Price Dip ‘Early Sign Of Market Adjustment’: Economist
The Arizona Republic is cautiously informing readers of the housing bubble. “Metropolitan Phoenix’s housing market is cooling, but it still managed to snag the title of the nation’s hot spot for home price gains in 2005. In the Valley, 2005 housing prices soared 48.9 percent above 2004 levels, according to the Realtors’ report.”
“But that growth was fueled by record increases in the first half of the year. By the end of the fourth quarter, prices had risen less than 1 percent, that’s $400, from where they were at the end of the third quarter. The report is just the latest sign of a slowdown in what had been a sizzling market.”
“‘There are sellers who think the frenzy from last year is still going on, and they can inflate their prices,’ said (realtor) Margie O’Campo de Castillo. ‘But they aren’t getting the offers they want, and their homes are sitting on the market.’”
“The scene is much the same across the country, particularly in areas where large price increases were fueled by heavy investor activity. The investor buying-spree started in Southern California, particularly in San Diego, in 2002. After prices skyrocketed in those areas, many of the same speculative buyers cashed out and flocked to Las Vegas. By early 2005, investors had found metropolitan Phoenix.”
“They also have found Florida. But several of the Sunshine State’s top markets also are seeing a tapering of prices. Orlando, like Phoenix, saw prices rise less than 1 percent in the fourth quarter. David Lereah, chief economist for the NAR, said the dip nationally is an early sign of a market adjustment. Housing analysts say the adjustment will be bigger and more painful on the coasts, where home prices are much higher.”
“In the Valley, the median price of an existing Valley home fell last month to $257,000 from $260,000 in December. And 5,260 existing Valley homes changed hands in January, compared with a record high of 10,700 in August. The pace of sales has slowly been tapering off since fall. There were 6,480 resales in December.”
“As early as September, home prices had begun to surpass appraisals, and investors began to sell in droves.”
“Jay Butler, director of the Real Estate Center, said it’s still unclear how big of an overall impact investors had on the Valley’s housing market and how much their departure will hurt it. He estimates speculators inflated metropolitan Phoenix home prices by as much as 25 percent in 2005.”
‘Jay Butler, director of the Real Estate Center, said it’s still unclear how big of an overall impact investors had on the Valley’s housing market and how much their departure will hurt it. He estimates speculators inflated metropolitan Phoenix home prices by as much as 25 percent in 2005.’
Mr Butler flip-flops on this issue a bit. Prices were up 48%. What is the justification for the 23% he sees as sound?
Wow, a quick check of http://www.craigslist.com for Phoenix real estate is quite telling. If you use “reduced” for a search you will find six pages of reduced listings. This can’t be good for those “investors” straddling 2, 3, 4 or more mortgages…
Dukes,
From what I hear, there are many speculators in Arizona with multiple houses. That should really put quick pressure on the speculative areas.
Also, check out the rentals…you can live large for $1500-2K a month while the owner loses $2K+ a month on the mortgage.
I have been having some amazing conversations on Craig’s List today with people who believe that today’s housing starts report is a positive thing for prices. I point to the inventory growth. I point out that just because a house is being built doesn’t mean that it’s been sold. They don’t get it. There seems to be a vast disconnect.
Ask them what happens at the store when they have too much inventory…….
Did that. Fundamental rules of economics don’t apply to houses. That’s what I was told.
Craigslist is not exactly a respository of rigorous thought and reasoning, as evidenced by a quick review of the real estate for sale pages.
Bubble talk is everywhere and we are just getting started!!!
Alot of people that have sat on the sidelines are about to flood the already overloaded inventory.
Empty nesters are licking their chops at the profit.
This springs real estate market will be like all the fans watching a basketball game (from the stands ) suddenly deciding to participate in the actual game.
I agree Ben, we have truly come to the point right now where much of what has been said on this board is coming to fruition. There is “real” economic pain being felt by many, many people (investors) right now.
As someone who owned a house in the Pocono mountains of PA when i was younger and couldn’t see it when I needed to I understand this feeling, luckily I carried the paper for a buyer for a year, then he refinanced and I was OUT! But, it was worrying. Many people will truly realize their worst nightmare as soon as it hits them that real estate is inherently ILLIQUID in a down market. Let the pain begin, in the end it will be healthy for us all…
should be “sell” it when i needed to…sorry
It will dep more. A friend works in Nokia SD just told me that Nokia in Scripps Ranch will lay off more than 300 people. Well, more people will sell their houses in SD.
not necessarily. they can find jobs at Qualcomm
Qualcomm Staduim selling hot dogs?
actually, even Qualcomm is planning to build an office in Vegas or Nevada area. so, SD could be in big trouble
Whew! So Vegas real estate is safe !
Comment by dukes
2006-02-16 11:08:12
Many people will truly realize their worst nightmare as soon as it hits them that real estate is inherently ILLIQUID in a down market. Let the pain begin, in the end it will be healthy for us all…
RE is only illiquid if people don’t lower the price. The smart ones will be the ones who lower their price and get out before the avalanche begins.
I’d argue that RE is illiquid once the seller cannot recover his original purchase price plus costs and cannot sell at a loss.
From the MIT Dictionary of Modern Economics:
“An asset is the more liquid the more readily — in terms of time and other transactions costs involved — it may be converted into money. The second characteristic of liquidity, emphasized more strongly in recent times, is degree of freedom from the risk of fluctuation in capital value (in monetary terms). By the convertibility criterion a deposit withdrawable at short notice may be only fractionally more liquid than a five-year GILT-EDGED stock which is readily saleable in a highly organized market. But by the criterion of capital risk, the stock is decidedly less liquid than a deposit, or for that matter, than a short-term bill.”
- By the convertibility criterion houses are marginally less liquid than your used car — I have two homes and a number of used cars, each time within the span of 1 week.
- By the capital risk criterion used houses are far less liquid than used cars. When inventories are piling up by 1/2 - 1% per day and no used homes are selling at recent comp prices (the slow-motion equivalent of Black Monday — Oct. 19, 1987 on the NYSE), then nobody knows the market value, and sellers are collectively afraid to test the water for fear they might accidently sell for $100Ks below what they would get if they only hung on for another six months or so…
Correction: “I have sold …”
“…cannot sell at a loss.”
Unless there are no potential buyers whatsoever, I think they could always sell at a some loss. Price ‘em at $1 each, baby! I’ll take 20!
Sorry Mo Money, I took your comment the wrong way. I know what you mean now: that a seller can’t sell at a certain price without going into bankruptcy.
I have to agree with Mo Money…many of these people aren’t thinking straight. It never occurs to them that they may have to come to the closing table with $$$. Or, they don’t have those $$$. Either way, real estate is ILLIQUID in a down market, especially one like this where people are upside down.
“The investor buying-spree started in Southern California, particularly in San Diego, in 2002. After prices skyrocketed in those areas, many of the same speculative buyers cashed out and flocked to Las Vegas. By early 2005, investors had found metropolitan Phoenix.”
It is as though a scourge of Mormon crickets have descended on the entire Western housing stock. Seagulls, where are you?
http://en.wikipedia.org/wiki/Miracle_of_the_Gulls
OT - A bit of stock market intelligence………
The “angel” visited the eleven homebuilder stocks that I monitor daily. All eleven opened sharply up, presumably because of the bullish perception of the housing starts report but then were dropping until 11:25. At 11:25, all of them reversed direction and rose enough so that they were up for the day to that time. Not just 3 of them, not just 5 of them, but all 11. And each one at precisely 11:25.The trading pattern for the three lenders that I monitor showed no pattern at all, so it was specific to the HBs. I am sure that Helicopter Ben appreciated it as he was still basking in the limelight of his first speech.
Care to take a look for yourself?
Check the charts of the HBs. You can see what occurred at 11:25. And compare the HBs with the 3 lenders. Very different trading patterns.
Ahh… The sweet mystery of life.
http://www.marketwatch.com/tools/quotes/quotes.asp?addsymb=WLS++LEND+WIC+FED&symb=bzh+ctx+dhi+hov+len+phm+ryl+spf+tol+fnm+kbh&siteid=mktw&vc=1&x=9&y=4
That is really weird! Some people with a lot of money are able to pull the strings. really weird
PPT methadone will at least still be administered on testimony days under the Bernanke regime.
“‘There are sellers who think the frenzy from last year is still going on, and they can inflate their prices,’ said (realtor) Margie O’Campo de Castillo. ‘But they aren’t getting the offers they want, and their homes are sitting on the market.’”
Wow, the REALTORS must really be getting insider info that this housing bubble is much BIGGER than they had thought.
Just last month they were all reporting/touting that buyers should still capture 5 - 7% increases in prices for 2006.
BUYERS NOTE: when realtors (that make their living by “selling” you on purchasing right now) start to talk about the bubble… it’s probably a great time to sit on the sidelines and wait for pricing to correct.
SELLERS NOTE: Better DUMP IT now, even at a substantial discount on what you thought you could have got last year.
Read about Foreclosures: Bargain hunters beware!.
“NEW YORK (MONEY Magazine) - Buying foreclosures once appealed mainly to the small group of hard-core real estate investors who were willing to dig into untouchable rehab projects and wrestle with deadbeat tenants.
But in recent years, scores of self-help books, Web sites, gurus and classes have sprung up, touting the notion that buying property from distressed homeowners is not only the surest path to real estate wealth but also within easy reach of anyone with spare time and gumption.
Now, with rising interest rates and softening prices threatening to derail homeowners who stretched to buy with risky loans, the message from this movement goes, this is the year for foreclosure bargains. Or is it?”
Thanks for the CNN link. I know of people now salivating over the prospect of picking up a foreclosure. Personally I think it is way too risky. This is like “buying the dips” on Nasdaq all the way down from 5000. Like catching a falling knife.
I agree, it not a good idea to try to catch a falling knive. Once the maket hits bottom, then forclosures might be a great way to pick up inexpensive properties.
Looking at all the bad loans out there…foclosures could become a huge sector in the next couple years.
What I find interesting is that the people buying these books, classes,and following these gurus aren’t smart enough to figure out how to do it on their own. The time to buy foreclosures is not when there is one or two on the market but scores of foreclosures saturating the market. This year and quite probably the next are NOT the time to be be buying while the market shakes out. And as another thought, after enough clueless flippers and 25 year old “investors” get burned and the housing market is perceived to be a bad investment it’ll be the few real investors left to purchase foreclosures.
I’m waiting for the PITI to make sense on a nice little 4-plex foreclosure. I have a mgmt company all picked out.
Unless I can make the pmts on a 30 yr fixed I won’t do it.
Read about Housing surge could be a lot of hot air.
“NEW YORK (CNNMoney.com) - Unusually warm weather led to a spike in home building in January, but most experts still believe the real estate market will cool off later this year.
Housing starts jumped 14.5 percent to an annual rate of 2.28 million last month, the highest since March 1973, the Census Bureau reported. Economists surveyed by Briefing.com forecast that housing starts would come in at an annual rate of 2.02 million in the month.”
I believe Arizona received the most ‘frenzied’ of all speculation. Amateur activity was at it’s highest in this market (just a belief, no way to confirm). I believe it could get very bad here.
Lots of locals bought into the frenzy and purchased investment properties. I know of a good number of people with less than average income who have 2nd homes still in various stages of being built. I tried to warn a few and actually talked my brother and sister in law out of making the same mistake.
Metro Phoenix prices up 48.9% in 2005. Metro Las Vegas was up over 57% in 2004. So Las Vegas wins the frenzy crown by a nose. But you’re right about Phoenix being ground zero. It’s the icicle effect. The last to freeze is the first to melt.
2 things I’d love to know about these people. Did they sit down with a calculator and run the numbers on how this second houses would affect their cash flow ? Did they look in the papers and see how many houses are for rent and what the rents were ?
No and no, because when prices are rising 20% a year or better you don’t have to. It doesn’t even matter if you can’t find a tenant.
What you absolutely have got to find is a buyer or refinancier at the higher price.
I have a freind from collage that I saw at a wedding last weekend for the first time in a couple year. He was very excited about his newest AZ investment that he closed on that week. He has purchased 4 houses in AZ this winter/fall.
I cannot believe what I was hearing. He is a bright guy, he’s actually a professor in accounting. How could make such horibble choices?
Oh Jeez, where to begin ? Unless he put down 50% on each of those houses it is highly unlikely he will be positive cash flow. 4 more foreclosures on the way and the professor gets to explain how someone teaching accounting goes bankrupt.
http://matrix.gsbrmls.net/Matrix/Public/DisplayAutoEmail.aspx?ID=3627168-15545199-17
Oh yeah, we are seeing major price adjustments in LA! I can’t believe the listing agent was stupid enough to relist a $789K property for a $2K price adjustment (.0025% for you Mensa folks). Mark my words…some nitwit will snap it up by this weekend.
Actually, that’s 0.25%, not 0.0025%. I only knew that because I’m not in Mensa.
LOL…oops…clearly I am not, either….
jjinla,
That house originally came to the market in July at $809000.
Take the 5260 homes sold in Jan, combine that with inventory of over 34k in the PHX area now, and you have an inventory of over 6.5 months. Compare that to last Feb, when it was less than half a month @ .32.
Wow!
This blog is getting boring and irrelevant.
It was interesting for those of us who couldn’t believe the incredible runup in homes prices and it served its purpose as a place to compare stories and watch for early indicators of when an impending meltdown would occur.
Now its only purpose is to keep reaffirming this fact to whom exactly?
1. Newcomers who are so stupid they just dont get it (or)
2. Oldtimers who already know it.
At some point you just can’t kick a dead horse anymore.
We are pretty darn early in this meltdown, come on now. We are just finally picking up the momentum that carried this market in a positive direction. This is the tip of the iceberg. In 3-5 years when the market bottoms prices stabalize and there are a glut of underpriced homes, this blog will have done it’s job.
This blog won’t have done the job… the marketplace will… as basic fundamentals simply reset to normal long term levels.
The only purpose this blog serves anymore is a social function. GetStucco - or someone else - suggested we should reshape it to discuss the next looming economic/social crisis. I agree.
“GetStucco - or someone else - suggested we should reshape it to discuss the next looming economic/social crisis. I agree.”
Maybe we could discuss the differences between euphonism and euphemism?
I know… we could get a blog off between me and the other user who already took euphemism. The winner get the real pronuciation and the loser gets to use the sound alike that 99% of the people don’t realize isn’t the proper word.
Was “euphemism1″ also taken?
Yeah… by his kid. So was II, Jr, Sr, III, and gilligan, skipper, professor, mary ann and ginger. I gave some serious thought to Thurston but decided against it.
By the way DWR, if you’re a long time reader/poster here you’ll remember how john law disappeared only to be replaced by john law II. Some people speculated the original john law got his blogger identity stolen and reappeared as john law II. Others swore it was someone else altogether.
Either way it’s my understanding that it’s generally frowned upon to tack a number onto an existing bloggers identity. That’s why I went with euphonism which is ‘an agreeable combination of sounds’ as it reflects my generally agreeable opinion on things.
Euphonism seems to fit you. I think you made the right choice.
Thanks… my alter ego hates me for it.
I agree. next couple of years we can all list the homes that we did not buy and salivate to see the % by which it went down!
There is more reason to keep this blog alive. All those “investors”/”Home Ow(n)ers” who made fun of us renters (by choice with cash in the bank-may have been owners before or not) are going though the effort to sell.
Those who we might have advised for couple of years to hold on buying, but gave in bought anyway last JUly(I’ve a friend who bought 800K home in cerritos). Well I wont ridicule him for sure!
This blog is a blessing for me. I am so sick of people talking about RE the last few years. And how much money they’ve made and how smart they are. It’s total BS because no one was willing to sell back then (only one year ago). Total greed caused them to hold on to the very last second. Now their going to pay. I don’t care. Let’em burn.
True, many are going to get burned but the two flippers I know have already made hundred of thousands of dollars on property investment/selling. Whatever loss they face now is small in comparsion to their over-all profit. From what I see only those who bought last year will be in trouble unless the cut/run while they still can.
At times I kind of agree with you.
Beating a dead horse isn’t much fun.
At others times there is nothing funnier or more relevant than acerbic housing bubble comments.
I have noticed many of the reasoned and knowledgeable posters have either stopped reading or resorted to lurking.
Maybe they have moved on to the next economic prediction, who knows.
Nothing is constant but change.
This blog minus the troll filtering definitely is the best way to capture the zeitgeist of the housing market very well.
Maybe we should have one topic and Ben should let the trolls in to spice things up.
I thought maybe some of the old timers took new identities when Ben moved the blog to a new host, but I fear you are right… many of the old bloggers likely have moved on to more interesting and forward looking discussions.
The troll patrol did do a good job of keeping it interesting!
Six months ago it was like watching paint dry (as a former poster used to say all the time), now it’s like watching the wrecking ball getting warmed up.
Unfortunately the wrecking ball is likely to cut a pretty wide swath (sic) thru the entire economy. Those of us who have been smart enough to sit it out now need to be thinking about how not to get hit by flying debris.
There’s one (of many) reasons this blog remains relevant. Those discussions happen all the time here.
Most of those discussion are emotional reassurance to not catch a falling knife. Like we’re all a bunch of junkies who need group support to not lose our financial wits and go get a homeownership high.
Well I have a suggestion. Stop reading it. The rest of us enjoy it.
Stop being mean. Just started this thread to see what other are feeling.
>>Those of us who have been smart enough to sit it out now need to be thinking about how not to get hit by flying debris.
For those of us that have been viewing and participating in this blog for some time now, I agree, sometimes it does seem like we’re beating a dead horse. I spend less time now reading the articles and comments than I used to and now just quickly browse. But that’s because I’m convinced the bubble is real. We have to remeber there are people that are just finding this website for the first time. Many of us have sent this link to friends to inform them. This blog is still extremely important. I passed this blog on to a rep who wanted to know where I was finding all my info. Last week he called me….it was like he found religon. He spends most of his time now going through the archives catching up.
I’ll tell you, although we may be convinced, being on the front lines as a mortgage broker I’m still blown away at how many people still do not get it. I still get the “stupid dog look” when I tell folks to “be careful, prices could drop”.Trust me, we need this blog, and more like it. I know people are idiots. But a lot of them are nice idiots. Let’s give them a chance.
I didn’t mean idiots to be mean… it’s just a fast word for “not exactly on the top of their game when it comes to (xxx)”
If you look at the comments above I amazed at how often our poster’s themes are “let ‘em burn.” I for one don’t get tired of hearing people tell me how smart they are and how much money they’ve made in real estate.
“Good for you. Spend it wisely” is my usual retort. Perhaps that’s because I’ve been very fortunate (software business) and their success doesn’t bother me.
Personally I’ve always gotten clobbered in real estate largely because I’ve bought very expensive homes and when I go to sell the buyers are very discriminating… they want it perfect or they’ll go design and build their own. Losses, or less than expected gains, has never been sour grapes for me.
Pointing at other peoples rise and possible demise isn’t satisfying, it’s alarming. Lots of these ‘arrogant’ people are going to see their marriages collapse, face financial ruins and their kids and families may be impacted. No pleasure in any of that.
I’ll play a violin for them. Their greed has affected all of us renters that have finally reached the point of our lives where we want to be homeowners. Now we rent crappy apartments with very thin walls, we have fights with our wives/husbands because they want to buy an overpriced house, our kids don’t have back yards to play in and they don’t have any long term friends because our neighbors move every year, all because gready speculators pushed the prices to the stratosphere.
I want to see them lose their homes and move into my apt complex, while I’ll be buying their homes in cash.
Seems fair?
I hear the frustration and anger in your voice and I’m sure there are many here who agree with you. However I believe there are other choices that don’t involve hoping someone else gets hurt so you can have an entitlement.
It takes tremendous courage to decide what’s really important to you and let go of everything that stops you from having it.
What have these speculators really done wrong? They sensed an opportunity and they seized upon it… maybe it works out for them and maybe it doesn’t. If anybody is to blame for your plight its the regulators who have turned a blind eye to appraisal fraud, loan fraud and predatory lending practices. How about home builders who created artifical shortages or the NAR/MLS who manipulate sales data?
With prudent oversight none of this would have been allowed to spin out of control as 90% of americans can’t really afford a second, third or fourth home. You shouldn’t be angry at joe six pack for taking his shot… it may be the only one he gets.
I second that. I’ve been reading this blog about an hour a day since last June, and it’s easy to forget that most people don’t have a clue about what it has to say, even now.
I just convinced a friend of mine to start reading it so he’d have some ammo to convince his partner to get out from under a house he bought on spec in Palm Springs last year and is now gradually renovating. Without daily reinforcement from this blog, that case would never be made.
(With that said, comments after every article like “she’s going down” and “let the games begin” don’t really add much.)
For me this blog is an easy way for me to keep my finger on the pulse of the real estate market. Ben dose a great job offering up great summeries of the most current news.
I was convinced there was a bubble a couple years ago before I even found this site so for me it always been about keeping tabs.
And in this function it is and will be helpfull for me for the next couple year.
I am hoping to time the bottom as well. Its all about buying low and selling high!!
Ben does an awesome job!
Eventually, though, all good things come to an end, and so will this blog unless he thinks of a way to reshape it to give it continued life.
I’m enjoying seeing the thing unravel, and not merely for the schadenfreude value. Many catastrophic events happen so quickly that we can barely comprehend them in the moment and thus spend much time afterwards engaged in a forensic analysis of the detritus left behind.
This slow-motion crash, glacial in speed and perhaps also in effect, can be experienced and comprehended in all the complexity of the present; it can be analysed and reflected upon at leisure in the current moment itself. It’s a fascinating slice of living history for those with an inclination to care about such things. I’m enjoying it immensely, on various levels.
Like the approaching storm set to rip a low lying city to pieces, flood it’s buildings, schools and markets, and devastate a region?
I know I’m not the only person who is frustrated by the rampant speculation and foolishness of the current market, but it boils down to two things:
1. Personal responsibility - in which people have decided to leverage themselves into a market that they either (a) do not understand or (b) intend to exploit leaving the carnage for others to clean up; and
2. Ignorance. There has never been a deterioration of asset values where at the end, the ignorant were not the last man standing. Institutional investors will be able to (mostly) evade crushing losses, but the guy down the street that has leveraged his house to buy two others and then is upside down in all three will be hurt (as well as his family) without knowing even exactly what happened.
Perhaps this is why a fool and his money are soon parted.
Well said, but it’s not that interesting! Most bubbles all have the same underlying components …. greed, recklessness, speculation, fundamentals gone awry.
Perhaps the most interesting thing about this bubble is (1) its size (largest in history) and (2) how almost none of us will emerge unscathed. Bail outs, subsidies and financial controls seem all but inevitable as housing is so fundamental to everybody’s financial well being that this mess likely can’t be left to unwind itself.
Reflecting on, and observing, this crash for those of us who have (mostly) gotten out of harms way, is definitely easier than someone who is just now figuring it out and saying “Oh Shit!”
Well said, Betamax!
slow-motion crash?
have a quick look at Europe and there is nothing ’slow’ about the US RE market. Some EU markets have been rising for 15 years (with total gains much larger than in the US), and the average correction (if any) is smaller than what we have seen in the last few months in the US.
I really hope that if there is a serious adjustment to reality in the US, this will also spread to Europe. EU still has the lowest interest rates in decades (or centuries), all kinds of protection and subsidies for homeowners and crazy lending in all variations you can think of.
My country (NL) just approved some new regulations that give 30-50.000 euro for free to starters (that’s anyone up to 35 years old) who buy their first home; without a doubt, the cheapest homes will rise by 30-50.000 euro again. Obviously, for the politicians a 1000% gain in home prices is not enough.
And my city just approved a new regulation that allows local government to offer luxury housing to poor pensioners (most of them are ‘poor’ because they gave away everything to their children to avoid taxes) and tax anyone renting a home in the city for the cost of this nice idea. Because of this many cheap houses for the elderly will be demolished and replaced by luxury homes, also a sure way to drive up home prices.
The problem is that it is not really dead. I still get comments like “Well, I know it’s not as great a market but what’s important is that you get in.”
Plus what happens when the dead cat bounce hits (probably this summer)? Anything can change and I for one like having a support group for this stuff.
Ben: Off topic but in an era dominated by spin: “U.S. Census Bureau put the homeownership rate at 69 percent in the fourth quarter of 2005″ — instead of defining ownership as anyone with a zero-down I/O mortgage — it would be nice to find statistics on the fraction of housing that is owned not owed. I would not be surpirsed if we are hitting historic lows with this more appropriate measure.
Indigo,
Last I heard 40% of American homeowners owe nothing on their property. Considering that overall equity percentages are at great depression lows, the other 60% would likely have a bunch of debt.