The Housing Bubble

What’s your housing bubble prediction for the second half of 2011? Some from the beginning of the year: “No new stimulus or bailouts from a gridlocked congress for 2011. Housing prices will continue to fall. Massive cuts to city/county and state public workers. Massive cuts to state budgets (this is very deflationary). Interest rates creep up (about another 1%). We will overshoot 2.5X median wage in many areas for housing prices. More foreclosures. More people walking away. But still no where near bottom.”

“Newsweek and Time will NOT have a cover that housing in the worst investment ever. Canada will pop. Expect no help from Canadians buying cheap American properties.”

A reply, “I was thinking about that earlier today: Will 2011 finally be the year housing is identified as the worst investment ever, or will it take until 2015 for the MSM to figure that one out?”

From Canada, “Canada’s housing bubble will finally pop. Really loudly. Would you pay $500000 for a mobile home in Ft.McMurray or $700000 for single. Check out resource rich Saskatoon. $400000 to live in that hot spot. Resources be damned, the prices in Canada are nuts.”

A reply, “Not everywhere. Much of Alberta’s housing market is fueled by the energy industry. As long as oil prices continue to rise, oil and gas activity will continue to grow and housing will, at the very least, remain stable. Employment is high and wages are high in Alberta. As long as that continues, people will continue to buy homes regardless of what they cost. And regardless of how stupid that may be.”

“I was looking forward to a decline in rural real estate values. We’ve been looking for awhile now for a small acreage, a couple of acres or so, so hubby could have some space and a shop to pursue his car restoration hobby. But at over 100K an acre, even out in the middle of BFnowhere, it just hasn’t been remotely realistic.”

One added, “I believe Canada will pop BIG time, being many FB purchased homes using low interest rates. This is a recipe for disaster, being the 30 year rates are only locked in for FIVE years. After that time, a new loan is reissued using current rates. If rates go back to “normal” numbers (IE 8-10%), many Canucks will find themselves unable to carry the loan. This law was imposed to protect the 5 or so “national” banks.”

Back to the lower 48, “It will be a year of continued financial turmoil, combined with more of the same extend and pretend issues. The big predictable financial crisis will be Spain, and the EU will decide to print their way out of this ever spreading mess just like the US. Smaller banks will continue to fail at the same rate. We will see QE3 - 4, gas prices will continue to climb as will Comodities, metals and silver. The disparity between wealth and poverty will not diminish. Home prices where I am, coastal socal, will continue to drop at a rate too slow for my liking. I expect a 5-10% drop at most in 2011. Unless something crazy happens, there will be no major collapse, no additional US wars, and our government will continue to kick the can down the road. Amazingly, it will be more of the same.”.

Another, “My prediction is muni and state budget default drum beats will thump increasingly louder in the MSM until the Fed gov steps up and hands out some more bail outs for unemployment, job creation (which once more will not be spent on programs meant to help us long term) medicare/medicaid, and other mandated programs. Of course this option will only be available through QEIII and although everyone will accept it with deep foreboding, they will accept it because why face hardship today when you can put it all off till tomorrow.”

One on rates, “The Fed’s war on savers ostensibly is to keep mortgage interest rates low so FB’s can re-fi.

Oh dear, that is a whole chain of non sequiturs IMHO. The Fed funds rate is only loosely coupled with mortgage interest rates, which I believe are generally tied to LIBOR, not the Fed funds rate. IIUC LIBOR is controlled by bankers in the UK. And even if mortgage interest rates are low, FB’s can’t take advantage of them if they are underwater, as most of them are.”

“Mortgage lenders know going forward that a mortgage is no longer a safe investment protected by a good security interest. Now that housing prices have gone down they have found that they can lose principle on these loans, especially in the so-called non-recourse states. Perhaps there will be a spread between mortgage interest rates between the “recourse” and “non-recourse” states going forward.”

One said, “Stimulus package will come close to breakeven after all parties who can pay back do so. I was against it at first, and the banksters benefited most, but in the long run it may turn out to be a reasonable choice.”

One had this, “I think the March-May timeframe will cause lots of heartburn natinwide as the question of raising the debt ceiling (yet again) comes to a head. The ceiling will be raised - but with strings attached. Hopefully, that string is Pay-Go. That aside, California is overdue for a massive earthquake.”

And another, “1. Higher prices for all commodities and things we all use and need with the government still saying there is little or no inflation. 2. Here in North Florida, I believe unemployment will go up, not down as so much of our economy was based on building, selling and financing real estate (which still have many years of suffering to go)and the military which I think will see big reductions due to the deficits. Ditto for many other Sunbelt cities.”

“3. I think we’ll see major riots in at least one U.S. big city as continued unemployment leads young people to revolt against the government run by boomers and seniors who are leaving all their mistakes and debts for the younger generation to clean up. The young people are truly screwed beyond all belief.”

A personal prediction, “I predict I will continue renting for all of 2011.”

A reply, “In Soviet Russia we didn’t even have predictions.”

What do you see in your housing market this weekend? Statistics? “The Assessor’s Office will mail 475,296 Assessment Notification letters which detail each property’s assessed value as of January 1, 2011 (lien date). Each notice serves as the basis for the calculation of property taxes contained in the property tax bill to be mailed in September. The overall number of properties assessed below their purchase price increased five percent to 124,148. The total reduction in assessed value of these properties increased thirteen percent to $27 billion.”

“Twenty-seven percent of all single family homes, and forty-nine percent of all condominiums are assessed below their purchase price, primarily due to the collapse of the residential real estate market. For the first time, home values in some high income areas experienced a steeper rate of decline compared to the previous year. For example, last year in Los Altos Hills 342 properties were assessed below their purchase price for a total reduction of $320 million. This year, the assessed value of 471 properties was reduced and the total amount of reduction jumped to $1.4 billion.”

“‘Basically, it means our economy has not yet recovered, due to the record level of distressed sales or foreclosures,’ said County Assessor Larry Stone.”

Economic forecasts? “A report released by the U.S. Conference of Mayors shows that the Valley’s economy won’t be improving any time soon. The report stated that in 2010, the Phoenix area had the 7th lowest economic growth in the country at 0.9 percent. Phoenix was well behind places like Oklahoma City (7.5 percent), El Paso, TX (7.2 percent), and Buffalo, NY (5.4 percent).”

“Chris Camacho is the vice president of the Greater Phoenix Economic Council. He said that the Valley’s dependence on housing and construction, just before the recession hit, set the area up for a big economic crisis. ‘We’re more reliant on housing and construction jobs than Detroit, Michigan is on the automotive sector,’ said Camacho. ‘If you think about the vast supply tied to the automotive industry in the Midwest, this is a significant issue we are dealing with.’”

Or foreclosures? “Petitions by banks to the state land court, which is the traditional start of a foreclosure process, fell by 72 percent in 26 area communities between May 2010 and May 2011, according to The Warren Group. The drastic drop in activity is not a sign that the economy is recovering, said Vincent Valvo, editor and publisher of Banker & Tradesman, a newspaper owned by Boston-based Warren Group.”

“‘This is not a sign of people paying their mortgages. This is a sign of banks who are scared of judges,’ Valvo said. ‘There is nothing else in the economy that explains this. Unemployment has come down only nominally, wages have not risen significantly, the economic outlook of the state hasn’t shot through the roof, prices of homes haven’t risen, and sales volume hasn’t risen. This is a paperwork issue.’”

“Last fall, lawmakers in Massachusetts also extended the period between when homeowners default on their mortgages and when lenders can file petitions in the land court from 90 days to nearly five months, Valvo said. The result is a greatly slowed process that has drawn out the purge of bad mortgages from the housing market.”

“He compared conditions to a leaky faucet. ‘We don’t have a flood anymore, but we can’t turn it off either,’ he said. ‘It’s going to be this annoying splatter of homes in limbo that’s going to interfere with the rational housing market for years. What’s going on right now is excellent for people who are facing the loss of their home. It’s an absolute nightmare for everybody else who needs a functioning, realistic housing market.’”

“The result has been a constant trickle of homes that are sold by banks at greatly reduced prices, undercutting values for traditional sellers. Andy Luke, a sales associate at Re/Max Home Finders in Natick, said agents have to try to prove to buyers that a low sale price isn’t the final cost.”

“‘The foreclosure properties just continue to put a strain on us,’ Luke said. ‘We’ve got to take into account that buyers kind of know now that foreclosed properties are distressed properties. … They get blinded by the price, but then they go inside with me and they’re shocked about the condition they’re in.’”

“Luke said the below-market prices keep normal-priced houses on the market a lot longer. ‘If (the foreclosures) were to come on the market all at once, that would make it worse, but what we have right now is still really bad, unfortunately,’ he said.”

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