“The median U.S. home price is going to $120,000…” – Harry S. Dent Jr.
It doesn’t look like homeowners will get any reprieve from home prices soon enough.
Harry S. Dent Jr., who provides forecasts based primarily on demographic shifts, recently stated the bottom is a long, long ways away.
Harry Dent, American demographer, economist and writer, predicts the median U.S. housing price is going to $120,000. This is significantly lower than the 2007 median U.S. home price of $191,000 which is the lowest level since 2004.
In an interview with Goldseek Radio (listen to interview here) Dent further adds:
“We’ve seen the greatest housing bubble in history. With low interest rates and wealth created by the Baby Boomers and so much speculation towards the end, that housing prices need to fall 50% or more to get back to normal and that is going to hurt a lot of people who own houses, and it’s going to be the greatest gift to the younger generation coming along where housing isn’t affordable to them.
“It will become affordable and the deleveraging process will happen, Governments can’t prevent it. They always think they can. They couldn’t prevent the Great Depression or any downturn since. So this is going to happen and the best thing people can do is prepare for it now.”
As the whole world waits for a bottom in housing, it is increasingly clear that it isn’t coming anytime soon.
Consumers Get Pinched
Bloomberg reports on U.S. homes with negative equity:
“The states with the highest shares of homes with negative equity either had rapid appreciation in prices, manufacturing declines or higher proportions of subprime loans, according to First American.
“Nevada had the highest share at 48 percent, followed by Michigan at 39 percent, Florida and Arizona each at 29 percent, California at 27 percent, Georgia at 23 percent and Ohio at 22 percent, First American said.
“New York had the lowest share of homes with negative equity at 7 percent, followed by Hawaii at 8 percent, Pennsylvania at 9 percent and Montana at 10 percent, according to the report.
“The negative equity report was compiled from 41.7 million first and second mortgages and covers single-family homes, cooperatives, condominiums, town homes and multiunit attached properties up to four units, Khater [a senior economist at First American] said.”
Drop in Housing Value Hits Economy Hard
The fall in housing prices isn’t only impacting the borrowers who bought homes they couldn’t afford, banks that were willing to lend to them, and investors in real estate and REITs, the problems spread much wider.
The number of Americans who hold mortgages with negative equity is on the rise. Foreclosures and the weakening economy are only compounding this number. Continued job losses and reset mortgages aren’t helping either. These factors, coupled with negative market sentiment, frozen credit, and a sharp decrease in value of commodities, real estate and stocks, have all brought a painful ending to the longest growth period in history.
Almost 20% of U.S. mortgage holders hold mortgages with negative equity. This means that more than 7.5 million properties in the UNITED STATES are now worth less than the mortgages that support them. This is a serious problem for borrowers and consumers that lived off the growing equity in their houses.
As you can see in the chart, $200 billion worth of equity was pulled out of the U.S. housing market. And this is no longer the case. Net equity extracted in Q208 was closer to $10 billion.
As we’ve been bracing at Q1 Publishing for a while, U.S. consumers cut spending in September showing the largest drop since 2004. Even discount retailers like Wal-Mart (NYSE:WMT) are feeling the pressure to increase discounts, despite an increase in October sales. Wal-Mart’s October Sales (at U.S. stores open for at least one year) increased 2.4%, a nice increase from their forecasted sales increase of 1%.
The issue with declining real estate values is just one of the problems facing the U.S. and global economies. As a result of the decline, World GDP will grow by just 1% next year, according to Fitch Ratings in its latest Global Economic Outlook report. Major economies are going to experience their sharpest decline in history.