Does April 2008 mark the bottom of the housing market? Reference WSJ article - intro/link attached. Agree?

Asked by Deborah Madey, Brick, NJ Wed May 7, 2008

http://online.wsj.com/article/SB121003604494869449.html

Here are the first few paragraphs........Follow link for complete article

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

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5
Don Tepper, Agent, Burke, VA
Wed May 7, 2008
I'm surprised the Wall Street Journal printed such an amateurish piece. There are numerous inaccuracies and false assumptions in the article. Let's take just a few:

"Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst." According to Freddie Mac: "However, over the past few years, investor and second-home purchases have gradually increased. In 1999, investor and second-home mortgages comprised about 8.5 percent of purchase-money loans in the prime, conforming market. This share had doubled by the first quarter of 2005 to about 17.6 percent." http://www.freddiemac.com/news/finance/commentary/sp-comm_08…

So while the percent of homes purchased as second homes and purchased by investors rose to 17.6%, that's a far, far cry from the article's claim that people who intended to live in their homes "stopped buying." Approximately 83% of the buyers, even at the top of the market, intended to live in their purchased home as their primary residence.

Or consider this statement from the article: "More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure."

No. Not true. First, any price decline, no matter how small, will put more people "underwater" on their mortgages. Maybe the author is linking the two, suggesting that more home sales at lower prices with more downpayment (which he neglects to mention) will outweigh the owners becoming upside down due to declining prices. Sure, the new home buyer who's putting 10%-20% down and getting a fixed rate mortgage will be better off than someone who bought a year or two ago with 100% financing. But the point is, those people are still out there and they're still filing for bankruptcy. They're still going into foreclosure. They're still seeking short sales. And that'll continue. Further, almost anyone who tries to sell within a couple of years of purchase, even in a decent market, is upside down. Transaction costs chew up roughly 10% of the property's market value. Now, if values are going up 5% a year, someone may break even after 2 years. But what if values go down 5% a year for the next 2 years, then are flat for a year, then rise 5% a year. It'll take 5 years to break even. As long as prices are declining, a growing number of people will find themselves upside down.

Those are just a few of the obvious errors in that article.

Finally, for a real laugh, consider this statement from the article: "Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now." Read that again: "Housing led us into this credit crisis." Huh? I think our friend at Traxis Partners is confused. I'd suggest--and most rational observers would suggest--that the credit market (lenders making loans they shouldn't have, the 100% financing, stated income loans, the ARMs, the negative amortization loans) was largely responsible for the housing problems. The lenders were making billions lending money to people who had no way of repaying those loans. Housing didn't lead to the credit crisis. Housing is a victim of the credit market that existed a few years back.

The guy who wrote that article is either a naive simpleton or a clever...umm, well, fill in your own words. But, to give him credit, I don't think he's a simpleton.

Nah, the article isn't worthy to wrap day-old fish in.
3 votes
John the Bru…, Home Buyer, Connecticut
Wed May 14, 2008
The slope of the downturn is increasing. Calling the bottom now is laughable for several easy to see reasons:

• Per U.S. Census Bureau there are over 2.3 million vacant homes - right now. In absolute and percentage terms, that’s an all time high.

• The number and rate of foreclosures is increasing. 57% increase in March and 65% increase in April, versus the same months last year.

• A large swath of ARMs (option adjustables) have not experienced even their first adjustment yet. I.e. the party is just getting started, friends. This feeds into the first two points above – negative feedback at it’s best, just when I thought Barney Franks could save the day!

Until this (increasing) slack can be taken up, there’s no point in discussing a bottom. We won’t be there until these vacancies and foreclosures work their way through the system. Try 2010 or 2011…maybe. If the government gets involved, the bottom will come later and the pain will be more severe.

Until then, keep your powder dry and sit back such that you can enjoy the show.

Don’t worry about missing the boat on the “recovery” side. If the last RE downturn is an indicator, prices will bounce along the bottom for more than 10 years prior to any meaningful upturn materializing.
1 vote
Ruthless, , 60558
Wed May 14, 2008
I heard that the average recession only lasts 10 months. That's the good news. However, the unknown news is how long is stagnation before and after or how long might you have one month up and two months down? That is for the overall economy. I think real estate is even more difficult because of seasonality and price points. I think April could be the worst compared to other Aprils or compared to March but June might be better than last June yet still worst than April or better than April but worst than last June.

Just some food for thought - I didn't read the article though. The latest report I heard was the most recent decline was the worst since keeping track. However the boom was also an unprecedented high. So all and all it seems to be a wash in the cyclical sense of the matter.
Ruth
1 vote
David - Appr…, , Maricopa, AZ
Wed May 7, 2008
I would not put much credibility in what a managing partner of a hedge fund firm claims or predicts. A hedge fund is a private investment fund that charges a performance fee and is typically open to only a limited range of qualified investors and is a vehicle for holding and investing the funds of its investors. The fund itself is not a genuine business having no employees, no assets other than the investment portfolio, clients are the investors, and is managed by the investment manager.

The data presented is in reference to the national level as a whole and since there is no source cited to confirm the data it could be manipulated to produce a false or preferred conclusion. With no direct involvement in the housing industry, other than wall street investments, it would appear more of a tactic to increase investor participation in the hedge fund.

Market conditions and trends vary greatly across the country by state, county, city, zip code, market area and neighborhoods. The real estate market dictates the values, trends and direction, however, there are many in the industry that try to manipulate all three with unethical business practices.
1 vote
The Minteer…, Agent, Southlake, TX
Wed May 7, 2008
Deborah,
This is my take...how do you know you have reached the bottom until the market starts going back up?

National news needs to be more specific about location, because the Texas market may have longer DOM, but pricing and accessibility to buyers and sellers have not decreased. We had our best year ever last year and looking to beat it this year!

My advice....DON'T LISTEN TO THE MEDIA! Educate your clients with accurate numbers!

Agree or Disagree?
Thanks,
The Minteer Team
Web Reference:  http://www.MinteerTeam.com
0 votes
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