patrick.net

Housing stock (houses) becomes worth zero when there is less money then n available in an economy for such purchases. A deflation in other words.

The only question is to speculation as to where that tipping point is and the velocity with which we find ourselves hurtling towards the oblivion it represents.

Some good insights in the first comments.

Adverse possession will eliminate the properties tied in legal limbo.
All States have these laws in place - just different waiting periods.
So squat and own after 5 years in California - but you are on the hook for perpetual property taxes.

An interest only loan is INFINITE. Thus a 100 year loan is conservative in comparison.

Ok now what about neg - am/option arm? negative gearing, principal goes up every month. Did the japanese ever do that?

I am sure that some homes may see a 100% loss in value, but more broadly I think that MOST US homes will see at least an 80% drop from peak values by the time we hit bottom.

Most prognosticators seem to think that at most we will see an additional 10% or 20% in average US home prices from current levels. Unfortunately, I think it is going to be FAR more substantial than that, and that this process might drag on for a decade or more.

The simple problem is that there is SO much unserviceable debt (corporate and private) that has to be written off that the economy just can't recover until that happens. So far everyone has been doing their best to kick the can down the road. Most loan modifications don't adjust the principal, and use tricks to extend the life of the mortgage, etc. Commercial loans are just being rewritten to defer payments for several more years.

We are going to experience a prolonged deflation of asset values similar to what Japan has been experiencing for 20 years. By the time this is over average US home prices won't just have reverted to trend, they will have fallen far below the trend. During bubbles asset prices rise far more than historical trends support. In depressions asset prices fall far below the historical trend-lines. At this point US home prices have barely hit 2002 levels. I suspect this won't be truly over till home prices are back at 1983 levels.

When housing goes to $0, be sure to let me know, I would like to buy a hundred.

E-man says

prop.ms says

At this point US home prices have barely hit 2002 levels. I suspect this won’t be truly over till home prices are back at 1983 levels.

You’re too optimistic. I was told that home prices will go back to 1975 level. So renting is your best bet for the next 20 years

1975 Level? What is the 1975 level in 2011 dollars? 1983 in 2011 dollars?

I agree 100% with prop.ms, but will go the step beyond that back to 1975 levels also. That is in my view the last time residential housing was appropriately and accurately priced to the dollar in terms of real honest value. All housing from that point afterwards has been a wicked game played to just rip people off and hold them in slavery, sad part is many fell for it. I was not one of them.

Ocean of Cash? Are you in real estate pipe dreaming? Does anyone honestly believe there is an 'ocean of cash' out there? Really? Where is it? I am in one of the richest parts of the east coast and the untold story I see are very rich people going under left and right. You cannot give a high-end property away here. Please, look around you and look at the once monied people who have lost their make believe ocean of cash in their overpriced dumps...losing their property and vast amounts of money in the process due to bad investments. Who is left? Common sense tells anyone that deflation is already happening. People in real estate right now are in serious trouble in my view, very serious financial trouble. Someone pull the stories on banks not lending due to fear of this deflation which in some areas is already below appraised tax value. I also want confirmation on this one ... do lenders have the right on conventional loans to call due a mortgage if the underlying value falls below a certain level?

"how many here (if any) feel that a certain percentage of housing could go to zero? meaning either the home can not be sold for legal(aka MERS) reasons or that when financial markets freeze, there will be no money/credit available to lend so a home would be ‘worthless’ as a financial product."

I disagree that the MERS foreclosure moratorium is based on sound legal, at least in California since Civil Code Section 2924 clearly defines the rules of law of the non-judicial foreclosure process and includes "acting agents" or "agents acting on behalf" as an accepting entity to initiate the foreclosure process.

http://www.wtffinance.com/2011/02/the-mers-bailout-more-foreclosure-delays-and-increased-consumer-spending/

The property is always worth something. Just because you might not qualify doesn't mean that the property is worthless. There's always somebody willing to pay something, it might not be what you or others value it at but that is the true market value. Of course, the many anti-free market manipulations interfere with that process and allow companies to not foreclose.

"right now the federal government is financing 100% of the costs of gov with QE. when QE stops, R.E. loans stop as 98% of the securitization market is now freddie and fannie…..housing goes to zero."

Why do you think it would go from government guaranteed loans to zero? Do you have no savings? There are people that do have savings and recognize the current state of the manipulation and therefore opt not to buy. Stop with the non-sense government and Fed interference and you would know the true price, based on sound fundamentals. And it wouldn't be zero..

I dunno man,
you have responded to so many posts by calling someone "liar".

YesYNot says

Lets say one person took out a loan and bought a house with a 100K mortgage and interest only loan in 2000 & sold it in 2005 for for $300K. The buyer in 2000 was a new buyer & took out a neg am loan & now owes $350K. How would this affect the M2 money supply?

It probably wouldn't at all. If a loan is securitized and held by an investor or pension fund etc. it doesn't show up on any money supply.

The money supply measures used are very archaic, and almost useless. Inflationista conspiracy nuts made a big deal about the Fed dropping the M3, but it was simply because it wasn't really measuring anything useful. And in an extremely low interest rate environment like we have today, all the other measures are not that useful either, even the monetary base. Today the M1/M2/M3/MZM largely just indicate the preference of the public and insititutions for how they would like the liabilities to be recorded. Checking account? Savings? Money Market? Treasury bill? It doesn't matter, because they all pay almost nothing, and underlying asset in all cases is exactly the same. And they provide almost no useful information about how likely that money is to be spent, which was the whole point of the distinction.

Really the only one relevant now (and arguably ever has been) is overal credit.

YesYNot says

Another question. As people age and shift money from stocks to money market / laddered cds, would that lead to an increase in the M2 at the same time as it leads to deleveraging, lowered spending, and a decreased demand for housing?

There is no such thing as shifting money from stocks into money markets or anything else. You can only trade one for the other with somebody else, leaving the quantities of money and stock unchanged.

MarkInSF,
So you are saying the that M2 increase is largely money being moved from accounts that were not recorded to accounts that are recorded as M2?
I get what you are saying about stock sale / purchases & the money flow balancing. Good point.

@709hannah

Have you lived in Japan?

Back to the original question. Housing will go to $0 in some limited circumstances and locations. Detroit is one of those places. Abandoned sections of the city cannot be effectively policed and serviced. No one is paying property tax, insurance, maintenance. Buildings in blighted areas will be buldozed - reduced to land value only. I can imagine similar circumstances in parts of Florida and Nevada.

Payoff2011 says

Back to the original question. Housing will go to $0 in some limited circumstances and locations. Detroit is one of those places. Abandoned sections of the city cannot be effectively policed and serviced. No one is paying property tax, insurance, maintenance. Buildings in blighted areas will be buldozed - reduced to land value only. I can imagine similar circumstances in parts of Florida and Nevada.

But the original point is housing going to zero, I think it should have been defined from the beginning what the definition of "housing" for this discussion. To me, housing = property + land which will always have some value. Sure, the shack on the property could be worth nothing or even have a slightly negative value due to the removal cost but I'm sure somebody is willing to pay something for that land.

Whatever happened to the Superdome that they sold for $500k? Would have made a great growing op...j/k

WTF Finance says

But the original point is housing going to zero, I think it should have been defined from the beginning what the definition of “housing” for this discussion. To me, housing = property + land which will always have some value. Sure, the shack on the property could be worth nothing or even have a slightly negative value due to the removal cost but I’m sure somebody is willing to pay something for that land.

Whatever happened to the Superdome that they sold for $500k? Would have made a great growing op…j/k

I disagree, some land *is* worth zero. There are plenty of sales of state and LG owned land (in different states across the country) where all one has to do is pay current property taxes and the title is yours. Many of these auctions and sales do not close because no one feels the land is worth the property tax. And we are talking about good sized plots, even acres of land for hundreds of dollars. There is also land that would be worth "less than zero", due to toxic waste and other problems that would require expenditure just to make it worth having.

It's an opportunity especially if you think land is always worth something. I've looked at some myself. I would just say, "buyer beware".

Not to mention land with bad houses will be subject to taxes. And to those penalties the counties give if you don't maintian the place. So, the cost is probably $1000+ per year for most any place in the USA. If you can't sell it, you now have a negative cost land.

Also, the Federal lands such as the one the Federal government allows FREE mining on for some companies. From teh miniing companies perspective the land is free. From the taxpayers perspective the land is of negative value as the state is taking on more liability as the land is disturbed and losing any inherent value the mining company removes. http://www.seattlepi.com/specials/mining/26875_mine11.shtml

OK. That would be true. In light of the liability of property tax land could be worth zero or less. This might be a good point for the Georgist land tax.

Troy, any comments?

I often marvel at how naive the regulars on this forum are but I used to be too. Most of the landlords on here are in rich areas so don't know jack about the real world it seems. What happens when the crack heads use your place for a flop house? When they bust the water pipes? Guess what: YOU get the bill. What about when some teenager falls off your roof. (Probably on purpose as everyone knows but that can never be proven). Or when the neighbors decides to sue you? Or the IRS decides its time to collect that $30K lien that's been sitting there for years (and don't think the title insurance company will pick that one up)!!!
As I found out in tax sales, there are lots of negative value properties.
not to mention gobs of waaaasted time messing with these when you could have been fishing.

BTW, there's a houses near here zoned biz that went for $300K at one point a few years ago and is now sitting REO at $119K. Got the sideboards ripped off of one wall. But its a safe area so will be Ok. But what happens when some HS kid decides to punch holes in the walls or throw rocks through all the windows? Some rain... pretty soon, worthless.

I was a bit tentative about being a landlord until I bought 5 properties and actually did it.
I'm still cowering in the corner clutching my HELOC. Are there any resources you'd recommend (besides, ya know, having inhouse counsel)?