Will the housing market crash?

[Black_Train_Song]

nice spelling! :wally

[scotandrsn]

Anyone interested in what the realtors are twlling each other about these issues should look here

[pantom]

Thanks scottandrsn.
In return, Domania, where you can get prices for your exact neighborhood for years back. I tried it, it works well. There are some dupe entries in their database, and the tax value column is current, not what it was at the time of the sale - I checked this against my own house which was reappraised shortly after I bought it - but outside of those caveats, it’s quite useful.
Here’s how my town, which I consolidated from three different neighborhood searches, which is both annoying as it would be nice to be able to do this for the whole town, and good, in that you can customize the searches for neighborhoods that you know are comparable to yours and leave out those that are way richer/poorer, looked for sales since 1998:

year	price	no of sales
2004	510000	7
2003	575000	14
2002	373500	18
2001	335000	10
2000	320000	17
1999	275000	19
1998	243000	19

Disturbing thing about the above is that in the last two years, when prices suddenly spiked, the number of sales tailed off badly (last sale recorded for 2004 was in November, so this is pretty up to date). This is not a good sign, but it does match what the local realtors on your site said, which is that the price trend is flat to down, and it’s a buyer’s market out there.

[jsleek]

IMHO housing crashes consist of a leveling. There are some places without a sufficiently diversified economy where housing prices might drop. For instance, if a military base were closed and no other source of income were available to support an area, prices might tank.

There are people interested in avoiding a drop in prices. Tax collectors, banks, and present owners want prices to hold. If people can hang on, work some overtime, do something to keep prices stable, eventually things improve. That may take several years, during which time housing prices would not increase.

[BrainGlutton]

From James Howard Kunstler’s online column “Clusterfuck Nation,” January 3, 2005, http://www.kunstler.com/mags_diary12.html:

January 3, 2005
I’m going to stick my neck out and make some predictions for the coming year.

  -- Kenneth Deffeyes of Princeton has already stuck his neck out and called 2005 the year of the global oil production peak. We'll go neck-and-neck with him. (Colin Campbell and others are holding out for 2007.) We'll only truly know in the rearview mirror, but we are apt to see a lot of turbulence in the oil markets as they apprehend the approaching peak. It is extremely significant, for instance, that Venezuela's Hugo Chavez has decided to give favored customer status to China. Chavez would like nothing better than to turn the screws on the United States. Under the China deal, there will be a lot less imported oil for the US. This alone guarantees substantial price increases for Americans this year. We'll know this year whether the Saudis have truly lost their ability to boost production and act as the world's swing producer; their super-giant Ghawar oil field is pumping half-seawater these days. 2005 could also be the year that west Africa becomes so politically chaotic that oil production and export suffers dramatically. US natural gas storage is high now, but production continues to decline. If the winter weather turns harshly cold, we'll have problems. The past two summers in the northeast have been supernaturally cool, with barely two consecutive days over ninety degrees. If we have even a normal cooling season, it may also be one of electrical blackouts. 2005 will be the year that the public gets panicky about the global energy predicament.

<snip>

  -- Speaking of the US economy (aka, the dual WalMart / Housing bubble), here's what I see: the fantastic apparatus of mortgage-and-credit creation wobbles as misfeasance in Fannie Mae combines with a falling dollar and loss of overseas customers for US debt to cause interest rates to rise substantially. Rising interest rates crush large numbers of homeowners holding absurd mortages on over-priced houses that never should have been granted in the first place (and only were because lending standards turned to shit over the past decade.) Also clobbered are "consumers" over-extended on credit card debt (who are actually the same people as the ruined homeowners). A knockout punch comes in the form of up-ratcheting oil-and-gas prices, which thunder through the economy as price inflation. The housing bubble pops like a zeppelin and a giant sale of distressed properties begins, with house prices plummeting. (Prices on other things, especially food, shoot up.) Yesterday, the New York Times ran a typically clueless business section story on an expected bull market in corporate mergers. This was pawned off as a sign of economic vitality; I see it as an obvious sign of weakness. Virtually all mergers will result in substantial layoffs of workers, as merged companies seek first to eliminate payroll redundancy. Many mergers will represent the desperate marriage of losers, for instance Sears and K-Mart, two giant chain retailers who had lost out to WalMart and Target for a huge-but-limited customer base, and were headed down the drain. Now Sears and K-Mart will head down the drain together as that customer base becomes even more limited by the credit default orgy of 2005.

[pantom]

Well, there’s a few problems with all that.
1 - The dollar actually has risen every day this year. Only 5 days, but still. As I’ve posted before, you have a real hard time finding an actual dollar bull. So the question is the opposite of the one at the top of a bull market: Who’s left to sell? If the answer is no one, the only direction the dollar can possibly go in is up.
2 - Oil: I’ll believe it when I see it. I’ve made money off this up move in energy, but I sold a while back and have yet to regret it. This could change quickly, because commodity markets change direction very fast, but for now, the best I see here is a sideways crawl until something changes radically.
3 - The housing bubble: housing is in what at first glance looks like a dicey situation. But this is sensitive to interest rates. As with the dollar, you’d have an impossible time finding a bull on bonds. Which means, at most, you might see the 10 year, which is what mortgages are based on, hit 4.9% again sometime this year - it hit this same level last year when the Fed began raising rates. So yes, house prices might not do much, but for them to go down catastrophically would take a lot more than sideways with a slight up bias in bond yields. I would argue for a down bias in yields, but someone might think I’m nuts. I did, however, make money in my 401k last year making well-timed bets on the bond market. I expect to be able to do the same this year.
As for the observation that in Australia low interest rates didn’t stop house prices from declining, notice that in this article from The Economist, prices in Australia have risen 112% since 1997, while in the US the rise has been a far more modest 65%, which may explain why house prices sagged in Sydney despite record low interest rates. Indeed, according to the table that accompanies this dire article, house prices have risen faster in South Africa, Britain, Spain, France, Sweden, Australia, Ireland, the Netherlands, and Italy than they have in the US. Sounds like the US is in the middle of the distribution for house price appreciation over the last few years. That’s not a description of a bubble.
4 - Mergers have only a tangential effect on employment. More significant is that the Russell 2000 has outperformed the S&P 500 for years, and that’s a sign that small businesses are doing well. If small businesses are doing well, the job market will improve. Yes, its taken what seems like forever, but sooner or later the improved prospects for small business is going to translate into a nice job market. Certainly, what the above article sees is simply not in the cards.