Tuesday, 03 February 2009 23:00

When someone tells you they are seeking stabilization in the housing markets, show them this graph!

This graph was derived from Professor Shiller's "Irrational Exuberance" data. I annotated it to demonstrate to all what it truly means to stabilize the housing market. The spike in prices was a "Destabilizing" effect. In essence, to stabilize the housing market, prices will have to drop considerably. Inflation adjusted wages and employment are not show here, but that needs to be thrown into the mix as well. No one is going to sell a house (at any price) if there is no one there to buy it. No one will be able to by it if they are not gainfully employed. As I stated in "Will someone tell our government that you can't legislate high asset prices?
" and "I guess I need to go back to DC", you cannot legislate high asset prices with artificially low financing rates.

Click this graph to enlarge to print quality.

shiller_house_price_graph.png.png

Be sure to read "Regarding Housing Price Decline, You Ain't Seen Nothing Yet" for a more empirically based opinion of continued housing price depression.

Last modified on Tuesday, 03 February 2009 23:00

6 comments

  • Comment Link shaunsnoll Monday, 23 February 2009 18:34 posted by shaunsnoll

    see MHK today, way over valued, crap company, doubtful they will make it through this

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  • Comment Link Mark Johnson Thursday, 05 February 2009 12:19 posted by Mark Johnson

    What is the "Building Costs" index shown here? I don't see how any bulding costs index could have stayed relatively flat from 2000-2005.

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  • Comment Link huc7ks Wednesday, 04 February 2009 16:58 posted by huc7ks


    Valuation Drops This Year to Wipe Out Gains from 2005-2007 PDF Print E-mail
    Tuesday, 03 February 2009


    Commercial property market conditions will get far worse this year and erase the valuation gains of 2005 through 2007, according to Property & Portfolio Research.

    "If you thought 2008 was bad, brace yourself for an even worse 2009," the Boston research firm said in its analysis of year-end 2008 data.

    PPR expects property values across all sectors to continue falling through at least 2010. Multifamily will lead the decline, registering a 32 percent drop between 2007 and 2010. Office will fall 31 percent during the period, retail 29 percent and industrial 21 percent.

    A separate report from Real Capital Analytics has projected that cap rates could start approaching 10 percent later this year from rates of 5 percent to 6 percent, which have prevailed in recent years. Higher rates would be required to attract investors during the downturn in acquisition activity.

    "An unleveraged, double-digit return expectation is important to capture the attention of potential investors as well as cover any mezzanine debt costs," said Real Capital, which found that commercial property sales volume in the United States last year declined 75 percent to $130.8 billion.

    While there will be just a brief period when cap rates of 9 percent to 10 percent become more common, Real Capital also noted that a return of more robust investment activity will later drive rates back down, but nowhere near the 5 percent to 6 percent level.

    PPR, which did not address cap rates in its projections, said there will be a strong recovery in valuations in 2012 and 2013 - led by multifamily, which will see a 17 percent increase, and office, with a 14 percent hike.

    PPR also makes a strong case that today's recession will hit commercial-property fundamentals far harder than any of the recessions since 1980. It expects cumulative vacancy rates from 2007 through 2010 to reach record highs in every sector except retail, whose 17 percent rate will fall short of the 20 percent level it hit in the 1980-1982 recession and 19 percent in 1990-1991. But it will still be well above the sector's rate in the 2001-to-2003 downturn.

    The valuation declines projected for the 2007-2010 period are also far worse than the declines of past recessions. In the 2001-2003 down cycle, valuations dropped less than 9 percent for office space and less than 3 percent for the other sectors. In the more severe 1990-1991 downturn, they dropped about 25 percent for office and between 8 percent and 11 percent each for the other sectors, according to PPR.

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  • Comment Link shaunsnoll Wednesday, 04 February 2009 16:54 posted by shaunsnoll

    MHK will not survive

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  • Comment Link Reggie Middleton Wednesday, 04 February 2009 16:54 posted by Reggie Middleton

    No, you're just faster than I am in writing the post. It will be up in a few minutes.

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  • Comment Link YAYANKEE Wednesday, 04 February 2009 16:53 posted by YAYANKEE

    i just saw the Wynn PDF without any comments in your blog. Is that a new way to issue company research notes?

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