Speculative Train-Wreck ‘Going To Hit The Wall’
The Denver Post reports from Colorado. “Weld County homeowners saw their home values decline as the nation’s housing market hit the brakes hard in the second quarter, according to a report. In Weld County, the housing market isn’t dead, but it barely has a heartbeat, said Pam Worster, a broker associate in Greeley.”
“Buyers who bought within the past three years without putting any money down, a common practice, can’t sell for what they owe. Foreclosures follow, putting further downward pressure on prices.”
“Worster, who calls Greeley the ‘bargain capital of Colorado,’ said she has seen $200,000 homes going for $180,000. ‘There is a trickle of buyers,’ she said.”
“Slower Front Range gains were expected, given that home values have outstripped income gains for several years running, said economist Bill Kendall in Denver. ‘Over the last dozen years, incomes have gone up only half as fast as home prices,’ he said.”
The Deseret News in Utah. “In a sign that Utah’s housing frenzy also might be at a turning point, housing prices in the St. George metropolitan area have started to soften.”
“‘Absolutely, the market has turned down here,’ said Allan Carter, director of developer services for Southern Utah Title Co. ‘There are whole subdivisions filled with spec homes that in one case don’t have a single home sold.’”
“Carter blames southern Utah’s wild housing ride on real estate investors, who bought up hundreds of properties with the intention of flipping them. Last summer, roughly 40 percent of people purchasing properties in the St. George market were investors, Carter said.”
“And Carter believes the Salt Lake region is prone to what he calls a ‘train wreck’ now hitting Las Vegas and Phoenix. His advice to people looking to buy a home in the Salt Lake region is to wait until next fall. ‘You guys are going to hit the wall between April and June next year,’ Carter said. ‘It’s a huge problem.’”
“‘Florida, California and Arizona, are under stress right now, with prices coming down a little bit,’said Jeff Thredgold, an economic consultant to Zions Bank. ‘The market is prone to excess, and they got a little carried away. In our market, we lagged behind for so long..we’ve talked for some time about the fact that Utah real estate would do well for 2006, 2007 and 2008.’”
“Carter said what Thredgold and other economists are missing is the effect of the investor presence in the market. ‘It’s the same element that Vegas missed,’ Carter said. ‘He’s assuming that when a home sells it’s being bought by somebody that holds a job and will live in the home. But the people that bought the homes, bought them with the idea of putting them back on the market. So now in Vegas you’ve got 10,000 homes that have never been lived in.’”
“Clark Ivory, CEO of Ivory Homes, the state’s largest homebuilder, agrees that investors in the Salt Lake region are creating what he calls artificial demand. ‘In many cases when the investors came in the builders couldn’t supply the inventory fast enough, so the prices escalated even more rapidly, which brings in even more speculators and investors,’ Ivory said.”
“‘Builders don’t realize that many of those people that were buying their homes had no intention of occupying them. The builders are ramping up production to meet a new demand, which is an artificial demand. The whole thing is artificially inflated, and then all of a sudden there is this surge of supply,’ he said.”
The Salt Lake Tribune:
‘After a particularly robust springtime home-buying season, ‘things have slowed down a bit,’ said Sharon Spratley, president of the Salt Lake Board of Realtors. She said Utahns shouldn’t be disappointed if Utah fails to reach No. 1 in home-price appreciation because what goes up must come down. ‘The rest of the country is talking about a bubble, and we don’t have to worry about that because we have a stable market with steady increases [in home values],’ she said.’
‘Spratley said investor activity has abated in Utah - another good sign because many blame investors for artificially pushing prices to record highs only to set housing markets up for a decline. ‘There is still investor activity in Utah, but there is less of it now,’ she said.’
“Utah’s home price appreciation, the worst in the country just three years ago, is now the 10th best nationwide.”
Or, can you say late to the party. Frankly, I’m quite sure Utah has a great shot at home price rise champ - as late as they are, they could be #1 by standing still, while every other market sink around them.
- This reminds me of the 49er Gold Rush.
Lots of greedy adventurous folks who lost everything except the experience.
‘The rest of the country is talking about a bubble, and we don’t have to worry about that because we have a stable market with steady increases [in home values],’ she said.’
Hurray - According to Sharon Spratley Utah is not affected by the national housing bubble…wait a minute, what does “national” mean again?
First, I love the title of this thread. So… Poetic.
“‘Absolutely, the market has turned down here,’
I keep reading this, but in my areas (South Bay, Los Angeles) its been slow all summer. This really isn’t that sudden.
But we’ve hit the wall…
Neil
I work with a lot of buliders and designers in MB,HB,RB, PVE, RHE, Malibu and the Palisades.
The customers in the 1.5 million and up are still strong. As soon as you go inland even 3-4 miles it is totally different for sure.
Those builders in MB, HB, and RB have accelerated their work, because they realize that with every day the house isn’t completed it’s more money out of their pockets. I have never seen such a frantic pace to get these places done and on the market. One of the lots near our place had workers on it this past weekend. Think about that for a while.
$1.5M and up isn’t exactly “strong”– there are the same base number of sales that there have always been; people who buy the homes outright. The Aquamans of the world who slap down cash and they’re done. Nobody is getting a mortgage for a $1.5M+ place these days. Nobody. Even the option ARM ads in The Beach Reporter aren’t showing the resulting prices if you decide to, you know, pay down a little principal.
It’s over. Done. Fini. Derek Lowe and Nomar Garciaparra are still buying houses in MB, but nobody else is.
Yeah, prices have been dropping pretty hard…I’ve been following SoBay properties for several months now and have seen numerous reductions, and that includes listings that were priced over $1MM that are now in the $800k range. A buddy of mine and his wife recently bought a pretty pricey house in So. Torrance and he’s in total denial about the price drops (guess I would be too). Told him the YOY price drops will be happening soon. Also, found out over a margarita in HB this past weekend (the Mediterraneo has great margs) that they pretty much stopped paying any principal on their interest-only loan. A while back he stated they were sending in “a big chunk” to principal…scary…and they make decent $$$…can you imagine how stretched the average joe is??? Anyway, my other buddy changed the subject pretty fast…lol
I don’t think it matters much about the customers in the 1.5 million on up range are doing. What matters is where the prices are headed, and if they are going down, then the number of 1.5 million and up customers willing to wait out the downturn will go up. Even rich guys don’t like to lose money.
The only thing about rich guys is they can hold the property for longer periods of time waiting for the market to go up again . The poor guy FB doesn’t have that option .
Right, but new demand has to dry up more quickly in this group than among less educated types who don’t take the Wall Street Journal. And the WSJ has leaned heavily towards the bear camp with recent articles on RE…
“In a sign that Utah’s housing frenzy also might be at a turning point, housing prices in the St. George metropolitan area have started to soften.”
What St. George metropolitan area???? That place is in the middle of nowhere.
This train wreck is going to be fascinating to watch because there are a lot of areas like St. George. Too many “investors,” not enough end-users.
Lets not forget all the radiation surrouding St. George. A friend of mine’s parents grew up in St. George , they use to tell how they would all leave school early to go watch the mushroom clouds from the Nevada test range. His mother went on to say that her two sisters had died of cancer years ago…..
Har Har. I toured through there last summer. There’s a big set of subdivisions on the SW side of town that aren’t in the city limits, that have built on what used to be either sage flat or irrigated farmland. That’s probably their ‘metropolitan area.’ Most of the subdivisions are houses with only 14-18ft. between homes, a funny contrast to the WIDE open spaces at the end of the developments.
The amount of speculation is much higher than in previous cycles. The easy financing has driven this. The high leverage (up to 100%) for investment properties makes this market the riskiest I have ever seen. You would be surprised at the number of speculator owned houses over $1mm in SoCalif. And you would be surprised how many of these are vacant, for sale and just sitting, even after price reductions.
I would only be surprised if they were selling. Shoot out an update every 10% reduction with an honorary mention at 50%. Thanks!
actually, I think the only people who will be really surprised are the clueless chowderheads at the Federal Reserve. They keep publishing study after study justifying the bubble they created by cutting interest rates to levels unseen in more than four decades and by encouraging reckless lending and/or not tightening standards when they had the chance. One recent study even said that the lingering effect of the 90s tech-driven productivity boom was behind housing’s surge (huh?), according to a Bloomberg story summarizing.
The other alternative is that the Fed knows full well how many empty specu-palaces are out there, and how screwed people are, but can’t say for fear of sparking even more panic. Either way, I have absolutely had it with the Fed’s reckless monetary policies. And all the while, Mr. Bubbles himself (Alan Greenspan) is out there making something like $100,000 a speech to provide his “expert” opinion on market developments.
You would be surprised at the number of speculator owned houses over $1mm in SoCalif. Any statistics would be appreciated. I don’t doubt the quantity (there are FIVE $1.2M+ flips near my folks home, so no doubt here…).
There may never be any valid statistics on the number of speculator/flipper owned houses. That is because many of these have lied about the occupancy status so as to get more favorable rates, LTV and prepayment options. I see more of these than I would have suspected, especially in higher price ranges.
I’m sure you probably saw it, but in a National Mortgage News story several weeks back, I read that a group did a study of 100 “stated income” loans from an unidentified lender. In 90% of those cases, the incomes were inflated by at least 5%, according to subsequent “real” income verifications. Almost 60% of the borrowers inflated their income by 50% or more. So if almost everyone in the (admittedly small) sample is willing to lie about earnings, what’s a little white lie about the purpose of the home?
“Primary residence? Sure. Yep. All 10 of the ones I’m buying” LOL
Anyway, here’s some coverage of that article (and other related topics) from back in July:
http://tinyurl.com/go487
I want to laugh, but there were cases of flippers buying multiple properties in one day so that they could disguise the fact that none were the true primary residence.
Southern California is in big trouble….
As is Boston…
And DC…
And Sacramento…
And Detroit…
And its just “Game over” in Florida.
“Worster, who calls Greeley the ‘bargain capital of Colorado,’ said she has seen $200,000 homes going for $180,000. ‘There is a trickle of buyers,’ she said.”
Is she retarded?
If the home sells for $180K, it’s a $180K home, not a “$200K home going for 180K.”
DUH!
I say BFD! Call me when they are selling for 80K.
Agreed.
- That 200k home should sell at 100k.
Greeley smells like one big stockyard/slaughterhouse. I’m surprised they have 200,000 homes.
Er, $200,000 homes I meant…
I hear you about the stench. When my fiance and I were looking for venues for our outdoor wedding in the late 1990s, we almost selected a lovely Victorian B&B in Greeley. As we toured the garden area, the wind shifted. Is smelled like the south end of a northbound horse! Needless to say, we thanked the host and hightailed it over to Fort Collins! You would have to pay ME $200k to live in that town..
Raise your hand for a vote if you think the builders were innocent bystanders who didn’t know speculators were buying their homes.
The funny thing is the quotes coming out from the CEOs of HOV tonight and TOL recently. They act all surprised at the big slowdown in home sales, saying they’re shocked — SHOCKED — that in the midst of a vibrant economy with low rates and low unemployment that sales could fall so hard. Must be those speculators/investors we just, gosh, didn’t know we were selling to. Oops.
I’m sure they all knew it was going to crash, and crash hard. They threw up as many slap-dash houses as fast as possible and, in most cases, already cashed out on their own stock.
Robert , you hit the nail on the head imo. These guys were well aware of the impending ’softening’. They dumped hundreds of millions of shares of their own stock in 2005, and just continued slapping up houses to show Wall St what they wanted to see, knowing full well they were adding to an already mushrooming oversupply.
I checked - everyone’s here, and no one raised their hand. Maybe some of them didn’t hear you
Hand up with middle finger extended…Liars.
It’s so encouraging for me to see even these 2nd and 3rd tier markets get spanked! I live outside of Portland, OR and it’s reassuring to get affirmations like these. The final “swan song” of the rolling bubble.
For those in hyper-inflated, super-heated markets you’ve had to endure bubble rationalizations like; loc. loc. loc PLUS the “intangibles” of your “special” area where as we in the boonies have had to tolerate “Well yeah, things have gone up quite a bit here but we’re not bubble prone like the coasts so if there is a correction it will be slight if at all”.
I’m not sure which was harder to put up with but with articles like these I suppose it doesn’t much matter now does it?
I live outside PDX too. Yamhill County is still quite affordable, but it took quite a jump last year (only). I don’t think things are too far out to lunch, except for the downtown condos. If you haven’t bought, wait - I’d guess Portland in general will go down 10-15% in the next year (less so on the bottom end, though).
Down here in the bubble zone of the Rogue Valley, I predict a 20-30% haircut, maybe more. Hopefully a good dose of market medicine will purge us of the speculeeches.
Portland is way out of whack.
The junk they sell all over PDX and the suburbs for 350-400K is a joke. The so call silicone forest died years ago. Lots of low paying service jobs now.
PDX will get a 50% haircut just like everywhere else.
I’m over here in Tualatin and getting tired of neighbours telling me about how great their RE is and how they going to buy next month in the Stafford area for about 1.2 million. Keep in mind they only make approx. 45,000 per year. This is just mind blowing..look out below.
OT, but close to the same vein. Been watching my hometown Ziprealty new listings. Adding about 200 homes per month, and Dataquick shows about 100 sales per month over the same period. Yet the overqall totals are slooowly heading south. By either a shock, or next spring, a lot of inventory is beginning to pile up for a monumental dump.
OT…
http://finance.yahoo.com/q?s=kbh
KB Homes down 5%+ after hours… Lower full year profit forecast AGAIN…
We have a relative who lives in FL and who bought a home in NC in anticipation of fully retiring and moving this coming winter. Although they bought their FL home six years ago, we’re pretty sure they’ve done a cash-out refinancing more than once. Now they own two declining assets, have two mortgages and two sets of utility/tax/insurance bills, and are aware that little if anything is selling in either neighborhood. The stress came out recently as an unexpected outburst during a get-together. I fear the stress will get worse as winter approaches.
“The stress came out recently as an unexpected outburst during a get-together.”
Funny to read, but not so funny to witness I am sure. If examples like these are any indication of what is to come, we should brace ourselves for some outlandish human behavior!
Guess rent wont be going up in Downtown Los Angeles.
http://tinyurl.com/k4bm2
This is a bad sign. For all those who thought that defaulted FB’s will increase the demand for rentals therefore making rents increase… A few more of these in the Los Angeles arena and L.A. will be back too 750.00 for a 2BD on the Westside. BTW if they think they are going to get $1300.00 for a single in Downtown they are in for a very rude awakening
Yeah, I went back and forth with another poster a while back who was claiming rents were going to rise. Still can’t understand his reasoning.
He is probably a F-d landlord…
From the same LA Times article:
“After a brief drop in the downtown occupancy rate to 83% this year, as of June, downtown apartment buildings are 98% filled, Conway said.”
———————————
I moved from LA to SD in the late 90s, so not up on LA rents…but, rents in our neighborhood are up about 25% since 2004. Fortunately, we have a good relationship with our LL, and have only had one $100 rent increase (from $2K to $2100). I wouldn’t want to be looking for a rental right now.
This might very well be regional, as our ‘hood is quite good for the price, but the rental homes are off the market quickly, while the homes for sale linger for months.
Long term, especially as we enter a recession/depression, I do expect rents to go down or stabilize somewhat.
“Worster, who calls Greeley the ‘bargain capital of Colorado,’ said she has seen $200,000 homes going for $180,000″
Call me when they go for $120,000
know someone that lives on the other side of I-25. even at that price it’s not worth it
“In a sign that Utah’s housing frenzy also might be at a turning point, housing prices in the St. George metropolitan area have started to soften.”
Aaaaah soften, not fall mind you, but soften. I softened off of my bike once, it hurt like hell. Then there was the time when those DotComs softened,…..come to think of it that hurt as well. Strange that, ya don’t associate a word like soften with pain.
“Aaaaah soften, not fall mind you, but soften. I softened off of my bike once, it hurt like hell.”
Well said Duplex!!
Duplex, That was great! Thanks, best funny I’ve heard in a long time.
Yea, I distinctly remember the Hindenburg when it “softened” in New Jersey, the USS Arizona when it “softened” to the bottom of Pearl Harbor, the Space Shuttle Challenger when it “softened” during liftoff, the World Trade Center when it “softened” due to “unexpected air traffic”….
…but I digress…
“Clark Ivory, CEO of Ivory Homes, the state’s largest homebuilder, agrees that investors in the Salt Lake region are creating what he calls artificial demand. ‘In many cases when the investors came in the builders couldn’t supply the inventory fast enough, so the prices escalated even more rapidly, which brings in even more speculators and investors,’ Ivory said.”
It is sweet to see what we posted here a year ago becoming part of the conventional wisdom which shows up regularly in the MSM.
Bingo! Finally folks are waking up to the fact that the 800 lb gorilla in the room is the HUGE degree of speculation that artificially restricted supply, artificially created the demand, and artificially inflated the prices into the stratosphere. THAT is why “this time is TRULY different”
I love watching this unfold…I hope all the greedy speculators end up begging on the streets so I can “flip them” a penny. I have zero mercy.
The damage that has been done is incalcuable.
But don’t forget that what **enabled** the speculation is the credit free-for-all. Speculators exist in all markets at all times. The real damage is done when they are unleashed on the markets without any restraint. It’s the restraint (actual lending standards) that’s been lacking these past few years.
I love watching this unfold…I hope all the greedy speculators end up begging on the streets so I can “flip them” a penny. I have zero mercy.
Heat it with your cigarette lighter first, hehehehehe…..
“Greeley smells like one big stockyard/slaughterhouse.” Yeah, we get that stink in Denver — straight from Greeley — during winter if the temperature and winds are just right. Guess that’s why they call Denver “cow town.”
The Denver Post article had an interesting snippet of news. The Grand Junction/Mesa County market is bucking the Colorado, statewide trend with a 14.1% increase in housing values. This is due, as is claimed, to active energy and retirement sectors. My question is, how long before Western Colorado gets caught up in the softening, national housing market as well?