May 31, 2011
To my Clients, Friends & Observers:
This is to share some notes on the first-quarter housing prices that were released this morning. According to Paul Dale at Capital Economics housing prices as measured by the Case-Schiller Index have now fallen further than they did in the Great Depression. Prices then did not return to their pre-Depression peak for 19 years. Prices are 4.9% lower today than a year ago. Mr. Dale thinks prices will fall another 3% this year and perhaps even more next year.
I noted in my April 11 commentary the stubbornly high prices of seven figure estates. The evidence now is that there is softening and perhaps the beginnings of capitulation in that segment of the market. A slight increase in the median sale price of housing in April was the result of higher-end estates being sold at lower prices. It was not because the general level of pricing, the mean, improved.
There’s no place like home and home ownership. The psychic and social benefits are generally far greater than any investment return. Housing has appreciated long-term at a rate of 1 or 2% a year. Coincidently this morning was the news on the radio that actress Joan Collins is selling her Manhattan residence because she simply can’t afford all her properties in London, L.A., the south of France and N.Y. Something has to give.
This is instructive for those with second or third properties or those contemplating such purchases. This is a long phase we are stuck in and it can’t be hurried. There is going to be a huge overhang of housing for sale as the baby boom generation dies. The potential buyers to absorb this glut are not yet apparent. There will be enormous downward pressure on prices and limits to the rate of new construction. Here’s another little clue: various and several media outlets now report that 9% is the “new normal” unemployment rate.
Sellers anticipating the sale of some excess real estate should do it now at the best price offered or be prepared for a 10 – 15% haircut a year from now. Buyers who are contemplating additional real estate beyond their principal residence have the option of waiting.
Dennis M. O’Connor