‘Pressure On Home Prices Has Evaporated’: NAR
The realtors trade group has a report out. “Appreciation in existing single-family home prices cooled to single digit rates in most metropolitan areas during the second quarter, according to the latest survey by National Association of Realtors.”
“‘David Lereah, NAR’s chief economist, said a market transition is apparent. ‘With more sellers competing for the pool of buyers, the pressure on home prices has evaporated in most metro areas,’ he said. ‘After a full year of double-digit gains in the national median price, the timing is right for a cooling in the rate of growth, we are presently experiencing a soft landing in the housing sector.’”
“NAR President Thomas M. Stevens said the growth in inventory is more pronounced in the condo sector. ‘Buyers generally have more choices in the condo market, so prices in many areas are fairly flat,’ said Stevens. ‘Speculators have left the market, meaning most buyers in the market today are serious buyers who plan to stay in their homes as a long-term investment.’”"Twenty-six markets of the 151 surveyed experienced price declines from a year ago. And at least 59 markets finished the quarter down from their highs set sometime during the previous three quarters. In the quarter, overall condo prices actually fell 0.3 percent to $225,800.
The Associated Press. “The slowdown in the once-sizzling housing market is spreading, with 29 states reporting spring sales declines, led by big drops in former boom areas of Arizona, Florida and California. Nationally, sales were down 7 percent in the April-June quarter this year compared with the same period in 2005, the National Association of Realtors said.”
“The five biggest declines this spring compared to the April-June period of 2005 were Arizona, down 26.9 percent; Florida, down 26.7 percent; California, down 25.3 percent; Virginia, down 23.9 percent, and Nevada, down 23.5 percent.”
“Industrial towns losing jobs suffered the worst. In Danville, Ill., median home prices fell 11% in the second quarter to $65,200, cheapest in the country. Condominium prices in 14 markets, including overheated areas like Virginia Beach, San Diego, and Palm Bay, Fla., also declined. The reason: Speculators who thought they could flip the properties for a quick buck are trying to bail out now.”
One economist sees a hard landing. “Bearish real estate economist Christopher Thornberg, who says the Southern California housing market is a bubble beginning to pop, has left UCLA Anderson Forecast to strike out on his own.”
“Other market observers now agree that the market is cooling but are uncertain about whether it will result in a ’soft landing’ that won’t disrupt the economy. Thornberg said his expectations are growing more gloomy. ‘My guess is we’re going to have a hard landing,’ he said. ‘It’s ugly out there.’”
“There has been large-scale overbuilding of homes and condominiums nationwide, he said. ‘And here in Southern California we have had this massive price appreciation that is just not justifiable by any kind of standards of reasonable economics,’ he said.”
“With interest rates rising in recent months and sales declining, ‘the bubble is popping, just like a bubble is supposed to,’ he said.”
“David Lereah must die.”
What do you think? Make a good t-shirt?
Death is a little much. What would be nice is if he became a proverbial saying that would live on in perpetuity. For example, some one you know says something utterly ridiculous, you respond “You just pulled a Lereah” or “Easy Lereah” or “Nice one D.L.”…..you get the point.
A few months ago Ben had a topic on this blog “What is the most fitting form of punishment for David Lereah?”
I’d still vote for death. Unless, that is, someone can successfully argue why they think the world would not be a better place without him.
Hang the son of a bitch. No just kidding.
There are some really cool people in Hell, it wouldn’t be right.
put him in a cage in front of NAR HQ and have ppl wal by and spit on him
Make him purchase a new-construction condo in South Florida, or a far exurban new Southern California cookie cutter new home for full price, using an an option mortgage with significant pre-pay penalties. And, the condo or house must have a hefty HOA. The punishment fits the crime.
make him buy a new condo or SFR in SoCal or Florida using an option arm loan with high prepayment penalty. And, the property has to come with an above agerage HOA.
Yeah like a slum lord who won’t keep thier slum holdings up to code. They have to live in crack house for a year or something like that. Yeah, Yeah, David Learh should have to get a sucide loan for a condo conversion in South Florida and every time it adjusts he gets shocked by an electrical shocker.
Here’s the plot:
Former, disgraced NAR economist David Lereah stars in his first “legitimate” movie as Louie Kritski, a heartless landlord who has been so negligent in keeping up his ghetto apartment that he is threatened with jail time. The judge gives him another option, which he accepts — he must live in his rat-infested hell hole until he brings it up to liveable standards.
This is actually the plot of “The Super” starring Joe Pesci (my apologees to Mr. Pesci for associating him with DL).
I’m in favor of a t-shirt. Something like David Liar-reah, and having a pic of a big turd.
OK. Get a pic off the net of ‘Bhagdad Bob’, the Iraqi Info Minister in full uniform. Photoshop Leareah’s head onto Bob’s body and the caption could be; “There IS NO Housing Bubble-Not even one! This place is DIFFERENT! If there were a Housing Bubble here, we would slay it completely. Certainly. Real estate only goes UP!”
Lets see the pic!
Already been done: http://marinrealestatebubble.blogspot.com/2006/02/some-fun-at-someones-expense-update.html
Well, since you’re from Northern Nevada, and Reno is the home to the Pro Bowling Hall of Fame, you MUST have seen Kingpin: “you really pulled a Munsen!” My favorite movie.
How about “David Leareah must lie…it’s his job”?
Death is too quick. Slow painful torture is more approriate.
Lereah would be right about a soft landing idf this was the bottom. My own non-expert opinion says we have three more years to go and the worst is yet to come.
David Liarrhea should spend eternity in Hades, suffering much like Sisyphus, pushing the giant boulder up the hill, only to see it roll down the other side and be forced to repeat the cycle for all eternity, crying out, “But… but I thought giant boulders only went up!”
LOL, I like that one.
Based on the fact that you called me an idiot in another thread in which I posted nothing but fact, I don’t think you are one to be trusted handing out death sentences. Perhaps you could create a T-shirt for yourself that reads, “I is ignorant.”
I listened to David Lereah
And all I got left is this
stupid T-shirt.
But wouldn’t they have lost the shirt off their back as well?
Lereah’s head with a photoshopped nose like Pinochio. Underneath “Ignorance IS Bliss”
“we are presently experiencing a soft landing in the housing sector”
So Liar-eah is now declaring victory, eh? Talk to me in a year about the supposed soft-landing…
Spin, Spin, Spin!
David
http://bubblemeter.blogspot.com
Liarrhea duh duh duh
Liarrhea duh duh duh
Some people think he’s funny but he’s really wet and runny
Liarrhea duh duh duh
We are coming in out of fuel for that soft landing.
Unfortunatly, the ground is still 30,000 feet below us.
will it be a soft landing back to where we started from 5 years ago, or will it be a soft landing into the clouds?
I think the landing will be more like the one I remember seeing on the news when I was a kid.
http://www.planecrashinfo.com/w780925.htm
I don’t know if a economist can be sued for misrepresentation of the market or not ,but DL would deserve it .There might be a code of ethics violation ,but I think it would be a slap on the hand type thing .
This is what I want to know too. Do they mean a soft landing like an airplane at the airport? In that case, the plane has to go down to the ground first… Or are they talking about a soft landing like throwing your Frisbee up on the roof?
Didn’t the Hindenburg experience a soft landing?
Yes. Some lucky souls were even able to jump out as it came lumbering down and ran (quickly) to safety. It was the infernal eviscerating fire that proved to be the tricky part. But in terms of the humanity Scotty, your point is taken.
I swear they almost giggled when they read the NAR report on CNBC this morning.
“…we are presently experiencing a soft landing in the housing sector.”
Oh yes, it’s a soft landing for sure. It seems to have gone from red hot to ice cold overnight, and it’s just getting started. Does this guy read what frustrated sellers and agents are saying about the market? It just died in many places and everyone that has an ounce of common sense knows that next year will be far worse. The perfect storm has come together and it’s about to hit the US housing market. David, please stop talking….I’m embarrased for you.
What would you say is the perfect storm? I would guess it is 4x the inventory in many places, the realization that ARMs can be life altering mistakes, the end of the bubble psychology and now we are headed into the slow school season with a glutted market. What happens this fall with all this excess inventory? How long can investors continue to bleed money? How long will buyers stay on the sidelines?
I agree. When this summer selling season officially ends at the end of the month, the idea of spending the long winter months profusely bleeding equity is going to send them over the edge. To hell with Watts recommendation to drop the “reduced-price” off the lawn-sign - they’ll want to hang a banner across the front of the house. Probably see one or two of those gigantic blow-up gorillas holding a “reduced-price” sign on the front lawn.
I have been seeing a lot of pulled listings around me…I think a lot of them will wait it out and relist in the spring, hoping that things pick up…but what they don’t realize is that people watch listings, and will KNOW that they’ve relisted. It will just be another glut of inventory continuing into the next year.
Same thing here in Chicago. Inventory levels are starting to level off. I’d anticipate a downturn through winter and then another sky rocket in spring and summer of ‘07 as more ARMs reset.
Agreed, some sellers are justing testing the market. Maybe they are retirees and can wait anohter season. Perhaps they are move up buyers and can do the same. They may come back in the spring, but they won’t find a better market. Many folks eihter have to sell for personal reasons or as investors are watching in horror as they lose both equity and cash. Search Craigslist for motivated and you will find tons of these folks.
I was in Chicago last week. Walking around the city, I saw a whole lot of ‘price reduced’ signs. There are dozens and dozens of new condo developments but I wonder if the demand is that strong.
Many won’t be able to hold out that long. For those that can, the strategy will backfire badly as the FBs begin to default in ever larger numbers. REOs will crater comps and accelerate the downturn.
Best to sell now for whatever the current market will bear, because there won’t be anything BUT bears in ‘07.
The price the market will bear next year will be much lower than the price the market will bear now.
All good points. In conversations I’ve had with people lately they all come up with basically the same thing: “The bottom isn’t falling out. Prices haven’t gone down much.” OK, but:
1. The average down trend in RE is something like 6 years. This is only the beginning.
2. We’re coming off the biggest runup in residential RE this country has ever seen. The downside will likely be just as big as nothing will hold this up now that the expectation of future appreciation is no longer fueling speculation.
3. The financing that’s been used to blow up this bubble is now beginning to work against it as ARMs reset and owners are no longer able to refi their way out of a bad situation. This type of easy financing is quickly dissapearing.
4. The “panic” stage hasn’t been hit yet, but it’s not far off. That’s when people begin cutting their losses whether they want to or not.
So many intelligent, financially savvy individuals continue to ignore the reality of where this is headed.
disappearing….Ben, we need spell check here if possible!
“Send In the Bag Gary to the Grave”. Boy, this was so hard to predict. What a bunch of losing morons. And Gary still trying to pimp this limping duck along. (see previous blog).
From the update:
‘Bearish real estate economist Christopher Thornberg, who says the Southern California housing market is a bubble beginning to pop, has left UCLA Anderson Forecast to strike out on his own.’
‘Other market observers now agree that the market is cooling but are uncertain about whether it will result in a ’soft landing’ that won’t disrupt the economy. Thornberg said his expectations are growing more gloomy. ‘My guess is we’re going to have a hard landing,’ he said. ‘It’s ugly out there.’’
‘There has been large-scale overbuilding of homes and condominiums nationwide, he said. ‘And here in Southern California we have had this massive price appreciation that is just not justifiable by any kind of standards of reasonable economics,’ he said.’
‘With interest rates rising in recent months and sales declining, ‘the bubble is popping, just like a bubble is supposed to,’ he said.’
People will look back in 3 or 4 years and see Thornberg as some sort of “economic genius”, the same way they perceive shiller regarding the dot-com bust prediction. It’s amazing what a little common sense and honesty can do for one’s stature.
At the very least he’ll hold on to his credibility, which has already been ssacrificed by many so called “economists”.
God bless Thornberg…at least he has balls. He probably couldn’t stand THEM telling him to spin it any more. He’s always been a bubble believer…except for one report he got a little bullish. Probably made him sick…so he stuck out on his own!
Good luck Chris! Hope you thrive and flourish!
I think it is a smart move for a guy who has been “wrong” for a while. Starting out on his own now that he is “right” will look good on his resume. The problem with many bears is they were bearish during the period in which the bulls made fantastic fortunes. They were fundamentally right, but market wrong. You can’t fight the market.
Let’s see how many bulls keep those fortunes….
For every Bull that made a fortune there are ten house flippers that are getting foreclosed on and ten normal buyers that are getting the same. The only Bulls that will make money are those that bought and held extremely early (for rental income- a very small minority) or those that have already sold or are in the process of selling at price actually designed to sell, again few and far between. Most of the house flippers either got in late in the game, or suffered from a symptom of a gambling mentality- not knowing when to stop and cut your losses from your high.
With these considerations in mind I would say that if more people took Thornburg’s theory to heart back in 2002 or 2003 (whenever he was one of the lone housing bears), then I think ALL of us would have been in better shape with the exception of the exceedingly few bulls that got in at the right time and either sold or are selling at the right price right now. I know tons of people that are getting KILLED because of being “bulls” (pigs).
I know of many people who bought multiple homes to rent out. One example is a lady who was buying $600,000 homes in Las Vegas. I tried to tell her that it wasn’t a good idea to buy at a price level that was higher than the average person in the area could afford. She told me I didn’t know what I was talking about. I may talk to a mutual friend and see if she is BK yet. She was buying in late 2004, when most knowledgeable people knew that the market had already tanked and only the patsi’s were still buying.
For a while at least, he’ll probably be shunned by the LA Times and other shills. Hope he can make a living and feed his children without a tin cup.
For a while at least, he’ll probably be shunned by the LA Times and other shills. Hope he can make a living and feed his children without a tin cup.
It’s one thing to not fight the market when you’re gambling with, maybe one year’s worth of SAVINGS, and you’re gambling in a liquid arena. It’s quite another thing to gamble with six years worth of GROSS EARNINGS you haven’t earned yet in an illiquid arena.
I’m wondering if UCLA was trying to control what these economists were saying. Thing is, it was Ed Leamer (sp?) who was the most bearish of all. He was talking about the bubble years ago (and he was quite correct, IMHO). Thornberg was more neutral in comparison to Thornberg over the past few years.
As LA Landlord said, these economists were right. It was the market that was wrong…IMO.
just talked to a friend /builder trying to flip
it’s a hard landing if you’re selling
Well, it will be easy enough to tell if we have a soft landing.. If national prices fall for 3 quarters, it’s not a soft landing. We did the research on the term, and you can read a full definition of what a soft landing is on the upper right side bar on BubbleTrack..
BubbleTrack.blogspot.com
This is a profoundly lagging indicator. Here’s the last few paragraphs from the MSNBC web site:
“In a separate survey of price changes in 151 metropolitan areas, the Realtors reported that 26 metro areas experienced outright price declines while 37 areas were still enjoying double-digit price increases.
….
“At the other end of the scale, prices rose the most in Baton Rouge, La., reflecting a 27.3 percent increase, followed by Ocala, Fla., where prices rose by 25.3 percent, and the Virginia Beach, Va., area, where prices were up 23.6 percent compared with the spring of 2005.”
So, prices from 3 months ago compared with 15 months ago are supposed to tell us that we are now in a soft landing???
I can’t speak for other locations, but I can tell you that the Virginia Beach number NOW YoY for condos is NEGATIVE; and the 8 month number for sfh’s is FLAT.
After Labor Day, that’s when we will really find out if there is a bloodbath.
Traditional measurements of a recession ARE lagging. We are talking about whether or not we are having a soft landing in terms of what the definition of a soft landing IS.
The term soft landing is not normally used in real estate. It is used in general economics. In general economics, a hard landing is 3 quarters of negative GDP (which is national AND lagging). The closest analogy in RE is national home prices. See?
BubbleTrack.blogspot.com
I think we are, as they say, in violent agreement.
Would the ‘Relative Strength Index’ be Overbought or Oversold?
very good.
have missed the timelag.
http://www.immobilienblasen.blogspot.com/
If you were to plot these statistics on a graph and do linear regression and come up with a function. Take the derivative of the derivative, you would clearly see that the increase is concave down. Meaning the growth is slowing and the momentum will take prices suoth. It goes from increasing at an increasing rate to increasing at a decreasing rate (where we are now) and momentum will take the rate of change to zero. After that, you begin to decrease at a decreasing rate. There is no soft landing. It will only get worse.
LOL…you lost me at “plot”. I guess I should have paid more attention in Calculus.
May I share the street interpretation….
He said that it is ‘decidely in the toilet’
I like your lucid interpretation.
second derivitive : rate of the rate of change or acceleration.
From calc I
on a graph of position over time
first derivitive (or slope of curve at every point on graph) : velocity, rate of change
second derivitive (slope of velocity) : acceleration, rate of the rate of change
It looks to me like an undamped sine wave caught in a feedback loop. Keep that microphone away from the speakers dammit!
Your analogy of a feedback loop is a good one. We had a period of positive feedback which has introduced instability into the system. Now that the positive feedback has been replaced with a negative feedback counter-part, we can expect things to continue going south at an increasing rate which will create it’s own reinforcement to the negative feedback already in place. I am truly fascinated as to how this will end.
I used to trade commodities futures. The floor would routinely run the ‘Stops’ during the day almost everyday.
This was called ‘Shaking Out the Weak Hands’.
That, of course….were the folks without the cash reserves to stand in the market when it shook a little.
Exactly…brilliant comment!
Most people cannot measure or interpret growth or decline of a product/market segment using calculus and the normal curve. Far less know how to apply the appropriate marketing strategy during differing points of said curve. That’s why it’s difficult for them to tell whether a market is approaching a top or bottom (inflection point) and know when to enter or exit.
Instead, they foolishly accept the misinformation dished out by housing industry CEOs and the NAR’s D.L. They are the so called experts, right? Its sad but true.
I applaud the math experts on this board, but I still think common sense, more than calculus, is what reveals the existence of the bubble and the turning of the tides.
Endogenously self-reinforcing concavity really hurts these days if you are trying to sell homes…
I meant increase at a decreasing rate. Yes, this is the first part of calculus. Let’s not even get into the derivatives of exponential functions when you start dealing with rates of change on compounding interest rates :-)… and I meant to say South.
The linear regression though is from statistics. So I had to use statistics to come up with the model or function being over time. Time being the independent variable. From there it is all Calculus.
Its all mathematics
I think what he’s talking about is something that looks about like the graph on this page:
http://tinyurl.com/h4o3j
Or as I like to call it, the rabbits chasing San Diego County median prices down a rathole.
The points of the graph are very choppy. You would need a continous model to sample it (smoother curve). You would almost have to do the linear regression to sort of fill in the blanks between the pieces or “samples”. The more samples you take, the more accurate the model is at predicting where the momentum most likely will go. Again, it’s only a prediction, but gives you a very basic idea of how you begin to predict what is likely to happen and manage that risk.
You can make it smoother by averaging out the value with the points in front and behind of it.
There’s a mathematical term for it, which I’ve forgotten
I believe you are referring to Simpson’s rule, where they take three points and treat it like a parabolic function, hence “smoothing it out”. The middle point is the vertex.
There is also the mean value theorem both for differential and integral calculus.
I believe you are referring to Simpson’s rule, where they take three points and treat it like a parabolic function, hence “smoothing it out”. The middle point is the vertex.
There is also the mean value theorem both for differential and integral calculus.
i think the nar and lereah have lost all their (never existant) credibility. they are clowns and i think that at this point they can´t
fool anybody. and if they catch one with their pr than the buyer has not done his research.
in retrospect he will be remembered as the henry blodget oder mary meeker.
http://www.immobilienblasen.blogspot.com/
They’ll continue to have credibility so long as the media continues to quote them.
The media can continue to quote them until hell freezes over, but if we do have a meltdown in another 6-12 months, no amount of spin will keep the house of lies standing. Sorry cliche, but it will be like Baghdad Bob trying to spin the war while the U.S. tanks were driving behind him.
Interesting real time debt clock….
http://zfacts.com/p/461.html
Inflation is propping up the economy which in turn is propping up the housing bubble. Once the economy goes, which is very dependant on housing related jobs, so goes the economy. All we need is one domino to fall for the correction to take place, a correction to make housing more affordable for people who need a place to live!
Maybe this will be a rebirth for Chris Thornberg.
UCLA Economics degree in “guessing”….
“Thornberg said his expectations are growing more gloomy. ‘My —>guess
They were “wrong” (ha ha) for so long, that they recently altered their prediction to a soft landing, did they (UCLA) not? Now that it finally is playing out, they are quickly jumping back to their original position.
There’s a lesson there. When fundamentals are out of whack, make your play and hold. It will eventually bear fruit.
Like the George Soros approach… find the trend where the underlying “fundamentals” are false, then bet against it. He’s made a few bucks that way.
I wonder what he’s doing now…
Soros is spending his money in Eastern Europe to promote democracy and an open society.
All economic forecasts amount to educated guessing. And some forecasts are more educated than others…
Someone just posted on the previous thread the crap Watts is trying to pull with the manipultion of “reduced-price” signs on listings. I argued with someone on this blog a few months back about collusion among realtors to decieve. His agument was I was being to paranoid. Well, this latest crap spewing from Mr. Watts absolutely proves my point. I think one of our biggest responsibilities on this blog is to expose this inside manipulation of the RE market.
I don’t know if it is the responsibility of this blog to expose the manipulation of the RE industry, but it is clearly and unequivocally a problem. It is also a violation of the fiduciary responsibility of RE professionals, but the industry is so tight with State governments that the regulatory boards and agencies will not do anything about it. IMHO, this is one more reason to do everything one can to pay as little tax as legally possible (e.g. vote against ALL tax increases).
I sent a letter and copy to the DOJ. You can as well. The more they hear about it, the better. Don’t forget your local newspapers and representatives…
Here is their e-mail (changed from “New Case” per their reply to me):
antitrust.complaints@usdoj.gov
Department of Real Estate too
I noticed the links for the actual numbers off their press release does not work.
Go to:
http://www.realtor.org/PublicAffairsWeb.nsf/Pages/2ndQtrMetros06
Click on the links for the actual numbers which are broken. Hmm?
David
http://bubblemeter.blogspot.com
Another subprime lender is getting SHOT today: ECR down 11%
ECC Capital Corporation Reports Results for Second Quarter Ended June 30, 2006
Company Announces Formation of a Special Committee of the Board of Directors to Consider Strategic Alternatives Company Maintains Current Policy to Suspend Third Quarter Dividend to Maximize Capital and Enhance Near Term Liquidity
Gotta love those “special committees” to consider “strategic alternatives”. I smell smoke…
The loss for the three months ended June 30, 2006 of $18.6 million includes accounting adjustments to increase reserves $16.4 million for expected losses on repurchased loans and to mark certain loans to the lower of cost or market. In addition, during the second quarter of 2006, ECC Capital disposed of certain aged and repurchased inventory at a significant discount to par, which resulted in an overall loss on sale of loans (excluding accounting adjustments) of $5.5 million. The loss on sale of loans was partially offset by gains on Eurodollar futures hedging ECC Capital’s held for sale inventory of $5.7 million. The sale of this inventory, together with a decline in operating costs and additional borrowings secured by ECC Capital’s interests in its securitizations, resulted in improved liquidity as cash balances increased to $51.8 million as of June 30, 2006 as compared to $48.2 million at March 31, 2006.
“Ah, eh, test test, folks-this is Captain Liereah speaking. After years of climbing at a steep angle, our aircraft’s engines have experienced fuel exhaustion and have quit working. That deceleration and slight descent you are feeling is indicative of the soft landing that we are predicting. Our arrival may be delayed slightly because of our slower airspeed but not significantly. Please continue to party and have a good time. We will update you as necessary, carry on.
Correction, we are not decending but at a permenantly high plateau.
you mean a permanently high souffle
Ground Control to Major Liar.
It looks like your left wing is on fire
‘Speculators have left the market, meaning most buyers in the market today are serious buyers who plan to stay in their homes as a long-term investment.’
so you admit we had 4 years with most buyers being non-serious? and what happened in that period of time can be ignored with no aftertaste? yea ok buddy
all we’ve hit is a little turbulence in the sky at 18000 feet up, the people in the window seats can see the huge storm around, maybe some lightning up ahead, while those invested in the aisle just listen to their ipods. good thing the captain, david lierah, is wasted at the helm announcing over the loadspeaker not to fasten your seatbelts, the ipod folks have no idea what to expect, and..
i dont know where i’m going with this, the point is, it isnt space travel and ‘different this time’, the plane will eventually hit the ground in one form or another and it dont matter if it’s hard or soft, it will come back to earth.
well put.
Here is what I believe caused the sudden slow down in the housing market even when interest rate was still on the downtrend: Historically speaking, the home ownership rate in this country has been around 60-65% and over the last 5 years, this ownership rate has jumped to roughly around 70% until last year it slightly dropped to the low 69%. But we know according to the census bureau and the NSA, the percentage of families living below the poverty level is approximately 25% which means that percentage of families cannot afford to buy a home even if they want to.
Therefore, that leaves the home developers roughly about 5% of families to fight over who perhaps could afford a home. Those populations I believe consist of renters like me who makes enough to be able to afford a home, but refuse to pay those kinds of stratospheric prices for a home and become a serf to the banking industry for at least 30 years. As well as others whose income are above the poverty level, but live in such expensive markets like California, Florida, New York, etc. that make their incomes insufficient to be able to afford homes in these markets.
That ladies and gentlemen is why I believe it will be brutal out there for these speculators.
I lived in Danville, IL, between 1996 and 1999. You could have a good life there, if you could find a job. For a town it’s size (around 30,000) it had some of the most shocking poverty and slums I’ve ever seen.
I live in north county San Diego now. Talk about from one extreme to the other.
Amazing. I was born there, and spent my first 13 years there. My parents still live there. I have since lived in Tucson, San Diego, and LA. All VERY bubbly. I read an article some months back in the Economist where Danville was used as the prime example of a non-bubbly market!
The recent data supports the theory that there are hidden bubbles in regions that otherwise would have experienced price declines.
(Twenty-six markets of the 151 surveyed experienced price declines from a year ago. And at least 59 markets finished the quarter down from their highs set sometime during the previous three quarters.)
My guess more than half the country is down YOY in the third quarter.
That data will come out, say, November 15th. Nine days before Black Friday and the start of the Chirstmas shopping season.
It will be an interesting thread here around that time. I have a spreadsheet somewhere comparing conditions in the “recent bad years” (early 1990s) to the “good old days (say 1950 to 1960) that I usually whip out around Thanksgiving. Unfortunately, most people’s perspective is limited to the easy money days. They many not be so thankful.
“My guess more than half the country is down YOY in the third quarter.”………
…….that is, of course, the important half….the half that matters.
Mommy, why is there nothing under our Christmas tree?
And why don’t we turn our heater on any more?
You have enough sweaters from last year honey, just put some more on.
‘Speculators have left the market, meaning most buyers in the market today are serious buyers who plan to stay in their homes as a long-term investment.’
so you admit we had 4 years with most buyers being non-serious? and what happened in that period of time can be ignored with no aftertaste? yea ok buddy
all we’ve hit is a little turbulence in the sky at 18000 feet up, the people in the window seats can see the huge storm around, maybe some lightning up ahead, while those invested in the aisle just listen to their ipods. good thing the captain, david lierah, is wasted at the helm announcing over the loadspeaker not to fasten your seatbelts, the ipod folks have no idea what to expect, and..
i dont know where i’m going with this, the point is, it isnt space travel and ‘different this time’, the plane will eventually hit the ground in one form or another and it dont matter if it’s hard or soft, it will come back to earth.
BTW, the data shows a big jump in the median price of homes sold from the first quarter to the second. Any explanations? Bottom dropping out of the market perhaps?
as i’ve previously commented, median price may show what was PAID, but not what was BOUGHT. assuming most buyers come to the market with a fixed amount to spend, a soft market simply means they probably got A LOT MORE FOR THEIR MONEY than way back at the peak of the bubble.
That’s what I find so disgusting about this whole mess. Instead of using miraculously low interest rates to buy within their means and pay less for it (both monthly and through the end of the mortgage - a quaint notion, I know) most people used it to push way beyond anything resembling good sense and will now squander the opportunity.
the “buy all the house you can afford” (or can get away with)” meme worked well on the way up.
but on the way down? NOT!
Oh yes it will. I plan on doing just that - WHEN IT COUNTS. I may buy 2, who knows?
Looking from the sidelines in the Midwest, borrowing your way to wealth seems like a quaint notion as well.
I tell you, when I bought our current house in 1997, I endured a great deal of badgering from the Real Estate Hag and the Loan Guy for only buying a house around $140K (San Diego) when I was making more than that per year. The tried to tell me how I was giving up tremendous tax advantages, and a “man in my position should take better care of his family”. Suffice to say my opinion of them was not improved by such statements.
4 years later when I was unemployed in part due to the tech implosion, and many of my investments were near worthless (thanks to a young man’s foolish approach to it). I was so thankful that my Mortgage payment (30 year fixed, thanks) was small enough it could be covered out of our savings for the year or so it took to get stable work again.
Word to those of you who did not do something like that - it sucked, don’t try it yourself. I can only imagine a large number of folks are going to be (maybe) doing the same thing in a year or so if things go poorly. I sure hope not.
Median price does not tell the whole story because we do not know the data distribution.
In a down market the median holds up because the buyers who typically buy in the lower price ranges drop out first. The remaining sales skew to the higher price ranges…the more affluent buyers who can still afford to buy.
Denver is a good example of this. The $400+/sq ft new high rise luxury condos are apparently still selling; but the lower priced, resale condo market is completely dead. So, the median is holding up, but if you looked at a similar property sale price year over year you’d find a decrease.
You can BET the real estate industry will for sure use MEDIAN, not average, pricing to make us think this is a ’soft landing’.
It isn’t.
Actually, the average (mean) is more skewed by outlying data points than the median. The problem with the median price stat isn’t that it’s a median, it’s that it doesn’t tell us WHAT WAS BOUGHT for that median (as others have said here).
We should have a lower, “seasonly adjusted” median price which reflects the 30% more house I can buy buy this year for the median price, as compared to the amount of house I could buy for last years median price. This apples to apples comparison would be more accurate, and take out the guesswork.
The median is a less biased measure of central tendancy for highly skewed data (such as housing prices which are bounded on the low end, but have a long “tail” of very expensive properties). It would be nice to have some data that tracks the median price per square foot by month. This might eliminate some of the problem (i.e., we’d have a better idea of “how much you’re getting for your money) over time.
First,
“The five biggest declines…Arizona, down 26.9 percent; Florida, down 26.7 percent; California, down 25.3 percent; Virginia, down 23.9 percent, and Nevada, down 23.5 percent.”
Now I have no idea about sales volume but if there were significant declines in NY, NJ, and PA that would indicate a drop of volume of at least 20 percent for states with 1/3 of the country’s population. I don’t know where sales might be increasing, but the only place that it seems even possible is Texas, due to the flood of oil money.
Ben has put up anecdotal reports of declines around the country, so I’m guessing the national figure has to top 10 percent and could easily be 15 percent.
Now, I don’t know how many people read the NAR release, but down near the bottom were the regional median price changes. Counter to much of what we’ve been hearing, the bubble areas are not the first to see a price drop, the Midwest, where the bubble supposedly never got going, is.
Median prices:
NE + 6.3
S +4.1
W +3.6
MW -2
Boston prices are going down, too, as MAR itself reported today:
Home sales fall 10.6 percent in second quarter
Statewide sales of single-family houses declined 10.6 percent in the second quarter, while prices edged down just 1.3 percent, the Massachusetts Association of Realtors reported today.
There were 12,439 home sales between April and June, compared with 13,918 sales during the second quarter of 2005, the association said, while the median house price, $360,000, was down from $364,900 last year.
The second quarter is the single-busiest selling season, accounting for one-third of annual sales, on average.
The condominium market also is reporting fewer sales, though the trend is less dramatic. There were 6,185 condo sales statewide in the second quarter, 9 percent less than the 6,790 sales in the second quarter of 2005. Prices were unchanged at $280,000.
The association said that the second-quarter sales were the third-busiest in state history.
“Although we saw less activity this spring than in the prior two years, the volume of sales remains quite strong,” said the association’s president, David Wluka.
(By Kimberly Blanton, Globe staff)
Spinnin, spinning… “Double, double. Toil and Trouble. Fire burn and cauldron bubble”. Going down!
Here’s another one for you: that 1/3 of the population you mentioned probably accounted for 2/3 of the dollar volume in sales last year. I’m guessing homes in CA, FL, and AZ are more expensive than NE, KS, et al. Easily down 15% nationwide.
Reading further in the article about Thornburg:
USC forecaster Dolores Conway remains more optimistic even though the inventory of unsold houses is growing and sellers are making price concessions to close deals.
“There is still a strong demand for housing, especially in Southern California,” said Conway, director of the school’s Casden Real Estate Economics Forecasting Project. “Everything we see is consistent with a soft landing.”
Figures that a USC forecaster would still be touting a “soft landing”
OK, I found the numbers and they don’t make sense to me.
As I guessed, Texas was up (11.3 percent). That was third best in the country behind Alaska (48.6) and Arkansas (17.9). It gives the national rate of sales as a decline of 7 percent.
For the record here is the reports numbers on quarterly sales activity by region:
NE -5.2
S -4.2
W -14.7
MW -4.7
The spread sheet produced to go with the report does not give a state-by-state breakdown, but rather gives MSA data.
My MSA (NY-Edison) is supposed to be flat, but I can’t find one realtor that is saying anything other than sales are through the floor. I know the MLS inventory in Monmouth County is up about 60 percent, and new construction is not moving.
I can see Alaska prices still going up because it takes time for news to reach them up there; they are always behind on anything that happens nationally. (I can say that because I’ve lived there)
cramer speaks out on arms and call arms prudent.
must read this. it is insane. cramer like it is 2000
http://immobilienblasen.blogspot.com/2006/08/cramer-wie-zu-dotcom-zeiten.html
A mortgage analyst quoted in today’s WSJ begs to differ. From an article by Ruth Simon on p. 2 of today’s edition (Option ARMs Remain Popular In Spite of Risks):
“It’s hard to know why anybody would want [an option ARM] in the current rate environment,” says Keith Gumbinger, a mortgage analyst with HSH Associates. Yet borrowers seeking to lower their monthly payments have few other choices. Given the narrow difference between short- and long-term interest rates, Mr. Gumbinger says, “there are very few products that … provide payment relief.”
Actually, an ARM might not be a bad bet right now. Interest rates may very well fall in the near future, as the Fed attempts to stave off the collapse initiated by the housing crash.
From the standpoint of the comparison of interest rates on fixed- versus variable-rate loans you are correct.
From the standpoint of affordability, you are not, unless perhaps you live in College Station, TX.
More from Lie-reah today…it just NEVER stops! Getting…dizzy..from..the..spin….(puke)
“States with moderately priced areas that have experienced healthy job creation are seeing sales gains,” said David Lereah, chief economist for the Realtors. “The economic backdrop remains favorable for the housing market, which is helping home sales level out.”
http://www.signonsandiego.com/news/business/20060815-0733-homesales.html
this combination with cramer is really hard to swallow oon one day. ist is almost a overdose.
http://www.immobilienblasen.blogspot.com/
Sales gains of -25%?
Lie-reah - the Henry Blodget of the real estate bubble.
There will be a “soft landing” because they keep changing the definition. A year ago it was prices going from robust growth to slight growth. Now they seem to say anything less than a 25% drop is a “soft landing”.
Yes, I remember that Lereah’s definition of a soft landing was that housing prices would “plateau” for several years. If I recall right, there was never any talk whatsoever about housing going down in price.
The Bay area also claimed the highest condo prices - a median of $647,200 - far higher than second-place Los Angeles ($410,500).
Very strange… LA has lots more to offer than say San Jose Santa Clara or other parts. The prices are so out of wacked in SF Bay Area.
To think beach front property in Malibu, or a Home in Beverly Hills is “Cheaper” than say home rancher inland Santa Clara / Fremont / Palo Alto etc etc… ???? What gives…..
For as long as I can recall. Its allways been higher prices in SoCal. And there are plenty of good reasons.
SF is actually considerably CHEAPER than LA.
You can get a 2BR condo in a clean, safe SF suburb with very good public schools, like Walnut Creek, for $199k. That’s totally impossible in LA. You can go to realtor.com and see for yourself.
SF is just as overheated as LA, no doubt, but for the average person it’s far more affordable, even at the currently inflated prices.
Also — and this is just my subjective opinion, I have no proof for this — it seems like SF has many, many more high paying jobs than LA. While tech is no longer the ticket to instant dot com IPO riches, it still pays a lot more than most fields. There are literally hundreds of companies paying decent salaries up there. Maybe not decent enough to buy a house in a bubble market, but decent just the same. And on top of tech, SF has banking, law, medicine, lots of non-tech public companies, etc. — lots of good jobs.
Not so in LA. Only a handful of people make big bucks in the entertainment industry, and the rest of our industries, such as light industrial, don’t pay high salaries.
So I think that SF is much more affordable than LA, even though it is still grotesquely overpriced.
Walnut Creek is quite a far cry from SF, or even SF bay area propper. If you consider all areas around LA, that are as far away as Walnut Creek is from bay area propper, then I’m sure you can find similarly priced condos. Walnut Creek would be like analagous to a “nice” area in the inland empire, IMO.
I respectfully disagree. The schools in Walnut Creek are many, many orders of magnitude better than anything in the Inland Empire. I don’t know of any high schools in the IE with an average SAT score of more than 1200.
And there is no comparision with respect to commutes, either. Walnut Creek is only 25 miles from downtown SF. You can commute from Walnut Creek to San Francisco in an hour or so each way.
Most places in the Inland Empire, by contrast, are anywhere 50-90 miles away from Los Angeles, more if you commute to Orange County or the West side. This means 4-4.5 hours of total commuting time.
I am not saying that Walnut Creek is paradise — I spent a couple of weeks there last year and found it pleasant but incredibly dull — but it is a decent place to live that is far, far more accessible to the average person than any equivalent communitiy in SoCal. You would have to pay at least $400k to get an equivalent 2BR condo in SoCal.
I don’t know of any high schools in the IE with an average SAT score of more than 1200.
Was it the high school or the kids. Back in 1991 we had many Hong Kong Chinesse coming over to Cupertino. This was to escape the hand over in 1997. Cupertino HS had dismal SAT scores. In a mear 2-3 years Cupertino was cheered as this great HS with with high SAT scores. Fact is the Chinese parents do not act like Americal parents. No such thing as Son no 1 going to football tryouts. They hit the books from day to night.
Yeah, and those same condos in WC were going for $99,500-$115,000 in 2001. I know because I looked at buying one there! (That is one of my regrets.)
Still a long way to go before we hit the bottom here in the Bay Area…
Your numbers are same for santa clara south of you.
we had nearly 500% increase by some measures.
nice return if you can get it… not good for any kind of buyer.
“Only a handful of people make big bucks in the entertainment industry”
This may come as a shock but only a hanful of people make big bucks in High Tech. Stock options, Salaries, IPO…. there isnt a google effect many were talking about. Friend of mine who retired early due to IPO moved out to Santa Barbara.
Yeah, but Apple alone employs thousands of hardware engineers and programmers who earn between 80 and 120k. This isn’t big bucks, but it’s still a pretty decent salary. And there are hundreds of Apples in the Bay Area, even in the days of outsourcing.
The entertainment industry doesn’t employ anywhere that many at high five and low six figure salaries. Nor do any of the other inudstries in SoCal, like light manufacturing, tourism, and transportation/warehousing/distribution.
Again, I am not saying that SF is affordable, or that prices wont’ drop there (they will — by a huge amount). All I am saying is that SF is a lot more affordable than LA. The middle class isn’t getting squeezed nearly as badly there, and it makes sense that SF will cost more than LA due to the number of people with good jobs.
I would not worry about not buying one of those $199k condos in Walnut Creek. They won’t be $199k for very long, you’ll get another chance.
First off Apple which grew in the 80’s like many other HT Companies nearly died out by 1992. Only some 10% survived into the 1990’s. Apple has moved much of its R&D like Intel, Symantec, HP to the north due to high costs and shrinking margins. Apple like Intel is hiring in China/India/ and Oregon. Apple like many others has strunk its employee count by half from the gang buster days of the 1980’s when it has a large market share. I could go on… but i would show my age. LOL!
You can copy a technology, like the many in Silicon Valley, but you cannot copy Casablanca and the money it makes. SV products die out in 2 years and make no money. Casablanca will always sell and make month for decades to come. Do you see the difference between a franchise and a simple product?
“The entertainment industry doesn’t employ anywhere that many at high five and low six figure salaries.”
Thats why they are in Business. The problem with HT in No California is the high cost and shrinking margins.
Next years product will be better and will cost less. There is no other industry which does this. Imagine buying a car 10 years ago costing you $30,000 and now the latest model this year costing you $5,000. Latest model is 500% better. You cant support 6-digit salaries when your revenues are shrinking due to competition from overseas. You go broke. That is what HT is all about. It can be software or hardware… its the same.
“It’s different for the East Bay Area, we have good job stability and a great R.E. market - I paid $900,000 for my home two years ago and now my realtor says its worth $1.2mil”, said the yuppie as he got into his BMW 525 and drove out of the Starbucks parking lot after having paid $10 for a 20 cents cup of java and a 15 cents scone…
Do you see the difference between a franchise and a simple product?
So let me get this straight: we should abandon developing technology and close down Cal Tech and teach everyone to juggle chain saws?
You can copy a technology, like the many in Silicon Valley, but you cannot copy Casablanca and the money it makes.
Wait a minute. Didn’t Walt Disney forbid Khrushev from entering Disneyland precisely because USSR wasn’t enforcing copyright laws there, allowing his movies to be freely pirated ? And wasn’t that something, like, FIFTY YEARS AGO? I can (”can”) buy pirated movies on freakin EBAY today, if I’m too lazy to go to the swap meet…
price declines are like programmed trading in 1987. each lower price trips someone else to sell. because this is so much of people’s retirement, it’s tough to know if they’ll stay in longer than we expect or sell.
wow, i’m soooo relieved…
The report lifted the pall that has hung over the markets all summer, brought on as investors fretted about inflation and whether the Federal Reserve’s pause in rate hikes last week would be short-lived. With prices falling, however, the Fed under new Chairman Ben Bernanke could engineer the “soft landing” Wall Street was looking for, balancing slower economic growth with inflation pressures and leaving corporate profits relatively intact.
“I think the feeling here in the market is that the Fed may have actually nailed it,” said Bill Groenveld, head trader for vFinance Investments. “Of course, now we have to take a close look at earnings and hope they’ll still be OK, but right now, overall you have to feel pretty good. I think this market could get exciting.”
http://www.washingtonpost.com/wp-dyn/content/article/2006/08/15/AR2006081500273_pf.html
DRAMATIC plunge in the NAHB monthly index, just released. More details at my blog, but suffice it to say the index hit a 15-year low. Yikes!
http://interestrateroundup.blogspot.com/
Very interesting. Thank you!
builder confidence index crashes to 15 year low
WASHINGTON (MarketWatch) — The confidence of U.S. home builders collapsed in August, falling to the lowest level since February 1991, the National Association of Home Builders said Tuesday.
The NAHB/Wells Fargo housing market index dropped by seven points to 32 in August, indicating that most builders think the housing market is poor.
A year ago, the index was at 67. A reading of 50 would indicate builder sentiment was balanced between good and poor.
The index peaked at 72 in June 2005 and has fallen in 12 months since then. It’s the fastest decline in the 21-year history of the index, which has had a fairly good record of predicting the number of new homes started.
Builders in all four regions of the country are pessimistic about the market.
“Two factors are coloring builders’ perceptions of the market right now - rising sales cancellations and substantial growth in inventories of both new and existing homes,” said David Seiders, chief economist for the home builders’ industry group. “These factors are largely the result of an increasing number of potential buyers adopting a ‘wait and see’ attitude because of uncertainty about where the housing market is headed.
Speculators are fleeing the market, he said.
High energy costs are also weighing on buyers’ minds, Seiders said.
In August, all three components of the home-builders’ index fell. Current sales index fell to 36 from 43, the expected sales index dropped to 40 from 46. and the traffic of potential buyers’ index fell to 21 from 27.
The Commerce Department will report on housing starts for July at 8:30 a.m. Eastern time Wednesday. Economists are looking for a 2% decline to 1.82 million, according to a survey conducted by MarketWatch. See Economic Calendar.
Housing starts have fallen about 18% since the peak at the beginning of the year. New-home sales are down about 17% from the peak last July.
As housing slows, employment in construction, real estate, banking and related retail sectors has also weakened. Economists are divided over the potential impact on consumers from the deceleration in the increases in wealth that have helped to support consumer spending.
Consumers have been spending more than their disposable incomes for the past year, in part by taking out equity from their homes.
copmare this to the word from lereah. ……
http://immobilienblasen.blogspot.com/
“WASHINGTON (MarketWatch) — The confidence of U.S. home builders collapsed in August, falling to the lowest level since February 1991, the National Association of Home Builders said Tuesday.”
That was in the middle of the recession which started in July 1990. Does anyone think a recession has already started?
GS,
IMO, it started in 2000. It’s been masked by the credit/housing bubble, but it’s still lurking there, growing bigger every day. As many have mentioned here before, we should have let the market do its thing after the dot.com plunge. Now, we are in the same (recessionary) situation, just with more debt.
Point taken. As of late it seems as though we live inside a humongous, government orchestrated, economic chimera, reminiscent of the former Soviet Union, which was always eager to trumpet its economic prowess, despite rather obvious evidence to the contrary.
chimera
bravo
David Lereah doesn’t need to die — just to go broke on investment property. That’s poetic justice.
Darn — should have written the novel about that instead of a more conventional mystery…
ECONOMIC REPORT
Home builders’ confidence plunges to 15-year low
By Rex Nutting, MarketWatch
Last Update: 1:00 PM ET Aug 15, 2006
http://tinyurl.com/pmdmh
maybe they need a call from LEIrah-watts-
etc………….put on a happy face
looks like a crash, smelles like crash, feels like a crash……..
http://www.immobilienblasen.blogspot.com/
great find from barry ritholz to the ppi from today
the whole number is made by the suv´s
http://bigpicture.typepad.com/
“Bearish real estate economist Christopher Thornberg”
How come we don’t see the Cheerleader Economists labeled as “Bullish” real estate economists?
Because the news outlet which is quoting the bullish “experts” gets paid by the same industry (real estate).
‘With more sellers competing for the pool of buyers, the pressure on home prices has evaporated in most metro areas,’
Correction: The downward pressure on home prices exerted by a massive weight of new- and used-home inventory has anything-but evaporated in most metro areas.
The pressure hasn’t evaporated, it has just moved to more sensitive areas of sellers’ bodies.
…we are presently experiencing a soft landing in the housing sector.’”
Water is normally a nice soft thing to jump into, unless you are beginning your leap from the top of the most huge bubble 10,000 feet high.
“Water is normally a nice soft thing to jump into…”
unless your liquidity is frozen solid by buyers and sellers who won’t budge.