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New housing crash trend and obvious severe risks in 15 key charts

December 1, 2010

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Thank you for carrying the post to Automatic Earth, Business Insider, Patrick.

  1. January 14, 2011 11:03 am

    Hey Mike,

    I am looking at buying a house in the phoenix area as interest rates are still low, however I am concerned regarding shadow inventory. Do you think the market will ever recover (say in 10-15 years) or do you think that we are still at a relatively overpriced level?


    • January 14, 2011 3:59 pm

      Hi David

      i think on the definitive data set (120 years of prices by Case Shiller) that an argument can be made that we are still higher in a bubble phase compared to any other previous bubble. that’s my take on how to plausibly judge the credibility of current prices. thanks for your comment. Mike

      n.b., please check out the third chart in this set of charts:

  2. Rick Clyburn permalink
    December 5, 2010 10:44 am

    I can’t decide if I should buy this house I’ve been looking at. At the moment, I’m renting.
    The details are provided below – should I buy this house?

    In 1999, the home was bought for $179,000.
    In 2004, the house was sold for $475,000
    In 2008, the house sold for $695,000
    Now the house is on the market for $ 489,000

    Is this a good deal for me? (My realtor tells me this is a steal!)

    • Zammas permalink
      December 5, 2010 9:01 pm

      After having read this article you still ask ? Try reading Housing crash @ You should pay no more than original price and that probally is high.

  3. Aussie Roy permalink
    December 4, 2010 7:54 am

    Nice to see what the future holds for us here in Australia.

    With many cities at 6 to 9 times annual gross income, you think people would be careful. No, most here still think houses never go down and have no idea the bubble has been blown up by our banks and their easy credit.

    As a 30 years house investor I pulled the pin 2 years ago so glad I sold. Most here, just keep loading up on more and more so called investment properties. When our bubble bursts it will be heard right around the world.

    • December 4, 2010 6:05 pm

      Hi Roy, sure is better to watch the car wreck than to be in it. thanks for your comment. Mike

  4. Donna permalink
    December 3, 2010 4:22 pm

    Thank you for the charts – very informative. Do you have any idea what is happening in the strategic default (jingle mail) arena? I don’t see much written on this lately and I’m wondering it the volume is increasing. Thanks for any input.

    • December 3, 2010 6:48 pm

      Hi Donna i don’t have data on strategic default, but i wouldn’t be afraid to use it if it makes sense. thanks for your comment. mdw

  5. Josh permalink
    December 3, 2010 1:17 pm

    Mike –
    What’s your take on local markets (such as mine in Sacramento) that have already seen 50-60% declines and are sitting at 3x income? There appears to be robust demand at these levels, even with local unemployment of 15%. Hard for me to see a crash from these levels, perhaps 10-15%, but not much more. What do you think?

    Thanks for your thoughts —

    • Greg permalink
      December 3, 2010 1:30 pm

      Don’t do it!

    • December 3, 2010 6:51 pm

      Hi Josh, i agree with everything you say. if you payment-to-income ratio is good, if you love the place, if you can live with a fall of 20% or 30%, if you are going to stay for a while, and if your purchase is preceded by a fall of 50% to 60%, then your risk is dramatically reduced. good luck with it thanks for your comment. mdw

  6. Angry American permalink
    December 3, 2010 9:36 am

    Excellent chart analysis! What I would like to know, and I’ve yet to see any studies undertaken, is what this decline, [and I do believe another 18% down is conservative] will do to local governments, and municipalities? These facets of government depend almost solely on property taxes, as their source of revenue. When all is said and done, assuming a 40%+ overall decline in property values, the revenue to these local/municipalities will also be reduced by 40%, as well as the portions that were allocated to the respective States. Government finance people are just not sophisticated. They created debt like drunken sailors from 2000-06, and I can see no way of supporting debt payments, without massive layoffs of critical employees, i.e, police, fire, teachers; to avoid defaults on these municipal type debt instruments. I hope I’m wrong!

    • Mike permalink
      December 3, 2010 11:57 am

      That seems to be happening already. In NJ, for example, many municipalities are having big fiscal problems – as is the entire state – with widespread layoffs and furloughs of state and municipal workers.

    • Jeff permalink
      December 3, 2010 1:09 pm

      I’m in Cook County, IL Suburb of Chicago. All of the municipalities here are seeing huge budget/fiscal problems. Although values have dropped substantially, the County Assessor adjusted the Equalizer up 16%. Add to that the fact that the municipalities individual tax rates went up as well. So, while we all lost value in our homes, most of us in suburban Cook County are paying 15% ot 25% more in property taxes. Around here, this will be another huge downward force on housing prices. Effectively, if you are looking to buy a house right now, but the tax bill goes up $1600 a year or more, the value of the home drops by something like $25,000 (30 year at 4.5%). It’s simply a case of monthly affordability. The taxes go up per month, the Principle and Interest payment has to go down per month to compensate.

      • Angry American permalink
        December 3, 2010 5:59 pm

        Jeff… That’s Absurd! How do they get away with that? In Maryland it would take legislation to change the rates. The problem here is that we have a tri-annual assessment, and the year you get the tax bill you have 90 days from July 1, to appeal; if you don’t you stuck for 3 years at what they say it’s worth. When a property sells, there is a form to file, and the taxes are immediately adjusted to the sales price… as that is the current value. We are literally in “Dire Straits” we produce nothing, and the governments “want their money for nothing, and their chicks for free”! ~ pun definitely intended!

      • December 3, 2010 11:50 pm

        Hi Jeff, i didn’t know about this. it reminds of my days in the delinquent tax world. there are poor Cook County suburbs with tax rates so high that they grind the home value down to nothing. looks like a bad trend is moving up market. thanks for your comment. mdw

    • December 3, 2010 6:53 pm

      Hello Angry, a 40% fall in rev can’t help. don’t know where they will go with this but not on vacation. thanks for your comment. Mike

  7. Lisa permalink
    December 3, 2010 3:41 am

    Ready to purchase in South Orange County, CA. Keep getting cold feet…dont want to get burned. What are your thoughts on the bubble that still remains in this area?
    Thanks, Lisa

    • Angry American permalink
      December 3, 2010 10:09 am

      I read Michael’s column this morning, remembering this posters question. The article below was from a link on, and seems to address your question. Generally, the article states O.C. would tend to still be in a bubble. IMHO.

    • December 3, 2010 6:54 pm

      Hi Lisa, don’t know nothin’ about South Orange. drive a hard bargain thanks for your comment. mdw

    • Keith Jurow permalink
      December 4, 2010 12:01 pm

      There are a lot of people like you asking the same question for their market all over the country. I’ve been writing in-depth articles since March to address your question. You can take a look at them on BUSINESS INSIDER, for example. Just type in my name in the search box at the top of their homepage — My 15 articles will appear. Or go to MINYANVILLE if you prefer and do the same.

      All of California is still very overpriced, even areas where prices have collapsed such as Stockton and the Inland Empire. I wouldn’t be a buyer. I’d wait 12-18 months and see if the shadow inventory has been worked off at all.

  8. Hank permalink
    December 2, 2010 7:03 am

    Thanks Michael

    many people still don’t get it that the run-up in 2000-2007 was caused by (1) trading-up to a more expensive house using *false* home-equity, (2) availability low-underwriting loans like Alt-A, Liar-Loans, and Option-ARMs That situation allowed people to “buy” houses that were 5X-7X income. Now that #1, #2 are gone, it’s back to traditional underwriting of approx 3X-income lending. (irrespective of FHA 3.5% down payment)

    Prices will fall to a 3X-income lending environment. Oh well…


    • December 2, 2010 11:55 pm

      Hi Hank, we can all live with mortgages based on income thanks for your comment. Mike

    • TarzanaMan permalink
      December 3, 2010 11:00 am

      Lending may (or may not) revert to 3X income…

      …but here in SoCal, median house prices will NEVER revert to 3X median income.

      In my own neighborhood (Tarzana in the San Fernando Valley) many Sellers are still asking 10X – or more – for their 50-year-old, 1000-sqft houses.

      And I see “Sold” signs on some of them.

      The government has proven beyond a shadow of a doubt that they will destroy the dollar and every other aspect of the U.S. economy before they allow free market forces to determine the price of a house.

      So good luck with that 3X thing.

  9. Will permalink
    December 2, 2010 2:27 am

    Thanks again for telling the truth with solid data. How bad do you think this will get in 2011?

    • December 2, 2010 11:56 pm

      Hi Will, probably the scariest element is shadow inventory. if orderly foreclosures are done, the add on to supply looks impossibly large. thanks for your comment. Mike


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