Home Price Corrections Story: The NY Times Made Me Do It (Again)
Blog Alert: Tomorrow I'll be blogging on the monthly foreclosure figures from RealtyTrac.
It looks like I have to talk about home prices again. Why? Because even after I’ve done umpteen reports on TV about prices (see video below), and blogged umpteen times about prices, the New York Times decides to go and do a piece on prices, and suddenly all my bosses think we’ve never covered it. (It’s typical NYT-itis--a problem I’ve found in all my jobs, from network to local to cable. If the NYT does it, despite the fact that I’ve done it before, I have to do it again, because, well, no one believes that a TV reporter can do something more comprehensively and earlier than the NYT--but I digress).
The Times looks at how some pricier homes in markets like San Francisco and New York City are bucking the trend of the nationwide downturn in prices. This is no big shock. First of all, in markets like San Fran and NYC, where the local economies are booming, and factors like Wall Street and the tech sector are pouring money into local pockets, of course home prices are going to do well in the upper brackets. Folks buying a $2m home don’t have subprime mortgage issues.
But take a market like Washington, DC; where the economy is strong, but it’s mostly government, not investment banking, and so incomes are lower. The pricier stuff in DC is having a lot harder time selling, while the mid-range stuff is doing better. For my usual Sunday sport, I took a walk through a $2m home in my neighborhood last weekend. The price had already been lowered once, and this was the second time the family had put the home on the market, taking it off once because it sat too long. The house was huge, lovely, and only a few years old. I spoke with the agent, giving him full disclosure on what I do, and he couldn’t hide his desperation. He said the $1 to $1.5m homes are going fast, but above that, not so much.
I also spoke with David Wyss today, the chief economist for Standard & Poors, who forecasts home prices nationwide to go down 8% this year, far lower than any other predictions I’ve seen: “In the long run the average home in the United States is sold at about 2.6 times average household income,” says Wyss. “That ratio got up to 3.4, that's sustainable at a 5% mortgage rate, we don't think it's sustainable at a 7% mortgage rate.”
Wyss says the big weakness is in the standard trade-up home. Mortgage rates are still low by historical standards, so for the first time homebuyer it still makes sense to go in and buy a house because you've got to live somewhere, and it's cheaper than renting in the long run.
“But the trade-up home is where you have the problems because number one, to trade up you've got to sell your existing house and that's not easy to do right now,” Wyss says, “and number two, you've got to give up that 5% mortgage you just refinanced two years ago and take on a 6.5% mortgage right now that's a big hit on the monthly payment.”
Now you can’t put a “trade-up” home into any exact price point nationally, because it all depends on the market. A starter home in San Francisco is going to be the price of a trade-up home in Dallas, maybe higher. A mid-range home in L.A. is going to be an upper crusty home in Savannah, GA.
So how far should you expect your home to correct? It depends on where you live. Look to your local association of realtors to get the stats for your particular metropolitan region. Look at the sales and price figures, and then, since they probably don’t list sales by price, compare your market to the hot ones and consider your local economy.
Prices are coming down nationwide, but you have to look at how far they rose during the boom, and just how inflated they stand, as we stand kind of midway through this correction.
Questions? Comments? RealtyCheck@cnbc.com