‘So Much For A Soft Landing’ In Florida
The Herald Tribune reports from Florida. “So much for a soft landing. The median price of a single-family home sold in the Sarasota region in July dropped 11 percent from a year ago and the number of homes sold plummeted nearly 50 percent, according to numbers released Wednesday. The only area in state with a greater July-to-July decline than Sarasota was Naples, at 51 percent.”
“Inventories have gotten truly out of whack. The Sarasota MLS now lists 4,615 single-family homes for sale, versus 952 in May 2005, when sales were still going strong. ‘In all price ranges, if we didn’t list another house, it would take us 23 months to sell all the inventory in the Sarasota MLS at the current rate,’ (broker) Michael Saunders said.”
The St Petersburg Times. “July brings bad news for sellers, particularly in the Tampa Bay area where bidding battles are just a fond memory for homeowners. ‘There were a lot of speculators in the market and when you take them out, the difference is pretty dramatic,’ said Bradford Monroe, president of the Greater Tampa Association of Realtors. ‘Our inventory is four times what it was back then and the number of sales has gone down.’”
“One statistic that dramatically illustrates the change in market climate is the absorption rate, sales divided by listings, a statistic that Pinellas Realtors compile. In the single-family market, the monthly absorption rate has fallen from a peak of 59 percent in June 2005 to 9 percent last month. In the condo market, the rate peaked at 62 percent in April 2005 and fell to 5 percent last month.”
The Palm Beach Post. “Existing home sales in July continued their yearlong downward trend, plunging 44 percent in Palm Beach County and 39 percent in the Treasure Coast, year over year. The number of unsold homes in Palm Beach County also continued its yearlong trend, soaring to three times the number of homes on the market in July 2005.”
“Analyst Thomas Lawler believes sellers are going to blink first. ‘Net, the Southern Florida market is experiencing a hard fall from a meteoric rise, and there is little doubt that overall prices will move lower in most of this region through at least the next several months,’ said Lawler, a former Fannie Mae economist.”
The Sun Sentinel. “For the first time since April 2000, the median price for existing single-family homes in Broward County has fallen from the previous year. ‘What it means for homeowners is that wonderful buildup of equity is starting to erode,’ said David Levin, a housing analyst in Delray Beach.”
“He doubts the slumping market has hit bottom. And with prices falling and interest rates rising, Levin, said residents shouldn’t delay in applying for home-equity loans, which are based in large part on a home’s value. ‘It would have been better to get these loans two months ago, but now is better than tomorrow,’ Levin said.”
“Jacob and Sandy Lehtio had to reduce the price of their five-bedroom Miramar home seven times before finally striking a deal for $580,000. The Lehtios listed their home for sale in September, when the market was still hot. But they now concede their asking price, $723,000, was too high.”
“Tired of carrying two mortgages, the couple were thrilled when a buyer finally stepped forward. ‘You basically have to decide when to cut your losses,’ Sandy Lehtio said.”
The Miami Herald. “This is the South Florida housing market of today: Prices are easing, sales are plunging and the inventory of unsold homes is rising ever higher. It’s a situation that continued in July, according to existing-home sales numbers.”
“Many predict sellers will eventually cave and lower prices to meet buyers now willing to wait it out for a better deal. ‘The longer it takes for sellers to recognize the market they are in, the worse the market will become,’ said broker Manuel Iraola.”
“Selling a house has come to this: offering a new X-Type 3.0 Jaguar to find a willing buyer. For five months, Victor Peralta tried to sell his four-bedroom home in Miami Shores. Twice he lowered the price, by $150,000 in all, yet only two people stopped in to see it. Now he’s dangling the keys to a $32,000 car before buyers’ eyes. ‘I had to do something,’ said Peralta, whose house now lists for $1.075 million.”
“Peralta isn’t giving up hope. ‘The market is so bad,’ Peralta said. ‘I would have open houses and no one would show up. I hope by adding the car it works. If not, I guess I will have a new Jag.’”
‘The number of housing construction permits issued in Brevard County plunged in July to its lowest monthly total in more than nine years. That slowdown in homebuilding has cut into sales for related businesses, such as lumber and hardware stores, landscaping firms and electricians.’
‘Business is slow right now,’ said Klaus Jagla, the bookkeeper at Builder’s Supply of Cape Canaveral, a local lumber and hardware outlet, where business has dropped along with the housing market. ‘People are cautious to spend money right now.’
Anectodal evidence from Boca Raton FL - I was talking with our old my next door neighbor yesterday. She mentioned that the couple that bought our house in April 2005 already have it back on the market for ~ 5% less than than what they paid for it (selling it because of lost job
. The estimated Zillow market value for this house is ~ 20% above their listing price (appears Zillow values are major lagging indicators especially when nothing is selling - i.e., no new comps!!). When I listed this house back in April 2005 it was a feeding frenzy and we received ~ ten offers over asking price within the first 48 hours it was listed on MLS.
Also their other next door neighbor has had their house on the market since March. They have had absolutely zero traffic / interested buyers not even any lowball offers. The owner has moved out of state and is worried that he will have to hand the keys back to the bank if he can’t sell. I also have another relation who is trying to sell a house in Boca Raton but so far hasn’t had any interested parties albeit it has only been on the market ~ 30 days.
This is for a nice, desireable gated community in Boca Raton with excellent schools. While I knew that things were not good - I was shocked by the complete reversal in Boca Raton within the past year.
These stories must be made up, because I read this and only believe this-
“South Florida,” he said, ”is working off of a totally new economic model than any of us have ever experienced in the past” according to a realtor who predicted that a land shortage will support higher prices indefinitely.”
- New York Times, Trading Places: Real Estate Instead of Dot-Coms, 3/25/05
Crispy, you are my hero and I want to be you when I grow up. Sitting here in Orlando and watching the inventory bloom, I laugh my a$$ off every time I see that quote!
Ha Ha - Yep Crispy - but they didn’t say that the new economic model was thousands of HGTV watching, amateur Realtor/Flipper wannabe’s who were guaranteed 95% too young to remember that RE can bite you in the *ss.
proof that smoking pot does kill brain cells
“The Biggest Slump in US Housing in the Last 40 Years”: These are not my words but those of the Toll Brothers, the famous luxury McMansions homebuilders. As reported by the WSJ today: In his 40 years as a home builder, Mr. Toll says, he has never seen a slump unfold like the current one. “I’ve never seen a downturn in housing without a downturn in employment or… some macroeconomic nasty condition that took housing down along with other elements of the economy,” he says. “This time, you’ve got low unemployment, you’ve got job creation, you’ve got a stable stock market and relatively low interest rates.”. This followed last week’s CNN headline: “Builder: Oversupply slump worst in 40 years. Toll Brothers slashes outlook on new homes as orders plunge and revenue misses forecasts” Indeed, yesterday’s sharply falling profit results from the Toll Brothers confirmed their view that this is the worst housing slump in decades. Similarly, Angelo Mozilo, the CEO of Countrywide – the country’s largest independent home mortgage lender - recently stated: “I’ve never seen a soft-landing in 53 years, so we have a ways to go before this levels out. I have to prepare the company for the worst that can happen.” So, the only debate now is whether housing conditions are the worst in the last 40 years or in the last 53 years. So much for the bullish soft-landing wishful thinking coming out of Wall Street these days….
Nouriel Roubini | Aug 23, 2006
http://www.rgemonitor.com/content/view/142759/85/
“So much for the bullish soft-landing wishful thinking coming out of Wall Street these days…”
Nouriel misspelled “bullshit”…
As I have said before, wish in one hand and Sh!t in another. See which one fills up first.
Here was another great expression that I loved when I was down South. “Don’t piss down my back and tell me it’s raining”. I think that one fits in this context.
Hey, NYC City Boy,
My band did a song called “Don’t Piss on my Head, then Tell me it’s Raining” (That’s the NYC version) Maybe I can upload it and it can be the theme song for all the RE Bubble Bullshizzle.
Hey Buddhaman! Haven’t been around in awhile. Did you buy the house?
“I’ve never seen a downturn in housing without a downturn in employment or…” So with the upcoming downturn in employment, where will that put house prices???
And when we have this wipeout in the high buying season of July, where do you think prices of houses will be headed after Labor Day, when school is in session, and no serious, qualified buyers are left? The Labor Day Massacre!
“And when we have this wipeout in the high buying season of July,”
Oh, lest we forget, July has always been a slow home buying month since - uh, wait - this year!
Let’s not forget that this is the same egotistical Robert Toll that told us a year or two ago that we need to grow up and realize that housing is going to permanently cost more, and that we should expect to pay 40% percent of our income on housing like Europe. He also made some silly quote about how prices weren’t going to fall, right as he was selling massive quantities of stock.
As I recall, he also said that young people could just expect to live with their parents for many years until they could save enough to buy a place of their own.
I would say that all of the toxic loans qualify as a “macroeconomic nasty condition.” And when all the bubble-created jobs go over the cliff, I would say that’ll qualify too. Between the margin loans, job loss, and HELOC’s, this bubble is going to meltdown our entire economy.
The car incentives are truly insane. If anything, what they’re admitting is, they know the house is overpriced by much more than the price of the car, so it’s a deal for them to spend the money on the incentive. Obviously the one couple sold for about $200k less, and they were able to swing that too and walk away with $500k+ instaed of $700k+. As more of these stories come out people might start connecting the dots that these prices are REALLY way out of whack.
These so-called “incentives” used to be BS.
I say “use to be” because now the system is so corrupt, people accept these concessions as part of the value structure.
USPAP (uniform standards of “professional” practice) state that any undue stimulus relevant to a fair market transaction involving the selling price must be duly noted in a conforming appraisal report.
This is why appraiser’s are given a couple of the sales contract in their appraisal request package.
In the old days, an honest appraiser would clip the throw-in, and report an adjusted value.
However, for the last 4 years the honest and ethical appraiser has been given the boot, and the sleazebag, trainee hacks who will work for chump change, and don’t know any better, zip off a misleading report ignoring the concessions, and rubber stamp the concession inflated sales price.
Loads of investor’s holdin’ these types of garbage appraisal fiction backed loans-LMFAO…
Hell to pay in this debacle. The crash of ‘90/’91 will be kid’s play compared to what’s comin’.
The cost of the ’90’s S&L bailout ran $500bil.
With $100 trillion in derivative bets based on this historical run-up in RE values, my guess is the fall-out will be a depression the likes of which no one has seen before. The financial damage will be incalcuable.
I always appreciate hearing your take on the appraisal business. I wonder what it will take to get appraisals back in line with real value. I can’t imagine it will be pressure from the secondary market, unless it comes in the form of reduced demand for these loans. Even that will take a long time to work its way back to the appraiser, as I’m afraid banks have not worried about REO for so long. It will take a few REO that sell way below recent appraisals before the banks start to get it. I think we’re probably about another 2 years before appraisers start getting pressured to be brutally honest. Whatever happens between now and then will look like a dead cat bounce in comparison to the fall off afterward.
Question… In florida we are having a major issue with damaged homes due to the hurricanes of 04 and 05. When applying for insurance $$$ to pay for the damages, you need to get an appraisal. Often the homeowner gets his own private number hitter and the insurance company has their own appraiser.
I can’t see how a homeowner that bought a house in the last 2 or 3 years ( with most of them using enormously padded appraisal figures) aren’t going to be screwed now. for example; you buy a house that is really worth $300,000 for $500,000. It has $50,000 of damage. Now you need to get the house re apraised, with the market coming down. What happens with the new appraisal? Won’t this be a rather rude awakening to the thousands of homeowners in Florida that they are FB’s?
I wonder what it will take to get appraisals back in line with real value.
You make it a Federal felony to “coerce” or adversely “influence” the reporting of a real estate value.
It would be more complicated than that, but I’m being brief.
The interesting thing about the appraisal profession, is that all the people who have been involved in the profession since the evolution of the secondary mortgage market back in the early 80’s, absolutely know who the crooks and rubber stampers are…I know I’ve repeated the story on here before, but there was one guy in jail on a IRS tax evasion bust, who was having his flunkies bring in appraisal reports for him to sign while he was in prision.
Everybody on the street knew he was doin’ it, but the smoking gun was well hidden in the files of the mortgage company who was doin’ all the loans.
Also know that if you blow the whistle on another appraiser thru your local licensing board, will exposure yourself to a potential plaintiff suit by the crook. So despite, the insider knowledge of all the bogus appraisal work, everybody keeps their mouth shut, and either finds some other weird valuation niche to fall into, or go out of business.
Also what you have now, are people draggin’ out their ‘02 thru ‘05 vintage appraisal reports for another HELOC and demanding that the previous number be met or exceeded.
If the number ain’t met (which it isn’t in this market-and my guess is the hacks have already inflated that number by 15/20%-remember my post about the shite quality of work down today because of the fee low-balling by appraisal management companies) most of them go absolutely ballistic on you and their mortgage guy. Enough of these blow-up’s and you say-WTF am i doin’ in this biz.
However, hacks will accommodate to keep eating. No declining value box checked, and bogus comp’s grabbed from anywhere to hit the number and sell the mortgage.
It’s a deep hole the mortgage lenders have dug for all of us.
Just about the size of a casket I’d say.
Which stocks should I short!!!
hd74man …..Glad to have you back talking again . I have discussed the issue about incentives a number of times on this blog . IMHO people are not complying with reporting the incentives that should affect the appraisal value . I have stated to builders that they better disclose the incentives ,(rather than put them on some side contract that the lender/appraisal never sees ).As you know , the incentives should lower the sales price and the lender/appraiser is entitled to know.(What ever happened to truth in lending ?) They better weed out the rookie appraisers and bring in the pros or we are going to have alot of faulty appraisals . I don’t know how the builders are getting away with it .Lower the price , stop with the bullshXt incentives . Appraisers /underwriters ,start requesting all contract documents on the deal ,( as you should of been all along ). Thanks for your feedback hd74man because this incentive thing has been bugging me for a long time .
By the way , most lenders will accept small incentives like closing costs , carpet allowence etc. ,but when you start getting into those big numbers its a reduction of the selling price and the loan amount should be smaller . I don’t think anybody here wants to see banks fold .
Andy –
I agree with you. Incentives only pencil out for builders, for whom directly lowering sales prices has the potential for reducing the value of future sales. More on this below.
The exception for a house seller is to offer cash incentive (e.g. paying the closing costs). This attracts the buyer who actually has NO money at all
I used this incentive to sell a house in Riverside County, CA in May ‘06 (an elderly relative’s house, she couldn’t live there anymore because of health reasons and she had a reverse mortgage which means no renting). I got it sold just in time, that’s for sure. Anyway, the only person who made an offer did not want to put a nickel of her own money into the game (of course this doesn’t really make sense) so I paid her closing costs and gave a bit more cash to have the fench fixed (I had already painted, recarpeted, etc. etc. etc. to compete with the literally 1000s of new houses in the Sun City, Menifee, Murrietta, Temecula areas).
Then of course as the sellers who can sell and not get squeezed do so, then the other people who can’t will truly get hosed. We should see some selling for awhile, then a real lockup for a time as the people who can’t lower their price just wait to get foreclosed on.
This is a good point, Andy. A neat twist I haven’t seen here yet. If true, this fall may be a complete lock-down for sales.
That “absorption rate” is pretty interesting.
sales divided by listings, a statistic that Pinellas Realtors compile. In the single-family market, the monthly absorption rate has fallen from a peak of 59 percent in June 2005 to 9 percent last month.
In my area, prices may not have fallen yet, but NOTHING HAS SOLD for a couple months. It’s definitely reflective of a coming price decline.
It’d be interesting to see what home sale stats looked like in the Great Depression. They’re probably were no sales. It’s like at the end of a game of Pac Man, you don’t see your score go back to zero, it just says game over, woop woop woop.
There will be very few sales because hardly anyone will have money. Reminds of the article on iTulip about the Great Depression; Souplines and Supercars.
No need to go back to the depression.
Look at Hong Kong from 1997-2000.
Transaction volume dried up by some 50-80%, and then home prices dropped by similar amounts some 1-3 years later.
Volume changes is a great leading indicator in the future direction of price changes.
JMHO
I’m in San Diego. Down the street from me a house was listed probably four months ago for $775k-$815k. It’s an older SFH, 3 bedroom, one bathroom, 1,500 sq. ft. on a decently sized lot for the area. Too small for a family, and that’s who lives there now - kids, a dog, etc. - although I haven’t seen them in a while so maybe they moved and are carrying two mortgages.
Anywho, the price was lowered within a month to $715-$780k, and just recently came on down to $665-$725k.
Personally, I think the house is “worth” about $275k at most. That’s more than it was selling for in 2001. Looking on Zillow, you can see that the house was bought in 2003 (IIRC) for a bit over $400k, so that’s probably the lowest this family will go unless they must sell to keep eating.
“So much for a soft landing. The median price of a single-family home sold in the Sarasota region in July dropped 11 percent from a year ago and the number of homes sold plummeted nearly 50 percent, according to numbers released Wednesday. The only area in state with a greater July-to-July decline than Sarasota was Naples, at 51 percent.”
Well, at least we can be assured that this won’t happen in Orange County, California. Because Gary Watts told us that price increases are in the bag…
If some of those flopped flippers catch him, Dear Gary’s head is going to be the only thing “in the bag”- Soprano style.
Gary might want to check what’s REALLY in the bag. I’m not sure it’s price increases.
They won’t all get foreclosed on, many will ride it out like they did in the early 90s, and wait to sell until they can break even. Or, even during the next boom–that is probably 10 or more years away.
Far fewer will be able to ride it out this time. Too many stretched their financing with suicide loans which are resetting at unaffordable monthly payment levels, purchased investment properties whose margin calls will sink them, or succumbed to housing ATM-financed luxury good consumption spending which eliminated their home equity safety nets.
Exactly, not only that, we did have the ARMs and IO boom like we have now.
CORRECTION, that is we DIDN’T have ARMs and IOs back then. We do now of course.
True, but that only works if you don’t have a job change, divorce, illness or some other life changing event that forces you into a sale. Then with a downturn in RE you may find yourself in a neighborhood that is changing for the worst and nothing will bring you back to par.
Interesting point, raised here previously. I wonder how much of the current built up inventory is from sellers who have to sell vs. those sellers who would cash out at the current level, but could afford to wait if prices dropped.
“some other life changing event that forces you into a sale.”
Like your ARM adjusting….
…many will be able to ride it out like in the early 90’s..next boom in 10 years…”
Also remember in the early 90’s the baby boomers were in their 30’s and 40’s-peak earning years. 10 years from now they will be approaching or in retirement. I am sure they are going to want to downsize and will not want to be speculating with their retirement money. Who are the boomers going to sell to? If there is two boomers for every person in there 20’s and 30’s, then what?
“Analyst Thomas Lawler believes sellers are going to blink first. ‘Net, the Southern Florida market is experiencing a hard fall from a meteoric rise, and there is little doubt that overall prices will move lower in most of this region through at least the next several months,’ said Lawler, a former Fannie Mae economist.”
Why should any buyer feel compelled to blink when it costs 2/3 as much to rent as to buy, and you could lose 11% of the purchase price of a home in the first year of ownership? And eventually, lenders are going to realize the folly of lending to buyers who are unable to grasp this argument, especially those buyers who still feel a desperate need to stretch their finances thin in order to buy homes at the all-time record high real price, despite the price reductions which evidently are already happening.
I agree with most of what you say except the lenders part. Lenders don’t care about the borrower’s ability to pay which explains the explosions of Interest only pay whatever you can whenever you want type loans.
Remember during this last expansion the lending idustry spawned a whole group of new lenders and these guys have been acting like RE agents, focusing on trandsactions, transactions, transactions. After the closing they simply package the loans and sell them off as mortgage backed securities. In other words, distributing all the risks to other entities such as FNM and global central backs.
With rates adjusting upward, the new pitch is to refinance into something fixed. Again, focusing on transactions, transactions…no ethics whatsoever!
This is a tiered market. As long as they can keep pumping in subprime buyers at the bottom, they can keep prices propped up. Lenders, realtor, builders, and associated players can reach their soft landing that way.
But if people realize that being modern-day sharecroppers is not the way they want to live, and the market freezes… this could get quite dramatic.
How it ultimately breaks down isn’t clear to me.
“How it ultimately breaks down isn’t clear to me.”
I can personally foresee a future shortage of fools willing to make loans to subprime buyers which will never be paid off, because the houses they are buying are unaffordably priced and dropping in value. And I am not a lender myself; I am reasonably sure that lenders understand this problem far better than myself.
“A banker is a fellow who lends you his umbrella when the sun is shining
and wants it back the minute it begins to rain.”
— Mark Twain –
Great twain quote. The man was uncanny.
He certainly was, and he is one of the few people that went bankrupt, and once he got back on his feet he paid back all of his debt’s in full! Rare indeed.
Wow - it just became clear to me:
Why were (apparently foolish) lenders willing to make suicide loans with miniscule teaser payments, in the first place? To people who, under normal circumstances, would be likely to default?
Because homes values were increasing. Debtor can’t make the payments because of a resetting loan? Big deal! Sell the home for a profit, pay off the loan, and move into another loan!
The game ends when house values stop increasing. No more ability to pay off the loan because of a more valuable house.
I think Fleckenstein nailed it - the lending boom has powered the housing boom. Once the lending boom ends - that could freeze the market.
Where did this teaser rate shit come from? I thought and ARM even 6 years ago was basically just a few basis points lower than say a 15 year fixed, not several percent lower.
The teaser loans are equivalent to buying stocks on extended margin. Is there any provision in a mortgage that says they can ask for all the money back (or more collateral)? My bet is that there is. Somewhere deep down in the fine print I bet there’s something about accellerated payments or payment in full. I wouldn’t be surprised to see lenders exercising that. Of course they wouldn’t get anywhere except create a housing boom in Hooverville.
it just became clear to me
Penny . . . drops.
Welcome to the bear side.
Totally agree. Even with sales down 25% to 50%; there are still alot of individual transactions taking place. Relatively low interest rates are partly to blame. However, when buyers begin to realize buying a house defined by assuming a debt; not by the finding a monthly payment they can afford; then things will really slow down. gordo
Something else to factor in…a lot of the building boom was based on cheap, unqualified laborers doing the building…I’ve heard horror stories about buyers stuck in terribly built claptraps, bought just last year! Stucco coming apart, leaking roofs, foundations shifting, etc. That’s another whole level of unhappiness for many.
Three comments on this:
1. I remember in 2000 when everyone was justifying the high prices of stocks and even bears began saying “I can’t see how this will end.” So your statement of acceptence is basically a signal the end is about to start.
2. Subprime has been floating this crap paper because they are able to sell it through Wall Street, just like with junk bonds of the 80s the buyer will dry up. It is starting to happen already.
3. Most of the country is levered with debt, new buyers cannot afford these prices. It dies of exhaustion like most bubbles and then it will get worse as the leverage kicks in in a negative fashion.
SR
A frozen market is dead money. DEAD MOMEY IS WORTHLESS.
From the Sun Sentenal
“He doubts the slumping market has hit bottom. And with prices falling and interest rates rising, Levin, said residents shouldn’t delay in applying for home-equity loans, which are based in large part on a home’s value. ‘It would have been better to get these loans two months ago, but now is better than tomorrow,’ Levin said.”
At this point, what fool would give a secured loan on a depreciating asset?????? Although, in this credit environment – there lots of fools out there.
The warped reasoning goes like this: Better get that HELOC now and party hardy before the comps get killed. If they are going to foreclose anyway, at least have a great time on the way down, or better yet, just take the money and run.
There are some housing bulls ( certainly in denial) posting to this forum.
http://www.topix.net/forum/source/south-florida-sun-sentinel/T6SPK98G77KT3ETPC
Wow, they’re an articulate bunch, aren’t they. It’s depressing to think that with all the money spent in this country on education, this is what we end up with.
I am amazed, consistently, at the sheer number of people who cannot spell “investor.” Of course, many of these individuals are the same ones who believe that adding $50,000 worth of appliances, paint, flooring, and countertops will make their houses worth an additional $100,000, so it seems we have a national problem with both spelling and mathematics.
“My house is on the market For $495,000 3/2.I’m homestead, I plan to wait as long as it take to sell it. Meanwhile I
raise my price $10,000 every 6 months To cope with inflation.It will sell, eventually but at my price.
”
– That was my favorite!
Mine too. He might get his price in 2017. Hope he can hang in there that long.
But think about it, if he’s raising while the market is going down, waaaay down, then he’ll be waaaaaaaaaay ahead in his price. It would take another trememdous bubble to catch back up with him. After this debacle, that could prive highly unlikely for another several decades, I presume. He’ll live in that house until he’s dead (or when he gets a clue).
Prove, not prive, sorry.
I like this:
“N A VERY QUITE NEIGHBORHOOD WITH DEAD IN STREETS”
“He doubts the slumping market has hit bottom. And with prices falling and interest rates rising, Levin, said residents shouldn’t delay in applying for home-equity loans, which are based in large part on a home’s value. ‘It would have been better to get these loans two months ago, but now is better than tomorrow,’ Levin said.”
__________________________________________________________
..and the banks are gonna loan you money based upon the “equity” in your house whlie the value of the home is rapidly eroding ??
Am I missing something ? WTF ?????
What happened to discretion, diligence and responsibility in lending ??? By allowing people to HELOC at this very precarious time you are guaranteeing that they will be upside-down and underwater on their mortgages when it comes time to sell. Banks have thrown ethics out the window.
Unbelievable.
This is completely crazy. But I know that some, maybe a lot, of people think this makes sense. The rationale is “I need the money”…they kind of think that they have the money in equity, and then it goes away if the value goes down. They don’t seem to get it that there is NO DIFFERENCE. Whether the house equity goes up or down if they take out a loan they still are taking on exactly the same amount of debt. It’s like they don’t think they will ever have to pay it back!
Who says you have to take the money out? I know a number of people (myself included) who set up HELOCs as an ‘emergency fund of last resort’ (beyond the EF in our savings accounts) but who have not touched the money. It makes sense to do something like this before the value of the house falls further and the opportunity is lost.
I need clarification on this though. If you refi, or HELOC, does that show a new sales price, therefore increasing your taxes?
No, neither a refi or heloc affect your cost basis.
Cool, thank you.
I posted a week or so ago about the savings rate in the US. It was something like- the average renter has a 4% savings rate, the average homeowner without a HELOC is about .3% and the average homeowner with a heloc is a negative 16%.
So much for the theory that the cash outs are being banked.
It is going to be uglier than Rosanne on a hot day wearing a thing and eating an ice cream cone.
I posted a week or so ago about the savings rate in the US. It was something like- the average renter has a 4% savings rate, the average homeowner without a HELOC is about .3% and the average homeowner with a heloc is a negative 16%.
So much for the theory that the cash outs are being banked.
It is going to be uglier than Rosanne on a hot day wearing a thong and eating an ice cream cone.
now you made me blow coffee all over my keyboard. but it was worth it. thx.
CincyDad,
You have a good point, but for me spending money you don’t have is just something I don’t do. There certainly are real life situations where this would make sense though — e.g. medical bills.
“He doubts the slumping market has hit bottom. And with prices falling and interest rates rising, Levin, said residents shouldn’t delay in applying for home-equity loans, which are based in large part on a home’s value. ‘It would have been better to get these loans two months ago, but now is better than tomorrow,’ Levin said.”
that’s really clever advice, to take out (even more?) equity on an asset that is supposed to (continue to) loose value. Better stop digging that hole in the ground …
Wow. Big declines in prices showing up in Northern Nevada.
http://tinyurl.com/gxd4z
I guess we won’t hear much going forward about California investers purchasing homes in the desert outback…
“Affordability is an issue in “hot” markets across the nation. The recent real estate boom seems to have bypassed cities like Denver and Albuquerque, N.M, but those markets are now raising some eyebrows, according to David Lereah, chief economist for the National Association of Realtors.”
Nice DL, send some people over to buy up foreclosures in Denver. Generally, when you talk about people that consider homes more than 1000miles away, you are talking about investors. Note to DL: you yourself said that investors were only like 10% of the market, and they’re gone now.
Northern Nevada has soaked up a lot of California equity, and when that dissipates, the mother ship can’t keep itself going.
Bypassed Denver, hahaha! Oh, Liareah, try telling that to the morons who paid $500k for a Lodo condo in 2005 when you could have gotten it in 2003 for $185k. Oh, don’t forget the $10,000 parking space.
Denver boomed early, in 1999 and early 2000. Keep in mind the national mania was in offering credit, not necessarily in prices. Colorado has plenty of land to develop into, so the maina here was in people buying huge new houses they can’t afford, or else HELOCing themselves into insolvency using the “equity” they got in the 90’s.
Two examples from my Fort Collins neighborhood recently. #1 purchased in 2004 for $208k, foreclosed this spring and sold for around $180 k in early August. #2 purchased in 2004 for $180k, sold in August for $183500, owner rented the house at an apparent loss for 2 years and put at least $5k of carpet/paint/appliances into the property.
“Analyst Thomas Lawler believes sellers are going to blink first.
Ahh, this is the kind of insight money can’t buy.
I have a friend that bought a townhouse in Hypoluxo, FL pre-construction for $365k last year to flip upon completion. Now the builder (Lennnar) is advertising the same units for $300k. She has $35k into the deal so far. She went back to the builder and asked them to honor the new price. They did lower the contract price to $309k and I could not believe it.
Why would the builder agree to lower the contract price in this situation? Clearly, she is not going to occupy the unit. Does this make sense? I was shocked to hear the builder would do this for a speculator. Is it that bad out there? I think it might be.
Depends on how bad the builder needs to sell, and how far into the contract your friend is IMHO. Hypoluxo? Never heard of it. More proof that the bubble is EVERYWHERE!
Hypoluxo is in the area of Boynton Beach, FL. 10 miles south of West Palm Beach, a very bubbly area.
If she walks on that deal, builder has to find another (scarce) buyer - builder does not care who she is, wants to keep sale on the books at any cost. They have shareholders to report to.
Do that math. She has $35k in. If they don’t lower the price for her she walks, and she’s out $35k, and they have another house to sell and all the sunk costs.
My question is, why would she accept anything over what the builder is offering others. It’s a flip, so she’s lost money even before she owns the place.
I’d walk. This one’s a bad deal, and she is a poor speculator.
“Selling a house has come to this: offering a new X-Type 3.0 Jaguar to find a willing buyer.”
He should have studied economics in college. Then he would realize that it would be far cheaper to just reduce the price of his home by an amount needed to attract a willing buyer, rather than incurring the transaction cost of purchasing a new Jaguar, then facing the double-coincidence-of-wants problem of finding a buyer who likes both his house and the car. Giving away cars only make economic sense for builders, who get to fool their competition (used-home sellers) by posting comparable sale prices which do not reflect the value of the incentives they are offering, and which also serve to help overstate the value of their new home inventories (to the extent the incentives are not reflected in the valuations).
I know! Jaguars are junk! Now if he threw in a Toyota FJ Cruiser, maybe we could talk . . .
And to top it off, he probably used a HELOC to buy the Jag…
If I am the buyer I want lower price. Lower selling price means lower property taxes year after year. If I take the Jag - then I pay higher property taxes every year.
Good point. Why have two uncertainties and the head aches? However, the home price (> $1 M) and his moronic approach make me think he was trying to attract another materialistic, status-fixated moron. It is amazing how many of the new developments over the last couple years have been targeting the legions of “Luxury” buyers. I think most of the market of hyper-wealthy boomers will evaporate right along with the phony equity in bubble areas. Then, hopefully, this stupidity will evaporate too.
I hope the people who are interested in certain homes which happen to be offering cars as incentives (if those potential buyers even exist in this market) start mentioning to the sellers that they “aren’t interested in buying a car as well as a house.”
When builders start offering Rolls Royce’s, I might take an interest.
Someone needs to either brush up on their cut and paste skills or their math skills in this latest one from the PNJ:
“In the Pensacola area, the number of single-family sales of existing fell 8 percent in July compared to the previous year. The median sales price was down 4 percent, from $236,600 in July 2005 to $169,200 last month.”
See related article at:
http://www.pensacolanewsjournal.com/apps/pbcs.dll/article?AID=/20060824/BUSINESS/608240330/1003
They transcribed last year’s numbers from Punta Gorda, which is the next city on the list. Last year’s price was $176,700 - though I always have serious doubts about what these half-truth-sayers spew forth to the public.
I bet the 28.5% decrease based on the figures in the paper caused a few heart attacks today in P’cola.
Yea, really! All those geezers need to get in to see the doc and get their pacemakers reset.
I can imagine what this is going to do to the property tax “money train” that’s been bringing loads of new home owner cash into the community chest for the past 3 years.
“WHAT?!!! You say these homes are worth LESS than a year ago?”
Recent homebuyers are going to go ape-$hit on the county appraisors over the next several years.
“the monthly absorption rate has fallen from a peak of 59 percent in June 2005 to 9 percent last month”
A modest proposal for the FAR: Change the way you calculate the statistic. I think that, given the current market, where sellers are asking too much, you should only count those homes priced at what buyers will pay, since that is the new reality.
Assuming that a closed sale represents an equitable sale, the new “Absorption Rate 2006 (c)” statistic is now pegged at 100%. We have a perfect market. We told you so. Now, get off the sidelines and buy now before rates go up again!
We are going to be have a very painfull transition, from a time that money is cheap and life is exspensive, to a period where money is expensive and life is cheap
“July brings bad news for sellers, particularly in the Tampa Bay area where bidding battles are just a fond memory for homeowners. ‘There were a lot of speculators in the market and when you take them out, the difference is pretty dramatic,’
There are still bidding battles. It’s just that the bidders happen to be multiple sellers competing over a buyer.
How lowwww can you go…?
Jack be limbo, jack be quick
Jack price under limbo stick
Oh you hear the ticking clock
When you do the limbo rock
Even the term “soft landing” never fooled much of anyone into buying in this sick market. Once the downturn began and all the RE agents began using this term, buyers still stayed away. Even with a so-called “soft landing”, money is still lost. Why did anyone think using this terminology would stop the heavy bleeding that sellers/investors/speculators are now experiencing?
Bleed baby Bleed.
D’oh!!!
For the record - Pensacola, July YOY, 2005->2006:
2005
Homes Sold - 470
Median Price - $175,600
2006
Homes Sold - 432
Median Price - $169,200
I’ve got the link on my site if you want to see the list for the whole state. (again, I caution that you digest this “pseudo-information” with a large dose of SALT)
Thanks.
As God, and my fellow bloggers, my witness I will no longer trust the MSM to report the facts. I shall from this day on put my faith in the collective knowledge of bloggers to report the unbiased truth.
“…offering a new X-Type 3.0 Jaguar to find a willing buyer…I hope by adding the car it works. If not, I guess I will have a new Jag.”
No, you will have a new Ford.
A year from now the RE market will be called”a suckers market”
It’s already a sucker’s market.
OT…
Recession will be nasty and deep, economist says
Housing is in free fall, pulling the economy down with it, Roubini argues
By Rex Nutting, MarketWatch
Last Update: 4:59 PM ET Aug 23, 2006
http://tinyurl.com/ncvva
it’s nice that this kind of stories get published now, it might help to speed up the necessary decline in home prices. But I don’t understand why
‘He also sees many of the same warning signs in other economies, including some in Europe’
I’m not aware of any EU economy were homeprices are declining; over the last 5-10 years all the ‘declines’ proved to be just noise on the steeply ascending homeprice charts (except for Germany where there is no housing bubble). There are warning signs like huge debt buildup, increasing inventory, crazy leverage, strong dependence of the economy on housing etc. - but most of these signs were present in Europe at least 5 years ago already, and nothing happened …
Relax, he’s writing for an american audience. If he wrote that “there are now price declines on Mars” it would have the same effect. There’s probably a fair number of readers that can’t point to the Netherlands on a map.
What an excellent quote!
“Sellers who really have to sell are waking up and smelling the coffee. There’s more coffee coming.”
Things like Jaguar giveaways, though they sound illogical, can have a psychological effect that can get the house sold quicker. It’s more a way of standing out and feeding the fantasy of the buyer. I’m sure it works! Incentives are a key sign of a weak market. So when incentives are the rule of the day, that’s a good market to stay out of.
They also skew housing price statistics, and median selling price/asking price etc. become more unreliable in such an environment. I think they need to report housing prices with such incentives removed. JMHO
A 32k car is a kickback to buy a house and it lowers the true value of the house . Before you know it we will have people giving 200k kickbacks to buy a house and paying people 200k to buy a home while not putting anything down .Watch out secondary market your about to be screwed by the crooks agents of this market . Better have double checks on all your appraisals .It will be worth the cost for double-checking .
By the way , do you people out there want a higher property tax bill sent to you because incentives weren’t accounted for ?
As I see it, a correct appraisal is the single most important aspect of a loan ,( not that its very easy being a appraiser in a declining market ).
This is classic game theory. If the buyer walks, she loses $35K and the builder loses a sale. The builder can afford to lower the price to, but not below, his own current selling price (that would essentially force him to lower his current selling price as well) and be better off, presuming the builder still makes more than the forfeited $35K on the sale at $300K (he clearly does). The buyer is technically better off at any price below $335K (since above $335K she can walk and then turn around and buy at $300K). So the renegotiated transaction will take place between $300K and $335K, which it does.
Wow, I was really starting to have my doubts about the free market there for a while…
I spoke with someone at the Hillsborough County tax appraiser’s office yesterday. She said home prices are headed straight down, but that the appraiser can actually claim that the “fair-market value” of a property is higher than the selling price, hitting a buyer with an even greater-than-expected annual property tax bill. I was under the impression that the so called fair-market value of a newly sold home in Florida was 100% of the selling price. This is how it is reported. But, it appears the reality is much, much worse.
Now that state, county, and local governments have gotten used to outrageous property tax revenues on inflated bubble priced sales, property taxes may never go down, no matter what happens with the real estate market. Imagine paying 300k for a house that sold for 800k at the top of the bubble, and being told one has to pay 2.5% property taxes on the old inflated 800k price because the appraiser thinks IT represents “fair-market value.” One would have to pay $20,000.00 property taxes the first year, followed by 3% annual increases (the maximum allowable for anyone claiming homestead exemption). Who in his right mind would buy anything in Florida till the legislature has corrected this mess, and brought taxes down to a reasonable level?
I believe the highest property tax rate in Florida is 3% of apparaised “full-market value,” but the percentage varies from place to place, which makes it even more confusing. Properties that are not homesteads can have property tax increases with no limitations: something that has happened to my apartment building, causing my landlord to greatly increase everyone’s rent. He’s also factored in his increased insurance rates.
Of course, the reporter never mentions he paid 415,000 in July 2002, for a tidy 159% return even at his ‘dramatically’ reduced asking price of 1,075,000.
WARNING: Not for the faint of heart. To follow up on the appraisal comments above, which we all understand how it has worked in a boom. “Whew, it appraised at the sellers asking price”. or “Whew, it appraised at my high bid?”.
Now, let me clue you in to how the appraisal business works in reverse in an all out housing CRASH.
Scenario: You are in trouble financially and you have to sell fast, the market has crashed. Your neighbor paid $100,000 for his house a couple of years ago and owes $97,000, he goes to the bank and says he needs an appraisal. The bank sends out an appraiser and Shazaam, it appraises for $97,000. You on the other hand paid $80,000 for your house 10 years ago, you put in $20,000 in improvements, the usual granite counter tops etc. You also diligently paid down your mortgage to $40,000. You call up the bank and ask for an appraisal and shazaam it appraises for $40,000.
Reread the Mark Twain quote posted above.
This is how it works in an all out housing crash. Read it and weep. The banks will not care about anything but getting their money back and a lower appraisal just increases the potential pool of buyers.
Remember you read it here first on Ben’s housing blog.
The appraisal comments above refer to valuations concocted by the tax appraiser’s office, not by loan officers or the real estate appraisers they use. Private property appraisers may claim a property is worth $40,000, but the tax officer’s appraiser can claim $400,000, and this is the figure that will determine the buyer’s annual property taxes. Housing may crash, but don’t hold your breath waiting for the tax collector’s appraisers to adjust their numbers accordingly. After all, their salaries and retirement funds are paid for by property taxes.
You are right, which brings to mind another Tampa anecdotal. At lunch yesterday a lady was telling me how shocked she was at the increased valuation the Hillsborough Co. assessors office put on her house. She said that it she doesn’t mind because her taxes can only go up 3%. She also said she is happy that her house is still maintaining its value. I just kept eating my soup, it is impossible get people to wrap their minds around these ideas.
I am starting to hear people make the comments along the themes of, “I really have a lot of money, it is just tied up right now(in my house)”. Or, “I really am rich, I just don’t have any money right now”.
OOOOOHHHHHH KAAAAAYYYY BBBBBBBEEEEE
Now, Lets divide up the lunch check, lets see I had the soup and you had the steak.
This is going to be buried but here is an interesting article about cat 5 hurricane proofing houses in FL. Apparently, it is unaffordable to spend $50k to hurricane proof a median house.
But if prices increase $100ks due to the “market” and “demand” then that’s perfectly ok and you couldn’t halt the buying…..
But when it comes to building quality to resist the elements then it’s “unaffordable”. It demonstrates how the warped speculator mentality has infested housing in this country. Quality doesn’t matter. It’s just an investment vehicle……..