‘The Big News Is The Housing Boom Is Over’
Some housing bubble reports from Florida. “Q: Looking at today’s housing market, what in your opinion is the new housing reality on Treasure Coast? Don Santos, past president of the Treasure Coast Builders Association, ‘What I’ve been seeing the past couple of weeks is a decrease in the price of land that I would consider pretty dramatic.’”
“Q: Builders are in a unique position here. Can they absorb the slowdown in demand and what is their future on the Treasure Coast? Jim Weix, broker in Palm City, A: Unfortunately, this business is like survival of the fittest. That’s just the sobering reality here. I am still in line with my profit margins and overhead. Other spec builders won’t be able to do that. This is just going to kill them.’”
“Q: What should sellers expect when selling a home now? Pat Jayne, local Realtor trying to sell her Stuart home, ‘A: It’s probably pushing a year since we put our house on the market. We finally lowered the price by about $55,000 but the reason we did is that we bought another house. So we are now the proud owners of two homes. We discussed ways to set our house apart from all the others and we decided to offer the (winning real estate) agent a brand new Pontiac. I really don’t know what else to do. I’ve been in the business for 20 years and I’ve never seen it this bad. It went from hot to cold over night.’”
The News Press. “Some experts say a wave of mortgage foreclosures is about to sweep across Southwest Florida. They point to rising monthly payments, reckless investment in 2005’s red-hot real estate market, the end of low interest rates, and plunging home prices. In July, Lee County saw a 56 percent increase in year-to-year foreclosure filings.”
“‘The markets that have gone up the highest are the ones that are going to see the highest correction, and Fort Myers is definitely one of those,’ said Jack McCabe, a housing-market analyst based in Deerfield Beach. A lot of people, including developers and lenders, are not sleeping at night, McCabe said. ‘The big news for people who haven’t believed it yet is that the housing boom is over,’ he said.”
“‘We cannot treat our homes like ATMs anymore,’ said Karin Klaassen, a certified credit counselor. ‘That window of opportunity for anyone to cash out their equity is closing rapidly. The people who already have been taking equity out of their homes to pay for consumer debt are setting themselves up for trouble.’”
“Jennifer McArdle worries whether she and her family will be able to hold on to their San Carlos Park dream house. ‘The bank is hounding us daily,’ said McArdle, who with her husband, David, bought the house 14 months ago for $289,000. The McArdles are two payments behind. The McArdles are trying to refinance their 8 percent mortgage even though they’ll be hit with a $10,000 penalty to Option One Mortgage. David is working six days a week and Jennifer is working a part-time retailing job to supplement her office job with WCI Communities.”
“Fort Myers-based real estate attorney Kevin Jursinski said he has clients who bought lots in Lehigh Acres last year at prices double what they’re worth now. ‘What do you do? Sell now? Turn it back to the bank? When it comes down to whether you’re going to go broke or take the bad credit report, you may want to do the latter.’”
“For those who choose foreclosure, a problem is lurking: If the mortgage isn’t satisfied by the price the property brings, the lender may sue the borrower to cover the difference. The lender’s primary home is safe from the judgment if it’s in Florida, but all other assets are fair game, Jursinski said.”
“Someone drifting toward foreclosure generally is better off getting out fast, he said. ‘Immediately surrender it back to the bank, because it only gets worse,’ Jursinski said. ‘Take your medicine and move on.’”
I remember when 8% was a good mortgage rate. They can’t pay a 289K mortgage w/2 jobs? WTF?
3 jobs, I think it said; he has one, she has two.
You want sympathy, you know where to look in the dictionary. Any high school dropout could see what’d be in store for this couple BEFORE they bought. Problem was everyone’s overconfidence in prices.
‘Jennifer is working a part-time retailing job to supplement her office job with WCI Communities.’
WCI is the homebuilder that just reported a 50%+ cancellation rate in Florida. House of cards?
I was thinking that didn’t seem like a long term, stable job.
WCI Communities sold a grand total of THIRTY SIX of their luxury condos in the entire 2nd quarter. That was a mere 88% decline from last year. I hope she’s got her resume out on the street.
Holy smokes! If that wasn’t so devastating it would actually be funny. I wonder what day of last month it dawned on them that they had “issues”?
I think she has better odds of keeping the house if she hits the street. Maybe the neighbors will take out a HELOC or two to pay for the tricks.
It is incredible to me that ANYONE is buying right now. Who in their right mind cannot see the carnage that is awaiting south FL…ugly, ugly, ugly - there are literally going to be condos and maybe homes for nothing down there when this plays all the way out.
Older homes located within 3 to 5 miles of the gulf coast (but not ON the water) will soon become cheap seasonal rentals, either for their current owners or for the vulture investors who buy them at 1/4 to 1/8 of today’s prices. No one will buy them to live in any more.
“It is incredible to me that ANYONE is buying right now. Who in their right mind cannot see the carnage that is awaiting south FL”.
I agree with Dukes. I said it in a pervious post. There are a lot of stupid Americans out there who either don’t realize the housing market is in the toilet or they believe what realtors are telling them which is “it’s a good time to buy.”
What’s a FB? I’ve been trying to figure this out for some time now. I did a search in google. The only thing I thought might fit is: “Fart Burner”?
F’d borrower. Don’t feel bad, I read this blog for a long, long, long time thinking that SD stood for South Dakota instead of San Diego.
OK. Then, I can keep my handle - “imnotafb”. “F’d borrower” or “Fart Burner” - after reading several posts, I figured I wasn’t one since I’m renting.
ROTFLMAO (and if you’re new to the acronyms, that’s “Rolling on the Floor Laughing my A$$ Off” :D).
I’m not from the US, and when I first started lurking the puzzling acronym for a while was CAR, because in Australia that means automobile and isn’t capitalized. Then I saw an article where NAR was spelt out, and the penny dropped.
I would like to know who the 36 idiots were and what the hell they were thinking
It’s the banks and subprime lenders who will be screwed in this one. If they took 0% down on these homes, they are the ones who ultimately will own these depreciating assets. Instead of making double the money over the long term of the loan, they’ll have to settle for losing 50% when they try to sell the property.
Once again, the power of greed is stronger then the sense of risk.
-Richie
xynamax: no, I think you’re wrong:
borrow a few billion, it is the bank’s problem
borrow a few trillion, it is OUR [taxpayer's] problem
I still don’t see a significant change in crazy lending or some other way that the insane risk of todays market gets priced into the loans. As long as that doesn’t happen I think the bubble is not really over; maybe the banks KNOW that the damage will be paid in full by the taxpayers.
You are right - credit margins are still at very tight levels. This is due to the still massive global liquidty.
My guess is that credit spreads will only start widening when liquidity tightens, and this will be triggered by the first credit defaults in the RMBS market. All of a sudden, the hedge funds realise it’s not “money for nothing and your chicks for free” and risk starts to get fairly priced.
Regards,
Loafer
“the banks KNOW that the damage will be paid in full by the taxpayers.”
This simply can’t happen. We all know instinctively that current debt levels are unsustainable BEFORE the tax man comes calling.
Yes, the government gives you a break on interest, but the larger point is that this country, as a whole, is mortgaged to the maximum extent before taxes. This is seen in our negative savings rate.
This means there simply isn’t any surplus, real national income to tax from … and certainly not enough within the 15 - 40% tax brackets to bail out all the bad loans.
Given this, I think the dollar takes a nose dive, no matter whether monetary inflation or asset deflation is dominant (I think they will coincide).
‘there simply isn’t any surplus, real national income to tax from … and certainly not enough within the 15 - 40% tax brackets to bail out all the bad loans.’
I agree.
Speaking of Florida, there is concern that Hurricane Ernesto could impact Central Florida with possible landfdalls from south of Naples all the way past Tampa to Big Bend.
Now that we officially have a hurricane in the box no insurance binders will be issued in Florida and Real Estate deals cannot close.
Good luck Flippers. Time to batten down the hatches.
This storm looks like it might be a coast runner. If thats the case it will be game over for Florida. Donna was the last coast runner we had and most of the areas that were flooded the worse are now built up it the past 5 years. This could be real bad for the insurance not to say what it will do land mass.
Well, it sounds as though at least future coastal building might be stimulated.
for those of us in shakey town (LA) can you translate the ‘cane speak? What’s a coast runner, and what’s it’s impact?
I interpreted that to mean that it would run parallel and just off the coast so as to send in storm surge all the way up the coast for maximum effect.
A coast runner Hurricane doesn’t make a direct hit. It just Travels along the coast for maximum damage.
I just can’t wait for next years insurance rates.
Bill
Tampa
Another point about coast runners is they don’t lose strength like a hurricane does after hitting land…..as long as the eye is over that warm water….it’s not so good.
Unless it goes over the Everglades. I was stunned last year when I heard a meteoroligist say that as soon as Wilma made landfall at Marco Island it would begin to dissapate, and then it didn’t and instead intensified, which is what I expected because the Everglades are nothing but even warmer water. I was surprised they didn’t pick up on that. It really slammed Ft. Lauderdale.
this is going to be real good for GDP numbers, isn’t it?
retirees should know better - even if their IQs are borderline dull - life’s experiences SHOULD have wizened them up….
I think you meant “wisened” them up. I doubt that anyone would argue that life experiences and father time have “wizened” them up
Nice. I hadn’t seen that word before:
wiz·en (wĭz’ən) pronunciation
v., -ened, -en·ing, -ens.
v.intr.
To dry up; wither or shrivel.
v.tr.
To cause to wither, shrivel, or dry up.
From http://www.Answers.com
Like “Wize” potato chips? Or is it Wise ?
The coming storms: Ernesto and financial are once again taking their toll emotionally. I hear it in the lobby of my condo-Apt. And I hear it in the voice of friends. All of a sudden owning that vacation home on the Gulf and the 2 condos on the beach in Miami is a scary prospect.
Imagine the irony of being “underwater” on both your mortgage and your physical property at the same time. Gotta love a 12 ft. storm surge and NO sea walls. Yep South Forida is just a gem of civil engineering.
Veritas
The last sane man in Miami
Was talking to some out-of-town relatives yesterday who told me about the plight of one of some relations of theirs down in El Paso, Texas. It seems these relations sold at a good price here in CA (bay area) in mid 2004 and moved to El Paso where they bought a house. Within a year they turned that into a rental and bought a bigger house, but alas during this months flood the rental is no more and about 80% damage to the second house and no flood insurance. Risk associated with real estate once again raises its ugly head.
Well, we drove through El Paso on Aug 1 and the flood was pretty scary on I-10 [interstate highway flooded? what was that?].
Did see many homes near I-10 flooded but didn’t think about financial hardship people will be going through [too busy driving through the flood myself]. Ouch!
We discussed ways to set our house apart from all the others and we decided to offer the (winning real estate) agent a brand new Pontiac. I really don’t know what else to do. I’ve been in the business for 20 years and I’ve never seen it this bad. It went from hot to cold over night.’”
Just my opinion of course but WHY are sellers not understanding that they need to reward BUYERS, not the friggin realtors? The “winning real estate agent”? WTF? I read from the article that this realtor (who has been in the business for 20 years) can not figure out what to do? I find that incredibly hard to fathom. You mean they actually sat down and brainstormed about all the possible options and LOWERING THE FRIGGIN PRICE down to where folks start to look at the house NEVER came up? If 55K doesn’t do it then try another 55K you dolts! In the business 20 years and she can’t recognize the telltale signs of an overpriced house? Screw em, they are just greedy fu*ks and shouldn’t get any more of our attention, period.
Auger-inn- I suppose we will have to go to means testing on IQ before anyone can buy a house. These people are friggin unbelievable!
we decided to offer the (winning real estate) agent a brand new Pontiac.
Give me a break. A Pontiac?
A Pontiac? Be serious. I want a Honda. Or maybe a Toyota. Then $55k more off and then some real negotiating can take place.
I want a Pontiac, a 1971 conv GTO
Is that the year with the ‘Tri Power’ …3 two barrel Holleys?
Shiz Nit.
I think we have some Motörheads on this board.
I want a 1987 Buick Regal GNX.
Excellent choice
Boo hiss.
What’s wrong with the latest GTO. Good Aussie car, that.
1971 Trans Am,w/ the Big Block, thank yoiu very much.
LOWER THE PRICE! Soon she will lower the price and throw in the pontiac. Go ahead and chase this market down you greedy realtor!
1 - pushing a year since we put our house on the market.
2 - finally lowered the price by about $55,000
3 - but the reason we did is that we bought another house.
4 - We discussed ways to set our house apart from all the others 5 - offer the (winning real estate) agent a brand new Pontiac.
6 - I really don’t know what else to do.
Pat, Lower your price $110k and say to yourself, “NOW that’s a start”! You are already 6 steps from reality and this 7th step will help to ground you with current market conditions.
I love the fact that even though her home won’t sell they now own a 2nd home.
Normally, I feel sorry for the “unintentional speculators.” But this doesn’t sound like unintentional speculation, it sounds like they’re idiot flippers.
For me, with flippers, its pure Schadenfreude.
Neil
I’ll bet you that hubby is a Pontiac dealer or salesman. That way they can bury the car in the books somewhere and not come out of pocket for it.
Exactly. Just like a few months ago when some idiots were offering a Tonka toy, oops, I mean a Hummer H3 with their home. Turned out they (sellers) owned a dealership.
Preach on, brother Auger!
I had the exact same reaction when reading about that idiot seller and how it could possibly be that the idea of lowering the price further did not penetrate her concrete-thick skull.
I get the sense that people like this truly - stupidly, but truly - think that the inflated prices of last year were “real”, and still out there to be had, if only they could get the marketing right. You know, get a better agent to sell the place, put some pretty balloons out front, give away a free car, plant a statue of St. Joe in the ground, whatever. Everyone of course agrees that hugely inflated bubblicious prices are a seller’s birthright and they’re not making any more land, you know, so there’s no reason to change the price, right? It’s just a question of figuring out the marketing angle so the seller can receive the untold zillions she so justly deserves for doing absolutely nothing.
And she’s run out of ideas for silly marketing tricks, hence “I really don’t know what else to do.”
Lowering the price in a serious way just isn’t part of this woman’s capacity for thought. It’s a language she doesn’t speak. It’s a language she’s never even heard.
It’s incredibly, unbelievably dumb and this greedy, stupid woman will ride the market all the way to the bottom. And she deserves to.
What’s doubly astounding is that this seller is not alone. We seem to read a story about a “duh, I never thought to lower the price” seller every day on this blog. It’s the Invasion of the Moron People out there. How could such a situation not end badly?
Great post. I think you are right on target about the mentality of “getting the marketing right.”
But can the whole market be so dense? Shouldn’t we expect a normal distribution of intelligence, where some top quintile has a clue and drops the asking price sufficiently to find a buyer? OR maybe that is happening, but it is being cancelled out by the bottom quintile of morons who are still buying at last year’s prices.
You can watch prime time television and ask that question?
You can watch the President and ask that question?
Actually, No. I can’t bear to watch him. Yucky feelings…
- “getting the marketing right.”
Outstanding insight. They are like a gambler, ‘Just ONE MORE race / game / hand of cards’. The answer is always just out of reach…but close by.
I think you have it right, Chris–the top quartile is dropping prices just enough to get the bottom quartile to bite (why drop further?). The fact that there are ANY sales going on at the moment suggests the bottom quartile is still out there.
Jon
Ha! I love this genius-dunce equilibrium theory. And I think I believe it too. I still see shacks selling with “price reduced” (~5%) here (Ashland, OR) at unfathomable prices. Just a hint of the many interesting patterns hidden in mean and median figures.
I think this is just part of the brain damage caused by a bubble that has gone on too far and too long.
In my area in the Netherlands there are plenty of homes that have been on the market for many years (some even more than 5 years) without any price change. The only thing that changes frequently is the listing RE agent. It’s not that these people can’t lower the price, because most of them must be sitting on > 500% gains. They just have this idea that they are entitled to being a millionaire just by selling their home; or maybe some of them think that because RE always goes up, even if you have a ridiculously overpriced home the general price level will catch up if you hold your breath long enough. I guess most of them will hold on to their asking price even if the average price starts falling.
This is sad. Yesterday I saw an open house that was advertised on the main road to the development in big 3 foot letters. Each letter was a seperate sign (obvioisly ordered special by the realt-whore) that spelled out OPEN HOUSE with big arrows too. The ’sign’ total had so be about 30 - 40 feet long.
Of all cars, a Pontiac. I hope it’s a Solstice, because the rest of the line-up is pure GM garbage.
My 2005 GMC truck has less than 30k miles and has been in the dealership 4 times for significant problems. GRRRRR.
homely little thing, but the Vibe is a Corolla …. with a Pontiac nose…. But for that nose, I’ve been tempted (love our Corolla)
Im not a meteoroligist(or an economist), but it looks like the storm
is losing steam…On another note, I had a party yesterday with people in my neighborhood(central florida). I was talking to a realtor who said prices in my neighborhood had depreciated 25%.
Did you ask the realtor how that was possible given that real estate only goes up? I’d have been interested in the response.
That kind of reminded me of something. In Florida, the license law specifically states that a real estate licensee (sales associate or broker) cannot guarantee that a property will go up in value, if they do it can result in loss of license. However, these same laws do not prevent that same licensee showing a prospective buyer that year to year increases in value in a particular neighborhood, subdivision or city. And then implying something like “history repeats itself”, which is really the same thing as saying “real estate only goes up”.
“…a real estate licensee (sales associate or broker) cannot guarantee that a property will go up in value,..”.
So that explains why the developers did not like real estate agents hanging around their grand openings. Because at every single new developement and condo conversion that I have visited in the Tampa area over the past few years, I heard the salespeople, say, “This is going to make you a LOT of money”.
Was this realtor telling people to buy now or be priced out (in 2005)? 25% is some serious ass pounding!
I mentioned we had more on the down cycle and he didnt argue. I didnt want to ruin the party, so I didnt harp on the issue.
Agree - I have been MR. Negative and UnAmerican a few times. I stopped (most of the time). I now try to save my rants for the blogoshpere.
You are correct. The only way to discuss this stuff is with people of the same faith. I don’t even bother discussing it at work any more. One day I was asked if we were going to buy and I said, “not until at least 2008″. This was 6 months ago and New York City is “different” so there is no way prices will go down. Somebody told me that again on Friday night. I just shut up and didn’t debate.
We need a special handshake or some kind of sign to identify each other in public. In the early days of Christianity one man would draw a fish on the ground. This would show that he was a Christian. What can we do to recongnize each other? Maybe we could scrawl on the ground a portrait of an FB getting a 3-foot “for sale” sign shoved into his rectum. I think that would illustrate our beliefs. Any ideas?
How about asking if the person you are talking to knows David Lereah or Ben Jones? If neither - or talks about how informed Lereah is - time to move on and find someone more in touch with reality.
You mean we should have our own Jesus Fish? I like it!
NY City Boy-that was too damn funny!
One well known group’s membership refers to themselves as “a friend of Bill’s”.
How about modifying that idea to “a friend of Ben’s”?
I nominate the squirrel as our symbol (as in “You must feed my squirrels if you want to buy my house, peon”)
“A friend of Ben’s” - I like it!
When I was buying some clothes at a clearance sale the other day the store owner used the phrase, Cash is King! I brought up the blog and we talked for quite a while about how the middle class is totally screwed and doesn’t even know it. It was such a relief to speak openly.
The sign has to be an alligator with an open jaw.
Friends of Ben’s don’t let friends buy houses.
Given the obviously high intelligence quotient exhibited by Ben’s followers, I had previously suggested (on Money & Metals) that his “group” should be called BENSA.
This state is going to get an Ass-pounding that will make “the scene” in Deliverance seem like a peck-on-the-cheek goodnight kiss.
I used to be a real estate broker in PB County, but have moved back up north. I am still on a lot of mailing lists and yesterday got a postcard from a builder in Palm Beach Gardens offering a 6% commission for bringing a buyer to their new development. Even better, they offer 3% when the deposit is received and the other 3% when it closes. Two years ago they treated Realtors like dirt (we don’t need you, we’re turning away buyers, they’re lining up to buy here, etc.) I wish I was still there so I could stop by and tell them what I really think. Six years ago when the market was neutral, they would offer 3% to be paid at closing. Now it’s double. I’m still licensed in Florida. Maybe I’ll go back when they raise it to 15 or 20% commission and try to make a few bucks. By then 80% of the real estate licenses in the area will have expired and all of the recent wannabe’s will be back running a checkout at Winn Dixie.
Better bring a few buyers with you if you go back, they are starting to be as rare as an honest politician.
In late 2001(after Sept) and most of 2002, here in FL we had zero tourists, which at that time was a major part of the economy here. We would go to the theme parks and have the place to ourselves, walk right up to the front of every line. There was no ecomony here then. Then came a massive explosion of building and credit. We would go out driving and watch houses springing up almost overnight. Construction trucks caravaning down the roads.
All created by the lenders suddenly having a lot of money to lend. I remember in 2002, whenever I would go into my bank and get in the teller line, Jane, the loan officer would spy me and come running out and start chit chatting with me. If I was at the back of the line she would say, “Here I will take care of that for you”, and do the transaction for me so I would not have to wait in line.
Now, sometimes I look and act like a hillbilly, but I am no Jed Clampet by any stretch. I remember thinking, “This is very odd indeed”. And of course we know now what was happening, buckets of money was given to builders and the masses to grow and feed this thing.
The traditional tourist economy here was taken over by a building and real estate economy. And the people were very, very happy and very optimistic.
If economic forces had been left to their own we should have had a downturn in realestate prices in 2002. The money that was pumped into Florida building and real estate was not created here, so now that the spigot is capped off it is unsustainable.
If the money had come from the local economy i.e. people’s jobs and increased wages they could have made it by.
Exactly, Janni. Frankly, at this point, much of Florida looks and smells like s$it. I looked at today’s local real estate section and yes, some people are still buying homes and getting hosed, but that’s their problem. I read two stories in today’s Tampa Trib about different areas of Florida that are desperately trying to retain their local culture and way of life in the face of development. At this point, the only thing that will save them is the housing crash, as developers re-think their plans. Maybe Ernesto will help, I hate to say it. But unfortunately, it looks as if you just about have to drop a bomb on developers, politicians and the public in order to get their attention and point out what this is doing to Florida. For example, another story hit the news about how people, especially children, are developing rashes and illness from swimming in Florida’s once pristine springs. YOu can’t go to the beach right now on parts of Florida’s Gulf Coast without developing respiratory problems caused by red tide. People come here and stay here for some of the unique environmental aspects of Florida and the low cost of living. Both have been destroyed to a large degree.
On a more positive note, yesterday there was a story in the Trib about one part of Florida that was pretty much ignored by the bubble and where insurance is still availabel and cheap. I’m planning a trip there soon.
And what part of Florida is that?
Here’s some more breaking news. School starts here on Monday. Prime buying season is gone. I’m scanning my local RE ads and I’m seeing a bad winter for a lot of bagholders, or investors. Many, many, houses for sale and rent, apartments for rent, mobile homes, condo’s, you name it. I’m not seeing any offer of a free Pontiac yet. Perhaps by summer. BTW, the Denver Post business section (Page 4K), had a story about how real estate sales people are cutting down on customer sales trips because of the high cost of gasoline and their need for vehicles big enough to seat their clients comfortably. According to the article, agents are abandoning “courtesy” showings and are doing fewer previews. Many agents also ask to see a clients preapproval from the bank before driving them around.
Perhaps when selling a house you should ask your agent what kind of vehicle they have and what the gas milage is.
School started in SD this past Thursday. And we have 23K+ stuccoed sellers with used homes on the market coming into the lukewarm fall sales season…
…or how about “Stuck-Owed Sellers”? (just got a Schadenfreudy tingle)
“Perhaps when selling a house you should ask your agent what kind of vehicle they have and what the gas milage is.”
Actually, I think buyers should look at what agents are driving. Past couple years they’re all running around my neck of the woods in leased Benz’s. When real estate agents are driving old Fords or taking the bus again, it will be a great time to buy!
The Baltimore Sun had a piece this weekend on our “inventory glut”, yet it’s intersting that the actual inventory level isn’t even mentioned until paragraph 19, and the maps are all about price increases. “From Boom to Glut” is nothing more than a cheerleading, fluff piece focusing on price gains in the first half of 2006 that was written before the horrid July national numbers came out, and they realized they’d look like idiots if they headlined price increases. So they changed the headline and forgot to move up the inventorr numbers to give the appearance of reality. That’s my opinion, anyway, and they even state that signs of a slowdown have become clear in “the past month”. I’ve been calling their cheerleading out for months now, and the fact that they think this slowdown is just beginning is proof how truly bad their RE reporting really is.
Did we read the same article? I think you may be getting a little paranoid and conspiracy minded. That article, in my opinion, was incredibly negative. That was much more honest than nearly anything I’ve seen in local newspapers.
Remember, it’s not just the bulls that have to worry about their credibility. We have to remain open-minded as well.
I agree, we do need to maintain our credibility as a group.
Remember, this downturn won’t last forever. I am one amoung a large number of bubble watchers who will buy (someday).
But first, I will purchase a stock of fine wine and watch this calamity. My investments and job have been made “recession resistant.” Since nothing is depression proof… we’ll hold onto for this wild ride.
But the US economy tends to be very adaptive. So eventually we’ll pull out and in 12 to 17 years we will eventually see these same home prices again.
Until then, don’t catch a falling knife.
Neil
No, it’s not incredibly negative at all. The focus of the first ten paragraphs is how people have had to drop their prices, but the area as a whole still saw double digit price gains throughout the first half of 2006 even in the face of declining sales. That is the story in the whole of bubble country, but you see few article talking about the price gains as the main focus any more. This one did, but at least it had inputs with a price decline prediction. Sorry, I read the article in the Globe, the Post and others and they focus on the appropriate indicators of sales levels and inventory growth, not prices. I am being objective, I believe, in saying that they’re still pushing the price gains befor everything else, even when the headline says otherwise.
The fact that the glut in the headline was never even quantified in the whole article, but the price gains sure were, cements my thinking. yes, it was more negative than previous articles, but not focusing on the leading market indicators.
My investments and job have been made “recession resistant.” Since nothing is depression proof… we’ll hold onto for this wild ride.”
Me, too. I’m now retired :-)) and everything is in money market, CDs and very short maturity bonds. No mortgage either, as we moved to a low-cost area and bought the cheapest home we could be comfortable in.
Being a SWAN (Sleep Well At Night) is the way to go.
Might want to hedge against the dollar tanking too. JMO.
FutureVulture: what are good ways to hedge against dollar declines? I’m concerned that the coming recession will drive commodities down (they would otherwise be a good hedge), and I’ve never tried currency futures before (and am a bit hesitant to do so). Thoughts?
Jon
Common sense says that recessions drive down commodity prices — but it’s not true! It may happen over short time frames, but historically, commodities have done well during long economic slumps (e.g. mid to late 30’s, and the 70’s). Which actually makes sense if you consider that during major booms, there tends to be under-investment in infrastructure (like mines, roads, electric grids, and on and on).
Next best thing to diversified commodities I think is to have most of your cash in diversified foreign currencies, especially those of commodity-rich nations. Easy to do now with the latest ETFs, as well as places like Everbank.
Best of all (but short-term riskier) IMO is silver, which has a monetary aspect as well as being a good candidate for a commodity in shortage. Gold is probably great too, but its demand is highly psychologically driven, and so seems riskier to me than silver.
‘The Big News Is The Housing Boom Is Over’
Even David Lereah and the NAR seem to agree. You can download David’s recently created powerpoint presentation, “Reality Check,” from the NAR’s web site:
http://www.realtor.org/Research.nsf/pages/presentations_use?OpenDocument
Look at the page entitled “What Happened” (a few slides in from the title page). It reads like a post from this blog.
Heh heh.
That powerpoint may become a HBB chestnut, kinda the counterbalance to: “South Florida is operating under a completely new paradigm, and will support higher prices indefinately”
You can stick a fork in this market, and throw the burnt crust away! Anyone still in denial by now must have their fingers in their ears, and eyes squinted tight shut. It takes EFFORT at this point, to deny the reversal.
-
What Happened?
1. Boom ended August 2005
2. Mortgage rates rose almost one point
3. Affordability conditions deteriorated
4. Speculative investors pulled out
5. Homebuyer confidence plunged
6. Resort buyers went to sidelines
7. Trade-up buyers to sidelines
8. First-time buyers priced out of market
- David Lereah
Ok, I have my opinions on Lereah…
But that slide 2 of Expanding and Contracting states says it all…
And economics like this doesn’t turn quickly. We’ll see those contracting states contract for years (with a few exceptions).
And hey, lookie there, Alaska home sales are shooting up (slide 10).
Let’s all flip Alaska homes. Or not…
And I love how he found markets with shortening days on market. All of these on slide 12 have > 60 days on market already. Hmmmm…
Slide 14 through 16 are… scary. Required, but still scary.
And look at slide 44, 28% of homes sold in 2005 were “investments!”
That polar bear about to take a cold plunge is a very appropriate cover slide. I think Lereah has a dry sense of humor.
Neil
This is classic. Putting a Bear on the front page pretty much sums it up.
And don’t overlook all the bubbles in the slide background. You have to hand it to David L for putting together a very clever presentation with meanings on mutliple levels.
Oh, and that is not just any bear, but a polar bear on the front page — the kind whose environment is characterized by frozen liquidity.
Actually, did anyone else notice the bubble background? I’m serious! Look at the slides in presentation mode!
this is D.L.’s attempt at revisionist history. he’s trying to “get on the record” on the bubble before it’s too late.
Agreed. If the man is so clever, why did he not pass on such insights long before now.
It would appear he needs to work more on his ethics and less on his powerpoint skills.
“‘We cannot treat our homes like ATMs anymore,’ said Karin Klaassen, a certified credit counselor. ‘That window of opportunity for anyone to cash out their equity is closing rapidly. The people who already have been taking equity out of their homes to pay for consumer debt are setting themselves up for trouble.’”
This is news???????
I was sayin’ this in appraisal reports back in ‘96.
Only reason Clinton’s numbers looked so good. Everybody was borrowin’ the shit outta their housing and doin’ margins accounts with NAZDAQ.
Raines & Co., have been runnin’ wild for a decade. And the only reason he’s not followin’ Skillings to the can is he’s politically protected. FED’s folded the investigative tent and doled out a fine on level what AmeriQuest got.
The fix is in…
Absolutely agree and to add to that thought, I’d really be surprised if FNM is not frantically tossing toxic MBS out the back door into the back of BB’s truck in exchange for treasuries right now as we speak!
Latest 11AM Advisory from the National Hurriance Center is bulls-eye on Tampa.
Forecast Map
Thanks for the update. I live in Tampa, sometimes I get so caught up in this wonderful blog that the roof would have to blow off before I would notice.
I have 2 brothers in Tampa. I thank you for the update too. Anything else you can share is helpful as they are Coast Guard, Custom agents and so stoic (or busy working) that I never get any info.
Primer on Winterisms:
http://www.xanga.com/home.aspx?user=russwinter&nextdate=8%2f27%2f2006+23%3a59%3a59.999
Russ — This is really great stuff — what you might expect to get if you crossed economics with ebonics!
Land of Oz, or Alice in Wonderland: market participants who actually believe or pretend to believe the Ministry of Truth, and trade accordingly…
Pig Men: The financial sphere, typically brokers, banks, Fed dealers. A representative list of the major players is here.
Riskloves: Often hedge funds, speculative pools, or proprietary trading desks of financial institutions. Leverage or gearing is almost always used. Can also refer to smaller players, such as real estate flippers. Really anyone who gambles largely based on moral hazard and Bubble gains, as opposed to sound economic returns. Example: buying a house for $500,000 using a toxic loan (phoney initial interest rate) and then renting it out at $1250 a month (for capitalization rates half of Treasury bill returns).
Old Maid Cards: US debt in general, but asset backed securities in particular.
Godfather Protection Racket: a system which encourages, fools, bribes, or intimidates foreigners into “investing” in Old Maid Cards on a massive scale.
Pig Men: The financial sphere, typically brokers, banks, Fed dealers. A representative list of the major players is here.
Don’t forget Richard Davis, the South Carolina flipper extraordinaire on “Flip This House”.
In my parlance Mr. Davis would be a Risklove.
I was referring to his appearance. Bad joke, sorry.
Some were asking here recently about the housing market and the stock market. If you scroll down from Russ’s Primer on Winterisms to Chart 1, you will see a beautiful superposition of the 1-year lagged NAHB Homebuilder Index on the S&P 500, which has a 79% correlation according to Russ. In other words, when the HB index is going into the tank, you can bet strongly that the stock market will be there in another year or so.
Oops — meant to say “S&P 500 lagged 12 mos”, but the point is the same.
http://www.siliconinvestor.com/readmsg.aspx?msgid=22754740
This IMF report addresses the inter-relationship between housing busts and equities busts. It’s several years old, but very interesting reading. If you want the cliff-notes version, check out just the synopsis on page 74.
In a nutshell, I expect a _dramatic_ stock market bust to follow the housing market bust. I moved to 100% cash recently, while I figure out how to prepare for that scenario.
http://www.imf.org/external/pubs/ft/weo/2003/01/pdf/chapter2.pdf#search=%22IMF%20report%20housing%20bubbles%20equity%20bubbles%22
Jon
I told my parents today to move their 401k funds into 100% cash, based on those graphs.
Could we safely say that the housing bust actually occured a year ago and that we’re basically now at that 12 month lag point and the stock market should drop soon?
Wahoo! Thanks Russ
Thanks Russ for putting together the primer.
Your description of a plutocratic or crony capitalist system is right on. That is exactly the kind of system present where I live–Russia.
Wow! You are the shoe-shine boy of Ben’s blog. Russia! Now we know the news is out.
like any market -when the majority think it’s toast then it’s done going down-wierd but true
When my grandmother sold all her stocks during the Y2002 crash, after holding for decades, I knew the bottom was in. She timed it perfectly, (unfortunately.)
Here in Panama City, we have had ten consecutive months of sales declines and three consecutive months of actual price declines. Inventory is the highest anyone can remember: it seems like the whole coast is for sale. There are signs everywhere, an awful lot of them marked “REDUCED!” or “MAKE OFFER!” Nothing is moving. Any rational person would think that maybe all this presents a problem.
But when the local paper did an article about the drop in sales and prices, it consisted mostly of happytalk from area realtors. There were the usual declarations that this is a “buyer’s market” and a great time to buy, even though prices are still very high.
One realtwhore insisted that the market will pick up again in the fall or no later than spring, even though, according to July sales numbers, we have a 160 month supply of condos (4,000 units and 25 sold in July) and a 15 month supply of single family homes (2,329 units vs. 152 July sales). (These are only the places for sale on the MLS, not FSBO’s and the units being sold by the big developers themselves, of which we have many.)
Of course, this is a small town, and the developers pretty much own it, so perhaps we can’t expect the local paper to tell the whole truth: that we are looking at a devastating crash. But some balance would be nice–*every single quote* in that article was fairydust from the realtors.
On the whole the press is getting better about its coverage of this issue, but there are clearly some unfortunate exceptions.
“Of course, this is a small town, and the developers pretty much own it, so perhaps we can’t expect the local paper to tell the whole truth: that we are looking at a devastating crash.
I think this applies to most of the developed world at the moment. In Europe it’s the same story. In the Netherlands you get the impression that when the evening news covers a subject related to RE, it is actually a commercial prepared by the realtors organisation. The RE future is always bright. And most of the newspapers are even worse, week after week they talk about how great an investment RE is etc. Of course, financially they don’t have much choice. Wait for the RE ads to evaporate and by that time maybe we might read about what has really happened.
Sorry NWFla
- You forgot that there are 1000 new folks arriving everyday in FL.
Also, Castro will be gone soon and the word on the street is that La Cosa Nostra is already laying the ground work for the new casinos in Cuba. FL is going to be huge again.
Get Ready, Hurricane to hit FL. Watch out Tampa Bay, Pinellas County, Sarasota, Bradenton. You are about to get nailed and see your prop taxes increase. Watch the throngs of people leave the state to deal with snow instead of these Monsters!
http://www.nhc.noaa.gov
http://www.flhurricane.com
http://www.hurricanecity.com
http://www.wunderground.com
OOPS INSURANCE INCREASE! My Bad lol it was early and I just wok eup and saw weather.com then posted here. I see others posted above as well!
>”…but all other assets are fair game, Jursinski said.”
I don’t think retirement accounts (IRAs, 401Ks) are “fair game”.
Retirement accounts are not “fair game”. That’s why you should never raid your 401k for short-term financial relief. When I hear of people that want to cash in their 401k to put a down payment on a home (what’s a down payment?) it makes me want to cry. Or choke them! Either one.
Contributions to 529’s made before the past 2 years are protected. Prepaid college funds are also protected.
Non-Bankruptcy Judgements
IRAs May Not Be Protected Against Creditors
Individuals who retire or change jobs frequently roll their retirement assets into an Individual Retirement Account (IRA). These IRAs can become quite large – many reach into the millions of dollars. While most non-IRA retirement plans provide protection from creditors (through ERISA), IRAs are not protected against creditors and bankruptcy in at least 25 states.
The states that DO NOT fully protect IRAs are:
Arkansas, California, Connecticut, Delaware, D.C., Hawaii, Iowa, Louisiana, Maine, Massachusetts, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, South Dakota, Tennessee, Utah, Vermont, Virginia, West Virginia, Wisconsin, Wyoming
http://www.asgoldstein.com/ultimateira.html
——
Bankruptcy
How the New Bankruptcy Law Affects Your IRA
Our personal finance expert explains how the new law increases your IRA’s protection from the IRS.
August 15, 2005
By Debra Neiman, CFP
URL: http://www.Entrepreneur.com/article/0,4621,322964,00.html
On April 20, 2005, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The new law, which goes into effect on October 17, 2005, generally makes it tougher for people to protect their assets in the event of personal bankruptcy. But there’s one notable exception: IRAs, fast becoming the biggest asset people have, actually receive more protection under the new law.
Under the new law, up to $1 million of the assets you hold in traditional IRAs and Roth IRAs, or a larger amount determined by the bankruptcy court, will be exempt from your bankruptcy estate.
What’s more, IRA assets that came from an employer retirement plan rollover–such as a 401(k), 403(b) or profit-sharing plan–won’t be subject to the claims of your creditors, regardless of the state in which you reside or the value of your rollover assets and their subsequent growth.
well, that sound like there still is no way you can loose by playing the RE game. Take out a couple of huge mortgages, flip the properties, place the money into your IRA (e.g. by using a company owned someone you know to handle all the RE transactions?) and you can still go bankrupt and get out with a million. Or am I missing something?
There are tight annual limits on IRA contributions.
I know a woman who tapped into her 401k to buy a Mercedes to impress some loser (who’s now in jail) she was dating. Talk about foolish.
I’m planning to cash out on substantial IRA’s in 5 months, pay penalties and taxes, and buy physical gold. I don’t trust the government or the dollar. IRA’s are a scam designed to control your money and prop the ponzi-finance banking system and equity and bond markets. At a time when the government needs this money (10-15 years from now), taxes will have to double from present levels, and Congress will change the rules to extend time periods for withdrawals.
I’m with you Fred (again).
-
don’t forget the shotguns, ammo, bottled water, and canned goods.
p.s. you’re crazy.
I’ve been kicking around this idea for about year.
“Enlightened self-interest has to take over,” he said. “The lending industry will get as creative with its forbearance programs as it was with financing. At some point the banks have to look up and say, ‘If we really foreclose on this many houses, it’ll kill us.’”
The lenders have really painted themselves in a corner. What kind of “creative forbearance”, are they going to come up with, to save these people?
The forebearance plans are primarily for the lender’s benefit, not for the borrower’s benefit. The creative plans they come up with will be determined by the economic backdrop at the time.
It will also be important to understand what happened to the loan after it was closed. Is it held in a lender’s portfolio as a whole loan? Was it securitized into a MBS pool? If it is in a mortgage backed security pool, much will depend on how the MBS deal was set up, who owns the tranches, and who does the servicing. MBS deals have many nooks and crannies and many different parties with interests that are not always in alignment.
What kind of “creative forbearance”, are they going to come up with, to save these people?
————————
Hate to put this in public, but one way to “fix” the foreclosure problem is to permit interest only payments at a reduced interest rate for as long as people live in/”own” their homes. The idea would be that the FBs could wait out the market (10 to 20+ years???) and repay the principal upon sale of the house. This way, the lenders don’t technically lose principal, and might earn a fair enough return at the lower interest rate (better than taking a 50% haircut on their investment) in the meantime.
Anyone think this is possible?
Yes, that sounds exactly like something they will come up with. I doubt if they could even sell the McArdles house for 50%.
“At some point the banks have to look up and say, ‘If we really foreclose on this many houses, it’ll kill us.’”
By, “..it’ll will kill us”, I am assuming he means the banks will fail, which means there goes all my cash.
With strength in numbers, the McArdles of the world have the banks and all of us by the short hairs.
Kind of like being a virgin and getting HIV from a blood transfusion.
During the Great Depression the Banks would work with people rather than take the farm or house back that nobody had funds to buy anyway . However, I just talked to a lady who was young during the Great Depression and her family lost the house to the bank . Nice house ,(she showed me a picture of it ).
Here in Panama City, we have had ten consecutive months of sales declines and three consecutive months of actual price declines. Inventory is the highest anyone can remember: it seems like the whole coast is for sale. There are signs everywhere, an awful lot of them marked “REDUCED!” or “MAKE OFFER!” Nothing is moving. Any rational person would think that maybe all this presents a problem.
But when the local paper did an article about the drop in sales and prices, it consisted mostly of happytalk from area realtors. There were the usual declarations that this is a “buyer’s market” and a great time to buy, even though prices are still very high.
One realtwhore insisted that the market will pick up again in the fall or no later than spring, even though, according to July sales numbers, we have a 160 month supply of condos (4,000 units and 25 sold in July) and a 15 month supply of single family homes (2,329 units vs. 152 July sales). (These are only the places for sale on the MLS, not FSBO’s and the units being sold by the big developers themselves, of which we have many.)
Of course, this is a small town, and the developers pretty much own it, so perhaps we can’t expect the local paper to tell the whole truth: that we are looking at a devastating crash. But some balance would be nice–*every single quote* in that article was fairydust from the realtors.
On the whole the press is getting better about its coverage of this issue, but there are clearly some unfortunate exceptions. And, in part thanks to such “journalism” as this, most people around here are still walking around with goofy grins on their faces, confident that their tiny little crackerboxes are “worth” $200k and that the new airport will turn this place into Palm Beach.
I really don’t know what else to do. I’ve been in the business for 20 years
Ummm…
She has an 8% rate, is already w/ Option One, will pay a $10k PPP, two months behind on her present mortgage, and thinks she can refinance into something better? Either she or her husband ought to take on a 4th job, or turn in the keys and rent. Refinancing just re-arranges the deck chairs on the Titanic.
The fact that she had to use a company like Option One to finance her only made it a matter of time since she would be facing this situation. I wonder if this was one of the $100+ million in loans H&R Block had to repurchase?
Question for you bubble-ologists. What do you make of the Waco Texas market? Here’s a table with data on sales, prices, and # of listings for the past 10 years ending in July 2006. Current listings as of today are 1427 , down from their July peak of 1533 (although I’m not certain if I’m looking at the same data set). Judging from recent sales in my own neighborhood I’d say we’ve seen about 5%/year appreciation since we bought in May 2003. A few folks list properties with ridiculously high prices. But the actual recent sales in the past couple months show about 5% annual gain over the past couple years.
My wife and I are thinking of polishing the place up with some decluttering, scrubbing, new paint, and weeding and put the place on the market in early spring when it is convenient for us because we’ll be traveling out of state. If it sells then we may rent until the exact place we want comes along. We want a bigger place with room for horses as we have 3 girls who all ride. Lots of places like that around here. Finding the right one at the right price is the difficulty. We wouldn’t plan to move for another 18-20 years if ever if we find the perfect place so we’re pretty much the opposite of flippers. I do a lot of driving around and have my eye on about 5 different places that I really like. None of which are currently for sale. It’s more a question of figuring out what we want so that if/when we find it we’ll know it.
We have no need to sell anytime soon. It’s more just a question of wanting to sometime move up to a more spacious house on more land and wondering when the best time will be to just do it. If there is a real crash in this market in the future then getting out now, or in the next few months might be smart and allow us to snag something really nice at the bottom of the market. But if we don’t sell, no big deal.
That data is extremely noisy. Listings time out, agents delist and then relist places, offers get made and then fail in closing. The changes you are pointing out are less than 10% or so, right? Processes and distributions and analysis are complex for this, but a good general rule is that around 11% or more seen in more than three samples is a trend worthy of modelling and extrapolation.
This is a huge macroeconomic shift that is in progress with many interdependent elements. Even relatively out of the way and inexpensive places such as around El Paso, if I may generalize there, will see complex volitility unfolding for years. Right at this turning point trends are extremely hard to identify. There will probably also be at least one “dead cat bounce” that throws off the numbers as well.
Oops, here’s the table I referenced in the above post
http://recenter.tamu.edu/data/hs/hs540b.htm
Why is there no preview feature on this comment section?
Well, it has been nice blogging with you people, but I have company coming and I need to get ready. Ernesto is due to fly into my rental abode Thursday morning.
I wish you luck ,stay safe .
Good luck!
Make sure to have plywood on hand to board up the windows if necessary. God bless!
the 5pm advisory and it is a direct hit through the keys and along the west coast. florida again?
If a stockmarket crash might follow the housing crash, should I move my 401k funds from equities to more conservitive funds???
Yes. Move your money to T-bills, paying 4.8%. After inflation at 4% (really 8-10%), and taxes on dividends (25-33%), your net loss per dollar will be about 2-3% (or 5-6% depending upon whether or not the government is massaging inflation). Wait untill after the crash to maximize your loss on equities.
How about gold stocks or investments like Vanguard’s precious metal fund VGPMX. Is that safe, or should I move to cash for awhile, then maybe repurchase VGPMX?
http://www.safehaven.com/article-5786.htm
Check out Hussman funds too, or hold physical and cash.