National Association of Home Builders: Cumulative Price Fall to Exceed 45% in 2009

Just do the math. From the Las Vegas Review-Journal (via Calculated Risk and reader Dwight):

David Crowe of the National Association of Home Builders said he was quite negative in his housing and economic outlook last year, but not negative enough….

The S&P/Case-Shiller Home Price Index fell 25.3 percent from March 2006 to October 2008.

Crowe said he expects prices to fall another 29 percent this year and new home sales to decline 14 percent.

The article does not make clear whether it interpolated Case Shiller, or whether Crowe was using that as his reference point (OFHEO’s Home Price Index shows a less dramatic decline).

But putting it together…… .747 (100% -25.3%) x .71 (10%- 29%) = .530. That means housing price will fall to 53% of their peak level, so the decline through this year will be 47%.

And we skipped over the last two months of 2008 in this estimate.

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  1. cap vandal


    in the early 90’s, 30 yr fixed rates were in the 8-9.5% range vs the 6% range now. In terms of monthly payments, thats a big difference.

    This leads me to believe that a sustainable price level may be higher then 100, at least until interest rates increase.

    People are interested and concerned about housing prices but they are really impacted by mortgage payments.

  2. Anonymous

    % of mortgages that will be underwater? estimated amount of jingle mail? hit to banks? thx for any insight.

  3. Anonymous

    If this price decline is realistic, at what point do falling prices and interest rates meet consumer demand for housing? We are in the third year of the housing recession, and the second half of the second year of a broader recession. It is time for consumers to wake up and realize that the earth hasn’t sucked up everything tangible. We are much closer to housing recovery than we are to complete collapse.

  4. George Kesarios

    Anonymous I totally agree with you. Housing cant go to zero, the same way many other things can’t go to zero.

    At this point, US housing is cheaper than most other countries in the world. I just cant see prices fall much further.

    Besides, the US is the only western country with polulation growth.

  5. Anonymous

    What have they done with Lawrence Yun? has anyone seen Larry lately?

    George Kesarios:

    I wouldn’t buy residential RE right now. It can fall much further.

  6. joebhed

    so many anonymii, so little time.

    “We are much closer to housing recovery than we are to complete collapse.”

    Wow, how can that be true?
    At a minimum, we would need to have already passed the bottom of the collapse.

    I really think the handwriting on this topic is already in this short article.
    Yes, we are in he second half of he second year of a general recession, but we are not at the end of the general recession.
    The definition of this recession is falling prices and wages.
    Right now housing prices are dropping faster than wages, but wages are dropping.
    There will be NO recovery in the housing market until that market equilibrium that you mention has been achieved.
    That is to say, when the asp of the house on the market is AFFORDABLE to the average wages in that market.
    When it is affordable, it will be finance-able.
    And we will be back on track.
    Most observers taking all that into account say end of 2010 or maybe 2011.
    Regardless of what they say on FoxBusiness, we have to fix the economy BEFORE we fix the housing crisis, and not the other way around.

  7. Anonymous

    I think that to think about real estate this broadly is wrong. Much like a stock has intrinsic value, so does land. So while a lot on a 500 acre project in Las Vegas or in Northern Virginia was $200,000, that was an abnormal economic profit because the land does not have much intrinsic value other than the development cost plus a small location premium (if there are thousands of acres around, then how valuable is it?). In that case it is perfectly normal for prices to decline where this fake margin gets taken out. However, in certain markets, the land is more valuable. Take Chevy Chase, MD where I live. If you want to live in a new house, because, there is no land, you will need to buy someone else’s house. If that person doesnt get the right price, they wont sell and because there are few foreclosures forcing prices down, the value of a new house will still remain high. If there is no demand, then supply will dwindle as it makes no economic sense to buy an old house and build a new one. This is why in this particular are right outside the Washington area, prices have only dropped 5%. One may say, well, why buy a house for $1.8m that you can buy for $1 40 minutes away. Well, if you are a lawyer who makes $500 an hour, then that drop in commute could equate to $133,000 a year. In a no arbitrage world, that person would be willing to pay much more for that house. It’s location, location, location plus supply and demand.

  8. robert

    sounds like you really have it made Anonymous- I live in the DC area as well and from what I see prices are falling and will fall further- no-one will buy until the bottom is in and the bottom will not be in until an average buyer can afford a home. So . . . if Chevy Chase is bucking the market trend- great- but it is not representative of the entire DC metro area.

  9. Acrimonious

    Having just returned to SoCal/Inland Empire from a 3 year stint in PA with friends in Silver Spring one must look further than the nose on your face to grasp the full depth and breadth of this tanking housing market and all thet it’s bringing down with it. Now prime mortgages and CRE are on the chopping block. I liken it to Whack-a-Mole, a few other areas are exempt too like my parents in northern MN if one were inclined to live there.

  10. Anonymous


    I am a real estate investor along a wide range of products from luxury residential to retail to affordable and I said that Chevy Chase is very specific area, so I do not discount the fact that the market is awful but this is the kind of market where people make money in real estate; when everyone thinks everything is going to 0 and the and completely discount the intrinsic value of the property whether it be location or replacement cost. That was my point, and I feel like the case-shiller index is also not a representation of the market. For example REITs are getting killed but those with class C neighborhood shopping centers with mom and pop businesses like drycleaners and pizza franchises will fare well where as if you have a center with 4 big boxes, you are screwed. All I am saying is that on many things we are getting close to that intrinsic value and in some markets supply will dwindle and prices will stabilize at the end of the day real estate is a physical asset and has different characteristics than stocks. People are acting like houses will behave like stocks and go to 0. That will not happen.

  11. robert

    @ Anonymous

    I do not think anyone thinks their house will go to zero- they just know that it is worth considerably less than the mortgage and are handing back their keys to the bank. The home then becomes a bank owned property and will be put on the market with all the other bank owned properties which drives the prices down. This will continue for some time. Many of the people who are giving up on their homes were 100% leveraged anyway- so why tough it out- they had no hard earned money of theirs in the deal from the beginning.I say- great. For those folks who are doing the right thing, saving their money and waiting to purchase- common sense will have paid off!

  12. Anonymous

    The risk is that with all the money being printed, that interest rates will start to turn up. Maybe not a high probability but possible, since nobody will want to buy US bonds. That will make affordability lower.

  13. Anonymous

    Real Estate is obviously a regional issue.

    That said, living in South Florida and observing nearly four years
    of declines is not easy. The prime waterfront areas are off roughly
    50% in land value…the weaker areas 60-70% off.

    That’s the good news…the ugly foreclosure market in the high end
    is just getting it’s feet wet…for every seller there are 2 or 3 foreclosures undercutting him and lowering the appraisal values. No end is in sight and from my studies we are 2-3 years from clearing these foreclosures out…the trend is accelerating if that is possible.

    Right now anyone who financed a home in the past 7-8 years is negative in a mortgage and a short seller or foreclosure. It looks as though we could roll back to 10 years, say 1998. So a 400k lot in 1998 went to 1.5 million and rolls back to 500k-600k…it’s ugly and devasting to an areas economy.

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