‘Piling On More Proof The Housing Boom Is Over’
The new home sales numbers are out. “Piling on more proof that the housing boom is over, the Commerce Department reported Thursday that new home sales fell by 4.3 percent last month to a seasonally adjusted annual sales pace of 1.072 million units. The decline was the largest since an 11.5 percent plunge in February. The inventory of unsold homes climbed to a record high.”
“The government reported that the median price of a new home was $230,000 in July, down from $233,800 in June and up from $229,200 a year ago.”
“Sales of new single family homes came in at a seasonally adjusted annual rate of 1.072 million houses, down from the revised rate of 1.12 million in June and dropping 22% from 1.367 million from a year earlier.”
“The seasonally adjusted estimate of new houses for sale at the end of July rose to the highest-ever number of 568,000 from 566,000 at the end of June..up 55% from a year earlier and the highest months’ supply since 1995. ‘One thing that concerns me is the inventory,’ says Phillip Neuhart, an economic analyst with Wachovia.”
“Anyone buying now has to ask: Is a bubble about to burst? ‘The hesitation on the part of sellers and the hesitation on the part of buyers has made for kind of a normal market,’ real estate agent Marcy Moyer told correspondent John Blackstone.”
The New York Times. “The housing market is deteriorating by the month. ‘It does feel a little scary right now,’ said Celia Chen, director of housing economics at Moody’s Economy.com. ‘I think these markets will correct. The price gains that they have seen have exceeded what can be supported by the economic and demographic fundamentals.’”
“‘Certainly, the housing market is undergoing a measurable adjustment,’ Lawrence Yun, senior economist with the Realtor association, said. The bloated inventory levels, Mr. Yun said, indicate ‘a very sudden change which I have never seen before.’”
‘The government reported that the median price of a new home was $230,000 in July, down from $233,800 in June and up from $229,200 a year ago.’
And if incentives were taken into account? This quote from the CBS links need some research:
‘Sale prices are down 8 percent in Florida and 5 percent in California. Prices are slipping in other cities, too, CBS News correspondent Sharyn Alfonsi reports.’
“‘Sale prices are down 8 percent in Florida and 5 percent in California. Prices are slipping in other cities, too, CBS News correspondent Sharyn Alfonsi reports.’”
Great. Only another 40% or so to go, and only then will that be a buyer’s market in my mind
there are so much conflicting bs in the media. it’s just amazing. on the one hand, it’s a slump; on the other hand it’s a normal market. wtf. are these realtors going to the same classroom.
I spit my cofee out while reading this.
http://biz.yahoo.com/ms/060823/172112.html
It’s pretty obvious from the fact that we all saw this coming at least a year ago, that in fact, reporting is basically nothing but reporting, and no research is being conducted, no less critical thought.
“It’s pretty obvious from the fact that we all saw this coming at least a year ago, that in fact, reporting is basically nothing but reporting, and no research is being conducted, [much] less critical thought.”
That’s the tough part for friends and family who did not act on our best-intentioned revelations a year ago, when we did. Now, it is far too late to maximinze gains and for many people it is too late just to break even.
This “Home prices fall; sales plummet” was the front page headline in the Wash Times this morning.
http://www.washtimes.com/business/20060823-115813-6690r.htm
I think this is quite an event.
You don’t quite sense the same impact when it’s one of many articles. Our “friend” Partice Hill continues on the bear theme. I wonder if he is annoying the RE shills who write in the sad Friday RE supplement?
From the link, above:
“A hefty price gain of 3.2 percent in the South prevented the first overall decline in the national median house price since 1995.”
Now, hust wait a doggone second! I have been lead to believe that home prices have never declined nationally. Yet here it is, right in the MSM!
I am broken hearted, *SOB* . Either David Lereah is lying or the MSM is lying. But I can’t imagine either not telling the whole truth.
Someone help me!
Anyone buying now has to ask: Is a bubble about to burst? ‘The hesitation on the part of sellers and the hesitation on the part of buyers has made for kind of a normal market,’ real estate agent Marcy Moyer told correspondent John Blackstone.”
Let’s see.. record level of inventory, 20-50% decreases in sales across the country and median housing prices dropping. Is the housing bubble going to burst? Doesn’t sound like it to Marcy.
I’d hate to see what her opinion of a housing bust is. 100% drop in sales and 50% prices declines perhaps. I think that is what it will take for a realtor to admit the bubble has burst.
No, that’s a cooling market
No, it’s called a buyer’s market
No, it’s a normal market.
I’d hate to see what her opinion of a housing bust is. 100% drop in sales and 50% prices declines perhaps. I think that is what it will take for a realtor to admit the bubble has burst.
—————————
Just wait. I think you just might have a good prediction of what’s to come…
in most markets we are just back to normal where it takes 6 months to sell a house on average. people just got spoiled by 2004 and 2005 and are panicking.
I think a few markets are in a bubble and most markets are due for a correction or a stagnation lasting at least 5 years. Including NYC. But we really won’t know until next year if this is a return to normalcy or a bubble bursting.
so put your party hats away until next may
7.4 months supply. But, that is part of it. Prices went way up for way too long to justify buying at this point.
If there is a 100% drop in sales how can there be any sales.
Exactly…
Not sure most people are really aware yet. I know when I bought my house 10 years ago at age 27 I had no idea what kind of market we were in or even thought to ask. I DID KNOW that you should be paying much more than 2 times your gross salary for a home and so set my sights accordingly. Lucky for me it was right about at the bottom of that downturn back in ‘96.
You bought for 2 times gross salary?? Dude, where do you live –rural South Dakota? Here in Bubbleville central (SoCal) the median priced home is now close to 12X median HH income. Back in 1996 it was “only” about 5-6X. I don’t think it will EVER get that cheap here –not even at the end of the current blow-off. To many anti-development NIMBY laws, too much illegal immigration, etc. The population density, red tape and and cost of building is too just too high here.
next month report will show yoy declines in median prices. jag or no jag.
there’s an $800 spread separating the two right now.
I think it’s quite possible to have YoY median declines in EVERY state, yet still have the national median YoY go UP.
Not unless you cook the numbers some special way
No, it’s quite possible mathematically. In fact, it requires only a single house to increase in price while every other house can decrease. It’s not very likely, but it’s not impossible.
Consider two states, each with three houses in them. State A has houses priced at $1, $2, and $4. Median price is $2. State B has houses priced at $3, $8, $10. Median price is $8. Median price of both is $3.5.
Now, a year later, A’s prices are $1, $1.80, $3.50. Median decreases from $2 to $1.80. B’s are $6, $7, and $8. Median decreases from $8 to $7. The total median price, however, rises from $3.5 to $3.9. It’s pretty easy to generalize this kind of behavior to N states.
Yes, unlikely, but not impossible. Simpson’s Paradox comes to mind.
You are correct. I estimate the market peaked last August. YOY prices will be down in next month’s sales report.
This housing bust is different. We are heading to a permanently low plateau.
Sell now or be priced in forever.
They arent making any more buyers.
LOL!
“Sell now or be priced in forever.”
Funny, but a very good point, and that thought is what has kept me from buying for the past few years - fear of being stuck in a condo no one wants, or a starter home I outgrow and can’t sell!
yes, indeedy…even here in the allegedly sleepy unbubbly midwest, and with income levels not lower than median, unless I was willing to do funky loans anything I could reasonably afford would be really unpleasant to “be priced into forever”.
Oh for crying out loud. It’s a CYCLE! Of course you shouldn’t buy now, but the opportunity will come. I think it’s safe to predict that the price bottom will be reached before 12/31/2010.
Android #47895731, your humor chip is malfunctioning. Please report to the nearest maintenance facility for assistance.
I agree, IMHO this reads like Bill Gross’s recent analysis of the bond market - the last bull market in bonds for three years then tsunami with years to recovery.
“Anyone buying now has to ask: Is a bubble about to burst? ‘The hesitation on the part of sellers and the hesitation on the part of buyers has made for kind of a normal market,’ real estate agent Marcy Moyer told correspondent John Blackstone.
The New York Times. “The housing market is deteriorating by the month. ‘It does feel a little scary right now,’ said Celia Chen, director of housing economics at Moody’s Economy.com.”
Realtors (TM) are glib about the return to a normal market, and economists are scared sh!tless. I wonder who will turn out to be right?
“The government reported that the median price of a new home was $230,000 in July, down from $233,800 in June and up from $229,200 a year ago.”
That must be a mistake, because home prices never fall on a national level.
didn’t i read on this blog that the national median home price hasn’t fallen since the great depression?
didn’t i read on this blog that the national median home price hasn’t fallen since the great depression?
—————————————
It’s one of the NAR’s leading lines. Of course, you never hear them mention the fact that prices did indeed drop during the GD. They just claim that prices have never dropped on a national level. A lie unto itself.
my apologies, i meant posted a y-o-y price decline?
All I could find is this graph back to 1968. I’m not sure if it is year-end median numbers, or what.
http://www.realestateabc.com/graphs/natlmedian.htm
The closest years I could find were 1988 to 1989, a 0.2% increase in prices:
1988 $89,300
1989 $89,500
Anyone care to speculate on the historical meaning of a negative YOY number? The current YOY number is 0.3% … maybe next month will be negative? But depending on the definition of the previous graph, maybe the year-end number for 2006 won’t be negative? Lots of questions here …
Makes yuo wonder if that 0.2% 1988 number was cooked, to eke into positive territory.
saw this quote on cnn - statistic nuances of mean/median aside, all I can say is wow
“The median price is now down 10.5 percent from the record high set in April of this year.”
http://money.cnn.com/2006/08/24/news/economy/newhomes/index.htm
This seems to be nationwide, as no specific locale is mentioned.
I checked the Commerce Dept’s PDF file and found this seasonally adjusted info, median price, in dollars:
229,900 July 2005
240,100 Aug
240,400 Sept
243,900 Oct
237,900 Nov
238,600 Dec
244,900 Jan 2006
250,800 Feb
238,800 Mar
257,000 Apr
235,800 May
233,800 June
230,000 July
Keep in mind these are subject to revision and don’t reflect incentives. Also, the cancelled houses aren’t added back into the inventory, reports have said.
Also, I assume those are nominal, not real, figures. Factoring in inflation would show the real median price is already down YOY.
The drop in (nominal) median price from April through July is
[230,000/257,000 - 1] X 100% = 10.5%.
The annualized rate of decline is
[(230,000/257,000)^4 - 1] X 100% = 36%.
Factor in a conservative estimate of 3% annual inflation, and you can bump up the annual rate of real price decline to
[(230,000/257,000)^4/1.03 - 1] X 100% = 38%.
Maybe it won’t be that long afterall until the 40% off sales begin…
Hmm, using these numbers I predict a YOY decline of 25% by next February at the latest.
Has anyone done this list before (2 months ago, 6 months ago)? Sometimes they “revise” the numbers (in addition to seasonally adjust them, what’s the formula?). The CPI and the GPD is doctored this way, the point being that a change to a 4 moth old number doesn’t make the news, but it can make the lastest number look better.
Just checked the link. There’s historical data (old news releases) @
http://www.census.gov/const/www/newressaleshist.html
Surprise: yes, the data for old months changes!
I’ll check how fishy it is.
Here’s the data from the reports in Jan, Mar. May & July ‘06. Some of the adjustments are as high as $10k? How can it be so inaccurate? PS: This is new houses only.
* means data updated from earlier.
Jan 06 report, $med $ave
2004 $221000 $274500
2005 $238100 $295100
July 05 $229200 $ 289300
Aug. 05 $240100 $295000
Sep. 05 $240400 $299600
Oct. 05 $243900 $293600
Nov. 05 $232600 $288600
Dec. 05 $229000 $281700
Jan. 06 $238100 $291600
Mar 06 report, $med $ave
2004 $221000 $274500
2005 $240900* $297000*
July 05 $229200 $ 289300
Aug. 05 $240100 $295000
Sep. 05 $240400 $299600
Oct. 05 $243900 $293600
Nov. 05 $237900* $294400*
Dec. 05 $238600* $290200*
Jan. 06 $239600* $290300*
Feb. 06 $239900 $300400
Mar. 06 $224200 $279100
May 06 report, $med $ave
2004 $221000 $274500
2005 $240900 $297000
July 05 $229200 $ 289300
Aug. 05 $240100 $295000
Sep. 05 $240400 $299600
Oct. 05 $243900 $293600
Nov. 05 $237900 $294400
Dec. 05$238600 $290200
Jan. 06 $244900* $301000*
Feb. 06 $250800 $307900
Mar. 06 $236600 $295300
Apr. 06 $245900 $302200
May 06 $235300 $294300
July 06 report, $med $ave
2004 $221000 $274500
2005 $240900 $297000
July 05 $229200 $ 289300
Aug. 05 $240100 $295000
Sep. 05 $240400 $299600
Oct. 05 $243900 $293600
Nov. 05 $237900 $294400
Dec. 05$238600 $290200
Jan. 06 $244900 $301000
Feb. 06 $250800 $307900
Mar. 06 $238800* $298800*
Apr. 06 $257000* $310300*
May 06 $235800* $291900*
Jun. 06 $233800 $289300
Jul. 06 $230000 $293500
I just checked and as far as I can tell the numbers are revised for 3 months after the original numbers come out. Each revision is to a higher number, for instance September 2005 started at 227,700 and ended at 240,400, and the revisions of the ones I checked were all in the 12-14k range. I don’t know if this is because they do not have all of the data for several months, and the higher priced homes come in later, or what. As far as I can tell this would make the YOY data come in lower than reality, as long as the final revised numbers are accurate, since the first data is lower than the final data. For instance the current report shows 230,000 for July 2006, but when it is revised it will probably end up being closer to 242,000, which would be about a 5% gain in price from July 2005. It also means that prices are not really down 10% from April, but actually more like 4.6% down when the final revised numbers come in.
January 06 and April 06 were nearly the same in their preliminary reports but now April is 12K higher.
I take back my prediction, at least until I get a better understanding of these numbers, and why they have to be revised for 3 months.
Hi, the Commerce figures are not seasonally adjusted. Even after seas. adj. they are qiute volatile. Here are my adjusted figures (incl. adjusted Existing home prices). They are both now heading down m/m and will both most likely display negative y/y readings in August.
I think you are in for a really though ride! Falling real price for 4 -5 year is the norm, and it could be even worse, given unseen price increases, housing investments, debt accumulation and savings shortfall!
Greetings from Norway - we have seen it before!
New homes Existing homes
2005:01:00 221.7 202.3
2005:02:00 231.4 205.4
2005:03:00 230.7 207.4
2005:04:00 230.6 216.0
2005:05:00 229.0 215.7
2005:06:00 227.4 220.3
2005:07:00 233.6 220.9
2005:08:00 242.2 223.9
2005:09:00 245.5 223.8
2005:10:00 241.3 230.9
2005:11:00 238.8 227.2
2005:12:00 238.6 222.0
2006:01:00 243.3 225.9
2006:02:00 244.6 225.0
2006:03:00 240.2 222.7
2006:04:00 250.9 224.1
2006:05:00 236.5 227.6
2006:06:00 235.2 220.3
2006:07:00 234.4 222.8
I think the fact that cancelled contracts are not added back in hides a big number that should be dislcosed, by estimation if nothing else. Suppose a retailer were to publish financial statements for a 12/31 year with no allowance for returns?
The article says “new homes”.
I don’t believe this is the entire market…
And my prediction 6 months ago was a 15% decline in housing prices for 2006 Nationwide . Lets see if it goes that high or exceeds that figure .
Oh, but Liar-eah tells us we’ve bottomed out…he also tells us he’s been feeding the Fed data and is happy with their current policy. Whew, I was worried there…
http://realtytimes.com/rtapages/20060824_slowdownsurprises.htm
Let me also add that the article actually gives Liar-eah credit for predicting home price declines. I am not kidding.
“Despite a brief respite in rising mortgage interest rates, existing home sales have dropped further faster than many financial analysts predicted, except one. National Association of Realtors(NAR) Chief Economist David Lereah warned the Federal Reserve back in May 2006 that too much short-term rate tightening could be bad for the housing market.”
No sh*t, Sherlock, anything but a 1-2% FF rate was gonna lead to a bust.
Yeah, and what no one will mention is that it would still hurt the housing market because a fed at 1% would mean either we are in a new deflationary depression, or the fed is on crack in hyperinflation mode and the cost of living will quickly outstrip income and helocs.
The ponzi is busted. Nothing left but the hand wringing now.
I’m speechless. I can’t even fathom that I sat and read such a load of doggy doo.
The title of David Lereah’s (Head NAR ‘Economist’) book is: ”Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them”
On a scale of 1 to 10 his credibility is a ZERO.
Anyone else notice that Blanche Evans looks a bit like a Muppet? I think it’s that hair. Unmistakably Muppet-like.
Her old photo looked like it was from a high school yearbook circa 1965.
Wow, nobody, except Lereah, could have predicted that rates would return to normal during an economic boom. A true visionary… with pinkeye.
His book title by the way is:
I’m looking for the small print where it says *unless the Fed returns rates to historical norms.
How to profit from them? Get a RE license and tell everyone “its a good time to buy no matter what.”
YUP! And he, David l. is in Jackson Hole blowing Ben B. Short strokes are picking up.
Can anyone direct me to a link with the parody of his book cover? I cannot find it thru google!
Does anyone know if the reported inventory of new homes include the new homes that were “sold” but then cancelled by the buyers? There have been a lot of cancellations, so if these houses are not reflected in the inventory, then that number is really misleading. Also, do HBs effectively report 2 sales of the same house if the original buyer cancels and the HB later sells the house to another buyer?
Remember, these data reflect sales from last month’s transactions. There is no way to measure all the cancellations for July just yet b/c cancellations are usually spread over several months (Aug, Sept, Oct, …) into the future up to the time the house is actually built and closed. However, you are correct to assume these data are somewhat unreliable given the amount of speculators walking away from contracts.
Also remember sale prices are a lagging indicator as contracts usually average 30-90 days prior to closing. We’ll see YOY drops nationwide soon!
I don’t understand how so many local markets can be seeing 20-40% declines in sales, and more in new home sales, yet these numbers say overall decline of only 4%???
*brakes screeching*
mmm……. now i’m scratching my head too
isn’t the total equal to the summ of the parts?
Good article in Tampa tribune:
http://www.tbo.com/news/money/MGB9V3SD8RE.html?imw=Y
Looks like some areas of Florida are already seeing very large price declines as observed below:
“Tampa’s market may be tough, but it fared better than many other Florida cities. Palm Bay, on the east coast, saw July’s median sales price decrease by 27 percent compared with the same month last year. Prices in Fort Walton Beach decreased by 24 percent, and prices decreased in Daytona by 17 percent.”
Wish it were so, but the reporter got it wrong. Those price drops are in condo prices, not single family homes. The figures for single family homes are: Daytona: -1%; Fort WaltonBeach: -4%; Palm Bay: -8%. Still pretty significant, though. I think these may be the first YOY declines in single family homes we’ve seen in Florida since the bubble popped.
Letter to the Editor in the NY Times:
To the Editor:
Your warnings about the risks facing the economy as the housing market deflates are well taken (”Hold the Champagne,” editorial, Aug. 19).
But the real problem in this story is the fact that the Federal Reserve allowed the housing bubble to inflate to ridiculous levels in the first place. There is no pretty way to deflate an asset bubble, as should have been apparent from the collapse of the stock bubble between 2000 and 2002.
The Fed, and most of the economics profession, has largely chosen to ignore the dangers posed by asset bubbles. The American economy, and possibly the world economy, will pay a large price for this decision in the next few years.
Dean Baker
Washington, Aug. 19, 2006
The writer is co-director, Center for Economic and Policy Research.
Source: The New York Times, August 24, 2006
Isn’t Dean Baker one of us bubble-sitters (sold to rent)? Excellent letter. We’re going to see a lot of finger-pointing (rising rates, anyone?) as this goes down. Funny thing is, very few will target the REAL culprit — Greenspan and his easy-money “deflation fighting” policies. Why do people assume the economy should only move in one direction (up)? It’s like hooking up a heroin addict to an IV feed in order to avoid withdrawls, and thinking the heroin is keeping the addict healthy.
Answered my own question.
———————–
“In May 2004, Baker and his wife sold their two-bedroom condominium in the Adams Morgan neighborhood of Washington, D.C., and rented a similar unit a couple of blocks away.”
http://www.bankrate.com/brm/news/mortgages/bakerfamily.asp
Wow! The credit bubble hits the media….even if it is only Op Ed. I’ll be holding my breath to see if anyone bites.
“Anyone buying now has to ask: Is a bubble about to burst?”
My personal experience:
2004: “Prices have become outrageous. I don’t think it’s a very good time to buy. Let’s just keep saving.” Of course, most people thought I was some sort of freak when I expressed this viewpoint…including my wife.
2005: “Prices are still way out of hand. I’ve done some research and think this market will collapse unser it’s own weight. I realize many of our friends have bought recently, bu let’s hold off and keep saving for now.”
2006: “See, I told you this was going to happen. If we had bought last year we would be regretting it now. The next few years will be even worse and prices will fall dramtically. Let’s keep saving.” Oh, you better believe the wife is thanking me now!
Same experience here with hubby. Now, all of a sudden, he thinks he’s been a bear all along.
I turned my wife into a “realist” (bear sounds too harsh). Last winter we came close to diving in to a purchase, but came to our senses. Lucky we didn’t because winter was close to the peak of the market in Boise.
I can relate to that one. Last year my wife was of the opinion that housing goes only one way: Up Up Up. As I tried to explain my reasoning that housing may not be a good bet going forward I was looked upon as having a negative and unpositive attitude. She would say “I know this person and that person investing in one or more condos down in Florida, why can’t we invest in one too? They’re going to make a lot of $$$”. But I didn’t budge from my thinking. Now she looks at me as if I am Warren Buffett or something. Yesterday she said she doesn’t even want to talk to her friends who have property in Fla. BTW, we sold our condo last Sept. and we are now renting. Now she loves watching and hearing all the negative talk about real estate on CNBC. The only problem now is that she thinks that this downturn will be short one and next year we’ll be ready to pounce on a good deal. Trying to teach the wife about this is a continuing daily struggle but I may have to cave in and buy sometime next year. Boy I’m not looking forward to this as I see this downturn lasting many many years.
Don’t worry. By the end of next year she won’t ever want to buy a house again. The problem will be convincing her to buy one in the future!
I hope you are right but somehow that will be a miracle for that to happen. Baby and family planning etc…I can remember the day I decided to put our place on the market. I was at a baby christening and at the reception the topic of conversation was real estate. My Dad was congratulating my brother in law for their new condo purchase in Fla. This was May last year. It wasn’t finished yet and it was a potential flip if the right offer came along. I distinctly remember sitting there at the table eating top of the line prime rib and a fully loaded salad as the converstaion was rah rah real estate is the best investment ever and this environment is here to stay. All the talk was making me sick to my stomach while the highest quality of food was sitting there right in front of me. That was when I made the decision to sell. I went home and the next day I was on the phone with the realtor. And it still took me 4 months to find a buyer.
You and me both as I am in the same positionas you. However, the primary residence I buy can potentially be paid off at closing and I will be living there for 2+ decades (at least that’s the plan.) I’ll buy a vacation house on Cape Cod for cash in about 7 or 8 years at the bottom.
“Trying to teach the wife about this is a continuing daily struggle but I may have to cave in and buy sometime next year.”
Plan A: You cave in and kick yourself for caving in for years while you’re upside down (owe more than your house is worth while the market continues to tank). Tell your wife you could reproduce similar sensation by going out to the mohave desert in the summer and take turns shoving hot pebbles up each other’s butts. “gee, maybe this won’t hurt?”
Plan B: You tell your wife “no, its not time to buy yet” and re-educate her as best you can.
Plan A will likely bring you both misery, plus she may pull a reversal on you for being such a “pushover” and say, “you knew it was too early, why did you cave in?”
Plan B: Will require firmness on your part, but you’ll be doing the right thing. If she gives you misery–and resorts to “I’ll show him” passive-agressive behavior and games, you may need to re-think your relationship.
Buying a house is way too big a decision to let emotion override logic and prudent pause.
I’m appalled at the level of blind faith, ignorance and greed in my neck of the woods. It’s incredible, very scary and I must admit, interesting. This RE bubble mentality is eerily similar to research materials I reviewed for a paper I did in college on group influence and hysteria.
DOC
Thanks to Ben, I’ve been doing the same for the past 3 year. Still saving up for the downpayment when the price cut is about 40% or more from the top…
My timeline was similar, if more dramatic…
hubby is still not completely convinced, though. Or at least frustrated with how long it’s taking to unravel. Nowhere near “thanking” lol! At least its a bunch less stressful now being one of them insane people who were reluctant to jump on the buy-anything bandwagon…
Judicious1 - That’s funny you mention the wife thanking you. My wife wasn’t too convinced there even was a bubble when we sold our house in Feb ‘06. Now when we’re watching the news and a gloomy segment about housing comes on she says: “well, the experts were saying this would all happen just like this.” She forgets that the “experts” she’s referring to is me quoting her stuff off this blog all along.
Congratulations on selling before the imminent collapse became so apparent.
i had a realtor offer me a home priced at 200,000, roughly 150,000 less than the neighborhood housing price. (west boynton beach, fl) palm beach county. people are extremely desperate here and it is simply one problem. ALL OF THE POTENTIAL BUYERS ARE PRICED OUT WITHOUT USING AN ADJ LOAN. NOW THAT PEOPLE KNOW WHAT ADJ MEANS + INSURANCE BILLS THIS YEAR, THERE IS NO ONE HERE THAT CAN BUY! south florida is like everywhere else. bubblelous!
My in-laws have a house for sale in West Boynton Beach - wonder if it’s the same development. And I’ve stopped talking about RE with them. They bought their “retirement” condo in January - a conversion, no less - before selling their house. They now have a renter in the condo thru May, but are still losing about $1K/month on it. and they’re convinced that the market will recover by next spring. So I’m done with the discussion.
The bottom line is these numbers stunk up the joint just like the existing homes figures did yesterday. Now, here’s where things get interesting, if you’ll pardon the pun …
Interest rates headed higher in April, dipped a bit in May, and then rose to a new peak in June. A rational person could argue that the existing home sales numbers were terrible due to high rates in the period 30 to 90 days prior (since the existing numbers are based on closings, not contracts signed, which come several weeks before closings, generally speaking)
But there’s no interest rate “excuse” for the new home sales — they would be based on contract signings that took place in July. And all throughout July, interest rates were falling — not substantially, but definitely declining. The 10-year Treasury note yield entered the month at 5.15% and finished it at 4.99%.
Stated simply: Falling rates are NOT boosting home sales yet. This trend is showing up in the WEEKLY mortgage bankers association data too (not just the monthly sales data). If you want to read more on this, feel free to visit my blog:
http://interestrateroundup.blogspot.com/
The potential ramifications aren’t pretty IF this nascent trend continues.
‘I think these markets will correct. The price gains that they have seen have exceeded what can be supported by the economic and demographic fundamentals.’”
These reporters are shills for the investment companys AND the builders.
Good editorial, especially for any of you in the undecided camp.
http://financialsense.com/editorials/sjuggerud/2006/0824.html
very good.
grim has a very good graph on the nyt artikel.
shows the seperate regions and a very long inventory chart.
very good
http://nnjbubble.blogspot.com/2006/08/housing-market-is-deteriorating-by.html
remember that these poor YOY comps are not inflation adjusted either. The speculators are really getting an ass pounding right now. Funny thing is, many are saying they are just going to wait this market out. This tells me that we are just at the start of this bubble bust.
Does anyone remember how the 1990s collapse progressed? If I remember right, the really large price drops followed shortly after the initial runup in inventory, followed by several more years of lesser decreases or flat prices.
I’m wondering, because I’ve got three young kids and I really do want to get into a house for them to grow up in while they’re still young. I’m hoping that we get some pronounced price drops by mid-2008. I don’t need to buy at the absolute trough — I have other reasons for buying than appreciation, and I plan to stay in the house I buy long-term — but this market has shot up so far that I’m concerned that enough of the excesses won’t have been burned away by that time.
On the other hand, I have my eye on a neighborhood where the disconnect between prevailing rents and prices isn’t as insane as elsewhere ($2,400 per month for a house comparable to others on the market for $650,000 vs. $2,500 per month for one for comparable to others on the market for $900,000 — the latter being in speculator-infested east Costa Mesa).
We’re downsizing into an apartment next month to enhance our down payment savings, because I anticipate cash in hand is going to be a huge advantage about a year and a half down the road.
Even with a 50% reduction in prices you are going to be paying 325,000 dollars to put a roof over your head. That’s high here.
Yeah, I know all that location, location, location shit but at some point you just don’t want to get in so deep that all you really do is work for a THING. Unless you have the income &/or
savings to really afford a home in California, I would relocate.
I’ve got the income to handle a $500,000 mortgage pretty comfortably, assuming no massive rise in interest rates. And prevailing rents are at a level that would be only a little lower than the after-tax cost of a house with $500K financed. Unfortunately, we still have about $100,000 of price decline to go before we get there. Like the old lady in the Berchtold Brecht play, I can wait.
(And may all flippers get the same treatment as the play’s protagonist.)
Thomas — since you families tend to move every 5-7 years *anyway*, have you thought about renting a nice house, of the type you’d like to buy, for 3-5 years? Your kids won’t remember if it was leased or owned, you can be saving for a down payment (even 10% will do the job when you’re ready) and you can live well today in somebody else’s depreciating property.
because I anticipate cash in hand is going to be a huge advantage about a year and a half down the road
If the housing market bursts because it was a ‘bubble’ then it burst on its own (speculation, buyer’s mania, etc..) and not from an external factor such as rising interest rates. I personally feel if you have 20 percent down (as you should anyways), you should be fine.
I sold my Manhattan Beach home on 23rd st in Feb 1990 at the market high for 420k. With in a year that home was selling for about 320k. It took 5 years for that home to recover.
That’s encouraging. If a 25% haircut could be arranged, I’d be happy to buy in, even if it took five years for the value to go up again. I’m not planning on going anywhere.
Does anyone remember how the 1990s collapse progressed?
Prices retreated anywhere from 12 to 20% from ‘91 to roughly
‘93. Then in ‘94 Greedypants did his thing with like 14 rate hikes and the market completely stopped.
Then depending on the location, there was a stall for around 5 years until the move by Greedypants to drop FF rates to 0 after 9/11.
The big dif between now and ‘90/’91 is the form of financing used to inflate this last boom balloon. Funny money ARM’s/and neg AM mortgages were a rareity. And the values relative to incomes didn’t really take off in ‘90/’91. Underwriting also wasn’t as loosey-goosey.
As someone invovled in the appraisal profession for most of the 80’s and 90’s this last 4 years in RE is a total mindf*ck.
Bad development ideas, greed, huckertism, deceit, rampant blatant dishonesty financial ignorance, all rolled into the perfect storm.
I’ve always maintained real estate brings out the worst in people. This latest maelstorm hasn’t disappointed me.
I was largely run out of the biz in the late 90’s ’cause I wouldn’t play the numbers game, which to an extent is a blessing in disguise because my name isn’t on a whole lot of appraisals.
The situation the market is in today is 10X worse than ‘90/’91.
With prices so high-there is absolutely no wiggle room. Where people took a max of bringin’ $20k to closing to cover a value loss in ‘91 if they were forced to sell, now they’ll be bringin’ six-figures…
But of course most won’t because as noted by the financial pundits-90% of Americans couldn’t lay their hands on $10k liquid.
Millions are screwed for a generation thanx to Greedypamts and his mortgage banker co-horts.
I am a draftsman working for an architect in Northern California. Most of the work we’ve gotten over the past six months have been for remodels. Yesterday one of the area’s “big stick” contractors came in; wants to put a bid one one of the projects we are working on. Says he is trying to set up work for the winter months. He currently has five new homes for sale in this area, changes Realtor every 90 days but won’t get real on the price. The houses are all around 2200 square feet. We estimated that his monthly nut is about $8,000. He says that his banker calls him everyday to see if there has been any activity on the houses. I’m guessing that the bank will own them by spring.
and sfjack will own them by fall
Get a retainer. A big one. And cash the the check before you begin work.
Actually, our client is the homeowner/end-user, but we ARE advising the owner to pay the sub-contractors themselves and not rely on the contractor to pay everyone.
“Get a retainer. A big one. And cash the the check before you begin work.”
Great advice — I remember sob stories along those lines after the last bust.
I was just thinking about RE agents and how they’ll be affected over the next year or so. As the inventory grows it would appear to a casual observer that there is plenty of work for agents, however they have to spend their own time and money marketing each listing and the only payoff is when the house sells. If hardly anything is selling, agents are either going to be very selective about what properties they’ll list, or they’ll just accumulate listings and ignore most of them. Either way, I predict the sellers who hold out for unrealistic prices and think it’s the agent’s fault their property doesn’t move are going to find it hard to get listed by any but the most desperate agents (which I’m sure there will be plenty). It will be interesting to hear how this shakes out.
I went through the old NAR press release headlines to track the changes in “Lereahspeak” as the bubble began deflating:
Feb: Market is “returning to a normal balance”
Mar: Market has reached a “High Plateau”
April: “Sales Slip”, market takes a “breather” and “deep breath”
May: Market begins to “ease”, “settle down”
June: Market is “cooling”
July: Market is “softening”
It is just funny how his tune keeps changing; I can’t wait until he comments on the August numbers.
You must have missed yesterday’s “market is fragile” comment!
Looks like the folks in here aren’t the only ones suspicious of the NAR numbers. The following was posted on WSJ.Com a short while ago:
1:43 p.m.: One puzzle about yesterday’s existing-home-sales data from the National Association of Realtors is that, while the number of sales plummeted and inventories rose to a 13-year high, the median price nationally was up year-over-year.
Some skeptics have begun to wonder whether that reflects reality.
The NAR system has leeway for local brokers to enter price information about home sales into the database, according to analysts. Kynikos, Jim Chanos’s short-selling hedge fund, has been watching the Florida market closely and noticed something odd about the Florida Association of Realtors press release, put out yesterday along with the national release.
Yesterday, the FAR said statewide realtor sales fell 33% in July to 14,451 from 21,691 a year earlier. But the median price went up 1%, the association said, to $250,800 from $248,200 in July 2005.
Mr. Chanos was suspicious and had his analyst pull the data from last year’s press release. Sure enough, last year’s chart for July 2005 has different numbers. Last year’s chart says 21,669 homes were sold in July 2005, 22 fewer than the July 2005 number in this year’s chart. More strikingly, the FAR said last year that the median price in July 2005 was $252,300, more than $4000 higher than the number in this year’s chart.
Use the price figure the FAR used last year for July 2005 and compare it with the price figure for July 2006, and the median price drops year-over-year. Sure it’s a modest 0.6% fall, but a drop is much different from a gain.
Perhaps those 22 fewer homes made the difference, but why were they excluded? There is no explanation in the release or the chart. It’s important to note that economic data get revised all the time. Indeed, NAR has changed its numbers, as well. Last August, it said national sales clocked in at a 7.16 million-unit seasonally adjusted annual rate in July 2005. Today, the NAR said July 2005 sales rose at a 7.13 million-unit pace.
The FAR did not return calls for comment; if they do, we’ll update this post.
Does anybody else spew coffee, water, etc. when they read this stuff and have to clean off their screens?
Nah, at this point in the bubble I am pretty jaded.
It has got to be self-inflicted near mortal financial wounds to get me to spit up something.
I think it might have been announced a few months back that the NAR revised all their monthly numbers for the past several years. Anyone else remember this?
Actually, I do now. But I didn’t think numbers were adjusted for years. Thought it was just as of last year. Anyway, thanks for the reminder.
It is possible that the FAR has similar problems regarding basic arithmetic to those of Florida voters, who don’t know how to punch a hole in an election ballot.
Thanks for the excellent post - I have noticed that the numbers are MAJORLY (doubt that is a real word, but it fits here) fudged, particularly here in Florida.
Stop by Paradise Lost if you’re interested in the details…
Ben, do have the numbers of hit’s to this blog daily? It is incredibly slow today. Maybe you’re getting half a billion hits?
“‘Certainly, the housing market is undergoing a measurable adjustment,’ Lawrence Yun, senior economist with the Realtor association, said. The bloated inventory levels, Mr. Yun said, indicate ‘a very sudden change which I have never seen before.’”
“undergoing a measurable adjustment” - just wait and see what you’ve “never seen before”. What - is he from the school of “house prices never go down”?
Once a Bubble hits…it takes years before buyers will begin to trust the market! Take a look at the NASDAQ Bubble ….5+ years out, and the NASDAQ is still at about 40% of 2000, and thats after almost 80% climb of it’s lows!
No one here expects a recovery to the highs of ‘05 for a long time. The question is how do we find the entry point that will give us the 80%-type jump off the lows that you reference for the NASDAQ.
To me, income property is a buy at 7 times gross, but 6 would be really sweet
As if you would have a clue.
Then again, I wouldn’t pay more than 3 times gross in TX, due to the fact that it is such a sh%*hole.
Well if I had a choice between Texas and LA I’d pick Texas. At least I’d be living in a cheap hellhole.
Guess you haven’t been by Santa Monica lately…
“I am despondent at having the blame of this real estate bust laid at my feet. In 2003 I told you there was froth - how obvious do I have to be? Froth consists of bubbles - hint hint - I can’t come right out and say the market is in a speculative bubble and upset my masters. When I cut interest rates to 1% and talked up ARMs, didn’t you see me wink at you. I was throwing you guys a gift - refi and lock in at these low low rates now! But dopes were getting ARMs when fixed rates were at 40 years lows - putz! Look, I worshipped at Ayn Rand feet, and spoke of gold in tones that would make Goldfinger proud. How could you think for a second I bought into this fiat currency Federal Reserve thing? This is just my day job baby. It’s just paper baby. Gold is my bag!”
-Alan Greenspan
Mr. Greenspan,
Thank you for responding to your critics. It was a pleasure to hear your wisdom remarks. If I had stocks, bonds, and dollars, I would invest in gold because that is what you’re doing. That is the best advice a person reading your comments should do and thank you for giving us a “heads up”. Zoel Y. Landry (Old Orchard Beach, Me)