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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Flipper jury-rigs repairs and house blows up…
http://www.washingtonpost.com/wp-dyn/content/article/2006/07/13/AR2006071300590.html
“An explosion demolished a vacant house in Capitol Heights early yesterday, triggering an investigation by Prince George’s County fire officials into whether someone tampered with the property’s natural gas supply to restore service the utility shut off.”
“Investigators found evidence that someone had jury-rigged the pipes to supply the property with natural gas. Washington Gas shut off the service in May.”
“Raju, who said he was in the process of selling the renovated house, said he did not do any work on the gas lines.”
“Brady said the investigation could result in civil or criminal charges — including theft or reckless endangerment — or both.”
“The explosion gave real estate agent Cheryl Abrams and her clients an example of the importance of timing.”
“Shortly before noon, while firetrucks were still crowding Nova Avenue, Abrams arrived in the neighborhood with Marc and Lisa Russell. Marc Russell asked the firefighters what happened.”
“They told me a house had exploded, and that made the visit to this house really short,” Russell said, preparing to leave.”
“Yes,” Abrams added, “I told them perhaps this wasn’t the neighborhood for them.”
That’s strange - yesterday I read that that house had been sold already. I guess it was still on the market. I had a suspicion it was flopper sabatoge and almost posted the link here.
The article says the owner is a taxi driver. Seems we have a lot of discussions about taxi driver flippers around here.
Yes — taxi drivers and hairdressers are the financial geniuses du juor.
As I recall, my favorite restaurants in Houston in the 1980’s kept having fires and going out of business too.
a neighbor said, “the explosion blew out several windows and opened a crack on his concrete patio from one side to the other.”
i’m no concussive/demo expert, but that sounds like b.s.
If you saw the picture in the paper of the house that blew up, you’d believe it. There was a newly built house is Sterling a few years ago that was blown to smithereens from a gas leak. Happened in NYC last week, too.
In California, the FB’s will be lighting brush fires to destroy their overpriced pieces of sh*t. If arson can get the borrowers out of their problem, there will be some one to start the fires.
I wish that I had a good argument against this destructive vandalism… but I do not. There will probably be fires, explosions, and other acts to rid floppers of their POS’s.
To think, this is only the warm up act. Wait a few months when even the most optimistic flippers realize they are under water and its only going to get worse.
As a side comment, what is up with all of these working people and their flips?!? My hairdresser is frettting over her sister’s two flips. Several technicians at work own “investment properties.” We have one engineer with 5 properties (he’s in trouble)!?! Another with 4 (down from six and will be cash flow positive unless rents drop 20%+). We have another technician with 3 homes (note: all occupied by his family… but there is evidence he’s tapped the “home ATM” on all three…). We also are seeing our first coworkers who cannot make home payments off of their normal income. (We just had to cut overtime due to budget constraints.) One guy pulled $450k out of his home!
Interesting times ahead.
Neil
Coincidentally, brush fire season HAS started early this year. Usually they start in the fall but we have had several in the last few weeks.
Ben posted something about Laramie, WY awhile back. Here’s a new article called “Land prices heading up fast in Laramie.” Keep in mind that Laramie actually has a declining population! Sounds like a fair amount of Cali speculation too.
Laramie land prices
“If you bought a lot a couple of years ago and you sold it today, you could probably make 50 percent on your money,” Toro said. “It’s just supply and demand.”
Laramie’s housing market has seen a slow but steady growth in recent years, Toro said. Social and demographic changes, such as fewer people per household and parents investing in homes for their college-aged children, have helped to keep the market strong.
Toro said there’s a chance that additional subdivisions could provide more lots than the market demands. Yet he said he wouldn’t expect a crash in prices, but rather a gentle slowdown.
“I think we’ve had a very stable market,” Toro said. “We haven’t had the busts that other places in Wyoming have had. But we haven’t had the boom they’ve had in parts of Colorado. If you go down the Front Range near Loveland, you’ll see as many houses in one subdivision as there are in all of Laramie.”
Real estate agent Dianne Van Pelt said there’s still available land in Laramie, but people may need to look a little farther afield.
Van Pelt said there are also lots available outside the city limits.
“People who might not have considered looking outside of town are considering it now,” Van Pelt said.
ahhhh that smooth taste of Laramie…….
http://en.wikipedia.org/wiki/Laramie_Cigarettes#Laramie_Cigarettes
There’s a lot of stuff smoked in Laramie, and I’m not talking tobacco.
There are more houses for sale in Laramie than I’ve ever seen. According to the development office housing starts are way off. There’s really nothing in Laramie except land.
1222 S&P is a multiyear uptrend line and also a retest of the June lows. Wouldn’t be shocked to see a break to get stops but would be shocked to see a close under that.
TXchick
I really wish I understood your post. What is a “multi year uptrend line”?
The way I understand it, every “dip” in the past in an uptrend line (you can see the uptrend if you zoom out on the graph) provides some support for prices. When the price of stocks dips to that level and bounces off, it indicates strong support, so you shouldn’t expect it to drop back down immediately. However, if the prices of stocks drops below this line, it indicates “broken support” at which time the price of stocks can have a lot farther to fall and the former support line now becomes resistance, with the next support line at the next lower previous low.
In summary, if the S&P breaks through 1222, which it was last at on June 13, then watch out below!
Thanks That makes sense.
Actually it’s not that simple. Since everyone “sees” that line as well as the (so far) successful higher low/double bottom off the June lows and has probably set stops accordingly right at that spot, I expect a sell program blitz this afternoon to take the trendline out, stop out all the people who were there and perhaps then reverse or reverse after a down open on Monday morning. I have a stop at S&P 1240 on my index puts. Puts are very expensive today and being heavily bought for protection/hedging. That’s usually a good time to sell them. Emphasis on “usually.”
Actually, it’s not this simple either, since everyone “sees” this and therefore “expects” the sell program blitz to take the trendline out. If you look closer at the line, there’s a walrus tooth pattern followed by a horny toad uptick, therefore meaning the index should go up for the next period.
I don’t mean to be rude, but stock picking, etc. is essentially random and only people with insider information make anything spectacular other than a few lucky ones. If anybody could predict stocks, they’d be a multi-gazillionaire in no time at all. It would be easy to become the richest person in the world if you could truly predict the market. What am I missing?
I found this link about uptrend lines.
http://www.thestockbandit.com/Uptrend-stock.htm
Still trying to learn.
A line that tends to go more up than down over the course of more than one year?
IMHO - The current market conditions are similar to October 1987 - I see no reason to look for any bounce.
LOL. In what way.
I agree about ‘87 but not now. In the fall.
Remember “the market will do what it can do to cause the most amount of pain to the greatest amount of people.” IMHO every mope is looking for a summer rally.
No they’re not. People are scared to death to buy anything. If you don’t see that, you’re not watching.
I sold all my index puts at the close. Naked as the day I was born.
What do trend lines have to do with anything. The Middle East has a fresh conflict, oil prices are climbing through the roof, and Central Banks following inflation targetting rules will tighten rates in response. The trend will turn down, no matter where it went in the near or distant past.
Read Burton Malkiel’s book, “A Random Walk on Wall Street.” A key point: there is absolutely no empirical evidence to show that trend analysis (or other forms of technical analysis) is more effective than a monkey throwing darts.
Anyone surprised to see the 10 yr at 5.06 down from 5.28 a few weeks back?
http://www.bloomberg.com/markets/rates/index.html
Mortgage rates have been creeping down last couple of weeks.
Not surprised at all. Demand for mortgages is falling off a cliff.
No, there is a flight to safety (which despite our views still happens to be the USD/treasuries) due to war and other concerns.
This reflects a level of confidence that the Fed will pause in August due to weak economic conditions. Look for a reversal and steepening of the curve (an increase in yields and interet rates) as the data begin to more clearly demonstrate a negative trend…
Think of this as reflective of a growing conviction in the bond market that a recession is increasingly certain.
A few guys were found guilty of harboring illegal aliens to do construction work in Bozeman, MT. Just curious, but does anyone ever get called on this closer to the border? Does anyone care? Only in Montana?
Illegals in Bozeman
This is precisely why this a$$hole governement of ours, Repubs/Dems alike, needs to start levying mammoth, and I mean mammoth fines for the practice of hiring illegal immigrants. The use of this illegal labor is so rampant it is a crisis. I want these unscrupulous companies to cough up millions of dollars, and their owners/operators to face prison terms. I want anyone and everyone getting wealthy on the backs of these illegal immigrants to pay, pay, pay. Hired an illegal to clean your McMansion for an inexpensive amount so you can live like Kings and Queens? 10k in fines minimum PER ILLEGAL WORKER!!! Needed your yard picked up cause you are too lasy/busy to do it so you hired 5 illegals with no documentation? $50k fine punk!!! Enough of this situation. ENOUGH!!!! Hit people in the pocket book hard enough and they will clean their own house, and mow their own lawn. And when people say that the illegal immigrants are doing the jobs that americans won’t do, that is BS! I have a friend who is a drywall contractor and whose father was the same. He sees first hand how americans are losing millions of jobs because of this cheap, illegal labor. And the illegals, in many instances, are getting used, abused, cheated, and spit out like rotten meat. This is like slave labor in many instances. Time to bring the hammer down.
I agree - the laws are written, the crime is the lack of penalties against the employers. It upsets me to have inflation currently over 7% with minimum wages held back because of illegals.
Look, blame “the illegals” all you want, but the amount of GDP lost to undocumented workers is a drop in the bucket compared to the absolute tsunami of government debt that is being generated every single day. Balance the budget first, then worry about the guys standing outside Home Depot. Once the US stops selling out its future to the Chinese and Russians, then the American worker will become much more productive.
Amen brother! Both parties are complicit in fostering illegal immigration — the fat cats and corporate moguls who provide 96% of the GOP’s funding (and thus dictate its positions) love to have wage slaves and cheap nannies and yard boys, and the Dems get more “disadvantaged minority” voters and an even bigger expansion of the Nanny State.
To the toolboxes on this board who continue your mindless shilling for Tweedle-Dee over Tweedle-Dum, please grab your ears, bend over, and pull hard until you hear a loud popping noise and see daylight.
http://www.eagleforum.org/column/2005/july05/05-07-13.html
Here is WHY both parties are stalling on immigration. The crazy bastards are trying to ditch our currency for a combined AMERO currency with Canada and Mexico. The constitution will be a casualty as well. If you don’t think so ask your senator to explain SPP legislation. Good luck with that!
My neighbor across the street from me lost his wife to a drunk-driving illegal immigrant. Both his kids were in the car at the time and bear the physical and emotional scars from the crash. The guy who caused the accident was too badly injured to arrest.
His family snuck him out of the hospital and took him back to Mexico. Never spent a day in jail and never paid the bill for the hospitalization. For all anyone knows, he is back in the country working illegally again.
The economic consequences of illegal immigration are bad enough, but what is worse to me is the large number of them that do not care at all about the US. They are economic refugees from corrupt Latin American governments, the poorest and least educated of their citizens. They come here for work, but not to assimilate into society. Instead of adapting to the US, they expect the US to adapt to them. Having a large population of poor, resentful people who feel no allegance to the US is not a good thing.
Agree with everything you said, Rancho Cal. Very sorry to hear about your neighbor.
Well, some of them assimilate.
The guy who tried to steal my car 10 years ago got caught. He did $1,200.00 worth of damage to my car door trying to get in. I got a restitution check from him for $100.00.
3 years ago a lawyer called me to ask if I ever got the check. I said, “Yes, but why are you asking me?” She told me that he applied for a green card and she was making sure all his debts were paid so he could get citizenship.
True story.
Great story. IMO one of the reasons that so many people are mad about the illegals is that they see them getting away with crimial activity which would carry serious consequeces for a legal citizen. Who doesn’t have a friend or relative that hasn’t been hit by an illegal who wasn’t licesned or insured. You or I do that and we would be in big trouble. An illegal does it and they issue a citation to the guy and expect him to show up in court (like that would ever happen).
The ICE will not even attempt to enforce any laws on the books regarding the hiring or harboring of illegals in the greater Los Angeles Metropolitan region. Why? because the pro-illegal alien activist groups such as Mecha, La raza, Mex-American legal defense fund, ext will instantly raise a political uproar here in LA, and this will cause the sniveling local/state politicians to cower and run. LA is Illegal alien sanctuary numero uno . ,and in fact the pro-illegal forces are in complete control of the LA City Administration, and will in near future probably control the California Government as well.
There are hundreds of thousands(Maybe a half-million or more) illegals performing construction work in Scal, with the tacit approval of practically all the local municipalities, and the county/state authorities.
I am afraid that the only places the ICE will conduct raids is in such far off places as Bozeman, Montana where the Illegal-alien activists have no power.
California being such a PC, predominantly Liberal State run by Liberal Politicians aids the illegal-alien lobby here in Ca.
So why are non-illegals still living in LA?
Good question. I am in LA because my family is here….my rentals are here…my whole life is here. But I tell you we are being swallowed up and taken over completely. I am dying to go somewhere where there is more unity, more friendliness. Unfortunately, I do not find immigrants friendly or willing to assimilate.
Federal Reserve Policy Destroys the Value of Your Savings
By just about the only politician I respect.
Is this the pol who has on his desk:
“Don’t Steal — The Government Hates Competition” ?
(Like they hate competition from internet gambling,
too, for which they are not getting their usual cut.)
Ron Paul is great. Here is a recent WP profile of him (how the mainstream press see’s him- this article makes him seem like a wacko- which he really isnt if you read many of his articles). He is most well known for pressing Greenspan over and over with questions that clearly demonstrate the inherent fallacies of the Federal Reserve.
I suggest this blog extend and invitation to Ron Paul to speak-Perhaps in Queen Creek?
http://www.washingtonpost.com/wp-dyn/content/article/2006/07/08/AR2006070800966.html?nav=rss_politics
he’s all alone- like when he nailed greenspin
Here is an excellent link of Ron Paul/Greenspan going at it
http://www.strike-the-root.com/51/smith/smith4.html
example below……(remarkable when you think about it- the Fed Reserve Chairman admitting we dont have a free market)
July 1998
PAUL: Mr. Greenspan, someone quoted you as saying you would welcome a downturn in the economy to compensate for the surge and modest growth we’ve experienced. Is it not true that in a free market with sound money, you never welcome an economic downturn? But what we’re hearing now is, when is the Fed going to intervene and turn down the economy?
Wouldn’t a free market operate a lot better than the market we use today?
GREENSPAN: When you have a fiat currency, which is what everyone in the world has—
PAUL: You don’t have a free market.
GREENSPAN: You don’t have a free market. Central banks determine the money supply, not the market. If you are on a gold standard, then the system works automatically.
Paul’s response should have been:
“Then why do we need to pay you a salary if a Gold Standard will do it for free?”
How does/would a gold standard work? I understand that all the money would be backed by gold, but how would the money supply be increased/decreased, and how would banks get money to loan?
I could go on and on about this- your asking the right questions.
Start by reading Greenspan’s (Yes THAT Greenspan) 1966 essay Gold and Economic Freedom
http://www.usagold.com/gildedopinion/Greenspan.html
After this essay go to http://www.mises.org There are a number of beginner and advanced books that discuss this very issue. Warning; once you start getting into this subject it will drive you insane…..literally it will keep you up at night thinking about this nonsense that is the Fed Reserve.
Using the CPI in any discussion of inflation seems very pedestrian to me now… after reading Mish, posters on this blog, Greenspan’s article, and about 1/3 of the way through Human Action.
It should be the amount of fiat currency + amount of printed currency floating around in the system. Discuss these and we can talk.
Amen, Brother. Rep. Ron Paul is a rare beacon of integrity and intelligence among the Parliment of Whores (to use PJ O’Rourke’s term) on Capital Hill. He deserves the support of thinking people, as his own Republicrat Party apparatchiks don’t regard him as sufficiently servile to their corporatist agenda.
Ron Paul makes too much sense for the common American to handle. Most Americans want Santa Claus government without being personally taxed. Already, those who make a certain income level and below are not taxed at all, so they can wish for all the entitlements they want. This is what America has become, a social democracy, no longer a Republic.
Quick anecdote: I was eating lunch the other day and I overheard two well dressed, twenty-something friends discussing RE. It sounded like one was considering buying, and the other one was encouraging him. To make a long story short, the first said, “I’m gonna do everything I can to buy.” To which the second corrected him by saying, “Don’t just do everything you can, but everything you need to do.” You gotta love when your friends encourage you to commit fraud.
Most of folks still don’t have any clue that there is a national housing/debt bubble. Remember that the average person in the U.S. probably couldn’t find the middle east on a map, and knows very little about the economy. The only thing they are likely to know is that their wages haven’t gone up much lately.
I agree the average person is extemely ignorant of world geography and geopolitics. They get most of their info on fox-cnn cable news which of course is shallow-visual eye candy which never discusses the deep insights and strategic implications of world geopolitical events.
The Average person does not no, for instance, that Iran?china/russia are the big 800 ib guerillas in Asia who are increasingly blocking US initiatives all over the world . particularly in the North Korea/Iran nuke issue.
They would not know that China/Iran?Russia are using oil as the key geopolitical weapon-Russian and Iran Have it and the US dosen’t and that creates some problems.
China is making moves all over the planet to secure oil supplies thru stratetic partnerships with Africa, Venezuela,Mexico, Russia, and Iran .
Geopoitically, Eurasia is becoming the power region and the US/western europe/Japan are losing the initiative.
Anyone else getting stalked by real estate agents?
I was picking up a flyer at a house for sale, when an agent driving by stopped her car in the middle of the street, asking if I wanted to see the house. I said no, but thanks, has she seen much activity on the house? To which she replied “I don’t represent the sellers, but I can get you a showing”. I again said no thanks, but she continued on about how it wouldn’t take much time, the house is empty so we could se it right now, blah blah blah. Me being the polite SOB I am, I let this go on for a while. Finally I had to just walk away with my voice trailing off “no thanks you, have a nice day…”
I’ve also noticed an uptick on emails from local RE agents here that we are aquaintances of.
Are things getting rough out there?
San Diego TV news ran a story just last evening about hard times for realtors…quitting, being layed-off, returning to previous careers. The main storyline was about a (piano) musician who flopped in RE due to the recent stagnation. Seasoned RE guy spoke of “survival of the fittest, most clever”, blah blah…
Yep. Party over.
I saw this segment as well……the one segment where the Realtor was saying “Well it does not matter if house prices go down, since rates are going up your payments will be the same”
Great, now that we got that cleared up.
This property http://washingtondc.craigslist.org/nva/rfs/181892861.html is advertised as a ” Elegant Modern-YET-Classic 1-Level Home” for $429,900.00. If you want a good laugh, hit the link, look at the picture at the bottom and see what it actually is.
That place sold for $257k in 2002. It was then sold a year later for $305k. Six months after that sale, it was sold to the current owner for $347k (3/04).
Good luck on selling that buddy. I looked at those back in 2002. I laughed at them, as I could get a 3 bedroom townhouse for the same price, and no condo fees.
Gross, what an eyesore. I bid $35,000 with the seller covering closing costs.
Ugh! I hate it when condos are advertised as “homes.” Blech. Right up there in pet peeves with the phrases “Offered at xxxxk” and “entertaining offers on (date)”. Ugh ugh ugh.
Bantering Bear’s $35,000 bid should be a very “entertaining offer”, I would think.
I would be curious to read more about the amount of fraud in the current housing market. news.google (search terms: mortgage fraud) turns up new stories every day. Lately it seems there are more state-level bills (Michigan, Colorado) being passed to prevent mortgage fraud, but that horse bolted the barn long ago.
I would also be interested in whether people think today’s granite countertops and travertine tile are tomorrow’s popcorn ceilings, shag carpet, and faux wood paneling.
How about they are today’s Rolex watches and cell phones? Remember how those had such “exclusivity” and cachet when first introduced - i.e., you weren’t a playah without both of them.
Despite my long stint on the real estate owning sidelines, I have had a long running interest in kitchen remodeling, home design, building and architecture. In that vein, I can remember back in 1994/1995 when the granite countertop thing really started gaining ground. In those days, it was mostly in the high end remodels and new builds (500K houses and up). That was also when the quasi-professional stainless steel appliances became a fad at that same level. Of course, those were “real” ones (Wolf, Traulsen, Garland, Thermador), not Kenmore junk with a sheet of stainless steel glued to the front. That crowd has moved on long ago to new trends. I see cool stuff like hammered copper counters, some crackle glass, very high end terrazzo, concrete (Fu Tung Cheng) and others. Granite is now kind of a joke, only the great unwashed haven’t been let in on it yet.
I am so uncool. I’ve always liked plain old tile (so long as the tile on cutting surfaces can handle the occasional knife blade and the grout is not white) and easy-to-clean white appliances that hide the pawprints of my kid far better than stainless steel. That plus my revulsion of unhealthy loans would probably get me tossed headfirst out of one of those fancy condos in downtown San Diego.
Back to your barn, peasant! LOL.
mrquoi,
Quite agree. We just moved into a rental in Manhattan. While discussing paint, appliances, etc, with the management co, my wife’s major requirement was “no f***ing marble, tile only.” MC seemed pleased that we wanted a pre-war that actually looked like a pre-war.
txchik - don’t know what you mean by including Rolex in there. not many folks i know have the real deal - 5-10K for a watch is not something i see on many wrists.
But when I walked down Nathan Road in Kowloon looking for some steamed buns one evening in May, I was being offered Rolexes for a couple of hundred Hong Kong dollars every 50 feet or so . . .
I decided to stick with my (real :)) Casio.
Oh please mail that to my local newspaper!
What is cool to me is what everybody doesn’t have. Style is about originality, and innovation. I don’t care how nice a countertop is, if 30 million homes have it, I don’t want it. Granite is passe, enter anything original…
Won’t hammered copper counters turn green over time?
I was just thinking about granite countertops being considered out of style in a few years.
Many years down the road, it is possible that home buyers in general will be inclined to steer clear of houses built between 2002-2006. The bubble-year houses could end up with a bad rep.
And just when I thought I’d NEVER be able to afford a home of my own…
http://philadelphia.craigslist.org/rfs/181796826.html
Assuming a 1.25% teaser loan, that’s a $3.65 monthly payment plus 4.40 for lot rent (HOA). You too could be a homeloaner for less than $10 a month!
Plenty of money leftover to buy my folding aluminum lawn chair and endless supply of Pabst Blue Ribbon!
Pabst Blue Ribbon! LUXURY!. It was Natie Bo (National Bohemian) when I was on a beer budget.
Meister Brau (sp?) or “spew” as we called it was what we loaded up on back in the day.
I used to think Boones Farm Strawberry Hill and Swisher Sweet cigars were cool, up until my 12th birthday.
oh man you were way cooler than me. I was smoking swisher sweets until I was 17!
4.40 for lot rent including trash. The trash, is that the neighbors?
You might have problems with your cousin-marryin’ inbred-Jed neighbors crapping too close to your “house.” On the positive side, the nightly show around the bug-zapper would be cheap entertainment.
Coming across the following story today, I’ve been musing on the apparent correlation between “undervalued” markets and foreclosures.
http://www.chattanoogan.com/articles/article_89017.asp
Texas, the Carolinas, and Indiana have consistently topped out lists of “most undervalued” markets for real estate.
http://money.cnn.com/2005/12/29/real_estate/buying_selling/handicapping_housing_markets/index.htm
You could argue not many surprises there - an area with lots of foreclosures, historically, will reflect that weakness in housing prices. But I’m wondering…I’m not sure I expect those stats to change much relative to national averages, as the crash continues to progress. I.e., even if San Diego, Boston, etc. fullfill the worst predictions in terms of foreclosure rates and retracement of home prices, they may still look good compared to perenially underperforming home markets. I know that this goes against all conventional wisdom, so I’m wondering if anyone else has a historical perspective or light to shed here.
From USA Today via Yahoo :
“Rents could fall as new condos become apartments”
“In Las Vegas, Phoenix, San Diego, Washington, D.C., and much of Florida, an estimated 25% to 40% of condos under development or apartments that were converted into condos for sale will be put back on the market as rentals, says Marcus & Millichap, an investment brokerage firm.”
I can see the free rent signs now.
Coming across the following story today, I’ve been musing on the apparent correlation between “undervalued” markets and foreclosures.
http://www.chattanoogan.com/articles/article_89017.asp
Texas, the Carolinas, and Indiana have consistently topped out lists of “most undervalued” markets for real estate.
http://money.cnn.com/2005/12/29/real_estate/buying_selling/handicapping_housing_markets/index.htm
You could argue not many surprises there - an area with lots of foreclosures, historically, will reflect that weakness in housing prices. But the current foreclosure trends bolster my own long-held suspicion that those stats won’t change much - relatively speaking - as the crash continues to progress. I.e., even if San Diego, Boston, etc. fullfill the worst predictions in terms of foreclosure rates and retracement of home prices, they may still look good compared to perenially underperforming home markets. I know that this goes against all conventional wisdom and a lot of bubble theory, so I’m wondering if anyone else has a historical perspective or light to shed here.
argh. sorry for duplication - took the apparent lag for a timeout and failure to post.
Wow! Hot AND cold water!
And propan (sic)!
Looks like this seller realizes her house won’t be selling any time soon. Rather than planning an open house for this Sunday, she’s planning open houses for “every Sunday.”
http://washingtondc.craigslist.org/nva/rfs/181964429.html
Hey, at least she’s realistic about her chances.
OPEN EVERY SUNDAY 1-4PM
This Market Stinks
http://washingtondc.craigslist.org/nva/rfs/181752445.html
How bad can the market be with all that ‘instant equity’?
g-d, that view from the back deck is so depressing! Nothing like sitting out back relaxing with a cup of tea and gazing out upon a vast sea of cookie cutter vinyl boxes all identical to your own.
That was also my first reaction. If that is all I can get for 500K, then I would rather have a cheap house and spend my money on the other parts of life where you get value for your dollar, such as international travel.
Unfortunatly this is in NoVa and that is a cheap house here. If you want something cheaper you have to go multifamily or rent (which most do). They don’t just add another ring to the beltway and keep going. That house is a good hour and a half from DC!
It’s in Culpeper, Bluto. That would be an hour and half at 2:00 a.m.
It boggles my mind that there are people whose taste is such that, when they see a home like this one, they feel a genuine desire to have it and live in it. I guess some people have just gotten used to this sort of homogeneity (so?) ?? Or is it just that once the allure of fast appreciation goes away, people will actually start thinking about aesthetics (which is a subset of value), again? It’s mind-boogling, I tell ya.
Mr. B.
I think the rapid appreciation of the past few years has colored a lot of glasses rose. Like looking at an old picture of yourself in a disco suit, I think alot of people are going to be wondering what they were thinking in alot of different areas of their lives in 2005.
Here is a glowing report on the “Surging” Sacramento new home market.
http://www.sacbee.com/content/news/story/14278099p-15086929c.html
Link wants me to register to read the article.
bugmenot.com is your new friend. If you are using firefox, you can get a plugin that will grab the login/password from bugmenot automatically.
It say I have to install it from Roachfiend.com, which left me a little worried. Great idea, but think I’m gonna pass.
It think it’s safe. Give Firefox the permission to install from Roachfiend, install it, then remove permission. I’ve never had a problem and it’s an awesome/handy plug-in.
This paragraph sums up the real story:
“… 5,187 sales of new homes from January to June. Another 4,200 homes were in some stage of construction without buyers during the quarter. Last year’s first half sales totaled 8,955.”
Sales down %42 yoy for the first half. That, my friends, is what I call a crash.
Here is the opening line of that report of housing in the Sacramento Bee.
After a six-month slump that sparked fears of a free-falling real estate market in the capital region, sales of new homes rebounded in April, May and June, according to figures to be released today. Prices in most areas remained fairly stable.
I read the comments posted by readers of this article and it was pretty good because they were slamming the article saying that it was one sided and that inventories were way up!
arson will pick up by Fall
=booooooooom
Mid Day Rant (apologies - GS you should enjoy)
In the last several weeks I have posted on the transfer of gold to Iran and Syria, China purchasing gold with some of its foreign reserves (5%), Russia, Sweden and others getting out of dollars and reasons why oil could be $100/BBL by November (without addtl Mideast problems ). My investments with regard to this have been right. I missed the big picture!
I have no belief in the Plunge Protection Team, however GetStucco ‘s conspiracy theories may have validity.
Recent Events In July Have Caused me to Reconsider
N. Korea launches missiles –Not of import to S. Korea, But disastrous for Japan. The projected cost to the US ~50 Billion addtl defense
Palestinians capture Israeli Soldier. Cost to US ?
Terrorists blow up trains in India. Cost to US (addtl guarantees ~10 Billion)
Hezbollah captures Israeli soldiers. Cost to US ?
Plus numerous and sundry attacks WWide . cost to US ?
These attacks have occurred since Iran and Syria repatriated Gold and dumped the dollar. About a week or 2 ago I posted an article regarding the immunity of foreign oil suppliers to financial disruptions as a result of a possible Oil Embargo. The total amount to cause these conflagrations 100 Million – maybe. The total cost to the US after these incidents – Maybe 100Billion of money we do not have.
And from Riverbend May 02, 2006 (IMHO the best blog site for information on Iraq)
“The big question is- what will the US do about Iran? There are the hints of the possibility of bombings, etc. While I hate the Iranian government, the people don’t deserve the chaos and damage of air strikes and war. I don’t really worry about that though, because if you live in Iraq- you know America’s hands are tied. Just as soon as Washington makes a move against Tehran, American troops inside Iraq will come under attack. It’s that simple- Washington has big guns and planes… But Iran has 150,000 American hostages. “
http://tinyurl.com/qiqk
.and from TESTIMONY OF
GARY J. AGUIRRE, ESQ.
BEFORE THE
UNITED STATES SENATE COMMITTEE ON THE JUDICIARY
http://tinyurl.com/lkuyh
June 28, 2006
United States Senate
…”I believe the nation’s capital markets face a growing risk from unregulated pools of money–now called hedge funds–just as they did in the 1920s from unregulated pools of money–then called syndicates, trusts or pools. Those unregulated pools were instrumental in delivering the 1929 Crash. They were, among other things, skilled at using various devices to manipulate stock prices to trick the public. There is growing evidence that today’s unregulated pools–hedge funds–have advanced and refined the practice of manipulating and cheating other market participants.”
I will end now with a thought to those still trading in the equity market. In 40 years trading in the US stock and commodity markets, I have never seen a market in this type of technical formation that did not crash. I will be looking for a 3 -5 % decline on Monday with an additional 5 – 10% decline thru the rest of the week.
“He who joyfully marches to music rank and file, has already earned my contempt. He has been given a large brain by mistake, since for him the spinal cord would surely suffice.” Albert Einstein
“N. Korea launches missiles –Not of import to S. Korea but disasterous for Japan”
“The big question is- what will the US do about Iran? There are the hints of the possibility of bombings, etc. While I hate the Iranian government, the people don’t deserve the chaos and damage of air strikes and war. I don’t really worry about that though, because if you live in Iraq- you know America’s hands are tied. Just as soon as Washington makes a move against Tehran, American troops inside Iraq will come under attack. It’s that simple- Washington has big guns and planes… But Iran has 150,000 American hostages. “
The US/Japan is thwarted in bringing strong sanctions against NK by CHina and Russia. China has become the 800 ib big cahuna in the eastern pacific: The US is reduced to pleading for NK to drop its Missle/nuke program. Japan will have to go it alone, with US assistance, in developing a state of the art anti-ballistic missle defense(The Patriot 3 still needs to be perfected but it is the best ANti-missle sysytem available). Japan needs to militarize quick, with US technical help, as it alone can deal with NK in protecting it’s home islands. US can only stand by as +big Brother” keeping China at arms length.
Iran a more complex problem: the uS cannot simply go in and wipe out Iranian Missles and nuke sites, as this will immedyiately plunge world economy into chaoes and $150-200 barrel oil. US knows this, so do the Russian and chinese, who secretely abet Iranian Moves for their own stragetic motives.
This is what makes the Israelis-hezbollah conflict so nightmarish-say Iran in a desperate, crazy move launches a missle into tel Aviv, then Israel retaliates with an airstrike back at Iran. Iranians , knowing US is an ally of Israel, instigates a worldwide terror attack by militants against US facilities all over the world and causes even more turmoil in Iraq.
Iran launches strikes against oil tankers in straits of hormuz, thus shutting down the straits completely and causig worldwide oil flow disruption from Persian gulf oilfields, and thus complete economic disruption to the world enonomy.
Better now than later. The weapons in the Middle East get more dangerous by the day. It seems like a great conflict will happen no matter what, so it might as well be now, when the power disparity is at its greatest. The US actually has oil and is pretty self-sufficient in food and resources. The Middle East is dependent on oil and outside help. If they can’t sell oil, they’ll have nothing in short time. You can’t eat oil. I remember well the lines to get gas in the 70’s and I live 4 minutes by bike from work. Maybe a shortage of oil would make other people stop commuting 2 hours to get to their jobs, and there wouldn’t be such tremendous traffic and pollution problems. In Portland, the number of people that live on the Eastside and work on the Westside seems as large as the number of people that live on the Westside and work on the Eastside. You have a whole set of idiots commuting for an hour, contributing to traffic when they could switch houses and hardly commute at all and the crosstown traffic would go down to nothing. Is it REALLY that hard to live near where one works?
In Scal maybe 3-5 miilion commuters are driving long distances daily, 90 % of them from outlying areas where homes are cheaper, into the jobs-rich coastal areas of LA and OC. The spike in gas prices which an ecalating conflict in the middle east will bring, resulting in possible $4-5 dollar a gal prices , will absolutly kill consumer spending and create even more distress in consumers debt burdens.
Events are changing almost hourly in the middle east conflict between Israel and Hezbollah, and escalating almost out of control. This conflict is the proverbial tinderbox which could ignite and burst into flames into a wider Mid-east regional conflageration.
“Is it REALLY that hard to live near where one works?”
In SoCal, the answer is generally “Yes.” Most people are priced out of the housing market located nearby where most of the jobs are.
“I believe the nation’s capital markets face a growing risk from unregulated pools of money–now called hedge funds–just as they did in the 1920s from unregulated pools of money–then called syndicates, trusts or pools.”
That is exactly what I have said on this board.
This is a new one - an auction for an estate property. The home is empty and small, needs lots of work. They are basically auctioning it as tear-down.
http://www.31knollwoodeast.com/
Even funnier - the county assessment lists the value as $699,100 for the 2007-08 tax year.
This is a dream house - you don’t even have to worry about an electric bill.
“The property is improved with a two story frame single family residence with 5 bedrooms and one bathroom. This building is not wired for electricity and does not have central heat. The property is also improved with several other buildings, including an “annex’ to the residence (also without electricity or central heat), a barn, several steel storage buildings, a wood frame building believed to have been used as a buggy repair shop and a chicken coop.”
http://tinyurl.com/lzg3v
Wisconsin Amish home possibly
Interesting
http://tinyurl.com/ft3se
I think Hazleton just shot themselves in the foot. You have to apply for a residency permit and submit to a background investigation just to rent an apartment? I think it’s nuts.
“… In Florida, the communities of Avon Park and Palm Bay will vote on similar laws, as will the city of Escondido in California.”
I dno’t know about Avon Park, but Palm Bay has a huge Latin/Puerto Rican population.
Escondido, CA has developed a reputation for multiple families living in one dwelling.
Will new laws work? I have no idea. Any stories of success, or is this just the first backlash of preserving neighborhood QOL?
In La Area it seems fairly common for recent immigrants to have multiple families, relatives bunched up in SFH’s. Asian culture’s a;most always have the grandparents living with the in-laws.
As far as Latino’s, I have been to homes in Mexico and Guatemala where you can have 10 or more families and relatives all living together in a single housing unit. The Latino/Asian Immigrant cultures are more comfortable with large numbers of families/relatives living under one roof than American Culture.
In Greater LA Region this practice is very prevalent, and many cities accept this. You can drive all over older burgs/innor areas of LA and see owned or rented homes with 4-6+ vehicles parked in expanded driveways.
There is a hugh market for immigrant tenants in LA, who normally do not have large cash reserves or carryed-over equities to purchase large SFH’s , but they need SHF”s for their large families so there is a great deal of renting out to immigrant families going on all over LA/Scal. This may explain the relatively low no of listings (43,000) in LA County relative to county population(10.2 million).
Is there an archive anywhere listing real estate agents we think we can trust, like Carlsbad Jim?
Japan has just ended their zero interest policy. Anyone has any intelligent comments/knowledges on the impact on the US interest rate?
I’m not an expert but do have some thoughts on the matter. I believe that this will have a negative effect on the MBS market because it will increase the cost to hedge funds and other participants in the carry trade. Borrowing costs in yen will rise making the trade less desirable. Ultimately this will decrease demand for USA paper causing interest rates to rise. It could also cause the yen to strengthen against the dollar. This would cause Japanese import prices to rise and/or profits to decline.
Actually predicting the direction of the yen/dollar exchange is a tough call because rising rates in the USA could offset any weakness in the exchange rate. Furthermore, if the USA is headed into a recession (which I think it is) then demand for imports declines, putting less pressure on the dollar.
This was posted on another site:
My name is Steven Krystofiak, President of the Mortgage Brokers Association for Responsible Lending. I have a letter in a word document form that highlights the risks of the current loan industry unrealized by regulators and economists alike, mainly due to stated income loans.
Email me at contact@mbarl.org if you want me to send you a copy.
~ Steve Krystofiak
13 main points in the letter are;
1. Stated income loans are associated with fraud, and started to become popular in 2002.
2. Banks originate these loans because they are profitable and then sell them to reduce their risk.
3. Fraud is encouraged by the banks
4. Stated income loans help no one.
5. Exotic loans originated with stated income are now causing foreclosures or forcing homeowners to refinance into negatively amortized loans.
6. Stated income loans are why home prices have skyrocketed. They have caused a large demand in the US housing supply.
7. Banks have sold their loans and have already made their profit. Investors will soon realize stated income loans are too risky and stop purchasing them.
8. Almost anyone can get a stated income loan for $950,000.
9. Stated income loans cost consumers hundreds of dollars a year because of higher interest rates.
10. Stated income loans allow tax cheats to purchase homes easier.
11. Stated income loans are not always faster than fully documented loans.
12. Appraised values are often inflated. Underwriters are basing their decision on inflated home values, inflated incomes and inflated assets. The only “real” number is the FICO (credit) score. This is why underwriters have become focused on FICO scores.
13. Rules are not enough, they must be enforced.
Steven Krystofiak | Homepage | 07.14.06 - 3:14 pm | #
——————————————————————————–
If you are the President of the MBA for Responsible Lending you should resign because you have failed.
Wonder if Steve is our old friend SoCal Mortgage Guy? He had a real Jones for stated income loans too, as he should have.
I don’t agree that we should summarily dismiss this guy. Yes it’s way too late but there’s a saying you know “Better late than NEVER”.
This guy deserves the support of anybody who thinks lending practises drove the bubble.
Here’s a topic suggestion:
Having unpleasantly had my eyes opened to the housing bubble by this blog, and the consensus that lots of easy debt was the cause, I’d love to hear comparisons (hard or anecdotal) of how attidudes towards debt differ between the US and other developed first world countries.
Does Hanz Heineken feel the same pressure that Joe Sixpack does to assume a huge mortgage and become a homeowner?
Does Gilbert Guiness have any qualms about furnishing his first apartment on plastic?
Does Marty Molson use a 20-down fixed 30 year to buy a place, or are other forms of mortgage the standard elsewhere?
Can Carlos Corona walk into an electronics store and apply for instant credit on his purchases?
Does Frank Fosters walk into a car dealer and take out a 5-year loan on a new car when he finishes college?
Does Phillip Paulaner get bombarded with credit card offers while he’s still working on his degree?
You’re making me thirsty!
mostly arm loans in Uk and EU
been that way for a long time
Regarding Gilbert Guinness, I recently posted this link to a BBC story about how first-time buyers in the UK are able to “afford” their mortgages.
http://news.bbc.co.uk/2/hi/business/5145090.stm
Basically, it seems that many parents are extracting equity from their own homes to cover the downpayment (and often more) on the houses bought by their offspring…
Sounds like there is a growing intergenerational household deficit.
same story in the Netherlands so yes, probaby a trend …
just for laughs on friday, is Britney Spears a wanna be flipper?
from MSN today:
In other Britney news, did she let her New York condo go for a song? The New York Post reports that after several price reductions, she finally managed to unload her 4,000-square-foot, three-bedroom, four-and-a-half bath, four-level Manhattan penthouse.
The lucky buyer reportedly picked up the palatial pad, once occupied by Keith Richards, for a mere $4 million, far below the nearly $6 million Spears wanted when it was originally listed in July 2004.
The digs, which come complete with a library (barely used, we’re sure), terrace, media room and solarium, set Britney back $3 million in 2002.
Stumbled across this gem via craigslist.
http://www.tropicodrive.com/
“I am in a very desperate situation to sell my house. It is my dream home but unfortunately my life took a difficult turn and I can no longer afford to live there. My home is going into foreclosure. I only have 2 months to sell my property. I am not trying to make a profit…..all I want to do is sell my house and save my credit. This home is for sale by owner….NO AGENTS PLEASE. I owe $970K on the home plus some finance and over due fees. I am asking $985K to cover all my costs with a very quick expedited escrow.”
According to Zillow, they paid 610K in Oct. of 03. I guess making 60% is “not making a profit” in the wacky world of San Diego real estate.
Also, the bank deserves to get stuck too. What a bunch of greedy idiots.
One Million Dollars! Yes, they are slightly below that, but that is what they are asking.
Think to yourself, is that one million dollars? That is $267.88 per square foot on that house. We are looking at probably a 50% correction on properties like this before they become viable again.
They atm’d this home to death. He could be telling the truth on what he owes. I think a lot of people are in this same situation.
“buy now or be forever priced out” has been replaced by “sell now or be forever ruined.”
This is a real Craigslist gem, thanks for posting it!
I agree, this seller has ATM’d the house all the way up to $970K. I bet she has some really nice shoes to show for it!
Someone (txchick?) was commenting earlier on cheap stainless appliances. I spot granite countertops and Kenmore Stainless Steel appliances in this kitchen. Can you say Quality?
I’m guessing the seller is a realtor/ flipper who’s sales pitch is hype. The house, apart from being butt-ugly, doesn’t look occupied.
* whose (not who’s)
Actually, I googled her, and she appears to be some sort of a teacher. Isn’t the internet scary!?
You can also see a hot tub outside and pool table in the living room. Saved for responsibly and paid with cash, I’m sure.
He could have done much better with the colors in the kitchen. The granite and the cabinet color aren’t great together and both of them with the white paint just does nothing. It’s a shame because I have seen so many beautiful kitchens if you only choose the right colors!
I finally received an offer on my Michigan home, set at $339k (3133 sf). The offer was for $400k, but we have to finance $80k for them for a down payment. They also want us to cover closing costs and they want all our appliances. I guess their credit is horrible and they have absolutely no money. Anyone ever heard of this scam before? Needless to say we turned it down.
Never heard that one before - very creative. They get your house for $320K, with nary a penny in transaction costs. The 80K is a 20% “downpayment,” that get the buyer the very best available loan terms. Brilliant, except it wouldn’t work - you have to show the bank the 80K in the application process.
Things that make you go hmmmmm???! Talk about creative financing. Laughable. If their credit is horrible and they have no money, how are they getting financing for a 340k house?!!! Those people should be renting a trailer for gosh sakes! Man this stuff is getting really wacky. Good choice in moving them right along!! I wonder, did they ask you to loan them the earnest money down and also to pay for the inspection, and appraisal too? And perhaps they thought it might be nice to spend a few nights as house guests to make sure it was the right place for them… Unbelievable
This is an invitation to become involved in a fraud, and if you bite you may end up in jail. You’ll have to make a false statement about the selling price on forms for which making false statements is a federal offense. They’re already starting to prosecute people for this. You can look it up.
Topic Suggestion:
What do you see happening to your comunity as part of the collateral damage of a 30% plus drop in housing valuations?
Everyone will go back to talking about sports. And movies.
Go Trojans!
Unfortunately, I’m expecting to see pain at the Trojan football games. Some of the nicest couples there have been *very* generous with their Home ATM. (Sponsoring sweet parties, new SUV’s customized for tailgating, etc.)
Alas, for the 2006 football season I expect homes to be a *big* topic again, but in a negative way (but not for the first few games).
For 2007 I expect tickets to be much easier to get (as prices will still be going up but many Trojans, Bruins, and others won’t be able to spare the cash for season tickets, much less Cardinal and Gold membership fees (2006 is already a “sunk cost”).
As to the 30% drop in costs… a great selection of BMW’s on the lots… And an out migration from So-Cal to more affordable areas.
(I’m sad as I’ll lose friends. I’m also sad as it might include me…)
The So-cal economy is going to be hammered. Hey, our post 9/11 employment has been people who build homes, white collar jobs that sell or finance homes, or retail jobs to furnish homes…
Not to mention this will cascade into less money for movie production (more job losses for So-Cal), and a contraction in the So-Cal service industries.
But it will create a buying opportunity for us bubble heads!
Neil
Hi,
Hmm…
My list
resturants - wait staff, small food delivery companies
movies
retail
artists
writers
music - less clubs to play
groundskeeping/landscaping
All the home decor stores
furniture stores
hardware stores
factories that provide product for all of the above
car salesman, dealerships
real estate related jobs
banking jobs
anybody working building anything auto related
good news
lots of plasma tv’s for sale
all the boomers who drove up guitar prices go away
yard sales go upscale
I’ll hit 50 links in 2 weeks.
some of my favorites articles.
#1 National Real Estate Investors’ Conference at BWI this week drew about 500 people, and many of them hopped on a bus to Baltimore for a tour of potentially lucrative investments
#2 Historical Census of Housing Tables
Home Values
#3 Even in the county’s toughest neighborhoods, we couldn’t find cheap housing
#4 After a holiday slowdown, the Super Bowl each year marks the start of housing’s prime season.
#5 Average US House Prices Measured In Ounces Of Gold Or Silver
#6 Supply Hits High In Condo Craze
#7 If you want to buy my house, you have to feed the squirrels.
#8 In come the waves(from the economist)
#9 Housing bubble’s burst could cost 1 million jobs and cause a recession, experts say
#10 From Dutch history, a real estate lesson
By Russell Shorto
#11 Analysts eye Miami’s condo boom, raise a ‘more risk’ sign
#12 Attention, Speculators: Here’s a Lesson from Hong Kong’s Housing Bubble
#13 Rich House, Poor House
Financial guru Robert Kiyosaki has turned bearish on the boom he helped create
#14 Real estate: When booms go bust…
Home prices can and do go down. Here’s what declines have looked like in the past.
#15 Real estate clubs ride the housing boom
#16 Global credit ocean dries up
#17 Understand risks of ‘creative’ loans
#18 Renting versus buying
#19 Real Estate Rebound
After a long, painful slide, housing prices around the Bay Area — especially in certain zip codes — are finally heading back up
Jonathan Marshall, Chronicle Economics Editor
Sunday, April 9, 1995
#20 Pension funds play catch-up with high rise of real estate
#21 As real estate market cools, ‘buys’ return
#22 Selling Condos? “The DJ’s Got To Be Really Good”
#23 Looking For A Condo? Grab A Sleeping Bag
#24 Buyers are sending flowery bios, pictures, and letters to sellers
#25 The Housing Bubble Made Me Quit My Job
#26 L.A. banks strongest in nation, report concludes(Sept 10, 1990)
#26 50-year mortgage debuts in California
#26B 50-year mortgage hits the market
#27 The Menace of an Unchecked Housing Bubble
#28 Do you like being broke? Keep renting
#29 High housing prices helped slow population growth last year
#30 America’s borrower-industrial complex
#31 I Want My Bubble Back!
#32 It’s a renter’s market
#33 Las Vegas project canceled(George Clooney’s Project)
#34 Shiller: Long-Term Perspectives on the Current Boom in Home Prices
#35 ALL BOOMS BUST!
#35 Suzanne Researched This Commercial(Video)
Agents of Change(this site)
The Nastiest Wife on
Television
#36 Housing bubble correction could be severe
#37 The boomer bust
#38 Of Bubbles Past: A Chronological Listing of News Headlines from the Last Housing Bubble in Southern California
#39 Rent or own? Don’t jump to conclusions
#40 Condo Prices See Significant Drop(San Diego)
#40b First Yearly Home Price Drop in a Decade
thanks John - those are some great articles
I’ve been reading this blog since the end of february. Back then there were predictions by several here that the housing market would show mixed activity, or decline moderately , supported by bullish forecasts by economists and the real estate industry through the spring and summer. Then “in september all hell breaks loose”. How about it? Still think that way?
The correction is going a little faster than expected, and the last quarter of the year the downturn situation will be really apparent . In all most all the markets across the United States you have excess inventory of about 50% and reduced sales of about 25/30% on a average. It looks like the once booming “National Real Estate Market” has changed in a matter of 6 months . Another 3 months ,it gets worst ,no hope now for a spring or summer bounce.
I even think if interest rates went down 1/2 point right now it wouldn’t change the markets inertia of the mania spell being broken . The lenders now have to step back and worry about foreclosures ,which will result in tight lending policies coming up ,(the sooner the better ,as far as I’m concerned .)
So I guess I’m saying its going to be hard to avoid bad news in the last quarter of 2006 .
The wait of conviction will crush this market, as a growing awareness of the situation finally reaches the last of the clueless buyers.
What we see is a plethora of extremely vulnerable home “owners” watching a deteriorating economy. The stock market fell sharply last week. Mortgage rates have risen. Speculators have for the most part disappeared from the home buyers pool and have appeared in the seller’s pool adding to the imbalance of the supply/demand relationship. Many “owners” are over stretched and looking down the barrel of a payment increase on their ARM, I/O, Neg Am loans while job loss continues in many quarters.
What will cause a sharp increase in price reductions is not known until it happens, but happen it will. Maybe next month, maybe next year, but it will happen and we will see dramatic price falls.
You can take it to the bank!
Contrarian view here, the psychology is still such that bag-holders are still hopeful that next quarter/next half/next year will show a modest rebound, after which ‘everything will be OK’. Those that can hold on easily (fixed rate mortgage, equity cushion) will hold on. Those at the margins (highly leveraged investors/flippers, marginal home buyers using no doc/interest only/option-ARMs) will hold on as long as they can, hoping for the next rally (’real estate always [eventually] goes up’).
I predict that the beginnings of fear and “all hell breaking lose” won’t happen until next spring/summer.
However, I still predict a growing avalanche of housing data (YOY price decreases in Los Angeles, etc.) to kick up a notch in late fall (September, October), sowing the seeds of fear for a 2007 bumper crop.
“Buy now or be priced out forever” is influencing less and less people. It will take time for “Buy now, and forever lose your price” thinking to set in.
Just sold my house south of Austin sight unseen 3 weeks ago to a San Diego investor. Still sitting empty. Waiting for it show up on Craigslist as a rental. Rentals in that neighborhood have sat vacant for 9-15 months easily.
yet more ‘buy now or be priced out forever’ dribble from the Seattle Times –
http://tinyurl.com/o6z4h
I sent the following note to the journalists on this one:
Dear Ms. Rhodes and Mr Mayo,
I think this article missed several important points with respect to the recent run-up in housing prices around the greater Puget Sound area. Your thinking seems logical because you are extrapolating data from a recent trend are assume that this trend will continue. However, housing prices have been completely divorced from traditional financial fundamentals that go back decades. On average, median housing prices have been about 3x the median household income. That puts the median house in King County well over 100% over-valued. Another measurement is price to rents. This measurement values a house based on how much cash it can generate from a tenant. Typically, it has averaged about 16. Today it is closer to 30. So, in my opinion this market is extremely over-valued and ripe for a major correction. It would not surprise me to see prices drop 40% in some neighborhoods.
Your article states several reasons why Seattle’s market is different than others. Your sources are all from the RE industry. You interviewed RE agents and a mortgage banker. These people’s livelihoods are directly related to housing. Of course they will give you every excuse in the book to justify high prices. I would suggest writing an article with unbiased sources. If there were such a shortage of land in Seattle then why haven’t rental prices kept up with RE? The answer to this question is two words; Credit Bubble.
When the economy went into recession in 2002, the Federal Reserve panicked and dropped rates below the inflation rate. At the same time the federal government lowered tax rates and increased borrowing. Meanwhile, banks loosened lending standards to the point that anybody who could fog a mirror could get a mortgage. No down payment? You can get a loan. Payments to high? How about an option ARM with low teaser rates or an interest-only loan or a 40 year mortgage – all with no down payment required. These loose standards were unheard of prior to 2002 and provided the fuel to the housing mania. Rising prices and easy money drove massive numbers of speculators into housing. This exasperated the price rises further. Now that prices have peaked in several markets, the speculators have left and inventories have exploded.
It is already starting to turn in several markets across the country. In Phoenix inventories have grown from 10,000 houses on the market last summer to nearly 50,000 this summer. Meanwhile, sales numbers have declined. Inventories have grown by over 50% in many markets including California, Florida and the Northeast. It is just a matter of time before it catches up to the Pacific Northwest.
So, before leading your readers into committing financial suicide by buying into this frenzy I suggest that you study both sides of an issue before publishing. Or perhaps you have your blinders on because the RE industry provides so much revenue to your newspaper? Your motives are questionable at best and your article is irresponsible at the very least.
Regards,
I also provided several links to articles and this blog.
I think the word you were looking for is exacerbate, not exasperate. Otherwise a great letter, It’ll be interesting to see if the paper publishes it.
Excellent letter, deflation guy. Thank you for taking the time to write that.
Your House Is Not a Retirement Plan
By Amy Hoak
Word Count: 922
The equity you build up in your home is not a retirement-savings account, although many Americans are tempted to think that it is. But the smartest way to think about home equity, financial planners say, is as a cushion — something to tap only if your savings calculations are off or cash runs out.
Because shelter is a necessity, many planners classify the home as a “use asset,” a consumer need in the same class as a car or sofa.
“It’s a place to live, not a brokerage account,” says Sherman L. Doll, a personal financial specialist with Capital Performance …
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Retirement????????What is that? IMHO most of us will work till we drop. I have always wondered what this retirement thing is anyway. Most of us use our minds for our work. If I were on the line at Gm I would worry about such things but I plan to work till the very very end. I am an independent business owner and cannot imagine a scenario wherein I would retire.
Are people really planning this retirement thing or is it just a rhetorical tick from our past when we used a lot of hand tools. I look at the most successful people in world history and few of them, “retired”.
The only reason to retire is if you are forced out and then I would start my own business.
Most of the men I have seen retire were dead within a year.
Yikes!
“I am an independent business owner and cannot imagine a scenario wherein I would retire.”
I am with you there, Jack. The ideal retirement, IMHO, is a scaling down of work duties which provides more flexibility for balancing work with play, as the capacity for working long hours declines. My father is a great case in point — seventy-seven years old this month and still actively involved ten years past official retirement as a volunteer in the work capacity to which he devoted his life. He is happy and fulfilled by the opportunity to stay relevant.
I’m with you too. I love the work I do, and may cut back when I get old, or start off on some new adventure. I’ll let go when it’s time to go to my “eternal rest”
Retirement is *NOT* when you no longer work.
Retirement is when you no longer *HAVE TO* work.
I want to retire as soon as possible. I will still work, at times much harder and for longer hours than when I wasn’t retired. But when I reach that goal, I will no longer *have to* work.
Thanks for the clarification. I agree with that scenario as a goal. Thanks
Reset refi’s have begun. I am an appraiser in Orlando and can report that the vast majority of orders we are receiving are properties that have sold in the last three years with first mortgages and piggyback seconds equalling 100% plus loans. Many of these are loans with just a year or less on them. They appear to have started out pretty high to begin with, say 9% on the first and higher on the second with a combined rate of around 11%. Base upon a 2% max reset this would put them in the 13% range which is as strong as a heartattack.
Problem is the market is flat to declining so we are unable to do anything relative to an appraisal. We are turning down 60% of orders. The balance of our work appears to be driven by PMI removal which works for now but even that will soon fizzle.
I expect we will send alot of those orders directly to REO departments of lenders for years to come.
FYI we have attended 3 online seminars this year entitled, Appraising REO Properties, A Comlex Assignment. NO F’ing S@#T, in a declining market. In my world it doesn’t get anymore complex. Picture a guy with his toe stuck out tapping the ground, fingers in his ears and a sign that says “MINE FIELD”.
“combined rate of around 11%”
-you have got to be kidding me! Assuming the avg price at the time of purchase was 400K, the int. would be 44K a year or $3,666 a month!
Who can afoard that? Or, who would be dumb enough to pay that kind of money every month? This is going to get very nasty soon.
Jack,
Thanks for the update. My contact at Ameriquest is telling similar tales (although, recall Ameriquest is heavy in the “flyover areas”).
As to the rates… typical sub-prime (or marginal prime).
How goes your ability to repackage loans for the secondary market? Did the S&P revision effect your business at all?
Neil
Neil, I am an appraiser and have no part in those areas. Most of my work is for large banks. JP/Chase etc. Pssst…. by the way they are having very large but quiet layoffs. Kinda cool as they transfer people to other depts. then kick them out the door or shift them to something that will make them quit.
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