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US house prices post record plunge

Discussion in 'The Pub' started by pro-pilot, Nov 29, 2007.

  1. http://www.news.com.au/business/story/0,23636,22840723-31037,00.html

    SALES of existing homes in the United States fell for the eighth consecutive month in October and prices posted a record plunge amid stubborn housing woes, industry figures show.

    The National Association of Realtors (NAR) said sales of existing single-family homes and apartments fell 1.2 per cent to a seasonally adjusted rate of 4.97 million units in October, a nine-year low.

    That was a drop from a downwardly revised 5.03-million unit pace in September.

    The October decline was slightly weaker than economists' consensus forecast of a pace of 5.00 million units.

    On a 12-month basis, the sales pace stumbled by 20.7 per cent.

    NAR said the national median home price fell to 207,800 dollars in October, down 5.1 per cent from October 2006, the steepest drop on record.

    "Lingering effects of the credit crunch were a drag on sales but the mortgage situation has improved significantly," the NAR said.

    The woes of the housing market stem largely from tightening credit due to a crisis in subprime mortgages, where loans were given to homebuyers with poor credit histories.

    "As noted last month, temporary mortgage problems were peaking back in August when many of the sales closed in October were being negotiated," NAR chief economist Lawrence Yunhe said.

    "Mortgage availability has improved as evidenced by much lower mortgage interest rates and a sharp jump in FHA (Federal Housing Administration) endorsements for home purchases."

    The glut of existing homes for sale rose 1.9 per cent in October to 4.45 million units, which represents a 10.8-month supply at the current sales pace. That was the highest monthly supply on record since the group started tracking this data in 1999.

    The Federal Reserve has lowered its federal funds rate by three quarters of a point in two moves since September in a bid ease a credit crunch linked to the housing slump.

    Many analysts said the mixed NAR data showed conditions would remain bleak for some time.

    "Declining home sales and rising inventories are clear indications that the housing market is nowhere near bottom," said Joel Naroff of Naroff Economic Advisors.

    "With inventories so high, look for prices to fall even further, even if sales pick up."

    Marie-Pierre Ripert, US economist at IXIS Corporate and Investment Bank, also said the correction has yet to run its course.

    "This excess supply suggests that the downward adjustment in sales and prices is far from over," she said.

    Sales of single-family homes were unchanged in October, holding an annual rate of 4.37 million units, while the median price was 205,700 dollars, down 6.3 per cent from October 2006.
  2. woohoo - bring on the property crash here. about time there was reward and opportunity for savers rather than debtors :wink:
  3. So you intend to pay cash for your home?
  4. I feel sorry for people who paid high for theirs, but I agree, bring it on
    so that I can afford to buy one without mortgaging the entire rest
    of my life. Housing affordability in Melbourne has never been so
  5. Isn't that called "interest"??? :wink:
  6. The US housing price crash is mainly the result of the sub-prime lending issue.

    Australia is unlikely to suffer the same effect to anywhere near the same extent, although the market is (and will continue) tapering off.

    I would expect expensive 'name' suburbs to suffer whilst entry level prices remain static.

    So if you are looking for a cheap bargain you may be struggling (unless you are in the market where you are looking to get a $750k house for $600k).

    Most people in the $250k-$300k suburban range are unlikely to notice much more affordability.
  7. Property crashes have flow on effects. I wonder if you would be as happy when you are without a job.
  8. i'd rather pay less for the house and have more saved so i owe the bank less in the long run.

    true, but 7% interest barely covers inflation.

    that's interesting. i've heard people argue the opposite. That the expensive suburbs will remain forever expensive and 'hold' their prices while cheaper suburbs will go down. be interested in some precendents for either of these arguments.

    i'd hate to be without a job for financial reasons and many others (sense of self-worth, contribution, stimulation, learning, fun etc). but i'd hate even worse to be without a job and be in major debt, or relying on the capital growth of my house as my only possible source of future superannuation.
  9. Well I can say that the REIV figures showed that at least for Melbourne the greatest downturn is in the medium to upmarket suburbs.

    I have no reason to believe that particular trend will turn around in the short term, and neither does our financial advisor.

    I've been in the property investment market for about 20 years now (currently own 8 properties which is down on what we had a couple of years ago by 4 as we sold some to realize some capital gain).

    I have to have something to do with the money that our company makes and investing it in property has done well by us.

    There will of course always be a demand for 'name' suburbs and inner city suburbs, but they will also fluctuate more as they are perceived as a 'luxury' purchase and luxury purchases are more prone to quick changes with economic up and downturns. In harder times people tend to be less free with available money and restrict more of the spending to essentials.
  10. I was reading an article in a local realestate magazine that covers my local area, apparently median prices in my area have risen by 4% in the last 6 months and they expect the trend to continue :?
  11. That's the whole joke.

    When Rudd talked about housing affordability, he meant lowering the prices of homes. There is no other way to make houses more affordable, other than increasing salaries. Increased salaries will result in higher housing (and general) inflation. You can remove investors from the market, but that will reduce the source of rental properties and unless prices plunge, there will still be people for whom renting remains either an attractive or only viable option.

    Any solution that does not address basic supply issues will not make houses more affordable. They can only become more affordable if their price drops in relation to average income. And there are an awful lot of people who are absolutely dependant on their properties to fund their lifestyles.

    If you want to see how shite it can get, my old flat in the UK (and we are talking small, like REALLY small) was selling for nearly $330k. That's in a nothing town in a nothing part of SE England.

    I believe that the market should be left alone, wiith no additonal artificial inputs. Prices will settle to what people can afford to pay for them and if that means that the price of my house falls, then so be it. It only becomes a problem for me when I sell and then if all other properties have fallen in relation, then it's no problem.

    And when will people realise, not everyone can live in inner cities! There has been no new land supply for decades and those that are released are sub divisions of already small blocks.
  12. Agreed, Cejay that supply is essentially the major driver in price. and agreed also that anything that adversely affects returns for investors will strangle the supply of new properties.
    I think, however there are some things that can be done. It depends on exactly who you want to help, though. Cut stamp duty for first home buyers (but not for investment property buyers) and you help them to compete in the marketplace against investors. I don't really believe this would adversely affect development, because the investment property sector is essentially competing against other investment sectors (like shares) for the investment dollar. The balance there wouldn't change. The only change would be the dividend to the government.
    Additionally, breaks on capital gains tax for building NEW lower cost housing could stimulate development in this sector, easing supply in this area (and thus prices).
    Currently, a lot of investment is going towards the luxury end of the market, which doesn't help renters or first home buyers.
    My concern about the market is that people are either not smart enough to know what they can't afford, or believe they have no choice. Witness exactly this in US. I don't know how you tackle that. You could regulate lending/percentage limits but that would disadvantage first home-buyers versus investors (unless the tax regime discouraged the purchase of older housing stock, maybe?).
    Just thoughts, I'd be interested in hearing counter-arguments.
  13. Thanks for the reply Titus..I know that there are things the government can do to help, but we're talking small changes, not big. I don't know that a $350k house is any more affordable than a $380k house, for I know that I couldn't afford one. And I earn a very good salary. I think the issue is more profound than that.

    We can't keep on building up in the inner cities, for no matter how good the design, they all eventually create their own new problems. High density living is not good and even the size of some of the smaller places here are still massive compared to the shoe boxes that people have in the UK.

    What about if all the people struggling to find a place just stopped...the market would self correct.

    Reducing stamp duty is a good idea and it might help, but it does raise revenue for the government which needs said monies to pay the new salaries for it's staff.

    Never ending...
  14. Buying a house is really the domain of a dual income unskilled couple or single people on good incomes these days. Single lower income families really haven't got a look in.

    Having said that if we assume a 10% deposit a $350k house the payments end up at about $520 a week which isn't un-doable by a dual income family (say $550 & $450 take home) or someone on a good salary (say $1k a week take home).

    Yes it requires concessions to living style, but a couple can live on $480 a week after house payments and tax (and a single can do it easily).

    It gets harder with kids though (which is why many people are buying houses first and putting off having kids).
  15. To sidetrack the thread slightly... is that a smart move, really?
    If you firmly intend to have kids, I wonder if it isn't a better idea to get that done ( :LOL: ), get them through childcare etc. and into school before you purchase a house.
    If it's public school, the cost is less than childcare, both parents are free to work if they want to, and you avoid that big squeeze on your finances when can least afford it.
    The only downside (and it's a biggy) is that you are at the mercy of landlords while you've got the young'uns at home.
    (Not the way we did it, though)

    I don't see a big price crash, because people simply can't afford to sell for less than they bought for. More like a levelling out and gradual catch-up. If a major recession hits, might be a different story.
  16. Happy to live in Adelaide where the houses are cheaper. :)

    Even happier to have a $65,000 mortgage on a $260,000 house. :grin:
  17. happy to be a terminal renter!
    wife is only child,plenty acres, no need to punish ourselves with astronomical debt.