The Housing Bubble

OMG guys…Ziprealty just revamped their website, and you can now leave reviews about each home! It’s about time we get that type of feedback for houses. And this is from a full-service agency. I wonder if the rest are pissed. Encourage all your friends and neighbors to use Zip and comment!

There’s an article at the NYTimes this morning about men dropping out of the workforce to live on Home Equity or their Wives’ incomes.

another NYTimes article from this weekend on long island market:

Long Island Rude Awakening
From the NY Times (courtesy nnjbubble.blogspot):

Taking the Measure of the Market

IN what may be a “rude awakening,” as one real estate agent put it, the number of Long Island homes being put up for sale, combined with those sitting on the market, is climbing skyward, according to a report from the Multiple Listing Service of Long Island last month.

Simultaneously, the prices paid for homes are still increasing, but at a much slower rate than last year, and the number of closed sales has fallen in many Long Island areas compared with June of last year, the listing service reported.

At midyear, there were 75 percent more homes on the market in Nassau County and 65 percent more in Suffolk County than a year earlier. Although median sale prices were 6.6 percent higher in Suffolk County and 6.4 percent in Nassau, median contract prices, which are more current, fell in Nassau last month.

Brokers report far fewer buyers in recent months. They also say sellers have not yet caught up with the trend by curbing their asking prices.
…
Georgianna Velardi, a broker at Century 21 Petrey Real Estate in Long Beach, said she had recently seen more sellers looking for a way out of high mortgage payments.

A couple in their late 30’s came in to price their three-bedroom ranch. The interest rate on their mortgage had risen to 9.5 percent, from 3.5 percent three years ago. They didn’t have the equity or good credit to qualify for refinancing at a lower rate. To make matters worse, on July 1 the City of Long Beach raised property taxes 25 percent. “They needed to get out because they were so overwhelmed,” Ms. Velardi said.
…
But back in the primary-home markets of western Suffolk and Nassau, Ms. Marten, the buyer’s broker, said she expected to see even more homes sitting on the market longer, and more foreclosures. “It’s not going to bottom out immediately,” Ms. Marten said. “We’re going to see, I believe, what we saw in 1988: a flattening, a gradual downturn and then down and down until it hits bottom.”

On the other hand, Professor Campbell of Hofstra said he did not expect to see double-digit decreases in percent change of median prices over a string of quarters, or huge numbers of defaults and foreclosures. Instead, there will be “a soft market and a gentle decline in prices over the next year at least, possibly much longer than that.”

For the vinyl-fish shower curtain fans: When we last left our hapless landlord, there was discussion as to whether he couldn’t rent the place because the rent was too high, or whether the vinyl fish were scaring off the renters. Here was the orig craiglist post:

http://denver.craigslist.org/apa/183893574.html

Apparently our hero has seen the error of his marketing ways, and the craigslist repost no longer contains the vinyl fish:

http://denver.craigslist.org/apa/187401880.html

Thought you’d all like to know.

BTW, no change in rent, and his post says that he only got 2 people to even take a look in 2 weeks. Any guesses how long before the price gets lowered?

Here is Email To Recent Centex Home Buyers from a Centex home builder representative which offers deep discounts on new home in the outer suburbs of Washington, DC:

http://tinyurl.com/mrv4p

David
http://bubblemeter.blogspot.com

Is it just me, or has the SDCIA Message Board

http://www.websitetoolbox.com/tool/mb/sdcia

turned into a Bubble Blog.

Lots of references to “Crashing” etc, and a post entitled “Who’s Buying Now,” shows a consensus of “not many.”

What a difference a few months and a few hikes in the Prime Rate make.

My offer on the house got rejected because I asked for closing costs to be paid too. They countered with half. I told them to take a hike, and I’d check back in six months.

Good luck, txchick. The place sounded unique, which limits the pool of buyers. They’ll be beating down your door in a few, hopefully!

I have mentioned this briefly before but the incidences seem to be more common…..I know we follow the big Macro indicators closely such as; LEI, CPI, Etc., but I kinda watch the little things…Over the past month or two the response time for services has increased…I called for some property inspections on a Friday…they scheduled me for Monday @ 1:00…I am getting calls and email from escrow agents saying hello, how are you and let me know if you need anything…I emailed to order a appraisal this past Friday….I received a call on “Saturday morning” from the appraiser requesting the info and making a appointment for Monday to go through the property…I think its a indicator that business is slowing down and at mid summer….Does not bode well for the fall and winter…

Just out of curiosity, I looked at a 4 apt “investment” property in my neighborhood (Queens, NY) this weekend.
The asking price was 1.1 mil. The flyer showed that the rents were 60,000/yr and the carrying cost would be 98,000/yr.
I said to the realtor. “you lose $40,000 per year on this building. It’s worth only around $400,000.’ He actually shook his head in agreement and then said he got an offer. I’m sure it’s under the asking price, but whatever the sale price is, the buyer is going to lose money. Still fools out there I guess.

Housing bubble cartoon in today’s Washington Post.

http://tinyurl.com/awy2d

Two housing stories in the LATimes his AM:

Nissan Employees Moving to Tennessee
550 Headquarters employees leave Gardena for Nashville.

Declining Enrollment in Area Schools
As California families flee high housing prices.

Declining enrollment in California schools

Bubble barometer?

“Over the last seven years, nearly 400 students have left the public school rosters in Santa Barbara. Enrollment in this wealthy, Spanish-tiled coastal haven has dropped as steadily as home prices have risen.

It is a trend expected to continue as the median home price pushes past $1 million.”

Front page of USA Today this morning:

More condo projects canceled

Funny thing happened (again) in Realty Times San Diego section:
http://realtytimes.com/rtmcrloc/California~San_Diego
Yesterday I checked and their Market and Price barometer was way down. It was caused by a new entry. She rated the marked and the price as 1’s on a scale from 1 to 5. Today the entry is gone, even though they normally keep the entries for months……

Members of the so-called tinfoil hat conspiracy theory club who occasionally post on this blog are not the only ones who suspect that manipulation of market indexes may explain the recent buoyancy of the US stock market in the face of a May crash of emerging market stocks…

‘ (Harry) Schultz, never afraid of a radical idea, takes manipulation seriously. He says: “It is fairly easy to manipulate stock indexes via just three or four blue chips, and the multinationals appear in several indexes. We’ve seen it before. Most stock markets were in virtual free fall and suddenly reversed into reverse head-and-shoulders buy patterns. This is a rarity. The U.S. dollar index may also be subject to manipulation.”

His diagnosis: “Some governments are getting desperate re some market action in the face of elections. Painting the tape is an old game.”
…
(Harry) Schultz’s macro analysis continues to be dark: “The world is on a knife edge between inflation, which often suddenly gets out of control when it passes point X, and deflation, when monetary liquidity suddenly falls behind the X-factor point to keep economies afloat (or triggered by a major debt default or by stock market implosions, e.g. South east Asia markets a few years ago). Being wrongly invested when a “flation-tsunami” hits, can (and often does) slash a portfolio’s value by 40% in 72 hours.”‘

http://tinyurl.com/g88kp

Fedspeak Leans Toward Pause
By Tony Crescenzi
RealMoney.com Contributor
7/31/2006 12:20 PM EDT
URL: http://www.thestreet.com/p/rmoney/tcrescenziblog/10300571.html

Today’s Fedspeak, which is likely to be the last until next week’s FOMC meeting (the Fed begins its self-imposed blackout period one week before the start of FOMC meetings), is mixed but appears largely consistent with the notion of a pause. At the same time, however, today’s speeches show that the Fed is keeping its guard in order to show that it will remain vigilant against any acceleration in inflation.

Comments from San Francisco Fed President Janet Yellen, who has been seen as a spokesperson for the Fed with respect to the notion of overshooting, today said that a “gradual approach” to raising interest rates was likely to be better than continuing the rate hikes until inflation moves back to a rate consistent with price stability.

Yellen gave a strong analogy in this respect, noting how doctors wait for the effect of their medication to take hold before deciding to prescribe more medicine. She also said that “if we kep automatically raising rates until we saw inflation start to respond, we most likely would have gone too far. Instead we need to be forward-looking.”

As those comments show, Yellen sees wisdom in taking a step back before raising rates again. Nevertheless, she remains vigilant, calling inflation above her “comfort zone.”

Earlier, Fed President Poole said that he is at 50/50 for a hike, but he is not a voting member. I believe he meant to convey the concept that “we at the Fed are data dependent” in order to underscore the fact that there remain important data ahead and that no final decision has been made — as we all should know.

The old reason to buy: Real estate always goes up.

The new reason: A home is still a profitable investment, so long as you are buying it as a place to live, and plan to stay for at least five-six years.
——————————————————————————-
REAL ESTATE
Benefits of buying a home in a cooling market
A home is still a good investment, if you plan on staying a while

By Amy Hoak, MarketWatch
Last Update: 10:52 AM ET Jul 25, 2006

CHICAGO (MarketWatch) — Residential real estate, a shining star of the national economy that seemed unflappable over the past couple of years, has hit a speed bump.

Nationally, home price appreciation is slowing down from the rapid pace experienced by many markets over the past few years. Mortgage interest rates are on their way up. Is this any time to be thinking about investing in a home? Of course it is — if you’re buying it for a place to live, not as a speculative investment, and can afford to take the leap

“Owning a home is still financially not a bad deal, as long as you have the income to support the cost of homeownership,” said Jim Gaines, research economist for the Real Estate Center at Texas A&M University. Another caveat: “You better figure on living there five or six years to make any kind of profit on the thing.”

http://tinyurl.com/he4ph

This may already be up somewhere on this site, but I just saw this and feel the need to vent about how pathetic it is that the real estate industry is built on double-speak. In the excerpt below, the “expert” dances around/restates the obvious–”LOWER THE FU**ING PRICE”– for four paragraphs.

“I saw an example of that bottleneck in Hampton when I met with Pam Bailey, an agent [the expert] with Coldwell Banker Residential Brokerage. Bailey recently brokered an agreement to sell a recent Seacoast-area home (Bailey and the buyer asked me to keep the location confidential) using a strategy called “value pricing.”

There’s nothing new or revolutionary about value pricing. It’s about as common sensical as one can imagine. As Bailey explained it to me, it is a reflection of the changing market and a need to educate sellers not to give in to the temptation to put some pie-in-the-sky price on the house.

In poker terms, it’s a matter of not showing your cards too early or making a heavy early bet.

“You have to be more in tune with the market,” Bailey said.

In other words, create interest in the property first by starting off with a lower asking price so the seller will see the value first and the price second.

“The buyer pool doesn’t really change,” Bailey said.

But the psychology of the buyer pool has changed. As one agent told me, the residential real estate market of the past five to six years was like a voluntary Ponzi scheme with all the participants assuming they could make hefty and relatively quick profits from their investments — a potentially perilous assumption given the hefty emotional involvement of buying a house combined with the financial risk.

Bailey said she underwent training initiated by Coldwell Banker earlier this year. The goal was to really educate sellers that the market had shifted and, though they won’t say it, but I will, the Ponzi carnival was, if not over, then certainly sidelined.

“This isn’t rocket science,” said Angela Stamoulos, the training manager for Coldwell Banker Residential Brokerage, from her office in Waltham, Mass. “We do a lot of analysis and we saw the amount of inventory. We saw different things that needed to be emphasized.”

Bailey was one of 5,000 agents in the Coldwell Banker system in New England who were afforded this proactive training to deal with the slowdown.

“We used real data to educate sellers on what’s happening,” Stamoulos said.

“There are always buyers, but sellers could come to believe they have disappeared. They haven’t, but it’s that homes are most likely overpriced.”

Stamoulos told me the goal “was to create the perception of value, of professional value in the homes” for potential buyers. The best way to do that was to realign the seller attitudes of the past five years, which had assumed an anything goes posture when it came to pricing.

The strength of value pricing is that it seeks to avoid the potentially lethal combination of little interest, a lengthy listing period, and a guaranteed price reduction. As a bonus, Bailey said, starting out with a lower price can lead to what happened to the before-mentioned agreement when three buyers submitted sealed bids for the property. The winning bid was higher than the original asking price.

For those who are claiming that the British housing market which plateaued off after a large run-up could be emulated by the US, check this: http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=398502&in_page_id=1770

Seems record bankruptcy filings and billions of loan write-offs are the order of the day in London. Where is your model now?