Bits Bucket And Craigslist Finds For August 23, 2006
Please post off-topic ideas, links and Craigslist finds here!
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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ECONOMIC REPORT
Refinancings rise to five-month high
Homeowners rush into fixed-rate mortgages
WASHINGTON (MarketWatch) — U.S. homeowners continue to rush to refinance their mortgages, as interest rates have fallen back to a five-month low, data from the Mortgage Bankers Asssociation showed Wednesday.
The number of applications for mortgages filed at major U.S. banks rose 0.1% last week on the increase in refinancings, the industry group said.
Overall, mortgage applications are down 25.1% in the past year.
Applications for refinancings rose 1.3% to the highest level since late March, as rates for 30-year loans dropped to a five-month low of 6.38% from the prior week’s 6.54%. Rates for 15-year fixed loans also fell to a five-month low, averaging 6.04% from 6.15%.
Refinancings accounted for 40.6% of total loan applications as tracked by the MBA, up from 39.6% the previous week. That’s the highest share for refis since February.
Conversely, buyers steered a wider berth around adjustable-rate mortgages.
ARMs accounted for 26.4% of loans last week, the lowest proportion since February 2004. The rate on one-year ARM averaged 5.91%, a five-month low, compared to 5.97% in the prior week.
Meanwhile, applications for loans to purchase homes fell 1%, reaching the second lowest level in nearly three years.
Later Wednesday, the National Association of Realtors will report on sales of existing homes for July, while the Commerce Department will report on the nation’s new-home sales on Thursday. Through June, combined home sales had fallen about 9% since the peak a year ago.
http://www.immobilienblasen.blogspot.com/
So…..Are homedebtors refinancing because they want to take out more cash before the appraised price of their home falls?
KB Home reviewing stock option grants to CEO:
KBH43.19, +0.17, +0.4%) is reviewing the stock option grants given to CEO Bruce Karatz, The Wall Street Journal reported Wednesday, citing a company spokeswoman. Outside counsel is helping the home builder with the probe, the spokeswoman told the newspaper. Karatz has received nearly $100 million from cashing out many unusually timed options, the report said, citing regulatory filings it’s reviewed.
http://www.immobilienblasen.blogspot.com/
unusually timed options
Why am I not surprised?
I raised a question of whether top managers at homebuilders might have been among the beneficiaries of post-dated options, which are retrospectively assigned a grant date to reduce the purchase price — a form of corporate theft likely to go unpunished because it is too complicated for average folks to understand. Now we get the first hint that KBH may have been one of the companies which employed this strategy. It will be interesting to see the extent of this practice which comes to light in the builder industry as well as others (esp. high tech) where options are extensively used as a form of compensation.
I have also been wondering whether there might have been some backdated insider repurchases over the last 12 months or so as prices have fallen.
Too complicated for the average Joe to understand? Yikes, that would be sad if true. I think back-dated options are a lot easier to understand than off-balance sheet shenanigans, illegal use of restructuring baskets, stuffing the channel, etc. etc.
If Karatz really did use this scheme, then it is a shame. He was going to get rich one way or the other with the housing boom over the last 15 years. But it seems like many CEOs are unbelieveably greedy. Karatz’s compensation plan wasn’t even tied to his company’s performance, but to the industry’s performance. That seems pretty silly and irresponsible.
Ich kann dein blog nicht verstehen.
Ja, ich verstehe zehr kleine Deutsch!!
But you gotta admit, ‘immobilienmarkt’ for ‘housing market’ has a certain ring about it today :D.
Ja, da stimmt!
doch
I be verunderstandershtehun vat yu verwroten, but vat ist der pointisch uf der blogenposten iffen der Yankees kant readen demmen?
hello stucco,
its 50% in english. rest is in german.
here is one in english. seems that the uk is almost as creative as the us in terms of creative lending
http://immobilienblasen.blogspot.com/2006/08/uk-debt-that-never-dies.html
That is insane.
Multigenerational mortgages were commonplace in Japan at the peak of the bubble.
that was also my first thought. smells like the endgame….
So you mean that when you are 65 and your parents or parent dies, perhaps at 85-90, you have the priviledge of inheriting their dept. I think I’ll go and see that move by Aaron Russo…
Crazy.
And I’m a UK property banker.
Over my cold, dead body here, I can tell you.
Regards,
Loafer
Here is the marketwatch.com story on Karatz’s post-dated options. My guess is that this practice is so wide spread and the current regulatory environment so lax that most of these guys will ultimately get off scott free, a la Quattrone, regardless of whether they are able to stay out of the harsh glare of the media spotlight. But the sad demise of Ken Lay and Jeff Skilling makes me less certain…
http://tinyurl.com/rxqp5
Did Jeff Skilling die?
I thought he was still out on bail while awaiting sentencing.
If KBH were a medical patient, its EKG would suggest that it has died.
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=kbh&sid=442454&freq=9&time=1dy&siteid=mktw
(Homeowners rush into fixed-rate mortgages)
I can’t believe this will be so in the long run. But why are people rushing into fixed rate loans when long term rates are falling from a near-term peak, after having taken out ARMs when they were low?
The exact worst thing at the exact worst time.
“But why are people rushing into fixed rate loans when long term rates are falling from a near-term peak, after having taken out ARMs when they were low?”
My guess is most people are fearful and not particularly savvy when it comes to mortgages. Mortgages are confusing. We may not think so because we talk about mortgages everyday, but we’re not most people.
What they know is they were bitten once and don’t want to be bitten again.
Folks are rushing into fixed-rate mortgages because long-term rates are very low relative to short-term rates, and resetting ARMs have such high margins (275 bp over 1-year Treasuries, even for prime borrowers) that a FRM obtained today around 6% versus a resetting ARM at 7.9% looks like a good deal! And, with home prices now no longer appreciating — and falling in a number of regions — folks are worried that the old “I’ll refi out of that ARM when the time comes” may not be easy to do! Mortgagors individually are not savvy but in aggregate tend to be very good at locking in FRMs near the bottom of a rate cycle!!!!
That would have been a couple years ago…..
Any fixed rate below 7% is a lot better than any time in the preceeding 30 years. And a lot of people bought with ARMS that did not previously qualify for 30 year mortgages and now because of 1) house appreciation or 2) FICO improvement now qualify.
But ya know what I never got about all the refi’s? Even refinancing 1 point below my current fixed mortgage, it would have taken me 7 1/2 years for me to get the mortgage costs back. I just wasn’t sure I was staying here longer than that so really until my break even 7 1/2 years out I was paying more to own the same thing. I decided to skip the refi (and the assumption of the $6000 in closing costs.)
Them fees’ll getcha, Pilgrim.
A new trend emerges, mortgage flippers.
Fed Raises rates
Everyone moves from ARM to fixed
The economy slows, Fed cuts rates
A mass refi from Fixed to ARMS
Fed raises rates…..
I think this makes perfect sense… greed and fear are what drives the decision making process.
It was greed that convinced people to take out ARM’s/IO/Option ARM’s in the first place: i.e. lower monthly payment means more money in my pocket and/or creative financing to buy the most house I can because it will go up in value more than a smaller, less expensive house.
It is fear that now drives people to refi into FRM’s. Fear that interest rates are going up, fear that ARM’s will adjust and payments will no longer be affordable, fear that house values will go down and prevent refi’s in the future without bringing money to the closing.
The amusing thing to me is that the masses tend to do exactly the wrong thing at the wrong time, hence the success of contrarian views. If we are heading into recession, there is a good chance that short-term rates will go down because of Fed easing. That is exactly the time you want an ARM.
Of course, you have to believe that the Fed is more interested in targeted growth vs fighting inflation for this scenario to work.
I’m confused as to why this is the worst tim to refi into an FRM. Isn’t it better to get 6% fixed now rather than paying 7.25% on an ARM? If FRM’s get lower, you can refi at that time.
What am I missing here?
I agree. But I don’t think it’s the truly FB’s that are refinancing now, just the ones with equity left and a reasonable debt to income ratio. The option ARM FB’s are screwed.
I wasn’t saying right now is the worst possible time, just that in my experience people tend to make the wrong move at the wrong time…
Why would you buy an Option ARM or any kind of ARM, refi or otherwise when interest rates are at historic lows and everything points to Fed tightening? Why would you lock in a rate on a FRM refi if the economic signs point to a Fed loosening?
As to your question, it might make sense to refi into an FRM at 6% from an 7.25% ARM, but it depends on which direction short term rates go (my bet is down in ‘07), how much it costs to refi, how much cushion you have month to month to absorb higher payments and how much risk you are willing to shoulder vs. the cost of mitigating that risk (through a refi). Can you refi now and then again in a year or two if rates go even lower? Sure, but now you are incurring even more cost to gain from the benefit of lower rates… something that your original ARM would have taken advantage of without any refi’s.
I think people in general would benefit from a lesson in economics, risk analysis, and personal finance… of course many are receiving one right now called real-life experience. That tends to be the most expensive school available.
“What am I missing here?”
The fees and the prepayment penalties. You’re not dealing with fools, though many often seem like it. Something has to comprise the monthly payment on that big black Hummer.
…psychologists posit people fear loss more than they covet gain, hence the race to grab any lower rate…. and the reluctance to lower prices in a falling market. Hubris. Chase that sales price down why doncha?
Here is one for you from Down Under, which appeared on Foreclosure Forum at http://www.foreclosureforum.com/mb/messages/18479.html
It’s crashing down in Aussland. It’s bad. Hope SD not endup like that.
Posted by Jie Sun on August 21, 2006 at 9:08 PM
Housing crash puts sellers in debt crisis
Jonathan Chancellor Property Editor
August 21, 2006
A THREE-BEDROOM brick-veneer house in St Clair sold for just $260,000 at the weekend - down about 42 per cent from its last sale at $450,000 in 2003 in a further sign of the depressed state of the Sydney property market.
Only one person bid on the house in the city’s west. The mortgagee sale was forced after the owners could not meet the interest payments on the $405,000 they borrowed to buy the house at the peak of the market.
Auction clearance rates are hovering around 48 per cent since the recent interest rate rise, but plummeting property prices have meant many vendors are confronting negative equity, where they owe more on the property than it is worth.
The Herald checked 16 properties in south-western and western suburbs listed at the weekend and found 60 per cent had prices or had attracted offers at a discount to their last sale price.
At the St Clair auction the buyer was an investor who will spend about $40,000 on essential repairs before leasing it at about $270 a week, said its L.J. Hooker St Marys selling agent, Michael Beatty.
Increasing petrol prices appear to be compounding the impact of repeated interest rate rises on properties in Sydney’s outlying suburbs by driving prices down.
Lethbridge Park, near Penrith, recorded the second highest fall, when a townhouse that sold for $257,000 in 2003 was resold by mortgagees for $156,500, reflecting a roughly 40 per cent fall.
At Heckenberg, a four-bedroom house that sold for $330,000 in 2003 resold at $255,000 in another mortgagee sale. Four of the seven registered buyers put in bids before the Adaminaby Street house sold at an approximate 22 per cent discount to the property-boom price.
“There are some people around Liverpool who think that prices have further to fall, but I couldn’t imagine this type of house will fetch less in six months’ time,” said its selling agent, Ray Dimarco.
At Parramatta, mortagees accepted $541,500 for an unrenovated house that fetched $736,000 in 2003 when it was sold as a deceased estate. The bank lent $580,000 on its 2003 sale.
Even the inner-suburban areas are showing signs of depressed prices. In Lilyfield a four-bedroom house on 607 square metres last sold at $1,355,000 unrenovated in boom-time 2003.
It attracted a $1,179,000 top bid after its recent renovation by its owner-builder. Two registered bidders competed at the on-site auction but the property was passed in well short of the owner’s expectations. The freestanding house now has a $1.35 million asking price.
Given it has been 16 years since the last recession, long-time estate agents fear the fate of a generation of owners who had not experienced having a loan when times were tough.
Mr Beatty said: “There was a wave of people punting on the expectation of constant price rises until well into 2004, even after the three interest rate rises of late 2003. There has been significant price deflation and many now have negative equity in their homes.
“There are some sad stories. But we have to show the sellers the comparable sales and say honestly this is where the market is realistically at.”
It will be as bad here. In the formerly “hot” markets it will be even worse. That 800 sq ft dump in California will ultimately fetch a fair price of $175000.
175K is a “fair” price for an 800 sq ft dump, with CA’s taxes, regulation, insurance, and low-lifes? I’m only familiar with SD, but I think that might end up being on the high side for even something like one of the 1200 sq ft crackerboxes in North Park or Allied Gardens.
relates to the qulity of building. you really should read this and watch the video.
Lisa’s husband was killed by a defective Lennar home. He was electrocuted on his one year old daughter’s birthday. The home had passed inspection by the local inspector just two weeks earlier.
complete story
http://globaleconomicanalysis.blogspot.com/2006/08/electrocution-prompts-lawsuit-against.html
Sounds like the ground was faulty and/or no existant too. Let’s say the medicine cabinet was grounded via a light fixture in the cabinet. If you close the circuit from the hot white or black to the grounded cabinet it would short and blow the curcuit breaker. Almost sounds like there was no ground connection at the service box, which would in essense then make every ‘grounded’ box in the house and anything that touches it, HOT. Holy shit!
The article make it sound like the drywall screws were into metal studs, and also penetrated the black (hot) wire. Probably on a different circuit. I’ve never had a metal-frame house. I agree completely, any reasonable ground between the frame and the load center would have blown the CB. Do metal frame houses have the frame elements grounded?
As best I know, yes. I don’t know that they use the metal frames as ground circuits themselves - however, the electrical boxes are metal, screwed into the metal frames, and are grounded themselves.
I think the logic goes like this:
1) You have a massive network of metal frames.
2) Should something accidentally short out on that network of metal frames, we need to give it a path to ground.
3) So, instead of trying to absolutely insulate the network of metal frames from any electrical contact (accidents do happen), why don’t we just ground the network of metal frames itself.
“Plan for the best, prepare for the worst.”
This happens a lot more than you might want to believe. My inspectors are very careful about this on new construction, but watch out for those illegal “weekend warrior” jobs done without permits and inspections.
here is the direct link to the video
http://www.local6.com/problemsolvers/7302637/detail.html
Wow! The Wall Street Journal just drove a huge spike through the heart of the bubble with a front page story this morning. The lead article in the right column is entitled “After the Boom — Housing Slump Proves Painful For Some Owners and Builders / ‘Hard Landing’ on the Coasts Jolts Those Who Must Sell; Ms. Guth Tries an Auction / ‘We’re Preparing for the Worst’”
The accompanying graph, captioned “Cool Market,” documents what we have been harping about here since some time last year. The top graph shows the massive inventory correction underway, with the inventory of existing single-family homes on the market rising steeply from under 2m as of late 2004 to over 3m as of right now. Has the market ever seen a 50% increase in inventory over a comparable period?
The bottom graph documents the price effect of a hard landing. The NAR’s own figures indicate the inflation-adjusted “growth/decline” in median price of single-family homes rose rapidly from a fairly steady annual rate of increase near 5% over the period from 2002 through 2004 up to over 10% by year-end 2005, then decelerated precipitously to roughly -5% as of right now. The graph does not make clear whether the “growth/decline” is measured monthly or year-on-year, but it does strongly suggest that real housing prices are falling on a national level for the first time since the Great Depression.
Ms. Guth’s auction results offer a hint that our estimates of the magnitude of price declines we have entertained on this blog might prove to be closer to the mark than conservative figures like Thornberg’s -10%. She first tried to sell her home last September for $1.1m. After no luck whatever, she cut her asking price in March 2006 to $899.9K, but still received no offers. Finally she consulted an auction firm, and announced she would accept the highest bid of at least $675K. No bids at that level were forthcoming, and she ultimately sold for $530K — a 52% haircut off what she initially thought her home was worth. The article makes no mention of when she bought the home, so the reader is left wondering whether she was hurt by the price reduction.
But just remember, we are going to have a soft landing, and there is no national housing market, so it is all good!
Ouch, a Cat 5 on the ajh scale (OK, that scale really applies to averages).
And we’ve hardly started.
Stucco - I jumped for joy when seeing this front-page, gloves-off WSJ article.
Also note the references to folks who can’t sell, and then choose to rent out their residence. One person described in the articles is renting out her residence at $1000 per month, $200 below her mortgage payment (-> we’ll “assume” that $200 is an inclusive number)….
Is the $200 loss something that she can deduct on her taxes? I was wondering how the tax situation changes when you rent your house.
Perhaps, it depends on what portion of the payment is going toward principle vs interest. You should recognise rental income, offsetting that you would have mortgage interest, property taxes, insurance, advertising costs, and depreciation. Your principle payments (if any) are not an expense, so you don’t get to deduct them. What ever is left over is profit or loss. However, your cost basis (and ultimate capital gain/loss)will be adjusted by depreciation and any maintenance expenditures.
At least that would be how it worked if you had rented out a purely investment property, I’m not sure how things change for a former owner occupied residence from the taxman’s perspective.
Yes, according to that article, Ms. Guth was hoping to cash out, buy a much less expensive home in Florida, and use the proceeds for her retirement. Over and over financial advisors have been telling people that they should focus on maximizing their 401ks and IRAs and be mainly into equities. However, most older boomers chose to buy real estate and stay out of stock mutual funds. Sadly, the average boomer has far less than $100,000 saved for retirement. Ms. Guth is a good example of what financial advisors were warning against. But people don’t listen.
Not this boomer. I stayed the hell away from RE and with equities (although as much short as long). I’m happy with where I am. Not to mention we can live on about 1/8th of our income.
I’m sure some boomers are ready for retirement. However, since the largest generation in history is beginning to retire what in the hell are we going to do with all the ones that did not save? There are going to be a lot of people living in “VANS DOWN BY THE RIVER.”
newname;..richchicktxchick57
just teasing tchick….
The last 5 years, Vanguard’s 500 index fund returned a measly annual 2.5%. However, if you dollar cost averaged monthly into that fund, your return over those 5 years would have been higher than the inflation rate during that period, I would think. In 2002 there was a huge price drop of that index and it’s been uphill since 2003. Financial Advisors have been touting dollar cost averaging into mutual funds. It’s another aspect of equity investing the boomers ignored. You cannot dollar cost average into a house. Buy in 2000 and sell in 2006 below the adjusted-for-inflation value you bought it at. Millions of “Einsteins” will end up eating dog food.
The only way I could live on 1/8 my (= our) income would be in a third-world country. Congrats.
The Boomers freaked out after the Dot com bubble crash of 2000. My friend who is very rich told me he has stopped putting money into Stock Mutual funds because he was tried of loosing money. I mentioned he was buying at a good price and income average down works out well, etc. No he was putting all his cash into RE but commecial RE so he didn’t care about bubbles. This was in 2002 I think. So he has done well so far. I don’t know what hes doing now? Costa Rica I RE I think?
There is a huge bubble in Expat owned coastal RE in Central America and Mexico.
Surfer’s Journal polluted their mostly ad free magazine with an article on the land boom in Nicaragua, less than 12 years after civil war.
I was there and saw it firsthand and stayed with a surf camp whose owner was known locally as “el diablo blanco”.
“el diablo blanco” — LOL. Hope he’s healthy.
A suggestion for all those soon-to-be unemployed realtors.
A new career in your future…. as a ballroom dancing coach!
C’mon, you can make up to US$2 million per year. Much better than your last career in real estate! Don’t believe me? Yep, it is true and it is all over the news here in Hong Kong…..
Two years ago, Ms Wong agreed to pay Ms Fairweather and Mr Saccani HK$120 million (£8 million) for eight years of unlimited coaching and competitions. She handed over half the cash up front and was quoted as saying that she was “looking for the last bit of glory in life”.
Their partnership hit the jackpot when they acquired Ms Wong as a pupil, netting them about £3,000 a day.
http://www.timesonline.co.uk/article/0,,25689-2298586,00.html
Just for the record, I was right, but a bit early on the housing collapse.
This is from May 2005. Scroll down to “Update on Email Traffic” between Wang and Screamer. (3 guesses as to who “Screamer” and “Wang” are):
http://worldmarket.blogspot.com/2005_05_01_worldmarket_archive.html
SNIP:
From: WANG
Re: Can’t Bet Against the Land Shortage
Yeah, yeah, I’ve heard that argument before. Now where was it?
Perhaps Japan in 1990?
Or was it Hong Kong in 1997?
The HK property developers can’t go down!
They’re the only ones who own land!
What happened in the next three years?
All of them were down between 70% and 90%.
BTW - Sun Hung Kai Properties (16.HK) today in Hong Kong still has a market capitalization of twice that of the largest in the US.
And it’s still 30% off its 1997 highs.
HK - congratulations to you on your astute analysis of the US credit bubble and its implications for the housing market. Hopefully you will profit, from your correct forecast and investment, as much as the rest of us here plan to.
Query: If the housing market will no longer support super-profits, then where will all of the “investment” money go? Actually, where did it all come from and where will it all go? I’m aware of the carry trade and the mortgage securitization gimmicks, but that can’t account for the whole tsunami of capital which has innundated the US, driving prices up. If they did, and there is no financial incentive for these any longer, will all of the capital dry up? I see the answer to this series of questions as crucial to understanding what happens next: stagnation, deflation, hyper-inflation or collapse.
The housing market still supports super profits. The money I extracted at the top earns high interest. It is an investment, some people are taking super losses and will for decades. By my calculation between 7-9 trillion with a “t” dollars will evaporate. For half of us that means we are Mrs. Guth in the article. For the other lucky half it means paying 6% on $400,000 in debt on soemthing wortk $200,000. Surprise, that’s just the same as if interest rates were 14%. Get now? We needed to find a way to extract higher returns from our FBs. This is one way.
That’s cold, Robert, just cold.
What? You think I could get even more if I tried some other tactic? Instead of cold, hostile takeovers perhaps? I’ll buy the first mortgage on somebody with equity and upon due diligence discover to my surprise that the loan is owner occupied contingent. Loan is now payable on demand but I’m sure we can work something out. Thanks for the hints HARM. Any other investment ideas?
He ain’t cold, he’s my Blogger. BTW, what’s so bad with cold?
It came from thin air in the form of fractional reserve lending. A bank takes your 100K you put in a deposit account, and lends out the whole thing. With a zero percent reserve ratio, there is, in theory, no limit to the amount of money that can be created.
However, when someone is no longer willing to take on more debt to bail out the previous, you have the potential (depending on how bad the situation) of cascading defaults….or a rapid destruction of money (although it wasn’t there to begin with) / deflation. The gov’t steps in to try a replace the debt with actual paper dollars, and you get the massive inflation. That is pretty much it in a nutshell. You could have Alan Greenspan say the same thing in a 20 page paper and still not get it, but that is pretty much it.
For the folks feeling safe with your money “in the bank”, where do you think these people are getting the money to buy these insanely overpriced houses? From savings? Maybe if they were all foreigners (since they actually save), but surely not Americans. It is your money. It really isn’t in the bank. Time for a serious wake up. You were ahead of the game on how ridiculous the housing bubble was, and even that lax lending caused it. How can these same people not realize what comes next?
Bank’s exposure to real estate now is greater than the exposure Texas banks had to the oil industry back in the 80’s. All those Texas banks failed. The FDIC simply can’t handle virtually all banks failing at once.
Kerk — you got it. Vote Libertarian.
In a perfect illustration of Businessweek’s depth in reporting, it’s touting Phoenix as one of the remaining “hot markets” in the USA: they only looked at YoY appreciation. I wonder if the bagholders in Phoenix agree?
http://images.businessweek.com/ss/06/08/housing/index_01.htm
Phoenix is hurting. I spent all of last week looking at both new and resale homes. Most builders are taking 35k-95k off their printed base price. When we said it was still too high, they mentioned they could lower even further. In the past several days, I have received 8 calls from the sales representatives from these builders wanting to know what they could do to sell a home.
We just signed a 9 month lease on a 2400sf home for $1250/month in Chandler. (The home was also for sale for $375k).
What do you do for work, and why would you choose to do this?
A front-page graph in today’s WSJ shows that the inventory of used homes for sale has increased from under 2m at year-end 2004 to a current level over 3m. Why are inventories correcting? It seems to be related to a big drop in the number of buyers willing-and-able to afford to purchase at current price levels.
I have posted a related article below from marketwatch.com. My personal comments are inserted in parentheses.
————————————————————————————————
ECONOMIC OUTLOOK
Existing home sales expected to fall in July
Median sales prices could show rare year-over-year decline
By Rex Nutting, MarketWatch
Last Update: 6:43 PM ET Aug 22, 2006
WASHINGTON (MarketWatch) — Already down 9% in the past year, sales of existing homes are expected to decline further in July, economists say.
The National Association of Realtors will release July sales data at 10 a.m. Wednesday. Economists surveyed by MarketWatch are forecasting a 0.9% drop to a seasonally adjusted annual rate of 6.56 million in July.
That would be the slowest sales pace since February 2004.
Some economists are predicting a gain in sales, based on rises in the pending home sales index in the past two months. Sales have slowed because mortgage rates have risen while soaring price gains have pushed many homes out of reach of typical buyers.
“In addition, there is a large psychological factor restraining home sales–buyers believe they are overpaying and if they hold out they can get a better price, while sellers want to receive the price they would have had at the peak of the housing market,” said Drew Matus, an economist for Lehman Bros. (After a prolonged period of irrational exuberance, deflationary psychology is restoring rationality to market values.)
A few economists are predicting that year-over-year median sales prices will show a very rare decline in July. In June, prices were up just 0.9% in the past 12 months, down from double-digit gains last year. (Economists trying to predict whether a price decline is forthcoming should look at the graph on p. 1 of today’s Wall Street Journal, which presents evidence from the NAR that suggests prices are already declining.)
A decline “does not necessarily mean that housing prices are falling,” said Mark Vitner, a senior economist for Wachovia. The price index is based on the homes actually sold during a month “It does not reflect the value of homes on the market or not for sale,” Vitner said. (If the price of homes actually sold during a month does not reflect the value of homes on the market or not for sale, then what on Earth does reflect the value of homes? Maybe the 50% increase in used home inventory since year-end 2004, which suggests that sellers are asking more for their homes than the market believes they are actually worth?)
http://tinyurl.com/o6kxy
I almost missed the final line of the story, “As of June, inventories of existing homes for sale rose 39% in the past year to 3.725 million, a 6.8-month supply, the biggest supply relative to sales in nine years.”
The front-page graph in today’s WSJ shows a current inventory figure of barely over 3m, as reported by the NAR. Is it possible that the NAR somehow accidently undercounted the number of used homes currently for sale by more than 500,000?
I saw that as well - I shrugged it off though. No amount of spin can prevent the collapse.
That means they’ve tacitly lowered their sales volume for the year to 5.5 million units. Last Nov-Dec they were predicting 6.8 million. I feel so smug, yet another of my predictions coming to pass.
“A decline “does not necessarily mean that housing prices are falling,” said Mark Vitner, a senior economist for Wachovia. The price index is based on the homes actually sold during a month “It does not reflect the value of homes on the market or not for sale,” Vitner said.”
So when prices are appreciating 10-25-50% per year, the price index accurately reflects the value of homes “on the market or not for sale”, but when prices are falling, median sales prices cannot be relied upon to value homes “on the market or not for sale” and it “does not mean that housing prices are falling”?
So why do we use comps to value a home? If the price of the 3 houses in the neigborhood that sold for $275K, $250K, and $225K (for a median of $250K) have no bearing whatsoever on the value of my home, then I can go ahead and list at $750K since median price “does not reflect” the value of my home. It must be the stainless steel appliances and the granite counter tops.
Someone please correct my logic if it is incorrect. Thanks in advance.
This whole appraisal thing is such a joke. The last 3 houses that I bought or sold came in amazinly within a couple thousand of the loan amount. Now I am buying a house that I know is worth at least 125k, but I am only buying it for $100k. Funny how the appraisal came in at $101k. When I told the loan processer that they were off by about $25k, and that if I had put the loan amount at $125k, that it would have come in at $125k. He said “Well, if we had made the purchase price for that amount, then the appraiser would have had to work harder to find ways to make it appraise for higher.” That is a direct quote. What a bunch of BS. this thing is going to crash hard if people are ever held accountable for their loans, appraisals, etc.
Truth of the matter is that appraisers have the difficult job of shooting at a fast-moving target under current market conditions. As the front-page graph of today’s WSJ suggests, prices were going up at a 10% rate as of last summer, and now they are falling by about a 5% rate — 15% YOY deceleration. What is a poor appraiser to do?
where do you live? i’m just surprised to see a home for $100K. (i may have to pack up and move!)
Most of the midwestern cities have a nice areas for $100K as well as the $2million+ houses. Milwaukee has some very nice areas for 100K, Chicago has the Hegewich(sp) area, in the twinkie cities St Paul has very affordable areas - etc.
When I was shopping for a mortgage, she could make any number work for any property.
It’s all fraud. I was approved for a $900k loan with an inflated stated income. I was told not to worry about appraisal - the lender has one that she works with.
Thank god I backed out!!!
U.S. EXISTING HOME SALES DOWN 11.2% YEAR-OVER-YEAR
U.S. JULY EXISTING HOME MEDIAN PRICE UP 0.9% Y-O-Y
U.S.JULY EXISTING HOME ISUPPLY 7.3-MONTHS, 13-YEAR
U.S. JULY EXISTING HOMES WELL BELOW 6.56 MILLION EXPECTED U.S. JULY EXISTING HOME SALES DOWN 4.1% TO 6.33 MILLION RATE
http://www.immobilienblasen.blogspot.com/
“U.S. JULY EXISTING HOME MEDIAN PRICE UP 0.9% Y-O-Y”
I assume this is the nominal change in price, as the graph on the right side of the front page of today’s WSJ shows real home prices are falling.
can´t wait for the nar to spin this into great numbers…..
http://www.immobilienblasen.blogspot.com/
WASHINGTON (MarketWatch) — Sales of existing homes plunged 4.1% to a seasonally adjusted annualized rate of 6.33 million, the lowest since January 2004, the National Association of Realtors said Tuesday.
Economists were expecting a decline to 6.56 million, according to a survey conducted by MarketWatch.
The report shows a continued weakening in the housing market, with inventories up sharply while prices are softening. Sales are down 11.2% in the past year.
“Boom markets are cooling significantly,” said David Lereah, chief economist for the realtors group. Sales fell in all four regions.
The housing market and the economy are “fragile,” Lereah said. Some markets that never boomed are now weakening because of sluggish local economies, such as Michigan, Ohio and parts of the Northeast, he said.
“It’s important for the Fed to understand how fragile the housing market is, and how fragile the economy is,” Lereah said. “The economy impacts housing, and housing impacts the economy.”
The inventory of unsold homes rose 3.2% to a record 3.856 million, a 7.3- month supply at the July sales rate, the highest since April 1993. The past year has seen the sharpest increase in inventories on record, Lereah said.
The median sales price has risen 0.9% in the past year to $230,000. It matches June for the weakest price growth in 11 years. Prices fell on a year-over-year basis in the West and the Northeast.
“Prices need to come down to bring back buyers,” Lereah said.
Sales of condos rose 2.8% in July to 818,000. Sales of single-family homes fell 5% to 5.51 million
‘“Prices need to come down to bring back buyers,” Lereah said.’
So now Lereah is cheerleading for falling prices? Wonders never cease…
‘The “boom markets are cooling significantly,” said David Lereah, chief economist for the National Association of Realtors. Sales fell in all four regions, led by a 6.4% drop in the West. Economists were expecting a 0.9% decline in sales to 6.56 million, according to a survey conducted by MarketWatch. The 4.1% drop was larger than any of the 39 economists predicted.’
http://tinyurl.com/gjjq3
39 out of 39 economists were fooled by randomness, in the form of unraveling systemic risk. And the homebuilder stocks barely corrected on this news, which clearly could not have “already been priced in.”
Just reported. Can’t wait for Lierah’s spin on this.
“Sales of previously owned homes plunged in July to the lowest level in 2 1/2 years and the inventory of unsold homes climbed to a new record high, fresh signs that the housing market has lost steam.
http://us.rd.yahoo.com/finance/finhome/topstories/apf/*http://biz.yahoo.com/ap/060823/economy.html?.v=4
At least plunge protection measures seem to be working pretty well today, after the initial drop in homebuilder share prices…
http://tinyurl.com/leobd
The most amazing thing about the homebuilder share prices for the past few months is that their prices have changed very little, despite a preponderance of worse-than-anticipated news releases. Today is no exception — the initial selloff is large in percentage terms, but still leaves share prices well above 52 week lows. If history is any guide, then this standoff between bad news and resilient prices will eventually resolve in favor of bad news. Fundamentals ultimately triumph over any and all efforts to manipulate prices.
Damn, I wish David L. would put a sock in his pie hole.
Why pie hole? The sounds you hear are coming from out the other end.
He has no holes the guy is a freakin robot from the planet NAR in the REALECLIPSE galaxy sent here to try to take over our planet.
What the NAR wants to do now is get rid of some of this big inventory ,so the realtors can make money and than start the rah rah stuff again with a lower inventory and wished for lower interest rates in 2007 .Since the interest rates now are almost as low as 2005 ,it can’t be the interest rates that created the current inventory glut .
The market just went to high, coupled with to many speculation purchases ,and to many higher priced units built by builders . Arizona and Florida priced themselves out of being speculation markets anymore and there isn’t enough end-users that want to buy at the higher prices the last purchasers want to sell for .
I’m sure the builders thought that they would get another year or two out of this boom ,(as well as the realtors ) , so when it turned on a dime I’m sure they didn’t expect it .I’m sure everybody thought prices would level out ,rather than crash .
Another FB
Round trip plane tickets a 3 nights accomodations? Give me a break. LOWER THE PRICE, MORON! There’s a reason your 2 bedroom villa has been sitting on the market for 126 days.
More update on my co-worker and her pending home sale. Zestimate is $270K. I found her listing online and she’s asking $370K. Sickens me. My guess is she listed there because she really wants to clear $350K and, since her 95% offer was accepted on the house she hopes to buy (contingent on her home selling), she bumped up to $370K hoping for $350K. I really hope people are doing their homework. No one should be offering anything in the 300s.
zillow’s estimates are complete BS. I’ve checked out houses that according to zillow dropped 20% between January and June, and then checked out the home next door and it supposedly went up 20% in the same time frame. Yeah, sure.
I take zillow with a grain of salt, but believe me - where she lives the houses are NOT selling for the mid-to-high 300s.
For a laugh at Zillow, look at 42996 center st. in zip code 20152. Then take a look at the 1 year value change. According to Zillow, it went up $16,689 (3.8%) in one week!
Meanwhile, a quick search of Zip realty for comparable townhouses nearby shows prices from $380-400k.
Recent comps for that property listed on zillow (assuming they’re accurate) are:
6/27/06 - $448,000
6/8/06 - $430,000
5/31/06 - $430,000
vs. a comp from 1/24/06 which was $415,000.
Now assuming the recent comps just got entered into zillow’s database, I can see how it looks like a $16,000 increase in one week (newer comps selling higher).
Again, I take it with a grain of salt but I am assuming the sales data is coming from reliable sources. And that’s what I focus mostly on.
I guess the difference is what you mean by “comps”. The 6/27 is a different model, whereas the 5/31 is an identical model a few doors down.
Zillow I’m sure really helped people make their decisions to cahs out refi though.
Just spoke to co-worker. She had the home inspection on the new home yesterday and just got the report. The home is 18 years old and needs a new roof, there’s “moisture” in the basement, several windows do not open, and some more stuff. CW thinks she’s going to just cancel the whole thing depending on what the bottom line $$ is (she hadn’t read the whole report yet). This will be the 3rd house in a year that she’s made an offer on, had it accepted, and then backed out. First time it was due to elevated radon levels (common problem in Bucks Co. PA - owner would have put in a remediation kit - CW got spooked); next time it was a FSBO that the seller’s daughter (who is an attorney) was handling - CW didn’t care for the daughter’s gruff style and called everything off; now this.
This is really kind of o/t but has anyone looked at new manhole covers lately? What I mean is they used to be made at foundrys in Pittsburg and Richmond. Now I noticed on new construction they are from India!
You can ship a manhole cover made of iron from India and still sell it cheaper than one made under 300 miles away. To me that spoke volumes about the future. There will be very few jobs left to pay for food let alone a house and gas.
Stcamp
Not only that but most of the steel scrap from demolition in the US goes to India.
They remanufacture it, add value and sell it back for cheaper.
http://tampa.craigslist.org/rfs/189622115.html
This is truly a FB in Tampa. Sale asking price is 239.9K, but what really gets me is the rent they are asking. SFR can be rented for about $1600 - $1800 and a 3 br townhouse with a garage in a nicer, more community oriented neighborhood around the corner can be rented for less than $1800/month. Why in the world would someone rent this place for $2000 / month???
Justin Lahart, who often writes the Ahead Of the Tape sidebar on p. C1 of the WSJ, is on a great roll this week. A snippet of today’s column is given below:
—————————————————————————————————
Parting Ways
The housing market is in a funk. Can the stock market be far behind?
Of the dispiriting news on the housing market recently, last week’s report that home-builder sentiment had fallen to its lowest level in 15 years was particularly glum. The National Association of Home Builder’s housing market index has been a good houising indicator — it began turning lower last summer — so its continued decline suggests more pain is coming.
Now, Wall Street economists are debating whether the index also foreshadows stock-price changes. The homebuilder index began falling in 1999; a year later the stock market was in trouble. In late 2001, the home-builder index hit bottom; a year later, so did stocks.
————————————————————————————————–
Wall Street economists are prone to making the error of basing their conclusions on only one or two data points. An IMF study (”When Bubbles Burst”) looked at this systematically over a number of countries through a period of years, and found a strongly significant relationship between housing market busts and stock market declines.
CAUTION: LINK TO PDF FILE
http://www.imf.org/external/pubs/ft/weo/2003/01/pdf/chapter2.pdf
Most of the investment money was created out of thin air, since most RE was bought with very little down, so relatively little actual “capitol” was needed to create the bubble, only lax lending standards and low interest rates. I don’t believe there was any tsunami of capital so there is no reason to think that there is some huge supply of capitol waiting for a new outlet. To me, the situation seems very similar to the late 1920’s when margin for stocks was 10% which helped drive the prices up.
This last post was supposed to be in a different thread, the one with “where will all of the “investment” money go? Actually, where did it all come from and where will it all go?”
Did anyone catch the article on the front page of the journal this morning?
Great story about a 5 bed / 4 bath in Virginia originally listed for $1.1 mil, then auctioned to a neighbor for $535, or something like that.
It also has an awesome 5 year graph of price appreciation that falls off a cliff after July ‘05.
Please see my comments above regarding the story you referenced.
It seems that everyone is pretty much in agreement that we’re on the part of the rollercoaster where the clicking noises stop. I’m sure it’s been listed other places, but I’m curious as to where people are, how much things cost now, how much the prices at the bottom will be and how long it will take in their area. And some of the leading forces pushing your market. I’ll do mine.
Chicago (NW Suburbs, Des Plaines, Mount Prospect, Arlington Heights, Wheeling, Buffalo Grove, Palatine etc.)
2 bedroom condos
Current range $165k-240k
Predicted bottom
Predicted Range $95k-155k
Length of downturn : 3.5-5 years
Leading factors
1. Buyer sentiment
2. Property tax pressures
3. Stagnant wages
Hi Andy, Why such a short downturn? or What is going to turn this around in only 5 years?
I don’t think America has the patience or positioned themselves for the right to a 10 year decline where people slowly become insolvent. The absence of value increases is already wiping out of group of people. The ARM increase will wipe out another group. A couple of tax cycles on old appraisals will junk some more people. Then some people will get divorced. Some old people die in houses that their kids would rather unload than hold onto. Consumer spending goes down, job losses and profits fall, working class is already at the shortest end of the stick, so companies move or outsource labor. How many of these people that get weeded out are going to say things like ‘I am never going to buy again?’. Either prices drop fast, wages skyrocket or the goverment uses reeling tax payers to bail out. They used every conceivable financial tool to inflate the thing, so that nothing (interest rates, slack standards, creative financing, fear of being priced out) is left to prop it up now. It’s a self sustaining thing that builds it’s own momentum, like that dog food that makes it’s own gravy.
#4 No Wages….
Bozeman MLS listings keep going up and up. Bozeman alone is up to 919 listings and seems to be adding about 50/week. Speculators are running for the exits. Almost everything on the MLS is listed as “active”, and the buzz around town is that the Real Estate market has tanked… but no one knows how this will play out in terms of prices.
I’ve been tracking MLS# 129299 as it is being sold by a colleague. This 3-4 bedroom house has been vacant since March (they moved before selling their existing home), was a FSBO, then MLS at $589k for a month and stuck at $539k for two months. They bought it for $275k in 2002, and have perhaps $50k in cosmetic improvements. Nice location, all remodeled, small home, no garage, and remodels not consistent with historic architecture. This home was probably overpriced at $275 in 2002, and given the rental value of $1300-1500/mo (being generous) I’d estimate that this house is worth $250-300k, but would probably move in our current market if priced at $400k (still a nice profit for a 4 year investment).
MLS# 131290 . A student of mine has been living in a 2 bd 3bath condo, 1400 sq ft, purchased by her parents in the summer of 2003 for $155k. THis is a nice little townhouse in a new subdivision west of bozeman–what is affectionately called “Boz Angeles”. They are asking $200k and it has been on the market for ~2 weeks without an offer. The townhome is in a block of six and ALL of the owners are planning to sell within the next year, but this unit is ahead of the curve (upsetting some of the other owners). But from what I can tell, the only condos moving at this point are new construction… builder incentives?
Most outrageous listings? Penthouse luxury 3 bd/3 bath 2700 sq ft condos at $1 million–for the shell only, no interior finishing at all. And the kicker is that since these condos are being built in a swampy depression these “penthouse” units are still below the elevation of main street and have great views of I-94!
From what I can discern–it is very hard to get real estate data for Bozeman–we had month over month median price declines in June and July, but probably won’t see YOY declines until late autumn. We seem to be lagging the west coast. The condo market, however, is probably leading the decline.
Thanks for the update. Accelerating inventory, gotta love it. And I hear you on the data problem. Where do you get median prices? The only thing I can find is asking prices on Realtor.com. As for finding number of sales, forget it. One of the realtors here (Billings) has a “request for statistics” on the web page which I’ve filled out twice and gotten no response. Their page also lists YTD sales for the current month, compared to a year ago. By keeping track of these, I seem to find YOY sales up. But looking at the properties on Realtor.com, I can’t see anything really moving.
What did you think of the “inclusionary housing” advocate saying that Bozeman has always been expensive, so nothing’s changed?
I get my sporatic sales data by emailing random real estate agents. The funny thing is that (i) they insist that Bozeman real estate is special and will never go down, despite the statistics they send me and (ii) they sure have a lot of time on their hands to write me pages and pages of emphatic rebuttles of my housing bubble argument (one mortgage broker wrote a 4 page email reply). Doesn’t seem like they have many clients these days.
As for Bozeman always being expensive, that is simply untrue. Real estate collapsed here in 1986 and didn’t really recover until the mid-1990’s. In 1990 you could buy the most expensive home in town for less than $100k.
We’ve read all this somewhere else before, but figure 1 is new, and pretty scary:
http://www.financialsense.com/editorials/saxena/2006/0822.html
Here is fun Craigslist. This guy in New York appear to have at least three condos in Miami he is desperately tryig un load.
Go to http://miami.craigslist.org/rfs/
Put in his phone number in the search box
(212) 577 - 2270 x 222
You get all of his ads since July. Watch the prices drop. He has to be sweating hard!
Yahoo’s Poll of the day - Housing Poll
http://finance.yahoo.com
scroll down to bottom on right.
Already at 75% say it’s going down further out of 11,400.
Yahoo’s Poll of the day - Housing Poll
http://finance.yahoo.com
scroll down to bottom on right.
Already at 75% say it’s going down further out of 11,400.
Just took a walk on my lunch break around Culver City. I saw a sh%tty little house with a RE sign out front. A took a sheet - “Desperate Seller! Make an Offer! Call for Price!”
A called the number and asked the price. $775,000.
I said, “Still has a ways to go”.
The RE lady replied, “What did you say? (obvious anger in voice)
I said “Still has a way to go, I thought you said they we’re desperate”.
She is, house in Culver City start at $800k. The townhouse across the street is going for $890k (keep in mind, I run on my lunch hour, and I’ve past the RE sign for the condo across the street for about a year now).
So I said, “Well, good luck. Wish her my best.”
“I will.”
$775k, no way!
What do you guys think?
http://guests.themls.com/profile_page.cfm?mls=06-122983
Feel free to e-mail the realtor and give her your opinion.
Obviously not that desperate…
In comparison with a lot of Westside, its not so bad.
My current favourite ‘pricing by Whaaaaa….?” house is this little beauty in West Hollywood:
http://tinyurl.com/p2wbd
I think I’ve posted this one before, but it still makes me chuckle.
In precis:
900 sq ft
1900 sq ft lot
Built 1902
DOM 8
Original LP: $929K. Then, at 3 DOM, the price was raised to $999K.
I’d love some of what they’re smoking
Sadly, I think may sellers in LA would rather torch their houses than lower the price.
Unbelievable!
I rent in West Hollywood, right next to Urth Cafe. MUCH better neighborhood than that house, MUCH bigger property, MUCH better house, MUUUUUUCH cheaper payment.
This thing is correcting as we speak.
Just did!
DOH!!!
Wrong property, I meant this one :
http://guests.themls.com/profile_page.cfm?mls=06-120779
We have them in Jersey. They’re like $105k. Couple years ago you could pick up a shitbox like that in Jersey for like $69k. Real dump. Who the hell would want to live in that piece of crap? Just from the looks of the house, a house like that would be in a neighborhood with cars on blocks.
Huh????: http://honolulu.craigslist.org/oah/rfs/197893023.html
make up your mind!
This crap never ends: http://honolulu.craigslist.org/oah/rfs/197820894.html
From Bloomberg :
http://www.bloomberg.com/apps/news?pid=20601087&sid=ay_RofPm.SV4&refer=home
`Fragile’ Market
“It’s very important that the Fed understand the fragile state of the housing market,” Lereah said. “It’s very important that the Fed maintain the status quo, keep rates where they are.”
A recent study by the Chicago Federal Reserve Bank says the surge in the U.S. housing market since 2001 is linked to gains in wealth and the introduction of innovative mortgages and has little to do with speculative fever that characterizes bubbles.
“We currently are seeing a good deal of softening in housing markets, and home prices are increasing at a slower rate,” Moskow said yesterday in prepared remarks to the McLean County Chamber of Commerce in central Illinois. “Even if prices did decline nationally, history suggests that the impact on consumer spending would be modest and gradual.”
Not all economists agree with such a sanguine outlook. The slump in housing has raised the chances the economy will fall into recession next year to at least 40 percent, according to David Rosenberg, chief North American economist at Merrill Lynch.
Economists at Merrill Lynch estimate housing contributed 2 percentage points to growth, or about 60 percent, over the last 3 years. The wealth effect from rising home prices boosted consumer spending along with the contribution from construction and housing-related employment gains, they said on Aug. 18.
Now, he calls it ‘fragile’. …hmmmm.
Chaos.