The national housing recovery is an illusion, Scott Ryles, CEO of Home Value Insurance Co., told a room full of real estate reporters this morning in Denver.
Ryles was one of the first speakers at the National Association of Realtors convention being held through Saturday at the Brown Palace hotel.
Ryles, who displayed charts of housing prices going back to 1890, said that the steady appreciation of homes from the 1970s to 2006, created an expectation of prices rising forever
By historical standards, however, that three-decade stretch was an aberration, he said. What is happening now is that the prices are reverting to the mean. Home prices need to fall quite a bit more to return to historical values and appreciation, his charts indicated.
It is not just consumers who have been over-optimistic about a recovery, but a number of economists and other analysts, Ryles said.
Anyone who bought a home between 2004 and 2008 is underwater, that is, their home is worth less than their mortgage, he said.
Prior to World War II, Americans did not look at their homes as investments, but only as a place to live. Increasingly, however, homes became the greatest source of wealth for consumers, until their equity was wiped out during the most recent downturn
Of course, all real estate is local, he noted, and someone looking to buy a home doesn’t care what is happening nationally.
“There is no such thing as a national home price,” Ryles said. “There is only the price you pay for a home.”
However, local home prices are even more volatile than national prices, he said.
Have a news story or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate.
The guy sells silly home value insurance. What do you expect him to say.
home value insurance, lmao.
I’ve seen that chart, and I’ve said this time and time again. In the long term home prices rise with inflation plus a small “location premium”. So, approx 4% + 1% = 5% annually. That 5% is all you need to get rich, does Scott understand that? In boom years it will be 10%+, and in bad years it will be 1-2% or negative. All you need to be able to do is ride out 1/2 of a cycle and you won’t need that silly insurance. The chart fools you because it overemphasizes more recent data where the percentages are higher in comparison to the earlier data. Look at the chart in 30 years and that “boom” period will appear a lot more normal.
Additionally, I would like to see the inflation data that Karl and Robert used to produce the chart. http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-chart-2011-update/
If they used BLS data, which is almost certain, the data is flawed. Not only are the numbers suppressed, they are not even calulated in the same way as the earlier portion of the chart. I wouldn’t be surprised if they even went to the more narrow “core” numbers to produce the exageration in this chart. Trickery all the way around. Lies, damn lies, and statistics.
In terms of insuring against a paper loss the chart the Scott shows is laughable. Who cares what home values do not counting inflation, the largest component. Just another way to attempt to convince people that they need more insurance. Hey Scott, maybe you should show a graph that includes inflation rather than trying to dupe everyone.
I’m sorry but I just can’t get over this. You use non-inflation data to sell your product and inflation adjusted data to payout claims. How is that not fraud?
I can’t imagine too many people have bought this ridiculous product.
Scott is hoping Realtor push this crap on their buyers and sellers.
This chart explains it all
http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/
per Dan’s comment about inflation.
I had never heard of this “insurance” before.
All I can say is: holy (cow)
Protected Home Value Monthly Premium Insurance Payout
$100,000 $25 $10,000
$200,000 $50 $20,000
$300,000 $75 $30,000
$75/mo = $900/yr x 10 year policy = $9000 and the best payout is $30000. Yikes.
Hogwash.
Real Estate Recovery Is Only a Mirage
http://news.goldseek.com/RickAckerman/1340283600.php
As the Great Recession drags on, albeit without official sanction, each and every silver cloud of economic news continues to harbor a dark lining. Most recently, amidst the mainstream media’s hubris over a supposedly stabilizing housing market, we read yesterday in the Denver Post that the region is bracing for yet another painful round of foreclosures. “Despite reports of a thawing housing market,” the paper noted in a front-page article, “yet another wave of foreclosure appears to be looming.” The fact that lenders are gearing up for this is apparent in the sharp spike in deed-of-trust assignments in Colorado. Compared to 2011, they’ve more than doubled in the first five months of this year. Deeds of trust convey ownership rights of mortgages and the ability to foreclose on them, and they are therefore a reliable indicator of foreclosure activity to come. According to the Post, if only half of the filings become actual foreclosure cases, foreclosures could spike to 2007’s crisis levels.
We have long predicted that home prices would eventually fall by at least 70% as debt deflation ran its course globally. This would imply that, despite the unprecedented drop in residential real estate values since 2007, residential values in the U.S. are only halfway to a bottom. Meanwhile, spotty signs of recovery in the housing market have caused the news media to hallucinate about the return of good times, In Las Vegas, for one, home prices have fallen to levels so low that even real-estate pessimists would have to concede that there are great bargains to be had: three-bedroom homes with swimming pools for $100,000, according to a friend of ours who lives in such a home herself. She paid $325,000 for it, though, and although Nevada’s underpriced housing will be a long-term plus for the local economy, it is unlikely to reverse the equity loss suffered by my friend, nor her despondence over having lost so large a piece of her retirement nest egg to debt deflation.
Gusher of Latino Cash
Miami real estate is recovering as well due to a gusher of hot money from Latin America. The city is probably better positioned than Las Vegas to benefit from this infusion over the long-term, but condo prices are approaching frothy levels that could create another bust. And in New York City, where Russian tycoons will not be outbid for penthouses, the $100 million apartment seems likely to become yesterday’s news before the inevitable bust arrives. Meanwhile, Denver’s real estate market never got overheated to begin with, since the city’s recovery from the oil-patch bust of the late 1980s was gradual. For medium-to-large U.S. cities, the sluggish state of Denver’s economy probably falls near the middle of the boom-bust spectrum, somewhere between the Rust Belt and New York/Boston.
And that is why a wave of foreclosures here would be bad news for other cities whose economies have been merely muddling along. Despite this, the mainstream media have taken an activist role in promoting the illusion of a housing recovery. A front-page story in the Wall Street Journal yesterday offered statistics from Zillow to support a picture of spotty recovery in real estate prices across the U.S. But guess which city was near the top of the list, with home values rising over the previous three months in more than 90% of zip code neighborhoods? Answer: Denver. Considering what was being reported in the Denver Post on the same day (see above), we should take the Wall Street Journal’s good news with a grain of salt. As Denver goes, so goes the nation? It’s a possibility worth considering as the mainstream media continues to obsess over a recovery that isn’t, –and never was.
“… and they are therefore a reliable indicator of foreclosure activity to come”. Assignments of Deeds of trust are not a reliable indicator of foreclosure activity, that is just silly. There are other, much more likely, reasons for the increase in assignment recordings.
JohnD, you are wrong on this one. Ever since the robo-signing, MERS will not foreclose in their name. They need to assign the mortgage back to the foreclosing service pool. MERS was created to avoid paying for assignments. What are your MUCH more likely reasons for the increase? I would love to know.
JohnD
Read pg 16. MERS procedures manual realsed June 4th. It talks about the requirement of an assignment of DOT before a FC is started.
http://www.mersinc.org/filedownload.aspx?id=238&table=ProductFile
It is a longer answer than I care to give. What does it matter if you ‘know’ that I am wrong?
It doesn’t. If you don’t think banks are recording assignment before filing a NED, therefor making assignments a leading indicator, I don’t need/want to hear your theory.
Since June of 2011 when there was a noticeable jump in assignments across all metro county clerk and recorder offices, there hasn’t been any correlated jump in the foreclosure filings what so ever. I don’t buy this “assignments is a leading indicator” theory, simple because the numbers don’t pan out.
Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12
Adams Foreclosures(NED) 305 219 285 352 380 299 325 268 284 309 294 289
Assignments 594 676 785 648 672 536 542 521 681 1013 675 912
Scott Ryles may be selling something, but his data, and his analysis of the data, is likely correct.
The Case-Shiller 65 year chart shows a clear “inherent value” of housing, which they call “110″ (roughly). Since 1945, no matter how far up or down the RE markets have swung, the value of a home has -always- returned to “110″ — it’s happened 13 times in fact, the last time being just before our current boom that started in 1998. Unless the fundamentals of behavioral economics have changed radically in the last 12 years, we can expect a return to “110″ within 3 to 5 years. In June 2006, the CS index reached a peak of around 220. Today, it’s hovering around 138, with a mild uptick of late. Most of the recent uptick is due to speculative and landlord investors (many foreign), NOT families buying a primary residence.
Another unfailing historical marker: the timing between inventory and value. Compare “months-of-supply” data with Case-Shiller home value data, specifically the end of the last two big cycles 82-85 and 92-97. We see that market value lags supply by some years. When a low-supply point is reached (82, 92), values continue trending down for some years (2.5 yrs in 82, 5.2 years in 92). Today, we seem to be nearing a low-supply point in our cycle (6.6 months v. 12 months in 2008). And since our current cycle is far longer and more intensive than 82 or 92, with far more shadow inventory not yet on-market (4M+), with 31% of all U.S. home loans underwater, and with far worse economic trends overall, we can assume that the value lag period will be longer, easily 5 years if not more. This correlates well with the Case-Shiller inherent value assumptions of “110″ by 2017 or later.
Bottom line: we have another 20-25% to fall before stabilization.
Mea Culpa. I was using the 2006 NYT Shiller graph against 2012 data. Using current charts, I see that the Shiller Value is today at 131, with a historical baseline value of roughly 120 (not 110). Based on this, real estate has another 10% to fall before reaching its 65-year cyclic baseline value. And based on prior boom-bust cycles (1982, 1992), we may dip below that baseline for a few years (overshoot) while the markets find equilibrium, so a 15% additional drop in home prices by 2016 would be well within historical norms.