Housing Market

This is a comment I left over at The Massachusetts Housing Market

Dave's 10 Ten List on Why Housing Will Crash:

1.) Massachussetts unemployment is higher than the national average. We lost something like 2 million jobs after the DotCom crash and we're still haven't gained all of those back.

2.) Massachussetts is one of the two WORST states for losing population (the other being NY). The majority of that population is in the 25-35 demographic, i.e. your typical first time buyers. Just wait until the retirement boom happens and all the grey hairs leave for Florida, South Carolina and Arizona. We'll be hemmoraging population at that point.

3.) ~6 months of inventory is considers a "balanced" market. A "buyers" market is considered around ~7-8 months of inventory. Over the last couple of years Mass has been at ~4-5 months of inventory. It should be EXTREMELY worrisome that we're approaching ~11.5 months of inventory. This isn't just a buyer's market, this is a bloodbath waiting to happen.

4.) We're already one of the highest places to live only behind CA & NY. Estimates put the current housing market at 20-30% overvalued.

5.) Housing markets have typically been "affordable" historically when cost of a house is 3x annual income. Massachussetts is sitting at 5.5-6 times annual income currently.

6.) Market fundamentals for the housing industry is the rental ratio, i.e. if you had to rent it out what could you get versus what your mortage is. In a "sound" market a house should be worth around 10 times what it can rent for a month. Current market prices are well over 20 times what a place could rent out for. Prices are no longer tied to market fundamentals but to speculation about future returns. Sound familiar? This is the same exact thing that happened with the stock market bubble when prices got divorced from P/E ratios and were based on "future earnings".

7.) Incomes have been flat for the past 3 years.

8.) Foreclosures in Massachussetts have shot up over 100% in the last two years.

9.) The buying frenzy was supported by historically low intrest rates, and exotic mortages (ARMs, 0% down, no document loans, etc). The majority of these loans are set to adjust in the next two years (a couple billion this year, and $1.7 TRILLION next year). The adjustments on these loans are likely to mean thousands of dollar differences in mortage payments.

10.) The REAL year over year price declines for SFH have come at a time when the Real Estate industry was claiming that real estate NEVER goes down in value, and that it's a solid investment.

These are FACTS, there is no "truthiness" behind the fact that prices are in decline.