Homeowners And Builders ‘Caught Off Guard’
The Wall Street Journal looks at the housing sector. “For years, real-estate brokers and home builders promised that the soaring property market eventually would glide to a soft landing. It isn’t working out that way. The rapid deterioration of the market over the past 12 months has caught many homeowners and builders off guard. Some are being forced to cut prices far below what their homes could have fetched a year ago.”
“‘It would be difficult to characterize the position of home builders as other than in a hard landing,’ says Robert Toll, Toll Brothers CEO.”
“Last August, when Toll Brothers reported that its quarterly profit had doubled, Mr. Toll boasted: ‘We’ve got the supply, and the market has got the demand. So it’s a match made in heaven.’ Since then, Toll has cuts its guidance four times on the number of homes it expects to close on, and its share price has fallen by more than 45%. Yesterday, the company said orders for new homes in the third quarter were down 48% from a year earlier.”
“Joan Guth is one homeowner who was taken by surprise. Last September, she put her stately five-bedroom home in Herndon, Va., on the market for about $1.1 million. But her home in the Washington suburbs attracted few serious lookers, and in March, she cut her asking price to $899,900. Still there were no takers. Finally, on the advice of her broker, she called in an auction firm, beginning a process that would eventually reveal to her just how weak the Northern Virginia market had become.”
“On the morning of Aug. 5, the auctioneer, Stephen Karbelk, set up loudspeakers on Ms. Guth’s side lawn. Although Mr. Karbelk tried to stir excitement, the bidding petered out within minutes. Kristin Eddy was the high bidder, at $475,000. Looking stricken, Ms. Guth and one of her sons..told the auctioneer they wouldn’t accept the bid, which fell below the stipulated minimum that hadn’t been revealed to bidders. Late that afternoon, Ms. Eddy raised her offer to $525,000. The Guths wavered for two days before agreeing to accept about $530,000.”
“For some homeowners who bought as the market was peaking last year, the downturn is already creating a financial pinch. The slump has been particularly harsh in Northern Virginia, where in recent years, large home builders have turned open fields and wooded lots into new subdivisions. Inventories of unsold homes here have risen 147% over the past year, compared to a 40% increase nationally.”
“Would-be sellers such as Tahir Javed are growing frustrated. One year ago, Mr. Javed decided to move up from his town house in Ashburn, Va. He signed a contract to buy for $983,000 a four-bedroom brick colonial that a developer planned to build in nearby Leesburg. He put down a $60,000 deposit and planned to move into the new house in October 2006.”
“In May, Mr. Javed put his town house on the market for $499,900, which he says is far above the $212,000 he paid in 1999, but in line with asking prices for similar homes in the neighborhood. He hasn’t been able to find a buyer, and the balance he owes on his new house, about $920,000, is due in about six weeks.”
“Mr. Javed says he asked the builder for a price break, but the answer was no. He’s considering cutting the asking price for his town house to slightly under $470,000, and if that doesn’t work, he may try to find a renter. He had planned to use the money from selling the town house as a 20% down payment on what he owes on his new home, and to borrow the other 80%. Now he may need a bigger loan, which could carry a higher interest rate, he says. ‘That is the painful part,’ he says.”
don’t know if anyone has already run the numbers, but to me it looks like 51% drop…
Does anyone know what they paid for the place. 50% off your asking isn’t saying they still haven’t made money.
she paid 50k back in 1974.
gimme an f’ing break - she thought she would get 1.1M? Stupid fool. She is lucky she found a buyer at 530 at this point
And in 1968, it was purchased for 23,500. Not a bad gain for 6 years. The county has it assessed for 670K for tax purposes. Built in 1900, asbestos shingles, metal roof.
There must be something funny going on in Herndon, though. Perhaps it’s become an unpopular place to live (lots of illegal issues). Property values seem a bit lower there than elsewhere. There are many large single-family homes in there from the low 500s. We couldn’t find a single-family home last year in Fauquier County (30 miles west of there) for that. Although I think sellers are increasingly delusional in the exurbs. “Commuter homes” (tract homes) are pretty much the same everywhere, so why commute . . .
You mean you didn’t hear how the Town of Herndon was trying to use taxpayer money to build a shelter for the illegals to loiter in while they were waiting for pick-up work? There was a huge fuss. Some people said it was illegal, others said it might attract more illegals. Still others said it was basic human decency, while others called INS. Big brouhaha.
Actually, that’s probably the ONLY way it was sold. The last-in-line flippers won’t sell for 50% off. They will ride it to the bottom.
People who bought pre-2001 are the ones who will bring the market down.
The flippers will stew in the piles of their own vomit before they sell. Classic behaviorial economics.
And a classic story of how a equity-long boomers will absolutely destroy local comp’s throughout the nation. She sold at that price not because she wanted to, but because she could.
Are we not happy that house prices are finally moving down? Let’s thank some boomers at least for that
“…flippers will stew in the piles of their own vomit before they sell…”
…particularly the ones that got into to the market late
The way to calculate how much prices have dropped is to find the value of this house at the peak and compare it to the price it sold. And yes, this is the most current comparable sale for appraisers to use. A drastic drop, but from someone very motivated to sell. Like others who have to sell because of jobs, add retirees, and those who cannot afford the payments anymore. This will accelerate the slide down.
Builders are smart planners that only go where the demand is, right?
‘ Suburban Dallas’ newest home community will be closer to Oklahoma than downtown. The 1,587-acre Bridges at Preston Crossing will be built just east of Gunter. That’s about 30 miles south of the Red River and 40 miles from downtown Dallas. Florida-based developer Bluegreen Communities said Tuesday that its country housing development will have plenty of amenities, including a golf course, parks, tennis courts and a recreation center that includes a swimming pool. About 6,000 people will live there.’
‘ Gunter, which has 1,300 residents, is on State Highway 289 north of Prosper and Celina, fast-growing Collin County communities. Homes are expected to be valued from $350,000 to more than $600,000.’
Idiots. Typical Dallas.
Who’s the idiot? The builder? They’re from FL.
Hey, you forgot their a huge savings in gas on the return trip from Dallas…
because Oklahoma sucks.
ESAD
It is the new Frisco
Ben,
The same issue of today’s WSJ (Personal Journal section page D1 has a great article by Jonathan Clements in his column “Getting Going” His subject is “Forget the Mansion: Why Buying Bigger Doesn’t Guarantee a Rich Retirement.” I recommend you open another thread on that.
I figured the same type of reasoning 5 years ago that Mr. Clements figured out. Modest-valued homes and big 401k / IRA savings are the best way toward retirement. I said in several of my posts on your blog that I will never take out a loan of an amount equivalent to more than 1/5 of my net worth. It’s a great rule for anyone to live buy. It protected me from this overinflated real estate bubble when my emotions said to buy but my rule said I don’t have the net worth. It allowed me to diversify in other investing areas and it’s going to get me to buy a house (if I’m ever really interested) that I can easily afford to pay off if I need to in a hurry. In the meantime, renting a luxury apartment and living carefree with 8 years of living expenses in much safer investments is fine with me.
His articles are reliably spot on. I agree - better article that the page 1
Can you actually fit 6,000 people in a community pool?
WOW! This WSJ article could be yet another key catalyst in bursting this bubble. Once Wall Street starts printing these types of stories, you know we’re on a downward glidepath. Going from $ 1.1 million to $ 530 k is a pretty significant drop in price.
That is not a haircut, that is a Mohawk scalping!!
Love it. That buyer is my kind of lowballer!
“Ms. Eddy raised her offer to $525,000. The Guths wavered for two days before agreeing to accept about $530,000.”
a REAL lowballer would have said, “My price is 525k. Or I could just move on down the line…”
Given that Ms. Eddy probably didn’t have to pay a 5% buyers premium, she saved about 20k…
At risk of sounding like a stalker, I did some due diligence on this story and it appears as though the house in question was originally purchased in 1974 for $50,000. The $530,000 sale price referenced in the article was $140,000 below (approx 20%)the 2006 Fairfax County assessment.
Care to share the address? I’m from the area. Some of Herndon is extremely nice, other parts a few miles away are being over run by illegal immigrants. Herndon was a very small sleepy town in the exurbs in 1974. Today it is a fairly close in suburb with an easy commute compared to where people live. There were very few McMansion type houses being built in Herndon in 1974.
630 oak street
OK, looks like someone else did the same “work” I did. Please don’t post the other poor b@stard’s info (the guy that didn’t sell his house, yet). He’s got enough problems to deal with.
Can’t find that address on Zillow…
Do you think Ms Eddy got a good deal?
630 oak would put it a few blocks from the downtown area and in a decent neighborhood. It seems like a deal to me. New townhouses a few blocks away on the other side of the town hall are usually listed in the 600k+ range. I hope this is a sign of things to come.
7% YOY appreciation puts that place at $435,760
MjM
maybe that’s what similar places will be selling for next year
I’m really glad to hear stories indicating that the prices are getting anywhere *near* that kinda level…
presumably the seller was using something approximating recent comps to get her initial list price–wow.
I’d love to see some of the recent news turn into that kinda selling…boomers who paid off their places deciding to take what they can before it gets any worse! Just the thing to get this popping thing moving a little quicker…
cheers all!
First comment!
“In May, Mr. Javed put his town house on the market for $499,900, which he says is far above the $212,000 he paid in 1999, but in line with asking prices for similar homes in the neighborhood. He hasn’t been able to find a buyer, and the balance he owes on his new house, about $920,000, is due in about six weeks.”
The first comment is “SWEET JESUS!”
Further along in the same article:
“Mr. Javed says he asked the builder for a price break, but the answer was no.
*Snort*, guffaw, chortle, chortle…
He’s considering cutting the asking price for his town house to slightly under $470,000, and if that doesn’t work, he may try to find a renter.
Yeah… good luck with finding a renter paying enough to cover your new $920K mortgage PLUS the old one.
He had planned to use the money from selling the town house as a 20% down payment on what he owes on his new home, and to borrow the other 80%. Now he may need a bigger loan, which could carry a higher interest rate, he says. ‘That is the painful part,’ he says.”
No, no, no, Mr. Javed. The really PAINFUL part is when your 920K option-ARM adjusts out of it’s 1% teaser period later next year.
The guy is a dolt to begin with. How much is the new house worth these days? How about walking away from the 60K instead? How about not being such a fiscally irresponsible numbnut with your future? You can’t afford the house and probably never could except for the fact you wanted to leverage up for free money. This guy needs to lose his ass in this transaction.
Is hard to walk on the $60,000..Although he should.
He can’t admit he made that big of a mistake.
He’ll scramble and find a way to make it work for a little while!
Now he has $1.4million in assets that are dropping from the sky and his debt ($1.2 million) will soon engulf him & crush his cash flow..
Like so many others!
Does noone else see the irony? He’s a managment consultant. He’s supposed to go into companies and help them focus on the big picture to get back on track. And he has no clue as to what he’s doing! I wonder which company keeps him on their payroll? They’re worth shorting!
He’s in Reston/Herdon, pretty tough to short the US Government.
Actually, don’t you just have to short the dollar?
Never met a management consultant that was useful. Never.
99% of them are from MBA school directly to consulting, so they have never had to truly live with their mistakes.
And when you look at the bill, it’s amazing they can stay in business. I guess there’s lots of GF in the top ranks of american biz as well…
Have to agree with JP here. When I graduated from grad school I was amazed at the people that were snapped up by the consulting firms. They were long on schmooze and short on ability. Later had to deal with the same types coming in a peddling thier wares in the corporate world. Couldn’t believe they were still packaging the same BS and selling it to the executives. In the end it was fun to watch them squirm as the dot com imploded. Kind of waiting for the same thing to happen with realtors, flippers and MB’s.
McKinsey, Deloitte, Bain, IBM, Accenture, Cap Gemini, BCG - ALL the same interchangable droids.
Slim, white preppy, clean cut, impeccable grooming - all MBAs - avg age: 29.
Telling ppl in the industry w/20+ years’ experience what to do……
or 
- who knows???
Or taking what the regular employees tell them in their “interviews” and packaging the info in an approved Powerpoint presentation- THEN charging the company $300-500/hr for the privilege of telling them what their employees already know.
Corporate America is fvcked. It happens every day at my company. We open up a vein and let them suck us dry.
We deserve what we get.
One late breaking-item: in the last year, I would say some of these firms are now sending in a majority of people who are citizens of India.
We used to just outsource our programmers to Bangalore, but now we pay these people who do not know our companies and culture to tell us what to do.
Anyone ELSE on this blog observing the same sh!t going on at their Fortune 500 companies???? Anyone, Anyone?
Their confidence to ability ratios are overstated.
M.B.A:
“Or taking what the regular employees tell them in their “interviews” and packaging the info in an approved Powerpoint presentation- THEN charging the company $300-500/hr for the privilege of telling them what their employees already know.”
You’re so right.
And now they flooding small companies
also.
My impression when I was a consultant in London was that our job was to produce a report to confirm what the person hiring us wanted to hear. They could then use that report in internal/external debates as “objective” evidence for their position.
As an ex IT consultant for a large Multinational, the reason that we existed was to add to the headcount of a company. If you needed additional breathers next to you so that your little corporate empire expands, then you hire a couple of “consultants” that are not going to try and take your job away, but whose expenses and salary you can completely write off, not pay taxes on, and even better, unlike regular employees, they will work at what you tell them… Not that the work is any good, but in a boardroom meeting, the slick young consultant that is long on CONfidence, and short on knowledge will actully make You, the manager who hired him, look good in comparison.
If he’s buying from a builder, tyhere’s a good chance he won’t have a 1% ARM that adjusts next year. Out here in Northern Virginia, the builders are offering 2% fixed locans. Er, fixed for one year. Then it’s 4%. For one more year. Then 6% from then on. So Mr. Javed will still feel the pain.
By the way, that’s a good tactic the builders are using: Basically they are subsidizing a mortgage loan to the tune of several $10k’s (you can run the numbers yourself to see the xact figures for a given mortgage). For a million dollar property, probably many $10ks. This helps snare the buyers (FB’s) and comes off better in the marketplace than if the builder stooped to price reductions!
Yes and when these buydowns all adjust on everyone in the neighborhood at once in 2008 and 2009 it will be ugly. The comps will be shot to hell when people start getting forclosed on by the bank. Many of these buydowns are on top of 5/1 interest only ARMS, some are even on negative amortization option ARMS with APRs at 7+%. Read the fine print on some of the loan terms in Saturdays Washington Post, it is scary. The builders advertise houses by the monthly payment knowing full well that they are putting people in houses they can’t afford.
How does this guy sleep at night? He’s on the hook for 920K in 42 days. Maybe a loan against his life insurance might help. I can’t say I feel for this guy because people who can truly afford a million dollar home don’t end up 920K behind the 8-ball.
what’s missed in this story is that this guy went from owning a $200k townhouse to owning a million dollar home in the course of a few years. bet you his income didn’t increase fivefold over that period. toast, imho.
that 200k home could have been paid off in 5 years with some aggressive check writing. I was on track to do that in my pre-bubble culver city townhome but made the better choice to sell and rent.
They don’t make MBAs like they used to…. we are luicky they can add. You know, they are all SPECIAL!!!!! Can’t burst those egos!
I can say this. I worked my butt off to get As in my undergrad some time ago. It was TOO easy to get A+s during my MBA sometime later…. WTF. It is called GRADE INFLATION
too bad I cannot type. I mean LUCKY.
- Note to Mr Javed …. I don’t care what you ‘think is IN LINE WITH SIMILAR HOMES’.
- YOU WILL ACCEPT what the market dictates! WTF!
Using a nominal appreciation of 5% his home should have risen in value to ~300K. Looks like he needs to drop the price by about 200K to be in line with true value…
Of course if you believe that 5% appreciation/year is incorrect then your milage may vary…
Cheers
JMS
Lower the price of the condo to $300-$350k today. If it doesn’t sell, either lower the price some more, or walk from the $60k deposit. The time left on the clock is decreasing while the pressure on his nads is increasing - suboptimal position for Mr. Javed, imo.
He could walk from the $60K, then buy the $1 mil home in a year for $600K
“Northern Virginia, where in recent years, large home builders have turned open fields and wooded lots into new subdivisions. Inventories of unsold homes here have risen 147% over the past year, compared to a 40% increase nationally.”
Palmdale, CA 93552 YOY listings currently up 426%
Bakersfield up 350% YOY!
Got ya. Merced, CA…7/1/05 157, 8/23/06 1310…834.4%!!!
for a minute i thot u guys said palmdale is up 426%!
then i realized it’s just a typo!
Palmdale is sitting square on the San Andreas. I could never get why ANYONE would buy there….. ever…..at ANY price…..
I was told only 1 home in Merced sold last month?
truth or consequences?
Tampa-St. Pete-Clearwater, up 380% YOY - July 2005->2006
Northern VA inventory started skyrocketing in 2005 so YOY numbers aren’t nearly as impressive as comparing 2006 to 2003 or 04. http://virginiamls.com/charts/FairfaxCounty.htm
I know of several people, that have been cought with two houses. It seems that it is a recurring theme on this blog, about how they needed to buy now before being priced out, that they neglected to sell their current residence. It will not be fun trying to negotiate with them, as the expectations for the price are there, and in all honesty they have nowhere to back down. Eventually they will lose both houses. This mental midget figured that he could make a killing on his dumpy condo, and move “up” into a million dollar mc mansion, and hire a couple of servants while at it….
Too bad the world does not play by anyones rules.
no, pinch, the world does play by rules. the supply and demand charts we studied in econ 101 are a couple that come to mind.
but i gecher point!
AS an old physics teacher of mine once said: ” You can fight the laws of physics all you want, but you will inevitably lose.” Same with the laws of supply and demand, althought that law is severely mis-understood by any card carrying Realtor…
I had an economics teacher, that his favorite saying was “Water will always be a lot smarter than you.”
umm, i know some houseplants in my kitchen that can match wits with some of these dodos.
ROTFLMAO Hard……
Thanks. Needed it.
A colleague of mine has had his “old home” on the market and vacant since March here in Bozeman, MT. Basically, the real estate season is over here and he might be looking at holding the property until next spring–when prices are likely to be significantly lower than today.
What amazes me is that people in this situation (two mortgages , bridge loan) don’t aggressively lower the price until the first home sells… Nothing like holding two expensive properties on the backslope of the biggest housing bubble of the century!
It sure does - Darwin’s
Wow! MA is really dead. FOURTH month of YOY declines, Slowest season since 1993!
“WITH BUYERS HOLDING UPPER HAND, HOME SALES, PRICES DECLINE IN JULY
(Waltham, MA.) – Sales of single-family homes and condominiums fell across Massachusetts for a fourth consecutive month in July compared to the same period a year ago, and selling prices declined modestly, albeit at the largest annual rate of decline of the current decade last month, as many buyers adopted a wait-and-see attitude toward the housing market, according to data issued today by the Massachusetts Association of Realtors® (MAR). The number of homes for sale also continued to rise steadily during the past 12 months, enabling buyers to bargain harder and extend their home search longer than in recent years.
In the detached single-family home market, sales declined 25.3 percent last month, from 5,328 homes sold in July 2005 to 3,982 this July. Last month’s sales total represents the lowest July home sales volume in over a decade, dating back to July 1995 when 3,688 homes were sold. Additionally, condo sales have fallen 21.4 percent over the previous 12 months, declining from a July record of 2,395 units sold last year to 1,883 this July. The July 2006 sales volume is the third highest on record for any July in state history, topped only by the 2,395 condos sold in July 2005 and the 2,131 units sold in July 2004.
“Today’s buyers are looking for value and many are still holding out for lower prices,” observed MAR President David Wluka, of Wluka Real Estate in Sharon. “Increasingly, sellers also have stopped actively looking for homes until they have reached agreement on the sale of their own home,” he noted in explaining the more moderate sales pace during July.
A cool, wet spring punctuated by flooding rains in May, and higher mortgage rates, which hit a four-year high in the second quarter of the year, also contributed to softer demand and fewer closings in July, according to Realtors®, but activity has improved in recent weeks as interest rates have dropped by a ¼ point and sellers have started adjusting asking prices.
Across the state, the median selling price for detached single-family homes dropped 3.5 percent last month, from a record high median of $375,000 in July 2005 to $361,750 this past July. On a monthly basis, the median selling price is also down 2.2 percent from June’s median price of $370,000. In the condo market, the median selling price decreased 4.1 percent in the past year, from an all-time monthly high of $287,900 last July to $276,000 in July 2006, and is off 2.6 percent from $283,500 in June.
Today’s more modest prices follow some of the largest price drops in years. The 3.5 percent drop in July’s median selling price for detached homes is the largest annual price decline since March 1993 when prices fell 3.9 percent, and the 4.1 percent decrease in the median price for condos is the largest decline since December 1998 when prices slid 6 percent from December 1997.
Last month’s price declines reflect the fact that supply levels now exceed demand in much of the residential market, and that many buyers have had to buy less home due to a loss in purchasing power caused by rising interest rates this spring.
“With such a large inventory of unsold homes, we’re beginning to see more realistic pricing on the part of sellers, and now that mortgage rates have fallen back below 7 percent, there’s incentive for buyers to get more serious,” said Wluka.
In fact, data from the MAR report shows that the number of residential listings has increased 23 percent over the past 12 months, from 51,178 homes and condos on the market in July 2005 to 63,144 homes and condos for sale this past July. As a result, market time has increased steadily as well. In the detached single-family home market, listing time has risen from an average of 77 days in July 2005 to 109 days on the market for home sold this July. Similarly, among condos, the average listing time has increased nearly a month, from an average of 77 days last July to 108 days for units put under agreement in July 2006. “
“A cool, wet spring punctuated by flooding rains in May, ”
Sorry folks, but it isn’t the weather…
JD - Beat me to it!
When all else fails (and you are complete moron with no clue), blame weather, cyclical sales, or the price of pork bellies.
A very expensive place to live with economic issues. People are moving outta there as there’s no quality of life if you’re middle-class.
Sweet jesus is right. What was this guy thinking? Can he walk away and eat the 60k on the albatross? Cut your losses man. It is scary to consider how many people are in situations like this , and that this could be the very early stages of the bust.
He probably got the 60K deposit for the McMansion from a HELOC on his townhouse. High leverage gamble and it looks like he is going to lose, HA-HA-HA! One should only gamble with what they can afford to lose.
Please, his house even with a I need out today would probably still garner more than the initial 220k price and a $60k deposit HELOC. If his income is anything close to in line with Fairfax Co, incomes, he should be able to cary the cost of both of those notes (on his old house) if he walks from the deposit. Painful lesson but unlikely to be catastrophic.
I dont care how much this guy makes. Does he want to work for the “man” until he is 95 or dead? He could just rent and pile up the cash.
YOU THINKS HE’S STUPID. I PUT A $200.00 DEPOSIT DOWN ON A 2005 JAGUAR FROM L0UISIANA. WHAT WAS I THINKING. I DIDN’T KNOW IT WAS A FORD. ANYBODY WANT TO PICK UP MY OPTION. I STILL HAVE 5 DAYS. THE BALANCE IS $10,400.
Most people take illogical actions to avoid “realizing” a loss. For that reason, he will probably proceed with the $900k McMansion even if he knows deep down that he is better off forfeiting the deposit. This way the vaporizing equity on his new home will only be “on paper.”
That is not just a haircut…That is a Mohawk scalping….
Naw — it is execution by guillotine.
The gal made 500K+/- of REAL money, not some speculative pie-in-the-sky play money. I think she’ll manage.
Considering she bought in 1974, it’s actually closer to 330K profit when you factor in inflation (well, the CPI, which grossly understates inflation, but you get the general idea). Still a lot of Bubble bucks though. A prime example of why sellers are better off giving up on fantasy asking prices and selling now before prices fall even further.
But we don’t know whether she spent lots of dough out of ATM cashout financing. This is a key reason that many long-time owners will not manage.
The stages of home selling
Commentary: A correspondent’s notebook from the housing front
By Bill Mann
Last Update: 11:58 AM ET Aug 23, 2006
FORESTVILLE, Calif. (MarketWatch) — The latest home-sales figures are in, and they make for some depressing reading.
But I could have written this week’s “Existing-home sales plunge” headline months ago.
Home and condo sales in the once-hot San Francisco-area housing market fell 31% in July. The morning daily in the trendy Sonoma County wine country revealed that the average home price in July fell for the first time in four years.
To say that the housing market here is slow right now is a bit like saying Beirut’s streets need some patching.
Ever live in a staged home for five months?
It’s about as pleasant as living in your car.
http://tinyurl.com/mn6s4
This has to be the funniest and most real commentary on ground zero of the bursting bubble penned to date, but on a more serious note, the Bay Area market appears to be toast. The closing lines:
Timing, as investors know well, is everything. Last fall, we could have vacuumed the place and it would have sold in two days — at over the asking price
But look on the positive side: My wife and I are thrilled to have finally escaped Realty & Home Staging Hell.
We both agree: Better to live next to a salvage yard than in a staged house during a slow real-estate market.
(MarketWatch humor columnist Bill Mann plans on investing most of his home-sale proceeds in a Grand Slam breakfast at Denny’s.)
I loved this. Unfortunately, Mr. Mann doesn’t tell us whether he actually ended up breaking even or not. Perhaps he ended up not even able to “invest” in Denny’s. On the other hand, it’s probably more likely that he did come out somewhat ahead.
He did tell us that he came out somewhat ahead — by at least enough to purchase a Grand Slam breakfast at Denny’s.
“(MarketWatch humor columnist Bill Mann plans on investing most of his home-sale proceeds in a Grand Slam breakfast at Denny’s.)”
As part of the owners’ efforts to sell it, the house behind me was staged. Didn’t work. They ended up selling it for quite a bit less than where they had started out.
No, but this gives me an idea…..
Probably a good time to go into “staging” as a career change to “assist” the sheople who get really panicked in the coming months. What does it pay?
I loved reading this article this morning at breakfast. Nothing makes my day start off right more than a story about the plight of idiots who thought this housing boom was permanent. Keep ‘em coming WSJ!!!
Ms. Guth’s original sales price was insane. Her house is only assessed at 670k. She paid $50,000 in 1999 (this may have been just for the lot, not sure)
She and her husband also own a lot with a restaurant on it down the street.
Herndon has also been in the news a lot recently because it has a HUGE immigrant (legality questionable) population of day laborers, and the town voted to open an employment center to try to get the workers from loitering on the streets. The Minutemen showed up, etc. etc. Herndon would not be my residence of choice, but I think Ms. Eddy got a decent (not amazing) price.
I’m not surprised that the TH in Ashburn is not selling. Its overbuilt with a hideous commute downtown and the schools in that area are not great either.
“On the morning of Aug. 5, the auctioneer, Stephen Karbelk, set up loudspeakers on Ms. Guth’s side lawn. Although Mr. Karbelk tried to stir excitement, the bidding petered out within minutes. Kristin Eddy was the high bidder, at $475,000. Looking stricken, Ms. Guth and one of her sons..told the auctioneer they wouldn’t accept the bid, which fell below the stipulated minimum that hadn’t been revealed to bidders. Late that afternoon, Ms. Eddy raised her offer to $525,000. The Guths wavered for two days before agreeing to accept about $530,000.”
Note to sellers: You have no market power whatever in the current environment. You can take or leave the price which the market will bear, but cannot set the price, no matter what kind of gimmicks you use to stir excitement.
Ms Eddy was a dope for raising her offer to 525k right after the auction. I’ll bet if she held firm at 475k, she would have gotten the house for that price.
Kind of reminds me of the cartoon with the dad asking his son in disbelief, “You got someone to pay $299,999 for your tree house?!?!” and the son replies, “Sheesh, don’t rub it in.. I had to drop the price and take a $50,000 haircut!”
i saw it bought for 50k in 1974, checked the Ffx Cty tax assessment webpage under sales for her address.
I can’t believe it is taking the general media (and public) so long to figure out that the prices are way out of line with income/savings/affordability. Eventually it had to end abrubtly. In the resort town of Palm Springs/Palm Desert where I live — where there is no industry other than service/hospitality/construction — the prices have skyrocketed beyond belief. Flippers want $200,000 to $400,000 more than they paid on an average priced house in 2004. Forget even talking about the higher end market — people paid $800,000 in newer developments in 2004/2005 and now want $1.4 — it is insane. Guess want — no one is buying and the whole market has come to a complete halt.
Ben –
Careful not to get swept away in the flash flood of housing-related news stories today.
GS
———————————————————————————
HERB GREENBERG
Common sense and housing
Commentary: Also, OmniVision and Longs Drugs
By Herb Greenberg, MarketWatch
Last Update: 2:26 PM ET Aug 23, 2006
SAN DIEGO (MarketWatch) — Genius that I am, I could’ve told you existing-home sales were down without looking at a single piece of data.
In my tract-home slice of once-blistering-hot San Diego, there has for months been a noticeable drop in weekend open houses.
Yep — that’s anecdotal, and I realize the situation might be different where you live. But sometimes the real story is right beneath your nose — and the real reason is so obvious it’s easy to miss: Even with housing prices falling, prices are still too high. Only so many people can afford $1 million-plus, especially as prices of so many other goods and services, starting with gasoline, go higher. (I don’t care who you are or what you are — $1 million or thereabouts, give or take a few hundred thousand, is still a lot of money and can require a ridiculously high mortgage. Not good when interest rates are rising.)
…
On one hand, housing companies are in the commodity business of construction; on the other, they’re in the trickier business of land, which can be quite different, and lead to different outcomes from company to company. Do they own the land? Do they have options on the land? That’s all part of the equation, but in the end the stocks are likely to continue to be influenced by psychology, which will be determined by earnings, which are not likely to be rising anytime soon.
Just as they overshot on the upside, there’s no law — regardless of book value — that says stocks can’t overshoot on the downside, as well.
How low can they go? Just look at charts for most of these companies a few years ago for a clue.
Just remember: Some of these analysts are so smart they were blindsided by the swift reversal in the industry’s fortunes. To be fair, many of them were probably listening to company executives, many of whom didn’t appear to see the slowdown until it hit.
Wearing blinders will do that.
http://tinyurl.com/rxdxb
Ben, I was hoping you caught this article…we get the journal, I highly encourage all to go to the website and get the full story, it is a hoot. BTW, while perusing my favorite home selling sites, I have been seeing an interesting tag attached to a lot of RE brokers lately…That being “your short sale specialist!” Bah, hah, hah….buying in a year or two has never looked so good!
These prices are insane. I love how the WSJ always just talks about 500-1 million dollar houses as if everyone in the world has this kind of money, and yes I know what kind of readers the WSJ is targeted to. I’d love to buy right now if I could actually afford it regardless of the housing market, due to the fact that I want to own something rather than rent , although I would be buying for long term, not short term investment. Currently, townhouses near me that were just built this last year which is 1 frwy exit from downtown or a 10 min bus ride sold for 450-550k. I rent in this same neighberhood for 710/month for a studio, 1 bdrms are 900-1100/ month. I figure the most I could afford at my current wage earnings would be 125-165k for a condo/townhouse. If prices went down that far, there would be plenty of people like myself who would be able to buy but are right now priced out unless they are in 2 income households(Even than, they are priced out). We would be jumping at the chance to own something. I am single with a decent amount of money left over after each check and paying bills..but still cannot buy in this overpriced market. Thats how out of whack prices are. Someone needs to write the WSJ and tell them to focus on people making 30-60k a year instead of these “overextended consumers” who can afford 700k-1.5million dollar houses.
Good point Bri. Prices will fall back in line with rents just as they always do in the RE cycles. It wouldn’t surprise me if you are able to buy at those prices in the next 3 to 5 years. IMO, for people in your position, renting is the smart thing to do right now.
The Wall St Journal would be dumb to focus articles on people who make 1/6-1/3 of what their average reader does.
“In 2005 the Journal reported a readership profile of about 60% top management, an average income of $191,000, an average household net worth of $2.1 million, and an average age of 55.”
http://www.poynter.org/content/content_view.asp?id=89351
It’s about halfway down the article.
I guess I am the other 40% - I need to work a little OT… 191k as INDIVIDUAL income?
This has to be bi-modal. And averages suck. I would say you have a clump of readers who are CE@s. Then, you have your upper middle class (read: 85-150 as INDIVIDUAL income). The CE@s skew the average upward to 191k.
Patience is a virtue. You will earn more $$ in a few years (hopefully) and the prices will come down close to what you can afford. Sit it out. You will win in doing so.
Bri - you just told my life story. I’m in Flagstaff, AZ, have a good job, a bundle of $$$ in savings, and the only thing I can “reasonably” afford in this town are crappy mobile homes on tiny slivers of land, microscopic 1-bedroom condo-conversions, and ghetto boxes. There is a serious disconnect in this housing market!
The key is to keep from getting an itchy trigger finger when prices begin to look attractive relative to peak prices. That will be difficult for even the most disciplined fence-sitter.
“‘It would be difficult to characterize the position of home builders as other than in a hard landing,’ says Robert Toll, Toll Brothers CEO.”
This whole article is a flashback to the early 2000 stock bubble implosion. I know its different !!! BAHAHAHAHAH
We start seeing 50% drop in prices… already taking place.
We have CEOs like Toll telling shareholder/pubic/street we have no visibility into future numbers… you cant live in a stock certificate. Laughable!
Just laugh my a$$ off on this when i read Tolls comments today.
Hey, you forgot there’s a huge savings in gas on the return trip from Dallas…
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because Oklahoma sucks.
ESAD again, troll.
That’s it, I’m outta here.
What does ESAD mean?
“Eat sh*t and Die” fits.
The bursting of the U.S. housing bubble spells Recession
by Dean Baker, co-director of the Center for Economic and Policy Research
http://english.hani.co.kr/arti/english_edition/e_editorial/150951.html
The evidence is mounting that the U.S. housing boom is turning into a bust. In the last week, the National Association of Realtors released data showing that house sale prices are down from last year’s levels in 26 major metropolitan areas; the Commerce Department reported that housing prices are down by more than 15 percent from their bubble peaks; and the Mortgage Bankers Association reported that applications for home purchase mortgages have dropped by more than 20 percent from their levels one year ago.
The end of the housing boom is likely to lead to the end of U.S. economic recovery. The housing sector has been hugely important to the U.S. economy since the last recession. The unprecedented run up in house prices led to a record boom in housing construction and sales. In 2005, new home construction was nearly 50 percent higher than its level a decade earlier, even though population had risen by just 10 percent. Sales of existing homes in 2005 were nearly twice the 1995 rate. The surge in both construction and sales led a boom in employment in these sectors, which together account for almost 5 million jobs.
In the last decade, house prices suddenly exploded, increasing by more than 50 percent, after adjusting for inflation. This created more than $5 trillion in housing bubble wealth.
Consumers have borrowed against this new wealth at a feverish pace, pulling more than $600 billion out of their homes in the last year. This borrowing fueled the consumption boom of the last five years, pushing the savings rate into negative territory for the first time since the beginning of the depression in the 1930s.
Of course, just like the stock bubble, the housing bubble was not sustainable. The stock bubble collapsed because the supply of new issues of tech stocks eventually exceeded the demand from speculators. Similarly, the record levels of housing construction inevitably led to a glut of housing on the market.
In addition, the borrowing spree of the last five years is likely to come to an abrupt end as stagnant or declining home prices cut off this important source of credit. There is evidence that we are already seeing the effects of this credit squeeze, as credit card debt has begun to soar in the last few months. Families who can’t get the money they need by borrowing against their homes will turn to credit cards as the best available alternative.
All of this is very bad news for the U.S. economy. If housing construction and sales fall back to trend levels, it would mean a loss of more than 2 million jobs. The decline in consumption that will result because people can no longer borrow against their homes will have an even more dramatic impact on the economy. The financial system will also be shaken by an unprecedented wave of mortgage defaults, as millions of people will face difficulty in sustaining their mortgage payments.
There is no obvious way to prevent the collapse of the housing bubble from leading to full-fledged recession, and quite likely a severe recession. It was an enormous mistake for the United States to allow a housing bubble to grow to such dangerous proportions. It is unfortunate that the Federal Reserve Board and others in policy making positions ignored warnings when this crisis still could have been averted.
Greenspan is to be blamed for all the damages he has done to our communities.
But FNM is planning the rescue with no question asked re-financing:
EW YORK, Aug 9 (Reuters) - Fannie Mae, the biggest provider of funding for U.S. residential mortgages, said it has launched a program with lenders that boosts its business by encouraging customers to refinance adjustable-rate loans.
The company expects the program announced to lenders last month will help it capitalize on refinancings of hybrid ARMs created over the past few years as their interest rates reset higher, it said in a regulatory filing on Wednesday. It said homeowners have already started refinancing into fixed-rate loans, or the “sweet spot” for the company as put by Chief Business Officer Rob Levin earlier this year.
The program known as “Streamlined Refi Plus” will help lenders retain borrowers by simplifying underwriting, Fannie Mae said. As part of that, the company will reduce the amount of documentation over what it typically requires, it said.
Estimates of the amount of ARMs, or loans with fixed interest for an initial period and floating rates thereafter, that will reset in 2007 top $1 trillion.
“We believe this process will help improve our delivery volumes during periods of significant refinancing activity,” Fannie Mae said in the filing to the Securities and Exchange Commission.
The announcement was made to lenders on July 17, said Janice Walker, a Fannie Mae spokeswoman.
I would also like to comment on the DC/NoVA real estate situation using an area that closely tracks that market. That would be the Delaware beaches such as Bethany and Rehoboth Beach. Since many, if not most of the people who own property there are from around DC, property prices have closely followed the dramatic run-up in DC area prices. THINGS APPEAR TO BE CHANGING DRAMATICALLY. There are literally hundreds of signs all over the place. So many, that if a hurricane ever did hit Delaware, the biggest damage might come from all the flying “For Sale” signs. I have a friend who has been a Realtor forever, and also owns a property in Rehoboth Country Club. He says there are 49 properties currently for sale in this one neighborhood. Last year, he said there would normally be 5-8. The traditional spring and summer buying season came and went and I still see the same houses on the market. I believe that I could probably have sold my house for 400K in less than a month last year. Now, I’m thinking I’d struggle to get 360K-375K. My house is 2.5 miles from beach, by the way. The houses that are closer went up in price by even greater percentages. Those $900K condos that were $280K 7 years ago could fall dramatically. I bought my place with the intent of living in it for a long time. Although it would bug me a bit if my house dropped in value a lot, I think that the faster things return to normal valuations, the better we will all be in the long run.
I wonder how the glut breaks down. How many homes crowding the market are “must sells” - if not now, then in 6 months or so on the courthouse steps? How many listings are longer tenure owners who wouldn’t otherwise sell, but still hope to get under the wire and turn a little of those paper valuations into actual cash before more of the last 5 year’s gains erode? And how many realtors are so busy lately that they’ll turn away business from a non-distressed seller?
Lots of FSBOs popping up in my neighborhood since PS kids went back to school 2 weeks ago. More “for sale OR rent”s, and often when it is one of those supermarket postings, one or the other number has been blacked out or crossed out and edited. Yes, Virginia, I guess there could be trouble even in flyover country.
Ooops - one more thing, since we’re talking about home valuations coming back in line with rent. It may be a big warning sign when you can rent for so little vs. buying, but I’m about ready to bet that there will be even greater damage where rents are high relative to ownership costs, but no one buys SFRs to rent. (I’d say fully half of the rental listings I see locally are “rent to own” REO crap.)
ot but somehow i got a free memership for realmoney. it expires in 14 days. i found this very good piece about the growth/exposure in construction lending quarter on quarter. amazing how they increase their exposure in this market. this will be the future bad loans.
http://immobilienblasen.blogspot.com/2006/08/big-bank-home-construction-conondrum.html
Why don’t you just pay for it instead of ripping off the content? It’s only $24 a month? Can’t you afford that.
Long TSCM
Maybe copyright doesn’t apply in Germany. That’s a wee bit more than fair use.
14-days are typical trials. Almost all pay-per-news online sites have some sort of trial gimmick.
maybe you´re right.
i was so surprised to see this offer in the mail that it has overcome me. i don´t wont hurt your long position
from now on i will as i´ve done in the past only post from the free contend sites or from other sources that put the paid contend on this or other blogs.
ii hope you´re not so harsh with the others posters or bloggers that use pay contend from the wsj,barrons etc or others. maybe a shareholder from dowjones etc. get hurt
http://www.immobilienblasen.blogspot.com/
one follow up.
i have left out the technical recomendation from stuttmeier
as i understand it he is mainly a technical guy.
http://www.immobilienblasen.blogspot.com/
I smiled when I read that article this morning. Ahhh, patience is a virtue.
“Yesterday, the company said orders for new homes in the third quarter were down 48% from a year earlier.”
Think about this for a second. Why are orders only down 48% YOY. Are there that many uninformed idiots still buying these large homes? You would think orders should be down about 90%+ YOY This has to be a lagging indicator only to get worse in the months ahead. Orders should be down 99%+ going forward.
October 2005 - official top of the market
8-23-06 - official bubble realization date
I disagree :
July ‘05 - official top of the market
July 05 was the top in the DC area, that’s for sure.
Hey Kids!
Make your own Reality Appreciation calculator.
Use the following formula to calculate 3% per year increase in value using Excel or OOCalc. (Change the 3 to whatever number to increase percentage):
=SUM(B1+(B1*0.03)) [put this in cell B2]
=SUM(B2+(B2*0.03)) [put this in cell B3]
[continue]
Assuming an “A” Column with the years since purchase, i.e., A1=1999, A2=2000, A3=2001, etc
At 3% per year, Mr. Jarvid’s town house is worth about $260,730.00
Oops!
MjM
Oh, and in the B1 cell, put the initial price, in this case, $212,000.00
MjM
OT-
First story on CBS news tonight: IS THE ECONOMY HEADED FOR A SLOWDOWN BECAUSE OF THE HOUSING SLOWDOWN?
‘Remember the red-hot real estate market?…. file that one under the good old days’ is his leadin comment….
HEY BLOGGERS!
Did you know that St. Joseph is the Patron Saint of Real Estate?
get some little plastic statuettes and put them in open houses!!!!
I learned something new today
OMG– as I came back from lunch yesterday,the local (LA/OC) NPR station was running a short story on St. Joseph. BUT I THOUGHT IT WAS DIFFERENT HERE!
The market hasn’t hit bottom yet, said Phillip Neuhart, an analyst for Wachovia, who said the sales rate would continue to decline through 2007.
The market for large colonials in Herndon now has a new base point: $500K. Slowly but surely similar cracks will appear in other neighborhoods, as desperate sellers are forced to sell. The savvy buyers will now begin saying, “Wait a minute, if a 5 bedroom colonial went for $530K, then I’m only going to offer $300K for this townhouse.”
The woman’s neighbors must be real happy, especially anyone who bought on her street within the last three years. Their mortgage balances are probably closer to $1M than to $500K. Of course this sale will never show up in realtors’ comps, as they will continue to try to persuade buyers that such houses are “fairly priced” at around $1M. But over time, that will be believed by fewer and fewer buyers. The news will get out.
The only upside is that those nearby owners can now dispute their most recent county property tax assessments!
well, it might not show in the realtor comps, but it’ll end up in zillow. As to the neighbors being happy, I’d think after watching the auction scared s*less would be more like it.
“…a great number of people were collected at an auction…The hour of the sale not being come, they were conversing on the badness of the times; and one of the company called to a plain, clean, old man, with white locks, “pray, father Abraham, what think you of the times? Will not those heavy taxes quite ruin the country? How shall we ever be able to pay them? what would you advise us to do?
Father Abraham stood up and replied, …’a word to the wise is enough’….’the taxes are, indeed, very heavy; and, if those laid on by the government were the only ones we had to pay we might more easily discharge them; but we have many others….We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly. A man may, if he knows not how to save as he gets, ‘keep his nose all his life to the grindstone, and die not worth a groat at last’. ‘Fools make feasts, and wise men eat them’ Here you are all got together at this sale of fineries, and knickknacks. You call them goods; but, if you do not take care, they will prove evils to some of you. You expect they will be sold cheap,, and, perhaps, they may(be bought) for less than they cost; but, if you have no occasion for them, they must be dear to you. ‘buy what thou hast no need of, and ere long thou shalt sell thy necessaries.’ …perhaps the cheapness is apparent only, and not real; or the bargain..’ . ‘Many have been ruined by buying good penny worths’. Many a one, for the sake of finery on the back, have gone with a hungry belly, and half starved their families.. Silks and satins, scarlets and velvets, put out the kitchen fire”. … the genteel are reduced to poverty, and forced to borrow of those whom they formerly despised, but through industry and frugality, have maintained their standing.. a ploughman on his legs is higher than a gentleman on his knees,…he that goes a borrowing , goes a sorrowing..so does he that lends to such people…Pride is as loud a beggar as want…
We are offered, by the terms of this sale, six months credit; and that, perhaps, has induced some of us to attend it, because we cannot spare the ready money, and hope now to be fine without it.
….when you run into debt; you give to another power over your liberty. ‘It is hard for an empty bag to stand upright.”
.. We may give advice, but we cannot give conduct’. ‘They that will not be counselled, cannot be helped’ ‘If you will not hear Reason, she will surely rap your knuckles’. ”
-The WAY to WEALTH, Benjamin Franklin
Please notify JAWS…wounded Flippers in the Water !
JAWS and alligators are going to gorge themselves on Flippers…
No, really. Stop laughing. Flippers really are our bestest friends in the whole wooooorld. Think about it. Who has houses they don’t want? Flippers. Who have no or soon won’t have emotional attachment to cloud a sale? Flippers. Who is going to drag comps to stygian depths? Flippers. Who is going to leave the mortgage markets starved for customers? Flippers.
Flipper/floppers are our friends.