Friday, September 26, 2008

JP Morgan sees a 58% decline in California

JP Morgan has put out this little diddy on their predictions on the housing market. The are offering 3 scenarios, and basing price declines on those. Their current estimate for peak to bottom price declines for California is 44%. We are already at 44.2% (according to DataQuick) so that forecast is pretty well out the window at this point. We have winter approaching, the mother of all financial meltdowns underway and a backlog of foreclosures taller than the Petronas Towers. Their next set of numbers is based on a deeper recession. That guestimate is a decline of 48%. Again, at this point you don't have to be a brain surgeon to conclude that we will probably hit that by the end of the year. Currently prices are losing about 5% per month. The last prognostication is based on a severe recession. It predicts a 58% decline. That is probably closer to what we will actually see.

So far this downturn has proved every estimate, even the most pessimistic to be overly optamistic. Everyone has missed the mark so far even the doom and gloomers. A 58% decline is probably a little too optamistic also. Back near the beginning of the crash. Global Insight estimated the IE to be 65% overvalued. I don't know whether we will see a 58% decline or a 65% decline in the median. But I'm sure it will be that range somewhere. And if the recession is really severe it could be even higher. So far most of the foreclosed homes are due to speculators that bought over their heads. A severe recession would create another wave of foreclosures due to job losses.


Paige said...

As much as we want a house and are excited that we'll probably get one, this is all just really sad.

There is a student at my son's elementary school who was handing out business cards for his dad who is a real estate agent.

I personally know many people who have lost jobs and are on the way to losing their homes.

It seems as if (at least in this zip) everything has stalled. There are few new listings, but a lot of bank owned homes.

I've heard banks may sell these properties to a 3rd party? I wonder how long that process would take before they put everything on the market.

Martin Burtin said...

I hate middle men. If banks bundle their homes and sell them off to 3rd parties, those entities will make sure they make more than 6%. Why can't banks just auction the houses on the internet?

jennalee ryan said...

I thought that i would share this email that was sent to me by a realtor.There is a house in menifee that has been for sale for 3 months at $250k, I offered $235k for it and this was his response ( keep in mind that i found this house online, and sent my son over to look at it with this guy, he spent all of two hours working on the deal....why doesnt he offer to cut his commission?):

Jennalee, I recently had an up call from a Dion. He wants to make a 100,000 dollar offer on a reo that is listed at 199,900. Dion thinks he can get a 99,900 discount because he has cash. Of course the bank will not sell a 200,000 dollar house for 100,000. And if they did the next buyer would offer 50,000 for a 100,000 dollar house and drive down the market so far the entire neighborhood would be nothing but a blighted area. If the bank accepts an under market offer it hurts the whole neighborhood. If you could get this house for 220,000 the next buyer would have justification in getting the same model for even less. Then a good buy for one person sets the comparables even lower. Soon you would have no equity because we helped lower the value of the entire tract. Plus the bank owns other homes in the area and while they are primarily protecting their investment by not selling under market value they are secondarily protecting your investment from cash buyers like Dion.

We may be able to get 245,000 accepted, but even that is not probable.

Let me know if you want to proceed. This house is a good buy in a great location and will be a good investment.

SO ANYHOW...HERE IS MY RESPONSE: Gee, I wonder why the real estate agents(likwe you) werent concerned about selling houses at a price $10,000 higher than the house before it for the past 5 years....isnt that what has driven our nations economy into the disaster that we are now dealing with? Unfortunately, the inland empire is known as a "blighted area" already...due to that fact.NOW everyone is worried about the prices being "driven down" ...they arent being driven down, the prices are taking the natural course of coming back to where they should have been in the first place, instead of the illusionary pumped up prices that they were.No, Mark. Prices will naturally fall to a plateau level...the prices that the houses are worth. Besides, when the bank dropped the price of the home ferom $280 to $250, were they worried about destroying the neighborhoods home values?Besides, i didnt make an unreasonable offer. it was actually very realistic considering market conditions. the fact that the house has been for sale as long as it has with no buyers should be a good indicator that the house ias overpriced. Any home on todays market that is priced right is selling...many with multiple offers.


golfer_X said...

You should have changed your offer to $99k! What a tool....

Cher said...

We had a similar situation in Orange County. My husband and I saw a smokin' hot deal on a condo in Ladera and wanted to make a low ball offer. When our agent called the listing agent about the property, he said there were 8 pending offers - the highest being $50K OVER list. We walked away. I have continued to watch this property and 90 days later it is still 'Active' and still at the smokin' hot price - whatever - now we would offer half our original lowball.

francis said...

First figure out exactly why one wish to invest in Real Estate. If one want to invest for the family, first check out the formalities and papers of the land such as the road connectivity, water, electricity and one should also find out how close the estate is to shops, schools, etc. Take a walk through the interiors of the house which one are thinking of investing in to ensure that there are no repairs of any fault which are necessary.If one want to invest in property for the reason of selling it in the future, it is important that you do quite a bit of research on the estate concerned. Calculate how much appreciation the land is likely to go through and also see which areas will bring one the most amount of profit. All this is very necessary to ensure that one do not buy property which will not be in demand later on.
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