A Soft Landing ‘Off The Richter Scale’
Housing industry insiders are talking in California. “Leslie Appleton-Young is at a loss for words. The chief economist of the California Assn. of Realtors has stopped using the term ’soft landing’ to describe the state’s real estate market, saying she no longer feels comfortable with that mild label.”
“‘Maybe we need something new. That’s all I’m prepared to say,’ Appleton-Young said Thursday.”
“The Realtors association last month lowered its 2006 sales prediction. That was when Appleton-Young first told the San Diego Union-Tribune that she didn’t feel comfortable any longer using ’soft landing.’ ‘I’m sorry I ever made that comment,’ she said Thursday.”
“For real estate optimists, the phrase ’soft landing’ conveyed the soothing notion that the run-up in values over the last few years would be permanent.”
“The state Department of Real Estate recently reported that (there is) one agent for every 55 adults in the state. Appleton-Young had no qualms about predicting a hard landing here: ‘We’re expecting a fairly significant shakeout.’”
“D.R. Horton CEO Donald Tomnitz was telling analysts that the home builder’s sales in June ‘absolutely fell off the Richter scale.’ Horton, the nation’s largest builder of residential housing, has numerous projects in California.”
The Union Tribune. “In the latest signs of a softening local housing market, Del Mar-based Brookfield Homes reported a steep drop in revenue from home building yesterday while the nation’s largest home builder said business in San Diego has been particularly weak.”
“Both Brookfield and Texas-based D.R. Horton said they are experiencing an increase in cancellations across the country – where buyers who have entered a contract to purchase a home decide to walk away.”
“‘I know every time we’ve gone into a downturn in the home building industry, they’ve always been longer and deeper than we’ve all imagined,’ D.R. Horton CEO Tomnitz said. ‘So we’re preparing for the worst, and we think this one will be longer and deeper than just the last six months.’”
“DR Horton said that in the past 60 days it had cut the number of lots it has under contract in San Diego County and elsewhere earmarked for future development. The company didn’t say exactly how much deposit money it lost in San Diego County. But companywide, the home builder wrote off $57.2 million in the quarter for deposits on land that it now isn’t going to buy.”
“‘San Diego is our weakest market in California,’ Tomnitz told analysts. ‘California continues to be a challenging market for us. There continues to be a small percentage of affordability out there.’”
“‘We are experiencing the impact of the long-anticipated slowdown in housing markets, particularly in the San Diego and Washington, D.C., areas,’ said Ian Cockwell, Brookfield’s CEO.”
The title for this is perfect! The irony in that. Isn’t that an oxymoron?
“The state Department of Real Estate recently reported that the total number of agents in the state passed 500,000 in May for the first time. That’s one agent for every 55 adults in the state.”
LOL! I see some big ( as in massive ) exodus of defunct realtors from the state.
“The Realtors association last month lowered its 2006 sales prediction from a 2% slip to a 16.8% drop. That was when Appleton-Young first told the San Diego Union-Tribune that she didn’t feel comfortable any longer using “soft landing”
Wow 16% decline….that is brutal if you consider this just for 2006. Worth mentioning Bernanke said “some 10% of ARMs will reset in 2007″. Did no mention how many in 2005. That % will go up each year…
Let the blood bath begin….
The brain drain of positive thinking.
‘For real estate optimists, the phrase ’soft landing’ conveyed the soothing notion that the run-up in values over the last few years would be permanent.’
While many in California bemoan the unaffordability of housing, the press refers to those who think prices will be ‘permanently’ high as optimists. Hmm.
How about calling the “permanent” plateau crowd delusional?
Leslie has done a bit of a turnaround - how about that? I wonder if she consulted a lawyer about the culpability/liability aspect…
Any guesses on when Lereah will capitulate and expresses regrets about his statements and his book?
I think Leareh will be like the Japanese soldiers found on the
pacific island 40 years after ww2…In 10 years, he still wont know he has lost the war.
the economist,
Good Lord, that is so funny! My wife grew up in the Philippines and they were still finding those guys in THE 70’s! I just hope that David fares as well on bananas and turtle meat “without giving up his position”!
Dinor, I can see him peering thru the bushes at a long deserted neighborhood, all the while thinking people will show up and wondering where the real estate agents are.
Does anyone here think he really believed a word of it since say late 2006, in 10 years he’ll be off shilling Africa, biotech, moon bases, or whatever the next bubble market will be.
I cant wait for his next book…So I will know what to short next…He is great for investors…I once had friend that I went with to the dog track. He would always pick
the right dog, but for the next race…I made some good
change off him…
“The Boom Will Not Bust and Why Commodities Prices Will Continue to Climb Through the End of the Decade - And How to Profit From Them”
‘I’m sorry I ever made that comment,’
OMFG!! That I NEVER thought we were going to see.
Beautiful … Made my day… As with any trade organization that collects data from their members she saw the writing on the wall… now doing a 180% turn…
Freaking Awsome…
Beautiful … Made my day… As with any trade organization that collects data from their members she saw the writing on the wall… now doing a 180% turn…
Freaking Awsome…
The difference being, the Japanese holdouts had a sense of honor.
Lereah will be in a future NAR ad, riding a horse and sadly remembering the boom that once was, similar to that etrade superbowl ad.
marin_explorer,
That is beautiful! I haven’t watched the Super Bowl in years, what year did that comm. come out? I remember “Stuart” which always annoyed the hell out of everybody and the tow truck driver that owned his own island! Great stuff!
DinOr-
That was 2001, and we all thought we’d never see a meltdown like the dot-bomb again. How wrong we were!
Leslie Appleton-Young, Gary Watts, Leareh and their ilk are headed for the same infamy as Abby Joseph Cohen, Henry Blodgett, and the other “analysts” who led the lemmings over the cliff (or rather, escorted them there). The deluded fools who listened and believed will curse their names for a generation.
hehe that rules
I think Leslie read some of the comments here, particularly the suggestion that her next employment gig will be in Ensenada a few doors down from Hussong’s with a secret door knock required to get in.
Wouldn’t the business that she generates depend on the “comps” of the other girls.
Wouldn’t her business depend on the “comps” of the other girls?
The about face from the NAR was guaranteed to happen once sales slowed significantly. They are trying to protect the interests of Realtors, not homeowners. All they care about is sales volume. Transactions are where the association dues come from, not RE price increases. Realtors and the entire RE complex is suffering their worst nightmare - Market paralysis - and they need to get the market to move any way they can. The faster it tumbles the better for them and they realize it.
Great point BubblePopper! When I read LAY’s comments this morning there was fear in my eyes. I thought “for her to capitulate at this early stage in the game must mean that we are in for some dire straits!”
Your explanation makes much more sense. Thanks for translating for the sake of dummies like me.
100% correct. Insightful.
AZ_BubblePopper, I agree with your point on transactions, but
how does saying their market is falling apart help increase
transactions…If I was a potential buyer, it would make me stop and think if I read that article
Panicked sellers will drive up inventory, and the NAR’s logic is that even a low percentage of a high number is better than a stalemate. It’ll backfire — these idiots are so short-sighted I’m surprised they’re allowed to drive — but I think that’s where they’re coming from.
There are still plenty of dumbass fence-sitters with prices just out of their reach for affordability reasons. A quick 20% decline will get many of them to jump back in. Then the market continues to crumble to 50% off the peak so the anxious fence sitters get screwed and keep the NAR in business, even as the market melts down. Marginal buyers be lured & damned.
Agreed. I remember idiots flocking to buy Nortel at $60 on the way down (such a deal!)…it’s about $2.40 now….
I confess that if prices came down 20%, I might buy.
Good time to start some analysis on entering market…
Try 1999 prices in your area and add 5% or (inflation rate + 1%) YOY appreciation. In my case base year 99 prices were 200K (TH with 2000 sqft) with 5% yoy we get in 06 295k… this is a safe enter price… lol… in my example the 200K TH i saw in 99 peaked last year at 660K. After a good 50%+ reduction will be a good entry point. This will get you back to normal trends.
I think anything under 50% is a sure way of catching a falling knife in my area.
Agree with you on that, Thomas.
I will buy when the numbers make sense to my family. That could be 50% lower, or 20% lower. But I won’t be buying just because prices dropped.
That’s probably a healthy attitude going in. If I were renting I’m pretty sure I would jump early too.
For those with patience, I think the time to move would be when price increases on increased sales volume 2-3 months in a row… or something like that. Use momentum as a guide… Stock trader approach
I didn’t think prices were all that cheap in 1999, even though I did buy my first house then. I only did it because rents were unreasonable. Up to that point I’d never wanted to buy… I’d always heard how hard it was to sell a house… that you need to live in it for 5 years or more… etc. Memories of co-workers that could not sell their homes in 1995-96 was still fresh in my mind, too.
The mortgage payments were more than my old rent, but the tax deduction made the difference.
“The about face from the NAR was guaranteed to happen once sales slowed significantly. They are trying to protect the interests of Realtors,”
That crossed my mind, and is a good point, but I’m not convinced. Basically, LAY is forecasting a deflationary market. Deflation is bad for sales, because it makes people wait for things to get cheaper before they buy.
The market will correct itself by itself, and most FB’s are going to hold on by their fingertips until bankruptsy no matter what, so sales will pick up again when they do according to free market mechanics. I suppose such a statement might make sellers more willing to capitulate to the free market, rather than an entitlement of double-digit gains, but at cost of making buyers still more reluctant to buy.
I think it is personal interest, not that of Realtors®, that drove her to make that remark, to hold onto any semblance of credibility before reality presents itself clearly.
I don’t know… You are giving the NAR’s economists far too much credit. I’m certain that credibility is not anywhere near the top of Ms Young’s list of concerns. See, too get a job as a top economist at the NAR, any indication that a candidate might have a concern for personal credibility is almost certainly a dealbreaker.
NAR Economist Job Requirements:
Kool-aid drinkers
Nice Smile
Ability to lie well on demand
…
And consider this - It’s still very early in the down cycle - despair hasn’t set in yet. There are those that are still thinking 10%-15% decline and then the appreciation will start to roar again. There are entry points all the way down for knife catchers. We are currently in single digit affordability. A 20% decline will bring that number up -wishful thinking on the buyers’ part (many have never experienced a decline) and transactions start to pick up… at least to some extent.
Then they shouldn’t mind if the sales increase in the downward price direction. No?
Don’t forget a lot of realtors have their own chips riding on this market.
That’s a good point but I doubt Joe or Jane realtor are influencing the NAR’s agenda. They need dues and working Realtors to stay alive. They got fat over the past several years and are looking straight in the face of a 50% decline in sales… Pretty compelling motivation for an about face.
Excellent point; completely ignored is the fact that the vast majority of Californians have been and would continue to be priced out of this market at the current median prices throughout the state. Since when is this a cause for optimism unless you are a speculator? Even long time homeowners would be adversely impacted eventually, having run out of GF’s to use liar loans to purchase their overpriced homes. These reporters need better editing on their articles.
Ben, very insightful point. I didn’t catch that on my first reading. The media is biased toward misnomers that benefit the RE industry. Why exactly is an optimist someone who believes prices will stay high? The only explanation is that the reporter wants high prices, not fair prices. S/he must be an FB.
As for lAY’s comments. Well, I don’t think she’s doing it to keep the market going. My feeling is that she reads these blogs and the media tide is starting to turn. She wants to “price her comments ahead of the market” so she can have some credibility when her so called soft landing turns out to be an economic disaster. She does not want to be the scape-goat. When the so cal economy lies in ruins, at least she’ll be able to say that she predicted it several years before.
Hey, Leslie. Come and read Ben’s blog. We have come up with plenty of terms to describe the housing bubble. Your friend, Mr. Watts, came up with a good one. Of course it needs a slight modification.
” A BIG DROP. It is in the bag. “
I wonder if Ms Young took the mandatory 1-day Ethics training and “earned” her certificate?
Wow, even the cheerleaders are surrendering. I predict we will be seeing increasingly outright bearish articles from the mainstream media from now on. The NAR can’t even deny it anymore. Or, actually, maybe realtors are just tired of listings sitting and their tune is changing so sellers can be convinced to lower their prices. Yeah, that’s the ticket….The corner has been turned.
Lereah and others who have been wildly optimistic about prospects for continued high price appreciation off an unaffordable base have done their constituents a serious disservice. Sellers take the expert forecasts of continued high price appreciation as gospel, and consequently keep their list prices stubbornly high at a level where their homes will never sell. More honesty from industry leaders would result in more realistic pricing, and more Realtor (TM) sales commissions.
Carlsbad Jim was discussing this on his blog the other day. The RE complex needs to get on board and inform the delusional sellers that the market has changed. Welcome to the RE **CYCLE**. Meet the downside.
The amount of greed out there is simply mind boggling. I had a conversation with a secretary at my office this morning. She wants to sell her townhouse in a South Shore suburb of Boston and retire to Florida. She said she felt insulted her RE agent advised her to list the unit for 10% less than the most recent sale of a similar end-unit for 389K from 5 months ago. She was whining about how that other unit was next to the parking lot while her isn’t. How stupid of the other seller to have to put in a brand new kitchen and built-in bookcases in the living room in order to unload the unit. And how she wouldn’t be so stupid to buy another house without first selling the one she has. All the while I kept quiet and listened. Then she said she will die in that house rather than give it away. So I asked her when she bought the place. She said she bought it 21 years ago. I told her she’s sitting on a ton of equity and should sell now before the price drops further. I asked her if she remember the early 1990’s. She gave me this look as if she’s ready to bite my head off. She repeated that she would rather die in there than give it away. Then she mumbled something about “So you’re another one of those gloom and doomer…” and walked away. I was stunned. At the price her RE agent quoted gave her, assuming it will be sold at that price, my estimation is she will have about 200K in net profit. And it’s all tax-free. I couldn’t stop shaking my head. Lady, you have it all wrong. You are the one who is stupid. You are the one who will be giving away all your profit.
$200K in net profits, and she feels cheated. She never had that money to begin with, so she’s not giving anything away. Well, I’ve never seen so much entitlement as during this real estate boom. Everyone thinks their 2BR bungalow here is worth $1M, as long as they wait for “the right buyer”.
Sounds like my neighbor, the flipper realtor. This moron bought this unit next to me (2bd 2ba, 1186 sq. ft., he thought he bought an even bigger unit, lol) about 6 mos ago thinking he could unload it for 600k with some upgrades (granite counters that’s pretty much it) but since it hasn’t sold he dropped the price to $559k then $549k now. He said “all it takes is one buyer”. I’m thinking dude…there’s a comparable one down the street in a better location selling for 20k less…even the “right buyer” isn’t that stupid.
marin_ex…
That’s always kinda been the typical attitude in Marin, though, yes? You’re probably one of the few bears there. And if there are more like you, they may be afraid to let their neighbors know of their bear-ishness lest they will feel the wrath.
BayQT~
Greed + stupidity is a fascinating spectacle.
No…greed plus stupidity doing a Hindenburg; THAT’S a fascinating spectacle.
That “profit” may very well have already been spent in advance - Liberated Equity. A lot more ReFIs & HELOCs than you might imagine…
Your psychotic secretary friend should take a look at this article from the Boston Globe:
http://www.boston.com/business/articles/2006/07/17/to_fight_the_glut_home_sellers_push_their_prices_down/?rss_id=Boston+Globe+–+Business+News
I find her attitude to be so common as to be baffling to me. I’m waiting to see what everybody else like her will be thinking or saying in 2 years when things have really adjusted. Are we going to have to expand all the old mental hospitals?
My wife and I just completed a vacation/roadtrip on the West Coast. San Fran, Tahoe, Chico, Eugene, Portland, Seattle, Victoria BC, Vancouver BC, Oregon and Northern CA coast and back to San Fran.
We stayed with friends in all the mentioned cities and we were astonished by all our friends opinion of RE, without exception everyone believed the following;
Our city is unique we will never see a price decline in our city
There is a RE bubble everywhere else and not here
Everyone else will see a decline of 30% to 50%
They all employed the exotic mortages (i.e. I/O, Negative amortizations, Option payment)
Most were RE investors on the side (i.e. second homes, extra lots etc.)
And all planed to sell when the selling price would allow them to cash out with 500K
My wife and I were dumbfounded at the level of GREED that we saw in all our friends. We dared not bring up the real facts about RE as chronicled in blogs like this. The net take away was that denial has not even encroached into to the minds of a lot of people. Perhaps they denial stage and the subsequent price markdown in RE may be a bit further down the road then most people think closer to the end of 2007/2008.
All we could do was to pray for our friends and be thankful that our heads were not in a noose. PS we paid for our vacation/roadtrip in cash.
“PS we paid for our vacation/roadtrip in cash.”
That’s whatI’m talking about.
Amazing, isn’t it…the number of people who either really don’t know what’s happening or refuse to see the light? As I mentioned in my story about my co-worker buying a vacation home in Half Moon Bay…I was just dumbfounded. Yep…pray for your friends. I am SO lucky my head is not in a noose either.
BayQT~
sfbayqy
Do you see a lot of for sale signs in Dublin? I’m just saying, how ridiculous what those village tract houses are going for! I’d like to know what the markup in the hood behind the Lutheran church is going for now, just because Dub-town is on the BART line.
You have no idea! I thought the Dublin Village prices were ridiculous 4 years ago. When I was training for the SF half marathon in 2004, a guy on my team was a PeopleSoft eng and he lived there….but when he bought his condo they were the $300s. On Realtor.com, I can only find a couple of condo/townhouses built in 2003 and they are in the $700s! Absolutely, ridiculous.
Then there is the Village Park condos (formerly Cross Creek Apartments). The conversion began last April, all units 3 bd, priced at $440k. Shortly after that they increased to the $500s and up to $560. NOW, there are at least 5 units for sale beginning at $489k up to $500k. Remember, though, these are identical units so the pricing just tells me when someone may have made their purchase in the last year.
Are you talking about the Lutheran church on Davona or on Amador Valley Blvd? OH! And what about the new “transit center” buildout at the BART station? There is MAJOR building going on there which is to include condos, apartments and commercial. This is what is going up there:
http://www.eahhousing.org/building/profile.asp?id=66&mode=fd
Elan (DR Horton)….pricing has fluctuated in the last yr.
http://www.drhorton.com/corp/GetCommunity.do?dv=Y9&pr=41936
BayQT~
Amador by the library and Rdd Lobster. I think there is a street called Ironwood. When I lived in Dublin (’97) it was pretty much a barrio. They had just finished the Dublin station. I think what would shock me is what my sister and her husband’s house is “worth” now. I don’t remember the house number but it is on Estrella Ct.
Per Zillow.com, the Estrella Court houses are now in the neighborhood of high $600s - mid $700s. I’ll take a drive through there this weekend to see what’s going on there now regarding for sale signs.
I’ve only been out here since 2003…company moved here from Emeryville in 2002; I moved here from El Sobrante, CA in 2003. At that time a lot of the Dublin Ranch development was going up. I walked through one of the townhouse models with a builder friend and he said that most of these places had sub-standard materials and that most of the square footage was taken up in the stairways (3 level townhouses). All of the rooms were (are) hella small….and they were asking around $500k then. He was not impressed in the least. Crazy. Just plain crazy.
BayQT
Where are you living now, goedeck?
BayQT~
Southern OR
All of the rooms were (are) hella small….
I learned from friends when I moved to the SFBay area to say “hella this…hella that…” LOL
This says to me that the West, just as in the last housing correction on the coasts (early 90’s), is at the end of the train again.
I would bet a similar trip this summer: Boston, Portland, Acadia, Winnepasaukee, Burlington, Adirondaks, Albany, LI Sound and the Cape - would find a very different attitude.
What is it about the West, or moving West, that puts people’s heads in the sand? My guess is that California’s housing market problems are going to put the interior West into a world of hurt.
Thanks for the feedback, speacking of putting your head in tha sand.
One of the more bizarre RE conversation with one of our friends involved 3 lots the couple had bought in a to-be-developed subdivision outside of Port Orchard (i.e opposite Seattle). The lots were about 185′ deep, bordering the back of the lots was a salmon stream, per Washington State law no construction is permitted within 200′ of a salmon stream. Our friends was convinced that thier purchase of the lots could be sold at three times thier purchase price. A slight disconnect.
PS the road near thier to-be-built subdivision had a rather unique road sign. “Correction Facility — DO NOT PICK UP HITCHHICKERS”
Really weird stuff happens when emotional bonds are created with RE.
“Then she said she will die in that house rather than give it away.”
And how many times have we heard THAT from a seller? So predictable….so clueless….so f%#ked.
BayQT~
Not to mention, that in CA a death in the house must be disclosed and likely reduces resale value.
Just adding gasoline to the deflationary flames in the housing market.
So she’ll be a posthumous FB then, eh?
BayQT~
“‘Maybe we need something new. That’s all I’m prepared to say,’ Appleton-Young said Thursday.”
“The Realtors association last month lowered its 2006 sales prediction. That was when Appleton-Young first told the San Diego Union-Tribune that she didn’t feel comfortable any longer using ’soft landing.’ ‘I’m sorry I ever made that comment,’ she said Thursday.”
Welcome to the party Leslie. Has she officially defected tour side? I wonder if David Lereah will change alliances? Nobody likes to be on a losing team.
In all seriousness, Leslie has done about a 180 in a short amount of time. It’s tough to keep putting lipstick on a pig and passing her off as a beauty queen.
I know that faith-based decision-making is all the rage these days, but there is a reason why reality-based decision making has been successful in the past. In the end, EVERYONE converts to your side.
Leslie Appleton-Young hasn’t “defected to our side.” She’s not so delusional, however, as to recognize that her credibility is in shreds, since the “soft landing” fantasy is disintegrating in front of her eyes and everyone elses.
Wooooo! San Diego land for everyone!
My apologies to greenlander.
Woohoo!!!!!!
By the way, no apologies necessary.
Everyone should be able to “woohoo” that there are San Diego lots, condos and houses for everyone.
And SFJack, the originator of the term, I believe.
That’s all I’m prepared to say.
The only thing missing now are the handcuffs.
Now what are we going to talk about? How we agree with the Agents on how bad everything is? Let’s buy, and then start saying how great everything is, turn the tide, sell, and start all over!
There is still the sellers. And there is very little evidence that they are coming to terms with the new reality. I know a few FB’s who still adamantly believe that it’s still May, 2005.
I agree. The new listings I get notified of in coastal n. county san diego are generally priced like it is still 2004-2005. It is like the re agents simply show people what other people are asking in the area, and recommend they go higher because their house if of course sooo much nicer. Problem is, the people are not being told about how long those other homes have been sitting at those prices, and how zero offers have been coming in. This may take a little time, but it is coming.
JJGittes,
We like to call that “priced to sit”.
They will hold on for dear life, and keep their asking prices unrealistically high until they have a gun to their head.
Those who can hold on will, and they’ll lease it with a negative cash flow and sell the home for more that they bought it for 10 years from now and claim victory.
Rental Watch,
Thank you. I’ve made that claim for years only to have it fall on deaf ears. If I was your stockbroker and I bought you Intel in March of 2000 you would have had fit, fired me and then we’d be talking lawsuit. But b/c these nimrods brought this upon themselves OF COURSE it was their intention to “hold it long term” all along! (Never mind that the economic drivers for that area will be TOTALLY different 10 years from now) while they sweat each and every rent check!
I agree. The amount of greed out there is simply mind boggling. I had a conversation with a secretary at my office this morning. She wants to sell her townhouse in a South Shore suburb of Boston and retire to Florida. She said she felt insulted her RE agent advised her to list the unit for 10% less than the most recent sale of a similar end-unit for 389K from 5 months ago. She was whining about how that other unit was next to the parking lot while her isn’t. How stupid of the other seller to have to put in a brand new kitchen and built-in bookcases in the living room in order to unload the unit. And how she wouldn’t be so stupid to buy another house without first selling the one she has. All the while I kept quiet and listened. Then she said she will die in that house rather than give it away. So I asked her when she bought the place. She said she bought it 21 years ago. I told her she’s sitting on a ton of equity and should sell now before the price drops further. I asked her if she remember the early 1990’s. She gave me this look as if she’s ready to bite my head off. She repeated that she would rather die in there than give it away. Then she mumbled something about “So you’re another one of those gloom and doomer…” and walked away. I was stunned. At the price her RE agent quoted gave her, assuming it will be sold at that price, my estimation is she will have about 200K in net profit. And it’s all tax-free. I couldn’t stop shaking my head. Lady, you have it all wrong. You are the one who is stupid. You are the one who will be giving away all your profit.
You should have asked her whether she would buy it at the price she was trying to sell it for. If she’s honest, she would say no. What makes her think someone else would pay that price then?
I luv these stories… makes me all happy inside…LOL!
Oh let the blood run in the streets…
Since median price is a lagging indicator, I think this will be the place to come for accurate, anecdotal evidence of price declines for years to come. Pass the popcorn and kleenex.
“‘San Diego is our weakest market in California,’ Tomnitz told analysts. ‘California continues to be a challenging market for us. There continues to be a small percentage of affordability out there.’”
The builders themselves have the power to increase the level of affordability. It’s not as if it was impossible to make a profit in 2002, at 2002 prices. The recent prices of 2005 have been a windfall to the builders, yet the builders act as if they will be losing money like some overextended flipper by lowering prices.
I remember last year at 4S Ranch in San Diego just going to look at some houses. I asked about availability and was told, “You can come to the sales event, but you might not even bother since we have so many people on the waiting list.” Now it seems like we get a postcard once a month promising a good time with “free face painting” if we would just please come to a sales event.
That was when prices on the same house were rising 20k every two weeks, for no other reason than the fact that 14 days had passed.
That community had builders building the same exact floorplans on different sections of the community. I compared two identical houses, one built in 2003 on a larger lot, and one built in 2005 on a smaller lot. The one built in 2003 sold for $350,000. The one built in 2005 was going for $670,000.
Since the builder already had the land locked up, then it seems like the only cost increase might be labor and materials. I highly doubt the cost increase was $320,000.
To me it seems the only thing making builders hesitate to lower their prices is so that the buyers from 2005 don’t come after them with pitch forks.
Oh boy, those haughty, self aggrandizing sales agents of a couple of years ago. My how they did act like they were the gatekeepers to the most important things in the world.
What I loved about it was that it reminded me of a conversation I had back in 1999 with a software vendor. At the time I was an IT manager at Sprint (yes, big ass company). This vendor was called “Blue Martini” and made a web portal toolkit. I told them we were going through a selection process and would they like to participate. They sent me a huge form to fill out to see if we “qualified”. I called them back to inform them that we were bloody Sprint and they could get their butts to Overland Park Kansas. Suffice to say Blue Martini had little but their own self importance to live off of after the dot com bust.
The Blue Martini maggots left and have infested a another IT vendor called Agile Software.
Here in the SF Bay Area it might read like this:
“Suffice to say [Company ABC] had little but their own self importance to live off of after the dot com bust.”
Company ABC = the hundreds of useless companies no longer in existence
Unfortunately, the “self importance” part has survived and is still with us here in SF, especially as it pertains to real estate.
Yeah, part of what made me decide I was living in an insane California market, was realizing my old home was rising in value FASTER each month than the mortgage payment itself. There was no way that could continue. (And yet it did, for 3 more years).
Doesn’t it behoove RE agents to encourage a quick reset of things rather than a long protracted slide.
A quick reset means RE will be back up an running selling properties and making their commissions while a long slide means few sales and scaping by collecting cans and bottles.
Right?
a quick reset will scare buyers even more. if real estate prices dropped 20% this year would you be itchin to buy? Most would want to see what next year looks like first.
No easy way out of a bubble. The easy way is long gone.
The thing is ..this has just barely started the downturn. Wait til prices are dropping, panic sets in. Prices are still stagnant, and some bubbles are rolling in the out markets. I don’t think the “public” really has a clue yet……
Exactly!!!
Once the the masses ‘realize’ that a house isn’t a guarantee of easy money….you will see things turn the other direction.
They even did a segment on the national news this morning. They showed a few people who were ‘barely’ making their mortgage payment and thought NOW was a good time to get out and take profits. Sorry, but you are 12-16 months too late.
Like I have said before…2007 will be the ‘year of reckoning’. 1.5+ Trillion dollars of those beautiful ARMs are going to adjust….and many will not be able to make the new payment.
Stay tuned…
SoCalMtgGuy
SoCalMtgGuy,
You know, that has to be the first time I’ve heard of Adjustable Rate Mortgages being described as beautiful. I think I could get used to that! Thanks SoCalMtgGuy!
ARMs are beautiful. All my laddered CDs are indirectly paid by them. The banks -need- this money because the banks -promised- me that money minus their cut. Without those beautiful ARMs my investment properties would have only been appreciating 6-8% per year instead of 20%+ these last few years. ARMs, those beautiful ARMs doubled the number of customers buying my stuff. Attenion FBs: “ALL YOUR ARMs ARE BELONGING TO ME!”
Dude! The phrase is “are belong”!
Robert, YIKES! How many “investment properties” are you riding down with this market? I can understand a homeowner not selling only to move and rent provided they are in a financial position to ride the market out (given family disruption involved) but I could not imagine riding down the market on multiple SFR investement properties. Compounded pain!
Robert, YIKES! How many “investment properties” are you riding down with this market?
Zero. I sold the last in April at the top tick to a realtor with no closing expenses. All I’ve got left are places I live in. My primary is at such a low cost basis that under Prop 13 my 4.99% fixed and property taxes combined are lower than property taxes alone would be at today’s values. Don’t worry about me unless you know something about wheat futures or Dec Euros. Funny thing, everyone (except one couple) I know have also bailed out of everything except for personal use property at the same time. The last rental was fully depreciated and rent income was 12x expenses. I sold because I got 273 times rent. I’ll buy back 3 of these in a few years with the profits.
Figured. You are far too bearish here to be sitting on RE and watching the equity vanish. Glad you were able to sell to a Realtor! It makes me happy to know they are dumb enough to drink their own kool-aid.
You guys, Robert is a seasoned real estate speculator. He eats amateurs for lunch. Most of this real estate bubble was a mass hysteria, “we’re all going to be rich, together!” But, people like Robert chewed them up and spat them out like poker sharks do to rubes in Vegas. If you’re on the other side of the trade from Robert in real estate, you’re going to lose money.
Thanks for the undeserved compliments. I bought my first rental while I still lived in a rent controlled apartment in Santa Monica. My good friend Frank never tired of complaining that I was benefitting from both sides by being a capitalist and socialist.
Personally I’d never buy for investment or residence anything with a HOA, Association fee, Mello-Roos, rent control or abritray tax polices. That narrows it down but I’m not buying in bulk. My only “regret” about this last rental sale. Now when I go skiing up at the family cabin the trip is not deductible as a business expense for checking up on the rental. Oh, and since I sold the inventory has doubled in the village. I don’t like the first 10% or the last 10%. I was sweating the escrow silly as that seems afraid I waited too long. One minor nit however. I may be in fact a speculator but I like to think I’m an investor so please humor my self denial if you can find the compassion for this heartless shark who’s already impatient for a meal that may not float by for 18 months or 2 years. My only consolation is that when that meal shows up it’s gonna be an entire pod of bloated whales. Oh and no need to “hunt” them they’ll have FLIPPED themselves over and already be belly up. Pass the ketchup.
Yep. We are 6 months into a 5 year correction. We haven’t really left the denial stage yet. And we’ll start hearing from the complex how RE has been really good, so even a little softening is okay. That will run for 6 months or more. Then we’ll debate the severity of the correction. That will take 6 more months. We will debate this crash all the way down, and then, in 5 years, people will debate if housing was ever a good investment.
It’s going to be a long long road.
Doesn’t anybody lose their jobs anymore for screwing up. I guess stupid is stupid, and stupid people invest their hard earned money listening to BS from paid hacks. I’m sorry will not cut it. Lets hold these overpaid windbags to their missteps, and don’t accept their “I’m sorry”
not gov or edu economists
associations are almost as lame
Doesn’t anybody lose their jobs anymore for screwing up.
You’d like to think so but Donald Rumsfeld and Dick Cheney still have their jobs.
who says those two are screwing up. they are just doing swell with what they were supposed to do.
Depends on what you mean by ’screwing up.” Ms. A-Y was doing precisely the job she was being paid to do. I’m sure whoever she reports to was perfectly happy, until reality intruded sufficiently.
“‘I’m sorry I ever made that comment,’ she said Thursday.”
Kudos to Leslie for up-front honesty. When will David Lereah offer his mea culpa for tricking last year’s buyers into catching a falling knife?
she’s sorry because she’s no doubt been inundated with vehement rebuttals and people questioning her intelligence/sanity ever since…honesty has nothing to do with it.
“SORRY” DOESN’T SUTURE MY COLON!!!!
“‘Maybe we need something new. [On advice of legal counsel] That’s all I’m prepared to say,’ Appleton-Young said Thursday.”
She probably should have been more explicit and said, “Maybe we need something new. For the moment, I will say only that The California Association of Realtors, as a trade association, is not liable under the California Consumer Protection Act or under federal wire fraud statutes for any statements, either within the state or transmitted across state lines, that may or may not have induced California or other sellers, purchasers, agents, brokerages, banking entities, appraisers, real-estate developers, construction companies, or any other person or entity, or their heirs, assigns, or legal representatives, into entering into any economic transactions based on the statements, representations or assertions of said Association. The Association stands ready to defend itself from any suit making such allegations in both California and federal courts.”
And next year Gary Watts will be at the Thousnd Oaks Ventura County Economic Roundtable to explain; “17% is in the bag.” That’s when he’ll explain; “I didn’t say which way the 17% was going.”
lol
It is unwinding faster than Robert Cote just predicted. Gary Watts “revised” his forecast today.
Woohoo!
http://realtytimes.com/rtapages/20060622_cardefenseplan.htm
“the California Association of Realtors has announced both the creation of a ‘Defense Litigation and Claims Repository’ and also the association’s endorsement of an errors and omissions insurance carrier and broker. These two announcements represent the second and third parts of a plan designed to enhance the ability of California Realtors® to defend themselves in the ever-increasing litigious climate of the Golden State.”
pretty sure this was posted when it first came out…
“Maybe WE? need something new”
I wasn’t aware that either Appleton or Young were French names! Or do you have a mouse in your pocket? Leslie, dear, these are things that YOU said! Yeah, that’s right YOU! How quickly she’s attempting to distance herself from her formerly bullish denial statements. This people have such a sense of self importance it’s ridiculous. Every pencil pusher and aide in DC thinks their every action determines the fate of the free world. I’m sure Leslie had the same grandiose’ image of herself. I know everyone here will make a considerable effort to ensure she doesn’t “seek oppurtunity elsewhere” without a sound drubbing.
What, a new way to spin the down-turn and fallout?? Finally we are getting somewhere! I guess she needs to think of a new way to trick sheeple into buying these overpriced POS! When I read this article in the paper this morning it made my day!! I am as happy as a pig in sh*t! She is the “god” of the Southern California real estate industry. I wonder how they (the realtors) will quote her now??? It will be truly interesting!! I am renting, paying off my bills, putting money away and ready to sit back and watch the fun!! This is going to be a blast! My only hope is that we will stop hearing those stupid mortgage commercials on the radio and TV!! I am so sick of refi this and pay off your debt I could puke!! Is everyone in debt up the their as*ses??? Let her rip!!
But “You’ve got the green light!”
And: “It’s the biggest no-brainer in the history of mankind!!!”
What’s the emoticon for “gag me with a spoon”?
“Del Mar-based Brookfield Homes reported a steep drop in revenue from home building yesterday while the nation’s largest home builder said business in San Diego has been particularly weak.”
A steep drop in revenue entails an even steeper drop in profits, even at constant costs. And costs are going up.
For instance, suppose a company operating at 20% profit margin sees its revenue drop by 20%. That would translate into a 100% drop in profit.
Would any bulls in the audience care to repeat their assurance that builders will continue to profit all the way to the bottom of this downturn? Because I am still trying to understand their argument.
“For instance, suppose a company operating at 20% profit margin sees its revenue drop by 20%. That would translate into a 100% drop in profit.”
Ahhhhhh, no. The % drop would depend how much of their cost structure was variable vs fixed. Since no company really has 100% fixed cost structure, the profit drop would not be 100%.
Homebuilders doesn’t have much in the way of variable costs. If revenues for a home that they have built drops by 20%, and their margin on that already built home was 20%, all profit from that home goes away. There is no variable cost if you’ve already built the house.
Even if you haven’t built the house, what are you going to do? Perhaps skimp on finishes, but once you are at bare bones (which most HBs are), where do you go from there? Unpainted homes to sell? No sheet rock? No floor coverings? No appliances? Not much in the way of variable costs there.
I agree with you Getstucco. As I’ve said before, HBs are still making money today because the homes that they are selling today have been built on lots that they bought 1-2 years ago. Once they begin selling homes that they are building on lots that they bought 6 months ago, we will see a different story.
Homebuilders buy land using an assumption that their gross margins are ~10%. A 10% drop in home prices without a commensurate drop in construction costs means that they break even.
I would say that all their costs except land (in the short-term) are variable. Of course, if they build a ton of spec homes, well…that is another story.
BTW, homebuilders gross margins have been significantly more than 10%, say mid-20% to mid-30%. Even now, gross margins are still very strong compared to last several years. The rest of this year margins will get worse and 2007 will be downright ugly since 2007 homes will be for contracts that are signed during the rest of this year and as we all know incentives are skyrocketing.
Anyway, I was disputing GetStucco’s assumption of if revenues go down 20% profits go down 100%. Now if the price of a house goes down 20% then maybe profit goes down 100%, but if units go down 15% and price goes down 5%, profits are still rather ugly. There may have been a screwup in communications, but it really depends on what aspect of revenue goes down, price or units.
Sorry, meant to say at the end that if units go down 15% and price goes down 5% than profits are still rather healthy.
I think you are placing too much emphasis on the variable costs. 80-90%+ of the costs of a house are in the land and construction costs. Back office is a pretty small portion of the show.
Specifically with respect to gross profit margins, I thought I’d comment.
When homebuilders go shopping for land, they take their construction costs, and expected prices for the homes they are going to sell and use a plug number for the land in order to get themselves an 8-10% gross margin on the project (ie. 8-10% gross margin on each home). So they buy their land at that price. No builder buys land at prices where they expect to acheive a 20-30% gross margin. It doesn’t happen.
In a time of flat home prices, they acheive an 8-10% gross margin. In a time of rising home prices, they make stronger margins as revenues generally outpace costs (since land at that point is fixed), and in a time of falling home prices, well, you get the picture.
Their margins today are in the 20’s and 30’s precisely because they bought the land upon which they are selling those homes 1-2 years (or longer) ago, and they are enjoying the fact that home prices have run up since they made their initial 10% gross margin pro forma assumptions.
When they sell the homes on the land that they bought, say, 6 months ago, they were banking on January 2006 home prices staying constant, or perhaps trending upwards a bit. If they acheive that, they will have 10% margins on those homes. If home prices fall, their profits evaporate on those homes.
Now the project may be leveraged to some extent, which can make profit on equity swing fairly wildly from here.
I hope that makes sense.
You need to add an increase of inventory on hand…
When you have declining revenue and profits with increase in inventory … that spells deep discounts… you cant make more until you get rid of inventory… since this is real estate there are no write offs or write downs.
I generally think about public HBs as generally a collection of individual subdivision projects with lean front office and cheap financing–but you are dead on right. The standing inventory for any of those individual subdivisions will not help. If they’ve borrowed $ to build, it will burn through profits while they wait, if they are using internal capital, they are going to lose capital as they sell those homes for less than they paid.
I would amend your comment though–some public HBs have significantly more autonomy with respect to their pace of construction than private homebuilders who need to listen to the banks. Some publics could build and build and build themselves right into BK when all their capital is tied up in depreciating assets.
DebtVulture,
Your point is taken. I deliberately was using a simple, if somewhat artificial, illustration to make a point, which is that a given percentage drop in revenue generally translates into a larger percentage drop in profit, and that a sufficiently large percentage drop in revenue will result in negative profit.
So in Northern Va there is a 40% drop in revenue (it’ll get worse in the Fall). What does that translate into?
Would any bulls in the audience care to repeat their assurance that builders will continue to profit all the way to the bottom of this downturn? Because I am still trying to understand their argument.
I am not bullish on the builders. I am short several builders and making money hand over fist recently.
That said, in order to be wary on my investment I have tried to understand how some COULD continue to make money.
1) They can lower prices faster than resale homes because they understand the market.
2) If they didn’t over pay for the land (though many have!) and they were making money five years ago at half the price, then it seems they can continue to make money now. Labor and materials have not gone up that much.
Sure, they’ve expanded their sales staff to ridiculous levels and many have way overpurchased land/borrowed money. Like I said, I am short and doing great with it. But there is a floor under a builder if they haven’t drilled too many holes in it themselves…
“Both Brookfield and Texas-based D.R. Horton said they are experiencing an increase in cancellations across the country – where buyers who have entered a contract to purchase a home decide to walk away.”
Sheesh…finally their dullbulbs are coming on. Run! …and live to buy another day.
OT
Talking heads on CNBC said that rents are way up, and if they continue, buying will become more attractive vs. renting.
I agree…maybe in 20 years.
I know this is a silly question but I’ll ask anyway:
Was there any evidence for rentals going up?
When I renewed my lease last month, the rent went up by $15. That’s less than 1%, significantly below inflation. This is for a penthouse apartment in downtown Portland.
Before I renewed my lease, I checked on the apartment I had lived in before I bought (and then sold) my condo. It was on the market for exactly the same rent that I paid when I left three years ago.
My anecdotal experience is obviously different from whatever statistic these analysts are using.
Rents in New York City are going from the usual “absurdly expensive” levels to “so completely insane that even hardened New Yorkers are choking.” And not just in traditionally expensive areas of Manhattan, but all over the city. Basically, condo development has completely choked off the rental supply, but as sales slow down rental vacancies have almost completely disappeared. Expect “repartment” trend to be appearing here soon, though.
It’s been five years since rents have risen in SF. In the meantime they’ve probably gone down 20% in most places.
However, they would probably have to nearly double for most people to think it would make sense to buy on that basis (rent vs. traditional mortgage with 20% down).
6-7% in SF & LA
4-6% Boston
8%? NYC
Yes, rents are going up.
Thanks Robert, but where are your numbers from?
FWIW, my anecdotal evidence is different (for DC).
Read this. I think Ben posted this a couple of days ago too.
Rent Increases in State Outpace Much of the West
http://tinyurl.com/qrss8
My anecdotal evidence is different in D.C. as well
Read this. I think Ben posted this a couple of days ago too.
Data is from “RealFacts”:
Our research, data and analysis is widely used and respected by owners, developers, brokers, lenders and trade associations.
Note that renters is not in the mix of people they represent.
Anyone seen any honest data that actual rents are increasing?
I heard of rents increasing by $100 (12.5% or so) in DC, but when quized, rents have been flat for the past 5 years. So, 10-12% over 5 years is no big whoop.
I sold in Boston in 2002 (way too early) and have rented since. I’ve moved 3 times and each time I found a better place for less money.
Vegas has rising rents as well. I think last year was something like 5%. Some expect rises in the 5-10% range for the next couple of years. ~7% of apts were condo’d, even if some come back on, you have population growth a current vacancy factor of ~3% for apartments and wages that have outpaced rent growth for the past decade in the market.
Yes they are up they are keeping pace with inflation. No biggie!
I’ve been tracking rental inventory on the MLS for a few VA counties.
5/8/05
Prince William ——- 383
Fairfax ————– 1,134
Loudoun ————– 318
7/19/06
Prince William ——- 758
Fairfax ————- 1,396
Loudoun ————– 560
if you’re near new condo/townhouse develpements its free rentals for everyone !
Yes, rents are up in Los Angeles. 2-bed apartment was $700 3 years ago when I moved in. The landlord, last year, rented one out for $1000 and he raised my rent by 10%, the maximum legally allowable rate.
2br apt in LA for $700 3 years ago? What run down neighborhood could you possibly have found that in?
South Central LA? Oops…sorry…it’s called “South LA” now. lol.
Have you ever heard of Dodger Statium? Sorry folks, it does not have to be in Central LA.
In 2003, I rented a 1-br with a loft in Palms for $1375 (it’s a “luxury” place with workout room, 2 pools, BBQ area, gated parking, etc.). Now, I’m about to move out and rent is about $1450.
Nope, not South Central, 3 yrs ago I was getting 1000.00 for my 2 Bd’s that I own there. Just recently rented one for 1150.00.
I’ve been looking for a new rent for the last 4 months. I am picky, only looking for the right place at a reasonable price, because I can be. Only in the last couple weeks have a few new -better deals then usual- houses pop up. I looked at the first one and was not impressesed athough it was at least better. I will see the second on Sun.. Too early to tell if a trend is developing but I wouldn’t doubt it. I looked at prolly 15 places in the last few months and I am still looking. Prices are definitely not still going up..mabey down, but no way up.
housingbear,
See if your local cable (or dish) has Bloomberg’s. I’m not stumping for them but they don’t cater to the $500 account E-Trade crowd! It’s worth the extra couple of bucks (and saves a lot of aggravation)!
Yes, many renters are starting to think it may be a good time to buy. That’s why the open houses have been so crowded lately…difficult to even get inside to see the place.
Hee hee, you’re silly.
Rents going up is perfect. When you buy at the bottom and your mortgage is cheaper than rent it provides a fantastic saftey net. It will be a good time to become a landlord for those so inclined. Rents going up should not stop prices from dropping. After all the crashing and burning of the bust recovering FB’S and the frightened masses will think renting is better than buying even when it is not true anymore. Higher lending standards will be in effect and many potential buyer’s will be fixing their credit and finances from this current bust. Anyway perhaps it is wishful thinking, But it works better if rents go up.
CNBC can be entertaining to watch, as long as you keep in mind they are permabulls when it comes to housing.
Soft landing seems to imply that sellers can at least break even. The market is already passing the break-even point in many areas. Why not call it the Pit and the Pendulum scenario?
I prefer the Broken Bungee Jump Cord scenario.
Splattt!!
Friend of mine jumped and as he left the platform the guy who harnessed him yelled stop, you are not attached yet…
Only difference is this time the cord really is broken! Yeah, I suppose the soft landing idea is kind of like pigs with wings? All the prices will just stay up there forever!
Geee, I didn’t think they were making anymore land in San Diego. Somebody must have fired up the land making machinery. We’ll see what the next few month’s data brings. If it’s all negative YOY combined with more and more trick loan resets, brace yourselves the for a drop that will make Goliath’s (Magic Mountain) tame.
Pete in SD,
You know I wish I could remember who said it here first but basically every time that money is cheap all of a sudden we’re running out of land. (When the cost of money is kind of “pricey” there seems to be plenty of it). What makes this “theory” even more interesting is that money (on the whole) is still pretty cheap!
Compared to 1981, money can currently be had at fire sale prices. Anyone want to speculate what would happen in the FMOC decides that 18% is a good number?
Well that’s logical, it takes land to grow cotton. And it takes cotton to make money. Mystery solved.
(Talking heads on CNBC said that rents are way up, and if they continue, buying will become more attractive vs. renting.)
That’s known as inflation our way out of the bubble. We’ll see if Ben goes along.
Thats right, rents go into the inflation calculation….
And if rents really do go up significantly, then the CPI numbers will show the Fed that inflation in NOT under control at the moment, which will put even more pressure on the Fed to keep raising rates instead of pausing.
Game over.
Wow! I’m amazed that LAY is doing a 180 on everything she’s been saying. This is unfolding even faster than I expected. 2006 will be bad, but I agree with the prediction that 2007 will be far worse. A year ago I was viewed as some sort of freak by my friends and family for being bearish on housing. Today, they are emailing me links and dropping off newspaper articles related to the downturn and saying “Maybe you were onto something last year.”
I’ve learned a lot from reading all your intelligent comments, and had a few laughs from the not-so-intelligent ones. Thanks.
One more thing, my wife doesn’t give me a hard time anymore when she sees “The Housing Bubble” in white letters at the top of my monitor. Thanks Ben.
Feels good, doesn’t it? Well, mostly it feels sorta good just not to be a complete social outcast anymore. We have to wait a little more to emerge victorious over the FBs in all of this.
There does seem to be an acceleration effect at play. The economy could be teetering on the edge of a terribly deep abyss.
“The state Department of Real Estate recently reported that (there is) one agent for every 55 adults in the state. Appleton-Young had no qualms about predicting a hard landing here: ‘We’re expecting a fairly significant shakeout.’”
Anyone care to do the math to get Cali’s total number of Realtors?
One agent for every 55 adults?? That’s hilarious.
CA 500,000 1:70
http://calculatedrisk.blogspot.com/2006/07/california-real-estate-licensees.html
Maybe a more realistic way of looking at it is one for every 23 households. So if you think about a condo development with, say, 250 units, it has to support 11 realtors full time.
Sounds about right for my condo tract.
…one for every 23 households.
The street next to my own has 20+ houses on it.
That statistic would imply that 1 realtor could make a living
buying and selling on that street only.
Currently, 1 house on that street is for sale.
Has been for many months..
Others have been taken off market because no one wanted
to buy.
I guess that realtor is going to be doing so well…
Does anyone know how many transactions there have been in California so far this year? In other words, how many realtors are there per transaction?
The question becomes this …..When you have 40% of the purchases Nationwide , for at least the last 2 years ,being speculation purchases ,how stable were those price increases ? Once the speculators bail you get 40% less demand and they all try to sell at the same time .Add to that the interest rate increases that throw first time buyers out of the market .
We already have 70% ownership in United States ,so alot of people have to buy more than one house to generate the demand necessary to keep the party going .Isn’t going to happen at these higher prices /interest rates .
You still have equity locust running up the last of the cheap places to buy ,who will be bagholders in the end .
Alot of baby boomers bought their so-called retirement places/investment places ahead of time ,(based on the get in now before prices/interest goes up ), and now they might loose equity they were planning to cash out with when they retire .So what drove this market for at least three years was :
1.Equity locust /speculation
2.Baby boomers
3.Loose credit/lower interest rates for first time buyers /flippers .
That driving force prior demand will stop and what you will get is 10% of the demand you had with outrageous inventory everywhere .
Everybody knows this , I’m just stating it for the new viewers on this blog .
Housing Wizard,
Oh and don’t forget all of that tax free money either! Had the old one time exemption still been in place I doubt we’d be in this mess. So true, with 40% less “demand” in play there will be a lot ghost “retirement areas”. Good call.
Yes , I forgot about the favorable tax codes , thanks for reminding me . The tax codes were a big factor in real estate demand/speculation increasing .
I’ve often wondered about this. Suppose lending standards remained tighter and there was no rush of “newly qualified” buyers. Would the cap gains exemption have made any difference? While I think the exemption might have added an additional incentive, I don’t think it could **cause** the runup in prices. Without EZ credit & suicide loans, I believe the market would have turned down a few years ago (esp in So Cal), regardless of tax codes.
IMHO …the new tax exemptions made it easier to keep turning properties every two years without worry of paying taxes . Those new tax codes had to have a huge effect on real estate investment strategy for alot of people .
The idiot president of Lennox Financial is still pitching his toxic loans and saying it is the ‘biggest no- brainer in the history of mankind’. Is it just me, or is he the most annoying voice on the radio? This was in the Bay area.
‘Biggest no-brainer in the history of mankind’ = many who bought with toxic loans will be bankrupt by 2008.
I hear that a’hole’s commercial everyday here in Tampa. “The biggest no-brainer” he refers to is having the lender pay all your closing costs. This can be done only by charging a higher rate to make more money in the back, which in turn can be used to pay a borrower’s closing costs. The part where the borrower can get hosed in how much of said closing costs are payable to the lender. For instance, what if an origination or junk fee is charged, is that part of the “paid” closing costs. If he is able to buy all that air time, I’m sure he’s charging an upfront origination fee, charging the higher rate, and then using the higher premium to cover that expense. This clown was probably pushing ARM’s three years ago as well. “Fixed rate mortgages are the most expensive product around, you won’t be in your home in 5 years anyway…”
That’s why I went to Sirius radio… those fricken Refi ads were driving me insane.
Yeah, we’ve had his commercials in SoCal for the last couple of years. I think he is tied with the “out of BK” ad for most annoying.
Wow ! I was struck speechless at reading the latest pronouncements from Leslie Poppleton-Young !!
1) As many remarked, realtors need sale volume. The current stagnant market drives them crazy. Realtors, the NAR and the CAR (up until now) were working on Buyers (not making any more land, RE only goes up, buy before your’re priced out etc) to bite. But they’ve realized that alone didn’t work. Now they’re working on sellers - hence this publicity campaign to get sellers to drop asking prices to get sales going again.
2) Re: rents going up : Rents cannot go up at a rate that is faster than inflation or wage growth (at least not on any sustained basis). Wage growth over the last 5 years has been anemic (it has barely kept pace with inflation - like 3%). The current RE downturn is going to be deflationary. It is going to result in a loss of jobs, a freeze in wage growth and unleash other nasty deflationary ghosts. I cannot see how rents can go up in a sustained manner in this backdrop.
As for Ben Bernanke, I think he will be gone by the time this administration is out of office (in 2008). He will be replaced by someone that can deal with the current mess in a better more responsible manner. I think BB has taken the path of trying to inflate his way out of the current situation (based on his pronouncements to the senate yesterday), where he said inflationary forces were under control and that further rate hikes wouldn’t not be necessary. I think (in the short/medium term), the markets (bond/commodity/currency markets) are going to bury BB alive.
Let’s face it, though. Would you want BB’s job? There is no way this poor man can win. No matter what he does at this point, there will be a tremendous amount of pain. I think we ought to write encouraging letters to him, informing him that the right thing is to keep raising rates until the credit bubble pops. JMHO.
Yep, he is definitely the guy sweeping up the poop at the end of the parade. If I were him, I’d slash AG’s tires..
Just because it’s not his fault doesn’t mean he’s the right person for the job. Bill Clinton would be a good Fed Chairman consdidering his mastery of language, psychology, debauchery, etc.
i never heard bb say he was done raising rates.to the contrary he he will fight inflation.
Hope you’re right… but I doubt it. He’ll raise while he cracks the whip at the printing press. FASTER. PTINT MORE FASTER. I DON’T CARE IF THE INK ISN’T DRY. JUST PRINT DAMMIT.
“‘Maybe we need something new”
How about … IT A BUBBLE
You can say it now or pay for it later.
My friend called me last night. They moved and bought before selling their 1st house. He told me can’t cover both anymore and the market is dead so he is going have to let the bank have it.
Err, won’t the bank come after his 2nd house ?
I don’t know and I don’t think he does. Do they?
Depends on the state. California’s single action rule would prevent a deficiency judgement against the second house.
I got to listen to some of a KPBS (Public Radio in San Diego) real estate program this morning. They were talking about rising rental rates, but that renting is still much cheaper than buying. They actually talked about the “suicide loans” (yes, they used that term) that were getting many folks in trouble.
Also, one caller from one of the far-out burbs mentioned that he was selling his home. He bought it two years ago and now his loan was starting to reset. He is going to move back into San Diego (where he wants to be anyway) and rent because now it’s cheaper than continuing paying his (now rising) mortgage out in the burbs.
Seems like a few more folks are catching on…
Check out MLS S440839 in Aliso Viejo, Orange County.
Price Reduced: 06/06/06 — $775,876 to $750,876
Price Reduced: 06/20/06 — $750,876 to $699,900
Price Reduced: 07/14/06 — $699,900 to $689,000
A check on zillow showed the home was purchased for 460,000 on 06/18/2003.
Something like this leads me to think that the crash is not even close yet. People who bought in 2002 and 2003 are now just facing ARM resets but have locked in over 200-300k+ in equity. People like that can afford to wait another few months and still come out on top.
But not if they can’t make their payments!
They probably have HELOC’d out at least $200K to pay for new Hummers, boob job for wife, Tahoe ski vacations, a big boat, a major renovation, motorcycle (that must now be $300k), etc. They can’t go lower without liquidating 401K to close. Unless, of course, they already did to go buy quick flips in Salt Lake City.
With no kids, I am unfamiliar with the drop-dead, last day to close escrow, especially on a vacant property in a new area with desirable schools.
Asuming no contingencies (sp ?), what is the last date a family would buy, expecting to have their little ones in the new house for the new school year? With a fast escrow? With a normal escrow? Impact on seasonal sales?
Thanks!
Robin,
For us, school starts August 21st, I believe. For a 30-day escrow, that means July 21st would be about the deadline. Of course, that does not leave time for moving, etc., so I’m guessing we are at that point right now.
“Housing industry insiders are talking in California. “Leslie Appleton-Young is at a loss for words. The chief economist of the California Assn. of Realtors has stopped using the term ’soft landing’ to describe the state’s real estate market, saying she no longer feels comfortable with that mild label.”
“‘Maybe we need something new. That’s all I’m prepared to say,’ Appleton-Young said Thursday.”
Yeh! we need some thing new alright. NAR/CAR/Thornberg and all the rest of the RE industry Propagandists to tell the truth for once instead of talking sideways out of their mouths.
Anyone one who has any brains knows these folks spin half truths so why waste time on them.
Here’s some counterarguments against the RE Prop Ministers;
1 SCal is RE market is tottering on the edge this summer.
2 Many sellers simply waiting it out or renting rather than putting their units on the market. This is especially evident in the tenant-rich LA Market.
3 there is feverish ongoing construction of condos/apts all over Greater LA metro area which will add to housing inventory.
4 Much of LA/Riverside/S berdoo countys economy service- based or non-unionized factory/sweatshop/workshop. This is far more evident in the inland areas away from the coast. The boast that LA Economy is “diversified” is a myth. 90 % of all jobs in Scal are the type indicated above. NO way this type of economy can sustain $400-500,000 average median homes prices for LA-riverside-sberdoo counties.
5. Disappearance or sharp slowdown in RE construction will kill the Riverside/San bernardino(Inland empire) economy.
6 continuing high gas prices really crimping consumer spending, especially the lower income classes. This can be easily observed if you check out mall /shopping ctr activity or just drive around town.
7 have not even gone into the fundamental RE factors such as rising % rates, ARM resets,affordability factors, ect.