Wednesday, August 26, 2009

Housing prices before the collapse

Hi FerFal,

I was wondering if you could give us some numbers regarding housing
prices before the collapse till now. Do you have any numbers for the
median existing house price before collapse vs. post collapse? And then
if we convert those numbers into dollars what would the "real" loss of
wealth be? If your mortgage was denominated in the Argentine currency
(pesos) are you now able to pay off your mortgage in the depreciated
peso? .... or was your mortgage indexed to a new value based on the

Many people in the states think that they'll be paying their mortgage
off in worthless dollars after the US dollar collapses but I don't think
so. I think the banksters will have something to say about that!


Real Estate is one of the safest investments. Always has been.
Then again our market wasn’t as overinflated as yours.
Still, today I’d put my money in real estate if I lived in USA. Prices already went down.
Here the homes kept their value in the solid areas, maybe dropped 10% or so in some cases.
What I mean is that a house that used to cost 100.000 USD, or 100.000 Pesos , now still costs 100.000 USD, 380.000 pesos.
This varied depending on location as always, the nicer, most expensive places keeping their price in USD.
Example, A house that got sold recently in a nice place, sold for 220.000 USD in 2009, and that house would have sold for 240.000 USD, maybe 250.000.
It was sold for 220.000 USD but sold in just a couple months with several potential buyers visitng each week. It could have sold for 240.000 but the client was in a hurry and wanted to sell fast.
If something very bad happens, I can see this happening in other places as well.
A nice house in USA that costs 280.000 USD before a financial collapse, maybe would still cost 200.000 Euros or so after.
For real estate in worse places, or bad investments like buying in a neighborhood that went south, prices went down but rarely loosing more than 30% of their value.
Once property reaches 40% of their value or so, enough speculators start buying and stop the decline. This has proven to be true in several cases in many countries so it’s a good number to go by.
Here the debt was “pesified” and indeed, they ended up paying 1/3 of what they should have.
The person that saved money ended up loosing a large portion of his savings while the person with the poor financial planning, the one that had debt, was forgiven a fair % of such debt.
Debt during a crisis is a risky gamble, but some people did benefit from it.
Bankers already make their profit keeping the savers accounts and getting their own debts forgiven, they can afford to benefit the people that get into debt. They are after all, the ones that keep the financial machinery going, keeping them rich.



Anonymous said...

The thing is, here in the US some houses lost 60-90% of their pre-crash value, so a house that sold for 430,000 USD was worth 220,000 USD after the crash. And many banks were loaning 120% of the pre-crash value, so the person with a 430,000 house may have had a 480,000 mortgage, and the house dropped to 220,000 value. In that case the mortgage became impossible to pay and millions of homes were simply abandoned.

It's important to note that the USD has ALREADY been devalued relative to gold, before 1 oz of gold was worth 280 USD and now it's worth 980 USD, a de facto devaluation. The thing with the US is, all our debts are in our own currency, unlike Argentina, Iceland, and some places in Eastern Europe. That means that a conversion from a solid foreign currency to a worthless local one will not happen, since none of our debts are in foreign currencies.

The bankers have largely responded by stopping all lending, it's now impossible to get any sort of loan at all, and many credit lines are being slashed and called in, forcing people into bankruptcy. I still carried a lot of debts from my first failed business, and when my credit lines were called in I had to file bankruptcy. The rich and powerful of course have secret pools of money they can draw on, called "hard money", but hard money is closed to ordinary people.

People are having to buy only what they can afford with their shrinking paychecks, and since they are so deep in debt they can barely afford to feed themselves. Many many people are losing everything, jobs, houses, possessions, and are being forced to live by the rivers and on vacant land. Some have recreational vehicles, others live in tents. I live with my parents now, another common thing, three generations under one roof (which we have in my family). Some bloggers here are predicting mass starvation within a few years as fields are abandoned.

Bones said...

The situation in the US is not uniform and the housing market has lost on average about 30% from a high that was overinflated by too-easy credit. There is a mini real estate boom on bank owned forclosed properties. However, foreclosures are still expected to rise and housing prices to fall further. The banking system has been stabilized but credit is still very tight. Gold was $280 back in 2001 But ALL currencies appear to have devalued relative to gold since then. Areas with diversified economies have not been as hard hit as those depending on a few industries. It doesn't look like a major crash is imminent, but it's hard to see how inflation could not rise dramatically given the massive amounts of government debt currently being incurred.

Larry said...

This is Larry... I wrote the original post. I think the difference is that most real estate in Argentina is sold for cash because they don't have a well developed mortgage and bond market like the US. Therefore they didn't get the bubble like we did.

I chart median existing US house prices and then convert those into gold. At the 1980 High in gold houses sold for 72 oz of gold (63,000/875). In June 2001 at the gold low, the median existing house price sold for 670 oz of gold. They were actually less at the top of the housing bubble priced in gold because gold was going up more than houses. (around 560 oz at the bubble top)

OK, currently US median houses are 181,000 so the price in gold is around 190 oz. Therefore I'm expecting houses to fall to 1/2 their current value in terms of gold.

So, from top to bottom houses would lose 90% of their purchasing power in terms of gold.. from 670 oz to around 1/10 that like in 1980.


Some Guy said...

FerFAL, the comments of this retail expert on the future of American retail marketing are really interesting and jive with what you've said here:

"In the tank forever"