‘Some Deals No Longer Make Business Sense’
Some housing bubble reports from Wall Street and Washington. “H&R Block is due out with its quarterly earnings report today. Bob Moon: The higher that home prices climbed in recent years, the riskier the loans became for some mortgage lenders. Now, with adjustable rates going up and a growing number of borrowers failing to make their payments, H&R Block is being forced to write off a loss of $102 million.”
“Christopher Thornberg ‘We’re at the beginning of the breaking real estate bubble, we’re not at the end, we’re not near the bottom. We have a ways to go.’”
“Thornberg expects a shakeout for the mortgage industry, but he can’t predict which companies might be most vulnerable. ‘To some extent, this is going to be one of those things where we’re just going to have to let the smoke clear to find out where the bombs have landed,’ he said. Thornberg has little sympathy for companies that he says have long been riding high on such high-risk loans.”
The Street.com. “The hard landing of real estate has only begun to be felt, as the downturn is still less than a year old and new housing starts have dropped by only about 15% from their fall 2005 peak.”
“In past down cycles, the duration of the downturn has been between 25 and 52 months, and in terms of unit declines has averaged approximately 52% from peak to trough. So, stated simply, the worst is yet to come for housing.”
Gary Shilling at Forbes. “The housing bubble is deflating rapidly. I expect at least a 20% decline in median single-family house prices nationwide, and that number may be way understated.”
“A bursting of the bubble would force many homeowners to curb their outlays in order to close the gaps between their income and spending growth. That is, unless another source of money can bridge the gap between consumer incomes and outlays, just as house appreciation seamlessly took over when stocks nosedived. What could that big new source of money be?”
The Boston Globe. “Rising incomes should support the US economy even as the housing market slows and consumers lose the boost they were getting from home equity, Federal Reserve chairman Ben Bernanke said.”
“‘The rapid pace of house price appreciation in recent years likely contributed to the decline in the saving rate,’ he said. ‘Similarly, the cooling of the housing market and associated reduction in capital gains on housing will probably provide some upward impetus to the saving rate.’”
From Bloomberg. “European Central Bank President Jean- Claude Trichet signaled the bank will increase interest rates in October, saying economic growth and inflation will exceed its previous forecasts.”
“‘Strong vigilance remains of the essence so as to ensure that upside risks to price stability are contained,’ Trichet said. The ECB said it expects inflation to stay ‘elevated.’”
CNN Money. “A year ago, with the real estate market booming and stocks at or near all-time highs, executives at the 12 major homebuilders were quick to cash out, selling just over 6.5 million shares of their stock as a group, pocketing just over $500 million in proceeds.”
“But homebuilder executives have held onto their shares this summer, while their value has continued to fall. ‘This definitely tells me insiders are relative more bullish than a lot of investors in these stocks. But that being said, we’re not seeing any buying. If they really wanted to show the faith, they could be buying shares,’ said Jonathan Moreland, director of research at a service that tracks insider stock activity.”
From USA Today. “As sales slow and inventories jump, large publicly traded home builders are trimming landholdings or renegotiating deals, according to earnings reports and industry officials.”
“The development illustrates the fact that some previous land deals done at the height of the housing boom no longer make business sense. It also reflects the fact that builders see the slower market as giving them leverage to force sellers to cut prices.”
“‘Land sellers are at a disadvantage right now, and some, because of the way they’re financed, can’t really hold on and wait for the market to normalize,’ says Mackey O’Donnell, CEO of the largest land-acquisition firm in California. Builders tell O’Donnell they are seeing up to 10% to 20% reductions in land prices from recent highs. As large builders reduce their holdings.”
“Toll Bros. said in its third-quarter earnings report last week that it now owns or controls about 82,900 lots, compared with 91,200 at end of the second quarter. ‘Those deals that are not at the extremely profitable end of the spectrum are being looked at again,’ says Kira McCarron, for Toll Bros., adding that if they don’t add up and ‘can’t be renegotiated, then they would be dropped.’”
The commentary about HB executives not selling now is just facile. They are hedged or collared, no doubt. They really “can’t” sell now, it would send a terrible message.
True about the message, and there’s no panic for them, they already stashed so much cash from last year’s sales, they don’t need to sell what they are holding now.
What about the message they sent by selling at the peak last August?
‘One integrator I recently spoke with said that builders in his local market were finally wanting to speak with him about putting technology in their new homes. ‘They had no incentive to talk with me before because every home they built had a waiting list of 50 people. Not anymore,’ he told me. I am hearing that more frequently than ever.’
“we’re not at the end, we’re not near the bottom. We have a ways to go.’”
“The hard landing of real estate has only begun to be felt
“I expect at least a 20% decline ”
Wow. Listen to the TONE of these articles. It’s amazing how fast the tone has changed.
As people start seeing/hearing/speaking like this more and more, there is no doubt the momentum will snowball.
clouseau
-“Christopher Thornberg ‘We’re at the beginning of the breaking real estate bubble, we’re not at the end, we’re not near the bottom. We have a ways to go.’”
Thanks Chris. FINALLY, SOMEONE mentions the truth at last.
Thornberg has little sympathy for companies that he says have long been riding high on such high-risk loans.”
The problem is that we are ALL going to pay for this in one way or another.
You tell it, Chris. Some will hate you for it, but you will get much better recognition later on for speaking the truth than soft-pedaling like most real estate experts…
watch out bears !
http://articles.moneycentral.msn.com/Investing/CNBC/TVReports/CyberspaceForetellHousingRebound.aspx
Not to worry. It’s people like myselft and many others who have decided that it is fun to watch the prices go down. I just joined Ziprealty to watch; not planning to buy for a long time.
Over the past five weeks, there’s been a 42% increase in the number of Internet searches involving the phrase “homes for sale,” according to Hitwise, a firm which measures Web traffic.
Homes are like sex ! If there’s an increase in the number of Internet searches for “sex”, it doesn’t mean that more people are having sex. In fact, it’s probably the opposite.
Well said!!
You don’t need detailed statistical data mining to find out that September is a busier month for enquiries than August.
What would be interesting would be a comparison with the same time last year.
Also interest does not equal sales.
Loafer
Done. Give this a whirl on Google Trends:
Historical “houses for sale” searches
The trend looks the same as last year, just a bit higher. And we know that YTD sales are tanking compared to last year, so we can pretty much say that there’s NO correlation and the article is desperation.
It’s called ‘rubber-necking’; people on the net are stopping to look at the train wreck that housing has become.
You’re right.
It’s probably all of us here. I know I enjoy checking out the train wreck. Plus, I’ve got a file folder jammed with listings I’m watching all over the place. It’s fun looking at something again in 45 days to see how “motivated” people are getting. Actually more people looking means they are taking their time and re-checking what may be of interest.
rubber necking? Yeah, I do it. It started basically Saturday in the mornings. I’d get high looking at those “Open House” signs and these blogs and it would last me a week. Then I was rubbernecking twice a week. Yeah, Hey, I could use more of this. Yeah. Now I drive out of my way early in the morning in the residential area sometimes to count For Sale signs. I blog when I get to work. I blog at lunch. I blog when I’m downloading a database. Ben’s blog is addictive! Yeah…
I totally agree. Many are for the first time hearing of the housing bust and have turned into trend watchers, hoping for the best, fearing the worst.
I’d echo the rubber necking comment, folks are more than just a little curious about their piggy bank.
I listened to the HRB conference call. They said the pools started “suddenly started in July” to returning their quick fail junk mortgages. Like they had no way to see this coming. Tip of the iceberg.
Like others, I too find it most interesting to monitor houses for sale when prices are falling. Would I buy into this falling market though? No, not for maybe 2 or 3 years. Maybe a better ‘predictor’ of existing home sales will be … existing home sales.
Ha ha!
What an assumpiton. Boy, people are really interested in real estate all of a sudden. Must mean sales are going to soar!
No, idiot … people are crapping their pants because the market is tanking.
Seriously, why would they assume that it means people are interested in buying, maybe it means people are doing comps on their housing and deciding if it’s time to ruch to the exit. Another classic quote for the History of the 2006 Housing Crash book.
thats just people searching to see how far down prices are going.its pure panic.
we rubberneck passing a car accident - doesn’t mean we want to be in one.
My take is that it’s the people that listed with Zip realty, scoping the competition. Zip is just trying to beef up sales. I want to know whether or not those searches are from unique log-ins - not associated with sellers or people that searched 10 times over.
Since last winter, I’ve been telling anyone who would listen to get a Zip account and watch the increasing DOM’s and price drops.
The only thing that’s changed is more people are listening. Would-be buyers are very excited now that the housing crash is being spoken about in public. More of those people have opened accounts in the past few weeks to “watch the fun” and get some hope back re. buying.
Those are the smart ones.
On the other hand, she could be right that the stupid ones are thinking that once the summer “buying season” is officially over there will be people wanting to swoop in and get that supposed bargain.
The search “homes for sale” is due to all the people hitting these blogs and hearing about a RE bust and then getting on Google and Craiglist to see how bad it really is.
I know I get on realtor.com a couple times a week to tract listings in certain areas just to see how many more appear and if the prices have dropped.
When my wife and I are visiting other cities we’re interested in moving to in a few years we’re now collecting the local RE brochures from the supermarket. We’re creating a file and just dropping them in to re-visit over the next few months/years as the prices decline. I already find myself laughing hysterically at some of today’s prices. It’ll be even funnier next year and the year after…
Oh, me too. I get those free glossy brochures at grocery stores every couple of months or so. Yeah, and I laugh too. $1,000,000 houses in Phoenix? $690,000 condos on the busiest street in Torrance by Del amo? Ha! (I pay rent in apartments in both regions). I’m going to plant myself in a house some year, but it probably will be 2012.
Dead cat bounce rationale?
Newsflash: I think I’ve found LV Landlord, although I didn’t know he could read.
http://dallas.craigslist.org/apa/201352113.html
the he is a she
If she is, she’s got knuckle hair like my Aunt Helen.
Link doesn’t work.
BayQT~
Oops! now it is.
BayQT~
Boy, that one was withdrawn quickly! You must be right. Knuckle-dragger, huh?
“European Central Bank President Jean- Claude Trichet signaled the bank will increase interest rates in October”
And thus, Bernanke is trapped. Can he possibly allow Europe (or Japan) to raise, while leaving the US rates stable? Of course not. We have to keep the carry trade to keep our gov’t debt obligations.
Trapped trapped trapped.
He is in the worst possible area. raise rates and housing tanks faster, and he takes the blame (even though housing will collapse of its own accord). don’t raise rates, and world investors will favor other countries over our Treasuries, and we default on our debt.
The only out:
bernanke needs to convince Japan and Europe to loosen their policy, and drop rates. This would allow the carry trade to remain, while allowing the US Fed to drop rates. of course we’d have mega-world inflation, but it’s worked the last 20 years, right?
You know the game is afoot when the big 3 (BOJ, Eurozone, US) start dropping together. A race to the bottom!
clouseau.
IMHO, the Eurozone countries will not be able to lower rates. There are 2 reasons 1) All Euro holdings must be backed by 15% gold and 2) The charter requires each member to maintain inflation at a set pace or they are subject to loss of trade rights. And for these and other reasons, the US will be forced to raise rates to keep foreign in vestment in US gov securities/instruments.
These rules set in stone or can they all hold hands and change them? I hadn’t heard about the 15% gold rule, you sure?
Yes - It is a rule for holding and issuing Euros.
“The European Central Bank, which stands behind the Euro, is required to maintain at least 15% of its reserves in gold.”
http://www.nowandfutures.com/false_data.html
(Nowandfutures is a pretty cool web site akin to Itulip)
“The last duty of a central banker is to tell the public the truth.”
Alan Blinder, Vice Chairman of the Federal Reserve, on PBS’s Nightly Business Report in 1994.
That’s 15% of reserves that must be kept in gold, it says nothing about any particular level of backing or convertability for Euros. There is a difference. Gold in not a limiting factor in the printing of Euros, nor does it set a base value for them.
No, but it does show a level of interest in gold that is always conspicuously absent when they talk about the barbarous relic in public. Hmmm?
Agreed.
“the US will be forced to raise rates to keep foreign in vestment in US gov securities/instruments”.
End of Story. USA MUST HAVE FORIEGN INVESTMENT.
Or we are toast.
Yeah, that’s why I’m more into T-bills than Treasury notes. LOL. Today my $1000 T-bill purchase and my $1000 Treasury Note purchase became official. The yield? About 4.96 for the T-bill and 4.76 for the Treasury note! It’s a 5 year note!!!!!! Talk about inverted yields! Next week I buy $1300 of a muni bond fund and $1000 into Vanguard Prime Money Market fund (5.11% yield). The following week will be my golden week. Buy Gold! What? Me? Worry? HA!
Everyone - what the Inspector and hoz are saying should make you feel sick in your stomach right about now. If you take nothing else away with you today, take this information to heart and think of the fallout. And add the following from AP:
“The ECB also said that it had revised its estimates for growth and inflation.
The bank now sees growth in the 12-nation euro zone at 2.5 percent for this year, up from a previous estimate of 2.1 percent; and at 2.1 percent in 2007, compared with a previous forecast of 1.8 percent.”
Even though ECB members have blatantly violated the inflation range (underreported) in the past, the end result is going to be this rise in European interest rates.
If Heli-ben does not raise rates in accordance with ECB and Japan, the dollar is going to become banana republic currency - worthless. Lowering is now no longer an option. Repeat, no longer an option.
Will ECB openly invite inflation by lowering rates? I don’t think there’s a snowball’s chance in hell this could happen, esp. in Europe. The Europeans have a wonderful history of taking protests to the streets - something politicians fear. An open invitation to inflation is not going to be offered.
There may be some divergence initially, but eventually, the Fed will be forced to raise rates to prevent a $ rout and a potential default. Bond investors are global investors. They chase yields with comparable risk. If US treasuries stop becoming attractive, there will be a “put” to the Treasury from investors. Worse, since we have this “deficit” thing overshadowing our existence, we MUST continue borrowing to cover servicing costs. This is the price one pays for living beyond ones means.
Ironic that after all that has transpired during this bubble in the past several years: 17 rate hikes, toxic mortgages, backdating options, homeless homebuyers, and squirrel feeding - its a Frenchman with bad hair who deal the death blow
dd
I stated on this blog a few months ago, that there will be no general bail out of the US securities until France bails.
Investment Outlook
Bill Gross | September 2006
No Cuts, No Butts, No Coconuts
“…The mention of the word “borrow” in the preceding sentence turns on a light bulb that suggests that we might be able to at least employ a reverse Marshall plan over the next 30 years by extending the beggar’s cup across the Pacific Ocean in hopes of continuing handouts. Boomer consumer needs and in some cases healthcare requirements can certainly be absorbed by parts of the world that are less “boomerish,” and Asia and Latin America fit that description – Japan and China excepted. But a decade from now, Asia and the “Americas” south of the Rio Grande will likely have turned inward with a focus on internal demand as opposed to external, mercantilistic export-dominated policies. Boomer borrowing likely no longer will be subsidized as it is now and the prices of our imports will rise, not just because of the increase in financing costs, but because of a declining dollar as well.”
Bill Gross wrote an excellent piece - for those with time read.
http://tinyurl.com/h2hx7
My original post went kapoot. URGH.
Hoz said: “IMHO, the Eurozone countries will not be able to lower rates. There are 2 reasons 1) All Euro holdings must be backed by 15% gold and 2) The charter requires each member to maintain inflation at a set pace or they are subject to loss of trade rights. And for these and other reasons, the US will be forced to raise rates to keep foreign in vestment in US gov securities/instruments.”
Hoz, although I agree that it is not likely that the Eurozone/BOJ can/will lower rates, I’m not sure about this.
I, like you, feel that the more likely scenario (and “healthier”) would be for rates to rise across the board, and get some of this excess money out of the world economy.
BUT, it is not assured.
Here’s a very possible scenario where we chase rates to the bottom again:
1. IF the US goes into recession (I believe we already are in recession, but data hasn’t shown it yet… will in 2 quarters).
2. And IF this leads to decreased US consumption. (which it should)
3. And IF our decreased consumption affects Eurozone and Japanese GDP (it very well could, but that is above my level of macroeconomic knowledge/crystal ball)
4. then the Japanese/European nations could also either be pulled into recession or at least have their growth slow, which would lead to slower price inflation or perhaps even price deflation.
5. This would allow them to drop their interest rates while keeping to their charter.
6. And then a race to the bottom. (again).
It would be foolish to say the least, but possible.
Also: a charter can always be changed if the politicos will it. And who knows which way the wind of future politics/fiscal policy will blow?
Clouseau.
For a transplant from California - your alright!
The problem for the US is that as opposed to previous cycles where the US accounted for 25% of WDP, now we account for 8.5%. The rest of the world is rapidly gaining and our recession will not have as much of an effect on WDP. China, Japan, Russia, Germany etc are all more than happy to take up the slack. Russia reported today their budget surplus ~50 Billion, along with steadily increasing foreign reserves -no dollars. Germany has said that they will no longer sell gold. China is divesting its dollar holdings, one of the problems is that there are 2.7 trillion US dollars floating overseas that are financing world inflation and as opposed to us, these foreign countries don’t seem to wish for inflation.
“…as opposed to us, these foreign countries don’t seem to wish for inflation.”
Inflation produces a wealth transfer from debtor to creditor, as future debt is repaid in cheaper currency values. (There are exceptions to this, including short-term debt, ARMs, and
inflation-protected bonds…)
Sorry, I meant “a wealth transfer from creditor to debtor”…
The U.S. has been raising rates since June 2004. Japan has just started. EU just started raising rates in December 2005.
“That is, unless another source of money can bridge the gap between consumer incomes and outlays, just as house appreciation seamlessly took over when stocks nosedived. What could that big new source of money be?”
Investers from China, India, Saudi Arabia? Ownership society my butt. More like “pwned” society.
Oh when will the games end. Just declare worldwide bankruptcy and start over! I’ve had enough!
Bill Gates can come to the rescue!
Inheritance money from the boomers. At least, that’s the thought. That’s the other money.
‘TCW Group Inc. plans to start an investment fund of as much as $1.5 billion to buy distressed mortgage-backed securities as the real estate slump deepens, said Jeffrey Gundlach, the Los Angeles firm’s investment chief. Delinquent payments, falling home prices and rising borrowing costs have shaken the U.S. property market after a five-year boom. Gundlach said TCW would invest in mortgage- backed securities that have declined enough to compensate for a risk in loan defaults.’
‘ Greenspan never believed in the intangible aspect of the wealth effect. (Maybe that’s why he never grasped the stock market bubble in real time.)’
‘Well MEW and HEE may soon become HEE HAW, for ‘Home Equity Extraction or House As Wager.’ When prices stop rising, as they have in many previously hot areas of the country, the game is up for all but the savviest speculators who know the real estate market in a particular area and can spot undervalued properties.’
T’hat endgame is contributing to the practice of ’short sales,’ according to an Aug. 21 story in the Sacramento (California) Bee. Homeowners who owe the bank more than the house is currently worth try to convince the lender to accept less than the loan value to avoid the costs of foreclosing on the property. With Sacramento County home prices down 5 percent in the past year and foreclosures rising, short sales are reappearing like clockwork, according to the Bee.’
The Boston Globe. “Rising incomes should support the US economy even as the housing market slows and consumers lose the boost they were getting from home equity, Federal Reserve chairman Ben Bernanke said.”
Would I be correct in interpreting Mr. Bernanke’s statement to mean that we can expect a bout of inflation to be kicking in soon?
It might be that certain professional bankers get a pay raise to keep them in the industry for their valued information. Sort of like when a company goes bankrupt, they immediately offer staying bonuses to the same executives who bankrupted the company in the first place. All other employees get shafted, back pay gets thrown into the BK courts, and to those who get laid off, there are no severance packages.
Same with the banks. They are responsible (in part) for this mess, so we need to pay them more for them to help us get out of it.
Or capitulation to the envitable - as in ’should’ really means ‘…(in a normal economy) would…
Good point - the man is just not very smart, despite his degrees.
As for his other quote:
“the cooling of the housing market and associated reduction in capital gains on housing will probably provide some upward impetus to the saving rate.”
Probably provide. Some. Upward impetus. Good try, but he’s no Greenspeak. Too many people are too far in debt to save, and the saving rate won’t be positive any time soon.
“that we can expect a bout of inflation to be kicking in soon?”
The inflation already happened. What he is referring to, I assume, is the old first there is inflation in goods and then inflation in wages for the cost of living increases, which is what used to happen. The problem is phase 2 just isn’t happening now, what with outsourcing, immigration and illegal immigration. What happened in the 70’s isn’t going to happen today. This time really is different in that sense. This time is going to be a lot worse.
Our inflation rt this past year was about 6%. The REAL rate includes food and energy.
Sounds like Ben took a hit of some good weed before he made that statement
I interpret Bernanke’s comments to make it look like the housing market is not in that bad of shape, and that he is going to raise interest rates to fight inflation, which is his main concern. I think he knows the housing market is in bad shape and will let it fall, thus when the housing bust ends, if ever, people will have no other choice but to save.
First, the context of these statements was a letter to a Congresswoman regarding whether a hike in the federal minimum wage would cause inflation. BB’s conclusion was that it would not, primarily because so few workers are paid at the federal minimum wage (less than 2%).
However, I do wonder where he sees rising wages coming from. As noted, price inflation typically led to wage inflation in the past, but this has not happened this time and probably won’t because of globalization.
Also, I question the wisdom of his comment that cooling housing prices will serve to increase savings. While rising housing prices led to increased spending through MEW, I don’t see how falling housing prices will lead people to save more money. The debt to income ratio is so high right now, people simply don’t have the money to save (it is all going to service their debt, including their mortgages). So, the only way that I can see cooling housing prices increasing savings is if people have their house foreclosed and then they can spend less for housing because rent is much cheaper.
Finally, how do you reconcile his statements that rising incomes will allow consumers to spend more while they will also save more due to falling house prices? Does he expect wages to increase so much that people will be able to both spend more and save more?
I’ve got to say that I’m not sure if BB is up to the job. Any chance we can get Volcker back? He’d kill inflation and unwind the bubble quickly, all while protecting the dollar. It might lead to a depression, but it seems like we’re flirting with a depression or hyper-inflation anyways.
I found some clarification in a newspaper article today as to Mr. Bernanke’s statement about his expectation for rising wages. According to the article, Ben expects rising wages to occur due to increased productivity as a result of more advanced technologies being adopted in the workplace. More product + fewer employees = higher wages. I’m skeptical.
Risk of defaults and market bubble are also growing in leverage buyout. There is a parallel to the current RE bubble/default risk
http://www.businessweek.com/investor/content/aug2006/pi20060830_967828.htm?campaign_id=rss_null
Just heard from a friend of mine who lives in Marion, IA. Exact quote, “…We have been busy with our new house (moved in July 29th) and trying to sell ours. A lady accepted our latest counter-offer yesterday though. That will relieve some of my stress, but we sold it for A LOT less than I wanted to. After realtor fees I’ll get less than I paid for it 6 yrs ago! So much for real estate always being a good investment…”
Need more stories like this to get out.
That’s Iowa though. She’s lucky to have found anyone.
Losing 10% of 150K is still better than 5% of 500K. But why, oh why just stop at 5%…
Iowa RE has been a basket case for at least the last 5 years. Still, when you realize her home’s value didn’t rise with the bubble and it’s STILL less than six years ago…
anyone know a good permabull blog that i can go get a good laugh on?
http://www.websitetoolbox.com/tool/mb/sdcia?forum=59897
Apparently, the Tucson real estate powers-that-be don’t like the truth leaking out:
http://www.azstarnet.com/business/144476.php
The comments that follow the article are very similar to what’s on this blog.
Wow. There goes one of the best reasons to have a database. Would it not be in the public’s best interest to know where the market is going? Ohh. I forgot. RE never goes down, and the transaction is akin to a bad marriage of science fiction and black magic, all so the RE cabal can pick up their crumbs….
I got into it with two Portland, Oregon realtors recently about my district’s activity (in free fall since May ). When I pointed out to one that the Pearl District (from this guys own inventory list) he presented me an old NAR article from last May showing 2.6 months inventory regionally. When I ask him how May was relevant to over a double of inventory since, he blew up on me. A second shill (at an open house, or which there many now) first said there were only 44 listings, then got on his computer and corrected himself to 57. When I ambushed him with the first guy’s 120 inventory and backed it up with a third broker’s web site showing same, and ask which of these 120 listing weren’t in the Pearl (they all were), he lost to too. Some solid insults were also exchanged, but no doubt who won the rounds. I must admit really enjoying being a prosecutor on this. I have a few theories about this behavior, 1. they aren’t paying enough attention, or think it will all go away, and just pull it out of ass, 2. they are used to soft tosses from customers, and have gotten away with habitual lying, 3. they truly have something serious to hide? Time for these boyz to clean up their act.
love your blog-
it would be interesting to see as a sidebar on your blog what the discussion was 1 year ago today
mostly bears… in fact, the majority of the people who post on this blog are smarter than your average bear.
Click on the “Old Site” link on the right of this page. That will take you to June 2005, plus additional links to other months.
BayQT~
What? WHAT?? Land prices going down?!!
But they’re not making any more land, so how could that be?!!
My take is that it’s teh peole that listed with Zip realty, scoping the competition. Zip is just trying to beef up sales. I want to know whether or not those searches are from unique log-ins - not associated with sellers or people that searched 10 times over.
we rubberneck passing a car accident - doesn’t mean we want to be in one.
This train wreck is happening a lot faster than I thought possible. I’m starting to see FB’s and flippers panicking. There is going to be a HUGE influx of RE on the market in the coming months. I think the GF’s are just starting to realize the miscalculation they made by buying at the top. Now the speepeople will try to cash out, all of them. This is getting unreal….
The Labor Day Housing Massacre is almost upon us!
When will this end. I can’t stand it anymore. Here’s an actual letter from a local real estate agent I received a few weeks ago and have been wanting to share with you all. She isn’t just drinking the Kool Aid, I think she’s the one that spiked it. The area she describes is where I live, in the city of Alhambra, CA (San Gabriel Valley). Bought our 1500 sq. ft. house in 1999 for $229K to give you a reference point but there’s no way on earth homes here will ever get to her claimed levels.
This agent also sent out a similar letter a few years back (July 2003) claiming the reason Alhambra real estate prices had been rising was because our city was “discovered” due to the Phil Spector murder case. I really wish I would have saved that letter, almost made me ill when I read it. She was really happy about it at the time. Anyway, here’s the letter verbatim.
July 2006
Dear Homeowner:
A quick update on what’s going on in the market. If you look around the neighborhood you will see a number of homes for sale. Why does one property get 3 or 4 offers while another sits for months?
THE ANSWER IS MARKETING!!!!!! REAL ESTAE IS NOT A SCIENCE…..IT’S AN EMOTION…..
I have enclosed HOME IMPROVEMENTS: Which projects pay off? A guideline – return on investment. Remember, NO HOME SELLS ITSELF. With the multitude of disclosures and forms involved in a transaction it can be overwhelming. As one of my happy sellers stated “Thanks for getting me through the maze of paperwork – we had a smooth rollercoaster ride.”
As a realtor who lives in the Emery Park area, I appreciate the charming properties that were built in the 20s and 30s. Just 2 years ago we were in the mid $400,000 range – now a 1500 sq. ft. home is valued at over $600,000. I ALWAYS REMIND MY BUYERS….THE EARTH IS NOT GROWING….ONLY THE POPULATION IS…..SO IF YOU HAVE AN OPPORTUNITY TO PURCHASE PROPERTY…GRAB IT…IT WILL BE WORK A MILLION DOLLARS SOON!!!!
We are one of the last affordable pockets in the San Gabriel Valley and it’s our turn to get top dollar! Let me show you the way……
Respectfully yours,
Sandy Arellano
elo,
Thanks for reminding us just how dumb so many,if not most realtors are! She’s right about the emotion part of the transaction. Unfortunately for her emotions are starting to turn against RE. The million dollar value fantasy is nothing short of laughable. Up in the east bay area active inventory has increased by 75% since spring. A lot of minor price reductions in the marginal regions. Builders seem to be holding out with interest rate buy-downs and incentives such as “upgrades” and increased broker allowances. Do people actually believe their “upgrades” are worth what builders say? How much longer before builders cave in to reality? Stopped in Los Banos yesterday, a really marginal location. K. Hovnanian builders are offering one free year of HOA dues in their 55+ community that is under construction. Did not ask what the dues were going to be, just wanted to confirm that they are starting to get a little desperate. I’m with you, I’d like to see an end to this insanity.
I keep hearing the same refrain: “worth a million dollars soon”. Last year, in Spring 2005, the guy at Enterprise Rental Car told me his house in his development in Northern Culpeper County would be worth “a million dollars” soon (they’re selling [I mean *not* selling] for ~500K now). Then for several months in a row my neighbor kept telling me how our houses would be “worth a million soon” . . .
Oh my gawd. From $600k to $1 million soon? She actually tell you that? I didn’t know that realtors were encouraged to say it like that.
Gotta love this from the happy client:
…we had a smooth rollercoaster ride
I don’t know about the rest of you, but if I were selling a house, the last thing I would want is ANY kind of rollercoaster ride!
How many of those FBs know that the difference between what they owe and what the bank accepts is TAXABLE INCOME? The bank will be sending them a 1099 next February, and the IRS will want its pound of flesh. No negotiating there!
Slightly OT but relevent- For all of those who manipulated or led people astray, Jules is back.
The path of the rightous man is beset on all sides by the ineqities of the selfish and the tyranny of evil men. Blessed is he who in the name of charity and good will , shepherds the weak through the valley of darkness , for he is truly his brothers keeper and finder of lost children. And I will strike down upon thee with great vengeance and furious anger those who would attempt to poison my brothers. and you will know my name is the Lord when I lay down my vengeance upon thee.
Just remember, “Greed is the root of much (not all as some say) evil.”
Which wallet is yours? The one with “Bad Ass Mother Fucker”
When I describe to people that the IRS considers a short sale difference as earned income, people had never thought of that and are very surprised. They do understand after getting it explained. This will bite many a FB in the A$$.
Don’t forget that AMT, as well. I’ve read where soon if will affect all of us who make at least $65-$70K minimum. There goes the home loan interest deductions. If anything does these people in, it will be a combination of the 1099 short sale and the AMT. Wonder how all these people are gonna feel when the double whacked in the coming year(s).
You mean “There goes the Property Tax Deduction.” Property taxes are the first to get capped. It takes a lot of income to start capping interest deductions (I think if at all).
The AMT will strike people, but I’m pretty sure that the AMT does allow the home interest deduction. It doesn’t allow deductions for the property taxes, and it also doesn’t allow deductions for interest on HELOCs (only the interest on the original purchase price is deductible under the AMT). How many people have taken out huge amounts of equity and don’t realize that they can’t take those deductions when computing the AMT?
get bullish !
gas coming down so you can get a BIG NEG AM mortage
crashing to $ 2:75 soon !
Just spoke with a friend. He has a buddy who owns 4 properties in OC Maryland. He is paying on 4 mortgages and nothing in the area is selling. Apparently he was trying to flip 3 condos. Now he is worried and concerned for his future. My Lord, he needs some of those statues you all have been referring to.
It’s really all about greed and fear, isn’t it? On the way up, it’s greed that fuels the buying, with a little bit of fear of being priced out. On the way down, it’s fear, with a little bit of greed to hang on to some $$. It’s a cocktail, with the proportions of greed and fear changing depending upon whether the swing is up or down.
I also agree with the rubbernecking explanation.
Nobody knew it was the peak at the time.
I’d say it shows they’re pretty good horse traders.
Wrong.
“‘The rapid pace of house price appreciation in recent years likely contributed to the decline in the saving rate,’ he said. ‘Similarly, the cooling of the housing market and associated reduction in capital gains on housing will probably provide some upward impetus to the saving rate.’”
It is great to hear that savings will come back into fashion, because it is clearly not possible for every homeowner-household to draw down a third income from home equity appreciation and a fourth one from myriad investment properties for an indefinite period of time.
Wouldn’t it be nice to have $200,000, $500,000, maybe $1,000,000 in investments returning 5% in these uncertain times? I’m averse to bubbles and don’t want to be caught in a Metals bubble, government securities bubble, etc. So I invest in everything…but real estate, Natch!
Regarding BB’s comment, I just have to say, “Huh?” Yes, the pricing gains led to increased consumption because of the housing ATM, and the ATM is about out of money since prices aren’t rising anymore. So, the theory is that people won’t be taking money out of their house (which lead to negative savings of 1.7%). However, I’m not sure that this will increase the savings rate because people still have to service their debt, and the debt-to-income ratio is very high, and it will only get higher as ARMs reset. So, how are people going to save when they don’t have enough money to get by on now, inflation is chugging along, and ARMs are resetting? People won’t be able to spend from the housing ATM, but they’re just going to go deeper into debt (likely through credit cards) until servicing the debt simply overwhelms them.
ladies and gentlemen, WELCOME to your soft landing!
… we landed in quicksand.
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