwest and 4.6 percent in the South." - Thu Apr 24 2008, 08:47

Dann, I just read that report. I don't know. The only people quoted were regional/national advocates of the National Association of Realtors, not a credible (or historically accurate) source--see about fifteen posts below.

This tracking website shows Chicago home prices are down 6.5% from one year ago: http://www.housingtracker.net/askingprices/Illinois/Chicago-…

And Case-Schiller's most recent data (will be updated with February numbers next Tuesday) show a 6.6% price decline: http://www.globalindices.standardandpoors.com/data/pdf/CSHom…

I can't really explain why these numbers differ so much from those reported by the local Realtor associations quoted in the article you read--if someone can, please explain (if you have any explanation other than suggesting the NAR twists the truth, which may be a fair point but has already been said). - Wed Apr 23 2008, 09:37

Tom, no problem-- I took back my comment. Didn't mean to seem so defensive, but when I reread my post, that is way it sounded.

Here is my question from earlier: Can someone translate the CME home futures data? I have checked out that link a few times and just do not understand what it is saying. Any insight is appreciated.

Chicago home futures link provided below. - Tue Apr 22 2008, 18:18

I am definitely interested and "affected directly" in the sense that until a week ago, I was planning on trying to buy a home for $650,000, and this is an investment I take very seriously considering I would have to put very near my entire life savings into the down payment.

Otherwise, I have no involvement in a "related business" (unless being a junior high school teacher for a year followed by three years in law school is "related" to the real estate industry, which seems like a stretch). I graduate from law school in two weeks and have enjoyed the opportunity to procrastinate on this website instead of studying for my last round of finals. - Tue Apr 22 2008, 10:08

Home sales update, and a new bold prediction from the NAR's chief economist! (see post on NAR credibility three posts below):

"Lawrence Yun, chief economist for the Realtors, said he expected sales would begin to show improvements in the second half of this year, helped by an improved availability of mortgage-backed insurance from the Federal Housing Administration and higher limits for jumbo mortgages, loans that are critically important in high-priced areas of the country such as California."

It looks like we're about to turn the corner--which has been the case for every quarter on record, according to the NAR. - Tue Apr 22 2008, 08:44

I don't have anything against Realtors as individuals, but the NAR has lost a ton of credibility in my mind. In the past 2.5 years, the NAR has consistently spun data in a way that goes beyond optimism to become plainly misleading. As a result, tens of millions of home buyers who relied on NAR optimism in (sometimes over-) purchasing homes have lost a great deal of their life savings.

Two things especially bother me: (1) the NAR holds itself out as an unbiased organization. Most buyers don't know (or think about the fact) that the NAR has a vested interest in seeing homes sold, so these buyers rely on NAR information as if it is The Truth. After all, who would know more about real estate than Realtors?? This problem is compounded by two facts: (a) the NAR advertising budget is huge, so it has a powerful ability to sell its spin; and (b) its opinion is largely unrivaled--because what organization would spend millions of dollars to prove house prices were falling? (2) it also bothers me to hear Realtors blame the banks and the media for the downturn. The media has no role in the downturn; it merely reports data. The banks do have a role in the downturn, but only to the extent that they had a role in the dramatic upswing before credit tightened. In my mind, the NAR, with its perpetual optimism and deceptive spin, is more to blame and therefore just as responsible for the impact of foreclosures and price downturn on American families as any other entity.

Here is an excerpt from a website I found depicting NAR spin in the past few years (web link below):

[I’ve always found NAR’s opinions to be very entertaining. As the real estate ship Titanic slowly sank, you could be sure the NAR’s chief spokesman (David Lereah) was busy running the decks proclaiming how wonderful of a day it was and how nobody had anything to fear because the ship was running just fine. Before the pop, Lereah was busy calling bubble believers “Chicken Littles,” while trying to keep the hype going. The image and message displayed at the top right of this blog entry was even part of NAR’s $40 million “It’s A Great Time To Buy Or Sell A Home” advertising blitz campaign that started on November 2006, advising consumers to take buying or selling action now while conditions remained favorable. Such eternal optimists.

As CBS Marketwatch bluntly pointed out:

There are two universal truths at the National Association of Realtors: 1) It’s always a good time to buy or sell a home; and 2) We’ve seen the worst of the housing market correction.

Just for kicks, let’s take a look at the National Association of Realtor’s predictions and compare them to what actually happened:

December 2005 - NAR predicted the national median home price would rise about 6.1% in 2006. Over a full year, it “has never declined since good record keeping began in 1968,” NAR boldly stated.

* The Reality: Through October 2006, the median price of residential properties was down 3.5% from a year earlier. The median price decline is even worse if you take into account all the extra cash and financing incentives that were thrown on new home buyers.

January 2006 - David Lereah’s forecast: The market is in the process of normalization and “The level of home sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead.

* The Reality: Fourth quarter sales fell at an annual rate of 12.6% to 6.94 million annualized.

April 2006 - NAR’s forecast: Home sales will move up and down somewhat over the remainder of the year but stay at a high plateau.

* The Reality: First quarter sales fell at an annual rate of 8.6% to 6.79 million. Lereah’s explanation: This is additional evidence that we’re experiencing a soft landing.

July 2006 - NAR’s forecast: The market should even out just below present levels.

* The Reality: Second quarter sales fell at an annual rate of 6% to 6.69 million. Lereah’s explanation: The market is stabilizing.

October 2006 - NAR’s forecast: We expect sales activity to pick up early next year.

* The Reality: Third quarter sales fell at an annual rate of 22.2% to 6.28 million. Lereah’s explanation: This is likely the trough in sales.

January 2007 - Lereah announced: “After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing home sales to gradually rise all this year and well into 2008″

* The Reality: * Fourth quarter sales fell at an annual rate of 2.3% to 6.24 million. Lereah’s explanation: It appears we have established a bottom.

September 2007 - NAR’s new chief economist Lawrence Yun confidently proclaimed: “Mortgage disruptions will hold back sales over the short term, but long term fundamentals are favorable. A modest upturn is projected for existing home sales toward the end of the year, with broader improvement to include the new home market by the middle of 2008.”

Let the games begin.] - Mon Apr 21 2008, 13:59

Paul, I still don't understand your concept of buying property "below market." I hear that often (especially on this site)--"this is a buyer's market, so use your leverage to bid low and secure the property at a below-market price," or something along these lines.

I do not understand that. Presumably, the seller is not a charity. That said, the seller is not trying to make your day. He's not trying to help you out at his own expense. Rather, he is selling you the property at that price because that is the top dollar he can get at that point in time. This IS the "market price"--the price at which a willing buyer and a willing seller make the exchange. Sure, the seller could have held out for more money; but he didn't do that, because he was not certain he could sell it for more money in the near future--a valid concern considering the multitude of other available properties on the market. This is the reality facing many sellers today who must accept lower-than-anticipated offers in order to make the deal. These transactions are not "below market," they are the market.

As a corollary, as the market continues to fall, so too does the value of the property you just purchased. You are not immune to market pressures because you bought smart--you bought at market value, and if your market falls, you property's value will fall with it.

The most persuasive context in which I hear people speaking of buying something "below market" is when they buy property from a bank or via foreclosure. But even this doesn't make sense to me. Suppose a property is appraised for $100k in 2007; the bank forecloses, and you "steal" it from the bank for $70k. It is tempting to say you bought it "below market." But the reason the bank sold the property "formally appraised at $100k" to you for $70k is because no one else would pay $71k. There is still plenty of capital going around our country, so if consumers or investors wanted to pay $71k, they could and would--but they didn't, and that is because they didn't think it was worth $71k.

The only exception to the market working in this way is imperfect information. I think there is some of that out there--many buyers (like me) don't exactly know what goes into buying from a bank, and the foreclosure listings aren't as informative and picture-filled as the ones featured on real estate websites. There are undoubtedly fewer buyers out there for these properties. But I think there *are* enough buyers, and there *is* enough information, that the short-sale/foreclosures market should run efficiently. Further, to the extent that buyers get "great deals" because there are so many more sellers than buyers, this is not a market aberration, but basic supply and demand coming together to correct actual market prices--nothing "below market" is happening in this case.

In sum, when I hear someone say they bought something "way below market," I get a puzzled look on my face. Just because you got it way below some past appraisal, or way below its listing price, doesn't mean you got it below market. The price you paid IS the market value, and it's low not because you struck an amazing bargain, but because prices have fallen, and your seller figured this out before other sellers and adjusted his price accordingly. Your example aptly demonstrates my point. A seller "needs" to sell, but she think market value is $350k; however, if she lists at $350k, it may not sell (as you stated, "Homes are sitting on the market forever, buyers are scarce and geez... everybody says prices are going down."). So she adjusts her price to $325k, and it sells. This is not below market--it's simple price adjustment to make a sale, the most common market adjuster (not market aberration) of all. - Mon Apr 21 2008, 09:40

Thanks Liz. We've probably come close to exhausting the current research out there, but as new data comes in, or new articles are written, please forward them to us all on this thread--otherwise it may be hard to find the post out there on Trulia if more than 1-2 days pass without checking.

I know very little about how/when data is posted. Does anyone know what the "big" numbers in the housing market are, and when they become public? I'm thinking quarterly numbers, foreclosure data, updated price indexes (indices?), etc.

Anyhow, whenever important numbers are announced, please pass it along. I think a lot of people who have read or posted on this thread are very interested in keeping up during this important time in the housing sector.

Thanks as always to everyone who has contributed to this thread. - Sun Apr 20 2008, 11:02

I don't think some of the recent posters fully grasp today's buyers. Jer just stated: "Most people buy to eventually own (free and clear), regardless of the outcome of the gains and losses, with the hope of an overall gain which has been historically measured."

I would be shocked if this were true today. I am 25 and do not know anyone near my peer group who is currently in a home they expect to "eventually own (free and clear)." Rather, I suspect an overwhelming majority of at least young buyers--say just out of college-age to 35--buy a house expecting to be there for 5-10 years. In this respect, "short-term swings" (meaning price changes expected in the next five years or so) are vital. Many reputable sources now predict home prices will fall by 20% or more from 2007 highs. This would be devastating to these purchasers' net worth. It's easy to play "Old Man River" and lean back in a rocking chair describing the way things were, but my generation is significantly more mobile than those preceding it, and few view their current homes (or jobs, or geographical locations, for that matter) as long-term investments.

I also think Realtyexec's last post understates the issue. Jared said he would have "been in a world of hurt" had he paid asking price for a California condo in 2005. Exec replied that this would only be true if Jared had a 3-5 year ARM, but not if he had a 30-year. How is this accurate? If Jared would have paid asking price, he would be in the same position that has led millions of people to foreclose--after the value of his home fell, he would wake up and realize that he owed more on his mortgage than his home was worth. When Jared's condo's depreciation has caused what was a $300k asset to fall to, say, $250k, what incentive does Jared have to pay the bank on the $275k loan he owes it? Not all current foreclosures are people who are pushed to it due to costs they can't afford; some simply walk away because the math makes sense.

In any case, I don't think chanting the "your home is a long-term investment" mantra is speaking to potential buyers like me. I can grant you the fact that I could buy now, lose in the short term, but then (if I'm very optimistic) gain the loss back within, say, five years. OR I can wait 1-2 years, buy then, and what was equity recapture is now pure equity gain. Either way, as long as it is true that prices are falling and will continue to fall in the short term, it makes no sense for buyers like me to rush to the market.

Jer and Exec, thanks for your thoughts-- I respectfully disagree but appreciate your comments. - Sat Apr 19 2008, 00:32

More data (for anyone still keeping up with this thread). This is from Menzie Chinn, professor of economics at the University of Wisconsin. He ran several statistical models based on recent data from the WSJ and the OFHEO (Office of Federal Housing Enterprise Oversight--ofheo.gov).

He concluded that, using the most optimistic assumptions that can be inferred from the most recent data, prices will continue to fall (but modestly) through the beginning of 2009; however, if negative trends reinforce each other in the way he projects, a 40% price decline from 2007 highs is not unlikely. Very technical analysis--not easy to follow. But intriguing nonetheless, and there are some interesting blog posts after the article. - Fri Apr 18 2008, 21:00

Patrick, good thoughts, but what about this:
1. If I rent, I'm looking at payments of about $1,300/month. To buy a comparable home or condo, my monthly payments would be right about $2,500/month. So while I am not building equity in a home by renting, I am building equity in other assets--namely, the $1,200 each month that I will save and put into savings, 401(k), etc.

2. Your explanation assumed a 5% depreciation this year, then a rebound next year, meaning I would (hopefully) recover the loss within about five years. But what if depreciation is not 5%, but 25%? Reports show Chicago homes lost 2.2% of their value this January alone, and the rate of loss was accelerating. Even assuming the January rate is constant for this year (and does not continue to accelerate), this equates to a much more than 20% price drop this year. (Meaning a $500,000 condo is worth $400,000 after one year; also, if one put down a 20% down payment--or $100,000--one has lost her entire savings by the end of the year.) Even if we were talking about a 5% drop this year (which all forecasts I've seen say is extremely optimistic), that is a $25,000 equity loss in one year, assuming a $500k home. Given this, why wouldn't I just wait a year? Why would I buy if I was certain I would lose (at least some) equity?

This is the heart of my thread question. If we know prices will fall, why should we buy? - Fri Apr 18 2008, 12:47

Patrick, thanks for that article--we're getting closer. The only problem is that the report is based on old data--it simply concludes that Chicago prices fared modestly well in 2007. I think that is probably true, as Chicago prices continued to soar throughout the spring and early summer of 2007, held steady during the late summer and fall, and only started to really fall toward the end of the year.

What I am most concerned about (for purposes of deciding whether to buy now) is where prices are going. If anyone has any (remotely) positive reports on our current/future state, please submit them. In the meantime, I do appreciate that post Patrick. - Fri Apr 18 2008, 11:59

There have now been 52 posts on this thread, with people weighing in from both sides.

As of now, no one has submitted any reports or other data indicating that prices are rebounding or even stabilizing.

The report linked to below is shocking: contrary to hope and popular opinion among many Realtors, now is not a perfect time to buy--in fact, it may be the worst time to buy we have ever seen. The report indicates not just that prices have dropped; not just that prices are dropping and will continue to drop; but also that prices are dropping now faster than ever, with January (the last month with data) being the worst month yet.

Real estate is not the stock market; we don't see a great month followed by a bad month. Rather, trends accelerate consistently until they become stagnant, then (and only then) might the trends change.

In August 2000, Enron stock was worth $90/share. Enron executives told the public they predicted it would hit $140/share, so people kept buying. Within a year, its price had falled to $42/share. Everyone said "look how badly the stock has fallen! It must be a perfect time to buy!" Two months later, the stock fell to $15/share. Everyone (again) was told that it had bottomed, so millions more people invested savings into the stock. Months later it was worthless.

I am not saying people who own homes will bear the future of Enron investors (I certainly hope not, because I am a home owner). Home prices ARE more stable than stock prices, in part because they are tangible assets and less manipulable. But there are some similarities: like Enron executives, Realtors have long professed the enduring (and inevitable) appreciation of the assets being "sold" to the public; both assets saw very large appreciation in a short time period; and today, Realtors continue to profess--in response to increasingly bleak economic reports--that NOW is the "perfect time to buy."

I just don't like the logic. When real estate was rapidly appreciating, it was the perfect time to buy--because everyone was making money and would continue to do so. Now that prices are rapidly falling, it is the perfect time to buy--because surely we've hit bottom (or are at least close).

The problem is, there is no reason to believe we have hit bottom, or that we are close to hitting bottom. All studies I have seen indicate that prices are now falling faster than ever, and the problem is quickly intensifying, not stabilizing (and certainly not "rebounding").

If there is ANY DATA refuting these claims, please submit it. My opinion is based on the evidence I have seen, and I will soften (or even change!) my position if the evidence warrants it. - Fri Apr 18 2008, 11:22

Re interest rates:

Several people below have asserted that rates will soon increase, so this is a reason to buy now. The site below links to a bankrate.com "Rate Trend Index"--basically, the website polls a large panel of experts every week regarding their predictions for interest rates, both short and long term.

The experts are asked whether they think rates will increase, decrease, or remain unchanged.

Here are this week's results:
1. Short term: 0% say rates will increase, 67% say rates will decrease, 33% say rates will remain unchanged.

2. Long term: 11% say rates will increase, 56% say rates will decrease, and 33% say rates will remain unchanged.

Some experts also give 1-2 sentence summaries explaining their predictions. For anyone interested, it's worth checking out. - Thu Apr 17 2008, 21:21

Earlier today there was some discussion on whether and how much Congress's decision to increase the loan limit on government-backed mortgages would effect home purchasers. I'm not sure if this answers the question, but the WSJ link below provides an update on action being taken.

It is my reading that the recent legislation ALLOWED Fannie Mae/Freddie Mac to increase limits on government-secured loans, but action had not yet been taken by those bodies pursuant to this approval--until today. Please let me know if I am misunderstanding this or if you have heard anything else.

For any mortgage brokers out there--any insight on how recent legislation will affect interest rates (especially legislation aimed at increasing conforming loan limits) would be much appreciated.

Again, thanks to everyone providing such strong analysis. - Thu Apr 17 2008, 15:57

Calling all home sellers or real estate agents: many on this site have claimed there is reason to believe home price declines are stabilizing or even improving, both nationwide and locally.

Is there any data to support this claim?

Several studies--not doomsaying news articles, but economic studies conducted by organizations headed by Nobel Prize winners and Harvard professors--are cited in the thread below and strongly argue that price declines are now rapidly accelerating--not stabilizing--and in fact the last three months on record have seen our worst drops yet, projecting an annualized price decline of more than 25% this year (or a $100,000 equity loss for an individual who purchased a $500,000 home just one year ago).

Please refute this claim if you can (my wife still sides with those saying "buy" but she's having a tough time justifying that view in light of the analysis in this thread!).

Aj, thank you for your helpful rate analysis-- can you (or any others who can chime in) say a bit more about the effect of the government-insured loan limit increase (I think from $417k to $729k?). I suspect many potential buyers (including me) would fall within this loan change, and it is something I've thought about when deciding whether to buy. Specifically, (1) does this change directly affect the consumer, or does it just affect the loan industry in hope that it "trickles down" to the consumer (which Fed rate cuts have not); (2) how likely is it that these measures will be renewed before the end of the year, when they are expected to expire; (3) how much do these measures affect mortgage payments (assuming for simplicity purposes a $500,000 loan)?

Thanks again to everyone providing such thoughtful insight. - Thu Apr 17 2008, 08:08

This is all very insightful, thanks to everyone who has offered feedback so far--I hope I'm not the only future buyer who is learning from this.

Several people have indicated that the data is mixed on home prices, or that some economists are not glum on short-term housing prices--this is not what I read in the news, but I understand that being on the news doesn't necessarily make something true. But it doesn't make it false, either. So far, we have received several links to studies indicating housing prices have fallen and will continue to fall--perhaps dramatically--in the near (1-3 years) future, but I have not read any studies indicating the contrary view.

If anyone has any data indicating that housing prices are not falling quickly, or that housing prices are "rebounding," as some have suggested, can you please provide the link? I would appreciate it if the link was to a source other than NAR--I don't have anything against the organization whatsoever, but it just seems like the NAR has too much of a "horse in the race" to provide an unbiased outlook (and I also think--but am not sure--that I read NAR data last fall saying home prices would appreciate 1-2% nationally over the next year, and it now looks like that projection will be more than 10% off).

Again, thanks to everyone for their lively and intelligent input--let's continue to keep this respectful as we have thus far. - Wed Apr 16 2008, 20:33

Thanks Ida!

I also would like this thread to include the question: "Where are prices going?" because I believe it factors heavily into the decisions of people (like me) who are trying to decide whether to buy now or to rent for 1-2 years and then buy. If prices will continue to fall, waiting seems to make more sense (as opposed to buying into a depreciating asset, if that is the case). - Wed Apr 16 2008, 16:25

(In response to another Trulia thread):

Dann, I am not a professional, but I had the same question--I have been casually looking at Chicago listings for the past year in anticipation for my move to Chicago late this summer. Among all of the national reports, it didn't really seem like I was seeing any change in Chicago's (more local and specific) listing prices. But my most recent research (assisted by a few others on this site) indicates that this doesn't tell the whole story.

First, Chicago prices HAVE fallen. According to the Case-Schiller price index, Chicago home prices have fallen 6.6% in the past year. This may not seem significant in the abstract, but if we assume John Doe has a $500,000 home, he has lost $33,000 (more than many peoples' salaries)--in ONE year. The optimistic answer is that one's home is a long-term investment, so one should not focus on short-term consequences. But the fact is, the home IS an investment, it is an asset (for most people, their biggest asset), and people cannot and should not gamble with obviously stupid investments. Would you buy a stock today if you were reasonably sure it would lose $33,000 of value within the year? Of course not, and that partly explains why people aren't buying.

Of course, this data reveals the past--if home price trends were changing, buying now would make sense. But trends are not changing--in fact, prices are now declining at their fastest rate yet (Case-Schiller's most recent data indicates that Chicago prices fell 2.2%--or $11,000 on a $500k home--in the last MONTH; if this rate is annualized, meaning we assume price declines do not further accelerate during the year, we see that Chicago home values are now falling at a rate of more than 20%/year, equating to a more than $100,000 equity loss for a person owning a previously-valued $500k home).

The studies I just referenced (link below) are based on raw home price data, and the chart on the first page of that report graphically shows this shocking trend (thanks to John the Bruce for the website link).


Based on my research, there is no reason to believe things are improving. According to RealtyTrac's February data, Chicago was second only to Las Vegas in foreclosures last month (so much for hoping this problem was limited to the coasts). The impact of these foreclosures have not yet been felt.

While listing prices superficially seem to be stagnant and not dramatically declining, the fact is that homes are not selling right now--at least not at high enough rates to be optimistic. My wife and I are mostly searching homes in the north/northwest part of the city. According to Trulia, this entire area (including, in my search, the neighborhoods of Lincoln Square, Ravenswood, Northcenter, Uptown, Edgewater, and Roscoe Village, from a price range of $585,000 - $775,000) has had a total of ONE property sold since January of this year. Fifty homes in these neighborhoods and in this range are currently on the market.

In short, my wife and I want to buy a house in Chicago. We are blessed to be able to buy, and we'd love to be able to settle into a house in our new city and not have to go back to renting, worrying about moving again from a rental unit to a house, etc. But we can't force ourselves to be unwise with our money, and every single objective, reliable indicator tells me that buying a house now would be like buying Enron stock seven years ago while KNOWING what was about to happen. It is just irresponsible, and that's why we (and many others, it seems) prefer to wait this one out. - Wed Apr 16 2008, 15:42

Sonia, I'm looking to buy in Chicago, too, but my wife and I have recently decided to wait a year or two. Prices are quickly falling, and I think there is a real risk that any home you buy now will depreciate in value, causing you to lose your $35k in equity.

Those $450k homes that are currently out of your price range will be closer to your level in a year, so if you can stand renting for awhile (hard with two kids, I know), I would strongly recommend you consider it. Good luck to you and your family! - Tue Apr 29 2008, 14:15

Please "ready" my entire answer! I've carefully parsed out potential "fluff."

Some time ago I received a call from a colleague who asked if I would be the referee on the grading of an examination question. He was about to give a student a zero for his answer to a physics question, while the student claimed he should receive a perfect score and would if the system were not set up against the student: The instructor and the student agreed to submit this to an impartial arbiter, and I was selected.

I went to my colleague's office and read the examination question: "Show how it is possible to determine the height of a tall building with the aid of a barometer."

The student had answered: "Take a barometer to the top of the building, attach a long rope to it, lower the barometer to the street and then bring it up, measuring the length of the rope. The length of the rope is the height of the building."

I pointed out that the student really had a strong case for full credit since he had answered the question completely and correctly. On the other hand, if full credit was given, it could well contribute to a high grade for the student in his physics course. A high grade is supposed to certify competence in physics, but the answer did not confirm this. I suggested that the student have another try at answering the question I was not surprised that my colleague agreed, but I was surprised that the student did.

I gave the student six minutes to answer the question with the warning that the answer should show some knowledge of physics. At the end of five minutes, he had not written anything. I asked if he wished to give up, but he said no. He had many answers to this problem; he was just thinking of the best one. I excused myself for interrupting him and asked him to please go on. In the next minute he dashed off his answer which read:

"Take the barometer to the top of the building and lean over the edge of the roof. Drop that barometer, timing its fall with a stopwatch. Then using the formula
S = ½ a t2,
calculate the height of the building.

At this point I asked my colleague if he would give up. He conceded, and I gave the student almost full credit.

In leaving my colleague's office, I recalled that the student had said he had many other answers to the problem, so I asked him what they were. "Oh yes," said the student. "There are a great many ways of getting the height of a tall building with a barometer. For example, you could take the barometer out on a sunny day and measure the height of the barometer and the length of its shadow, and the length of the shadow of the building and by the use of a simple proportion, determine the height of the building."

"Fine," I asked. "And the others?"

"Yes," said the student. "There is a very basic measurement method that you will like. In this method you take the barometer and begin to walk up the stairs. As you climb the stairs, you mark off the length of the barometer along the wall. You then count the number of marks, and this will give you the height of the building in barometer units. A very direct method."

"Of course, if you want a more sophisticated method, you can tie the barometer to the end of a string, swing it as a pendulum, and determine the value of `g' at the street level and at the top of the building. From the difference of the two values of `g', the height of the building can be calculated."

Finally, he concluded, there are many other ways of solving the problem. "Probably the best," he said, "is to take the barometer to the basement and knock on the superintendent's door. When the superintendent answers, you speak to him as follows: "Mr. Superintendent, here I have a fine barometer. If you tell me the height of this building, I will give you this barometer."

At this point I asked the student if he really did know the conventional answer to this question. He admitted that he did, said that he was fed up with high school and college instructors trying to teach him how to think, using the "scientific method," and to explore the deep inner logic of the subject in a pedantic way, as is often done in the new mathematics, rather than teaching him the structure of the subject. With this in mind, he decided to revive scholasticism as an academic lark to challenge the Sputnik-panicked classrooms of America.

Oh, in response to your question-- (C): It takes only one posting to prove you're a tool.

Story credit: "Angels on the Head of a Pin: A Modern Parable," by Alexander Calandra (printed in Saturday Review, Dec. 21, 1968). - Sun Apr 27 2008, 22:28

E, I mentioned this in another thread yesterday, and I still believe it to be true: I think (but do not know) that it would be illegal for a Realtor to refuse to deal with you just because you are not a Realtor. I believe this action would violate both federal and Illinois state antitrust law because of its anti-competitive effects on the market. A legal website summarizes the purpose of Illinois's antitrust law as follows: "the primary purpose of [antitrust law] is to prevent businesses from creating unjust monopolies or competing unfairly in the marketplace. Antitrust law seeks to maximize market efficiency and to protect consumers."

The website also has a section labeled "How to Avoid Antitrust Violations." One tidbit of advice encourages business to "deal evenly with their distributors, franchisees, and customers, avoiding contracts or agreements that favor some members of a group over others or restrain their market behavior."

It seems obvious that refusing to work with you because you are not a Realtor would "favor some members of a group over others" in clear restraint of normal "market behavior."

Without being abrasive or unnecessarily confrontation (if at all possible), I would kindly warn an agent about the possible legal ramifications of her actions if she refuses to work with you on this basis. - Wed Apr 16 2008, 16:19

Dann, I am not a professional, but I had the same question--I have been casually looking at Chicago listings for the past year in anticipation for my move to Chicago late this summer. Among all of the national reports, it didn't really seem like I was seeing any change in Chicago's (more local and specific) listing prices. But my most recent research (assisted by a few others on this site) indicates that this doesn't tell the whole story.

First, Chicago prices HAVE fallen. According to the Case-Schiller price index, Chicago home prices have fallen 6.6% in the past year. This may not seem significant in the abstract, but if we assume John Doe has a $500,000 home, he has lost $33,000 (more than many peoples' salaries)--in ONE year. The optimistic answer is that one's home is a long-term investment, so one should not focus on short-term consequences. But the fact is, the home IS an investment, it is an asset (for most people, their biggest asset), and people cannot and should not gamble with obviously stupid investments. Would you buy a stock today if you were reasonably sure it would lose $33,000 of value within the year? Of course not, and that partly explains why people aren't buying.

Of course, this data reveals the past--if home price trends were changing, buying now would make sense. But trends are not changing--in fact, prices are now declining at their fastest rate yet (Case-Schiller's most recent data indicates that Chicago prices fell 2.2%--or $11,000 on a $500k home--in the last MONTH; if this rate is annualized, meaning we assume price declines do not further accelerate during the year, we see that Chicago home values are now falling at a rate of more than 20%/year, equating to a more than $100,000 equity loss for a person owning a previously-valued $500k home).

This chart is based on raw home price data, and it graphically shows this shocking trend (thanks to John the Bruce for the website link):
http://www.globalindices.standardandpoors.com/data/pdf/CSHom…

Based on my research, there is no reason to believe things are improving. According to RealtyTrac's February data, Chicago was second only to Las Vegas in foreclosures last month (so much for hoping this problem was limited to the coasts). The impact of these foreclosures have not yet been felt.

While listing prices superficially seem to be stagnant and not dramatically declining, the fact is that homes are not selling right now--at least not at high enough rates to be optimistic. My wife and I are mostly searching homes in the north/northwest part of the city. According