In A Recent Forbes.com article, the national real estate market remains bleak--in some neighborhoods vacant homes outnumber those that are occupied and sellers are being forced to lower asking prices in a bid to lure bargain hunters--it's assumed that when housing dips to a point where buyers think it represents a bargain, they'll buy back in.The problem is many of the markets that experienced steep 2007 price drops are still a long way from recovery. There is a silver lining reported in the San Diego market (read below).
That's based on a Moody's Economy.com report prepared for Forbes.com. It predicts that 2008 isn't going to be any gentler than last year on slumping markets like Los Angeles, Sacramento, Calif., Las Vegas and Tampa, Fla., where market weakness is expected to cause 10% to 25% drops over the next year.
Moody's model incorporates inventory levels, job growth or loss, and the availability and cost of credit based on current mortgage rates and the Federal Reserve's Senior Loan Officer Survey, which asks lenders about their mortgage standards.
The model also measures home buyer expectations on a market-by-market level, based on an 18-month moving average of home prices. The more sharply prices fall, the more likely buyers are going to stay out and wait for a bottom; in a quickly accelerating market, buyers are more likely to jump in, expecting future home price increases.
Falling Figures
Price drops result from a convergence of factors including overbuilding and speculating and rapid price increases.
But large-scale job loss has the most potent effect, note Eric Belsky and Daniel McCue, economists at the Harvard Joint Center for Housing Studies. Markets can overheat, overexpand and digest flippers and overexuberant builders, but housing prices are most likely to fall when people lose their paychecks.
Belsky and McCue studied housing downturns from 1980 to 2004 and discovered that the most likely cause of housing price declines were spikes in unemployment. Consider the industrial cities of Cleveland and Detroit, which have lost jobs steadily since 2000 and now post unemployment rates of 6% and 7.7%, respectively, well above the national average of 5.1%. Of the 10 cities on our list of cities experiencing the greatest price drops, they are the only two where prices are lower than in 2000.
Surprised? Don't be. While prices are falling, they are, for the most part, higher than earlier this decade. In 2000, Inland Empire prices, for example, were $138,560. Moody's has Riverside-San Bernardino, Calif., home values declining another 23% this year, to $291,590.
"In a normal housing market, we have ratios that you qualify for a certain amount of house at your income level," says Anthony Sanders, a professor of finance at Arizona State University. "Since banks have tightened credit, we're starting to revert back to those lending standards, and prices are going back to reflecting a ratio of income and median house value."
Of course, these price increases are largely because of new development and bloated McMansions--and not necessarily of normal appreciation. Between 1980 and 2000, home values consistently ran 3.7 times the median family's income in San Bernardino-Riverside, but by 2006 that figure swelled to a multiple of 7.6. If home prices return to the area's historic growth rate, Inland Empire prices would balance at $200,000 in present dollars.
Bottom line: "The continued decline," says Sanders, "is going to be very problematic for homeowners--but also for secondary investors."
Moody's model incorporates inventory levels, job growth or loss, and the availability and cost of credit based on current mortgage rates and the Federal Reserve's Senior Loan Officer Survey, which asks lenders about their mortgage standards.
The model also measures home buyer expectations on a market-by-market level, based on an 18-month moving average of home prices. The more sharply prices fall, the more likely buyers are going to stay out and wait for a bottom; in a quickly accelerating market, buyers are more likely to jump in, expecting future home price increases.
Falling Figures
Price drops result from a convergence of factors including overbuilding and speculating and rapid price increases.
But large-scale job loss has the most potent effect, note Eric Belsky and Daniel McCue, economists at the Harvard Joint Center for Housing Studies. Markets can overheat, overexpand and digest flippers and overexuberant builders, but housing prices are most likely to fall when people lose their paychecks.
Belsky and McCue studied housing downturns from 1980 to 2004 and discovered that the most likely cause of housing price declines were spikes in unemployment. Consider the industrial cities of Cleveland and Detroit, which have lost jobs steadily since 2000 and now post unemployment rates of 6% and 7.7%, respectively, well above the national average of 5.1%. Of the 10 cities on our list of cities experiencing the greatest price drops, they are the only two where prices are lower than in 2000.
Surprised? Don't be. While prices are falling, they are, for the most part, higher than earlier this decade. In 2000, Inland Empire prices, for example, were $138,560. Moody's has Riverside-San Bernardino, Calif., home values declining another 23% this year, to $291,590.
"In a normal housing market, we have ratios that you qualify for a certain amount of house at your income level," says Anthony Sanders, a professor of finance at Arizona State University. "Since banks have tightened credit, we're starting to revert back to those lending standards, and prices are going back to reflecting a ratio of income and median house value."
Of course, these price increases are largely because of new development and bloated McMansions--and not necessarily of normal appreciation. Between 1980 and 2000, home values consistently ran 3.7 times the median family's income in San Bernardino-Riverside, but by 2006 that figure swelled to a multiple of 7.6. If home prices return to the area's historic growth rate, Inland Empire prices would balance at $200,000 in present dollars.
Bottom line: "The continued decline," says Sanders, "is going to be very problematic for homeowners--but also for secondary investors."
In Los Angeles, Calif. the expected year-end median home price: $471,320 with a Percent drop: 17%. Prices in Los Angeles nearly tripled from 2000 to 2006, going up 161% to $575,550 from $217,220. Income growth did not match that rate. The median home price in 2000 was 4.7 times the median family income, but by 2006, home prices were 10 times the median income level, making L.A. the least affordable housing market in the country.
In San Diego, Ca, the expected year-end median home price: $471,300. Percent drop: 18.7%
There's a silver lining in San Diego's slumping market. Though the city is experiencing steep price declines, transactions have started to pick up over the last three months, reports Radar Logic, a New York real estate research company. This is a sign that buyers are starting to re-enter the market, which is expected to help slow price declines.
There's a silver lining in San Diego's slumping market. Though the city is experiencing steep price declines, transactions have started to pick up over the last three months, reports Radar Logic, a New York real estate research company. This is a sign that buyers are starting to re-enter the market, which is expected to help slow price declines.
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