May 5, 2013

Part Of The Housing Bubble Narrative

Readers asked what to do in a housing bubble. “Bubble 2.0 is cresting. What is your plan B? I don’t have one. I just realized I never really had a plan A, either.”

A reply, “Ha-ha, yes, it IS cresting. Someone mentioned City Data forum on this blog, and you can see the signs of another market lock-up when you read threads about people having difficulty getting the price they want for their home, or even getting offers. You know something’s happening when potential sellers start complaining about potential buyers. When the seller-buyer standoff happens, look out below!”

Another, “Back during the late spring of 2005, Tucson’s leading daily fishwrap ran a story about the buyer-seller standoff. It all started when the mean ole appraisers could no longer justify the lofty local home prices. This meant that buyers had to bring more money to the closing table. Or that sellers would have to drop prices. Cue up the standoff.”

“That summer, there was an amazing proliferation of ‘for sale’ signs. Happened very suddenly, and it followed several years of tight inventory. Methinks that the same scenario is about to repeat.”

And finally, “For far too many, Plan A is also their Plan B. And if today’s CDC findings are to be believed, increasingly Plan C is a 12 gauge cartridge and a good strong thumb. More Americans now die of suicide than in motor vehicle crashes. This is no time to be stuck with a mortgage.”

From ValpoLife. “The number of homes listed for sale increased by just 1.6 percent in March from February, but supplies are still 17 percent below where they were a year ago. BELOW!!! Silver lining mentality…this lack of inventory is causing the return of bidding wars, as well as sales above asking price. Well above. Thankfully, low financing costs continue to fuel the real estate fire as well.”

“Inventories are tightest on the low end of the market, where investors came in and bought most of the distressed properties, and are now holding them as single-family rentals. That’s why sales of those low-end homes are down 16 percent from a year ago, and sales of higher-end homes are up 25 percent, according to the NAR. The danger in this is that they will start to unload the homes they own, which would bring that much-needed supply back, but which could also turn home prices in the other direction. Not good!”

“Banks are in control of millions and millions of properties. Rather than put all of the homes on the market all at once they are releasing them for sale very slowly. Unfortunately, banks have little to no incentive to release more homes since they can write off the bad debt and pay little to no taxes.”

“So this leaves us with what? The need for more homes. Homes are selling at a pace not seen since 2007. It’s time! If you ask yourself why you should list now, I’ll give you the simple answer: Supply is low. (Duh!) Selling now when demand is high and supply is low will garner you your best price, aka. a bidding war, aka. more $$$$ in your pocket, aka. cha-ching!”

The Desert Sun. “Two ’simple’ but fundamental forces are at work across the valley, Inland Empire and Southern California, said John Walsh, DataQuick president. First, the increase in the median price reflects a shift in the ‘mix’ of houses being sold, meaning the median price can rise when more expensive homes transact in a given period. ‘The (median price) gains are especially high right now because of the change in market mix: Sales of lower-cost homes have fallen at the same time activity in the higher price ranges has risen,’ Walsh said.”

“Second, the demand for homes has risen at a time when the available supply is unusually low. ‘Prices have had nowhere to go but up in many areas,’ Walsh said.”

My Valley News. “ForeclosesureRadar recently reported that as of March 2013, out of the 7.3 million California homes with a mortgage, 1.8 million were underwater. Another 225,000 homeowners had a five percent or less equity in their homes. They defined this group as ‘near negative equity’ because of costs associated with the sale of a home typically from six to 10 percent of the sale price leaving these homeowners effectively underwater, too. A total of 2 million are still underwater in the state of California. Of that 2 million, more than 1.1 million owe more than 25 percent of their homes value.”

“California foreclosure filings have been on a steady downtrend since March 200, as government agencies have rolled out an array of programs that have successfully lengthened the foreclosure process. Just in the past 12 months, NODs were down by 65.3 percent, according to ForeclosureRadar. Their Director of Economic Research stated, ‘Proclaiming a housing market recovery (we hear almost daily in the news), based on prices alone is akin to a blind man holding the tail of an elephant and proclaiming it a snake!’”

“Several other factors crucial to a healthy housing market seem to be absent in California – such as a solid income and job growth, increase in home sales, and low levels of negative equity. Actual sales this year are down and nearly 25 percent of all homeowners with a mortgage are still underwater. These fractures will continue to have a drag on our market statewide.”

“Regardless, many state that the lack of inventory will cause home prices to jump by 20 percent or more this year. Note, as they continue to rise, return on investment will decline.Therefore, those looking for long-term real estate investments should act quickly.”

From WDRB. “‘We’re seeing multiple offers again for the first time,’ says broker, Jacqueline Klein with Parker & Klein Real Estate. Klein says the Louisville housing market is hot for sellers in particular. A home sits on the market for an average of 120 days compared to 150 last quarter. ‘It’s a great time for sellers to put their house on the market, plenty of buyers out there and they’re all kind of fighting for the opportunity to buy your house,’ she says.”

The Financial Post. “Apparently some Canadians are still willing to do the bidding of organized real estate and go to war over price. A new survey from Bank of Montreal finds 72% of buyers are unwilling to get into a bidding war. Among first-time buyers, 37% are willing to go ‘over budget,’ BMO said in a news release. Taken the other way, there are still 28% of people ready to play this shell game and it’s even higher among the novices who might not be expected to know better.”

“‘In a housing boom, when you’ve got multiple people bidding, the buy side becomes crowded. Prices can lose touch with fundamentals. Bidding wars are part of the housing bubble narrative,’ said Dave Madani, an economist with Capital Economics who has called for a 25% reduction in Canadian home prices.”

“Laura Parsons, a mortgage expert at Bank of Montreal, said there are number of variables that produce a bidding war and that includes a shortage of listings. ‘If there is not a lot to choose from, that creates an anxiety in buyers,’ said Ms. Parsons. ‘You can have variables like the time of year, your need to get your kids in school. [Buyers] can be very anxious. You know when you see a sale on in the mall at Christmas, everybody wants it and they come and say after ‘why did I buy this,’ says Ms. Parsons.”

“There is something called game theory in economics which Mr. Madani says causes people to bid on something just for the sake of winning. ‘It’s called the winner’s curse,’ he says.”

Bits Bucket for May 5, 2013

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