‘Price Softening Is Good News’: NAR
The realtor trade group has the July numbers out. “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. The median price of a home sold last month was up just 0.9 percent from the same month last year and marked the smallest year-over-year increase since May 1995.”
“The inventory of unsold homes in July rose to a record high of 3.86 million. That represents a supply of homes still available for 7.3 percent of a month. That is the longest period to exhaust the supply of home since the spring of 1993.”
“Existing home sales were 11.2 percent below the 7.13 million-unit level in July 2005. David Lereah, NAR’s chief economist, said higher interest rates dampened sales but that price softening is good news for the housing market because it is drawing buyers.”
“‘Many potential home buyers have been on the sidelines, some ‘kicking the tires,’ but mostly waiting for sellers to compromise on prices and terms,’ he said. ‘Now sellers in many areas of the country are pricing to reflect current market realities. As a result, there could be some lift to home sales, but it’ll likely take some months for price appreciation to rise.’”
“Total housing inventory levels rose 3.2 percent at the end of July to 3.86 million existing homes available for sale, which represents a 7.3-month supply at the current sales pace.”
“Regionally, existing-home sales in the South were 7.0 percent below July 2005. Existing-home sales in the Northeast were 12.5 percent below a year ago. Existing-home sales in the Midwest were 10.1 percent lower than July 2005. Existing-home sales in the West were 18.0 percent lower than a year earlier.”
“The U.S. had an ‘unprecedented housing boom’ for about the last 10 years, said Mark Vitner, senior economist at Wachovia Corp. ‘It’s over, there’s no question about it.’”
“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.”
“The report shows that the bloom is off the rose. Sales dropped to a seasonally adjusted annual rate of 6.33 million. The latest snapshot of housing activity was weaker than analysts anticipated. Economists were forecasting the pace of sales to fall to 6.55 million. ‘The housing sector is fragile,’ said Lereah.”
“Lereah said he still expects a ’soft landing’ for the once high-flying housing sector. But he urged the Fed to leave interest rates alone and refrain from bumping them up again, as some analysts have said is a possibility.”
“The housing sector’s transition from a red-hot market to a cool one has important implications for the overall economy. Consumers who watched their homes rise rapidly in value over the last several years felt wealthy and more inclined to spend. They also borrowed against their homes, treating them like ATMs, to support their spending ways.”
“‘Many potential home buyers have been on the sidelines, some ‘kicking the tires,’ but mostly waiting for sellers to compromise on prices and terms,’ he said. ‘Now sellers in many areas of the country are pricing to reflect current market realities. As a result, there could be some lift to home sales, but it’ll likely take some months for price appreciation to rise.’”
Un-friggin-believable. Lie-reah is so full of shit. He is actually trying to sell the idea that there will be price appreciation again in a few months.
Why doesn’t he do a joint press conference with Michael Brown and GWB about how well everything is going.
We’ve got Year over Year declines in the median and average prices in the Northeast.
The Northeast saw a 2.1% decline in the median price and a 1.0% decline in the average price.
grim
Adjust for inflation and it’s even worse.
An “increase” in the median price of 0.9% is really a drop of 3.2% after correcting for 4.1% inflation.
Think about that. Real prices fall by 3.2% and total houses sold still falls by 11.2%. The only thing that will explain a drop in price and quantity is a drop in demand.
Some great SPIN here:
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.
the converse is certainly true- just because the median is up does not mean prices are actually rising.
In fact I would argue that median price actually masks the level of decline. With affordability so poor in many places, buyers are still stretching their budgets to the max. They are just getting a little more house for their money as opposed to a year ago.
Think of it this way; on a normal weekend, the median price of a TV sold at Best Buy is $1,000. This weekend they hold a sale for 25% off all TV’s. Does this mean that when we look at the store’s receipts for the weekend the median price of TV’s sold will be $750? Probably not. Some people will choose to pocket the $250 savings, while other will still spend $1,000, they will just get a better TV.
Resut: TV prices drop by 25%, but the median price of TV’s actually sold drops by something less than 25%.
It always masks the level of decline when sales are down (as well as understating the increase when things are booming) because the quality of the homes sold are improving and you also have all the incentives.
Two years ago a buyer was given the house on a take it or leave it basis (and you also had to agree to feed the squirrels.) Now the buyer gets everything fixed by the seller, possibly some upgrades, and the seller may have to pay the closing costs. The median price completly misses this dynamic.
Can we pass a national bill requiring anyone employed in an official economic forecasting roll be required to mathematically define all words they invent. I want to see a mathematical definition of “soft landing”
If your neighbor gets 25k less for his over priced pos and you only have to leave nuts for the new buyers to feed your squirrel and you get full price that’s a soft landing (according to Lareah or LAY).
I see Lereah is ‘fling ‘n toads’ again. I wonder how bad things will have to get before he has no other choice but to say ‘wow, it’s really really bad.’ I mean there has to be a limit, no?
Lie-reah needs to understand economic basics and that the housing market is a competitive not monopolistic. I know that he thinks the market is different this time, but I am sorry he cannot control what people sell houses for or what buyers purchase houses for. He is all bark no teeth. The market will correct itself it always does, give it time. THIS IS A SLOW MOTION HOUSING IMPLOSION.
Has there ever been a time, in Lie-reah’s warped cranium, where purchasing a home was not prudent? This guy is pathological.
You made an essential connection there Edhopper,
I never realized how why I have not trusted GWB. It is simply because he has used the same sort of lieing, spinning, and public opionion massaging that these Realwhores use and call service. W = Lareah! Sorry for going political, but the parallel in deceit and conflict-of-interest was so obvious, I had not even noticed it before.
Oh really? What has GW lied about? Give an example. WMD in Iraq? Oh please. The whole world and the Dems in Congress went along with it because they had the very same intelligence.
What else? Give an example, like “I did not have sexual relations with that woman”.
If Clinton were still POTUS these days, people like you would be siding with David Liar-eah, for God’s sake!
Just one.
Saddam was involved with 9/11 and IRAQ = Al QUEDA.
Iraq was and is no threat to us. I have heard W lie about it for four years, in increasingly absurd gyrations, so the Lareah comparison seems entirely apt.
“I don’t think anybody anticipated the breach of the levees.” 9/01/05
During the 2004 campaign, Bush claimed “Now, by the way, any time you hear the United States government talking about wiretap, it requires — a wiretap requires a court order. Nothing has changed, by the way. When we’re talking about chasing down terrorists, we’re talking about getting a court order before we do so.”
“We found the weapons of mass destruction. We found biological laboratories.” [Bush on Polish TV, 5/29/03]
“We do not torture.” - President Bush (Nov. 7, 2005)
“And I have yet to hear from our commanders on the ground that they need more troops.” President Bush (11/04/04)
“The Iraqi regime is a threat of unique urgency. . . . It has developed weapons of mass death” President Bush (10.02.02)
“Iraq has trained Al Qaeda members in bomb-making and poisons and deadly gases.” October, 2002
“We have removed an ally of Al Qaeda.” May, 2003
“The reason I keep insisting that there was a relationship between Iraq and Saddam and Al Qaeda, because there was a relationship between Iraq and Al Qaeda.” June 17, 2004.
“I have been very candid about my past.”
“I’m a uniter not a divider.”
“My [tax] plan unlocks the door to the middle class of millions of hard-working Americans.”
“We must uncover every detail and learn every lesson of September the 11th.”
“In my economic plan, more than $2 trillion of the federal surplus is locked away for Social Security. For years, politicians in both parties have dipped into the Trust Fund to pay for more spending. And I will stop it.”
“We will require all power plants to meet clean-air standards in order to reduce emissions of sulfur dioxide, nitrogen dioxide, mercury and carbon dioxide within a reasonable period of time.”
Saving the best for last:
“Mission accomplished!”
Bush’s lies, unlike Clinton’s, are not just about private sexual relations but about far more serious matters of life and death, war and peace.
Well said Gadfly. I did not have all in short-term memory,but your list seems suitable. I guess it is just the incessant deception that is so depressing. You would think a sitting Pres. would level with the people occasionally.
Shills and Canards Doublespeak Mea Culpas:
http://www.xanga.com/home.aspx?user=russwinter&nextdate=8%2f23%2f2006+23%3a59%3a59.999
We bought our first house in 1999. I live in the Chicago-Metro area and things were beginning to get a little bit crazy back then(bidding wars,waiving inspections,etc,etc) moved our search ten miles further out in the burbs and was able to buy our first house at a very good price. A 2 bedroom 2 bath brick Georgian finished basement,family room brick addition, 2 car garqage for 172,000. I say all this because the realtor was pissed at me because I refused to get into a bidding war or waive an inspection for a house I planed to live in and afford. She even sent us a X-mas card, but left my name off of the card. She told me sarcastically that most people buy as much house as they can get a loan for. I said I don’t give a ******** and she shut up. Original mortgage was 30 years for 6.75% since then have refinanced at 5.5% haven’t taking any home equity or extra money out of the house for refinancing. We also put down 25% on the house. We have a very reasonable mortgage. It is still hard sometimes. Things break, Cars, Gas,Heating,Taxes,Insurance. Home ownership is and was expensive in the best of times. These people are frigging crazy paying the prices they paid on houses. A realtor whom lives in our neighborhood was going door to door and leaving her card. She saw me washing my car and came over to chat. Eventually she told me my house would fetch about 350,000 I laughed and said, but I still would have to buy another one at these inflated prices let alone the hefty property taxes. I told her these prices were not sustainable and she gave me a crazy look and went on her way. Well there are 12 houses for sale in my hood many for months and none are moving. Homes were meant to be lived in not traded like stocks are playing roulette. Crazy country we are living in now. Do I feel sorry for the people getting burned now? Nope….They are part of the problem. A house always meant sacrificing like not buying expensive carss,vacations,etc,etc…These people want it all. And the sharks are going to sink with the bait fish this time.
hope it doesn’t bring down the entire economy. Enough ranting from this old-fashioned guy. good night and good luck….
Hold on to your hats… the ride is just starting to get fun!
Lead story on Drudge this morning…
Hold on to your hats!!!!!!!!!!!!
http://www.breitbart.com/news/2006/08/23/D8JM6F8O0.html
This is going to scare the CRAP out of the flippers!! Watch the inventory go THROUGH THE ROOF!! (pun intended
Lereah is really Baghdad Bob in disguise. Will this guy ever admit that bad news is bad news?
Not while he gets a paycheck from NAR.
Exactly!
Sorry Sunshine, I didn’t see your post and essentially posted the same thing below. Great minds think alike!
He probably drank the Kool-Aid, swallowed hard, and is levered to the hilt. What do you want to bet he’s getting hit with some ARM resets?
Unfortunately, I imagine he is so grossly overpaid that he could pay cash for just about any home he wants.
If I was getting paid a couple $ million a year by NAR, I too would be telling everyone whatever NAR wants me to say. That 1% decline in prices from last month? Well, this month was a little too hot, so people weren’t going outside to shop for houses. It’ll pick back up when it cools off next month (see - I’m also a weather forecaster too).
Yeah, you might say that now but you would have to live with your whoring self for the rest of your days.
My integrity is worth a bit more that DL makes.
“The inventory of unsold homes in July rose to a record high of 3.86 million. That is the longest period to exhaust the supply of home since the spring of 1993.”
“…but that price softening is good news for the housing market because it is drawing buyers.”
How in the hell is it drawing buyers if the supply is at a record and the longest period in 13 years to exhaust said supply? That looks like there are not much buyers to be had. Sheesh… Putting lipstick on a pig still a pig.
The graph on p. 1 of today’s Wall Street Journal shows inventory for the most recent period at just above 3 million. I wonder how the most recent figure grew so quickly by well over 500,000 homes from where the NAR-supplied graph left off?
At any rate, the current NAR figure suggests that we are soon going to hit 4 million used homes on the market. Given the risk of price declines, should anyone be eager to step up and buy now, as Lereah suggests?
Actually, before we hit 4 million, NAR will re-define what “for sale” means.
LOL! Don’t bet against it….
Or they’ll starting looking at it like unemployment… If your house has been for sale for 6 months or more it’s considered off-the market and therefore not adding to inventory counts.
Or if you don’t have any show requests, or have no open houses, crap like that.
haha
The NAR started adding condos and co-ops into its inventory tracking routine several years ago. Prior to around 1999/2000, if memory serves, they only tracked single family. So if you want to show historical inventory (as I did in a recent chart on my blog), you have to use the single-family only stats. Nothing nefarious, in this particular case. SFH only is around 3.3 million units, and the other 500,000+ is condos/co-ops. Both the SFH only and overall inventory figures are all-time records, from what I can gather. Hope this helps.
That represents a supply of homes still available for 7.3 percent of a month. That is the longest period to exhaust the supply of home since the spring of 1993.”
Shouldn’t that read 7.3 months of supply?
You beat me to it. This shill has no morals. He intentionally leaves out of the equation of supply and demand one item- PRICE.
Imagine that the price of tuna fish goes from $2 a can to $5 a can. Who cares if the NUMBER of tuna cans for sale doubles??? It is STILL $5 a can.. GET IT?
The rise in inventory is telling you that the market says the PRICE of the underlying commodity is too HIGH. When prices go to firesale levels, the inventory will correct itself, like $2 tuna on sale for $1.
You can have all the $1 tuna you want. I’ll take fresh, thank you.
The fresh Tuna v. the can. That would be the new home sale, rather than the stale old one - and the builders are the first out of the gate with huge price drops & incentives. They are selling the $1 Tuna while the bagholders are stuck at $5. They will build until they can’t build anymore & may survive if the bagholders remain stubborn. Cheap new homes for everyone.
“Imagine that the price of tuna fish goes from $2 a can to $5 a can. Who cares if the NUMBER of tuna cans for sale doubles??? It is STILL $5 a can.. GET IT?”
If the price of tuna fish went from $2 a can to $5 a can, and the rate of cans entering the for sale inventory increased in response, then the number of cans for sale would quickly double.
Of course, the National Association of Realtors is trying to put a positive spin on the imploding Housing bubble. Unfortunately, economists like NAR’s David Lereah have been mostly cheerleaders for the credit driven Housing bubble that has seriously damaged the monetary stability of the US Economy.
More evidence of the coming Recession from the California epicenter of the nation’s Housing bubble. According to Austrian Economic theory, the magnitude of the recession will be proportional to the excesses of the prior credit bubble boom. With million dollar McMansions overbuilt from coast to coast, the hangover will be a devastating hurricane to the debt bubble driven US Economy.
California Home Sales Down 25.3% in Q2
http://www.contactomagazine.com/calhomesales0808.htm
” The decline in housing sales has spread nationwide, with the number of deals falling in 28 states, including California, during the second quarter, according to a report from the National Association of Realtors.
Nationally, the number of resale home purchases dropped 7 percent to a seasonally adjusted annual rate of 6.69 million homes, the group said. In California, the number of deals was down 25.3 percent to a seasonally adjusted annual rate of 460,500 homes. “
- How ironic that it takes someone ‘outside’ the fantasy to make a rational call. We are a nation of ‘must have it now’ ‘you deserve it today’ ‘don’t wait’ ‘you have a right to wealth’.
- The only place that ’success’ comes before ‘work’ - is in the dictionary.
You have to remember that Lareah and LAY get their pay checks from the Realtors. They have never had a duty to the sheeple and general public. Remember the joke ,’How can you know when a Realtor is lying? When his lips are moving”.
allow me to trot out this oldie.
Bubblefucius say:
Bird caught in Tigers mouth can not escape, Truth caught in Realtors mouth have same problem.
Oddly, Treasurys are not rallying on this news (long bond down almost half a point). The screws get turned a little tighter.
It’s buy on the expectation and sell on the news. Not hard to see that coming from last few days’ action. They’ll resume their rally soon.
It’s buy on the expectation and sell on the news. Not hard to see that coming from the last few days’ action. They’ll resume their rally soon.
good news for the housing market because it is drawing buyers.
Not in my area of the country, David.
“‘‘Now sellers in many areas of the country are pricing to reflect current market realities.’”
Not in my area of the country, David.
Bad news is good news, down is up, dogs and cats… the spinggets even more insane.
Not in my area of the country either. An example - house sold in 2001 for 280k, then sold again in 2004 for 420k. Has been on the market for 5 months with one price reduction - from 624K to 614K. It’s quite discouraging. Why should this house have gone up 100k per year for the past two years. How can I possibly afford my first home? And why should I make these people rich and myself very, very poor?
Meanwhile, I went to an information session from the state about specia programs for first time homebuyers. The woman actually said something like, “okay you take this 5000 for closing and you buy a house for 300k. You stay there three years and then sell it for 400k! Look at how much money you made!” I felt nauseous. Then developers got up and pitched their specific projects. I got up and left and a realtor was hovering by the back door handing out cards. These programs were primarily for people below certain income levels to help them get into their first home. Funny thing was, the income level for a household size of two was around 90k!
MD_Renter: Oh my gawd, who gave that presentation? The homebuilders, I hope. I certainly hope it was NOT any non-profit or government group trying to actually help first-time buyers into a home. More like help them into financial ruin is what will happen. That statement of buying for 300k and selling for 400k is really, realy bad to make these days.
As for how you will afford your first home: You will wait. I waited. I waited a looooong time myself, not only because of housing prices, but also to make sure I had the down payment to support the (very conventional) purchase, and the income to support the payments. We actually bought before we’d intended to, when we stumbled upon a deal some years back, and before house prices took this latest skyrocket of the last few years. We were lucky. If I were still renting, I’d have ZERO plans to buy now. (Thoughts had crossed my mind in the last few years to sell out and rent, though!)
Considering that every one of my landlord friends is either losing money outright on their rentals, or is wasting/miscalculating the opportunity costs of the money that’s tied up in paid-for properties, I’d say that renting is a fine deal right now, especially in the DC area, where I take it you are living.
Keep renting, and just make sure to keep stashing money away. In a few years, you’ll be in the catbird seat. Till then, patience!
Presentation was by these folks:
http://www.dhcd.state.md.us/Website/programs/cdammp/hk4e.html
Followed by pitches from local private developers who were offering additional, separate incentives.
Ah, the thing I love to hate most about this housing bubble: The special “affordable housing” programs. In the SF Bay Area, there’s a first-time homebuyer one where the income limit for a three or more person family is almost $140K (in certain counties). I too had a realtor say almost exactly the same thing about banking at least 100K in a few years when we sell and “move up” (using her services, of course). Hang tight, seriously. Patience is the million-dollar word right now.
I disagree, disinterest is the million dollar word right now.
Um, then why are you posting on a housing blog?
Really, but prices are up 0.9% from last year.
Okay, let me get this straight:
-Prices are too high so sales slump as people sit on the sidelines
-Prices haven’t really fallen much from last year, but now homes are priced “to reflect reality”
-The prices that were too high, but now reflect reality, but really haven’t changed will, attract new buyers currently “kicking the tires”.
-This influx of new buyers at these unchanged, but now magically affordable prices, will push prices even higher “in a few months”
Am I missing something?
Excellent comment!
I second that. You ought to send it to DL with a request for public clarification.
Just a thought. There has been in the past criminal prosecution and civil lawsuits for miss-reporting financial matters and false statements made in public.
Doesn’t the financial media have an obligation to stop quoting this guy, or at the least challenge him and point out his untruths.
This borders on criminal irresponsibility.
I would give anything to see ole David hauled off to jail or severly sanctioned!
The vested interests in RE are huge and globe spanning - although here on this blog, we are panting for lower prices, there are huge forces resisting and trying to cushion the way down. I don’t see how humans can defeat gravity, but they will try to the bitter end in order to bail out as many *sses as possible along the way.
… and the easiest way to get this bailout is the inflate-or-die scenario; all the central banks are working on it.
You inflate and you kill off the retiree on fixed income and they are a powerful voting bloc. You also have to raise the minimum wage for the poor and pass all this onto the businesses along with increases in health care premiums. Worst possible scenario.
the minimum wage / social security problem is dealt with easily by more manipulation of the CPI. Has been going on for years, and if voters accept the current phony numbers I don’t doubt they can get away with a lot more.
Retirees on fixed income are not a big group in Europe, but maybe that is different in the US. They have been hit severely for years already (fixed income does not keep up with real inflation), so why do you think that would suddenly be important for those in charge?
I know this is a little OT, but I have been hearing for years about poor retirees on “fixed incomes”. What exactly does this mean? My income is fixed. I get paid what I get paid every month. This did not change when natural gas went up or when gasoline went up. My income is fixed. Now, in a year or two, perhaps I’ll get a raise-kind of like a cost of living adjustment that current retirees on SS and/or with defined benefit pension plans have. How is their income any more fixed than mine?
Janna,
Because theoretically you could moonlight with a second job, or get a better job, or sell your blood to the blood bank or start a home business in your spare time etc. Also, it’s assumed you’ll climb your career ladder and boost your income over time. It’s assumed that retirees aren’t going to do anything to boost their income, although lots of retirees still work, so what is retirement then? Of course as they age many retirees are simply not physically cabable of doing much or any more, then they really are stuck with a fixed income.
How is it possible that Lereah’s quote makes sense? Sales are down 11.2%, but things are good because higher rates are drawing buyers? WTF….
“Existing home sales were 11.2 percent below the 7.13 million-unit level in July 2005. David Lereah, NAR’s chief economist, said higher interest rates dampened sales but that price softening is good news for the housing market because it is drawing buyers.”
This guy will say anything! He might as well get down on his hands and knees and offer to blow Bernake! He’s about there now! He is begging the Fed not to raise rates because he knows it will be just one more nail in the coffin!
It would take a 50% price drop here in So. Cal. to start getting things back to normal! The outright greed really makes me sick!!
Larenter-I was laughing so hard at your comment I dropped my computer. Clearly one of the funniest comments I have read. Can barely finish typing this message to you.
David Lereah Watch
http://davidlereahwatch.blogspot.com
BJs for the chairman of the board are a cheap commodity. Everyone does it (media pundits, congress, professors, etc). If Lereah wants action, he’ll have to go bottoms up like the rest of the market.
I guess DL hasn’t noticed that mortgage rates have been going down a bit from the peak they hit a few weeks back, thanks to the bowl-shaped yield curve.
“Lereah said he still expects a ’soft landing’ for the once high-flying housing sector. But he urged the Fed to leave interest rates alone and refrain from bumping them up again, as some analysts have said is a possibility.”
Since when does FED make it’s decisions based on NAR urges?
I believe I once read/heard in a pol. sci. class that the Fed wants to maintain an image of independence to the point that if the President were to make a public statement recommending certain action by the Fed, that they would do the opposite. Not sure how true that really is, or if it is true, whether it applies to other major institutions.
According to NAR:
Now repeat after me:
rising prices-good time to buy before it goes higher
dropping prices-good time to buy because its come down(”soft landing”)
higher inventory-good time to buy becayse there is so much to look at
It’s always a good time to so pass the Kool Aid so FBs and GFs can drown themselves in spin and ignorance. The evolution of their spin is hilarious-these fools would do well to just once look forward instead of being stuck in yesterday’s news. Instead of F@@@ed borrower we can have a new person: the “Kool Aid Ralpher” who pukes when they get their new reset payment and realize they are underwater and the stuff they were drinking is actually strychnine and then blame it all on the media or broker’s spin.
I posted in another thread, but it probably got lost in the shuffle. You should check out this analysis of the pricing data and a chart I have on inventory at my blog. U-G-L-Y.
http://interestrateroundup.blogspot.com/
Very nice graph, Mike!!!
Nothing to see here, folks. Move along…
Awsome Blog, just added it to my favorites. Thanks!
Great Blog. Just book marked it.
Even if the Fed slashed interest rates, is there any reason to think mortgage interest rates would follow suit?
Thanks for the graph. We sold exactly at the bottom of the last dip! Incredible! We went into contract on October ‘04 and closed in Jan ‘05! Made lots of “free” money. Since then, houses here have stagnated a bit and then gone down about 50 thousand dollars and up for the higher end. Eight hudred thousand dollar houses are really taking a big haircut here. Some houses are still selling, but it’s the ones you know are a better value are disappearing from the MLS.
One houses I know of has been on the market for about a year and a half at 439K. When I was in the market, just around the time I found this blog, I called the agent about it and offered around 375K. She said the owner wouldn’t be entertaining offers in the 3’s. Well, the house is still for sale, yet they won’t even slap a coat of paint on this house. Anyway, my point is this:
The owner is going to have to sell in the 3’s anyway after a year and a half on the market. (But not to us)
Stubborn sellers are LOSERS in this market.
Meanwhile, we are happily renting, and plan to continue for as long as it lasts.
We won’t be “entertaining” sellers’ over-inflated prices for quite some time, as it turns out.
But his bad news is our good news!
Someone please explain this to me. This is an honest question. It looks like the “seasonal adjusted” year over year numbers are fraudulent, or maybe I just don’t understand.
Look at the YOY numbers and then the YOY seasonally adjusted numbers. I understand that the seasonally adjusted numbers “adjust” month to month. But, why would a year over year number “seasonally adjust” from one year to the next. July 2005 is the same season as July 2006, so why are they “adjusting” the year over year number? If they don’t put an adjustment on the YOY numbers, they are somewhat worse.
No, there needs to be a seasonal adjustment: last year we had Christmas in July (for sellers).
Seasonal adjustments are valid and necessary.
They are also a release valve to trickle out bad news by making optimistic assumptions at first and then 30 days later making the further downward revisions.
“Seasonal adjustments are valid and necessary.”
David In JAX is saying that they are adjusting the YEAR-OVER-YEAR numbers. I haven’t verified this, but if true, there would be no good reason for this (other than to spin the numbers).
“and then 30 days later making the further downward revisions.”
That way they can give the ‘real’ (bad) numbers when ‘no one is looking’. Sad, really.
If that is the case, then the 2nd half of my comment applies. (manipulation)
Tony Crescenzi Blog
No Shocks in Existing-Home Sales
By Tony Crescenzi
RealMoney.com Contributor
8/23/2006 10:29 AM EDT
URL: http://www.thestreet.com/p/rmoney/tcrescenziblog/10305340.html
Existing-home sales were weaker than expected in July, running at a pace of 6.33 million, 270k below the previous month’s pace and 220k below forecasts. The data are not a surprise, really, given the recent trend in mortgage applications, which have fallen about 20% from their peak.
In contrast, sales are down a relatively smaller 14% from the June 2005 peak of 7.27 million. In this light, sales seem likely to fall to a pace of around 6.0 million.
Pressures on the housing sector will remain high in the coming months because the high level of unsold homes, which is evident in the inventory-to-sales ratio, which rose to 7.3 months from 6.8 months, the highest since the data series began in 2000. Utilizing a broader definition of existing-home sales that includes single-family homes and condominiums, the ratio is at its highest since April 1993.
Interestingly, the inventory-to-sales ratio for new homes has not increased as rapidly and successively as the one for existing homes. This reflects the inventory control measures taken by the nation’s home builders, which will help to control the overall inventory glut.
The divergent trends suggests that speculators are taking a disproportionate share of the hit from the housing downturn, as they are the ones getting stuck this time around with unsold homes, relatively more so than the homebuilders.
The median and average price data continue to show a flattening in home prices, but no meaningful pullback. Average home prices were $275k, just $1,000 below their peak from a month earlier. Prices have largely moved sideways since June 2005 when the average price was also $275k.
With incomes having increased 6.4% over the past year, the wide gap between prices and incomes, which was roughly 10 percentage points at its worst, is closing. This is how the market will eventually stabilize.
“With incomes having increased 6.4% over the past year, the wide gap between prices and incomes, which was roughly 10 percentage points at its worst, is closing. This is how the market will eventually stabilize.”
I don’t think so there Tony. I don’t think we will see increasing incomes in this downturn. We are now entering a housing led recession, a viscious cycle has now begun. Declining home sales and prices dampens demand which further pushes down home sales and prices, which tightens liquidity which further pushes down home sales and prices which fuels job losses which further pushes down home prices and sales which tightens liquidity…….
Bring it on!
Its time that all these people who could not keep looking down the noses of others thinking how smart they were were taught not to be dismissive of others.
Cheap housing never hurt anybody, the reverse does.
Cheap housing never hurt anybody, the reverse does.
Well said!
Hell, why don’t we adopt what the Brittish are doing??? Basically living in communes!! http://today.reuters.com/news/articlenews.aspx?type=reutersEdge&storyID=2006-08-23T055636Z_01_L18837132_RTRUKOC_0_US-BRITAIN-HOUSING.xml&pageNumber=1&imageid=&cap=&sz=13&WTModLoc=NewsArt-C1-ArticlePage1
“More and more people are coming to us with complex proposals as to how they might be able to get a mortgage,” said Joe Rabbitt, head of intermediary development at Nationwide.
“People are finding it harder to take the first steps in the property ladder. As house prices increase, we’re finding that so does the average age of the first-time buyer — we’re finding more groups are coming to us having to buy with friends, or that buyers are using their parents as guarantors.”
The building society allows up to four individuals buying together to take out one of its mortgages.
Sarah Meehan, who works for an education charity, has spent years trying to buy a place. After she was out-bid on a studio flat in London, she decided to apply for an increasingly popular option — shared ownership with a housing association.
“If you share with someone and get a two-bedroom place, mortgage payments are reduced considerably, but I was apprehensive about doing that,” the 36-year-old said.
“With shared ownership, it’s the same kind of idea, because I can buy something that is beyond what I would have been able to buy for myself. The studio flat I bid on was 134,000 pounds, my absolute limit. With shared ownership, I can consider properties beyond the 200,000 pound mark.”
I think there was an article recently in the WaPo about some people doing that in DC - basically teaming up with a friend or two to buy a place.
In So Cal this has been going on for some time now. My good friend, who I talked into selling his home in OC last winter, sold to a Hispanic family - two brothers and their families, the mother of the two brothers, all whose incomes where used to qualify. This was a 3 bed, 1.5 bath house at 1350+ sqft. Nice, huh?
We are already doing this in the US, especially on the coasts. Here in San Francisco they’re called TICs (tenancy in common), where 2-3 families get together on one mortgage to purchase a single house to share. The west coast equivalent of co-ops.
nothing new here … in the Netherlands they are selling (not renting) rooms in a house, mostly for students or single people. These are just small rooms, they don’t have their own bathroom/kitchen etc. but this way the average ‘home’ is still affordable.
So now students are happy to buy a student room for let’s say 120K euros (fully mortgaged, of course - special deals available but some backing from the parents is required). A big home in bad condition that cost less than 100K euros ten years ago can easily be split into ten of these ‘homes’, conversion requires nothing more than a bit of cardboard. Bingo!
i very much appreciate your commentary and insight into the european r.e. market. thanks!
Too bad there’s only one such regular European contributor to this blog (that I know of). Nhz always has a very, very particular take on things.
I predict there will be more EU contributors once the bubble is ready to pop here; at the moment hardly anyone is worried about the housing market. In fact, I haven’t read anything in the newspapers about the economic aspect of housing for months. And certainly nothing about a possible downturn in the US (well, maybe a few lines in the economic pages when they write about the daily noise on Wall Street).
Of course, Netherlands is not representative of Europe, and I’m not representative for the public opinion in Netherlands either. But I think the Dutch housing market is similar to the UK regarding debt, leverage, the consumption-based economy, government interference etc.
With tactics like this, the invetory should go up, right, and prices down? If they’re no stuffing more people into each house there should be less need for the other houses, hence price will drop. These people will get effed too, but not as bad as a single buyer.
no, with these tactics you just get more empty houses (owned by specuvestors) because it assures that prices keep rising. It is a sure way to suck in new buyers at the bottom of the pyramid that would otherwise be left out (because they were priced out). Every time you think the market is going to crash the RE mob and their friends in politics present another trick to keep the game going. Ultimately this game will fail, but not yet …
“As a result, there could be some lift to home sales, but it’ll likely take some months for price appreciation to rise.’”
Like 120-180 months?
1. To put this industry into stock market perspective, we are at about July 2000 on the nasdaq. For those that forget, March 11th 2000 or so was the absolute high. Some damage to the builders has obviously been done but economy wide this is just getting rolling.
2. Wait until credit risk really starts to kick in and people are forced to sell. That is happening a bit in some markets but it has only just begun.
3. Nearly 40% of demand in 2004/2005 was second home and investor driven - this is false demand. Very few can actually afford to own a second home, and the investor part of the demand curve was simply a joke.
4. Many people that wanted a primary home bought it. Great for them, hopefully they bought in 2002 and not July 2005. Hopefully they have equity and not a suicide teaser rate IO loan!
This is really only getting started/
‘The housing sector is fragile,’ said Lereah.”
The numbers speak for themselves. Why we need Lereah at all is a mystery, but I wonder how much time he and his entourage of consultants spent selecting the word “fragile”?
Fragile implies something that could easily be broken. The clear intent of this word selection is to shift all of the blame to the Fed for breaking the real estate boom. That way the real estate professionals (read: shills) can deny any responsibility for the role they played in keep the irrational exuberance going on past the point of absurdity.
It sounds to me that Liearh made a Freaudian slip. Fragile to him is code for his home life as a child. He probably was homeless.
I agree. He is looking for a scapegoat. The problem is that interest rates haven’t been the real issue. The rampant speculation and zero lending standards have had more to do than the rates. Hell, the rates are still low and affodability is next to zero in many areas. Regardless of where interest rates go, housing is screwed.
And while interest rates were falling to historic lows a few years back, the mortgage on the median priced house nevertheless managed to double. Price increases quickly outpaced interest drops, with the net effect of collapsing affordability.
That leads me to believe that as rates rise, prices may fall even quicker to reduce monthly mortgages.
For a taste of what is to come for the US McMansion Housing bubble, the luxury condo market in Shanghai China has gone bust. Luxury Housing Prices collapse 10% in one week.
http://business.guardian.co.uk/story/0,,1855956,00.html
” Others blame a housing market swamped with swanky apartment blocks and luxury villas. In a single week last month, residential prices in Shanghai fell 10%.
From the top floor of its sleek, luxury apartment blocks in the Pudong development zone, you can, say the brochures, look out across the Huangpu river at one of the world’s most futuristic skylines.
Since it opened in October last year, the waterfront development has failed to attract a single buyer for any of its 74 apartments. The situation is so desperate that Tomson has decided to put a second block out to global public tender. ”
My comment: The article fails to mention that the Chinese government has slammed the brakes on the Shanghai property bubble by imposing high short-term capital gains taxes on the sale of real estate. The Shanghai property bubble would have imploded sooner or later, but monetary authorities need to address asset bubbles in their policy decisions. Not all of China is impacted by a property bubble; mostly the luxury condo and villa market in Shanghai and Beijing. The same also holds true for the United States where property bubble gains in Chicago never matched New York, Boston, or San Francisco.
true Chicago doesn’t have a bubble the magnitude of California’s but there is a bubble here - no question about it
It’s true. The non-capital gains tax fuels the bubble. Otherwise, I would not have been able to afford to sell. Or at least, it would have been less attractive.
Since Fed Chairman and NAR Econ. have been turned irrevocably into “political posts” they will be judged as politicians. When the avg. FB homedebtor no longer has a “chicken in every pot” (House ATM Machine) at his/her disposal to fund their lifestyle it won’t matter what these schmucks say! Then they’ll find out just how fickle the avg. consumer/voter can be.
“‘Many potential home buyers have been on the sidelines, some ‘kicking the tires,’ but mostly waiting for sellers to compromise on prices and terms,’ he said.
“Have been”….past tense? Oh yes, they’re all chompin’ at the bit to buy now…I see that everywhere. I’m sure they can’t wait to jump in and watch the value of the home they just purchased plummet. Good observation David.
“The housing sector is fragile,” said David Lereah, the association’s chief economist.
OMG that is just too funny! I guess you can’t spin it any more huh?
Yup, Bubbles are “fragile.” They float higher and higher until the soapy mixture expands to such a degree that the surface tension isn’t enough to hold it together. Then Pop!
Oh lordy. I was over a friend’s place for dinner this weekend, and the conversation turned (inevitably, these days) to real estate. I began talking about the housing bubble, how it’s popping, blah blah blah. One friend looked a bit ashen as I said this. I didn’t understand why, since he and his wife rent. And then later in the meal that friend mentions that he and his wife have just closed on a house. I was mortified to say the least, both for my social faux pas (”you’d have to be a fool to buy right now”) and for their impending financial doom. They are good people. They deserve a happy, comfortable life. I don’t want my friends in harm’s way!
P.S. Their new house will double their commute to two hours each way. I did not dare to ask him what they paid.
Tell them to buy oil or oil exploration stocks [esp the ones that pay dividends]. At least their commute will feel a bit better….
“They are good people.”
It’s too bad that the good get hammered with the trash, but seriously, a two hour commute one way? And, with all the bubble articles why would you buy now? At some point you just plain have to think a little bit about what you do, especially when making a decision of this magnitude. They have just enslaved themselves to the bank and the commute.
I’m sorry your friends are fools. Not just greater fools, but the GREATEST fools of this bubble. The high water mark in stupidity for the next decade.
“They are good people. They deserve a happy, comfortable life.”
Doesn’t this describe everyone’s friends? Doesn’t this describe every one of us — at least from our own perspectives? The problem with financial bubbles this big and insidious is that they’re not really morality tales (as fun as it is to sometimes think so). Lots of “good people” who “deserve happy, comfortable lives” have gotten screwed by this bubble by being priced out entirely (because they only want to use reasonable financing — okay this describes my situation), or because they bought at the peak, or because they withdrew too much equity they then went and spent. Besides the more garish examples of greed, it’s not really about good vs. evil. I think it’s more about how you define being smart, and how willing you are to learn to be so. Many people are too busy with their careers/lives to bother with that, and it doesn’t necessarily make them “bad,” any more than great luck makes someone “good.”
There IS a morality tale in every experience including this bubble.
Experience runs a dear school, but some will learn in no other.
Benjamin Franklin
Similar thing happened to me. A relative called to tell me they had bought a house recently in VA. I live in CA, and I couldn’t congratulate them and we had that akward moment of silence. They were FB’s and I have seen the 1990 to 1995 correction in the Bay Area.
This may sound callous, but my disdain for the lady who forced competing buyers to write essays to determine to whom she would deign to sell to outweighs my compassion for the uninformed innocent who may get scorched. The lack of Caveat Emptor leaves my Cardiac Empty.
Did you guys hear Diane Swonk on CNBC talking about her friend who owns a title company in Naples, FL? She said that last July they did around 1000 transactions, and this July they did 38 - Youchie!
THIS IS THE REAL DIANE SWONK:
___________________________
“I just don’t think we have what it takes to prick the bubble… I don’t think prices are going to fall, and I don’t think they’re even going to be flat. ”
- Diane C. Swonk, chief economist at Mesirow Financial in Chicago, New York Times, Trading Places: Real Estate Instead of Dot-Coms, 3/25/05
This is what you call turning on a dime and giving 9 cents change back
All these real estate “analysts” should be prosecuted in the same way banking analysts were dragged through the courts after the tech bubble burst in 2001. David Lereah = Frank Quattrone.
Frank got away with it.
‘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,’
This is why this will take a while to unwind–some won’t be able to hold their prices, that will start the price reductions. Others will be able to hold their prices to varying extents, which will slow the return to more reasonable listing prices.
in most of Europe, this situation has been going on for five years now. As long as there is no serious tightening from the central banks (especially regarding lending standards) it will continue and average prices can keep rising, although not at the high rates of previous years.
I seriously doubt that prices will continue to rise at all in the US - at least not in the next 10-15 years. Lending standards are as loose now as they have ever been and we’ve just witnessed the start of the collapse of the most horrific financial bubble in US (or likely worldwide) history. Sellers can try to “hold out” for whatever pipe-dream they wish, and owners that have owned for a long time may be able to survive. However, GF and FB that need cash-flow and ever-appreciating RE won’t be able to hold out. Mass foreclosures and destroyed comps, as well as financial institutions, are the inevitable result.
This shakeout will make the late 1980’s S&L bust look like child’s play. Economists point to a more robust lending and securitization (derivatives) mechanism as reasons why the S&L bust won’t be repeated, but a lot of these finance mechanisms have never been stress-tested. Think about LTCM as an example of what happens when a complex system encounters severe stress and/or a “fat-tail” event that’s not part of the model.
I’ve read your posts for a long time now and appreciate your point of view, but keep in mind that the US economy is highly leveraged, highly speculative, and 70% consumption-based. Throw in a negative savings rates, lack of family ties (low per-unit density), energy-inefficient suburban sprawl, extreme over-building, ownership rates at all-time highs (everybody that wanted to buy has bought) and affordability at all time lows (not even the worst of subprime left to buy) and we can safely predict that this will be a very hard landing indeed.
I’d be shocked if this bust doesn’t lead directly to GD2 and ultimately WWIII. Have a nice day!
good points but I still haven’t seen any significant price declines in the US, so the jury is still out. I wouldn’t be surprised to see an echo-bubble in the US during 2007 thanks to (again) lower rates.
Most of your arguments about the US housing economy apply to some EU countries like UK and Netherlands just as well, except for the overbuilding and the speculation part (which is mostly in foreign countries unlike the US situation). These economies are now very similar to that of the US, especially regarding personal debt and consumption (big change from 15-20 years ago!). I don’t think overbuilding is the major issue because this is a credit bubble, not just a housing bubble.
I saw a stat. that banks lending on mortages retain only 25% of all they write, the rest are securitized, leaving them less vunerable than in the 80’s.
that is probably correct, but most of their investments are RE-related anyway (like in REITS, business property etc.). It’s all linked to the housing bubble.
Misleading stat. If you take retained mortgages, residential construction lending and MBS holdings most U.S. banks have nearly 60% exposure to residential real estate. As I’ve mentioned elsewhere, Texas banks failed in the 80’s with lower exposure to the oil patch.
I think that this 60% exposure is similar for many EU banks.
And that includes Dutch banks like ING Direct (often mentioned here as a safe place to store your cash) or Rabobank (one of the few banks with triple-A rating). An additional problem is that there is big leverage in many RE related investments, unlike other loans like those to small businesses etc.
Darth,
I think most of your comments are spot on.
Peace.
Is there a “Resolution Trust Corporation v2.0″ in our future?
Absolutely.
ok, little bit off-topic but relevant.
I work for a pretty big bank, loan officer(sub-prime). We were at the Cubs game last night at Wrigley, and sitting in the bleachers you always hear everyone else. So I get talking to couple of cocky brokers who have asked me how my business was going, and I said slow for the past 3 months. They tell me they were going gang busters. Later in the conversation I find out why. They have “referral” partners with realtors who in turn have “referral” partners with shady appraisers. What they do is overinflate the purchase price of the property sometimes by as much as 30% so that the buyers can get 50k after the closing for a “home improvement loan”, and what is worse is that they don’t think anything is wrong there. I have been in industry for 6 years and never once thought about doing that, but I guess in order to make money these days you have to do that.
David Lereah just on CNBC quoted as saying he’d like to see a 5 to 10% correction to get the market moving again. He blamed the sellers for the current “stand-off”.
Huh, that’s weird. I thought there couldn’t be a nationwide RE price decline without a severe recession and job losses. Now Liar-eah wants these things (?!?!) Of course, in the end there WILL be many job losses and a severe recession (at the minimum), but this will be BECAUSE of the RE bust - not the cause of it.
amazing. they’re still booking rooms on the titanic over at the sdcia blog
Here’s one for ya… 4325 KEYSTONE AVE, Culver City, CA 90232
Sold Jan ‘06 for 740k
For Sale 8 ‘06 for 799k
Looks like they’re trying to get out and cover the 6%… Good luck with that…
David Lereah was kidnapped two years ago and replaced by Bagdad Bob.
Nah, Lereah is an independent liar.
Baghdad Bob had a gun stuck in his ribs.
You are right, Baghdad Bob is way more honorable that DL.
However, Lereah is a whore because he does it for money and not to avoid being killed.
With each passing day, fewer and fewer people are liable to be fooled into this house of cards. That is, more and more are waking up to reality… with the exeption of new sellers and their salespeople (realtors). When we go to the open houses, we aren’t kicking tires, we’re “kicking” the salespeople. I recommend that everyone participate in this activity. It’s great fun and you really feel that you’re fighting the good fight. The best is when you get an agent who hasn’t heard of a “real estate bubble”, or maybe opines, “it won’t happen here”. Get your facts and figures together for your area, and go for it. A good one to start with; “the chief economist of the Mortgage Bankers Assn. is worried enough about the housing market to get out of it. “I’m going to rent for awhile,” said Douglas Duncan, who expects “significant reversals” in regions that have enjoyed strong home price appreciation.” It’s easy and fun to argue with truth on your side. You’ll be dragging a rattled, unnerved product shill whose heels are dug in, and watch what happens when other “potential buyers” walk in during your conversastion.
You’ll be dragging a rattled, unnerved product shill whose heels are dug in, and watch what happens when other “potential buyers” walk in during your conversastion.
You might have to wait all weekend for a “potential buyer” to actually walk in.
“Price softening is good news for the housing market because it is drawing buyers..”
But sales are DOWN year over year. Not a correct statement, not even close. And his comment about softer prices being a good thing…tell that to the FB’s who bought into this madness and are mortgaged to the gills.
Old sage from Wall Street once said “The Trend is Your Friend”…
Watch for the Labor Day Massacre, where listing price correct -20% overnight from the sellers who finally get the picture. If there are hardly any motivated buyers now, what will happen when the school year starts, when the summer vacation bills come due, and when every TV news show covers the real estate
downtourn….The Crash is coming!!!
If you run a business and you have a slowdown in sales allowing an excess of inventory, would you continue to purchase new inventory?
Well that is exactly what the housing industry is doing, building new inventory while sales slow. Business 101 is being ignored and failure embraced.
If your margins are 40% on some product (earlier land purchases), and 10% on other product (recent land purchases), and you are getting people to buy by putting the product on sale (dropping your margin to 20% and -10%), you have a 5-month lead time for ordering your inventory, and your company needs to make money to keep your stock high (and thus the executive compensation higher–the decision makers), is the analysis the same?
It doesn’t surprise me that they keep building.
That is what you call a turn on a dime with 9 cents change back
This weekend I was painting a kayak that I’ve recently completed in my front yard under a nice big shade tree. That’s what I do now that I’m a renter, I build stuff I enjoy instead of home improvement projects. It was a wonderful day, nice breeze, a little warm, but perfect in the shade. Just right for doing nothing important like painting a boat.
So my peace was interrupted by the lady next door yapping on her cell phone between breaks at her not so very busy “open house”. See, about a year ago she bought the place thinking she would be a landlord, rent it out for awhile, sell it, and make a fortune. She pays $260k for the place, but its vacant for 2 months until she can find somebody to rent it to for $1,300 per month, which is $200 per month more than we pay for our place which is nearly twice the size. She finally finds a renter, a 20 year old guy who promptly moves in, quits his job and makes the house into party central for all his high-school buddies. Long story short, they trash the place. She kicks him out and now she’s back, plowed more money into the place to fix it back up, after receiving probably no more than $3000 in rent and deposits for six months of occupancy, and she is selling. Decided that landlord life really isn’t for her. Meanwhile the finish on my boat is looking perfect. Its my second boat and its big, just right for my wife and daughter and the weekends we will spend on the water, since we don’t have a lot to do around the house.
So she is asking $340k for the house now and trying to sell it herself, so far with no luck. She is in debt up to her ears, with a negative amortization loan on her primary residence and lots of credit debt that she is trying to pay off with the sale of her “rental property”. I know all this because she is one of those people who for some unknown reason feel the need to talk REALLY LOUD!!! When speaking on a cell phone. I wonder if that’s biological? It was her mortgage broker she was talking to, they sound like good friends, probably like being good friends with your crack dealer maybe. It sounds like the only asset she really owns outright is a small pickup truck, maybe worth $3k. The house remains for sale, no takers yet. She’s going to list it with an agent in a few weeks, as soon as her agent “friend” gets back from vacation.
She complimented me on my boat as she blinked uncomprehendingly at it, and asked me what I planned to do with it. I explained that I would take it out and go sea kayaking with my family. She nodded and said she had seen something like that on cable TV but didn’t know you could do it around here. We live in the Puget Sound. I complimented her on her lovely nails, she giggled. We commiserated about how unreliable people were nowadays, especially the renters she kicked out, and on how busy life gets. She asked after my kids, and I asked after hers. Her kid is very sick, costing her a small fortune, hoping she gets better soon. Mine are doing pretty good, they like playing around on the new boat on the lawn. Kids are funny like that, in the absence of TV or video games they actually have a lot of fun. Then she was off with a quick wave as she took the next call on her cell phone. Who has that much to say in life anyway? People talk too much and cell phones just enable them.
The Real estate bubble is just one aspect of the consumption and credit bubble that plagues the world right now. Sometimes people can have it all, and they are much worse off for it. I hope she sells that house to somebody and can pay off her debt, but I doubt that she will do either. I hope she hangs up her cell phone and spends some time with her daughter who is probably not very sick, but I doubt that she will. Why should I care anyway, the boats nearly done, the weather is good, so I’m going kayaking.
Pacnorwester
Nice story! Couldn’t agree more.
A brilliant piece in every way. Thank you. Me, I’ve been enjoying taking care of a garden with all the free time I have. That is, when I’m not hiking, biking, backpacking, or skiing. My roommate and I split $450/month. Man, life is good. Enjoy the kayaking.
She nodded and said she had seen something like that on cable TV but didn’t know you could do it around here. We live in the Puget Sound.
hoboy. Not the brightest bulb in the batch.
Great story, btw.
‘She nodded and said she had seen something like that on cable TV but didn’t know you could do it around here. We live in the Puget Sound.’
Reminds me of several years back when, during the winter in Nevada, I was picking up a friend to go fishing. He was staying with his mother at the time (a very pretentious wealthy woman) and she asked what we were doing. After remarking that we were going fishing she said “Ice fishing?” I laughed out loud and quickly reminded her that the lakes did not freeze in our area of the country. A lot of people really have no clue about the environment they live in.
“The Real estate bubble is just one aspect of the consumption and credit bubble that plagues the world right now. Sometimes people can have it all, and they are much worse off for it.”
Right on. Do you own your things or do your things own you? Simplify and let the other climbers chase the hollow consumption dream.
They are falling for the oldest Madison Ave trick.
Trying to meet non-material needs through material means.
It will NEVER work!
Anyone have any idea how I can convince my wife that material posessions are not the means by which that will ultimately make her happy? She bemoans that I don’t want to buy a house, new car, new plasma tv, more clothes, etc. I try to tell her that the most important things in life aren’t things. I try to point out that we have the most fun with each other when we don’t spend any money (hiking, biking, etc). I tell her that I won’t let her send me to the poor house.
“Anyone have any idea how I can convince my wife that material posessions are not the means by which that will ultimately make her happy?”
Boy, that’s a million dollar question. After growing up with 3 sisters who still, to this day, have to have the latest in fashion, cars, jewelry, etc. I am not sure if it is possible. I thought I found one who was different in my last girlfriend, only to realize that when she felt a little down, there was nothing for her like “retail therapy” as she put it. And then, I started hearing about how she felt that all of her friends were so “well off compared to us” and blah blah blah. Truth was, most of them were in debt up to their eyeballs and we were not. Women, god love them, can be expensive.
It’s stories like this which keep me reading the comments on this blog. I also love all the financial gurus we’ve got debating economics (learning a lot). But it’s the stories from the field which are priceless. The clueless FBs with a panic stricken look on their face as they hear about the impending crash. The dippy RE agents and their new “marketing tactics” (such as selling a million dollar home door-to-door). The empty open houses, the conversion of “real estate always goes up” believers to reality, all the slice of life stuff that reporters can’t usually get. Great stuff, some of the best posting on the internet (and not to mention the generally respectful, thoughtful discourse on any comments section of a site with this much traffic).
“They also borrowed against their homes, treating them like ATMs, to support their spending ways.”
Nothing new here for readers of this blog, but how is this playing out in the economy? Here’s some input from yesterday’s news:
“A newly unveiled car-sales indicator suggests that the U.S. economy is about to go into a recession – or is already there.
News last Friday that Ford was cutting 20 percent of its production may be the first of coming problems faced by the auto giant – and industry analysts expect GM and Chrysler to make similar cuts soon.
But the bad news is that falling car sales is one of the strongest indicators of recession.
According to the indicator, if sales by new-car dealers are down by 2 percent or more over 12 months, compared to the 12 previous months and adjusted for inflation, then a recession is either underway or set to begin within a few months.
And the figure stood at minus 2.4 percent when June sales figures were released by the Census Bureau.
The indicator has correctly called five recessions since 1968, and has never warned of a recession that did not occur, according to an analysis by The New York Times.
The indicator measures all sales by new-car dealers, including the sale of used cars, parts, and service. It does not measure sales by dealers who sell only used cars.Consumers tend to look for these cheaper alternatives when the economy slumps, and right now they are being pinched by higher fuel prices at the same time the slumping real estate market is making it more difficult to take money out of home equity to purchase a vehicle.
A key reason for lagging car sales during the recent recovery is the real estate bubble. Residential real estate accounted for more than two-thirds of recent GDP growth – and other key sectors never saw the same overall rebound. Now, the real estate boom has come to an end . . . and the consequences may be dire for the U.S. economy.”
You know how they state that the “wealth effect” increases spending by around 6%. Well, a recent study has shown that nearly 70%(!!!) of HELOC/REFI cash is spent.
BTW, we’re already in a recession and have been for over a year now. It’s just not “official”, since the government rigs the numbers.
Everyone knows how CPI is intentionally understated using hedonics, owner’s equivalent rent, etc. Well, the GDP is adjusted per the CPI, therefore the GDP is overstated inversely proportional to the understatement of the CPI. Any company reporting revenue growth below 8% is actually losing ground, not gaining it as Wall Street would have you believe.
Check this out. Insult to injury.
http://eastbay.bizjournals.com/eastbay/stories/2006/08/21/daily19.html
http://eastbay.bizjournals.com/eastbay/stories/2006/08/21/daily19.html
Robert Schiller has talkd about positive and negative feedback loops that drive speculative activity. He posits that decisions aren’t based on rational analysis but the “feel” folks get from the BBQ circuit. hence we see irrational prices, I sense that the positive feedback loops that drove the mania has transitioned to a negative loop that feeds on itself. He also points out that housing has become just another spec. game, rather than a home, a place to live in. Due to changes in our culture, where everyone thinks that they are their own Hedgefund manager.
Secondly, it is interesting to see how the real estate has become more and more like the security biz. with all the charltans and chicanery.
Realtor - broker
CAR, NAR - Brokerage analysts.
Tol, KB, Lennar - Brokerage firms
Margin - HELOC
Leverage - ARMS.
yen carry trade - buy two in Texas.
Dennis Kozlowski - David Lereah
New issues - empty developments
San Diego - Cisco.
you get the point, the problem with this is that housing isn’t like secondary market……….All I can say is that Pigs get slaughtered…..
“We are transitioning to a buyers’ market,” Lereah said. “There is pain in that transition.”
I missed the chapter about the PAIN in his two books.
Anyone know if he still owns all of those condos?
Shills and Canards:
http://www.xanga.com/home.aspx?user=russwinter&nextdate=8%2f23%2f2006+23%3a59%3a59.999
How long do you guys think this will take to bottom out? I’ve asked this before, but when is it time to buy (for investment)? So far, this blog has predicted everything like clockwork, so I’m going to accept whatever answer I get!
You mean you haven’t already bought something? It’s a buyers market you know….
The market conditions this go around are unprecedented. Predicting the time frame of the crash is anybody’s guess. Although, I think the speed at which it’s already turned around has even amazed some die hard bears here. One things for certain… it’s crashing right now and a recovery in ‘07 is laughable.
what do the other varsity cheerleaders say?
GWB was a cheerleader! (still kinda is)
Welcome back, Calculated Risk did a piece that if I recall correctly indicated 46-58 months. Search those archives
If we get 1% declines for that period of time we will probably get back to the mean.
Thanks, I missed you guys.
Thanks, I missed this crowd.
So, basically, I can count on the $$ I’ve saved, plus I get to save for the next 3-4 years, to pick up some bargains. This is gonna be … fun.
ot but a good summary from the street.com. even cramer is bearish.
but he is flip flopping every ten minutes. so he doesn´t matter anyway
http://immobilienblasen.blogspot.com/2006/08/360-degrees-of-homebuilder-cramer.html
Flip floppers enjoy the pleasure of being right every ten minutes.
i remeber after the first cracks in the chart that he pumped toll at 45,40,and 35. since then i havn´t followed it.
the first efforts resultet in a pump of a few bucks. but this must be on the top of his popularity.
i´m glad that i have stopped watching cnbc, blommberg or any other financial network since the beginning of the year.
now i feel much much better. befor i had to almost puke twice a day when they play the “better than expected” , “bad news is good news” , “the us economy is strong”, “strong $ policy”"core inflation matters” “soft landing”etc game
http://www.immobilienblasen.blogspot.com/
Two builders in two subdiv here in Forsyth County, GA just made big (over 10%) cuts in their inventory this weekend.
BTW - what ever happended to that long blond haired guy that used to be on Cavuto on FOX - always pounding the table about real estate being the BEST investment because it NEVER goes down. Any one seen him lately?
No, but I’m looking forward to watching him make my next order of french fries.
BTW - what ever happended to that long blond haired guy that used to be on Cavuto on FOX - always pounding the table about real estate being the BEST investment because it NEVER goes down. Any one seen him lately?
That’s Tom Adkins, real estate agent, husband of the host of “Bulls and Bears”, Brenda Buttner. He has been a frequent guest until recently… I wonder why?!?! Also, have you noticed that the Fox money shows on Saturday mornings haven’t had any references to real estate at all for weeks now?
How can anyone watch Fox…especially the money shows. They make Cramer look good. Although they did have Jim Rogers on for a while. Infotainment at it’s finest.
There’s the guy with the immobilien…. blog.. Presumably European as well…
Bernanke stopping rate hikes will not save housing at this point.
1) Fed stopping the rate hikes could well result in a major selloff in the bond market because of inflationary expectations trending up, and because of the perception that the Fed is not really serious fighting inflation. A jump in the long bond yields will cause mortgages to trend up sharply. The fed is mostly irrelevant at this point - the only thing they can do is inflate )and make things much worse in the medium to long term).
2) If the fed were to inflate and try to save the situation, there is no guarantee that fresh liquidity will flow to housing. The fed can inject liquidity, but they can’t control where that liquidity will flow. If the fresh liquidity flows into commodities (and gold), the fed will be well and truly f***ed, at that point they would have to tighten to Volckerian levels to prevent runaway inflation.
3) Risk Premiums are at record low levels right now. The difference between the yield on 10 year treasuries and MBSs are very very thin. This can only widen as the perception of risk increases. With the uptick in foreclosures, drop in prices and overall panic, I would expect the spread between MBSs and treasuries to widen, perhaps sharply.
larenter (in an amusing little post) said DL is trying to work up
BB. If so, he is certainly barking up the wrong tree.
Things are about to get very interesting. I was thinking the housing bubble rebalancing would be more Japan-like and drawn out over a decade (and more), but thanks to the high debt load and toxic loans, the wheels are coming off pretty fast here.
Today’s WSJ article on housing, where a house in Herndon, VA that listed for 1.1Mil (and was sold in auction for 530K) is an interesting read.
IMHO, there are only two possibilities why NAR and Learah would spin this as positive.
1. They simply cannot fathom a deep plunge in prices. They drank the koolaid and it was electric and the cat told them that prices never go down..
2. By doing the rah rah dance and telling folks to buy the dip he is creating GF’s to take the properties off of the hands of those whose koolaid may finally be wearing off and know that the valley is long and deep in front of us so sell baby even at a small discount. Heck, just like builders, from here on out those who sell here near the top, much like the builders, will get top dollar for the foreseeable future. As prices fall over time those who sold last month will be getting the higher prices all the way down.
And because we can expect fools to rush in at some point in the dip we also expect a dead cat bounce. But there will be much much further to go.