‘A Significant Decline In Prices Is Coming’
Thw Wall Street Journal has this interview with Kenneth Heebner. “To get a lay of the land, we tracked down Kenneth Heebner, who since 1994 has managed the $1.2 billion CGM Realty Fund. It has the best 10-year record of all real-estate-focused mutual funds, according to fund tracker Lipper Inc.”
“WSJ: How is the housing market? Mr. Heebner: A significant decline in prices is coming. A huge buildup of inventories is taking place, and then we’re going to see a major [retrenchment] in hot markets in California, Arizona, Florida and up the East Coast. These markets could fall 50% from their peaks.”
“WSJ: What has you so concerned? Mr. Heebner: I’m worried that more people will default on their mortgages. Risky mortgages..have been widely used in the last two years. Some people got 100% financing for their homes. It made the tech bubble look like a picnic.”
“As housing prices fall more people will be under water, and these people are just going to walk away from their homes. They are going to say, ‘I’m outta here.’ You’re going to see increasing foreclosures over the next several years. As [home] prices come down, it will create a difficult environment for home builders.”
“WSJ: What data have you most worried? Mr. Heebner: We’re seeing a huge increase in inventories of unsold homes. The role of incentives in selling a home is increasing so the weakness doesn’t show up immediately in list prices. Large price declines will follow in inflated markets.”
Thanks to the many readers who sent in this link.
“As housing prices fall more people will be under water, and these people are just going to walk away from their homes. They are going to say, ‘I’m outta here.’
That is exactly what happened last time - even people who COULD continue payments on underwater properties walked away…in despair. The psychology on this thing will no doubt be devastating.
Who wants to continue paying a 600K mortgage on a home worth only 300K or less. My dad told me that was one of the worst things about the depression, people just could not see paying a mortgage for a house worth much less than what was owed, so they walked away from the homes, in droves.
See - I don’t get this. You still need a roof over your head - and eventually it will be worth more than you owe again - if you can AFFORD to keep paying (assuming no job loss/health issues) - why would you walk away?
Now, if you couldn’t afford the place in the FIRST place, and you were banking on it being worth more than the mortgage to swing it…. well, that’s just foolishness from the jump.
Um..because you can walk away and buy it again later for less. It becomes de facto unsecured debt. Walking away pays, especially with the “blame someone” else culture practiced here.
If you walk away, the banks can usually still come after you for the difference owed. . . it’s not a free walk, and the downside is much more than just a bad credit score. Most people would not be able to “buy it again later for less.” Not with both (1) a tanked credit score and (2) a big phat judgment liened against their assets and their wages
Plus, as I understand it, the IRS will come after you for the tax due on the amount of loan forgiveness. Say you owe 600K on a home that the bank can only sell for 400K. Isn’t it true that you will be sent a bill by the IRS for the taxes due on the 200K?
I wonder what effect, if any, a bankruptcy would have on a situation like that. Does anyone out there know?
Not a BK attorney or anything close to it, but I believe CH.7 would wipe away both the mortgage debt AND the tax “forgiveness” liability. However, this assumes that the FB can qualify under the new, considerably more stringent BK requirements (such as earning no more than median income).
oh don’t forget that if there is any fraud involved,no bk….how many “stated income ” loans are there?
If you can walk with no/little legal ramifications, and not have wages garnished for years to pay off the bank, etc. The choice is simply the same choice all renters are making today–pay less for that “roof over your head” by renting than feeding a mortgage that may be quite a bit more than the home is worth (or reasonably expected to be worth for the next 5-10 years).
It’s what’s inside the parens that will be the biggest trigger of BKs/walking away from debt–the psychological change from the belief that real estate is a great buy, no matter when or at what price you buy.
Chapter 7 requires a means test so hopefully, the ex-home owner will be unemployed from a W-2 job or be a contract employee, thus being able to manipulate his earnings statements to match the means requirement. Otherwise, that negative equity will be following one for the rest of one’s life. Chapter 13, for the individual, isn’t worth a whole lot.
NO- means test only comes into play if your income is above median income for household size for your state. Here in San Diego I have had no problem with keeping people in a Chapter 7 and wiping out their debts. In a lot of ways the new laws are MORE favorable to the debtor!!
You shouldn’t be paying for a $600K mortgage for a place worth $600K that dropped to $300K. But that’s easy to say in hindsight.
BTW, who can afford a $600K mortgage these days?
Ever been to San Diego???
Few can legitimately afford a $600k house. Many today cheat by using ARMs and interest only loans. This is like a small child riding a bicycle with self-destructing training wheels, or swimming with deflating water wings. Result misery.
But the world has changed. The 80/20, fixed rate mortgage is a dinosaur, extinct. Real estate affordability, and values, should now be evaluated in the context of “exotic” financing, not the old 80/20. Exotic financing is not going away.
Exotic financing does not create affordability. Just the illusion of affordability. When the exotic loans start defaulting, big time, watch the supply of money disappear.
Exotic financing is not going away.
That’s just what they said in the Roaring 20’s.
My friend was an LA mortgage broker in 1980. He said they used I/O option ARMs then, too, when prices got really high–and the 80/20 dinosaur stuck around after that collapsed. All it takes is for the banks to get burned to tighten up that exotic crap.
“But this time, it’s different.” No it’s not.
When the mainstream media starts sounding like this blog, I believe we are nearing the end of the denial phase.
And starting the “Ripping the flippers a new a22hole phase”??
Interestingly enough, there has been a trickle of mainstream media accounts for some time now which sound remarkably like this blog. I would love to verify that these guys use this blog as their primary source, but “easier said than done,” as they say…
GS:
You have been around long enough to see the trend. You are absolutely right.
It is a fact, LA Times, OC Register and WSJ all lurk here.
They will never admit it but Ben has the IP addresses that hit here and he isn’t saying either, but I bet it is pretty impressive.
Someone in another thread mentioned the fact that the media is slow to come to reality. It starts with there is no housing bubble, to it’ll be a soft landing, to OK we’re screwed. It looks like we are starting to see reality come to life in the media.
The media will be the first to break out of the denial phase, as their business depends on it. Many homeowners will pay the price of coming out of denial only after the net worth damage is irrevocably done.
“Many homeowners will pay the price of coming out of denial only after the net worth damage is irrevocably done.”
Absolutely. They’ll look like the kid in the current Ace Hardware commercial who walks in to the store at the end, his sprinkler system having gone haywire.
“It starts with there is no housing bubble, to it’ll be a soft landing, to OK we’re screwed.”
That’s my story and I’m stickin’ TO IT! :-0
I love it that a guy who’s managing a bunch of money, with a lot of skin in the game, isn’t afraid to tell it like he sees it - to the WSJ, no less!
And Ben’s choice of Heebner’s comments above just about sums up, as efficiently as possible, the consensus that’s been evident here at the HBB for what seems like a long time now…
I don’t think he has a lot of residential exposure as his “skin in the game”–but point made. He is someone who clearly understands real estate and big picture trends–he is very bearish on residential RE, but not necessarily that bearish on all real estate.
I could have misused the term “skin in the game” - I really meant more the aspect that he’s managing more than a billion $ in an RE focused mutual fund. That’s a lot of others people’s money - and his fund’s performance and reputation prove his capability.
Conversely, he’s not an “economist” or “analyst” of some kind with not much at stake but his/her own or his/her employer’s short-term financial well-being (see: Blodget, Quattrone, Meeker, Lereah, Appleton-Young, etc., for examples).
I think there exists a distinction.
As for your point about on his views residential vs. commercial, I agree with you, so see my much earlier comments well below.
media needs RE ads, especially newspapers
“WSJ: How is the housing market? Mr. Heebner: A significant decline in prices is coming. A huge buildup of inventories is taking place, and then we’re going to see a major [retrenchment] in hot markets in California, Arizona, Florida and up the East Coast. These markets could fall 50% from their peaks.”
Now that all the experts are adopting positions which many of us who post here adopted over a year ago, I suppose we should all feel a sense of affirmation. Instead, I have a peculiar empty feeling in my stomach. Perhaps this is due to recognition of the agony of collective pain that would accompany a 50% correction in CA prices.
GS -
What was the CA price decline in the early 90’s (over the five years of ‘91 to ‘96)? It was in the double digits at least - right? There was some pain, I agree, and it probably was a long ways from a 50% decline (nominal or real - it will hurt a lot anyways).
But I’m with Ben. This will be bad, but in the end it will “be a boon to most.”
The ‘91 recession, on a national level, which followed the housing peaks on the East and West coasts, was considered mild. Of course, those living here thought it much worse on the West Coast, but perhaps that was because, if I recall at the time, it the slowest economic period in California since WWII.
People around here have had it “good”, relatively, for a very long time. A little reality will hurt - but the place will recover.
And for you grammar fans/nitpickers:
I know - I used too many commas and should have used a parentheses (or two).
SF Jack — too many commas are better than too few, if you must choose.
Just happy you didn’t use “loose” to describe the direction of equity appreciation in the near future.
What was the CA price decline in the early 90’s (over the five years of ‘91 to ‘96)? It was in the double digits at least - right?
In my part of CA the inflation-adjusted drop from the 1989 peak was 35% or so.
Since then, prices have more than quadrupled (in nominal terms) from the bottom. The runup has been phenomenal, to the point where the affordability index (% of population who can afford the median-priced house) is down to something ridiculous like 4%.
Even a 50% haircut would only hurt people who purchased after 1998.
Exactly the right people will be punished - the ones who recklessly disregarded fundamentals and drove prices through the roof in the first place. This is a rare instance of nearly perfect justice.
And what about the ‘renters’ who work in fields like, oh, I don’t know, retail, construction, finance, banking, real estate, land scaping, and so on? They deserve the coming lay offs and hard times?
Personally, I hope to see significant declines in real estate valuations, but don’t have any rose colored glasses on that make me think such a correction will be painless. But better to rip the bandaid off quickly than to tug at it slowly.
Even a 50% haircut would only hurt people who purchased after 1998.
Or cash-out refi’d, or HELOC’d, etc.
Home prices in So Calif dropped 35% from 1990 to 1996 in the coastal areas. Some declines were more, some less. Condos had the biggest declines, reaching 50% in some areas, for some less desireable condos.
The biggest number of foreclosures were for high LTV (near 100%) financing, which at that time were FHA and VA loans, primarily in the lower priced inland/non-coastal areas.
Encino dropped 50% in the 90’s, i remember hearing a story about it back then on nbc 4
“Home prices in So Calif dropped 35% from 1990 to 1996″
Mine was in a small military base town in the California Mojave Desert. I bought in October 1990 and sold in the Fall 1996 for a 20% loss. So I was in the category where prices dropped less. I was lucky in retrospect and in light of this article based on Heebner. Well the 50% cut has not happened yet. But I’m thinking it will. I’m putting lots of money into T-Bills, savings bonds, muni bonds, precious metals, CDs, and value stocks.
My share of collective pain has turned into fear - fear of what will happen to the economy. Fear that I will not be able to pay off all my debt (non-mortgage) before the bottom falls out of this economy.
Mo -
Here’s what Heebner says about the effects of a housing downturn (his version):
“Mr. Heebner: The pops will reduce the growth rate of the economy, but they won’t precipitate a downturn. The economy only turns down when the Federal Reserve takes aggressive action to cause a downturn. I think the current pattern of higher interest rates reflects a decision to normalize rates after taking them to abnormally low levels to stave off potential deflation. When the extent of the housing slowdown becomes apparent, I think the Fed will pause, rather than take rates to a level that threatens an economic downturn. The only real threat to the economy is an overly aggressive Fed, and not a downturn in the housing market, which won’t by itself push the economy down. In fact, it provides an insurance policy against the Fed becoming overly aggressive.”
If Mr. Hebner thinks the economy can only turn down due to an aggressive FED, he is seriously deluded.
For his premise to be correct, we would be living in a managed economy. If that were so, why even have a FED? Just set rates at 3% and go home.
We are in a managed economy and the fed funds rate is a control point!
There’s never been a recession in Mr. Heebner’s economy.
just like 25% of people who own homes outright won’t stave off the declines, the 25% of the recent buyers won’t drag the whole economy with them…i kind of like this argument. the strength of it is obviously how close 25% is 25%…;-)
I also think Heebner is wrong here — if the Fed doesn’t get rates high enough, then the govt may have a tough time borrowing money to finance its massive deficit, and then you could see the US dollar collapse in a crisis.
In short, the Fed has a hell of a lot more to worry about right now than just over-inflated asset values.
:if the Fed doesn’t get rates high enough, then the govt may have a tough time borrowing money to finance its massive deficit, and then you could see the US dollar collapse in a crisis.
Bingo, the Fed has to save the dollar or else all the world markets will come undone which is why they’ve chosen a US housing based recession over a global meltdown.
just like 25% of people who own homes outright won’t stave off the declines, the 25% of the recent buyers won’t drag the whole economy with them…i kind of like this argument. the strength of it is obviously how close 25% is 25%…;-)
Hi,
The market price is set by those who do sell, not by those who do not. Few who own their houses outright will be selling in the next few years, whereas many recent buyers will do so as adjustable mortgage payments rise. This will successfully bring down the market price.
A nuclear missile speeding towards a city cares not for those who successfully predicted its deliverance. It just wants to blow shit up. Collateral damage is indiscriminant by definition.
Perhaps this is due to recognition of the agony of collective pain that would accompany a 50% correction in CA prices.
I dont know about you.. but its sweet music to my ears.
Absolutely. Lower expenses, including housing, leaves more money in my pocket for other stuff (entertainment, saving, whatever).
I’m in the SF Bay Area and there are houses up the street from me that are on the market for $600,000. By any rational non-bubble measure of worth they are certainly not worth $300,000. Basically they are 30 year old, poorly maintained, 3 bedroom standard suburban crap boxes. Once things start rolling downhill there is no reason to think that 50% is a worst case scenario.
I’m under the impression we could see 50% reductions, and that would just be the warm-up.
Personally, I think 75%-80% in frothy coastal markets.
http://clearcutbainbridge.blogspot.com/2006/04/math-for-real-estate-professionals.html
http://clearcutbainbridge.blogspot.com/2006/01/do-math-why-real-estate-will-get-cut.html
Still hilarious, thanks.
If Bay Area houses decline to $300k, imagine what the future holds for bad areas such as Bakersfield and Arizona! I for one would not want to be holding real estate in those locales right now, nor indeed for that matter in any locale!
Yes, and not just a housing correction. But also a correction to consumerism that will force people adjust their view on the so-called “good life”. I think of all the downtowns here that were overrun by useless boutique stores catering to the credit binge, and what will happen when spending drops. In many of these locations, homes were priced according to their proximity to gourmet/wine/fashion shops. If these shops go, so could the upscale perception of these once-modest neighborhoods.
exactly - great observation
I too have mixed emotions. An empty feeling as I know a good friends life’s plans are about to be scrapped (they own three homes and planned to retire.. but they were so giddy I couldn’t do more than hint… there just isn’t stopping some people…).
But on the other hand, if there is a 50% drop… I’m buying in. There are five to seven zip codes we’re considering.
So if one area doesn’t go down… we’re ok. 
Again, my strategy will be to buy *before* the bottom when there is a ton of selection. I’ll try to guess when the bottom will happen, but I’m ok paying $100k too much *if* I can get a home I’ll be happy in for 30+ years.
Neil
Im ok paying 100k too much if I can pay fully pay for the home in cash. Heck, if I have zero house payment I wont care if I pay 200K too much.
I think there is a good possiblity that prices may go down to where most of us here could pay cash for a decent home, especially in areas where alot of specuvestors have been buying.
“I think there is a good possiblity that prices may go down to where most of us here could pay cash for a decent home”
I think you may be overestimating peoples wealth a little. Most people cannot afford to pay cash for houses, hence 30 year mortgages. You sound a little bragadocious, arrogant and conceited. Kudos to you for having that sort of cash at hand, but open your eyes and mind a little and take a good hard look at the country you live in.
FWIW, I’m sticking to my seat-of-the-pants forecast here in Cali: nominal price decline of 15-20% over the next 3 years, followed by flat prices for another 3-5 years. This translates to a real decline of 25-30% over the next 6-8 years. A semi-soft landing, I guess.
After that, who knows, but I would expect prices to start gradually rising again, given population pressure and continuing economic growth.
Yes, we have an ever increasing population of people making minimum wage or just a couple dollars an hour more than minimum.
Economic fundamentals simply do not support your semi-soft landing scenario. Once prices have dipped and the speculators are broke and the mortgage companies are bankrupt and teaser rates have adjusted and foreclosures have skyrocketed who’s going to be left to buy millions of california homes for an average price of half a million dollars?
Soft landing wishful thinking is the result of owning property and not being able to squarely face the prospect of major financial pain.
Binko,
You nailed it.
I stated much the same on my blog:
http://clearcutbainbridge.blogspot.com/2006/01/do-math-why-real-estate-will-get-cut.html
Eleua — I really like those blog posts of yours, particularly the one from January in which you dissected the pricing struggles of the Hippen-Trendys. While a somewhat extreme example, your patient step-by-step with the math of the falling dominoes is a great primer for non-believers and the math-challenged. Each piece of analysis like yours re-sets my mental buying calendar. Good stuff. Thanks.
yes very well thought out
I’m not a real estate mogul; maybe just stupid. But I think you’ll see buyers entering the market as prices decline and as time goes by.
“I’m not a real estate mogul; maybe just stupid. But I think you’ll see buyers entering the market as prices decline and as time goes by.”
Sure, but only if the supply of “easy money” continues.
We have gone over the reasons ad nauseum why price declines will not lead buyers back in to the market. But to reiterate a few of these points yet again:
1) Everyone who could fog a mirror has already bought. That leaves roughly nobody to buy over the next several years (reminds me of a comment from an astute fellow grad student just before the dot com bust: “It seems like almost everybody has already bought a computer.”).
2) Everyone who recently bought priced double-digit gains forevermore into their purchase prices. Now that prices are flat-to-falling (as pointed out by an increasing throng of mainstream commentators), there is a gaping chasm between prospective buyers’ willingness-to-pay, and recent comps which a small price decline will not bridge. Perhaps this has something to do with a five-fold increase in inventory in one year in certain areas (PHX).
3) Many who recently bought used I/O ARMs, on the assumptions that persistently low rates and high appreciation would give them a way out down the road; neither of these assumptions have held up.
4) Many of those who believed in the double-digit YOY gains forever concept cashed out most if not all of their equity gains; now that prices are falling, they realize they got stucco. Interpretation: They are now underwater, and cannot sell without bringing a check to closing.
5) Lenders recently relaxed traditional rules-of-thumb for what percentage of income of a monthly payment they would permit (only God knows why they chose to debauch the underwriting system thusly). This is one of many aspects of the current situation which cannot go on forever, and hence will stop.
6) The Fed is turning the screws on short term rates. Moreover, now that they have hinted that they may pause soon, inflation fears (not to mention missile tests) are driving long-term bond yields sky high (up nearly 100bps since the start of 2006, and recently accelerating their ascent). And fixed mortgage rates tend to move in lock-step with the long-term bond yields.
7) Speculators tend to leave the demand pool when the prospect of no longer being able to cover your negative cash flow with double-digit YOY gains has evaporated. Unfortunately, the loss of speculator demand amounts to the breaking of another of the legs of the price support stool.
I would add to the list all of the second-home and so-called vacation home purchases, adding to the overall supply.
That sounds about right to me, but I have nothing to back it up. (and no, I don’t own a house, but would like to some day)
Yes…….That sounds about right. I doubt we will see much worse than that…….Anything more than that is unrealistic thinking. And lets get real not ridiculous.
Interesting perspective. What inflation numbers are you using to come up with your seat-of-the-pants predictions? In your scenario, even without any price drop and expecting 5% inflation (which may be too optimistic) you will see real price declines in 8 years of 50%. Lop off another 20% and, well, it isn’t pretty.
You better hope for 50% off the top right away and then pray for 2% inflation over the next 4 flat years.
Your 15-20% decline over the next 3 years is already starting to be seen in the past 3 months in some zip codes. I’m looking at one property in my spreadsheet and seeing a $580,000 price reduction on a $2.8M house. This is a bad sample size, but the entire market is starting to turn direction, and it’s a sign that the “soft landing” theory is, imho, pure drivel. House prices didn’t do a “soft takeoff”, so why should they go down any less rapidly?
Do you have any basis whatever for this prediction, other than the “seat of your pants”?
Because I am reasonably sure that few anticipated how long and far the Japanese real estate market would drop after the 1989 peak; or the Japanese stock market, for that matter.
And I am also certain that almost nobody anticipated the utter collapse of tech stocks in the early 2000s period.
So how does the “seat-of-your-pants” know that a soft landing is in the works, even though the mania phase appears to be the biggest and longest in US history?
Although I would love to see it, and am prepared to take advantage of such a situation, I really doubt prices in established areas such as the Bay area, NYC, Boston, etc will fall 50%.
Seems like wishful thinking to me.
Why is it so hard to envision prices falling as far as they’ve risen, especially when it’s so much easier for them to fall than rise?
Proice-Doubt — I’m with GetStucco and TJ on that — increasingly so, each day. I think we are looking at “Holy Moly!”
If you’ve followed this blog from the beginning or at least for a long time, the average opinion has turned out to be true every single step of the way. It’s almost like, “Why did I bother to go to ($$$$) college? Ben Jones was going to come along and create this blog and my financial a– is saved!” Dramatized, but true.
I think that there is an infestation of moderate trolls.
Too many waiting to pounce, skip intro, Vinnie’s to be a coincidence.
The filtering/review takes care of the most outrageous trolls, but these get through. HMMM….
“I think that there is an infestation of moderate trolls.”
They are the bacteria which don’t cause life-threatening ailments. The docs and the pharmaceutical companies ignore them, as they have larger concerns (antibiotic resistant strains, flesh-eating bacteria, etc.) but they still make you sick.
lol
The house behind us, 3 bedroom 2 bath, sold for $330K in 2003. A house 1/2 block away, 2 bedroom 2 bath, sold for $815K in 2006.
50% drop? HECK YEAH!!!!! 75% seems even more likely.
Mr. Heebner wasn’t entirely pessimistic: “Most people won’t have problems and much of the country will be fine. I don’t thnk anything will go wrong in places like Texas, Iowa City or Minneapolis. . . . There will [however] be a loud pop in inflated markets.”
He must live in one of those states??
Heebner is in Boston.
At least that’s where his CGM Funds is based.
This guy is a legend in real-estate mutual funds and not known for making wild-ass statements. If he says a 50% drop is coming, that makes it much more credible.
so what does the fund own now ? they’re still pitching RE on thier ads
http://finance.yahoo.com/q/hl?s=CGMRX
A lot of hotels and commercial REITS.
I’m not pessimistic at all. Home prices coming down will be a boon to most and the economy will survive. Look at the Texas bust. It roughed up many, but the state picked itself up and was roaring just a few years later. People that get financially over-extended almost always crash, so there is nothing new there.
yeah, but when Texas crashed did it have a bunch of investors from CA ? I’m concerned that when AZ busts it’ll take down CA and the surrounding states like dominos. Imagine losing your investments in AZ and being forced to sell your primary at the same time.
There is no doubt that AZ will bust. AZ’s economy is heavily reliant on housing and construction so any pullback in that segment will result in the economy shrinking, unemployment and also financial pain for highly leveraged debtors.
But, it isn’t anywhere near the scale in absolute dollar terms when compared with CA. Median prices are a tiny fraction of CA medians and the number of units affected in AZ are dwarfed. Cumulative pain in CA will be what we read about in the WSJ once the slide begins. They will grab the headlines - Bet on it.
I don’t know if this will be referred to as a domino event. I’ll bet it’ll be more of a synchronous implosion and the hole will be deepest where the cumulative absolute dollar value drop occurs. If a property drops 50% from $1M or 50% from $300K the damage is far far greater, in DOLLARS USED TO BUY GROCERIES & GASOLINE, in the $1M wipeout…
An example of what you describe did happen. For example, Texans were buying up Colorado ski condos, etc. and they got hit accordingly.
Same kind of “hits” were seen in the early 90’s on Vermont ski condos after the coastal urban markets (Boston, NYC, Jersey, Connecticut) stalled around ‘89-’90.
Mo Money - “Imagine losing your investments in AZ and being forced to sell your primary at the same time.”
I think that’s the idea, relative to patient bears being able to find a great deal. Every player bets. Some bet too much.
Mr. Heebner’s very astute comments are realized by comparison to the new housing starts data released by the NAHB: “May figures for all starts rebounded from a 13 month low registered in April, increasing by 5 percent with single family starts increasing 2.1 percent to a seasonally adjusted 1.586 million units. Regionally three out of four areas reported increases from 1.7 percent in the Northeast to 15.8 percent in the West. The Midwest which had been up significantly in April dropped 15.8 percent in May.”
Builders in three of the four markets are plunging ahead with their development plans, while those in the Midwest are scaling back dramatically. Are builders in the Midwest smarter and a little less manic than the ones on the coasts? If so, they might survive. Building 1.5 million new units into rising inventory and falling prices does not sound like good business sense to me, however, particularly when the best real estate fund manager on Wall Street expects a 50% - FIFTY PERCENT - decline in prices. Wow. Very bad news for specvestors and foreshadowing for a lot of FB’s.
Those builders who are continuing like gangbusters are entirely rational.
Buy low, sell high. Prices are still high, and if they already own the land…
Yes… if they are still buying land then it’s not smart. But if they already own it, far better to build and unload… especially if they bought it recently.
Prices now are “high.” With a 50% drop, prices will effectively return to “average.” Most builders are basing their financial statements and purchasing decisions based on current, that is, high, pricing. They have acquired land for development under these conditions. This means that the builders will have bought high and, if the property hits market in the next year or two, they will be trying to sell at average prices rather than the high price they planned. In best case scenarios, they will have bought low (pre-2000 prices) and be trying to sell average with massive amounts of competition and inventory. Not a pretty picture, particularly if they are forced to adjust their balance sheets to show 50% loss or devaluation on the real estate they are holding.
It’s because even with a 50% drop, I think there’s more return on raw materical costs than in the midwest. If you own the land at significantly lower cost than market value, you can build and sale profitably from much lower prices. In the midwest, the raw materials are already stripping away profits, any decline will mean losing money.
we don’t really know what he expects…is talking up his fund by telling how great commercial and hotel RE is. even though i like 50% most of it is wishful thinking, also on my part, admittedly.
“As housing prices fall more people will be under water, and these people are just going to walk away from their homes. They are going to say, ‘I’m outta here.’
Why would you “walk away” if it’s a house you enjoy living in and you can still meet your mortgage ? I was underwater for seven years on my my 1st house and ity didn’t make one bit of difference since I bought it to live in. Is this guy aware of the tax implications if you just walk away ?
I believe by ‘underwater’, Mr Heebner was targeting the specvestors/FBs who’ve purchased/HELOC’ed waaay over their heads. The overleveraged ‘owners’ are going to be hurting hard in the coming months if they haven’t already. I think the tax implication of defaulting/walking away is a non-issue when you’re literally squeezed out of the home you realistically could never afford.
Of course those like yourself who’ve purchased on the fundamental idea that “a home is a home”, the fall of housing prices will never matter because you were sensible enough to purchase based on what you could afford on a fixed mortgage.
I think it’s the extraordinary leveraging that has occurred with the use of the ‘novel’ (aka, ‘crazy’) mortgage instuments that will make this bubble burst much worse than that of the early ’90’s. Such mortgage leveraging is the functional equivalent of buying stocks on margin, althought the direct equivalent would be buying second homes with HELOC loans on the first home.
People will just “walk away” when sentiment is so negative that no one can see the light at the end of the tunnel. Year after year after year of losses typically instills a deep belief in participants that it will never, ever get better - in fact, it’s “impossible” that things will improve - even the experts will say that. I think that is what Heebner is talking about.
Mind you, that will also be the loudest, screaming BUY signal you will ever get.
I suppose that’s sort of like inverse (or the opposite side of an arc, if you like) of the belief a lot of people are still clinging to now that the value of their homes/property will never go down, and they will always be able to borrow again ever-increasing equity. A lot of people seem to have trouble taking the long view. “This too shall pass….”
We bought our first home in 1994 when I was 23. And oddly enough, when a home in our neighborhood was selling for less or break-even with ours, it never even crossed my mind that it was a problem. I guess I just saw our house as a place to live, a debt that was our responsibility to pay off, and at the time renting wasn’t cheaper. I liked the neighborhood and would eagerly try to get my renting siblings to look at the cheaper houses and consider buying them. Now all I think about is risk. I guess that comes with age.
” I guess that comes with age.”
You bet it does. Just wait until you’re twice your present age and price-shopping Viagra, to keep up with the plasticized hotties who have their own version. Just think what a frame-off restore could look like on a woman.
Well, if enough people walk away and banks/lenders get into loan-loss-reserve issues with regulators and go belly-up, those loans may need to be re-qualified before sale. It’s my recollection that during the RTC event, many homeowners could not have their loans re-sold and had to get new funding. Their homes were deep underwater and they could not hold on to their properties since they could not get the funding. It was simply bad luck.
Correct me if I have the facts wrong.
You were lucky enough not to have had to relocate, and sensible enough not to have bought something you really couldn’t afford.
What if 1) you didn’t buy it to live in? or 2) you can’t afford your ARM reset?
I agree with you 100% if you bought the house to live in–you’re locked in, but you got what you asked for.
Just remember the weak hands set the price, and you only need a couple of foreclosures in any neighborhood to trash the comps. It won’t be the average joe that walks away. It will be the person relocating because the company moved and they have no other options. Or the people using suicide loans. It will be the people that NEED to sell that will crash the market. And it doesn’t take that many either.
When George talks, I listen:
[url]http://news.yahoo.com/s/nm/20060704/us_nm/economy_soros_dc[/url]
Ah, ok…. THAT George!
LOL!
Snark like that should be savored, much like revenge, a dish best served cold.
OC Register Blog has kicked me out. Gee I wonder why.
I posted a message about the guy from Dana Capital.
I’m an appraiser (one of the very few ethical and professional ones) working in OC, Calif. Dana Capital is widely known amoung ethical appraisers thoughout the entire US to be one of the most unethical lending outfits around. Not surpising, they are based out of Orange County, CA, which is the epicenter of mortgage fraud. The “nice” folks at Dana Capital have a nasty habit of putting massive pressure on appraisers to grossly inflate values, and flat out lie on reports, and then, if you bill them, they dont pay. This is standard operating procedure, but I guess the Register didnt want its readers to hear about it. I’m Dana Capital is doing very well these days, since the is no shortage of fraudulent (aka: skippy) appraisers who work in Orange County, and other surrounding counties.
More talk by so called experts about why the market is showing signs of weakness, but all is still ok. I tried to post this response, but they wouldnt take it. So I come here, where freedom reigns:
The one thing about markets that people fail to realize, is no amount of “spin”, “propaganda”, or “media hype” on the up, or down side can take full control of an asset market. They do play a big role in propelling the market movements, to the up or down sides, but its the fundamental economic forces that put the ball in play to begin with. There are many on the OCR blog that need to retake Econ101, or get some formal education on markets and / or statistical analysis. Here are the facts: The RE market shot up primarily due to low interest rates, lax lending standards, and the fear of the stock market after 2000-2001. The market really shot up when the “dumb” money started to follow the crowd and the subprime lenders got into high gear. Now that interest rates are much higher than in previous years, the smart money has left the party and the dumb money is left holding onto dear life. There are other investment options now available that carry lower risk and
4-7% returns, but the dumb money is always the last to find out. Yes, a home is just a place to rest your heads. Its too bad many in this Orange County, CA forgot that 4 years ago and will have to be reminded once again. Yes, the housing market in OC is in decline. You may not see it in your neighborhood just yet, but give it some time. And if you are one of those home owners who sees a listing across the street and thinks all is well, I say, get over yourself now, before you look even more foolish when the rash on your belly begins to spread to your face. These are interesting times. We are about to see who the liars really are in this business. We are about to see how financially savy OC Residents really are. At the end of the day, we will all see very clearly that we are all just human. Nothing has changed. The salesmen are the still the liars, and greedy are still the ones who cant bare to see the truth. To look into the eyes of some poor shmuck who actually thought his house price was going to the moon and that he would retire like a king without lifting a finger or saving a dime is just pathetic. But I guess its a sign of the times. This county and the rest of California are about to get a very rude awakening, that in actuality began in the summer of 2004.
The truth is all I want to hear! Thanks for you honesty!!
Thanks for cross-posting.
I think that OCR didn’t post for fear of libel lawsuits. They are held to a different standard.
OCR’s blog is pretty frustating and dumbed down at times but I think it reflects Joe-sixpack in OC actually fairly well.
Most homeowners in OC are in the ostrich head in sand pose at this point in time.
My thoughts exactly. While OCR isn’t responsible (probably), it sounds like Dana Capital might be the type of outfit that would try to sting them.
I know that Auctionheaven and Sunsetbeachguy have said the same - deleting posts which don’t agree with the OC RE spin machine!
I had a couple that did not post as well. I suppose it was too negative.
Your postings reminded me of a conversation I had with my neighbor yesterday…he mentioned how this realtor guy across the way from us in our condo tract just bought a unit a few months ago thinking he could flip it for $600k. I think the guy paid like 500-525k for it. He put the usual granite countertops in and ss appliances (all different brands, of course.) This guy actually thought he was buying the largest unit in the place but turned out it was smaller than that…shouldn’t even the dumbest realtors know this?
So, anyway he reduced his price the past couple of months from 600k to 560k to now 549k. Always see him putting up his realtor signs every weekend. No bites. No traffic. LOL.
Sqeezing the most highly leveraged. It happens in all markets when the fools are the last ones holding the bag.
Thanks for the wonderful post! I thank you for posting here! I have told friend who is in the financial world that I believe there is widespread appraisal fraud here in S. Cal. and he thinks I’m nuts. I am thankful to hear from someone who is in the field and is honest! What you said confirms everything I’ve said!!!
Thank you!!!
While the business press (WSJ, Fortune, The Economist) have turned negative on real estate, the mainstream press has yet to get on board. I live in the Bay Area, and our local press is still running lots of soothing stories. Today, the SF Chronicle ran a piece about interest rates taking a bite, but not enough to bankrupt anyone or cause any serious harm. Soft landing, blah, blah. There’s still a lot of denial.
Speaking of denial.
Check out the top mortgage news story over at Bankrate.com
http://www.bankrate.com/brm/news/mortgages/20060622a1.asp
So the reports of foreclosure rates increasing in places such as Colorado, Virginia, Indiana, and Massachusetts is due to Katrina?
After reading the full article - the Katrina aspect of it makes sense….
“Finally, any report about mortgage delinquencies and foreclosures has to take Hurricane Katrina into account. Picture again that town with 10,000 houses — that microcosm of the whole country. Nine or 10 of the homeowners are behind on their payments because of Katrina. Some await insurance settlements; some are jobless. By Duncan’s reckoning, those people would be current on their mortgages now if Katrina hadn’t hit, and the national delinquency rate would have been 4.31 percent in the first quarter of this year — exactly the same rate as the first quarter of 2005.
And if Katrina hadn’t happened, the foreclosure rate would be higher — 0.99 percent instead of 0.98 percent — because forbearance programs protect homeowners who were hammered by the hurricane. Eventually, some of those people will lose what’s left of their homes to foreclosure.
The hurricane’s effect on homeowners can be seen when you compare delinquency rates in Louisiana and Mississippi with their northern neighbors. In the first quarter of 2006, the delinquency rate in Louisiana was 13.73 percent, and in Arkansas it was 4.37 percent. In Mississippi, the delinquency rate was 12.86 percent, compared to 5.67 percent in Tennessee. ”
And if you notice - out of the five states with the highest % of delinquencies 4 of them were directly affected by Katrina.
*laughs* I don’t know WHAT Michigan’s excuse is.
Lisa - This must have been the same press that said in 1999 there were 6 millionairs made each day ….That didnt happen either…LOL
Lisa…that’s a damn shame, isn’t it? I’m in the Bay Area, too (hence, my login name), and I see all kinds of stupid things going on here….too many to mention. AND, I’ve been watching several neighborhoods, keeping track of asking prices, selling prices, stories co-workers are telling me about their situations and their neighborhoods…it’s crazy here. Every now and then the local TV news will have a headline story of housing prices or rates or whatever, but not enough to really tell the people what’s going on.
Still, whenever the conversation comes up and I give people my point of view, I see these blank looks come across their faces. Let’s face it…not everyone is that internet savvy, not everyone will challenge the RE *professional* and not everyone has kept track of the market when things began to look fishy. This all will be very unfortunate for them when it all hits the fan.
BayQT~
Interesting table of median home prices:
http://www.census.gov/hhes/www/housing/census/historic/values.html
Puts the current housing bubble into perspective.
Dangerous information. Just the kind of chart that RE agents will pull out and proudly display to a client that is wavering on that new home purchase. “I told you, in the long run, housing ALWAYS goes up! Find me a year where housing is cheaper than it was 30 years ago. You can’t.”
To which I would say if the buyer can afford to purchase using a 30-year fixed, and they are not buying it as an investment, then go right ahead. Realize that you are overpaying, but yes, in 30 years, the house probably WILL be worth more (maybe not this time) than they are today. Too bad most current homedebtors won’t be anywhere near their houses in 30 years because they can’t afford their exotic mtg. payments, nor will they be able to bear the thought of making payments on a $600K loan for a $240K house.
Check out the California median in 2000 versus 1990. “Always goes up,” my ass.
In 2006, the number is now 250% higher than it was in 2000. By 2010, who knows, maybe it will be right back at the 2000 figure and the entire bubble won’t even register on the table!
Hmm! If you use a long enough x axis (in years), maybe the Housing price plot will look more like a delta function for the years 2000-2005.
Similar ‘delta plots’ have been observed for other financial assets in recent times, such as the 1980’s spike in gold and the NASDAQ-5200 peak in 2000.
There is no guarantee that any of these financial assets ‘have’ to reflate.
We may see at near 2000 prices. I tracked several TH and prices over the 10 past years. Measured them after 2000 and compared to spot above inflation. The delta is Actual vs 1-2% above inflation. It seems after a 50-55% correction we come down to 2000 sales price. In the prior bubble we also went down (or Backwards) 6 years in prices.
Prices Norm with
YR 15%per Yr Inflation Factor Delta
1998 189 189 -
1999 217 197 (21)
2000 250 204 (46)
2001 287 213 (75)
2002 331 221 (109)
2003 380 230 (150)
2004 437 239 (198)
2005 503 249 (254)
2006 578 259 (319)
Now 578
Revised per Rent 259
and inflation 319 55%
Personally, I’m hoping for 1998 prices, with a temporary dip to 1997-95 at the bottom.
It appears that prices go up around sixty percent per decade on average in California, which means that the median price of a home in 2010 would be around 350K. Since it’s now around 500K…we really are talking about a 50% haircut just to revert to the mean.
Let’s assume that prices do eventually “revert to the mean,” as you say. The next question is how long will it take to revert to the mean. This is not at all clear, even based on the history of housing prices.
If it takes 10 to 15 years to revert to the mean, that really doesn’t offer much to many of us; we just don’t live long enough.
Stealth troll/realtor alert:
If you are 10 years from retirement or death and don’t own your house outright, there is no help for you.
Sure, if you think nothing happened since 2000, when the table of median home prices ends.
FYI, the interview is also available on wsj.com as a podcast.
Whew! I was worried for a moment. He said prices will only fall 50%. Since my house is up 100% I’m still way ahead right? Right?
Loelz. That’s what so many think. Forget Econ 101, Joe Sixpack needs remedial mathematics. Wait, strike that, mathematics is about abstract thinking. What Joe needs is remedial arithmetic.
you know want one mathematician said about the lotto? tax on people who are poor in math. that is the reason why the lotto (and casinos, for that matter) earns so much money, day in day out.
One of my more cynical freinds who is a contractor says if his house that is valued at 1 Million dropped 50% he’d still only think it was worth $170K.
good one! I’m sure that would be the higher math practiced by the masses.
don’t worry robert, if you home falls 50%, you only need it to go up 50% to break even!
Actually not 50% but 100%….
it was a joke, read roberts post.
“Why do I need to learn all this math? No one uses this stuff in real life!”
Tell that to Sir Isaac Newton or Stephen Hawking!
“This is it. That moment they told us in high school where one day, algebra would save our lives.” Gallagher (Val Kilmer) in “Red Planet”
“Arithmetic on the way down and geometric on the way up.” - Say you had $10,000 in a fund at the peak of the bull market and the fund lost 50 percent during the bear market. That left you with $5,000. Then, in the past year, your fund gained 50 percent. So now you have $7,500. In order to recoup your original $10,000 the fund would have had to gain 100 percent.
What is pathetic is I have endured that retort by a perma-bull with an IO mortgage.
Ignorance is ugly and goes to the bone.
It is too late for any analyst to call this market and maintain ANY credibility with me. They all had their chance back when it might have mattered to whoever reads their dribble. Now, they are just adding to the stampede and their analysis has no way to be properly utilized by any investor or home owner. The crash has started, damn few idiots are still out kicking tires and this market has started down hard. What good does it do to find out now that a person should sell their RE? It is too late in a market this illiquid. These fricking morons get PAID to research and report on markets and NOW that it is obvious to almost ANYONE who would spend time reading about current inventory, etc., these guys come out with the big news that RE is overbought and heading down. Fu*k them! We saw the same shit with Telecom stocks. They are shills for the industry and deserve absolutely NO respect.
I bet you are making a good point ….does anyone know what heebner was saying 18 months ago?
Ever heard of “putting your money where your mouth is…”?
He wasn’t just “saying” - he was “doing”.
He started cutting back on owning homebuilder stocks at the end of ‘04 and was out of the them midway through ‘05.
*******
“WSJ: What’s your take on home-builder stocks?
Mr. Heebner: At the end of 2001 we bought home builders. These stocks were trading at six times earnings, and people were worried that the stocks would be hurt by an economic downturn. I became positive when I saw the growth potential created by rising demand and market share gain by the public builders. But if 20% of purchases are for investment purposes and so many borrowers are subprime, that says to me trouble is coming. We started cutting back on home-builder shares at the end of the fourth quarter of 2004 and eliminated them during the first six months of 2005.”
here’s another article about what Heebner was doing, dated June 05:…the man has good timing! Caught the top almost perfectly.
CGM’s Heebner dumps home builders
The fund manager worries about real estate speculation; broadens bets on REITs.
June 3, 2005: 10:22 AM EDT
By Stephen Gandel, Money magazine staff writer
http://tinyurl.com/77md7
Thanks for the assistance…I knew when I posted that went out on a limb. Its good that you keep the thread grounded in the facts. Ulitimately it seems like the RE Market wasn’t that hard to time. I don’t say this in hindsight either. I sold my 1995 purchase 2005. I wouldn’t have timed builder stocks decline because I did not have my head in that. When some of the people participating in this blog started talking about shorting builder’s stocks it sure made sense.
“These fricking morons get PAID to research and report on markets…”
Really? I always assumed they were paid to make people want to buy assets.
Chucks comments are akin to a tech stock analyst/broker saying in March 2000 “This is the peak and were going down big”
Can it be they are now concerned about their reputation or what ?
“damn few idiots are still out kicking tires”
Nah, still a strong supply of idiots not only kicking tires but overpaying. This former Rental Condo was put up for sale after not being leased out for month, it sold in less than a week.
http://tinyurl.com/p89t2
I agree. Many fools still grossly overpaying up here in the Puget Sound area in Washington. With houses selling above 2005 prices it is hard to imagine when the insanity will end…
Chuck said “These markets could fall 50% from their peaks.”
Thanks for confirming what I have been saying about the SF Bay Area (Esp Silicon Valley)
It is good to see that housing prices will finally come back to reality. It is a housing bubble burst that many of us have been predicting for a long time.
(WSJ: How much should ordinary individual investors have in real-estate stocks and funds, given they probably own their homes?
Mr. Heebner: Commercial real estate has a totally different outlook than residential housing, [so commercial REITs] represent diversification. … I own all the funds I manage and I own the condo I live in.)
how can commercial RE do good when the economy is out on it’s butt? ever think that all those realtors and mortgage companies arent’ going to need all the space they have now? not to mention the multiplier effect that will have on the rest of the businesses around.
A lot of major companies sold their RE and rent it back (this happens to avoid LBO activity). From a balance sheet viewpoint, the it is better to rent than to own.
A quick comment here. Based on cap rates, the property I’m renting (tennant) would return 4%/yr. based on current asking price. This is in Camarillo, CA (Ventura County). In order to get a respectable return (8%), then price would need to drop by - you guessed it - 50%. BTW the latest National City/Global Insight shows this area overvalued by - guess again - approx. 50%. I think prices could fall by 30% without too much trouble. We shall see.
Are you renting an apartment, SFR, or Condo? Cap rates for SFRs and Condos in Southern California never, ever, make economic sense from a cash flow perspective. If I could get an 8 cap apartment building in Camarillo right now, I would jump for joy. In SoCal, good luck ever getting positive leverage on residential real estate with fully amortized, fixed-rate debt. Thus, don’t expect a cap rate higher than a fixed-rate fully amortized loan rate.
The property we’re renting is 1/2 of a duplex. If can’t get better than fixed-rate loan rate (~6.5%?), then must be counting on appreciation (else other investments looking better), so must be counting on price appreciation? That will not likely be positive for several years. Comments?
They count on price appreciation and/or shorter-term debt.
He seems to be fairly consistent. He was quoted in in USA today last June .
CGM’s Heebner likes REITs that invest in shopping malls. Store leases are rolling over at higher rates, which means higher earnings and dividends in the future. The average mall REIT has a 4.4% dividend yield, NAREIT says, and has gained 3.3% this year.
Because he’s worried about housing speculation, Heebner has sold all the fund’s stocks of home builders, which at one point were 70% of the portfolio. Lieber is more optimistic: About half his portfolio is in home-builder stock.
Another quote from the article:
No one knows what will prick the housing bubbles across the country. Ethan Harris, Lehman Bros.’ chief U.S. economist, says it’s more likely to be triggered by rumors of houses that won’t sell, rather than spikes in mortgage rates.
So there has been some MSM coverage, just not a lot.
Somewhat OT: Speaking of funds, someone mentioned some good money market funds the other day. I wanted to research them but couldn’t remember what they were and couldn’t find them. They had returns around 4.5-5%.
Thanks.
hsbc online has a rate 5.05%… online savings account… hsbcdirect.com
ing direct 4.35%… online savings account…
emigrant direct 5.00%… online savings account…
Plenty more to choose from…
It wasn’t so long ago, was it, that you could get 5% on an ordinary passbook savings account? And a toaster.
It was so long ago. You’re just getting old.
Passbook savings? I think inflation was 10% or more when those were still around.
Moopheus — don’t feel bad — I had one of those. That was about the time our moms were into Green Stamps. But it was decent basic training in savings.
How many of these money market funds have an assortment of MBS as the underlying securities paying you that interest? You might consider a short term treasury fund instead FWIW.
I’ve worried about that too. I’m trying to protect myself by keeping all accounts under the FDIC limit. But who knows how good that system will be if the SRHTF.
Just watch it with HSBC. They’ll play with your money for upwards of 7 business days (that’s how long it’s taken for them to credit funds to my HSBC account once they’ve taken the funds out of my checking account.) You’ll lose a whole week-plus worth of interest doing that, not to mention not having access to your money. I like GMAC and Emigrant better, on that score.
This is a retirement account where I can purcahse mutual funds. I can’t purchase CDs there.
Bankrate.com lists them with daily updates. Major insurance companies (State Farm, Metlife, etc.) offer short/long-term CDs, aparently at very competitive rates and, if brick and mortar matters to you as it does to me, you can walk into a real office and buy one. The insurance companies don’t tout them much, probably because the commission is squat, but if you want to diversify to keep full FDIC coverage, I recommend at least checking out their rates.
i use state farm bank money market 4.5% for 100,000 +
Well, I see that at at Morningstar as of 6/31/2006 the fund is 99.6% invested.
Here are the top 5 holdings:
Top 5 Holdings Get Price Quotes Sector YTD Return % % Net Assets
CB Richard Ellis Group, Inc.* Financial Services 28.00 8.34 %
SL Green Realty Corporation* Financial Services 45.61 5.98 %
LaSalle Hotel Properties Financial Services 28.76 5.22 %
Reckson Associates Realty Corporation* Financial Services 17.39 5.10 %
AvalonBay Communities, Inc.* Financial Services 27.32 4.97 %
So publicly he sounds the alarm bell but for the 1.23 billion invested it’s full steam ahead? Or does he think he is smart enough to avoid the 50 % downdraft.
Did you read the interview?
He said commercial is very different than residential right now… and he specifically mentioned hotels and others having finally recovered from the effects of 9/11.
Those 5 are commercial property and mortgage holdings. I would venture to say the mortgage holdings are commercial as well. All real estate is not the same.
Isn’t the fund manager required to have a certain % invested per the prospectus? Perhaps these are the best of field?
Here is an interesting link.
http://www.helpusellnw.com/bin/web/real_estate/AR48243/ACTIVATE_FRAMES/HOME_SEARCH/Everett/1146615126.html
This is a discount real estate listing service north of Seattle. I saw the first “price reduced” about a month ago. The number of “price reduced” has increased as you can see. I am not sure if people are just reducing from an unrealistic price or the market is softening. North of Seattle has had decent job growth with a large aerospace company and microsoft hiring. As a renter, I hope things either flatten or go a little negative to create a more reasonable buying situation. I also have noticed the a local Centex website has about 10 homes for immediate occupancy. Here is that link.
http://www.centexhomes.com/Seattle/MetroQuickMoveIn.asp?neighborhoodID=46089&divisionID=999
Maybe a straightforward service like Help-U-Choke will work in a year or two. Daily, my price point for a purchase heads lower, and that is from what I had thought was a pretty low point.
(Look at the Texas bust. It roughed up many, but the state picked itself up and was roaring just a few years later.)
Thanks to all the jobs moving from New York to Texas to take advantage of all the cheap space financed by New York taxpayers via the RTC.
New York may get a little of that benefit this time, but other areas will get more.
East Texas is still in the crapper comparitively. The S&L base was wiped out, many business gone for ever. ET, never recovered. It was still possible to buy houses in rural ET below material cost until a few years ago. It’s only been the recent mini-bubble in rural acerage that’s boosted things. The raw acerage bubble hasn’t been covered much here, as this is a “housing bubble” blog, but a good old fashion land rush has rekindled in the last couple of years as the very wealthy have become “geniuses” again — capable of ’second derivative’ thinking.
Not just Texas, but rural acerage all over the country. I am looking for land in rural central FL for a weekend hunt camp. Found a number of lots for $2500-3000 for 1/2-1 acres when out driving around. BUT when I looked online, I found a neighboring 80×100 foot lot (the next sand road over) for DING DING, $25,000!!!! 5% discount if paying in cash. Must be a lot of suckers in the world.
Bay State wants everyone to count
Lawmakers earmark funds for US Census
By Andrea Estes, Globe Staff | July 4, 2006
With millions of dollars in federal funds at stake, state lawmakers have set aside $100,000 to make sure that immigrants, students, and low-wage earners are counted in the next US Census.
Preliminary estimates have suggested that Boston, as well as the state, has been losing population in the past few years. If those numbers are confirmed by the 2010 federal census, Massachusetts could lose up to two congressional seats, as well as federal money for highway, education, and development programs that are tied to population.
Responding to concerns raised by the state’s congressional delegation, local mayors, and Secretary of State William F. Galvin, lawmakers included $100,000 in the $25.7 billion state budget last week to pay a University of Massachusetts think tank to start researching the numbers to make sure that as many residents as possible are counted.
“Everyone is wringing their hands about how we’re losing population,” said Galvin, whose office will work with researchers at the Donahue Institute at UMass to try to track hard-to-locate populations. “We want to do something about it, make sure every person who should be counted is counted. We’re going to look in every nook and cranny in Massachusetts to count everybody who is here.”
Mayor Thomas M. Menino said yesterday that the funding will allow the state to come up with its own population numbers and not have to rely on federal figures.
“I endorse this move by the Legislature wholeheartedly, ” Menino said. “If the numbers the Census Bureau gives us continue, there’s a good chance we’ll lose a congressional seat. Their numbers also jeopardize our chances of receiving our fair share of federal funds. We haven’t had any way to validate the numbers. This will give us an accurate count.”
According to Census figures, Massachusetts gained 49,638 people in the first half of this decade, inching toward 6.4 million. The Census estimates that the population declined by nearly 19,000 residents between 2003 and 2005. Boston has been especially hard hit, losing 30,107 residents between 2000 and 2005, according to US Census estimates released last month.
A stagnant population, coupled with the growth of other states, could cost Massachusetts at least one of the 10 seats the state has in the US House, according to Holly St. Clair, research director for the Metropolitan Area Planning Council.
“If the estimates are correct, we’ve lost one seat and could be in danger of losing two,” she said yesterday. “It’s not that we are losing population, but it’s that other states are gaining at a much faster rate.”
Marc Draisen, MAPC’s executive director, said that if the state is going to launch a major effort to count its residents, it will take more than $100,000. The Donahue Institute originally sought $800,000 in funding, a request that MAPC and other planning agencies supported.
“We still believe the total program should be $800,000,” said Draisen, ” and we’ll work toward that as the census of 2010 comes closer. We’re glad the Legislature has recognized this is something that ought to be done. The main point is not that we’re challenging the numbers. The main point is that Massachusetts needs an independent way of estimating its population over time to make sure everyone is being counted. “
Last year Inspector General Gregory W. Sullivan accused Governor Mitt Romney of failing to take steps to force the Census Bureau to correct its count of the state’s population. He argued that the census had missed 30,000 college students.
Because of the undercount, he said, the state was losing about $24 million in federal funds for Medicaid and community development block grants.
Yesterday, Jack McCarthy, a spokesman for the inspector general’s office, praised the Legislature for taking action.
“It’s a good thing,” he said. “For a small investment, they’ll reap big dividends in increased funding.”
But a spokesman for Romney yesterday would not say whether the governor will approve the measure.
“The entire budget is under review,” said Eric Fehrnstrom. “Until it is complete, we’re not going to comment on any specific aspect of it.”
According to Galvin, Draisen, and others, certain groups have been traditionally undercounted by federal census takers, primarily students and immigrants.
“Our numbers are harder to count, because they depend tremendously on international immigration, documented and undocumented, and college students,” Draisen said. “They’re numbers that tend to get undercounted.”
Said Galvin: “Massachusetts has an extremely diverse immigrant population. While many other states have Spanish-speaking people from South or Central America, here you’re talking about people who come from around the world, from India, Korea, Cambodia. We have a very large Russian population and people of indigenous Portuguese descent.
State Senator Stanley C. Rosenberg, Democrat of Amherst, said the state should not only investigate the possible census undercount, but should compile a single resident list by merging several databases, such as lists of Massachusetts drivers or state income taxpayers.
That would eliminate the need for local cities and towns to produce annual resident lists, which costs them $5.5 million a year, he said .
“We need to address the undercount, because we’re losing federal funds,” Rosenberg said. “That affects what we can do for people in Massachusetts. But we should combine these two projects, get full federal assistance, and reduce waste in property tax.”
OBSERVATIONS OF CALIFORNIA HOUSING JULY 2006:
http://www.financialsense.com/fsu/editorials/2006/0705d.html
Good find, interesting data.
Thanks.
So he sees rents going up. I wonder at what point equilibrium will be reached.
Sounds like Texas is OK.
Yes, he sees rents going up, and yet seems a little hysterical about making sure the Fed doesn’t go “too far” in raising rates. Yet they will have keep raising, if rents do go up.
Most people that bought in CA before 1998 will still get hurt because they HELOC’d out to liberate their equity in order to fund the larger than life lifestyle - eg, Hummers, SUV, swimming pools, exotic vacations, parties to invite the Governator to, fancy clothes, etc.
Most people? And they spent only on frills? No one went from 1998 with PMI and 6.4% to 2004 and 5.0% with no equity extraction? No one spent wildly on a Masters Degree? No one invested in… you get it. Even some of those excesses aren’t toxic. Home improvements aren’t all lost. Autos have some residual value, etc.
And add to that the people that could afford their old mortgage at 8% and refinanced to 6% fixed and cut their payments by 20% forever.
Even if they took out more money in the refi, representing 15% of their original mortgage, they are paying less per month today than they were in 2000.
The pain will be felt disproportionately by the most aggressive borrowers. The rest will feel much less pain.
Nobody talks about this much on this blog. Rates are still historically low. There are some of us who chased the rates down with no HELOCs. Bought in 1987 with an adjustable that eventually got close to 10%, with a second TD at 10%. Eventually paid off the second and got out of PMI. Three REFIs later - paid off! Wanted a pool, did a remodel for cash, no Escalades (over 130,000 miles on both cars). The downward trend in interest accelerated the payoff of the loan.
Never borrowed for cash out. Reinforces your thought that those who borrowed most aggressively will hurt most if rates are rising. If the aforementioned borrowers borrowed aggressively on the way down and locked in a 30-year fixed they could afford (not 40-year or now 50-year) and paid off extra principal, they could pay the loan off early.
I agree - this is an aspect to the bubble that many bears miss.
Perhaps explains why I personally think “50% declines” in California is an aggressive prediction.
Perhaps explains why I personally think “50% declines” in California is an aggressive prediction.
Repeat after me… prices are set at the margin. It only takes one FB to screw all the prudent folk’s equity.
Keep in mind that the percentage of homes owned outright -and- mortgaged homeowner’s equity are both at historic lows.
IMHO, 50% declines are a minimum.
Observations on California Housing, July 2006
by Jas Jain
Why focus on California housing? Because it is a big deal - it represents some 25% of the dollar value of the US housing, or $7-8Tr.! Someone from North Carolina pointed out to me that the housing is doing great in NC, but it is no more than 1-2% of the dollar value of the US housing. A 20% drop in the price of California homes has the potential of taking the US and the world economy down with it because of the leverage, reckless lending practices, pioneered in Southern California, and the globalization of the financial system.
Describes me almost exactly. Bought in ‘98 - 30 year fixed at 7.5%, zero down, and PMI. Refinanced when interest rates hit bottom and now have a 30 year fixed at 5.25% and no more PMI. Made a substantial difference in my monthly payment. I do have a HELOC which I used to finanace the $12,000 repair of my roof (roofers didn’t put the roof on correctly when the home was built, so it had to be repaired), but I quickly paid the balance down to zero. No other debt besides the mortgage.
The biggest reason I try to keep the debt low and equity in the house is that one day, I will not be able to take living in California any more and will not want to be stuck here because I owe more for my home than what I can sell it for.
Arizona prevents mortgagees/deed of trust beneficiaries from going after the mortgagors/trustors (debtors). See ARS 33-814. The incentive to walk away will be a powerful incentive for many. Just leave the place and there is nothing the bank (or whoever has the worthless promissory note) can do about it. I suspect CA has the same sort of anti-deficiency laws (but I don’t know for sure). The implications on the financial economy are huge as the housing bubble bursts.
What I meant to say was that the creditors will not be able to reach the debtor other than to forclose on the property. Once that is done, the anti-deficiency statutes takes the debtor/defaultor out of the equation. This means there will be a lot of note holders left holding the bag - especially those in the second and third priority. The effects will ripple througout our entire financial economy which nowadays is built on credit. Mass forclosures will shake the very foundation upon which our economy runs.
http://www.siliconinvestor.com/readmsg.aspx?msgid=22510353
California has an “either or” state. Take the property back OR go after the loan. Be interesting if reverse* racism creeps in; overleveraged hispanic walks and the bank takes the house, FB’d white and the go after the income.
* Racism is racism and the coming squeeze will force some to the surface.
I would expect to see a lot of these homes which were purchased by illegal immigrants stripped of their copper wire, copper pipe, fixtures etc. at the same time. Good luck finding the undocumented, since they are in-fact undocumented.
Does anyone know if there somewhere that lists which states are “recourse” states, ie. where the mortgage holder can go after the assets of the FB, as well as forclose on the house/condo?
In other words, are there states that can turn FB’s into debt slaves forever, when the poor bastards default on their mortgage(s)?
Of personal interest, would be MA, OR, CO and FL…
if you file bk7 and get a discharge there is no 1099 if you walk away from houses or autos, or cc debt.
my understanding is that california does not allow a deficiency judgement om purchase money mortgages,but does on refi’s whether or not there was cash taken out.you still get a 1099 from your friendly banker,and a call from your personal representative of the irs,who is there to help you.
Well, I still see building going on all around in NE MA. Some guy bought a couple of acres of forest up the street for 300K and is putting a couple of spec houses on them. Newburyport is still going great guns. Saw condos for (starting price) 900K in Boston’s North End in the Globe:
# 55 new condominium homes in the heart of Boston’s historic North End
# An easy walk to work in Government Center or the financial district
# Surrounded by great restaurants, shopping, and fun things to do
# Luxurious kitchens and baths with stainless steel appliances and granite counters
# Outstanding finishes including hardwood floors, crown molding, and plush bedroom carpeting
# Extra-large windows to maximize sunlight and fresh air
# Gas or wood burning fireplace in every home
# A variety of unit sizes and floor plans, including duplex penthouse units and the only free-standing private home in the North End: The Residence at 44 Prince Street
# Most units with a private patio, balcony, or deck
# Spectacular views from many units
# A lushly landscaped garden open to building residents
# Secure, underground parking with direct elevator access to each floor
# Extensive concierge services and amenities
On the other hand, I have never seen so many “for sale” signs. Yet, when I do a search for NE MA, SE NH, can’t find much for under 250K. Go figure.
…sunlight and fresh air
Sunlight and fresh air? In Boston?